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Melco Crown Entertainment Limited (NASDAQ:MPEL)

Q4 2012 Earnings Call

February 06, 2013 8:30 AM ET

Executives

Geoffrey Stuart Davis - Chief Financial Officer and Treasurer

Yau Lung Ho - Co-Chairman and Chief Executive Officer

Ying Tat Chan - Chief Operating Officer

Analysts

James Armstrong – JP Morgan

David Bain - Sterne Agee & Leach Inc., Research Division

Cameron Philip Sean McKnight - Wells Fargo Securities, LLC, Research Division

Grant Govertsen - Union Gaming Group, LLC

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Karen Tang - Deutsche Bank AG, Research Division

Anil Daswani - Citigroup Inc, Research Division

Hay Ling Ng - BofA Merrill Lynch, Research Division

Grant Chum - UBS Investment Bank, Research Division

Simon K. Y. Cheung - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2012 Melco Crown Entertainment Limited Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, the 6th of February 2013.

I would now like to hand the conference over to your first speaker today, Mr. Geoffrey Davis, Chief Financial Officer. Thank you, sir. Please go ahead.

Geoffrey Stuart Davis

Thank you, operator, and good morning everyone. Thank you for joining us today for our fourth quarter 2012 earnings call. On the call with me today are Lawrence Ho, Ted Chan, Constance Hsu and Ross Dunwoody. Before we get started, please note that today's discussion may contain forward-looking statements made under the Safe Harbor Provision of Federal Securities laws. Our actual results could differ from our anticipated results.

I will now turn the call over to Lawrence.

Yau Lung Ho

Thanks, Geoff. Good morning, everyone. In the fourth quarter of 2012, we reported EBITDA of $248 million on approximately $1.1 billion of net revenue, delivering an EBITDA margin of approximately 22.5%.

Our record EBITDA performance in this quarter is the result of market-leading growth in our 4 mass-market tables games segment, together with above-market performance in the rolling chip segment. We also delivered record group-wide rolling chip volumes and mass table games growth in revenues in the fourth quarter of 2012.

Our luck-adjusted group-wide EBITDA margin continued to expand and is now at approximately 22.5%. This improvement in margin was driven by increased contributions from the higher margin mass market segment together with significant operating leverage, which is further strengthened by our group-wide cost control focus.

Our table yields at City of Dreams continue to outperform all other major properties and accounts, while at the same time, our table yields in the rolling chips section at both Altira Macau and City of Dreams continue to improve.

Our table optimization initiative is ongoing, as we proactively look for ways to maximize the performance of our most scarce and valuable resource.

During the fourth quarter, Altira Macau generated more gaming revenue to fewer tables, while City of Dreams' mass table yield expanded meaningfully despite increasing the number of tables on the main gaming site [ph]. Our growing premium customer base enables us to generate higher levels of revenue with fewer tables, which is critical in a fixed table supply environment.

We are well positioned to benefit from the growth in the mass market segment as we target these high-end customers through our best-in-class facilities and service programs, together with our targeted entertainment and non-gaming offerings. The long-standing property rollout strategy of targeting a higher end mass-market customer enables that City of Dreams will remain in a unique position to cater to increasing discerning and wealthy Macao visitors, the visitors who were previously underappreciated and underserved in this market.

The ongoing experience in Macau further validates our long-term approach of targeting the mass market. This market-wide, mass-market table games revenue increased 31% year-over-year in the fourth quarter. The Rolling Chip segment has also begun to return to growth with Rolling Chip volume expanding on a year-on-year basis in both November and December of 2012.

Macau and regional governments continued to position Macau for long-term success with the numerous and significant transportation infrastructure programs continuing to advance, construction on the Macau light rail system and the Macau-Zhuhai-Hong Kong Bridge is well underway, and the Taipa ferry terminal moves closer to open. Hengqin Island’s impressive expansion is clearly evident and will be a major contributor to the ongoing success of Macau and the region. At the same time, they have these positive developments in relation to immigration infrastructure and policy. We believe these expansive and wide-reaching improvements will have a strong positive impact on tourism's overall experience. Opening up Macau to a broader spectrum of customers will increasingly demand a world-class pleasure and tourism [indiscernible].

