Galaxy Entertainment Group Ltd

HKEX:27

Earnings Call Transcript 2020-Q3

[Operator]

Thank you for holding, and welcome to the Galaxy Entertainment Group's Management Update for the Third Quarter Results of 2020. Joining us today are Mr. Michael Mecca, GEG Board's Nonexecutive Director; Mr. Robert Drake, Group CFO; Mr. Roland To, Senior Director of Strategic Planning; and Mr. Peter Caveny, Assistant Senior Vice President of Investor Relations. [Operator Instructions]

I would now like to pass to Mr. Drake for a presentation. Mr. Drake, please go ahead. Thank you.

[Robert Drake, executive]

Thank you, operator, and greetings, everyone, and thank you for joining us for the update on GEG's Q3 2020 results. The GEG team joining me here on today's call include: Mike Mecca, a member of the GEG Board of Directors; Roland To, Senior Director of Strategic Planning; and Peter Caveny, Assistant Senior Vice President of Investor Relations.

Copies of our media release, stock exchange announcement and PowerPoint presentation are available on our website, which also include our customary disclaimers.

2020 has truly been a unique and challenging year as we continue to navigate through this generational crisis called COVID-19. We believe that crises bring out the best in humanity, where we have been truly inspired by the resilience, commitment and tenacity of the global community to battle this epic pandemic.

On behalf of Dr. Lui, Francis Lui and the entire GEG family, we would like to acknowledge everyone's contribution across the board for their tireless commitment to fighting our microscopic enemy as well as our heartfelt sympathies to anyone who has been impacted by this pandemic. We will continue to navigate through this crisis together where we are confident that we will emerge stronger and with a bright future.

To that end, we are encouraged by some recent positive signals that Macau is hopefully in the initial stages of a gradual, sustainable and managed recovery. Having said that, we remain hypersensitive about future COVID-19 outbreaks and the corresponding impact on the economy, including consumer confidence.

Here's why we're cautiously optimistic. First and foremost, the Macau Government continues to effectively handle the COVID-19 crisis, where they have simply done an outstanding job since day 1. As we have said many times before, the Macau Government has demonstrated proactive and decisive leadership while simultaneously generating critical community support, which is a huge accomplishment. They remain clearly focused on public health and safety as well as economic and social stability. In fact, you may be interested in knowing that Macau has not experienced a new locally transmitted case for over 7 months since April 9, 2020, along with 0 fatalities. This is simply a remarkable achievement, especially when you consider that they gradually reopened the market recently and experienced a healthy increase in visitation during the month of October.

We are pleased to report that their successful efforts have certainly yielded positive results in Q3, where the initial creation of the travel bubble with Zhuhai in July was followed by the progressive reinstatement of the critical IVS visa program through late September. This contributed to a gradual increase in visitation and revenue in Q3, where the positive momentum has carried so far into Q4, including the holiday month of October.

We are also encouraged by the rebounding Chinese economy and recent consumer trends over the October Golden Week holiday, which signaled healthy demand. We are definitely not taking the recent trends for granted and remain as committed as ever to the health and safety of the community, our team members and guests as well as the economic and social stability of Macau where the continued containment of the virus remains the highest priority.

Let's move on to our Q3 2020 performance, where our effective cost control efforts introduced earlier in the year continue to pay off in a very low but gradually improving revenue environment, while at the same time, we continue to invest in Macau's future by making progress with our enhancement project at our existing properties as well Cotai Phases 3 and 4.

Despite our operational progress, the pandemic continued to have an adverse effect on our financial results, where GEG's EBITDA improved by 31% sequentially from a negative $1.4 billion in Q2 2020 to a negative $900 million in Q3 2020.

We continue to work hard at effectively managing our cost structure. To that end, our OpEx burn rate has declined by over 30% from approximately USD 3.4 million per day under normal operating conditions to the $2.3 million range in Q3 2020. In addition, this is also -- this also improved by nearly 10% sequentially.

