Las Vegas Sands - Earnings Call - Q2 2011

Transcript

Speaker 4

Good afternoon. My name is Allie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands second quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference over to your host, Mr. Dan Briggs. Sir, you may begin your call.

Speaker 1

Thank you, Allie. Before I turn the call over to Mr. Adelson, let me remind you that today's conference call will contain forward-looking statements that we are making under the safe harbor provisions of federal securities laws. The company's actual results could differ materially from the anticipated results in those forward-looking statements. Please see today's press release under the caption "Forward-looking Statements for a Discussion of Risks That May Affect Our Results." In addition, we may discuss adjusted net income, adjusted diluted EPS, and adjusted property EBITDA, which are non-GAAP measures. A definition and a reconciliation of each of these measures to the most comparable GAAP financial measures are included in the press release. Please note that this presentation is being recorded. With that, let me please introduce our Chairman, Mr. Sheldon G. Adelson.

Speaker 3

Thank you, Dan. Good afternoon, everyone. On behalf of our management team and our Board of Directors who are here with me today, I would like to thank you for joining us. In an effort to get to more of your questions, I'll provide a brief overview of our results from the quarter and then turn it over to Mike, who will provide some quick operational updates. We will then move to the Q&A part of the call. Let's get started. I want to begin by saying that across every corner of our operations, I cannot be more proud of the team members and management teams who helped us achieve this historic quarter, and these results are truly historic. Let me spend just a minute reflecting on what the company achieved over this past quarter.

First, the company record: $2.35 billion in revenue, a 47% increase compared to $1.6 billion during the same quarter one year ago. Second, the company record, and to the best of our knowledge, an industry record: $902 million in EBITDA. This is an increase of 90% over last year's $473 million of EBITDA. Finally, the company produced adjusted earnings per diluted share this quarter of $0.54. This is compared to last year's second quarter, which produced adjusted earnings per diluted share of $0.17, and what I understand is also a consensus estimate of $0.43. More broadly speaking, our growth curve has continued unabated. We have shown steady, consistent growth, and in fact, these results represent the eighth quarter in a row that we've increased our EBITDA from one quarter to the next.

As the only operator with a presence in the world's two most lucrative gaming markets, Macao and Singapore, we see absolutely no reason, no catalyst at hand, which would change this upward trend. Let me now give you some commentary on our specific property operations. I'll start in Singapore, where Marina Bay Sands recorded a whopping $405 million in adjusted property EBITDA. While I believe the ramp-up process is still ongoing in Singapore, Marina Bay Sands generated net revenue of $738 million and an EBITDA margin, for you listening, of 55%. Just want to make sure you heard it. Rolling chip volume for the VIP business was a record $12.2 billion. Non-rolling chip drop, mass market, was $1.1 billion and slot handle reached $2.38 billion. Our combined mass win was nearly $4.2 million per day versus $3.7 million per day during the first quarter of 2011. That's sequential.

That's an increase of 14% quarter over quarter, which we think is pretty healthy, as we used to like to say in Boston about them apples. The property also saw its hotel average daily rate increase to $295, while occupancy rose to 90.8%. Demand is quickly starting to outpace supply at Marina Bay Sands, and ADR and occupancy are continuing to rise. It's important to point out that the property's non-gaming amenities like the hotel are very valuable contributors to its overall profitability, especially with the profit margins they were able to deliver. Now, I'm being advised that I need to help manage all of your expectations as it relates to our business in Singapore, something I haven't been very good at in the past.

I'll leave you with one simple conservative statement, which is this: now that we have entered our second year of operations, it is increasingly clear that Marina Bay Sands is becoming the most successful integrated resort in the history of the hospitality, gaming, and entertainment industry. With what I think is an expectations managing remark behind us, let's turn to our results in Macao. The Macao properties operated by our majority-owned subsidiary, Sands China Ltd., also enjoyed a very strong quarter. Total net revenue for Sands China was $1.2 billion. As you know, we place an emphasis on EBITDA and EBITDA margin, and we continue to widely lead the market in both categories. Macao property operations' adjusted EBITDA was a record $392 million, $392 million, an increase of 27.5% versus the same quarter last year, while adjusted property EBITDA margin was 33%. Again, a leading figure.

The Venetian Macao delivered record property EBITDA of $258 million with a 35% EBITDA margin. The Venetian Macao remains comfortably in its perch as Macao's leading mass market property, and as we expected, the opening of Galaxy Macao has served as an additional feeder for The Venetian and our Cotai Strip. Gaming volume grew in each segment of the business during the quarter, with non-rolling chip drop increasing to a record $1 billion. Slot handle jumped 22% compared to the same quarter a year ago, while rolling chip volume increased by 37% compared to last year.

The Sands Macao once again displayed its mettle on the Macao Peninsula by delivering adjusted property EBITDA of $96 million, up 18% from the second quarter of 2010, and delivering a run rate that is approaching the record levels of profitability the Sands achieved prior to the opening of The Venetian Macao in August 2007. Non-rolling chip drop was up 18% year over year, while rolling chip volume increased to $7.75 billion. Slot handle set an all-time record of $463 million. The Plaza Casino at the Four Seasons delivered $38 million in adjusted property EBITDA, up from $33 million a year ago. The Plaza Casino is primarily designed to cater to the VIP part of the market, and in a moment, Mike will give you an update on our current initiatives designed to enhance our rolling business there. Before turning to our U.S.

operations, I want to highlight one more thing in Macao, which is the performance of our retail business. Retail sales at The Venetian's Grand Canal Shoppes were up 50% year over year, while sales at the Shoppes at the Four Seasons soared by 70% compared to last year. We're now collecting more in percentage rents than we ever have at this point in the calendar year. We have always been the most fervent believers in Macao's ability to succeed and flourish as a retail destination, and clearly that faith is now being rewarded. Moving on to the U.S., our Las Vegas properties reported adjusted property EBITDA of $93 million, an increase of 41% versus the same quarter a year ago. Stronger cash hotel revenues from convention, group meeting, and FIT customers reflect the improving Las Vegas environment. Sands Bethlehem in Pennsylvania recorded adjusted property EBITDA of $21 million.

