Melco Resorts & Entertainment Ltd

NASDAQ:MLCO

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, thank you for participating in the First Quarter 2019 Earnings Conference Call of Melco Resorts & Entertainment Limited. At this time, all participants are in a listen-only mode. After the call, we will conduct a question-and-answer session. Today’s conference call is being recorded. I would now like to turn the call over to Mr. Richard Huang, Director of Investor Relations of Melco Resorts & Entertainment Limited. Thank you. Please go ahead sir.

[Richard Huang, Director of Investor Relations]

All right. Thank you for joining us today for our first quarter 2019 earnings call. On the call today are Lawrence Ho; Geoff Davis; and our Property Presidents in Macau and Manila. Before we get started, please note that today’s discussion may contain forward-looking statements made under the Safe Harbor provision of federal securities law. Our actual results could differ from our anticipated results. I’ll now turn the call over to Lawrence.

[Lawrence Ho, Chairman and Chief Executive Officer]

Thank you, Richard and Hello, everybody. During the first quarter of 2019, Melco had another quarter of solid EBITDA delivery despite volatility experienced by the Macau VIP market. That was a result of Melco’s relentless focus on quality and excellence. With our portfolio of best-in-class premium asset focused integrated resorts attaining a record-breaking total of 85 Stars in the 2019 Forbes Travel Guide. City of Dreams Jade Dragon has once again been named among Asia’s 50 Best Restaurants for the third consecutive year. Moreover, with less than a year since its grand opening, Morpheus won the 2019 Building of the Year Award. Melco’s solid earnings delivery in the first quarter was also a reflection of the company’s high quality earnings mix with less than 10% of Macau EBITDA contributed by the VIP segment. And while the Macau VIP market continue to experience volatility, the mass market gaming has remained robust with extended divergence in VIP and mass market growth. The market-wide mass gaming stream combined with Melco’s solid market share performance and strong focus on cost control allows for resilient margins and further deemphasizing of the VIP segment which better positions Melco’s right on Macau’s anticipated mass driven growth. Going forward, with additional table grants from the government in January 2019, and with further ramp of the iconic award-winning Morpheus, we are confident in our ability to continue to drive revenue and market share equivalent. Our confidence is also supported by further property upgrades at City of Dreams with improved VIP’s performance flowing through after opening of the new VIP area just ahead of the Chinese New Year. In the next twelve months, we have identified over 15 million of targeted enhancement CapEx to upgrade the gaming areas and the non-gaming attractions at COD which is aimed at maintaining the longer-term competitiveness of the results. Moving over to Studio City, the property delivered record mass table revenues during the first quarter of 2019. Soon, we will open the 50,000 square feet Legend Heroes VR Park and the 'Flip Out' Trampoline Park. We expect these new entertainment attractions to further elevate the mass gaming and non-gaming at few of the property. We will also soon commence the further expansion of Studio City which is expected to have two hotel towers, a water park, a Cineplex and additional gaming space. Turning to the Philippines, City of Dreams Manila’s luck-adjusted EBITDA declined 9% year-over-year with rising competition in and around Entertainment City, we remain more cautious with our outlook for the rest of 2019. An important development worth highlighting is our recently released sustainability and CSR report for 2018 that outlined our above and beyond strategy to further elevate Melco’s commitment as a force for good across all of our integrated resorts globally. The report outlines ambitious goals, actionable targets and disclosure around key ESG issues that are critical to our business. The strategy further exemplified that being responsible and accountable to all of our guests, colleagues and stakeholders has always been central to Melco’s business philosophy. Our strategy focuses on four goals by 2030 including, first, to achieve carbon neutral resources, second, to achieve zero waste across our properties by eliminating single-used plastic waste, third, to create best-in-class working environment for our employees, and to be a responsible contributor to the community in Macau and around the world and four, to demonstrate to our guests that a sustainable future is the better future. Notably, in our sustainability efforts, we became the first and only hospitality group and integrated resort operator globally to join as a signatory to the new plastics economy global commitment led by the Ellen MacArthur Foundation in collaboration with UN Environment Program. Finally, we are devoting significant resources on international expansion with a strong emphasis on Japan, which we will have always viewed as the most attractive integrated resort opportunity globally outside of Macau. The license filling process is on track to start in 2019 or 2020 and we are gearing up for this process. We believe we are well placed in Japan with a strong local team actively working on the ground engaging with the relevant stakeholders. We also believe our focus on the Asian premium segment, a portfolio of high quality assets, devotion to craftsmanship, dedication to world-class entertainment offering, market-leading social safeguard system and an established track record of successful partnerships will put Melco in a strong position to help Japan realize a vision of developing world-leading IRs with a unique Japanese touch. With that, I turn the call to Geoff to go through some of the numbers.