We would like to pause here and make a very important point on fiscal management, especially during these challenging times. We certainly acknowledge that OpEx burn rate is an important part of the expense equation, but there is certainly more to the overall operating expense picture than that. Daily cash burn is more indicative of the overall expense structure as it also includes interest expense. We're very fortunate that we are the only concessionaire in Macau that generates net interest income, not interest expense. In fact, our net interest income in Q3 was USD 400,000 per day. If you deduct the $400,000 per day of interest income from the $2.3 million per day in OpEx burn, you get less than $2 million per day in cash burn. It's a powerful example of how operations and treasury are effectively working together as a team.

We would like to thank everyone on the GEG team as well as our valued suppliers who continue to support the company in these difficult times by contributing to our cost management programs. We are proud to report that virtually all team members made voluntary contribution during this challenging period, including the Board of Directors, which waived their directors' fee; management who participated in our nonpaid lead program and the many team members who joined our Flexi Family Care Program. We've also contributed $200 million to the COVID-19 relief efforts to support the community as we previously reported.

Let's move on to our development update, where we continue to make progress with our initiatives in Macau, Hengqin and Japan. We will do our best to meet our opening time lines, which under the circumstances may be impacted. We will provide updates on our target schedules as we move forward. We're also using this period as an opportunity to perform additional maintenance and enhancements to our existing properties.

Our Cotai development activities, along with our existing property initiatives, also demonstrate our support of the Macau economy in the near-term by continuing to invest billions of dollars in creating new jobs as well as our long-term commitment as we also help Macau achieve its vision of becoming a world center of tourism and leisure.

We also continue to pursue our project in Hengqin. We are encouraged by the recent progress made by the Macau Government to promote the integration of Macau and Hengqin, which also benefits the Greater Bay Area.

And finally, in Japan, where we continue to pursue opportunities with our partner, SBM with Monaco. We are also monitoring the impact of the pandemic in Japan, which has also caused highly publicized [indiscernible] to their IR process, and we'll continue to update as the situation move forward.

Next up is an update on our balance sheet, which continues to remain strong, liquid and virtually unlevered. Cash and liquid investments decreased from $49.8 billion at the end of June 2020 to $43.2 billion at September 30, 2020. Our net cash position declined from $43.6 billion to $39.7 billion as we continue to invest in our development projects, including Cotai and fund operations.

Total debt decreased from $6.2 billion to $3.5 billion, which primarily reflects borrowings associated with our treasury yield enhancement initiative. Our core nonarbitrage borrowings remained at $600 million, which included 0 debt associated with our Macau operations.

Moving on to our outlook, where we're seeing positive signs of a gradual, sustainable and managed recovery. It's really just too early to call this a definitive trend. Some folks are calling in green shoots, but we believe that's even a bit premature. So we are calling them little sprouts.

As we said earlier, we need to remain vigilant in our collective efforts to contain the pandemic as we are hypersensitive about future outbreaks of COVID-19. We're also encouraged by the rebounding Chinese economy and are quite confident that the leisure and tourism sectors will gradually begin to recover on the back of the overall economy.

In the interim, we are well capitalized with sufficient liquidity to ride out the storm, fund operations and invest in our development projects. You may be interested in knowing that we actually continue to generate interest income, not interest expense. We also continue to see positive signs from our Construction Materials business that China is indeed recovering. We continue to move forward with Cotai Phases 3 and 4, Hengqin Island and Japan. We remain optimistic about the long-term prospects for Macau and the Greater Bay Area, where the underlying fundamentals continue to remain incredibly compelling.

And finally, we'd like to extend our sincere appreciation to the Macau Government for their outstanding performance as well as a community, which has rallied under their leadership during this epic crisis. We'd also like to thank all the GEG team members, again, who have been extraordinarily supportive of the community and the company during this challenging period. We continue to stand strong together.

And with that, we've concluded our opening remarks and are happy to open up the lines for questions. Operator?

[Operator]

[Operator Instructions] Your first question is from Billy Ng, who's from Bank of America Securities.

[Billy Ng, analyst]

I have two questions. And so first of all, just curious, what do you see so far after Golden Week because I think there are a lot of chatter around Golden Week numbers and then after the sequential improvement? What have you seen on the ground?

And then my second question is related to your comment about your daily OpEx and then your cash flow's burn number. I'm just curious if, 2021, if we see volume. It may not all the way get back to 100, but let's say it's significantly higher than current level. What kind of daily OpEx should we expect for 2021? Those are my two questions.