The hotel at Sands Bethlehem celebrated a successful opening during the quarter, and along with the forthcoming retail mall and event center, we believe Sands Bethlehem is well positioned for additional growth. With that overview of our quarterly results, let me now turn the call over to Mike for a couple of operational updates. Mike?

Speaker 2

Thanks, Sheldon, and good afternoon, everyone. Let me start with an update on lots five and six in Macao. We have finalized franchising agreements now with two very prominent international hotel brands for lot five, and I'm now working with those companies to coordinate an announcement for those brands that we expect will come very soon. The opening of lot five is still on target for the end of quarter one next year, about eight months from today, and will feature a 600-room five-star hotel, rooms and suites, along with a 1,200-room four-star hotel, rooms and suites. The property will also open with a variety of retail offerings, more than 300,000 square feet of meeting space, 11 food and beverage establishments, along with a 106,000 square foot casino and VIP gaming areas.

The opening of what we are calling lot 6A, which will feature nearly 2,000 Sheraton-branded rooms, is on track for the third quarter of 2012. Along with its casino, the opening of lot 6A will include most of the 13.7 million square foot complex's remaining dining, entertainment, retail, and meeting facilities. Thereafter, opening in early 2013, lot 6B will feature an additional 2,000 rooms and suites under the Sheraton Towers brand. In our view, the opening of lots five and six is a watershed moment for Macao, as it takes its place amongst the leading business and leisure destinations in Asia. The addition of 6,000-plus rooms from three world-renowned international hotel brands, each armed with powerful global distribution systems, will be a potent catalyst to growing our non-gaming businesses in Macao, and in particular, our MICE business. They will be the only properties to open for the foreseeable future.

As Sheldon alluded to earlier, let me now provide an update on the initiatives we're implementing to grow and enhance our VIP business in Macao, and more details on that from Rob Goldstein later. Last quarter, we talked about building better relationships, hiring additional marketing talent, and improving service standards as some of the software we were using to enhance the growth of our VIP business. Together with those ongoing efforts, we have now approved and are embarking on a $125 million capital expenditure campaign, which will help us complete the hardware part of the process. These capital investments will be used for a variety of projects, several of which will be completed ahead of Chinese New Year in 2012. We believe these investments are vital to the long-term strategic positioning of our VIP business in Macao. Let me close my remarks with a couple of significant personal announcements.

First, we are happy to announce that we have appointed George Tanasijevich as President and Chief Executive Officer of Marina Bay Sands. George joined the company in 2004, working for us first in Macao and was our very first Singapore employee. In addition, Benny Zin, who has served in a couple of roles since joining Marina Bay Sands, has been named the property's Chief Operating Officer. In Macao, the Sands China Ltd. Board of Directors will approve later this evening the promotion of Ed Tracy to the position of Chief Executive Officer. Ed, who is currently serving as President and Chief Operating Officer of Sands China Ltd., has just completed a very successful first year in Macao. The combination of George, Benny, and Ed, along with John Caporello in Las Vegas and Bob DiSalvio in Pennsylvania, gives us a team of experienced and dedicated leaders at each of our properties.

We are extremely confident that this team will provide stability and deliver growth across all of our portfolio. That concludes my brief remarks. At this time, Rob Goldstein, Ken Kay, Sheldon, and myself will be happy to address any of your questions.

Speaker 4

Ladies and gentlemen, at this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that is star one to ask a question. Your first question comes from the line of Mark Strawn.

Speaker 6

Hey, guys. Greg Horder. Two questions. First on Singapore, I know you guys want to keep expectations under control, but maybe generally speaking, as we transition into the summer period, there is maybe a thesis out there before that the summer could be the seasonally strongest period. Do you still think that's going to be the case as you look forward?

Speaker 3

Are you questioning? I got to tell you, if July is any indication, it seems to be.

Speaker 2

Is that the question, Mark? Is it the summer?

Speaker 3

Is the summer likely to be the best quarter of the year? It's difficult to say. Last year, we were still ramping from the opening. We continue to ramp, and I think we'll continue to ramp for many, many months, if not years, to come. This quarter, we're just finishing July. We have 26 days to speak about, but we're not going to speak about it. If July is any indication, then it would indicate that summer would be the peak season. I read in an analyst report yesterday that December is supposed to be, that the last quarter is supposed to be the best season. I think it's too early to tell which is the best and which is the second-best quarter.

Speaker 6

Okay. Is there anything on the event calendar or holiday calendar in the summer that would cause any seasonal shifts at this point, or it should be a pretty standard quarter with maybe some better seasonality, is what it sounds like?

Speaker 2

I don't see any of that at this point. There are some Singapore holidays that go on and what have you, but I think that's everywhere. Once again, I think, as Sheldon said, I think we said this last quarter too, understanding the seasonality of Singapore is going to take a while. I think it's going to take us probably another six or eight months before we really get to understand what that seasonality is. Right now and for the past quarter, as I said before, the segments that are working in the property are all working: tour operators, convention business, banquet business, food business, transient FIT business, and gaming business are all working together very, very well. It's really, from a past experience, frankly, I've never seen a property of this size and magnitude ramp as quickly from the day it was open.

We still have a couple more big events coming with Louis Vuitton opening in September and two more nightclubs and about another 30 or 40 retail stores. We're not 100% open even yet, and we don't have the subway coming as well, which comes in January or February of 2012. It's hard to say what that seasonality process is at this point.

Speaker 6

Thank you. That's very helpful. Just one follow-up, if I may, on Macao, and maybe this question is for Rob. I know you've highlighted in the past some of the key and maybe investments in getting the right chunk of relationships in place in Macao to really drive that VIP business. Do you have any general update on how that process is going and maybe just a general sense of timing on some of those?

