Las Vegas Sands Corp. Reports Second Quarter 2008 Results
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Las Vegas Sands Corp. Reports Second Quarter 2008 Results
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2008-08-01
Quarterly Net Revenue Increases 81.4% and Reaches $1.11 Billion
Consolidated Adjusted Property EBITDAR Increases 44.1% to $287.9 Million
The Venetian Macao Adjusted Property EBITDAR Reaches $140.2 Million
Las Vegas Sands Corp. (NYSE: LVS), today reported financial results for the quarter ended June 30, 2008.
Company-Wide Operating Results
Net revenue for the second quarter of 2008 increased 81.4% to $1.11 billion, compared to $612.9 million in the second quarter of 2007. Consolidated adjusted property EBITDAR in the second quarter of 2008 was $287.9 million, an increase of 44.1%, compared to $199.8 million in the year-ago quarter. On a GAAP (Generally Accepted Accounting Principles) basis, operating income was $73.3 million versus operating income of $86.2 million in the second quarter of 2007. The decrease in operating income of $13.0 million reflects an increase in revenue offset by operating expenses, including depreciation and amortization, related to our openings of The Venetian Macao in Macao and The Palazzo in Las Vegas, and an increase in corporate expense as we expand our infrastructure to execute our global growth plans.
Adjusted net income (excluding loss on disposal of assets, pre-opening expense, development expense, and loss on early retirement of debt) was $30.9 million, or adjusted earnings per diluted share of $0.09, compared to $81.9 million, or adjusted earnings per diluted share of $0.23, in the second quarter of 2007. The decrease in adjusted net income of $51.0 million reflects the decrease in operating income mentioned above, as well as increased net interest expense. On a GAAP basis, net loss in the second quarter of 2008 was $8.8 million, or $0.02 per diluted share, compared to net income of $34.4 million, or $0.10 per diluted share, in the second quarter of 2007. The decrease in GAAP net income of $43.2 million reflects decrease in operating income mentioned above, as well as increased net interest expense.
Second Quarter Highlights
William P. Weidner, president and COO stated, "Our second quarter results reflect both solid operating performance in Macao and Las Vegas and the measured execution of our global growth and development strategy. In Asia, our efforts to transform Macao into Asia's premier business and leisure destination steadily march forward. The Venetian Macao, the anchor of the Cotai Strip(TM), continues to consistently deliver market-leading visitation to Macao from around the region and the world, while the natural maturation process of the property's operations is now beginning to be reflected in the property's operating results. As we make final preparations for the opening next month of the Cotai Strip's second world-class destination resort, the Four Seasons Macao, we remain focused on the fundamental goal and commitment we share with the people of Macao -- the transformation of Macao into Asia's premier business and leisure destination. We remain confident that the execution of our Cotai Strip development strategy will deliver significant economic benefits to Macao and the entire region, as well as industry-leading returns to our shareholders. In Las Vegas, despite a more challenging economic environment, the combined Venetian and Palazzo complex, the largest integrated destination resort in the world, began to mature and to realize some of the significant operating efficiencies resident in our original master plan. As the Venetian and Palazzo complex continues this maturation process, we believe it is uniquely positioned to deliver strong growth and industry-leading returns in the Las Vegas market for years to come."
Las Vegas Second Quarter Operating Results
Adjusted property EBITDAR for our Las Vegas operations increased 28.1% to $106.6 million in the second quarter of 2008, compared to $83.2 million in the second quarter of 2007. On a GAAP basis, operating income for our Las Vegas operations decreased 26.2% to $42.1 million, compared to $57.0 million in the 2007 period. The increase in adjusted property EBITDAR reflects the opening of The Palazzo. The decrease in operating income reflects the increase in depreciation and amortization expense compared to the quarter one year ago, which is directly related to the opening of The Palazzo.
Las Vegas operations' table games drop was $408.2 million in the second quarter of 2008 versus $281.0 million during the second quarter of 2007, an increase of 45.3%. Slot machine handle (volume) increased 62.8% to $916.1 million in the second quarter of 2008, compared to $562.8 million during the second quarter of 2007. The increases in table games drop and slot handle were the result of the expansion of gaming capacity due to the opening of The Palazzo. Table games win percentage (calculated before discounts) was 20.5% in the second quarter of 2008, compared to 20.1% in the second quarter of last year. This compares to our expected range of 20% to 22%. Slot win percentage (calculated before slot club cash incentives) was 5.5% in the second quarter of 2008, compared to 6.1% in the second quarter last year. Casino revenues for Las Vegas operations were $126.5 million in the second quarter of 2008, compared to $85.4 million a year ago.