[Geoff Davis]

Thank you, Lawrence. We reported group-wide property EBITDA of approximately $407 million in the first quarter of 2019 increasing by 1% from the first quarter of 2018, while luck-adjusted property EBITDA declined 10% year-over-year to $362 million. A favorable VIP win rate positively affected EBITDA at City Of Dreams Macau, Altira and City Of Dreams Manila by approximately $36 million, $8 million, and $2 million, respectively. In addition to the VIP win rate fluctuation, our performance was also affected by our bad debt provision. During the first quarter of 2019, we incurred a bad debt provision charge of $11 million, as compared to a bad debt reversal of $3 million in the first quarter of 2018. On a year-over-year basis, the change in the bad debt provision negatively affected EBITDA by approximately $14 million. In the first quarter, the luck-adjusted property EBITDA margin in Macau was approximately 27%, flat quarter-over-quarter and down from 30% in the first quarter of 2018. With continued robust growth in mass gaming revenues, the EBITDA contribution from our non-VIP segments now represents more than 90% of luck-adjusted EBITDA on a Macau-wide basis highlighting the mass gaming and non-gaming segments’ importance and driving group-wide EBITDA and EBITDA margins. In the Philippines, COD Manila delivered luck-adjusted EBITDA of approximately $59 million, representing a decline of 9% year-over-year. The luck-adjusted EBITDA margin at COD Manila increased by approximately 30 basis points quarter-over-quarter, but declined by approximately 150 basis points year-over-year to 42%. Moving on to capital management, the Board has declared another quarterly cash dividend of $0.155 per ADS. To provide more clarity regarding our capital structure within our core or wholly-owned group, we had cash of approximately $630 million and gross debt of approximately $2.5 billion at the end of the first quarter of 2019 excluding Studio City and the Philippines. As we normally do, we will give you some guidance on non-operating line items for the upcoming quarter. Total depreciation and amortization expense is expected to be approximately $155 million to $165 million, corporate expense is expected to come in at approximately $30 million to $31 million and consolidated net interest expense is expected to be approximately $75 million, which includes finance lease interest of $10 million relating to City of Dreams Manila. And for those who follow City of Dreams Manila more closely, our building lease payment for the first quarter of 2019 was approximately $10 million. That concludes our prepared remarks. Operator, back to you for the Q&A.

[Operator]

[Operator Instructions] We have our first question from the line of Joe Greff from JP Morgan. Please go ahead.

[Joseph Greff, JP Morgan]

Good evening everybody. Two questions for you on City of Dreams and then one on Manila. So the first one on City of Dreams. Can you talk about the relative growth of premium mass versus base mass in the 1Q and what you are seeing so far in the 2Q? David, I believe, you intimated on the last earnings call that two segments are growing similarly, I think the word you actually used was – this is growing side-by-side. So, I guess, how different has the relative growth rate been this year versus the second half of last year? And then I have a follow-up.