Speaker 2

Mark, as we said before, it's an ongoing process. I mean, it's both a capital spend to improve the physical product. It's relationship-driven. It's also additional conversion for more capacity of VIP. I think you break out our results. Our Venetian numbers bode pretty well for the future in the VIP segment. We're meeting the market. We're struggling more in the Sands, and obviously, there's a lot of work to be done physically there. We're disappointed we can't do better with the Four Seasons, and we will. It's a three-part process. It's conversion of the space physically to be more competitive. It's better service, and for certain, it's enabling us to work with the better junket teams over there in Macao. Having just been a week there, I think we're making great progress.

It's not coming as quickly as I wish it would come, except the Venetian, but I know we're getting there, and I think you'll see it. It took us a while to figure out Singapore, and obviously, we're seeing some results there. I think you'll find in the future that our efforts in Macao and the junket segment will improve materially.

Speaker 6

Thank you very much, and congrats on a great quarter.

Speaker 2

Thanks, Mark.

Speaker 3

Thank you, Mark.

Speaker 4

Your next question comes from Janet Bressler.

Speaker 7

Thank you. As we're talking about Macao, I wonder if you could describe the mood in Macao as you think about the Chinese political transition in 2012, and whether or not there's a thought that there's any particular impact that that'll have on Macao.

Speaker 3

I think those people, I think Xi Jinping is going to be, he's been to Macao recently, and I think the relationship between Xi Jinping, who used to be the head of the Hong Kong-Macao Taiwan Affairs Office, he's quite familiar with Macao. I think, if anything, hopefully, he's more favorably disposed toward Macao. Since Macao is responsible for its executive administrative decisions under their basic law agreement forged many years ago, I think that we don't expect any unusual events, any extraordinary events. Now that you ask the question, I think that Xi Jinping may be a little bit more favorably disposed toward Macao because of his experience with it.

Speaker 7

As you think about the local political environment, as you said, within Macao, we've heard from some other concessionaires that they're getting guidance to add integrated resort elements to their Cotai plans from the government. Are you getting any input as well, or are they not giving it to you because you're so far along in your development at this point?

Speaker 3

We are the guys who brought up the subject with the government. I've been saying that ever since we opened the Sands in 2004, that anybody that opens any property should be required to have a matrix of both gaming and non-gaming activities, and that to start off with, the gaming portion of the total construction square footage should not be more than 10%. If they cut back on certain percentages of, say, exhibition or convention space or shopping or hotel rooms, they had to cut back on the casino space. We are all in favor of that. As we said, as my vision originally called for, the more critical mass we have in Cotai, the better. Galaxy has helped and supported our look, City of Dreams helped to support the Cotai as the place to go.

All your analysts were talking about now that Galaxy is open, it validated the Cotai and the desire of everybody else, SJM, MPEL, Wynn, SJM, all the others are anxious to open at Cotai. I want to remind you that when I came up with the vision, it was a swamp and a bay. Nobody wanted the land. Now, everybody wants the land. It just validates our, I'm very happy. I remember saying many years ago that I would even welcome Steve Wynn on Cotai to create some critical mass. Now that I've had dinner with Steve Wynn, I'd even welcome him more. Getting critical mass on Cotai is important, and I see it happening.

Speaker 7

Thank you.

Speaker 1

Thanks, Janet.

Speaker 4

Your next question comes from the line of Joe Stauff.

Speaker 5

Hey, everybody. A few quick questions here. On Singapore, you know the volume metrics across the board were much better than we had forecasted and probably with the most upside relative to our estimate on the rolling chip volume. Can you comment there why you think you grew rolling chip volume? Is it more effective guys in the field? Is it gaining market share? Is it something you're doing at the property? Is it something with your competitor creating a different set of competitive pressures? If you could help us understand that, that would be helpful. I'll follow up with a couple of more.

Speaker 2

Obviously, Joe, it's a lot of things. It's not one variable. It's many. Obviously, the product itself is iconic and very helpful in terms of positioning. People want to come to Marina Bay Sands. It's a product that people know not just in the region but worldwide. Two, I think it's just a very desirable Singapore as a wonderful place to visit. The mainland Chinese and other people in the region, the Japanese, are very comfortable in that environment. It's a very special environment, easy access, culturally comfortable. I think that you're seeing more and more of that. I'll also point out, I think it actually works very well in our Macao operation. David Sisk and the Head of Trade, see, I were having a discussion about Macao, and we think it's not even a negative impact, maybe a positive, but we're finding customers in Singapore, large customers.

It's a different customer seeking out the Singapore experience. I think it just gets better as the mainlanders get more comfortable and the Japanese and Thailand. It's a very diverse mix, and it's plentiful, and it's very elite. As our product improves, we're building more suites on the 55th floor of Tower 3. I think you'll just simply see it getting better with time. I can't speak to RWS and how they haven't been with time, but I suspect Singapore as a market is just starting to mature and getting stronger every day. I see no reason to think it can't continue to grow and improve. It's a different experience than Macao. It's a very, very special experience. I will take my hat off to our team in the field. I think our team led by Larry Chu has been exemplary.

We have a really strong presence in every major Asian capital. I think those guys on the property and in the field have done a spectacular job, and the results speak for themselves. I think we're just at the beginning of that process. We're not mature yet at all.

Speaker 5

Maybe put it another way, Rob. On the VIP side in Singapore, is it driven by an increased number of VIP patrons, or is it new or repeat, or is it the spend per VIP trip?

Speaker 2

I think it's increased VIP from each corner.

Speaker 3

One from each corner.

Speaker 2

Sheldon says one from all the corners like a Chinese restaurant. The truth of the matter is.

Speaker 3

One from each corner.

Speaker 2

Each corner. The truth is, Joe, it's all the above. We're seeing very, very high-end customers. We're seeing diverse representation from a geographic perspective. We're seeing repeat because people like the product. Honestly, we're seeing it be the kind of place that it talks to Indonesia as well as Malaysia, Japan. Mainland Chinese have definitely found comfort there. It's all the above. The kind of numbers we're experiencing in the growth, you know, 20+%, it doesn't come from one piece. It comes from very different variables and all the above, very honestly. We're maturing as a team. We're maturing as a property. Singapore is just a great place to visit. It's a wonderful situation right now for us.

Speaker 5

Great.