While penetration levels in our core feeder market in China are potentially at a nascent stage, the strong increase in visitations from provinces further afield than Guangdong demonstrate the early stages of a broadening of the catchment area of Macau. We believe this will further unlock the potential of Macau as the leading pleasure and tourism market in Asia.

Turning to our development pipeline, we continue to make progress towards our various growth initiatives. We plan to close our transaction with our co-licensee in the Philippines in the near-term and expect to open our exciting integrated resort in Manila in mid-2014.

We also recently acquired a majority stake in Manchester Holdings International, a company listed on the Philippines Stock Exchange.

Studio City remains on track to open around mid-2015. We successfully completed a senior note offering of $825 million in relation to Studio City and recently closed general syndication of our $1.4 billion senior secured credit facility.

These project financings, when fully drawn, combined with the full contribution of committed share equity from both MCV and our minority shareholder in this venture are designed to deliver a fully-funded project.

Last, we also continue to evaluate and refine our plans in relation to Phase 3 at City of Dreams.

Now back to Geoff.

Geoffrey Stuart Davis

Thanks, Lawrence. We reported adjusted EBITDA of approximately $248 million in the fourth quarter of 2012 compared to approximately $232 million in the same period in 2011.

Our EBITDA margin in the fourth quarter of 2012 was approximately 22.5%, in line with the third quarter of 2012.

On a net adjusted basis, including the VIP win rate at 2.85% across our entire Rolling Chip business, our fourth quarter EBITDA was approximately $255 million, an increase of approximately 28% when compared to the fourth quarter of 2011, and up approximately $210 million sequentially* from the third quarter of 2012.

EBITDA contribution from our non-VIP segment continues to represent approximately 3/4 of luck-adjusted EBITDA at City of Dreams and approximately 2/3 of our luck-adjusted EBITDA on a group-wide basis.

As mentioned by Lawrence, our capital structure has improved significantly over the last few years. We have ample capacity to fund our future growth pipeline, including Studio City and our Philippines project, as well as Phase 3 of City of Dreams with our cash, cash flows.

Furthermore, we are pleased to have put in place a fully funded plan for Studio City as described by Lawrence, with our 825 million high-yield bonds with an 8.5% coupon on our senior secured credit facility at HIBOR plus 450 basis points, which is expected to close this month.

We are very pleased with the pricing on both transactions, which reflects the fact that both are essentially greenfield construction models and both are nonrecourse to MCE.

We recently successfully priced $1 billion, 5% coupon senior note offering, the bulk of which, we will use to refinance the existing 10.25% coupon senior notes and reduce our cost to funding by more than 1/2. The remainder of the proceeds will be used for partial repayment of the $368 million equivalent RMB notes that are due in May of this year. The attractive pricing and more relaxed covenants reflect the significant improvement in our underlying operating fundamentals since 2010.

Our net debt, as of December 31, 2012, was approximately $70 million, and our net debt to shareholders' equity was 2%. This compares to net debt of $266 million as of December 30, 2012, and net debt of over $800 million as of the end of 2011.

As we normally do, we'll give you some guidance on non-operating line items for the upcoming quarter.

Total depreciation and amortization expense is expected to be approximately $90 million to $95 million, corporate expense is expected to come in at $20 million to $22 million, net interest expense attributable MCE is expected is to be approximately $38 million to $40 million, which reflects the mid-quarter issuance and refinancing of our high-yield bonds excluding an expected one-time charge associated with the repurchase of our 10.25% notes including approximately $18 million of interest expense from Studio City financing on a fully-consolidated basis.

That concludes our prepared remarks. Operator, back to you for the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of James Armstrong from JPMorgan.