[Lawrence Ho, Chairman and Chief Executive Officer]

Okay. So, Joe, it’s a couple of things. I think the first thing is, the growth on our premium mass has slowed a little bit. We’ve kind of talked about that it slowed from what we’ve seen historically. Where we’ve really seen good growth for us is really more on that mid-mass and let’s call it our mass-mass and I think our mass-mass, if you look at and think about it, given our table limits and what we do is probably premium mass in most other concession here is properties. In terms of what’s kind of doing on a quarter-on-quarter where it was from last year, again it’s been challenging as we’ve looked at this year. I think overall though, it’s kind of flattened out somewhat for us here. So, as we look into the second quarter and what we’ve seen, we have seen a pickup in that. We have also seen – we have solved some pretty good results as we went through the first quarter of the May Golden Week as well. So, we’ve been fairly pleased with it in the second quarter as opposed to the first quarter where it was somewhat flat.

[Joseph Greff, JP Morgan]

Okay, great. And Geoff, can you give us the hold-adjusted property level margins for City of Dreams in the 1Q? And presuming it down year-over-year, because the majority, I am guessing the majority of that, add that provision hit that property? And then along those lines of bad debt provisioning, do you think you are caught up at this point or is it really going to be collection-specific?

[Geoff Davis]

So, at City of Dreams for the first quarter the hold-adjusted EBITDA margin was about 29.5%. And then, we have about $11 million bad debt provision which was flat with the first quarter of last year. So, that’s back into a, what I call a normal range.

[Joseph Greff, JP Morgan]

Got it. Okay. And then, this is not the first time you were calling out competition and express caution on Manila. But when you look at the first quarter runrate levels of segment growth gaming revenues and EBITDA, do you think you can sustain them or do you think you can grow a little bit more slowly from those levels? How are you viewing current trends and forecasting that property?

[Lawrence Ho, Chairman and Chief Executive Officer]

Hey, Kevin, are you on the call?

[Kevin Benning]

Yes, I am here.

[Lawrence Ho, Chairman and Chief Executive Officer]

Can you take that?

[Kevin Benning]

Sure. So, here in Manila, there is a few things we are really focused on right now and one is that, growing our VIP segment. We we’re opening up new casual junket space over the next month which will give us an additional ten tables as well as renovating our overall VIP space. We’ve closed down our night club. We are going to have some very nice high-end space for our top junkets. So that’s a one big piece of it and the other is just continuing to focus on the premium mass as we feel there is a lot of opportunities still both within the Philippines and surrounding Southeast Asia. So, we’ve added additional sales and increased the focus there.

[Joseph Greff, JP Morgan]

And in terms of my second question was sort of 1Q runrate levels and maybe over the next few quarters?

[Kevin Benning]

I think it will be pretty stable over the next couple of quarters based on the way we’ve been trending and that $60 million range has been pretty solid for us.

[Joseph Greff, JP Morgan]

Great. Thank you guys.

[Operator]

We have our next question from the line of Anil Daswani from Citi. Please go ahead.

[Anil Daswani, Citigroup]

Hi, thanks for taking my question. My first question, David, I guess is, for you. Could you maybe comment a little bit about how the ramp is going on the VIP’s new product at COD? And also how that’s done in Golden Week? Are you guys actually picking up some share due to that? We certainly focus some of the junkets and they say that you guys are picking up some pretty significant share. So I’d love to hear your comments on that first?

[David Sisk, Property President, City of Dreams, Macau]

Sure, Anil. First off, the January recovered from rough month for us in our VIP. Obviously, we had a lot of construction disruption, so, as we are finishing up the four new areas for the junkets that we are transferring over. Since we’ve opened up, and right around – it’s probably a couple days for C&Y. We’ve seen really good pick up on t hat. We’ve been very, very pleased. We talk to a lot of the junket operators we probably tell you it’s some of the nicest and finest space it’s not in Macau and probably in all the world. We got great entry points. We’ve also seen a great pickup as we saw through April period and we saw some super good play both on premium direct and our VIP operators through the first five days in May. So, again, very, very pleased. I think it’s somewhat serendipity in terms of our timing with this. We’ve hit the market in a really good period of time with our product.

[Anil Daswani, Citigroup]

Okay. My second question, I guess, maybe Lawrence, you could help us with this, with Studio City, obviously NewCo tie on the 1st of May came out and filed Chapter 11. Now that, hopefully, 50% of the stake in the bond will be inherited by the bond shareholders. Hopefully, there will be more rational than some of the existing shareholders of NewCo tie. How long do you think it takes before we can see a deal come through with Studio City? Or is it still too early to go through, if there is a timeline of when you could rationalize Studio City?