Speaker 2

Joe, excuse me one second. I think we should also add, Joe, because I anticipated the question that Rob and the guys, we have not changed the structure eventually. We have not changed the credit financially. We're doing the same things from an organization standpoint. I think Rob's being a little modest here. My own view of it is that he's put together a phenomenal team of people. These people are now just starting to really, really go. I think that's really why we're seeing the big difference. Obviously, the hotel was there before people went in, and now that team is maturing. The expectation of their performance, not only there, but wherever else we go in Asia, we're going to have a base to be able to grow from there.

Speaker 3

Goldstein, modest. Never have.

Speaker 2

Very modest.

Speaker 5

Great. Then.

Speaker 3

Thanks, Joe.

Speaker 5

Switching over to Macao, if I may, of the rolling chip volume, what was the mix between direct and junket?

Speaker 2

The mix hasn't changed a whole lot. We're still running the most, you know, the greatest majority, obviously, is up 4 to 1 in favor of junket. As our goal is to not be out of direct business but not suffer the junket side as a result of favoring the direct. In the past, we were premium focused. We worked very badly to encourage strong relationships with major junket people in Macao. We're trying to emphasize that if a customer wants to come direct, they can. I think David Ned has figured out that, you know, we want to service both ends of the spectrum. We don't want to lose our junket perspective. That's still going to be the driver. Sheldon's referenced the importance of junkets in Macao. We're really just beginning there.

Once we figure out our service objectives and we really get our relations right and obviously fix our house physically, especially in the other two properties, not The Venetian Macao as much, I think you're going to see a lot better improved performance. We're still, we offer the premium direct option, but we stress the junket side. We want very much to support our junket relationships.

Speaker 5

Great. A question for Ken on the Singapore refinancing, if you can give us a timing update.

Speaker 2

Singapore or are you talking Macao?

Speaker 5

Singapore.

Speaker 2

Singapore.

Speaker 3

We haven't done it.

Speaker 2

Yeah, we haven't started that process yet. We're getting to the tail ends of the kind of refinancing in Macao. Once we've put the finishing touches on that, we'll be down talking to the lenders with regard to the opportunities in Singapore. Probably, those conversations will take place in the next month, month and a half.

Speaker 5

Great. Thanks, guys. Good results. Sheldon, you and Steve should have dinner more often.

Speaker 3

Thank you. If I do, I'll turn vegan.

Speaker 4

Your next question comes from the line of John O.

Speaker 3

I like that idea.

Speaker 0

Hi, I'll start with a question on Macao. Could you give us a quick update on especially The Venetian Macao across the board on mass market, your rolling chip as well as direct VIP, especially since the opening of Galaxy Macao? Have you seen any significant change in foot traffic and also in profile VIP players that come in, the frequency of visits? Any color would be helpful.

Speaker 2

We're very supportive of the Galaxy effort. I was with Gordon last week, and I think it's definitely helping the Cotai. What it's helping do is make Cotai a good option for the customer. There's no question that they're bringing value to the market. Have we seen significant improvement? No. I think we've seen it helps our cause. It's a positive for us. We're rooting for those guys to continue to grow and do better because obviously, it's always good in any market for your competitors to do well. I think we're seeing it's helping. Is it material or not material in the VIP nor the mass? What's material is our guys doing a better job of marketing and building, taking advantage of our access to the borders. I think our mass marketing approach gets stronger by the day. Our border reception is stronger by the day.

Our ferry business is stronger by the day. We better help build our house. Galaxy is a positive, but it's certainly not, you know, material at this point to our core business in VIP nor mass.

Speaker 0

Is it fair to say that for now, the observation is a positive, not a negative.

Speaker 2

No, it's not a negative. That's for sure. It's not a negative. It's positive. It's a question of how positive it can get. You know, I think, again, as more players come to the Cotai piece of Macao, it's better for us. We're the biggest player there. We made the best effort to be there, but Sheldon got up there way in advance. As we opened at five and six, we own so much real estate. We welcome and want to see more growth in Cotai, clearly. Has it been material at this point? No. It hasn't driven our business in any segment.

Speaker 0

Okay. Just a follow-up on Singapore. Great quarter, and it's encouraging to see that your rolling chip volumes are almost, I think, by my count, up 50% since the fourth quarter last year. Could you maybe just share with us what your thought process is with respect to junkets being approved in Singapore? How far is the government into that approval process? Any guidance on timeline as well as any color in that would be very useful. Thanks.

Speaker 2

Yeah. First of all, we all know the junket issue is a government issue, and we don't know. We can't speak to the government's intentions. We simply wait their advice and counsel. When it happens, it happens. We've had a number of junkets for review by Mike and Sheldon that we're considering. We have not submitted one application yet. To sit here and opine as to what the government will do timing-wise or eventual result would be following.

Speaker 3

I'd like to make a comment that I may have spoke otherwise in the early going a year ago. As I understood it in the past, they said the government said that if a junket rep was approved for one property, it would have to reapply to do business with the second property. Maybe I misunderstood that, or they made themselves misunderstood. The way it is today is that if they're approved for RWS, all we have to do is make a request without resubmitting all the information and getting second approval. Essentially, whoever submits for one property, the junket rep will be able to work essentially for both properties. There's still, I don't know. The scuttlebutt is that they should have some answers by the end of the year. The scuttlebutt also is that a lot of the Macao style junket reps have not yet submitted apps. Who knows?

It's up to the government. We don't know, and we'll see what happens. In the meantime, we're doing very well. Thank you.

Speaker 0

Okay, thank you.

Speaker 1

Thanks, John.

Speaker 4

Your next question comes from Felicia Hendrix.

Speaker 7

Hi. Good afternoon. Rob, I was just wondering, you mentioned, Mike, you mentioned, but Rob, I was wondering if you could touch on this, the $125 million capital expenditure campaign in Macao. If I heard correctly, that's going to be finished by Chinese New Year, 2012.