James Armstrong – JP Morgan

I guess first, and we're getting a lot of questions on this. Overnight, there was an article published regarding an upcoming crackdown on junket operators in Macau, which I know weighed on the Macau shares. I was wondering if you heard anything about this or if you could talk about this or if you're hearing anything at all, and if you have any comments regarding that?

Yau Lung Ho

James, it's Lawrence. I heard that we're having some audio difficulty. So, we'll try to speak louder. With regard to that story, I think it came from a British media, so I think that in itself speaks volumes. And also, the British media covering China Politics, so I think I would start getting worried if it came from China Daily. From our perspective, we haven't heard anything like that. If you see our fourth quarter, it was a backward fourth quarter and the year has started off, really, with a boom. So, right now at this moment in time, it's a quiet period right before Chinese New Year. it is usually the third day of Chinese New Year where Macau becomes like jam-packed. But overall, we haven't heard it. And we continue to be very positive about this year. I think this year is definitely going to be even better than last year.

James Armstrong – JP Morgan

Great, that's very helpful. And then one other question, margins at City of Dreams. You guys have done a very solid job over the last two years increasing them and above our expectations for the quarter at 28.4. Can you give us a sense of where you can go with that and how much room? And is this 28.4 level sustainable, assuming normalized hold going forward? Thanks a lot, guys.

Ying Tat Chan

This is Ted. I think this function of the margin from City of Dreams is really coming from the mix of business itself. With the continuous improvement in the mass side, of course with high-margin area, we're going to contribute more on that side. More importantly, we are looking into more control in terms of costs in non-gaming side, and there is meaningful improvement in the last two quarters of the year, and I think it's becoming very well. So, I think we are looking at somewhere at this very moment at 20% to 27% in terms of COD margin and we're looking at some improvement from this level.

James Armstrong – JP Morgan

Great. And then just one last one. Speaking of the mass volumes at City of Dreams, they were obviously up solid year-over-year, but came in a little bit below, I would say in expectations. Could you speak to that? Are you seeing increased competition? I guess it's with the LVS and new property, et cetera?

Ying Tat Chan

This is Ted again. In COD, the sequential growth for the fourth quarter in COD was 27.7%, where the market was about 11%. And our year-on-year growth was 48% compared to market roughly of 30%, even though with new supply in the market. I think we are performing quite well on this respect.

Operator

The next question comes from the line of David Bain from Sterne Agee.

David Bain - Sterne Agee & Leach Inc., Research Division

Hey, Lawrence or Ted, can you guys speak to the competitive environment in premium mass? Maybe with regard to tactics such as rebating in premium mass? Have you seen any changes in the market on that respect or foresee any?

Yau Lung Ho

David, it's Lawrence here. I think first of all, premium mass is really about products and services, and even the type of customers who are classified in premium mass are very different from VIP or junket players, so you really need the full suite of products in order to satisfy something. And I think looking at the premium mass, I know a lot of our competitors have started trying to copy our tables. But at the end of the day, you really do need the hardware and also the services. I think in our opinion, we were kind of the pioneer in this field, and also we kind of perfected it over the last few years. So yes, we know some of our competitors are doing it. But I think given our hotel rooms, supply capacity, and also our supporting amenities, it's sort of hard to match what we have. And I know one of our competitors just opened it on their call as well. But, I think we could proudly say we probably have the best hotel inventory in Macau, because they are, technically, 3, 4, to 5-star hotels in Macau, and one of it is Altira, and another one is now, as of this year, we've been [told] (ph) already, which we'll be announcing, is Crown Towers at City of Dreams. And it is obviously the [indiscernible]. So I think given what we can offer in terms of products and services, we are very comfortable on this segment. I don't know if Ted wants to comment.

Yau Lung Ho

Yes, talking about the competitive landscape and our reinvestment. Looking at ourselves, I think in the last 3 quarters, particularly in the last 2 quarters, our investment management is doing very well, and I think we are staying at the same level in the last 2 quarters, meaning that even though with a lot of people focused on premium the mass segment, our margins, i.e. as a result of our investment management remains stable.