Las Vegas operations' hotel revenues increased 52.6% to $142.4 million versus $93.3 million in the second quarter of 2007. The increase in hotel revenues was principally due to the opening of The Palazzo.
The Venetian Las Vegas' average daily rate (ADR) was $245, compared to $266 in the second quarter of 2007. The Venetian's occupancy of available guestrooms decreased to 90.6% during the second quarter of 2008, down from 100.9% during the prior year period, as we chose to spread a portion of The Venetian's booked business over the 7,100 total suite inventory of the combined Venetian and Palazzo complex. Revenue per available room (REVPAR) at The Venetian decreased 17.2% to $222 in the 2008 period, compared to $268 in the second quarter of 2007. In its' second quarter of operation, The Palazzo's ADR was $243, while occupancy of available guestrooms was 92.9%, generating REVPAR of $226.
Food and beverage revenues for our Las Vegas operations increased to $68.7 million in the second quarter of 2008, compared to $45.1 million in the 2007 period, an increase of 52.3%. Retail and other operating revenues were $45.6 million in the quarter, compared to $29.8 million in the second quarter last year.
"The Palazzo added additional amenities throughout the quarter, including additional stores and restaurants in The Shoppes at The Palazzo, featuring Barneys New York, and the premier of Tony award-winning Broadway sensation Jersey Boys, which has successfully increased traffic into the property and related ancillary revenues, particularly slot play, since its opening in May. As its full suite of features and amenities continue to come on-line and mature, we expect The Palazzo's operations to continue to build momentum throughout the year.
"The Palazzo, together with the comprehensively renovated Venetian Las Vegas and Sands Expo and Convention Center, now comprise the largest integrated resort and convention destination in the world, with approximately 7,100 all-suite rooms, 2.3 million square feet of meeting, convention and exhibition space, and world-class dining, retail, and entertainment amenities. We expect the significant back-of-house and other operating efficiencies that have been resident in our master plan for the combined complex since its inception to enable us to deliver industry-leading operating margins. We believe that our flexible and adaptable integrated Las Vegas facilities will provide an excellent platform for profitable growth and industry-leading returns, both in today's somewhat challenging economic environment, and in periods of more robust economic growth in the future."
Venetian Macao Second Quarter Operating Results
In the property's third full quarter of operation, Rolling Chip volume at The Venetian Macao was $9.89 billion, while Non-Rolling Chip table games drop was $851.6 million. Casino revenues for the quarter were $415.6 million.
The Non-Rolling Chip table games win percentage was 20.3% in the second quarter of 2008, while Rolling Chip table games win percentage (calculated before discounts and commissions) was 3.01%. These results compare to our expected Non-Rolling Chip table games win percentage of 18% to 20%, and Rolling Chip table games win percentage (calculated before discounts and commissions) of 3.0%.
Slot handle (volume) for the second quarter of 2008 was $447.0 million. Slot win percentage was 8.1%.
Hotel revenues during the quarter were $46.5 million. The Venetian Macao's ADR was $225 while the occupancy per available guestrooms was 80.2%, generating REVPAR of $180.
Retail and other operating revenues were $36.8 million. Food and beverage revenues were $15.4 million.
Adjusted property EBITDAR for The Venetian Macao was $140.2 million in the second quarter of 2008. On a GAAP basis, second quarter operating income for The Venetian Macao was $83.6 million.
Weidner added, "In The Venetian Macao's third full quarter of operation, we experienced strong visitation; healthy gaming volumes, ADR and occupancy statistics; and solid retail sales figures. We have now welcomed over 20 million people to The Venetian Macao since opening our doors last August, illustrating the broad appeal of our market-leading investments in Asia's first integrated resort.