Speaker 2

Some will. The goal is to finish by Tuesday, but it's a little difficult. I mean, we have a lot of work to do finishing our houses, and it touches, as Mike referenced, all three stores: you know, The Plaza, The Venetian, Sands. It'll come intermittently. Probably the first piece will come at the end of this year. Pieces will come during the first quarter. Some will not happen until the second quarter. It's an issue of design approval out of Las Vegas, getting appropriate contractors and labor. With the team there, Ed and Dave, I feel comfortable with design fit to our operational needs. It's a one-year, just like our approach in Singapore. It took a while to get there. It'll take a while to get there in Macao. We still think we're a year away from having maximum capacity and the right spaces.

Unfortunately, the process is probably not 12 months. We'll get pieces at the end of this year.

Speaker 3

I think we ought to give an advance warning to Ken Kay that for the $125 million, we'll have to tap our petty cash account.

Speaker 7

that your petty cash, Sheldon, or is that?

Speaker 3

Either the company's or mine. I've shown my willingness to use my petty cash account in the past, and now they want to take the interest rate back from me.

Speaker 7

Rob, just on that same subject, you were saying that you know The Venetian, you're not as far along. There's just more work to do with the junkets. I'm just wondering, as you talk to them, what are their sticking points? I know this all takes a long time, but I'm just wondering how long you think it might take to return to low-teens market share in the VIP side.

Speaker 2

Right. We are very convinced it will happen. We said on day one, it's a 12-month to 18-month process. I think it's three things that we think have to happen. One is the relationships. I think David and our team over there are really focused on that, and I think we're there on the relationship side. We've got the four or five junkets we want, have now committed to us verbally, and some are moving. You'll see move this quarter into spaces. Two, it's the physical build-out to make the space both pleasurable to the end, but also operationally, the service levels we can have to be much better at. Honestly, it's not a deal-driven relationship as much as it is relationship-driven. I think that's where our team has really done a great job of putting it together.

I don't think you'll see the full benefit of this thing until the first quarter of 2012 and then beyond that. I really feel very confident we're going to get there, and I think we're getting there every day. Our team in Macao gets it. We feel our shortcomings, especially at the non-Venetian properties. I mean, Venetian, we're very pleased with our share this quarter. We're starting to feel a sense of participating in the growth in Macao in that segment. We already, I think, are dominant players in the mass, but clearly, we've got growth. I'll also reference that growth spills over to our focus on high-end slots. The Wynn guys have done a tremendous job on the high-end slots. We want to grow our—we're very strong on the mass, but we think there's a lot of opportunity on the high-end slots.

The Wynn opinions aren't what we want them to be. The same process, which is hiring the right people to solicit those people, the right people to service those people, and the right physical spaces. All that's part of that capital we spoke about. It's not significant relative to the upside of this company. We feel we can do better in Macao, and we will do better.

Speaker 7

That's really helpful. Thank you. If we could just move to Las Vegas, clearly your marketing strategy proved successful this quarter, but you also benefited from the strong convention calendar for you. I'm just wondering how you're thinking about your cash comp mix in the third and fourth quarter. Also, I'm sure you know that Steve Wynn mentioned strong demand at his property in July in Las Vegas, and I'm wondering if you're seeing that as well.

Speaker 3

Let me answer the first question. What we've done in the cash comp situation is adjust over the year. What you will see in this quarter and in the next number of quarters is going to be based upon how the management adjusts the cash and the comps. We've been successful, particularly in moving it the way we want to. There are some opportunities we believe we're seeing that we'll take advantage of. Our forecast is pretty good on that matter, both in cash and comps, the way we're managing them out for the rest of the year, looking at them. We've got a good convention calendar the rest of the year. That allows us to manage those cash and comps a little better. I think there's still some upside for us in that area.

The Venetian, I should also mention, when you're talking about capital in Macao, we're also investing a significant amount of capital in The Venetian here. We're doing a lot of work in our room facilities as well as our casino situation. By mid-time next year, we're going to have a lot of new stuff in this building, and we're one of the very few in the Las Vegas market that has the capital capability to change the outcome. We're going to be doing that. We've got some catch-up to do, and it's being allocated.

Speaker 7

Has your room demand been strong in July?

Speaker 3

I think generally, the Vegas market in July in total has been pretty good. I'm hearing from the other competitors that it's been pretty good. I think our performance in July will be about what the expectation level is for what people are saying about Las Vegas.

Speaker 7

Okay. Thanks. Finally, in Singapore, I'm just wondering where you are with your ETG capacity, the electronic table games?

Speaker 2

Yeah, we're already here.

Speaker 3

Was that it?

Speaker 2

There's no room left to grow there. As of this week, we've got the last piece on the floor. We're fully allocated now based on government approval. We're there totally.

Speaker 3

We've got room for another 175 units. Is it going to be ETGs or slots?

Speaker 2

It will be slots. We're 25 units.

Speaker 1

Felicia, at this date, we're there, but we weren't there at June 30, the end of this quarter.

Speaker 3

The ETG numbers, we're running at about 650, 675 per seat per day. Right. On the weekend, we're getting to $1,000, $1,100 a day on the ETGs. This is an amazing ETG market.

Speaker 2

It sure is.

Speaker 3

It's really, really incredible.

Speaker 2

You saw the growth.

Speaker 3

I wish we had the slot hold %, but we can't. We've got to give the same %. It's really an electronic way of betting. Each seat doesn't compute its own gain. There's one game to control all the whatever number seats there are, 75 or 150.

Speaker 2

Yeah. We grew our win by sequential Q1Q by 18%. We look forward to keeping it going in that direction. As Sheldon referenced, the ETG market there is one of a kind, much stronger than anyplace else in the world. It appears to have no slowdown. Very encouraging ETG numbers.

Speaker 7

Great, thanks a lot.

Speaker 2

You're welcome.

Speaker 4

Your next question comes from Shaun Kelley.

Speaker 5

Hi. Good afternoon, everyone. I just wanted to start by passing along my congratulations to George and Ed on their promotions. I guess my first question was on Singapore. I just wanted to ask, you talked a lot about the VIP side, but Rob, could you just give us your sense on you've indicated that the mass market has kind of continued to ramp. Those numbers kind of beat our estimates. Could you give us a sense just how that trended across the quarter? Was it kind of ramping each successive month there, just as you've watched the business continue to grow?

