Las Vegas Sands - Q3 2023

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the Sands third quarter 2023 earnings conference call. At this time, all participants have been placed on listen-only mode. We will open the floor for your questions and comments following the presentation. It is now my pleasure to turn the floor over to Mr. Daniel Briggs, Senior Vice President of Investor Relations at Sands. Sir, the floor is yours.

Daniel Briggs (SVP of Investor Relations)

Thank you, Paul. Joining the call today are Rob Goldstein, our Chairman and CEO; Patrick Dumont, our President and COO; Dr. Wilfred Wong, President of Sands China; and Grant Chum, EVP of Asia Operations and COO of Sands China. Today's conference call will contain forward-looking statements. We'll be making those statements under the safe harbor provision of federal securities laws. The company's actual results may differ materially from the results reflected in those forward-looking statements. In addition, we will discuss non-GAAP measures. Reconciliations to the most comparable GAAP financial measure are included in our press release. We have posted an earnings presentation on our website. We may refer to that presentation during the call. Finally, for the Q&A session, we ask those with interest to please pose one question and one follow-up, so we might allow everyone with interest the opportunity to participate. This presentation is being recorded.

I'll now turn the call over to Rob.

Rob Goldstein (Chairman and CEO)

Thanks, Dan. Thanks for joining us today. Macao delivered $630 million of EBITDA for the quarter, and we are only eight months into our post-COVID, post-COVID reopening. These are early days. We began in Q1 with $400 million EBITDA. Q2, we did $540 million EBITDA, and Q3 is now at $630 million EBITDA. Look forward to growth in both the gaming and non-gaming revenue to lift the entire market. SCO has the largest share of non-rolling table win, rolling table win, and slot ETG win. We've always believed that completed Londoner will meet and perhaps exceed the earning power of The Venetian. Our future growth in Macao is tethered to these powerful assets, which have all the variables necessary to drive growth in the years ahead.

Whether it's rooms, gaming capacity, retail, entertainment, food, and beverage, we have stellar assets. There is speculation about the future growth of Macao. The relevant question is: Can the market grow to $30 billion, $35 billion, $40 billion of GGR and beyond? We are firm believers that it will and may occur much in a much shorter timetable than anyone realizes. This underscores our confidence that returns will be generated by our capital investment programs in our portfolio. We are staunch believers in the growth of Macao market in the near and long term. LVS has invested $15 billion in Macao, which is the most important land-based market in the world. A few reference points to consider. Third quarter EBITDA represents strong growth when compared to the previous quarters, as I mentioned. Our retail business in Macao has far exceeded pre-COVID numbers.

I expect the gaming portion of our business to follow the same trajectory as Singapore and accelerate in 2024. Let's turn to MBS in Singapore. Six quarters into a reopening, MBS delivered a $490 million quarter. The power of this building is evident based on the results, despite the disruptive impact of our ongoing $1.75 billion US dollar renovation program. Disruption notwithstanding, MBS is hitting on all cylinders from a gaming, lodging, and retail perspective. Slots and ETG at MBS are approaching $1 billion annually. Non-rolling tables are exceeding $20 million in drop per day. The ADRs are escalating, and our retail component is delivering far beyond pre-COVID numbers. MBS is a testament that quality assets prevail and validates the thesis that reinvesting in our assets will generate sustained returns.

MBS has it all: an iconic building with superb decor and service levels, which attract the most desirable customers in every segment. At the completion of both phases of our refurbishment program, MBS will feature 770 suites. We used to have 200 suites before the refurbishment. There is no denying its future. How far can MBS go? Our expectations start with $2 billion and more in the future of annualized EBITDA. Finally, we're bidding for a license in New York. We've secured the Nassau Coliseum in the process of gaining the necessary zoning requirements to move forward. We're also receiving strong local support from the local community. The resort will cost in excess of $5 billion, which enables us to develop a five-star resort with unlimited appeal. This is simply an extraordinary opportunity, and we are very excited about the prospect.

Our bid is compelling, that if we are awarded the license, it will be in the ground as quickly as possible. Thanks for joining us again, and we'll turn the call over to Patrick before we move on to some Q&A. Patrick?

Patrick Dumont (President and COO)

Thanks, Rob. I would like to cover two important topics before we get on to your questions. The first is the long-term margin structure we expect in our Macao business. As the Macao market revenues continue to recover, our margins will naturally benefit from an improved business mix. This quarter, our Macao EBITDA reached $631 million at a 35.3% margin, which is an increase of 210 basis points compared to the second quarter of 2023. As revenues continue to grow, we expect our margin to exceed the 36% of our Macao business in 2019. This quarter, The Venetian Macao grew EBITDA to $290 million, with margins reaching 40.1%. This is an example of a property achieving strong revenue recovery with financial performance and margin that reflect the improved business mix.

The Londoner Macao grew EBITDA to $167 million during the quarter, with EBITDA margin expanding 660 basis points sequentially to reach 32.2%. The strong flow-through of revenue to EBITDA reflects the operating leverage of our business once the fixed costs have been covered. The transformations to The Londoner has created a world-class product that is a must-see for visitors to Macao. We will naturally have some construction disruption in 2024, but we expect future EBITDA growth and margin expansion over time. So that's Macao. The second item I wanted to cover is an update on our plans for the return of capital to shareholders. Our board of directors has authorized a $2 billion share repurchase through 2025, and we're looking forward to restarting our share repurchase program.