David Bain - Sterne Agee & Leach Inc., Research Division

Okay, great. And then based on your outlook on the government approvals, do you still think Phase 3 could get underway this year?

Yau Lung Ho

David, it is Lawrence again. We were optimistic that obviously Phase 3 is still subject to our official Board approval. But I think we are very advanced in terms of the designs and schematic designs. We are waiting, as you know, Phase 3 used to be apartment hotels. So we are waiting for that piece of land to be re-gazetted, and the moment it is re-gazetted, we're almost ready to go. So we are optimistic that we can start it at the end of this year.

Operator

And the next question comes from the line of Cameron McKnight from Wells Fargo.

Cameron Philip Sean McKnight - Wells Fargo Securities, LLC, Research Division

Lawrence, if you could comment on what you see is the 2013 outlook for Macau, that'll be very helpful.

Yau Lung Ho

Well, I think, if you look at obviously, our biggest market is China, and Macau has a strong correlation to Chinese GDP growth. And as we predicted probably in the middle of last year that obviously we went through a period where there was a slowing of growth. But we had always predicted that there would be a transition in Chinese leadership. And when that happens, there wouldn't be any more uncertainty in the – and also at the same time, Chinese economy will pick up again. I think that's all playing out and that's why you're seeing the fact that in the fourth quarter of last year, the markets had picked up quite a bit, and also Melco Crown also had a record quarter. So we're very optimistic. I think the new administration is ramping up at this stage, and I think give them a few more months, they would be in full swing., and at the same time, I think if we you at most of the China production index, they have all turned quite positive over the last little while. So, our view is that the market this year could definitely grow stronger than last year. And I think we always predicted a 10%, 15% or more growth, so I think there would probably be more upside than downside.

Cameron Philip Sean McKnight - Wells Fargo Securities, LLC, Research Division

Great. And just a follow on from an earlier question, Lawrence. Can you perhaps comment a little more broadly and generally on how you see the political and regulatory environment at the moment, as it relates to both China and Macau?

Yau Lung Ho

No, I think as recent as last Friday, when the China Liaison Office Director who effectively is the main -- most Senior Chinese government official based in Macau did make a statement during one of the public functions saying how supportive China is of Macau, and the fact that from his perspective, China will continue to monitor the infrastructure that that can bring people into Macau. I think that leads to a separate topic, which is what we alluded to earlier on, which is there is significant infrastructure improvement coming on line starting this year with the widening of the immigration border, and then you have bigger things, up-and-coming including potentially, the 24-hour ground immigration border. So I think with all of those things, China continues to be very supportive, and any suggestion that there are visa restrictions or crackdowns on certain things, we just haven't seen it. And even with regards to the VIP segment and junket crackdown, there were big stories last November and December about a widespread crackdown on junket, that also didn't happen because don't forget, December was the biggest GGR month in history. And naturally, occasionally, there are crackdowns on specific junkets for certain acts, but it's not the market-wide crackdown. So all in all, we are extremely pleased and encouraged by at least the first 1.5 months of 2013.

Cameron Philip Sean McKnight - Wells Fargo Securities, LLC, Research Division

And then a quick question for Geoff. Geoff, it looks as though expenses at Altira ticked up a little bit in the quarter, but expenses at City of Dreams ticked down. Could you give us a little color as far as what's going on below the revenue line?

Geoffrey Stuart Davis

Maybe from a normalized basis for Altira, you'd probably pull out about $8 million of EBITDA and add $16 million at City of Dreams. Other than that ongoing OpEx, really no major changes at either property.

Operator

Next question comes from the line of Grant Govertsen from Union Gaming Macau.

Grant Govertsen - Union Gaming Group, LLC

A quick one for Ted on COD. The slot line item really looks like it's inflecting nicely here. Could you give us a sense for what's driving that? How much of that is being driven by your ETG segment relative to a traditional slot?