[Robert Drake, executive]

Sure. First, the on-the-ground view of the world. If you turn back the clock, not only the Golden Week, let's look back since the beginning of July when they opened up the -- in the travel bubble. So actually, since July, we've seen virtually monthly improvements in visitation, in GGR and a lot of our KPIs culminating in the beginning of the fourth quarter with Golden Week, which has actually turned out to be a pretty strong performance, notwithstanding the ramping up of the IVS. So what we saw was pretty encouraging. We all know that visitation was down. It was down, what, 85% year-on-year, but our gaming win wasn't down as much. Maybe it was down around 70%. Hotel occupancy was improving. It was only down about 50%. And one of the key KPIs that we really took note of was our tenant retail sales performance, which are really only down on the same-store sales basis, believe it or not, 20%. And then post-Golden Week, and of course, you have a little holiday lull and then there were -- you had some spotty local holidays and they're sprinkled in there as well.

So what we've seen is that a little bit of choppiness in VIP. Mass has been doing quite well. I've heard some street numbers saying that VIP is at maybe 25% of what it used to be, that's directionally correct for us. And Mass moving up to the 35%, 40% range, that's consistent here as well. What I would say is that it has carried in since November. And I think as the IVS ramps up in a seasonally slow period of like November and December, we're quite encouraged because in the last week, we reported our best nonholiday week since the first quarter. And that's in VIP volume and Mass volume. So we're reasonably encouraged by that, but we're very hypersensitive about how delicate we are in this process of dealing with the crisis. So we are 100% focused on public health and safety, hygiene at the property, just doing the right thing to support the community as we navigate through this crisis. And of course, everyone was encouraged by the great news last night about the vaccine. And of course, it will take time. But I think it's just -- it's a ray of hope that is somewhat encouraging after 6 to 8 months of virtually no revenue. But we're all well capitalized to weather the storm, and we're quite excited about the long-term prospects of Macau.

And moving on to your OpEx run rate, now I just think it's understated. And I think it's -- as Macau has actually, as we all know, levered up quite a number of the concessionaires have borrowed additional capital to fund liquidity and not necessarily CapEx. It's that we've really focused really hard at managing our cost structure across the board. We're very pleased with the voluntary contributions of the team. And I think moving forward, that as business starts to ramp up as we're carrying some local labor that isn't actually fully employed at the moment, that it will take a while for your OpEx burn rate including -- or what we like is the way we think about internally, our daily cash burn won't rise as dramatically as you might think because we're still carrying what is tantamount to a fixed component of labor. So we'd have to get north of 50% capacity until we start eating into things like that. So I think the real test of this is when we're navigating through this and through the storm that, you know what, we really don't expect to pick up like 5 points of margin. But boy, if we can pick up 1 point or 2 on what we used to do at Galaxy, $60 billion in revenue, that's huge. So it's the -- in this type of environment, if you really understand the model, that's an accomplishment. So the senior management team is really focused on driving the entire team to get that. And we're just pleased that everyone across the board, from the Board down to virtually every employee has contributed some way to help us navigate through this.

[Billy Ng, analyst]

I think that's very clear. But just one follow-up clarification. You mentioned last week, it probably the best week since Q1. So that means like your number from last week is better than any week of October, right? So like things seems like still...

[Robert Drake, executive]

Nonholiday week.

[Billy Ng, analyst]

And I understand we can't make a trend yet, but I think the news is still pretty encouraging.

[Robert Drake, executive]

Yes. And just to be clear, Billy, it's a nonholiday week. So we've had some holidays in between, right? So what we're trying to look at is we certainly get spikes when holidays occur, and we had little spotty holidays and some local holidays here in Macau that we honored or we observed. And then the -- but what we saw in the nonholiday week, this is our best week since the first quarter in terms of volume in VIP and volume in Mass.

[Operator]

Any follow-up questions?

[Billy Ng, analyst]

No. I'm fine.

[Operator]

Your next question is from George Choi, who's from Citi Research.

[George Choi, analyst]

Very solid numbers. I just have a few questions. First of all, given your lower OpEx and likely a better VIP, Mass to your mix, would you please tell us what your EBITDA breakeven level is?