In the 9-year period from 2012 to 2020, we've returned over $22 billion of capital to Las Vegas Sands shareholders in the form of dividends and repurchases, which was split roughly 80% dividends and 20% to share repurchases. As we consider our future capital return, we expect share repurchase will be more heavily weighted than dividends. We believe repurchases will be more accretive than dividends over time as they reduce the denominator. We fundamentally believe in the compounding long-term benefit of share repurchases. So that's the capital return update. Thank you once again today, and let's move to Q&A.

Operator (participant)

Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to enter the queue to ask a question, please press star one on your telephone keypad now. If listening on speakerphone today, please pick up your handset to provide optimum sound quality. Also, we ask each participant to limit yourself to one question and one follow-up. Please hold a moment while we poll for questions. The first question today is coming from Carlo Santarelli from Deutsche Bank. Carlo, your line is live.

Carlo Santarelli (Managing Director of Gaming and Lodging Equity Research)

Hey, guys. Patrick, thank you for the additional color. Rob, or anyone over in Macao, maybe this one's best for. But as you guys think about the base mass and the premium mass, it looks like in the quarter, you guys kind of converted some premium mass tables to base mass tables, and obviously with the increases in visitation, that makes sense. Is that something you expect to do going forward? Do you have what you need, basically, in terms of the premium mass footprint, in terms of table count at this point?

Rob Goldstein (Chairman and CEO)

Oh, you know, the beauty of our business model is we've got plenty of capacity to do whatever we want. We'll move to the market. As you saw in the quarter, we moved tables around to accommodate where we saw demand. But again, with the number of rooms and our table capacity, we can grow into any market that wants any segment that shows strength, and that's what happened here. The truth is, I expect us to both move forward in the future and show growth both in base and premium. But our assets are built to be just this, which is versatile, able to accommodate the market. Grant, maybe you have some color, but that's true of any market.

The only difference in this market for me is we have such a huge amount of table supply, and we're very nimble. Grant?

Grant Chum (EVP of Asia Operations and COO of Sands China)

Yeah. Thank you, Rob. Yeah, I think the repositioning this quarter for more towards base mass tables, that's just a natural part of our optimization between the segments. And of course, as you rightly referenced, the summer saw a big increase in visitation and the base mass business, so that was just a natural repositioning to optimize the table count. As you can see, sequentially, a win per unit increased substantially in premium mass, up 19%. And base mass, even though we reoriented the table count towards base mass, we also increased the win per unit by 7% sequentially. So I think that you can see very clearly that we actually did optimize pretty well for the quarter between the two segments in terms of table capacity.

These numbers will change again as the market evolves, depending on which segment is growing faster.

Carlo Santarelli (Managing Director of Gaming and Lodging Equity Research)

Great. And then thank you for that. Patrick, if I could just kind of follow up on the Venetian and acknowledging that there was some high hold in the period on the VIP side, but it's a relatively small number in terms of revenue. As you think about kind of the margin profile, the 40.1% margins in the period at the property kind of rivaled 2019, despite annualized third quarter net revenue being down, I think, close to 18% versus what you did in 2019.

If we think about that gap, that $600-odd million flow-through, getting back to kind of 2019 net revenue levels at that property or any other property, how would you think about kind of the incremental flow-through on that incremental net revenue? And perhaps, you know, we could obviously take it from there to get a sense for where margins could kind of prove out over time.

Patrick Dumont (President and COO)

So it's a great question. I think for us, the first thing is this is what happens when you cover your fixed cost base. So when we were 70% recovered, we had to cover our fixed cost base in Macao. And as the market recovered and as tourism and visitation continued to grow, we will reach our run rate margin levels, which we always felt was in this context. So what you see at The Venetian is the result of a great product that has, you know, it's really an example of a property reaching a more run rate level of operation post-pandemic, and the performance in margins that result. And we feel very strongly that The Venetian Macao is room to run as mass visitation continues to return to the market.

Remember, Macao visitation is still about 20% less than it was pre-pandemic. We're down about 1 million visitors in the same period. So we feel very strongly about the margin potential. We're very proud about what's going on at The Londoner. We think the market is starting to understand that product, how great it is, and we're starting to see the results in terms of productivity, in terms of market. But again, in that product as well, we think there's more room to run. So, you know, I think it's a great testament to the team there, the work they've done to grow these businesses. But to be fair, we think there's strength in margins to continue as revenue continues to come into the market through visitation.

Carlo Santarelli (Managing Director of Gaming and Lodging Equity Research)

Great. Thank you very much, guys. Appreciate it.

Patrick Dumont (President and COO)

Hey, Carlo.

Operator (participant)

Thank you. The next question is coming from Joe Greff from JPMorgan. Joe, your line is live.

Joe Greff (Managing Director and Senior Equity Research Analyst)

Good afternoon, guys. Before COVID, you guys used to disclose department margin ranges for base mass table games and premium mass table game ranges. I think base mass was 35%-45%, and premium mass was 25%-40%. Are those margin ranges or the midpoint and higher still viable, or does the Londoner and that ramp and clearly is in ramp mode right now, does that cause those ranges to be more middle or the lower end of that range than the aggregate in Macao?