Ying Tat Chan

In terms of the slot business, it really performed very well in the fourth quarter. I think there's 2 reasons for that with one being the VIP slot performance is doing very well in the fourth quarter, primarily due to our opening of the VIP slot area in the Grand Hyatt which is what we call the Signature Club area, and it took some time, probably 4 or 5 months after our opening, and [indiscernible] and that's one contribution. And the other area of course, we just stated about the Stadium gaming contribution. I think that contributes, if you ask me, about maybe a 20% to 30% contribution of the incremental revenue on the fourth quarter.

Grant Govertsen - Union Gaming Group, LLC

Lawrence, if I could ask you, in your prepared remarks you mentioned you were talking about equilibrium at Altira, I believe, but I had a hard time hearing. Could you go over that again? Just kind of give us a sense for where you're at with respect to distribution of tables amongst the properties? And if you feel Altira is at the right size there?

Yau Lung Ho

Yes, Grant, I regret earlier on, I was told that the prepared remarks were hard to hear. But I think if you look at Altira's results from a year ago versus December 2012, we effectively removed around 40 tables from Altira and moved them to City of Dreams. But at the same time, we are doing the same volume in terms of gaming rule. So this is really part of our productivity drive initiative, and it's proven to be a greater success. So I think from an ongoing basis, obviously, we're now going to rip another 40 tables out of Altira. So we will use the same metrics and follow the same discipline in terms of driving table productivity and maximizing our yield across the board. So whether it's VIP converting to mass tables or just less productive VIP junkets moving to more productive junkets. So that's part of a recurring theme and I think on that front, during some of the slower growth days, during last year, we really made use of the time to upgrade our VIP facilities, and hence you see the results of both City of Dreams and Altira in the last quarter. And again, that reinforces our positive results -- positivity for this.

Operator

Next question comes from the line of Shaun Kelley from Bank of America.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Just wondering if you could talk for a quick moment on drivers in the Premium Mass segment. Obviously, you're now at the point where you're putting up probably one of the best hold ratios in mass at close to 31%. So could you talk a little bit about what you're seeing in terms of whether it's foot traffic growth in the property or your ability to raise table minimums even beyond what's probably market-leading average? What do you think can drive that segment further up in 2013?

Ying Tat Chan

I think, if you're talking about the full, of course, the [indiscernible] hold percentage here over the last 18 months, and I'm sure you understand that, that holds a strong function of efficiency and [the liquid state] [ph] of the customer. And we feel the efficiency asset in this business for the last 1.5 years time. I think we reached a level that with just where, the way -- at which stage we're doing very successful with efficiency on that front. In terms of the [indiscernible], I think it’s coming from the early beginning for operation but also the quality of the service including the non-gaming side. In the last 3-4 quarters, we increased substantially our non-gaming facility including the SMB area and [indiscernible]. So I think that contributes quite a lot to the respective level, i.e. the [indiscernible] I think it continues to improve the hold percentage on the mass side, we'll focus to reinvest a lot in the proper time. In terms of premium mass quality improved further contributing to hold and I think in the past we look at this segment carefully and we are quite amazed how successful the market, so we select this market, we reinvest in the [indiscernible] all the marketing [indiscernible]. I think that's the outcome and we see [indiscernible] and you see a gap between [indiscernible]. At this moment, we still see a 40% or 50% [indiscernible] in terms of a number. So you see there's great potential that we continue to look at this field. I think the minimum of that level is one of the [indiscernible]. I hope that helps.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Yes, that's great. And then second question would just be on capital expenditures. Have you guys outlined just kind of what you think your CapEx is going to be this year going into Studio City? And then kind of what your outlook is for next year as well, in terms of contributions or let out for that project?