[Robert Drake, executive]

That's a great question, George. Again, we're focused on cost control and then the -- where you really get the biggest bang for your buck is to shift in revenue mix. I think what we've seen across the board is that there's been a shift more towards Mass and VIP. As I just said, VIP has been -- although we had a good week last week, it's been a little choppy. Mass has been a little more consistent. So I would think that if the revenue mix continues to shift in that direction that everyone's breakeven in town will go down. And then on the back of what I just said about our retail performance, where some of our tenant same-store sales were, believe it or not, pretty solid as we just said, I would say that our breakeven would be in the mid to high 20s.

[George Choi, analyst]

Mid to high 20s. And also for these little sprouts that you have been seeing, can you confirm that you guys are breakeven in October? And what was your hotel occupancy during the month?

[Robert Drake, executive]

Sure. We were quite a little lucky in the month of October. But even if you normalize for the luck, we were -- we definitely more than broke even. So we're certainly, hopefully, knock on wood, tracking towards that in the month of November. And the -- and that's due to a combination of, again, of the revenue ramp-up and, of course, cost control in the revenue mix. So we're cautiously optimistic about that. So we'll just continue what we're doing.

[George Choi, analyst]

My last question. During the third quarter, did you write-back any accrual for the 14th month salary? And would you do similar things in the fourth quarter?

[Robert Drake, executive]

We had a modest bonus reversal. It was probably in the $100 million range. So it was the -- that's what we reported for the third quarter.

[George Choi, analyst]

So [ that be done ], you won't be doing similar things in the fourth quarter?

[Robert Drake, executive]

We'll evaluate that on a case-by-case basis.

[Operator]

Your next question is from D.S. Kim, who's from JPM.

[D. S. Kim, analyst]

Firstly, just to follow your earlier comments on October and November, is the demand from Guangdong players also increased materially for the past month or 2 versus the uplift that was primarily from non-Guangdong players? And yes, I have a follow-up.

[Robert Drake, executive]

Sure. I think one of the more encouraging trends that we've seen, and I think it's been reported by a few other folks as well, is that the non-Guangdong play has been pretty healthy. So it's -- we're very pleased to see that there's demand for Macau and coming out from outside of Guangdong, especially on the back of the progressive way they reinstated the IVS. So we hope it continues because we really just started ramping up towards the -- at the end of September, beginning of October going through the processing times, but it's a marathon, not a sprint. We want to -- what we're seeing in the market is just that it is a gradual, sustainable and definitely managed recovery.

[D. S. Kim, analyst]

Can I just -- as a housekeeping, can I take your updated time line for the Phase 3 opening? And secondly, can I check how much CapEx has been spent on the new chapter project so far? And that's all for me.

[Robert Drake, executive]

Sure. Happy to provide some color on that. Well, Phase 3 and Phase 4 continues to move right along. As we ramp down our operation, we certainly ramped up our development activities, not only with Phases 3 and 4, but on the existing properties, including Galaxy Macau and StarWorld, among others. At Galaxy Macau, we've completed a number of room renovations, opened some restaurants. We're going through an upgrade of the gaming floor. We just opened some beautiful premium mass space in Hall 1 at Galaxy. We're doing additional retrofit work in the back in the likes of Hall 5 through 7. So we're using this time to really do some of the more disruptive activities in this slow period. So it just minimizes disruption.

Over at StarWorld, we finished a lot of the room refurbs, introduced some new suites and just continue to perform additional back-out maintenance stuff as well.

Moving on to Phases 3 and 4. If you were here or even if you look in our IR deck, we have some updated photos of how much progress we're making, particularly here at the new tower at Galaxy and then, of course, with the convention center. Total room count is about 1,500 rooms, and we opened up the 700 -- introducing the 700 room on Galaxy hotel. And of course, the new tower at Galaxy Macau would just be in that range as well. We're very excited about this space. We think it redefines hospitality here in Macau.

Just so you know and I think we reported last quarter that we had invested $10 billion to date. That probably -- that number is just a little north of $11 billion now. So it's a little over $1 billion that we invested this quarter. And just to give you a little heads-up of what we think the next 12 to 15 months looks like, it's probably $8 billion to $10 billion that we'll invest. But even after that, we're extraordinarily well capitalized, especially if we're operating at a breakeven level, it just makes life a little easier for your finance department front. So even after investing that incremental, say, $8 billion to $10 billion, we'll still have well into the $20 billion in cash so -- as part of our forecast. So it's -- we're very excited about the future development opportunities in Macau, and we really do believe in the long-term viability that's why we're investing in Macau's future today, which also helps the local economy, creates jobs and stimulates the local economy. And we really believe in the long-term future of Macau.

