Highlights From LVS's Q3 Conference Call: Las Vegas Seeing Convention Pick Up for 2010-11, Macau Properties Performing Well

October 30, 2009 11:44 AM EDT

Las Vegas Sands Corp. (NYSE: LVS) reports Q3 EPS of $0.03, 4 cents better than the analyst estimate of ($0.01). Revenue for the quarter was $1.14 billion, which compares to the estimate of $1.17 billion. Shares are up 4.55%, but have fallen about $1 from this morning's high.

Highlights From LVS's Q3 Conference Call:

• (CEO) I'm enthused about the future in each of our major markets: Macau, Singapore, and Las Vegas.
  
• The successful implementation of our current savings programs has enabled us to significantly enhance our cash flow generation and operating margins across our entire portfolio of properties in Macau and for the Company as a whole.
  
• In our most recent quarter, the Venetian Macao achieved two important records. First, the property delivered EBITDAR of $150 million, and second, and at least as important, the Venetian reached an EBITDAR margin of 30.5%, an increase of 450 basis points compared to Q3 of 2008.
  
• The Sands delivered an 80% increase in EBITDAR to $77 million during the quarter, and expanded its EBITDAR margin by over 1,000 basis points, to over 27%.
  
• Through the first 26 days of October, we have made approximately $100 million of adjusted property EBITDAR across our Macau properties, which represents the strongest monthly operating performance in our five year operating history in Macau.
  
• While Q3's results in Las Vegas reflected the economic environment, unusually low table game hold, and a challenging summer room rate environment, table volume and our slots strategy do show some encouraging trends.
  
• We just completed the best quarter in our history with respect to booking new group room nights in Las Vegas, and today we have more group room nights on the books for 2010 than we expect to realize in all of calendar 2009. FIT rates are also beginning to firm, particularly on weekends.
  
• In Singapore, we continue making excellent progress on the development of Marina Bay Sands. We topped out the three 55 story hotel towers in July, and now we're moving on to construction of the SkyPark, which is the final major structural feature of the property.
  
• During the quarter, we successfully amended our Macau credit facility and completed a $600 million pre-IPO financing of exchangeable bonds. We also continue to advance our efforts for the contemplated listing of our Chinese operations on the Hong Kong Stock Exchange.
  
• (CFO) Visits to the property have remained strong, with the Venetian Macao enjoying more than 17 million visits in the first nine months of 2009.
  
• The Venetian Macao remains the clear market leader in mass play, delivering non-rolling drop of $839 million and slot handle of nearly $610 million.
  
• Our Cotai ferry service, which carried over 1 million passengers in Q3, remains an important infrastructure component, supporting visitation and mass play at the Venetian Macao and the Cotai Strip.
  
• The Venetian Macao's rolling chip volume was a healthy $9.1 billion during Q3, and we also continued to grow our direct VIP play.
  
• This higher margin business, which does not require the services of a gaming promoter, represented a record 19% of our rolling volume for the quarter, and contributed to the higher margins on our VIP play overall.
  
• The VIP business remains an important component of our business, contributing just under 20% of our contribution to EBITDAR at the Venetian Macao.
  
• Let me spend a moment on the Sands, Sands Macao. The Sands EBITDAR increased 80% to $77 million for the quarter, compared to $43 million in Q3 last year. EBITDAR margins reached 27.5% for the quarter, compared to 17.1% in Q3 of 2008.
  
• The Sands remains a leader in mass play on the Macau peninsula, delivering non-rolling drop of $626 million, and a slot handle of over $327 million.
  
• The Sands Rolling volume of 5.5 billion was down compared to a quarter one year ago, but improved sequentially. Our direct rolling play as a percentage of total rolling play also increased during the quarter, reaching 11.6% of total rolling play.
  
• Four Seasons Macao and Plaza Casino: This property generated over $10 million in EBITDAR during the third quarter. Our 19 Pieza mansions came online during the quarter, and have particularly been valuable in generating direct rolling play. Nearly 50% of our 2.2 billion in roll volume during the quarter came through this direct channel.
  
• The Four Seasons Hotel reached a 56.2% occupancy during the quarter, with an ADR of $294, which we believe is the highest cash ADR in Macau.
  
• And we are closely following the state's legislative process regarding the potential introduction of table games in Pennsylvania. With Sands Bethlehem's close proximity to New York City, the introduction of table games, particularly if the legislation includes a favorable tax rate, could provide a wonderful opportunity for us to expand our business.
  
• (VP)The Las Vegas properties delivered EBITDAR of $34 million in Q3. Last year, we generated $73 million in Q3. The greatest single impact was caused by low table hold, which impacted revenues in Las Vegas by approximately $40 million.
  
• Hotel revenues were also a major issue, down 32 million, principally as a result of lower ADR. Occupancy for our combined 7,100 suites was 88% this quarter, with an ADR of 172. A lower mix of group and corporate business contributed to a $14 million decline in our banquet revenue compared to last year's Q3.
  
• Table drop was $430 million for Q3 , compared with 477 last year. Despite the decline, we did see healthy activity levels, including a 3.8 increase in our premium baccarat drop over the previous year, and a 24% sequential increase over Q2 of 2009, which is encouraging.
  
• Slot win was 52.4 million during the quarter, a strong performance in this very difficult market.
  
• Looking ahead, we do see some bright spots in Las Vegas. People do continue to visit our properties. We are very busy here. One example, Jersey Boys, our marquee entertainment offering at Palazzo, is now running in excess of 80% in its 1,600 seat theater. We frequently host over 5,000 customers in our shows each evening across our two properties, and we continue to enjoy excellent visitation at both the Venetian and the Palazzo.
  