Geoffrey Stuart Davis

Sure. It's Geoff, I'll take that one. From a CapEx perspective, for MCE legacy portfolio, it's roughly $75 million to $100 million. And then for Studio City, we have an obligation to fund $825 million of cash equity into the project. We have $350 million of capital calls already funded into the project. And of the remaining amount, 60% approximately is required to be funded by MCE, or pro rata share or about $285 million. On top of that -- I'm answering the question a little more broadly than strictly from a CapEx standpoint, but looking at our cash contribution. In addition to that, we have a $225 million sponsor guarantee. We may fund 100% of that or we could fund up to 60% of that. That depends on an option that our minority shareholder has to fund up to 40% of that amount, so that's a little bit of an unknown but the maximum is the full amount of $225 million. The last remaining fees would be for the Philippines. And for the Philippines, we anticipate spending approximately $450 million to $475 million this year into that project.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

And just to be clear, the $450 million to $475 million is that coming off of cash flow or just, are you going to draw off the revolver for that?

Geoffrey Stuart Davis

Well, we have a few options as far as how we choose to fund the full amount in CapEx, including a local loan or other means of funding that amount.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

And is there any intent to raise, with the listing in the Philippines to eventually raise primary equity in the Philippines? Or how do you kind of think about that vehicle?

Geoffrey Stuart Davis

We're not ruling out anything at this point.

Operator

The next question comes from the line of Karen Tang from Deutsche Bank.

Karen Tang - Deutsche Bank AG, Research Division

The question is with regards to your debt. You mentioned that your senior security that you recently raised have some more relaxed covenants that you that may be entitled. So can you comment on that? And what is the dividend policy for MPEL?

Geoffrey Stuart Davis

I'll take the first part of that, Karen, it's Geoff. There are a number of covenants that have been relaxed. To highlight 2; one, our build to increase our senior secured head rooms up to $2 billion from what has previously been at around $1.4 billion. And then our [indiscernible] is slightly more liberal than what it was previously, it's 75% and that is to [indiscernible], so those are a couple of the additional forms of possibilities that we added [indiscernible]. For the dividend cost, currently, we’re not [indiscernible] further warrant the outlook.

Yau Lung Ho

Hi, Karen. I think between Melco and Crown, the two [indiscernible] payment, and over the last few years we've put more money into the company. We never took any money off the table. We've converted all of our [indiscernible] and some previous equity fundraising, we also topped up. I think the 2 shareholders would definitely like to see a dividend in the future. And I think we are committed to that. But I think for 2013, we are in a significant development mode because we do have one of the most exciting growth pipeline, I think in the gaming market today, with Studio City Manila and also phase 3 of City of Dreams. There's one that we can really afford to pay dividends. So that's definitely something that we're committed to. And as soon as time is right, we will do it.

Operator

And the next question comes from the line of Anil Daswani from Citi.

Anil Daswani - Citigroup Inc, Research Division

First question for me would be, can you maybe comment a little bit, Lawrence, on how you're seeing forward bookings for the Chinese New Year period compared to last year? And is there any visibility on that, thus far?

Yau Lung Ho

Hey, Anil. In terms of forward bookings, I think we've always been completely full during Chinese New Year. I think even as of last week, I was hearing our international marketing and our senior marketing guys literally, bit of, physically fighting over rooms. It's about how we maximize those rooms and we've been putting the absolute best and highest yielding customers in them. And turning over the rooms as quickly as possible. The third day of Chinese New Year, for us, sometimes it's the second day because as you know, we do entertain a more sophisticated and more cultured customer than most of our competitors. So I think it's always going to be full. And this is the trial period right now because in the traditional Chinese heritage, people do stay home on the New Year's Eve and also the first day, but right after that Macau is going to be jam packed.

Anil Daswani - Citigroup Inc, Research Division

Secondly, Lawrence, is there any more visibility as to whether or not the minority partner at Studio City will take up their share of the incremental equity? Or is this an opportunity for you to take your stake up in Studio City?

Yau Lung Ho

Well, I think the clock started ticking at the end of November when we did our high-yield bonds for Studio City. We don't really expect any movement from them, probably until, literally, 6 months from that date. So we don't quite know at this point but as we have communicated in the past, we would love to have more skin in the game for Studio City. And we're very excited by that development. We think we have the best location in the whole gaming world not Macau. And we have a very exciting proposition that we have cooked up.