Patrick Dumont (President and COO)

So, you know, I think for us, because of the mix of business and where we're investing, we sort of run the business in aggregate. So what we're looking at is the 40% margin that the Venetian just put up in the quarter, and the 660 basis point expansion in margin that the Londoner saw as the market discovered how great it was, and we started getting, you know, more visitation and more growth. So I think for us, that's really how we're looking at it. You know, departmentally, I think we manage the business overall. And as Rob said earlier, we're going to shift assets to the segment that is most productive and provides the best returns. So I think for us, we're not really looking at that as a guide.

We're really looking at overall productivity of our asset base in total. You know, I think one thing that's interesting to consider is, so in Macao, room occupancy was 96%, versus 95% in the same period of 2019. But the thing that's interesting is we're actually driving more daily casino nights at higher yields per room. And so in the premium mass segment, we're seeing that recovery, but our base mass segment is starting to recover strongly. And this is really what you see is the businesses that used to support Macao mass tourism continue to come back online after what was basically a three-year hiatus. So this increased visitation will drive base mass revenue growth, and we'll start to see margin return to a more normal mix. So I wouldn't look at the departmental.

I would look at the recovery and the aggregate margin of the operating asset. That's kind of how we're managing the business, and we're trying to manage segments throughout.

Rob Goldstein (Chairman and CEO)

We look at EBITDA.

Patrick Dumont (President and COO)

We look at EBITDA, which is the most important thing. Thank you, Rob.

Joe Greff (Managing Director and Senior Equity Research Analyst)

Thanks. And then with respect to the buyback, that was great to see, Patrick. Do you look at that as more episodic or opportunistic, or do you look at it as, you know, there's a minimum level or a consistent level per quarter, per year that you would look at?

Patrick Dumont (President and COO)

I think we're going to be measured across time. I think we want to return capital through share repurchases in a meaningful way. We think there is a real benefit to reducing the denominator. We think it's accretive. We think there's a compounding effect in share repurchases, and so we're looking forward to doing it on a regular basis. You know, the amounts to be determined, but for us, you see the size of the authorization, you see our balance sheet strength, you see the amount of cash flow we're generating out in the business, and we're going to go out and be aggressive.

I think for us, we fundamentally believe in the dividend, but if you look at that split that we had, you know, let's call it pre-pandemic of a return on capital story, I think we're looking to be majority share repurchases and get that benefit. And so, you know, if you look at how we've returned capital historically and in a regular and repeatable way, I think we're going to look to do that again.

Rob Goldstein (Chairman and CEO)

Hey, Joe, we can't help but be somewhat opportunistic as we look at the market. Our stock is trading roughly at COVID levels, and we think our buildings are going to make $5 billion and more, $40-$50 billion in the next decade. It's hard not to look at the stock and say, "Gee, that's opportunistic." On the other hand, we also like to be long term and be consistent. So it's kind of a mixture of both, but it's hard for us to sit here today and look at pricing as if we're, you know, closed in Macao or half open in Macao and Singapore and not think there's opportunity, but we also have a long-term perspective.

Joe Greff (Managing Director and Senior Equity Research Analyst)

Great. Thanks, Rob. Thanks, Patrick. Thanks, Dan.

Operator (participant)

Thank you. The next question is coming from Robin Farley from UBS. Robin, your line is live.

Robin Farley (Managing Director and Senior Equity Analyst)

Great. Thank you. I wonder if you could give us some thoughts on kind of what is holding back that lower-spending customer. You know, it sounds like transportation bottlenecks are no longer really the issue in Macao. You know, if it's the RMB depreciation, is that something we have to kind of wait for that to anniversary next year? Or, you know, I just-- What do you think will change that, you know, the kind of visitor levels for that lower-spending segment? Thanks.

Patrick Dumont (President and COO)

Yeah, I think, I think, you know, it's interesting. If you, if you go to page 16 in our deck, you know... and by the way, we debate this all the time. I think the team on the ground there is very focused on it. I, I think what you'll see is that, you know, visitation is from China, excluding Guangdong, is 72%. You know, Guangdong is back to 92%, but if you look at the airlift, you know, Macao Airport was only at 64% of 2019 capacity in the quarter, and Hong Kong was only at 63%. So it's, it's a pretty meaningful difference. And so, you know, frictional transportation difficulties are still real, and they're getting better.

Our customers can get to Macao a little more easily in this quarter than they could the quarter before, but we're still not back to normal. And so what we're starting to see is, as I mentioned earlier, some of the infrastructure for mass tour groups are returning, which is very positive. Starting to see some of the increased volumes due to their visitation. Some of the higher value customers, premium mass customers and VIP customers, airlift isn't great. You know, and some of this airlift coming into Macao is domestic, and some of it's some of it's international. So I think for us, as we see this airlift capacity recover-

... we're going to start to see more visitation and, of course, benefit not only us, but also the entire market as more people are able to get here more easily. But I think the recovery story is not fully there in terms of air travel and in terms of accessibility. I think it's on the way, but it's not fully back.

Robin Farley (Managing Director and Senior Equity Analyst)

So I guess I'm thinking that the air travel wouldn't necessarily be where the lower spending customer would be coming from. And high-speed rail, I think, is back to pre-COVID levels. So I just - is there anything else that you think is impacting it that needs to change, whether it's, you know, policy in mainland China or kind of anything else outside of that transportation issue? Thanks.

Rob Goldstein (Chairman and CEO)

Grant, do you want to jump in here?