Speaker 2

Yes. It just keeps ramping. It's very consistent. There's not one month that stands out. It just keeps growing. You saw the mass table. To me, this is during Singapore, which has always been extraordinary, is the mass table and slot win. I mean, you know, with Q1Q, you're at 15%, 16% sequential growth. I don't know how to portray the future because you know every day is different, but the growth is in steady April, May, June. It appears to keep going in that direction. We have days we're winning $2 million-plus on the weekend. It's very, you know, the hold percentage that we normalized in the mid-22%, 23% range that we've been in history now to see that. Look, it's a wonderful story.

I don't know where it ends or how much keeps going, but we had a very consistent upward trend in April, May, June, with no surprise at the end or the beginning. It's very gratifying. I think that the team there has really done an excellent job of moving the floor, looking for every square inch of real estate to maximize the opportunity. Of course, the margins, which Sheldon referenced last year, we thought he was aggressive, but it turns out they're very attainable. We're 67%, 68% on a blended rate, and no reason why it shouldn't continue. It's all very positive coming out of ETG slot mass table.

Speaker 3

We went up 16% from 3.7% to 4.3% win per day in the mass market, which is the mass tables and the slots with ETGs. That's a 64% annual rate. That's one hell of a ramp, you know, after being open for a year.

Speaker 5

That's helpful. Just to follow up, on the expense side, the numbers were up again a little bit sequentially, but this time, obviously, revenues were up significantly more. Are we at the right level of, you know, on a per-day expense rate now? Is this kind of about the right run rate for the property, exclusive of maybe a little bit on the retail side left to open, just as we think about modeling going forward?

Speaker 2

I think the answer is yes. Some of those expenses go up if you look at, you know, as dependent upon some of the VIP rolling. As that goes up, you get some more expenses. At the end of the day, from the rest of the building on an undistributed expense basis, we're pretty much where we're going to be. We don't see any real radical change in that. I think from a modeling standpoint, you can model where we are. By the way, we're always looking for opportunities to do better there and continue to look at it. I think if it's from a stable stability standpoint, after one year, we pretty much know what it's going to cost and how many FTEs we need to run that building.

Speaker 5

Thanks, Mike. My last question is on five and six. That's kind of the next big event catalyst for you guys. Could you give us your thoughts on how many tables you're right now planning on opening with, what's the target for the first part of the casino, and then how many tables will be in the second batch, which I think, if I caught your comments right in the prepared remarks, would be with Lot 6A?

Speaker 3

I think we could have about 200 tables in each of the two casinos, plus the 140 or 150 in the advisor.

Speaker 2

I think it's $110 million, $100 million in the advisor.

Speaker 3

Yeah, it's around between all of them. It's about 400 to 500 tables between the casinos.

Speaker 2

Over 500 in the advisor.

Speaker 3

Over about 20, about 50.

Speaker 2

The electronic table games are ramping up very well in Macao now. That is going to affect the amount of space we use in the casinos. We're not quite sure exactly what that count will be. I think you can estimate comfortably 200 in each, and then about 120, 130 in the advisor for now.

Speaker 5

That's helpful, Mike. Just to clarify, the ETGs count as slot positions in Macao?

Speaker 2

They count. I think it's.

Speaker 3

Full limitation of it.

Speaker 2

Yeah, I think it's one table for every 50 seats that they count them.

Speaker 3

It doesn't matter because it's not a slot.

Speaker 2

It doesn't even matter.

Speaker 3

It's not a slot machine.

Speaker 5

You have one slot machine for every 50 seats.

Speaker 3

Right, it's not.

Speaker 2

One table game.

Speaker 3

One table game. They were estimating that 50 seats would be the equivalent of one table game, but there were no limitations on ETGs.

Speaker 2

As long as you classify your slots, you're very comfortable.

Speaker 5

That's helpful. Thanks, guys. I appreciate it.

Speaker 3

We'll have more detail on that for you at the next quarter when we get real close to, you know, to the opening, and we'll know exactly what we're going to be doing. That's in a state of flux at the moment. That's approximately what you can get.

Speaker 4

Your next question comes from Harry Curtis.

Speaker 5

Hi, can you hear me?

Speaker 1

We can hear you.

Speaker 2

Yeah.

Speaker 5

Okay. First of all, Sheldon, we have to thank Dan Briggs for controlling our expectations for Mandalay Bay.

Speaker 3

For Marina Bay Sands?

Speaker 5

I'm sorry, from Marina Bay Sands. That shows you how it goes. That shows you who we were there, Harry.

Speaker 3

He's very true to me.

Speaker 5

Yeah. Okay. All kinds of things.

Speaker 3

Okay.

Speaker 2

Last 1099.

Speaker 5

Let's start with sites five and six. Rob, are you learning anything from your move back into the VIP side or the junket side in terms of physical plant when it comes to five and six? Have you done any redesign there? How are you promoting that or building that out so that you can compete with those that have really significant share in that segment?

Speaker 2

It's pretty simple. It's a learning process every day. There's no secrets out there. The win numbers are extraordinary in that team segment. We looked at their design as well as the Galaxy people, and we're trying to incorporate the best things from that, the best things available from those sort of effective houses along with our own experience at The Venetian. In the end, Harry, it's access, it's service. It's not that big a surprise. The same things remain consistent, whether it's Las Vegas or it's Macao or it's Singapore. It's access, it's a desirable environment, it's service, it's relationships. It's not pricing. It's more about those elements. As we referenced earlier, we have a long way to go, but I think you're going to see some very, very promising results from us in the future quarters. These are the junket segment in Macao, including five and six.

We're learning every day. We've done this for a long time, but you learn every day to be smart people, and you learn to incorporate new sound design. I think five and six will reflect some of that. I also think we've got some great opportunity in The Plaza to go back. That's a great building. It's under capacity as far as the VIP segment. I think we can expect some pleasant surprises in the future of Macao and the VIP from Las Vegas Sands.