Anil Daswani - Citigroup Inc, Research Division

And the last one, I guess, for Geoff. Maybe given the new debt funding as it's come in halfway through the first quarter, can you give us some sense as to what ongoing net interest expense would look like in the second quarter and beyond, once the new debt's in place, you've retired all of the old debt? Can we see a material cut or a material reduction in the net interest expense fully that won't be capitalized to Studio City going into the accounts post-second quarter?

Geoffrey Stuart Davis

Maybe a simplified way to look at it, Anil, is that with the 5% coupon bond now, that's cuts our funding cost roughly in 1/2 of $600 million. So on an ongoing basis, our reduction of about $30 million a year and for the repayments of the R&D notes, while those are 3.75% coupons, a fully hedged cost to us, is about 5.25%. And so that's essentially a push on that amount. So primarily you get the savings from the re-fi of the $600 million down to a 5% coupon.

Operator

Next question comes from the line of Billy Ng from Bank of America Merrill-Lynch.

Hay Ling Ng - BofA Merrill Lynch, Research Division

Good evening. Can you guys provide a bit more detail on the progress of your 2 projects, the Macau Studio City and the Philippine projects? What we want to know is, to be exact, how many workers are on the site right now? And what kind of status in terms of the constructions, are we totally done with the piling and move on to the next stage or any color will help?

Yau Lung Ho

Hi, Billy, it's Lawrence. I think first with regards to Studio City, we've been up in heavy-duty construction mode since summer. We have done, I think, 95% of the piling work. And we are ready to move on to the basement very soon. We have about 500 workers on site. And so far, the main contractor has been doing a good job. And we're very excited. We'll just keep moving forward on that front. With regards to Manila, well, as Geoff and I alluded to earlier on, we hope the closing of the agreement with our Philippines co-licensee is going to be in the very near future, hopefully within this month. And so, I think once that -- there is some work being done right now including, there's more work that the Philippines party is doing. I know on a construction firm, people refer to it as Phase 2. But in reality, we're really opening Phase 1 and 2 together. So there's some structural work being done on that front.

Operator

Our next question comes from the line of Grant Chum from UBS.

Grant Chum - UBS Investment Bank, Research Division

Firstly, Geoff, when you're answering Karen's question about the less restrictive aspects of the new bond, just couldn't hear your answers. I think you mentioned there were a couple of issues or factors that have been relaxed. I wonder if you could just repeat those.

Geoffrey Stuart Davis

Sure. Hopefully, you can hear me better now. The first one was our ability to raise senior secured debt. That headroom has increased to $2 billion. And our RP basket, our Restricted Payments basket builder is slightly accelerated versus where it had been under the existing and the high-yield notes.

Grant Chum - UBS Investment Bank, Research Division

In the sense that there's just less cash that will be trapped from your ongoing cash generation?

Geoffrey Stuart Davis

Well, as you know, we run through a formula every quarter to determine the increase in the size of the RP basket. It's 75% of net income, less a ratio of our fixed charge, that fixed charge used to be 2.25x. 2.25x our fixed charges, it's now 2x our fixed charges. So in other words, we're increasing the build more quickly than we would have under the previous bond.

Grant Chum - UBS Investment Bank, Research Division

I see. But the 75% remains?

Geoffrey Stuart Davis

75% is already on a comparative basis, very healthy.

Grant Chum - UBS Investment Bank, Research Division

I see, I see. And just Lawrence, just to come back to this dividend question, I mean, not meaning to push you harder on this, but given your basically net cash and the run rate of EBITDA is over $1 billion now, Studio City is fully financed, no issues injecting the equity into the project. How do you think about the difference between paying out something in 2013 versus 2014, beyond just the simple fact that 2014, your development projects will be somewhat more advanced?

Geoffrey Stuart Davis

Grant, this is Geoff. Just one last comment on your prior question before I hand it over to Lawrence. Let me be clear, on the RP basket, we don't start from scratch. We carry over everything we had built up in the normal course on the RP basket, plus the $400 million that we achieved through the [indiscernible].