Grant Chum (EVP of Asia Operations and COO of Sands China)

Sure. Yeah, I think, Robyn, well, Patrick referenced 72% out of non-Guangdong. Actually, if you look at the regional differences between provinces, I mean, there are some of the highest spending provinces are actually way above 2019 in terms of visitation. And some are lower than 2019. So I think there are just some regional differences depending on a whole host of factors, you know, ranging from the transportation to the availability of hotel rooms, and so on and so forth, and their propensity to go cross-border in their trips.

I mean, this is the first set of summer holidays since COVID, and I think what you see is actually a very strong acceleration in that non-Guangdong visitation this quarter. So we're really up 22% overall visitations, but within that, mainland China is up a lot more sequentially. And that is also reflected in the property visitations that we saw this quarter, the 17% increase in the base mass revenue that we saw. So it is picking up, but it just accelerated at a different pace from the premium mass, which, as you know, came back right from the start in a stronger fashion than the base mass.

So I think as more hotel inventory is actually opening up, and the propensity improves, people know, you know, the Macao market is back. And with all the non-gaming investments and events that are driving the interest in the destination, I think that base mass segment will naturally improve over time, as it did already significantly this quarter.

Robin Farley (Managing Director and Senior Equity Analyst)

Okay, great. Thank you, all. Thanks.

Operator (participant)

Thank you. The next question is coming from Stephen Grambling from Morgan Stanley. Stephen, your line is live.

Stephen Grambling (Senior Equity Research Analyst)

Hi, thanks. This may be a bit myopic, but would love to hear a little bit more color on how Golden Week may be trending and how the pace of recovery has continued across different customer categories more recently, especially around these big events that seem to have given kind of a step function move in the recovery historically.

Rob Goldstein (Chairman and CEO)

Hey, Steve, we traditionally don't talk about the current quarter. We'll keep that intact here as well. I think you look at the numbers in the market as they print, you see the strength of Golden Week is pretty evident, the numbers printed by the government and other sources, but we never comment inside the quarter.

Stephen Grambling (Senior Equity Research Analyst)

Fair enough, and maybe changing to something more specific. Okay [audio distortion] I wonder if they, too, would love to just hear anything around potential near-term disruption. I think that that's going to be starting in November, and then when that might be felt most and when we can anticipate the re-ramp.

Rob Goldstein (Chairman and CEO)

Yeah. I'll turn to Grant. There will be some disruption, but we, we still feel as though the the initial results on there are obviously we're looking at as a, you know, future hope that Londoner's prospects. All right, Grant, take it through 24, both room and casino, obviously, not better and how we see it.

Grant Chum (EVP of Asia Operations and COO of Sands China)

Yeah, sure, Rob. I think clearly we will go out to minimize the impact on the guest experience and the business operations. But this is something that we have managed many, many times over the years. And indeed, we did that during 2019 when we started the Holiday Inn conversion into The Londoner Hotel. I think you'll see, you know, some disruption on the gaming side in the middle of next year. And I think we'll be managing the Sheraton Tower renovation methodically and judiciously over the entire period over the next 15-18 months, so as to really continue to enhance the yielding on the customer front, but at the same time try to get these works done as quickly as possible.

I think the intent here is to move forward and complete the renovation and the repositioning of the entire south side of the resort, the Sheraton Towers and Pacifica Gaming, as quickly as possible. The sooner we make the entire resort Londoner, the better it'll be for, for everyone, our guests, our staff, our business, and the brand positioning. So the only other point I would make is we should take note that this part of the property portfolio is the lowest yielding part of the entire Cotai portfolio that we have, both on the hotel and the gaming side. So we do hope to be able to successfully manage to minimize the disruption to the business.

But when we get to completion on the other side, in the first half of 2025, I think the earnings power through the holistic and expanded experience of The Londoner Macao will be significantly enhanced. That's the goal.

Patrick Dumont (President and COO)

Just sort of one thing to think about. Yeah, one thing to think about: so we're very focused on return on invested capital and growth in Macao. And so our anticipation is that the returns on these investments will be commensurate with those that we had previously and will drive meaningful growth. And by the way, the initial market reaction to this product, really to what's been brought online so far, really helps us with this view. Given the customer response and the performance of the asset in the long run, we believe that the completed Londoner, when it's done, will be on par with the Venetian. That's where our target is.

Rob Goldstein (Chairman and CEO)

I'd also add to Grant's comments, Stephen, just again, the size, the scale, of our portfolio gives us flexibility. We have 10,000-15,000 other rooms, money, casinos to move customers to. So I think we minimize the disruption and maximize the opportunity to deploy the rest of our assets to keep our business strong despite that. And to Patrick's comment, London looks like it's going to be a juggernaut. They'll be neck and neck, maybe exceed, those two assets that are going to be hugely important in the future. But getting through 2024, while not easy, I think it's very manageable if the team deploys other assets in the portfolio intelligently.

Stephen Grambling (Senior Equity Research Analyst)

Thanks. I'll jump back in the queue.

Rob Goldstein (Chairman and CEO)

Okay, thank you.

Operator (participant)

Thank you. The next question is coming from Chad Beynon from Macquarie. Chad, your line is live. Chad, are you with us? Chad, please check your mute button. Your line is live if you wish to ask a question. Okay, we can come back to Chad later. The next question is coming from Shaun Kelley from Bank of America. Shaun, your line is live.