[D. S. Kim, analyst]

Can I just double check that. Is the Phase 3 opening still mid of next year? And then are you thinking of phase opening or full opening at that time?

[Robert Drake, executive]

Yes. We're -- I'm sorry, my apologies. The target opening is probably the second half of next year. So we'll be flexible here given where the market conditions are. But completing and opening, we all know are 2 different things, whether you open up with everything or a partial opening. We'll make those decisions in the future. But right now, we're moving as fast as we can.

[D. S. Kim, analyst]

Congrats again on the great quarter.

[Robert Drake, executive]

Sure. Thank you.

[Operator]

Your next question is from Praveen Choudhary from Morgan Stanley.

[Praveen Choudhary, analyst]

I have three questions, if I may. The first one is on breakeven, second is on Japan and third is on the premium mass competition. So on breakeven, I agree with you, the daily cash burn is more important, especially because you're generating the extra interest income compared to others. Just a follow-up on that. When you said breakeven is around mid to high 20s, did you mean about EBITDA breakeven or did you use the cash burn, in which case, it will go even lower?

[Robert Drake, executive]

No. That's just based on the cash burn of $2.3 billion. So it's the -- it would be significantly lower if we included the interest income. But just so we're -- if you're looking at it on a normal operating basis, it would be between 25% and 30% of revenue. So that's what we're saying. Of course, the breakeven goes down. But when we're talking about breakeven, Praveen, it's EBITDA. Technically, interest is not part of EBITDA. But what we're trying to do is demonstrate that, hey, fiscal management, it's all about not EBITDA, it's about free cash flow. And that's where we really excel. And I think we really deserve a little more credit for in how we manage our balance sheet and generate free cash flow for our investors. So it allows us to fund things like Cotai Phases 3 and 4 with internally generated funds and a majority of what we've done historically, so at least with Phase 2. So -- and a lot of that is also [ defined ], as I was saying earlier by your revenue mix. If you continue to see a shift towards more Mass business and VIP, which I said earlier, has been choppy and Mass has been a little more consistent, that everyone's breakeven and will get down in time. But I think the real test is when you come out of a cycle like this, to see what kind of margin you lift, if everyone has the same revenue mix. And that's where I'm quite confident that we're very -- that we'll at least generate hopefully 1 point, maybe 2 on margin and emerge a much stronger operator because of it.

[Praveen Choudhary, analyst]

That's great. And the other two questions I had was maybe I'll go first with you on the premium mass. The other operators like Sands and SJM are coming up with new rooms and new hotel rooms, and they're going to try to get some premium mass market share. I'm just trying to understand till the point that your Phase 3a property comes out, how do you think of the premium mass competition? Do you have to indulge in more promotion or do you think it's just the quality of service and the product? And then the question for Mike is, any update on Japan considering the new Prime Minister and a bit of delay? And how are you guys positioned?

[Robert Drake, executive]

Great questions, Praveen. First on the competition in general is that there's really -- we haven't seen anybody's acting irrationally. And then as you can see that it's -- we've had to wait a while since we've introduced new capacity. And it's right around the corner for us. So we never compete on price. We always compete on product and service. So we're quite confident with our Phase 3a, which we actually think it's a new tower at Galaxy Macau, really redefines hospitality here in Macau, maybe is perceived as a step above the Ritz-Carlton. And then we have the convention center with the [indiscernible], then ultimately Phase 4. So as we said all along, when we -- right after we opened Phase 2, yes, they're going to have new product open in the market. The Galaxy gets the last bite at the apple, and I think that translates into future earnings potential that is unrivaled in the market.

And with that, I'll turn it over to Mike for Japan.