Speaker 3

Harry, I just want to point out that it wasn't the absence of a completed room or one nicer room or one not so nice room. It was that last year with Jacobs, he hurt the relationship with the junket reps, and we're getting that back now. Now the people who want to come back, and we're getting new ones, and they want more substantial presence. Reminder that we were running very close on the gross income a couple of years ago, next to SJM, running in the mid to high 20s as a % of market share, even though we don't think it's that important, which reflects that we had a lot of the VIP market. We're the leading.

If people looked at learners' unusual metric of who was leading in the mass market, how many people were coming, we edged out SJM to Lisboa, the Grand Lisboa and the Lisboa properties on visitation. We're number one in visitation now, according to that. We're getting back the relationship with the junket reps and new relationships. We're screening those out, and we'll have them back. I think people, I don't know anybody that's put any estimates in for Lots 5 and 6, and I don't know why. Maybe because it's taken so long to finalize. We think 5 and 6, it's going to be the only property open within the next three to five years. It'll be open in part over two periods.

Speaker 5

Rob, where are you in changing the physical plant on The Plaza?

Speaker 2

It's capacity, Harry. We're looking at the capacity opportunity. Look, it's a great building. The Paisa Mansions are great. The Four Seasons itself is a terrific hotel. It's world-class spa and shopping. The retail is doing very, very well there. It's not a plus plus, but we're under capacity at 42 junket tables with David Nedder focusing on growing the capacity on levels two and three. We look at other additional opportunities within that space to convert. We think we can do a lot better in terms of adding, as long as we see The Plaza, you know, to get to over 100 tables. There's huge EBITDA potential if we fix our junket relationship. Sheldon referenced that a second ago. It also takes capacity growth on the gaming tables themselves. That's where you see the biggest single opportunity for us there. We have sufficient capacity.

If we have room, make it larger. We have to take advantage of that room. The same thing, we want to get more tables into The Venetian. It's also, very honestly, getting the right junket guys in the space versus non-performers. In the end, it's just looking at your building and looking at who's underperforming. If a junket can deliver twice or three times, then why not have that junket versus one that's delivering, you know, one-third of that? It's about the right people in the right spaces.

Speaker 5

The last question relates to the promotional environment. When you compare the promotional environment before Galaxy opened to what it's been in the last month or two, has it changed much?

Speaker 2

I think there is more heated-up competition in Macao in general, and that's part of the caution on the mass side. I mean, it's easy to drive top line. The question is how do you drive top line and maintain your margins and EBITDA? I think you are seeing a lot of people worship the revenue numbers, especially, you know, across the board in Macao. The single worship seems to be on top line, but at the end of the day, you got to make money too. I think there has been some pressure from some of the operators because it's a huge growth market and very tempting at every segment: mass, spot table, junket to overspend. I think you have to remain disciplined, and that's how you make money, and not simply drive the top line.

There's more promotional pressure, but I think our team has done a very good job of monitoring it and maintaining margins, as you can see by the EBITDA coming out of Macao.

Speaker 5

Okay, very good. Thanks, guys.

Speaker 2

You're welcome.

Speaker 4

Your next question comes from Robin Farley.

Speaker 7

Great. Thanks. I had a question on sites five and six, and you gave a timeline from Q1 2012 to early 2013 with the staged openings. I'm just wondering, do you have the number of workers you need on site today to hit those timeframes, or do those timeframes still require additional workers?

Speaker 2

We have the workers now to make those timeframes.

Speaker 7

Okay. Great. On Singapore, I know you're trying to manage everyone's expectations. On the volume in VIP there, can you comment on how sustainable it is? In other words, do you think that this is an above-average quarter? I know you said you think Q3 may be the best of the year, but is this quarter sustainable with upside likely, or was this kind of an above-average quarter in terms of what you expect for volume for VIP specifically?

Speaker 2

Dan Briggs thinks it's going to double, but I don't agree with that. I'll be honest with you, it's a learning curve.

Speaker 3

Me.

Speaker 2

Oh, I had a bigger problem. Sheldon thinks it's going to double. I think we've demonstrated slow and steady wins the race. I said it before, I'll say it again, the property is extraordinary, and so is Singapore as a destination. If we keep doing our job, I don't see any reason why we can't maintain and do better in VIP. The team in the field is very, very good. The business is there. Singapore is a wonderful destination. Can I answer whether the third quarter is better than the second quarter? I cannot. I really don't know. I believe in my, I've always believed in Singapore from the day we opened it, and I believe it's going to continue to perform very well. Whether VIP's third quarter is better than the second quarter, I just don't know.

I have a lot of confidence in the team, the building, and the location. Singapore is just a terrific place to operate, and people want to come there. If the Pacific Rim keeps knocking out these ridiculous wealth creations, and I'm assuming they want to gamble, I think we'll do okay.

Speaker 3

We know, but we can't say. What I want to say is that, you know, when you think about the possibility, Singapore's only been open for a little more than a year, both properties. To think that we've saturated the entire market of like 3 billion people within the market radius is not a credible thought. There's no way that we've saturated the market, just no way. The more that people get to learn by word of mouth that Singapore is the place to go. We don't have to tell them Singapore is the place to go, but it's now the place to go to gamble. It's the place to go for tourism. It's the place to go for conventions. Singapore is now no longer known as a stuffy, conservative place.

Nobody's making jokes about chewing gum, but everybody's talking about what great restaurants there are, what a good time you can have when you go to Singapore, and what a great destination it is for both FIT and convention. I don't see it as nobody can convince me that we've even touched the area of saturation of the market. I think Singapore is going to continue to grow and grow and grow.

Speaker 7

Okay. Great. Thank you.

Speaker 3

By the way, Robin, did you hear the 55% number?

Speaker 7

I heard. I noticed that. Yes.

Speaker 3

Yeah. Okay.

Speaker 4

Your final question comes from Bill Lerner.