Shaun Kelley (Managing Director and Senior Research Analyst of Gaming, Lodging and Leisure Equities)

Hi, good afternoon, everybody. I just wanted to go back to the margins in Macao and maybe that flow-through discussion a little bit more. If we look at it, it does look like flow-through, just sequentially, was a bit better in the third quarter here than in the second. I was just wondering if we could get a little color on sort of maybe some of the mix impacts that drove that. Was that, you know, normalized staffing? Was it some of the non-gaming, you know, amenities which are now kind of fully back on, which flow through at really good rates, like retail and hotel? Was it sort of the base mass mix coming back? Just kind of how do you see it in terms of, you know, what maybe some of the factors were that drove that?

Because it does look, you know, quite impressive.

Patrick Dumont (President and COO)

Thanks for that, and appreciate the question. I will tell you that there's a little bit of magic to it. It's called revenue increase, 28.9%. So for us, it really is just more people showing up, spending money at the product, recognizing how great it is, and increased demand. I mean, it's a phenomenal product. We were there last week. It really looks great. The team is really providing unbelievable customer service, and it's a highlight for Macao. It's a great asset and will continue to grow. For us, it was just covering the fixed cost base. You know, we just had to get open, and it was not a known product in the market. People are starting to figure it out, and it's going to keep growing.

And so for us, this was really just growth in revenue across all segments. That was really the secret to it.

Shaun Kelley (Managing Director and Senior Research Analyst of Gaming, Lodging and Leisure Equities)

Great. Thanks, Patrick. And then, as my follow-up, I just, you know, wanted to dig a little deeper into the buyback authorization. Obviously, a big, you know, kind of strategic change. Could you give us a couple parameters? I mean, pre-COVID, you know, the company was actually pretty high on its sort of overall payout ratio. You obviously have a pretty ambitious capital program across potentially New York, certainly what you want to do on the big project in Singapore, some renovation activity and some of the CapEx in Macao. So, you know, should we think in parameters of a payout ratio? And maybe how could we, you know, put some numbers around that if possible.

And then also just help us think about medium-term leverage, just given, you know, you're probably the most underleveraged gaming company I've ever covered. So, a big compliment to where you sit at the moment, but obviously, it presents a lot of, a lot of potential firepower there.

Patrick Dumont (President and COO)

So really, really appreciate the commentary and the question. I will tell you, so right now, we're sitting at about $5.6 billion worth of cash system-wide. Macao is starting to become very cash generative. Singapore is very cash generative. So the way we think about this is due to the timing of our, our development obligations and those cash flows, we will be able to do all of it. We'll be able to invest in our, in our core markets and grow through organic growth and through redevelopment of key assets. We'll be able to do [audio distortion], We'll be able to do our, our concession commitments in Macao, and then we'll have excess capital, and we'll pursue New York, and we're going to pursue other growth opportunities in new jurisdictions.

We'll be able to do it all because of the timing of the cash flow, the cash we have on hand, and the cash generative nature of our assets. So in terms of the payout ratio, as we addressed earlier in the call, we're not going to be as heavily weighted towards dividends as we were before. So if you look on page 30, we sort of included a look on what were our prior return of capital programs looking like for both share repurchases and dividends. On page 30, what you'll see is historically, we're very dividend-weighted. And to your point about payout ratio, we don't typically guide to payout ratio, but the point is well taken. We're looking really to flip it. So for us, the majority is actually going to end up being share repurchases because we're very focused on growth.

So if we can grow the company's EPS through share shrink, we're going to do it. If we can grow through capital allocation, through high-growth projects, we're going to do it. It's really an ROIC, and we're going to pursue it aggressively. The good thing is, we've got cash on the balance sheet, we've got cash generative assets, and we have a historical program to provide a good guide that we can launch off of and really hopefully drive real shareholder return in the future. So that's kind of how we're thinking about it.

Shaun Kelley (Managing Director and Senior Research Analyst of Gaming, Lodging and Leisure Equities)

Thank you very much.

Patrick Dumont (President and COO)

Sorry, one thing. Thank you, Dan. You mentioned leverage, and this is a very important thing. Prior to the pandemic, we spent about five years transforming the company to be an investment-grade name. We thought this was really important. It gives us access to the largest, most liquid debt market in the world. It gives us a very efficient cost of capital, which in the long run, provides flexibility, but also drives returns on our new projects. Having this investment-grade balance sheet also helps us in new jurisdictions because we have the financial capability to execute on projects we propose. For us, we like being leveraged two to three times on a gross basis. We've said it before, you know, you've heard it from us on prior calls. Nothing's changed. We still believe that.

We think we'll delever over time through EBITDA expansion, but more importantly, I think for us, that's a key metric, so that we maintain our investment-grade rating for all the benefits we just described. So that's kind of how we're thinking about it.

Shaun Kelley (Managing Director and Senior Research Analyst of Gaming, Lodging and Leisure Equities)

Thanks for that.

Operator (participant)

Thank you. The next question is coming from Brandt Montour from Barclays. Brandt, your line is live.

Brandt Montour (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

Great. Good evening, everybody. Thanks. So for Marina Bay Sands, first, in your slide, you show flight capacity hovering around 80% recovered. Based on the momentum that you guys have seen in that asset, do you still feel like you need that last 20% of China inbound to fully recover to hit that $2 billion run rate target? And can that happen actually while Tower 3 is under reno?