[Michael Mecca, executive]

Thanks, Bob. Praveen, Our team remains on the ground in Japan and continues to work on our bid. Along with our consortium partners, Monte Carlo, SBM, we remain interested in Japan and look forward to making further progress. However, we are closely monitoring the spread of COVID-19 and will follow the government's advice and time lines. Given COVID-19 and the delay in the release of the government's policy, we would not be surprised for a delay in the IR bidding process. We believe an IR has an even more important role to play in rebooting Japan's tourism industry now as it deals with the economic challenges of COVID-19.

[Operator]

Your next question is from Edward Engel from Macquarie.

[Edward Engel, analyst]

If OpEx per day at GM in 2019 was about $3 million, how should we be thinking about the cost structure there maybe in 2022 when Phase 3 is hopefully fully reopened?

[Robert Drake, executive]

Great question. And I think, as I was saying earlier that we're carrying -- there's a fixed component. When you're looking at your OpEx front, there's a fixed component of the labor in there that's just not being utilized. So I think as we ramp up and maybe hit north of 50% of what we used to run -- our run rate used to be back in, say, fourth quarter '19, part of 2019, then you would see a little step-up in your OpEx expense. So it's -- we've got a long way to run there as far as that's concerned. So we'll continue to update that as we move forward. I know it may be a little difficult for you guys to see that, but we'll update you when we're approaching those numbers.

[Edward Engel, analyst]

Okay. And then, I guess, what kind of incremental OpEx per day would you expect from, I guess, a Phase 3 though, once that's fully reopened or is it a bit too early?

[Robert Drake, executive]

Well, there's really 2 components to Phase 3. One is more of an independent convention center where it's kind of demand-driven, where you don't have as much labor as you might think because you're running special events and your convention business may be some combination of the permanent labor as supported by outsourced labor. Galaxy in Macau, we're just adding another tower. So it's not as much labor as you would think. So the OpEx, although they're separate -- one is a separate property, if you will, the business model there doesn't lend towards a tremendous amount of incremental labor. And then if you're just adding another tower at Galaxy, you're not going to add a lot of labor to, say, introduce that product. So what you can really do is leverage your cost structure and really drive your margins from there along with their product positioning as well. So it's definitely positioned towards the high end there, along with the Ritz and the [indiscernible] and then we have the JW and, of course, [ occur ] in the Galaxy rooms. So it's -- we're very excited about that because, a, it's a great product offering, but it's a way to leverage our cost structure and really drive incremental EBITDA.

[Operator]

Your next question is from Simon Cheung, who's from Goldman Sachs.

[Simon Cheung, analyst]

I have three questions. You earlier mentioned that the GGR run rate is slightly ahead of the visitations, it looks like there's more gambling in the market in the initial month. Can you share with us what sort of behavior that you have seen for these type of payers? And is there any way that you have seen any impact on the premium mass segment from the VIP or this junket liquidity issue that everyone has been talking about? That's first question.

And then my second question is on the -- you think that your cost optimistic about the GGR ramp-up in the coming quarters. What are the factors that you are looking at to judge whether at what point you think GGR would actually be recovering in a faster paced base, Hong Kong reopening or other factors that you're looking into? And my last point is on your liquidity. Obviously, you're very well capitalized. And now that EBITDA is breaking even, cash burn also breaking even, when are you considering dividends?

[Robert Drake, executive]

Well, we'll handle in reverse order. Liquidity, as we're -- we continue to navigate this crisis, we're very conservative when it comes to managing our balance sheet, as you can see, and it's really paying off today and in this current environment as well. I think the Board and Dr. Lui will evaluate our capital allocation strategy when it comes to dividends here, probably once we navigate through the crisis and have some -- that were generally back in the profitability column rather than just teetering around breakeven. So -- but stay tuned for that. We're very conscious of that. But our capital allocation strategy is really dedicated towards funding our operation and, of course, our projects Cotai Phases 3 and 4 and existing property enhancement projects we just talked about.