[Geoff Davis]

Anil, it’s Geoff. I’ll take a stab at that. We understand, of course the NewCo tie has made their voluntary bankruptcy petition and are likely in conversations with its PIK Note Holders, but we don’t have any information beyond that and really don’t feel comfortable speculating about the outcome of any bankruptcy proceedings. But we don’t anticipate these bankruptcy proceedings to have any material impact on Studio City’s operations, its strategy or its ability to raise funds. So, again, we are not a party to the bankruptcy and really nothing to add beyond that.

[Anil Daswani, Citigroup]

Okay. Thanks guys. And my last question, you guys have been very active in buying back stock. What’s the total to-date? And how much of that has not been canceled and that’s been kept as treasury shares?

[Geoff Davis]

Okay, Anil, it’s Geoff again. So, we haven’t canceled any of those shares and we haven’t purchased any – repurchased any additional shares since our last update. And as you know, from a returning capital perspective, our focus is on the quarterly regular dividend rather than specials. And of course, we will do share repurchase on an opportunistic basis. But our primary method for returning capital to shareholders is through the quarterly dividend.

[Anil Daswani, Citigroup]

Thanks, Geoff. That’s all for me.

[Geoff Davis]

Thanks, Anil.

[Operator]

The next question comes from the line of Billy Ng from Bank of America. Please go ahead.

[Billy Ng, Bank of America Merrill Lynch]

Hi, thanks for taking the questions. I just have one more follow-up question on COD. Basically, from the comment that you guys mentioned, I think that so, picking up and I guess, previously we asked that before is, in terms of the return profile of the Morpheus, I think the management targeted 20% and I know it’s very hard to break up between Morpheus and existing properties. Where are we exactly right now? Do you think, are we still in the early stage or in the last innings of the ramp up and how much further things you can do to improve the overall EBITDA for COD?

[Geoff Davis]

Billy, it’s Geoff. I’ll take the first part of that question and maybe ask David to take the second part of the question. And so, our overall return expectations for that investment have not changed in the long run. As we talked about in our prior call, we are still looking for additional ramp up and I characterize where we are currently in the early innings of that ramp up process.

[David Sisk, Property President, City of Dreams, Macau]

Yes, and just to kind of go through real quick, Billy. I think, we are nine months into the – into Morpheus at this point. We are still in the process of obviously making sure our service levels, our guest experiences is best-in-class and trying to ensure that it continues. We are in the beginning of trying to optimize that cost structure as much as we can now without creating any impacts on our guest experience, our guest services. So, again, we are still very, very early in the process. I think, over the next few quarters, I think you will start seeing our cost structure come back more in line.

[Billy Ng, Bank of America Merrill Lynch]

And can I follow-up with that, it’s like – what do you think more upside to have sort up ramp up, whether we have the regular mass or still the premium mass or VIP given that. The market is terrible, but we had a good part of still like the – which area do you think in the next couple quarters has more upside?

[David Sisk, Property President, City of Dreams, Macau]

I think our premium mass has tremendous upside still. I think as we convert more of those, call those mid-mass players and continue to grow and develop them. As they get an exposure and experiences in Morpheus, it seems to be building longer stays for us and a better relationship for us. So longer term, I feel pretty good about our premium mass. In terms of the VIP, our premium direct play is really, really taken to Morpheus, particularly the villas and the suites that we have there. So, again, longer term, I feel very good about our premium direct play as well.

[Billy Ng, Bank of America Merrill Lynch]

Thank you. Thanks.

[Operator]

We have our next question from the line of Harry Curtis from Instinet. Please go ahead.

[Harry Curtis, Instinet]

Good morning, everyone. I wanted to ask you about the hold adjustment and the math behind that. When traditionally what we’ve done is, normalized the revenue and then assumed roughly a 12% margin on that differential and the revenue differential between the 3.5% in Macau that you held at versus roughly a 2.9, it’s somewhere around $100 million. And so, I would have thought that the hold adjustment at least in Macau would have been somewhere around $12 million and it was significantly higher than that. I wonder if you could just walk me through your math and maybe I am missing something on the mix of direct?