Rob Goldstein (Chairman and CEO)

Well, it's happening, isn't it? I mean, this quarter, we just did, you know, $490 million. I hate to say it, but it's happening. Good question. Do we need... We always need China. Let's be clear about that. We always want more business from all countries. But I think what you're seeing in Singapore is a very diverse bunch of assets all coming together. I think the biggest story is the suite product, which you haven't seen. It's pretty extraordinary. When it goes from $200 to $790, $770, it's just a very potent combination of great food and beverage, great service, and enables us to get to places we never thought of before. The real question for me is, I think $2 billion is our goal in the future and beyond.

The real question is when you get more China, when you get more flights, when you open up totally. You know, the thing about—we can talk about Singapore, it's been open about six quarters now. If you follow the trajectory of Singapore, we're hoping the same thing happens in Macao. We're in early stages in Macao. As Singapore opened up, it wasn't that powerful in the first couple of quarters, and, you know, it limped along. All of a sudden, it caught fire, and now it's suddenly performed. We're surprised how strong it is and because the place is kind of torn up. If you've been there, it's got some real challenges from a physical perspective. So to answer your question, we think we can get there without more, but want more. We'll take all the customers that you can get.

We think this is a unicorn asset. It's one of those places you just want to go to. You'll pay up for whether your room product or the gaming opportunity, or retail, it just is going to keep getting stronger. Do we think it's achievable? Yes, but we prefer to have, you know, all airlift coming in and all the potential customers in China visiting? Sure. We just have a huge faith in this product. We don't think two is the end. It's the beginning we're in. So I do think it's important, though, to give Macao the benefit of understanding. We've gone from a dead stop in January, back to the very difficult times of no one coming, to a mere nine months later, about 80% of Q3 2019. But how much further can I go? I think a lot more.

If you look at Singapore, this trajectory, I think it's very telling what's going to happen in Macao. So, you know, I think, again, another illustration of what's happening in Singapore is on page 25. I think the retail slide is just... You have to look at it. I don't know how many malls you guys have spent time in, but $3,000 a foot is a pretty good local mall. The Four Seasons Macao is $8,400 a foot in the luxury segment, and $3,700 in the non-luxury. Even Venetian Macao, which is not necessarily a luxury mall, is doing $1,700 a foot. So the power of the spending right now in these retail opportunities, they always seem to happen first. The gaming seems to follow us.

It happened in Singapore, it's going to happen in Macao. But to your question, we have huge confidence in the future of MBS, and I think our investments will prove in the end. We'll make works in these, in these places, in supremely strong buildings with great service and great architecture, and that's what you have residing in MBS.

Brandt Montour (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

Great. That's super helpful. And then over on Macao, on slide 14, it shows the win per visitor coming down quarter-over-quarter. It's the second quarter that's declined. Is that sort of wholly explainable by the reallocation of tables to base mass, which we talked about earlier in the call? Or is there any other constraints that you'd want to highlight why why that sort of win per visitor is hovering around, yeah, some of the quarters that we saw in 2019?

Patrick Dumont (President and COO)

Just, just a quick thought on page 14. It - this is really driven by visitation, by the number of visitors who are showing up to the market as it averages down. But I would like Grant to comment if he's any thoughts, just for some additional color.

Grant Chum (EVP of Asia Operations and COO of Sands China)

Yeah. Thanks, Patrick. No, I think what you're seeing is the evolution of premium mass coming back first. So for the first couple of quarters after the borders reopened, you saw the revenue per Macao visitor arrival, which is what this page shows, skyrocketed versus the historical levels. And you're now obviously getting more of the base mass, especially during the summer. So you are normalizing, but it's important to note that you are still getting a much higher quality mix of customers, even with that, when you compare to the same quarter in 2019. So I think from this slide, you can see it's $610 per visitor arrival in this quarter versus $557 in the same quarter in 2019.

So the narrative continues that you are getting that higher quality across every segment, a higher spend per capita. But between the premium mass and base mass, you're now seeing the base mass starting to accelerate, especially during those July and August summer months.

Brandt Montour (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

Got it. So just sorry to clarify. So, it's mixed to the base mass, but also, well, more well-heeled customers that might be gambling slightly less, like families and such. Is that kind of the way to look at it?

Grant Chum (EVP of Asia Operations and COO of Sands China)

No, this is actually showing you that the mass revenue per visitor arrival is actually higher than the same quarter in 2019. So actually, it suggests that the higher spend per capita is actually prevalent in all segments of the market right now. And that also shows through in the gaming, sorry, in the retail mall that Rob referenced as well.

Brandt Montour (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

Perfect. Thanks for all the color.

Grant Chum (EVP of Asia Operations and COO of Sands China)

Thanks, Rob.

Patrick Dumont (President and COO)

You. Thanks, Brandt.

Operator (participant)

Thank you. The next question is coming from George Choi from Citi. George, your line is live.

George Choi (Research Analyst)

Thank you very much. While we do believe concerts can help you get incremental revenues in Macao, how should we think about the associated incremental expenses? I guess more specifically, do you expect the Eason Chan concerts at the Venetian this month to be both EBITDA accretive and margin-enhancing at the same time?

Patrick Dumont (President and COO)

So, one thing just to begin, and thank you for the question. Entertainment is a very important part of our business. We're very focused on using entertainment to drive premium mass visitation and create the programs that allow customers to feel like they'll get experiences with us they can't get in other places. It's a very successful thing in Asia, and in fact, we just recently opened a brand-new venue in The Londoner that allows us to do that in more scale. So I think for us, these programs are very accretive. You know, directionally, we think more entertainment as high quality is good, not only for the market, but also for diversification in Macao and in Singapore. I think it brings a prominence and an entertainment glow to the region.