Yau Lung Ho

Grant, on your dividend question, I think the company, Melco Crown, went through, we've really gone full circle. We've had some tough times during the global financial crisis period. We're building City of Dreams and everybody else thought other than us, that was a very tough process. Really, opening the property during the financial crisis is tough. So I think, given the professional nature and very high quality of our Board, we tend to and haven't lived through that experience, we tend to be a bit more conservative in terms of leveraging up or utilizing our balance sheet. But having said that, I think we will monitor it very closely. And again, between Melco and Crown and our shareholders, we are completely aligned [indiscernible] definitely sooner rather than later. And we will continue to monitor that. I think if 2013 plays out to the way we think it will play out, and given the development nature, we hope it will be. But I definitely think we will commit to the dividend policy early.

Operator

And next question comes from the line of Simon Cheung from Goldman Sachs.

Simon K. Y. Cheung - Goldman Sachs Group Inc., Research Division

I have 2 questions. One, patches on the mass market you earlier mentioned that because you do have some new facilities due out earlier last year. And therefore, you be able to drive the table yield. Perhaps, can you talk a bit more about further new facility on the pipeline? And also secondly, on the [indiscernible] obviously have seen - they add another 2000 hotel room. How did that help your table yield, if any? That's my first question.

Ying Tat Chan

What I referred to was that in May, we actually extend our human-mass footprint to somewhere close to the higher area we add another 20 tables in the area and that is very, very, what we call the VIP service [indiscernible] areas for the mass customers. That [indiscernible] build up the momentum, so within May and the performance quite well through the fourth quarter. And in the last month of the fourth quarter, December, we just completed our full renovation on the [indiscernible] premium mass area in the casino. And that [exactly contributed] [ph] quite essentially to the service levels that we have. And that [indiscernible] result of the premium mass gaming area. I think that's in terms of the hardware improvement, I must say that we are probably more than 90% being completed in 2012 which was [indiscernible]. In terms of the comment on the additional rooms added in the neighbor hotel, I think that has really, really improved the visitation or the movement of the customer from [indiscernible]; we're very happy that it is located in the current location where we can capture a lot of the high-end mass [indiscernible] customer. As you may notice that we introduced by the second quarter, or third quarter of the year, we introduced the stadium gaming in the casino floor, whereby where if customers, some of the medium sized customer are coming from our neighbors, so we will see that momentum being huge and it will carry on in the next 3 to 5 quarters.

Simon K. Y. Cheung - Goldman Sachs Group Inc., Research Division

Okay, great. The second question related to Philippine project. I know it's a bit too early, but perhaps you guys can talk a bit about how would the project look like, the target segments, any theme for that project, if any?

Yau Lung Ho

Simon, it's Lawrence here. I think for the Manila project, I think the benefit we have there is we believe we have the best Filipino partner in SM. Since they have really the largest retail footprint and also exposure to both the financial and real estate sector. And they do have a brilliant membership database of over 8 million people. But from our perspective, and having seen what's currently open and what doors could be opened, we feel very confident that what we are building is going to be top of class in the Philippines. And it will be a full-blown integrated resort that will target, I think naturally, before some of the infrastructure support comes on board [indiscernible] the local market. But in the longer term, and leveraging on our international marketing database, we feel very confident that that's going to be an integrated resort that will cater to all sectors. And with Melco Crown Entertainment, entertainment [indiscernible] is always part of our main DNA. So with regards to the Manila property, it will also have these very unique attractions that will only be at our property in Manila. Manila is a fine city with a lot of population. So we are very happy with the development on that.

Operator

There are no further questions at this time. I would now like to hand the conference back to the management for closing remarks.

Geoffrey Stuart Davis

Thank you, operator. And just before we sign off, we know that it's been a little difficult hearing us. I just wanted to clarify one point that the fourth quarter [loss] [ph] adjusted or [FIIO] [ph] EBITDA for the quarter was approximately $255 million, 2 5 5 million. But on that note, thanks very much, everybody, and we'll be back in a quarter. Bye.

Operator

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

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