• However, in 2010, in the last three months we booked over 300,000 group rooms for 2010 and '11, we see an increase in group business will naturally flow through to our higher margin businesses, including catering and banquets, which have been very successful in the past at the Venetian and the Palazzo.
  
• We have been gradually raising our rates and expect to see rates continue to strengthen throughout 2010 and '11.
  
• (CFO) During the quarter, we completed an amendment to our Macau credit facility, and a $600 million exchangeable bond financing that enhanced our liquidity.
  
• As of September 30, we had over $3.3 billion of cash and cash equivalents on our balance sheet. In addition, we had approximately $1.2 billion of availability under our undrawn credit facility at current exchange rates, principally through our Singapore credit facility. So together, we have approximately $4.5 billion in cash, cash equivalents, and available sources of liquidity.
  
• The principal uses for that $4.5 billion includes approximately $1.1 billion of capital expenditures, pre-opening, FF&E, and construction-period interest to spend through the opening of our Marina Bay Sands project.
  
• We are currently in discussions with financial institutions to raise project financing to be able to complete the majority of parcels five and six in Macau, and we are optimistic that we will be able to secure sufficient commitments from lenders.
  
• Total debt is $11.8 billion, while the cost of borrowing remains quite low, with a current weighted average rate of approximately 3.8%, reflecting a healthy reduction from the weighted average rate of 5.6% in the third quarter of 2008.
  
• With respect to our debt covenants, for our domestic credit facility, our trailing 12-month EBITDA at September 30, 2009, for compliance purposes, was $451.6 million.
  
• Our cash balances within the U.S. restricted group were $2.7 billion, and our calculated net debt for covenant compliance calculation purposes was $2.6 billion.
  
• At September 30, 2009, the Venetian Macao restricted group total gross debt for compliance purposes was $3.2 billion. Our leverage ratio for covenant compliance calculation purposes was 3.48 times, compared to a maximum leverage covenant for the Venetian Macao restricted group of 4.5 times. Our cash balances within the Venetian Macao restricted group were $572 million.
  
• (Q&A) Ken or Sheldon, I was hoping - I'm not sure if you actually mentioned this, I'm juggling two conference calls here, but I was hoping you could touch on the project financing and the update there. I think there've been some articles in the press lately that - just kind of doubting your ability to do that, if you can give us an update on that and then, a timing perspective. Do you expect to get that complete before the IPO road show in Hong Kong? And then I have a couple of follow-ups for Rob in Las Vegas. (A)Well our counsel makes us very much aware of the regulatory requirements in Hong Kong. And very, very strongly admonished us not to have any discussion about what's happening. However, I can tell you that we expect to have some news for you in the very near future.
  
• Can you comment on pricing? And then, if you can give us a sense of next year, your expectation for what percentage of room nights would relate to the group, the convention side, and how does that compare to where you think you'll end up for '09? And then, also help me to understand that group dynamic. Where do you think that rate is for group relative to the non-group? Is there still a premium there, whereby you would get some sort of mix benefit next year assuming that mix towards group is a little bit greater next year versus this year? (A)Well, first let's begin with the fact that we're thrilled groups are returning. This last quarter, obviously, it's been a long quarter for us in terms of our whole percentage and the market in Las Vegas, across the board in every segment was challenged, but what I'm really encouraged about is in the last 90 days, we've booked enough business - to do 300,000 additional room nights for next year, in the last in 90 days, and it continues into October, Joe. We're encouraged. So we're seeing demand, which we hadn't seen, honestly, in most of '09 - all of '09. Second part of that would be obviously rate. Rate is still a challenge. Let's not be confused. We're still not seeing the rates we saw '06, '07, before what happened last summer and fall. But we are encouraged rates are in excess of $200 for our group bookings, and for us what's really important, because I think you know our banquet business is vital to us, you can see by the quarter comparisons, our banquet business is a big part of our - it's almost like a slots business for us, it has huge margins 55, 60%. And with the group bookings we're seeing, we are seeing a return to banquets, which is very encouraging. I think we're going to lead the market in terms of - I'll call it larger groups. We booked about 11 for the first - in the last 90 days for 2010, and we're seeing more demand in the tech and pharmaceutical and the fast food areas. We actually picked up, believe it or not, a financial group, a major financial for next year as well. So we're seeing returns. I would - I think there's a premium to other segments, still. That premium defined as better rate but also strong F&B, which for us again is pivotal.I wouldn't tell you we're out of the woods yet. I wouldn't be so bold to say it's fully recovered, but there's signs of real life in that segment, which for us and even for Las Vegas I think midweek group business is critical, it's vital, it's material before this market can recover because it puts pressure on the FIT wholesale segments, and gets us out of the weaker casino segment. So we're very encouraged by the trends, and again, demand is back. Rate is not back as much as we anticipate. Large-scale banquets are back, and I think it really bodes well not just for these properties, but for the market as a whole.
  (A)This is Sheldon. I'd like to add on to that by saying that group demand in the 200s is somewhat better than the rates we've been hearing around town, and I would like to emphasize that our property was specifically designed for the convention market. So notwithstanding what other people say about their convention business, that's what we were built for. We are a convention-based marketing strategy, and if other people did build where we build, then we'll get the business. Now, if group rates are in the 200s, FIT rates ought to be moving back to the 300s.

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