"Looking ahead, our ongoing investments in Macao's transportation infrastructure will continue to encourage visitation and improve the customer experience for Macao's visitors. Our CotaiJet ferry service, which provides regional ferry service directly to Taipa's temporary Pac-On ferry terminal and is operated by our partner, Cotai Chu Kong Shipping Management Services Co., Ltd., increased its daily sailings during the quarter, and is now providing 56 sailings per day between Hong Kong's Shun Tak ferry terminal and the Cotai Strip. The service continues to build its passenger base and is currently running at nearly 70% of capacity in the month of July, and in excess of 90% of capacity on weekends and at peak sailing times. We plan to add six additional night sailings (between the hours of 11pm and 7am) on August 1st, bringing the total number of daily sailings to 62. In the future, we expect to offer ferry services with greater frequency (every 15 minutes during peak periods) and on additional routes, including from the Hong Kong International Airport. The development of this service should improve access to Macao and enhance the customer experience for visitors to Macao, particularly for customers who are traveling during peak periods to attend conventions and exhibitions on the Cotai Strip, or to evening entertainment events.
"Ongoing investments in Macao's transportation infrastructure, including expanded ferry services, local and regional busing programs, and aviation services should not only allow for increased visitation to Macao and the Cotai Strip, but, importantly, should also significantly improve the customer experience of visitors to the region and provide opportunities for new customers with high discretionary incomes from around the region to visit the market for the first time. We expect that these new visitors will contribute to increases in both gaming and non-gaming revenue and operating income yield per visitor. We anticipate that the critical mass of shopping, dining, retail and entertainment amenities of our additional integrated resorts on the Cotai Strip, including the Four Seasons Macao, which will open on August 28, 2008, will enhance this strategy in the future," said Weidner.
Sands Macao Second Quarter Operating Results
At the Sands Macao, second quarter 2008 Rolling Chip volume decreased 14.9% to $6.18 billion, compared to $7.26 billion in the second quarter of 2007, while Non-Rolling Chip table games drop was $657.7 million in the second quarter of 2008, compared to $900.7 million in the second quarter of 2007. The Sands' Rolling Chip table games win percentage (calculated before discounts and commissions) was 2.82%, while Non-Rolling Chip table games win percentage came in at 19.5% in the second quarter of 2008. These results compare to our expected Rolling Chip table games win percentage (calculated before discounts and commissions) of 3.0% and Non-Rolling Chip table games win percentage of 18% to 20%. The Sands' slot handle (volume) for the second quarter of 2008 was $260.5 million, representing a 17.9% decrease versus $317.4 million in the second quarter of 2007.
Second quarter casino revenues decreased 29.8% to $262.2 million versus $373.5 million in the 2007 period. The decreased revenues reflected lower Rolling Chip volume, a lower Rolling Chip table games win percentage (2.82% in the 2008 quarter compared to 3.44% in the 2007 quarter), and lower Non-Rolling Chip table games drop. Principally as a result of the decreased casino revenues described above, the Sands Macao adjusted property EBITDAR decreased to $54.1 million in the second quarter of 2008, compared to $116.6 million in the second quarter of 2007. Operating income on a GAAP basis for the Sands Macao decreased to $40.2 million for the second quarter of 2008, compared to $104.7 million in last year's second quarter.
Weidner stated, "While the results of the Sands Macao clearly reflect the increasingly competitive environment on the Macao peninsula, we remain pleased with the long-term market positioning of the Sands. The introduction of high-quality competitive product, including The Venetian Macao on the Cotai Strip, has been significant in the last year but will slow going forward, particularly on the Macao peninsula. In the face of this competition, the Sands continues to generate strong cash flow and returns. While admittedly down year over year, both our VIP and mass volumes reflect healthy play, and our visitation statistics remain strong. Looking ahead, we expect to continue to reduce the cost structure at the Sands Macao as we adapt our offerings to the current Macao peninsula market and allocate our human resources more efficiently across the larger asset and revenue base of The Venetian Macao, the Four Seasons Macao, and additional properties on the Cotai Strip."
Other Factors Affecting Earnings
Pre-opening expenses related principally to the Four Seasons Macao, Marina Bay Sands in Singapore, Sands Bethlehem, and other resorts on the Cotai Strip were $38.1 million in the second quarter of 2008, compared to $40.3 million in the second quarter of 2007.
Development expenses related to our efforts in the People's Republic of China, the wider Asian region, Europe, the United States and elsewhere were $4.5 million in the second quarter of 2008, compared to $1.3 million in the second quarter of 2007.
Depreciation and amortization expense was $119.1 million in the second quarter of 2008, compared to $35.7 million in the second quarter of 2007. The increase in depreciation and amortization expense was principally caused by the openings of The Venetian Macao and The Palazzo.