I would like to turn over to Grant to see if he has any additional comments about entertainment and costs associated with it.

Grant Chum (EVP of Asia Operations and COO of Sands China)

Yeah. Yeah, thanks, Patrick. Yeah, I think we've always been pursuing the entertainment strategy to create a better, more attractive destination, and that hasn't stopped since the borders reopened. In fact, we have been redoubling our efforts, as Patrick said, with the opening of the Londoner Arena in May and June. So if you look at, you know, the third quarter, we actually did around 15 different show events with about 19 performances across the two arenas, and obviously in some only 13 weekends in the quarter. So there were some weekends where we are doing both a show at The Londoner and also in The Venetian.

And we believe this is critical to driving not just the diversification in Macao and the non-gaming, but also to enhance the attractiveness and the propensity to come to the destination, especially our properties. And we can see the impact on our business. The economics of this hasn't changed, and we've done this for 15 years, so we know how to calibrate the investment in entertainment versus the return we get on the overall resort spending. And also there are different types of partnerships that we do in entertainment events, and that can range from just pure venue rental to us being the actual promoter. So it varies, and it...

The calibration, it's an analysis between the revenue benefit that we get and the visitation benefit that we get versus the cost. Also depends potentially on the entertainment partner as well, whether they invest or they want us to co-invest or us to invest. But that really hasn't changed, and we've been doing it for more than a decade. But what has changed is that we are actually significantly increasing the content because we now have a new spectacular venue in The Londoner for live music, which is already getting great feedback in terms of its quality as a venue both for the audience but also for the artists.

Rob Goldstein (Chairman and CEO)

George, I would say in my experience, entertainment is an essential component of any top-tier resort. And you can never underestimate how powerful it is as a statement of customer longevity, commitment, and honestly, for us, it's been a staple. The only regret I have, we can't do more because it's so powerful, just like retail, just like it's part of the package that makes people want to come and visit. It's the reason why we have been so successful at the Venetian with the Arena, and it was true in Las Vegas, it was true in Atlantic City, it was true in any place I ever worked. It's always been an essential component. It will be very powerful in Singapore as well.

To me, it's not even a question, it's a question of how we do more of this stuff because it pays and pays and pays. Very powerful.

George Choi (Research Analyst)

That's very good color. Thank you very much.

Rob Goldstein (Chairman and CEO)

... Thanks, George.

Operator (participant)

Thank you. The next question is coming from Dan Politzer from Wells Fargo. Dan, your line is live.

Dan Politzer (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

Hey, good afternoon, everyone. First on Singapore, the CapEx, the $750 million for phase two, how do you think about this maybe relative to your longer-term expansion plans at the property? I know that's been pushed out and the budget's probably higher than it initially was. But, I mean, is this more of kind of a bridge to that, or how should we think about that, you know, long term and maybe when we get an update there?

Rob Goldstein (Chairman and CEO)

It's commitment to phase one because the product, as good as it was externally, architecturally, it lacked, frankly, it was necessary that what happened in phase two. It's the best money we could have spent to make that product successful and stronger. It's going to pay off enormous dividends in the future. The room product was lacking, both from a size perspective, but also a finish perspective. Some of the casino space was just not very good. I always felt that MBS, as good as it was architecturally, it lacked the [audio distortion] inside the building. And in our business, great buildings always prevail and prevail for decades and just grow and grow. So that money is money very well spent. It's not connected at all. It's meant to make MBS One a very powerful $2+ billion product. We built the Singapore years ago.

The speculation was it would never be, you know, more than $500-$600 million in EBITDA. We're going to push through $2 billion and beyond, and I think it's a testament to reinvestment and spending money wisely. It doesn't have any association with phase two. Patrick, phase two?

Patrick Dumont (President and COO)

Yeah, just, to follow on what Rob said, so fundamentally, we believe it's a product-driven business, right? And so that investment in quality, investment in innovation, with great service and guest experience, are going to drive outside returns over time, right? So, you know, I think you're seeing that with The Londoner, and in Marina Bay Sands, the rooms we just completed, Tower 1 and Tower 2, the design is luxurious, it's residential, it has unmatched levels of service. These are the best things we've ever done, and they're basically setting a new standard for hospitality and customer experience at our properties. And to Rob's point, when Tower 3 is done, Marina Bay Sands is going to be the oldest best hotel property in the world. We're really focused on it.

From a food and beverage standpoint, from a retail standpoint, as Rob said before, from a guest experience standpoint, that's what we're focused on. Tower 2 is going to be something different. It's going to be a new standalone development. It's going to have unique spaces, unique design, unique service, but it's something that's probably six months to a year away, depending on how things go with approvals in order to get started. It will be additive to Marina Bay Sands. It will grow the market for us, be a different product, and allow us to also have a live entertainment venue in Singapore, which is something that we really haven't had at scale before.

If you look at the power of the Venetian and what we're doing in The Londoner with the venue that Grant mentioned, we will now have that capability in Singapore to drive high-value tourism, to drive further growth, and to really work that tourism that's related to live entertainment that we never really could do before. So for us, the expansion of Marina Bay Sands is a step function in growth potential. We're looking forward to doing it. We think it'll be an unbelievable product. We've been spending a lot of time on it, and hopefully, we'll get a chance to start soon. But completely different thing.

