Wynn: Encore On Schedule

Despite project cancellations and concerns about overbuilding on the Strip, Wynn Resorts Ltd. is proceeding quickly with development of the 2,000-room Encore, the second phase of Wynn Las Vegas.

Developer Steve Wynn said Thursday the project is on pace to break ground in June, and Perini Building Co. Chairman Dick Rizzo calls Encore one of the surest bets on the Strip for completion by 2010.

Rizzo said Wynn's personal determination, combined with the early planning for the project ahead of more recent condominium announcements, make Encore the most likely pending Strip project to open by 2010.

"Steve Wynn's made a sincere (personal) commitment to this project, and he's known for doing what he says," Rizzo said.

Furthermore, Deutsche Bank analyst Andrew Zarnett said, Wynn has found his operations "capacity constrained" since he opened Wynn Las Vegas in April.

"As he's gone through the process, he's realized he could use additional suites and this gives him the capacity," he said. "Encore will also give him additional amenities to capture additional and existing customers by getting them to spend more time on-property."

When Encore opens, Wynn's Strip resort will have 4,716 rooms and suites as well as some of the highest quality meeting rooms, restaurants and retail shops in Las Vegas.

Brian Gordon, a partner in Las Vegas-based financial consultants Applied Analysis, said Encore will generate a critical mass of consumers at the site.

"It's similar to what we've seen in recent years with other operators. Mandalay (Bay Resort), The Venetian, Caesars (Palace) and Bellagio have all added inventory with new towers," he said.

The increased capacity at Wynn, as at the other sites, will increase efficiency and will drive higher numbers of customers to profitable amenities, Gordon said.

At $2.7 billion, the 2,700-room Wynn Las Vegas cost $1 million a room -- the most expensive resort ever built on a per room basis.

With overhead including a major casino, meeting rooms, golf course and other amenities already in place, the $1.4 billion Encore will cost about $700,000 per room, cutting the average room cost at the whole resort to about $825,000.

Combined with the increased spending the added customers will bring to the resort, the increased number of visitors and efficiencies should boost return on investment, he said.

Zarnett said international demand is also driving Encore's development.

"It's become clear the Chinese market is amazingly robust and that cross-play between China and Las Vegas is growing," he said. "With Encore, (Wynn) can target part of that audience and drive up his incremental share of the cross-play between China and Las Vegas."

Wynn said planning work and zoning approvals for Encore are nearly final. Bank financing for the $1.4 billion is lined up and scheduled for approval in March, he said.

Wynn said Encore will take his Strip resort to what he calls a new level. In addition to 2,000 rooms, the second phase of Wynn Las Vegas will include additional casino space, restaurants and a new pool and spa, he said. Each room will be about 20 percent larger than the rooms in Wynn Las Vegas and they will be reconfigured to include a living room, Wynn said.

Public areas will make use of natural light, flowers and water, as other resorts have not, he said.

"We've tried to find new and more delicious ways to dish up those things," Wynn said.

Wynn said the recent decision to end the exclusive Las Vegas run of "Avenue Q" after May 28 was tied up in the development of Encore.

Essentially, Wynn Resorts will save $70 million by relocating some operations and avoiding the need to build a third theater for its 2007 commitment to "Monty Python's Spamalot."

"It was a real estate decision. (Avenue Q) was making money, but not a lot of money, ... not the kind of money we were talking about (for the space)," Wynn said. "It was very sad because I loved the show, the simple truth about life (being) only for now."

"But the decision was as simple as saying we saved a lot of money by combining two theaters into one."

Deutsche Bank analyst Marc Falcone said the decision represented a "higher and better use of the land."

"In our view, the 'Avenue Q' theme may not have been the best fit for the typical Las Vegas tourist audience. As such, Wynn (Resorts) made the decision more pertinent to the underlying real estate," he said. "Rather than building another theater, the land could have a better use in the future particularly as it pertains to the master plan of the resort. We believe is a strong indication that Wynn (Resorts) is focused on high returns on its investments."

With Encore timed to open by 2010, Zarnett said Wynn should be ahead of a crowd likely to include Project CityCenter, the Cosmopolitan, W hotel and possibly Echelon Place.

"And look at the room growth. Capacity isn't enormous given the weight of baby boomers who have more time and money than anyone ever before. This is Las Vegas' sweet spot. And most of them won't even start turning 65 until 2014 so Las Vegas has a good eight years of benefits from that trend," Zarnett said.