Interest expense, net of amounts capitalized, was $88.5 million for the second quarter of 2008, compared to $54.4 million during the second quarter of 2007. The increase is primarily the result of increased borrowings to support the company's growth pipeline and current and future development, including borrowings related to the company's $5.0 billion domestic credit facility, the $3.3 billion credit facility to support our developments in Macao, as well as borrowings related to the SGD5.44 billion (approximately $4.0 billion at exchange rates in effect on June 30, 2008) credit facility to support the development of Marina Bay Sands in Singapore. Capitalized interest was $31.6 million during the second quarter of 2008, compared to $58.0 million during the second quarter of 2007.
Interest income was $3.1 million in the second quarter of 2008, compared to $21.4 million in the second quarter of 2007.
Corporate expense was $33.6 million in the second quarter of 2008, compared to $24.7 million in the second quarter of 2007.
Stock-based compensation expense was $14.0 million in the second quarter of 2008, compared to $8.6 million in the second quarter of 2007.
Other expense, which is principally composed of foreign currency losses, was $3.7 million in the second quarter of 2008, compared to $2.3 million in the second quarter of 2007.
The company's projected effective tax rate for the full year 2008 is approximately -1.5%, which is lower than the United States federal statutory rate of 35% due principally to a zero percent effective tax rate on our Macao gaming income and a projected taxable loss in the United States for 2008.
Balance Sheet Items
Unrestricted cash balances as of June 30, 2008, stood at $801.8 million while restricted cash balances were $173.1 million. Of the restricted cash balances, $78.5 million is restricted for Macao-related construction and $71.9 million is restricted for construction of Marina Bay Sands in Singapore.
As of June 30, 2008, total debt outstanding, including the current portion, was $8.92 billion.
Capital Expenditures and Other Activities
Capital expenditures during the second quarter of 2008 totaled $966.8 million. This includes construction and development activities of $498.4 million in Macao, $150.0 million at The Palazzo and The Palazzo Condominium Tower, $227.1 million in Singapore, $61.9 million at Sands Bethlehem, $25.5 million at The Venetian Las Vegas and the Sands Expo and Convention Center in Las Vegas, and $3.9 million for corporate and other activities.
Concluding Comments
Weidner concluded, "As we approach the first year anniversary of the opening of The Venetian Macao, and prepare for the opening of the Four Seasons Macao four weeks from today, we continue to steadily execute and deliver on our commitment to lead the transformation of Macao into Asia's premier destination resort, and the leading host for tradeshows and conventions in the region. Looking ahead, as the critical mass of the Cotai Strip continues to build, and as we add additional world-class amenities to the offerings of the Cotai Strip, including our recently opened Shoppes at the Four Seasons Macao, and the Cirque du Soleil production Zaia, that performance company's first permanent show in Asia, we will increasingly have the ability to refine and tailor our offerings to generate increased cash flow from our investments.
"In Singapore, we continue to make steady progress on construction and other development activities of the Marina Bay Sands, which remains on track for an opening in late 2009. All three hotel towers are now above ground level and are progressing rapidly. We currently have an average of more than 3,400 workers and management staff on site, with work progressing on a 24/7 basis. The Marina Bay Sands will feature more than 2,600 hotel rooms, approximately 1.2 million square feet of flexible meetings, incentive, convention and exhibition space, more than 750,000 square feet of retail space, food and beverage outlets, three large entertainment venues, and gaming space, which will include our high-end Paiza Club(TM).
"In Bethlehem, Pennsylvania we continue to advance our construction activities on the Sands Casino Resort Bethlehem. The casino structural steel was completed in early June and the retail mall structural steel was completed later that month. Erection of the structural steel for both the parking garage and the hotel is ongoing, and work is proceeding as planned in the casino. The 124-acre integrated destination resort, located on the site of the former Bethlehem Steel plant, is on the I-78 corridor in eastern Pennsylvania, with 17.2 million people, including the lucrative northern New Jersey and New York Metropolitan markets, residing within a 75-mile radius. The property will feature a hotel, retail space, 5,000 slot machines, a multipurpose event center, and a variety of dining and entertainment options. The resort will also be home to the National Museum of Industrial History, an arts and cultural center, and the broadcast home of the local PBS affiliate."
Conference Call Information
The company will hold a conference call to discuss the company's results on Wednesday, July 30, 2008 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). Interested parties can listen to the conference call through a live audio webcast at http://www.lasvegassands.com (click on Investor Relations).
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