[Geoff Davis]

Sure. And I think that is the core of it. It is that, we have the advantage of having all the granularity in the number. So our hold calculation, our luck-adjusted calculation, first of all, it’s a 2.85 rather than 2.9. And we are examining and have always taken a look at how we are trending in terms of our life-to-date long-term overall win rates within the VIP system and are comfortable with the range we are at currently, the 2.7% to 3%. But something that we are constantly monitoring and considering. But, so we normalize down to 2.85%, but what you probably don’t have the data to do is then, look at how hold impacts the different segments within VIP with the premium direct revenue share et cetera. So, my guess is that that is the core of the difference. But that’s a detail discussion and I’d be happy to take it offline with you.

[Harry Curtis, Instinet]

Okay. Fair enough. And then, my last question had to do with David’s comment on mass. I think that he mentioned earlier that it has been sort of flattened out in the first quarter and if you look at the revenues versus the sequential revenues versus the market. The market grew 7% in mass and you guys grew 2%. What do you think is behind having performed a little bit less than the market, particularly given the opening of Morpheus. I guess, I would have expected it to grow in line or even a little bit better than the market. Thanks.

[David Sisk, Property President, City of Dreams, Macau]

Sure, Harry. I think, what I was referring to was on the premium mass, it has flattened out a little bit. We’ve seen that that reverse obviously in the second quarter and through the first beginning part of May here. In terms of the hold percentage, I think if you look at our sequential growth on drop, and you look at our drop to prior year, we had – I think we are probably ahead of the market in terms of our drop growth. We held a little bit lower in some of our premium segments. Again, sometimes that’s just a function of luck in what happened. So, unfortunately, we stayed a little bit unlucky, particularly towards the end in March. I don’t think there is anything that’s systemic or any other type of issue where it’s going to continue. I think again, we are going to be unlucky and little bit unlucky.

[Lawrence Ho, Chairman and Chief Executive Officer]

And Harry, it’s Lawrence here. I think for April and at least for May Golden Week, we’ve seen very, very strong growth and strong volumes. So it’s probably been one of the best May Golden Weeks we’ve seen in the last five years. So, I think we finally are starting to reach the potential that we had expected from Morpheus. So it took a bit longer than we had expected, but it’s been a journey and we are getting there. So, if anything April and May, we have seen some very encouraging signs.

[Harry Curtis, Instinet]

Thanks for that. That was where I was scratching my head. I appreciate it.

[Operator]

Next question comes from the line of Karen Tang from Deutsche Bank. Please go ahead.

[Karen Tang, Deutsche Bank]

Thank you. A lot of the questions has been asked. So I will ask a question on the number of VIP tables at the end of first quarter at City of Dreams, because, you mentioned that, yes, because of Studio City, I think there are potentials of moving that some of the tables. So, I guess, you mentioned that you opened junkets in the City of Dreams around Chinese New Year. How many tables are opened? And then, more importantly, for the rest of this year, how many more do you find to add back at City of Dreams on the whole VIP and Mass? Thank you.

[David Sisk, Property President, City of Dreams, Macau]

So, Karen, we have 155 VIP tables through the end of the first quarter. We don’t anticipate any new tables back right now. I think we are looking to see if we can kind of optimize. We maintain a certain number of tables in terms of the overall with Studio City. I think where there is opportunities with junkets we look to try to add tables where we can. We are also looking to see if we can maybe take some space that we have that unfortunately has been used in the past and if we can optimize on that space. But we are always kind of looking to – again just try to optimize with then, where we are continuing our table where we can generate the most amount of revenue with the best possible of a dock.

[Karen Tang, Deutsche Bank]

Excellent. Thank you. And I guess, a question on the cost, maybe you know, second quarter is usually the time when companies raise salaries for the rest of the year. Can you remind us, you announced pay hikes? Thank you.