As far as like the GGR ramp up, I think as you've seen, if you just look at the visitation since the beginning of this process when they reopened in with the bubble with Zhuhai and progressively since then, all you have to do is track visitation and seeing where folks are coming from and that's all publicly available data. To your point about premium mass, we think -- we're pleasantly surprised by the initial visitation from outside of Guangdong. Of course, they stay longer and they spend a little more. And the one thing as far as the they're more valuable gamer because of that. But the other thing that we took away from this is just the performance of our retail business. So we had 15% or 20% of our retailers in the month of October post year-on-year gains. So that's pretty solid. So it's the -- and as far as liquidity, yes, sure, we read the papers just like everyone else does. There's highly publicized articles about controlling things like online gaming and the like. But it's been painful for a lot of folks, perhaps the junkets more than others, but it's been hard on everyone. So that's why we're seeing a little choppiness in VIP. But then again, we had a pretty solid week last week. And this isn't going to be a light switch recovery. This is going to be a gradual, sustainable and managed recovery.

[Simon Cheung, analyst]

If you don't mind, I know it's difficult to answer that question. If you were to have a crystal ball, when do you think the GGR will fully recover? I know there's a lot of factors that's under considerations.

[Robert Drake, executive]

We're just going to watch the fundamentals like you are. So it's the visitation, probably would look at the broader economy in Greater China. And you can see that it seems to be rebounding nicely. And I'm sure that tourism and leisure sectors will get their bite at the apple as the overall economy continues to improve, and we'll be a part of that process. And whether it's the first quarter or second quarter of next year, as long as we're moving in the right direction, it works for us.

[Operator]

[Operator Instructions] Your next question is a follow-up question from Billy Ng from Bank of America Securities.

[Billy Ng, analyst]

Bob, just have a follow-up question, I guess. Since you mentioned about the retail sales, I'm just curious, if retail sales is recovering back to 100% -- and I'm not sure -- I'm not saying you guys already there, but when retail sales is fully recover, does that mean Galaxy can charge 100% grants just like pre-COVID level? Or there will be some change in the rental since some of the contract may restructure and the rental could be different in the near future?

[Robert Drake, executive]

Sure. As I just said, Billy, retail has been one of the really shining bright spots. We're probably up to about 80% of what we used to do in that range, plus or minus a little bit. So as you can -- and of course, that's a great signal. We've been a great partner throughout our career here at Galaxy Macau. This dates back to 2011 and dealing with our retailers and always had a spirit of partnership with them. So we maintained a constant dialogue with our retail tenants. We have very strong relationships across the board. And I'm sure we can update you more authoritatively on that in our fourth quarter call.

[Billy Ng, analyst]

Okay. And a quick follow-up on that is, can you remind us in Phase 3, how much more retail space will be added into the portfolio?

[Robert Drake, executive]

It won't be a lot. It will be some, but we're essentially adding a new tower, what we're calling Galaxy Macau Tower 3a. It's a new tower. Not a lot of retail. We'll be adding some, but we are going through a very comprehensive review of our portfolio. And if you walked around the property today, you'd see a lot of hoarding. It takes a while for malls to mature. And of course, this is on the Phase 2 portion of the property. So we're -- the tenant mix is shifting. The total amount of tenants, it's going to go up a little bit, but not a lot. It's more -- we're more focused on getting the right mix of tenants in as we just always tinker with this to make sure that we're hitting on all cylinders here. So I would be introducing some new brands as well and some have decided to leave as well. So on the whole, we think we're really upgrading our retail offering. And when you're going through this type of exercise, [ it gets you ] rather disruptive. Nobody likes to see a lot of hoarding. So we're trying to get as much done as we can and to align when the business starts to ramp up and with more momentum than it is today.

[Billy Ng, analyst]

And really, Steve, my last question. In terms of -- or despite the headline about VIP, the junket, are we still keeping the same number of junket and same number of junket rooms and same number of tables for junket for now, right? We do not have any plans to change that exposure?

[Robert Drake, executive]

No. It's been a challenging time for the entire market, including us and the junkets. And we're working closely with them, and we haven't really changed our mix at all. So it's the -- we're working closely with the big 4, and we have 1 or 2 other ones that we do business with. But it's just a tough time, and we'll get through it together.

[Operator]

[Operator Instructions] There are currently no more questions in queue. Gentlemen, over to you for your closing remarks. Thank you.

[Robert Drake, executive]

Well, thank you, operator, and thanks, everyone, for listening in on today's call. We look forward to updating you on our Q4 2020 results in the early part of 2021. Thank you very much for your time.

[Operator]

Thank you. Ladies and gentlemen, this is the end of GEG's conference call. Thank you for joining us today. You may now disconnect.