Speaker 5

Thanks. Hey, guys. Two related questions, both VIP. Let me ask Rob if I can. In Singapore, Rob, how bridled, I guess, is probably since we're all, everybody's so balled up, right? How bridled do you think rolling chip really is? You've talked about, you know, limits taking them up. I suspect the more, you know, the greater tolerance for risk you have, the greater demand you could see at VIP. That's really sort of a structural question. The other is a bit more macro about Macao.

Speaker 2

I think Sheldon answered it very well. I just think, though, as long as the market in Asia continues to create wealth and people want to travel, I think the growth in VIP is not, it could just continue to be very, very strong. We've raised our, I think we knew we talked about this. We believe, I believe very strongly, Andrew and David and Mark Tuliano, our team believes and have advised Mike and Sheldon that we think higher betting limits is a positive approach to take. We've seen enormous action, and the swings in Singapore are dramatic, but the volume is equally dramatic. I don't know what mistakes that we said previously. The demand is there for Singapore. We're privileged in that we operate in two unique places. Macao definitely serves a different clientele.

I think the difference is we're seeing a customer who wants to come to Singapore, who can get to Singapore, who can move capital to Singapore, and doesn't need to actually junket intervention. What we're seeing is the growth of that market without junket intervention in terms of credit, etc. I see no reason why we can't grow our business in the VIP segment in Singapore for sure. I think we're just at the beginning. This isn't, hopefully, this is not the, this isn't just the beginning, not the top.

Speaker 5

Okay. Great.

Speaker 2

I'm not sure I understood Macao what you're asking, though.

Speaker 5

Oh, I didn't ask Macao yet. The Macao question really is, I guess with the passage of time now, Rob, in your full focus in gaming globally, what's your sense on what's really going on at the VIP demand level there, right? We've been through reserve requirement tightenings that have not had a noticeable, if any, impact on credit issuance or just, you know, overall demand. There have been other structural changes and macro-economic factors that, I guess, any naysayer would have been wrong about with respect to impact. Is there just something we don't understand? I mean, the mass market, it seems like it's unbelievably nascent for a lot of reasons. Junket, I understand, I sort of would love your view on that.

Speaker 2

First of all, I think it's important we be clear about our, this company made a major bet to be in Cotai, and it was a magnificent bet. The capacity we have to grow our junket as well as our mass business is just, it's unparalleled. I mean, no one over there, everyone's itching to be on Cotai, but we're there. We're going to be there in a big way in a few short months. You know, I see my job and the teams that I work with in Singapore and Macao is maximization of the real estate. We made the right macro bet. How do we make the thing work and improve our businesses? I think clearly our mass business has been exceptionally strong and will get better as our properties get better. I think the offerings are terrific. The VIP is a very different business.

You know, having been there, you know, a couple of days ago and almost trampled to death coming off the ferry with families and all kinds of people, I never thought I'd see in Macao. Macao, that I started going to 30 years ago, was a lot different than Macao today. The VIP is a very different segment. If you read the publications and you listen to naysayers, there's trouble with the real estate, quote-unquote, "bubble," etc. Having walked through it last week and having spent a lot of time listening, you don't see evidence of it, Bill. You see evidence of a very frothy, very healthy market, a lot of people with a lot of money and a lot of desire to gamble. If there's a problem, I sure didn't see it last week. I went all through Macao on the Cotai as well as the peninsula side.

Boy, it was sure frothy at the VIP. I went through all the major high houses,

Speaker 4

It was very, very impressive. I don't see it. Now, I'm not an economist. I can't predict what's going to happen to real estate in Shanghai or Beijing. That's not my area of expertise. I can tell you that I'm not seeing any weakness on the part of the junket people. I'm not seeing any weakness on the part of the customers. I think our job is just to get our fair share of it, and we have yet to do that. I think Ira Raphaelson did very well on our past difficulties. The future's ours. It's bright. It's sunny. As long as our team stays committed and stays focused, I'm not that worried about the Chinese economy or the capital. That's beyond our control.

Within our control, we build the spaces, and we simply cater to the customer and make sure the relationships are right, and we'll be rewarded for it. That's my take.

Speaker 1

We have to adjust our budget because we have to send out our towels. You know, you've heard about towels that we send out to people who get egg on their face for their wrong projections? We have to send them out to almost every analyst in the street. Ken, can we fit that in the budget?

Speaker 4

Yeah, thank you. I'm glad you left out that.

Speaker 1

Thank you. If you need change of a bit, give my wife a call.

Speaker 4

Okay, thanks, Ron. Thanks, guys.

Speaker 3

Thanks, Bill. Appreciate it.

Speaker 2

Ladies and gentlemen, we have reached the end of our allotted time. I will now turn the call back to management for final remarks.

Speaker 4

Final remarks?

Speaker 1

Who can Larry Pletz get?

Speaker 4

Final remarks.

Speaker 1

My final remarks are just what I repeated, which you probably got from me before. I see no reason why our continued growth pattern and our trend going upwards will be abated. I do not see that any of our metrics will contract. I think on the VIP side in Macau, we've got that problem solved. All we have to do is just build out the spaces, and we think we ought to be back to where we should be. We are looking forward to an increase in the gross revenue, but I'm very proud of the fact that what really counts, you can't put gross revenue in the bank because you have to pay expenses for them and taxes and commissions. I think that our EBITDA, we continue to lead the pack and by a substantial margin. That is the most important thing.

We can put that in the bank, and that's how we create value for shareholders. I see us continuing to go up. I see Singapore as a very, very unique place, and I think Macau will also experience it as more and more people go to places they like. It's like a rising tide. It's going to carry all boats. I have never seen a boat stay underwater when the tide went up unless there was a hole in the boat. I have never seen a boat stay up in the air when the tide went down. A rising or an ebbing tide carries all boats. I think Macau will look at the % of growth in Macau. It's amazing. It's just staggering. I think that what's happening in Singapore is that we wish that we had greater capacity.

I think the next quarter we will be reporting some interesting things. My motto for the day is onwards and upwards. Thank you all for being part of this call, and we look forward to our next call.

Speaker 2

Thank you for participating in the Las Vegas Sands second quarter 2011 earnings conference call. You may now disconnect.