[Geoff Davis]

Hi, Karen. It’s Geoff. So, for the April 1, salary increase in Macau on a quarterly basis, that’s between $3.5 to $4 million per quarter of incremental cost.

[Karen Tang, Deutsche Bank]

Thank you.

[Operator]

The next question comes from the line of Praveen Choudhary from Morgan Stanley. Please go ahead.

[Praveen Choudhary, Morgan Stanley]

Thank you. Thanks for taking my question. Two questions from me. One is related to the bad debt provisions. I wanted to understand last two quarters you had another million in each of bad debt provisions. But if you look at last four, five quarters before that, you had lot of reversals. I am trying to understand what’s driving it? Even though I hear you said it’s normal and especially at a time when VIP is probably stabilizing at the bottom. And the second question probably for allowances, in terms of Osaka, the ask for RFC process and one of your competitors announced their JV partner with ORIX. I just wanted to understand how you are positioning yourselves and what makes you confident to have a pull position in there? Thank you very much.

[Geoff Davis]

Praveen, it’s Geoff. I’ll take the first question. So on the bad debt provision, again, we do think that’s in a normal range in a few – if you take your analysis back, a little bit further than the last couple of years, where with the return to the health of the business, the overall sort of collections and credit environment improved quite a bit in 2017 and 2018 and now we are past that into more of a normal period. But if you go back beyond that that point of time a couple of years, I think you will see that that $8 million to $12 million of bad debt provision has been fairly normal. And I hope you are right about the VIP business stabilizing at current levels. But as far as the provision goes, again it’s a reflection of normal sort of formulaic provisioning based on days outstanding of the credit. And then of course, offset by any collections in the quarter. And that’s formula has remained unchanged.

[Lawrence Ho, Chairman and Chief Executive Officer]

And Praveen, it’s Lawrence here. On your question about Japan, it’s our single most important initiative and we spent significant resources and time there. We’ve always been interested in the market, be it Osaka or something in the Kanto region or even the run on regional markets. We have seen the MGM partnership with ORIX and I think of course that puts them in a very good position. But at the same time, between the various regions, we have had a lot of dialogue with potential partners and stakeholders and associations. And I think we are making good headway in terms of where our discussions are at and we will continue to monitor, not only the Osaka bid, which is probably going to come first, but also more importantly, the Kanto bid and also the regional bid.

[Praveen Choudhary, Morgan Stanley]

Thanks, Lawrence and all the best for that. And may I ask one question on top of that? I saw that Studio City number for mass, specifically improved, both quarter-over-quarter, year-over-year, also Altira $15 million is a good number as well. Just wanted to understand if those numbers are sustainable and there was nothing one-off in this quarter? Thank you.

[Lawrence Ho, Chairman and Chief Executive Officer]

Geoff, are you on the phone? Can you take that?

[Geoff Davis]

I am, Mr. Ho. Yes, at Studio City, we had a great first quarter in the mass business and it was not driven on the premium segment. It was driven more on the mass segment. We had a tremendous growth in player hours. So the revenue was a nice diversified mix. There wasn’t a lot of volatility involved in that number. So, it does give you reason for optimism.

[Lawrence Ho, Chairman and Chief Executive Officer]

And Andy is also on the call. Andy, do you want to take Altira?

[Andy Choy]

Sure. Hey, Praveen, good to hear from you. The short answer is that we do think that the mass number at Altira is sustainable. It’s something that we’ve been working on for quite some time now and if you go back about the last 20 or so months, we’ve seen a nice healthy increase on the mass business at Altira. So, it’s definitely something that we are looking to continue in the future here.

[Praveen Choudhary, Morgan Stanley]

Thanks, Andy, thanks, teams. Congratulations on that.

[Operator]

The next question comes from the line of Jared Shojaian from Wolfe Research. Please go ahead.

[Jared Shojaian, Wolfe Research]

Hi, good evening to you and thanks for taking my question. Just first, I want to clarify your comments to Harry’s prior question. Are you saying that you saw meaningful uptick in direct play on the VIP side in the first quarter? Is that what you are messaging?

[David Sisk, Property President, City of Dreams, Macau]

We did see a really good hold on our premium direct play in the first quarter.

[Jared Shojaian, Wolfe Research]

Okay. That’s helpful. Thank you. So, I mean, my understanding has always been that, on the direct side, the hold rate is always going to be a little bit higher. I mean, do you think the increase in direct play is sustainable and really just want to hear your thoughts on that.

[David Sisk, Property President, City of Dreams, Macau]

I think we are pretty positive about our premium direct play, given that we have Morpheus now and the Morpheus is again proving to be incredibly popular with our abilities in our suites with that player. They also really like the private gaming spaces that we created, as well as the main – we’ve got the main level two space that we have in Morpheus. So, yes, we think it’s sustainable.

[Jared Shojaian, Wolfe Research]

And just a follow-up on that. Is any of that direct play previously premium mass that you’ve converted to direct VIP?

[David Sisk, Property President, City of Dreams, Macau]

No. We typically see it going in the other direction where premium direct play will sometimes – when they want to take a bridge, if they are not doing well, they will come down in the playing premium mass area.

[Jared Shojaian, Wolfe Research]

Great. Thank you. And then, just one last one for me. I know, you seem pretty excited about the Morpheus ramp and referring to it as still early innings. So, I guess, my question is, the property has been open now for almost a year. What do you still need to see before the property can really start to ramp? Is it construction disruption that’s still having an impact or is there is something else that you would specifically call out?

[David Sisk, Property President, City of Dreams, Macau]

Yes, I know this construction disruption was most of our construction disruption is gone now. We are still doing stuff on the main gaming floor. But last of our construction disruption pretty much happened upon level two with the VIP space. As we continue to kind of work through our main gaming floor, we got carpet replaced this year as we kind of freshen up and open up the main casino, I think we are getting in from the main casino and kind of converting them into players or watchers. I think that’s where the opportunity is. And then, as we start kind of growing those, let’s call them cap rolls and grow them the bigger, bigger, bish, that’s also where our opportunity is. We are never able to accommodate some of the smaller players before, because we never had the room fight, to rooms available for them. So, essentially a lot of those players are having to go to other places to get their lodging. So we are not getting our fair share of that play.

[Jared Shojaian, Wolfe Research]

Okay. Thank you very much.

[Operator]

The next question comes from the line of Edward Engel from Macquarie. Please go ahead.

[Edward Engel, Macquarie]

Hi, thank you for taking my question. At Studio City, you noted some better base mass mix, but the mass hold rate at the property is also a bit higher. Is there anything structural going on there that’s maybe supporting the higher rates?

[Lawrence Ho, Chairman and Chief Executive Officer]

Geoff, do you want to take that?

[Geoff Davis]

Yes, this is Geoff. Look, there is nothing more – anything structural that would go on to support a higher rate. But we did see there was a nice – really nice increase in player hours and I think that’s probably related to – we also had a great increase in our non-gaming or food beverages. It’s really strong in that point of view other amenities around property gets people stay in longer. So, if you put all that together, you get a pretty good story.

[Edward Engel, Macquarie]

Great, great. Thank you for that. And then, on the increasing competition you noted in Manila, other than Okada. Are there any specific regional properties or even just regions overall that you think are specifically cannibalizing that business?

[Lawrence Ho, Chairman and Chief Executive Officer]

Kevin?

[Kevin Benning]

Yes, I mean, I think, Okada is part of it and then Resorts World has also opened up significant room inventory and they’ve opened up new gaming space, as well, which is why we are focused on enhancing our current facilities and our space within our VIP and mass floors. So, outside of Manila, we really haven’t noticed much of an impact.

[Edward Engel, Macquarie]

Great. Thank you.

[Operator]

I will now hand it back to Mr. Richard Huang for any closing remarks.

[Richard Huang, Director of Investor Relations]

All right, so, thank you for dialing in tonight. We look forward to speaking with you again next quarter.

[Operator]

Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may all disconnect now. Thank you.