Dan Politzer (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

Got it. Thanks. And then just moving to Macao, I think for the last 2-3 quarters, your non-rolling chip win has been kind of in that 22%-23% range. Is this a function of just really, you know, premium mass being a bigger piece of the mix or, you know, and so we should think about this kind of edging up over time back to that 23%-24%+ range, or is there something different in this market? And I'm sorry to harp on, you know, 1%, but when we're talking $24 billion-

Rob Goldstein (Chairman and CEO)

Yeah.

Dan Politzer (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

You know, I'm very-

Rob Goldstein (Chairman and CEO)

You're right to harp on it. It's something we think about quite a bit. Now, your question is an excellent one, and we look at it all the time. I was on the phone last night with our team in Macao, just discussing it. It's fascinating because we don't have an honest answer to tell you exactly why the entire industry seems to be down 1 point, 1.5 points, 2 points. And it's very impactful. The kind of money we're talking about, it'd be worth probably, you know, $200 million a year to us if we go back 2% in just EBITDA. So it's very impactful. We just don't have a good answer. Is it mix? Maybe. Is it the removal of junket and that type of thing? Maybe.

But until we have a really coherent and certain answer, we don't want to give you a response. I'd like to believe the whole industry trades up a point or two. I'd be... I'd vote for that. I'm sure our competitors would, but we can't make it happen. We need perhaps. But it, it's very simple. The math on the baccarat games don't change. The customer bets can change. Ties and pairs can change. Flat backs can change. So the point is, we don't know the answer ourselves. A lot of people are scratching their heads. Until we have a certain answer, we can say with confidence, I want to hope along with you that we trade up to 24 again, because it'd be a wonderful thing for us. With our volumes, it would be incredibly impactful.

We'd be at $700 million probably this quarter of EBITDA. So an excellent question. I don't have an excellent answer. We're working through it. Grant, anything you add to that answer?

Grant Chum (EVP of Asia Operations and COO of Sands China)

No, you're exactly right. We don't have a clear answer on that. You know, there's, in theory, actually, but just the point to make is, in theory, the premium mass being higher mix in the drop actually should be positive for the whole percentage.

Rob Goldstein (Chairman and CEO)

Right.

Grant Chum (EVP of Asia Operations and COO of Sands China)

And it could also obviously add more volatility to the metric. But I think Rob is absolutely right that, you know, we don't have a clear answer. And in truth, I mean, this is only like 8-9 months into recovery, where the segments and the customers, I mean, all that is still evolving. So I think it's also premature to make specific pronouncements on what should be the non-rolling hold percentage range. So right now, the numbers are what they are. But as you referenced, as Rob also said, you know, 0.5 point of difference, not even just 1 point, makes-

Rob Goldstein (Chairman and CEO)

Yeah

Grant Chum (EVP of Asia Operations and COO of Sands China)

... makes a tremendous difference to the numbers, to the EBITDA, to the margin, et cetera. So, you know, we're closely watching this, but, you know, there's no clear answer we can give on that in terms of why the whole percentage is where it is versus before.

Rob Goldstein (Chairman and CEO)

You know, we're really in a new world in Macao, and I think people really don't understand. I, I think it's as fascinating people don't understand how quickly this thing's reopened. I mean, I know you know it, but the problem is, you know, Vegas opened, regionals opened, Singapore opened quite a while ago. Macao is new to the game. It's only been open for eight months, eight and a half months, so things are evolving and turning, and it's, it's happening quickly. Again, I think it's an instructive look at the trajectory of what happened in Singapore. Go back to eight months after it opened and you watch what's happened at double that time. It's incredibly, I think, interesting to see the comparisons. I think this whole percentage thing is evolving. We don't know. It would be wonderful to find out we're back at 24 in Q2.

It'd be wonderful, but without certainty, we would only give you an answer which we don't have clarity on ourselves, and we do. We're happy to share with the market.

Dan Politzer (Director and Equity Research Analyst for Gaming, Lodging and Leisure)

Got it. I appreciate all the detail and the perspective. Thanks.

Grant Chum (EVP of Asia Operations and COO of Sands China)

Thanks, Dan.

Operator (participant)

Thank you. The last question today is coming from David Katz from Jefferies. David, your line is live.

David Katz (Managing Director and Equity Research Analyst)

Hi. Good day, everyone. Thanks for taking my question. I just wanted to go back on one detail. I'm not sure if you discussed this, but I'm just looking at the historical margin levels in Singapore, which, you know, were north of 50. Could you just talk about the puts and takes of getting back to that level again, or if there's some specific headwind? And then I have one quick follow-up.

Patrick Dumont (President and COO)

Yeah, no problem. I think one thing to highlight is that there was an increase in our tax rate by 3 percentage points, and then there was a 1% GST. So what you see there is the impact of that, along with inflation in the market. We've been able to manage expenses, manage business mix, manage pricing, and push the business to be better. But our long term there is. It's gonna be with strong margins, with revenue growth, just based on our investment and what we're seeing in the market. So, you know, we sort of manage the productivity yield and return on invested capital. You know, obviously, we look at margins and do our best, but we like where this business is going, and we think the future is very strong.

David Katz (Managing Director and Equity Research Analyst)

Understood. As my follow-up, you know, with the very, very good quarter that you had, and it's not just for your stock, but you know, many in our coverage, the market seems to expect you know, some macro pressure you know, in the future. And it's almost an obligatory question for all of our management teams, you know. Are you seeing anything or providing anything, you know, that would you know, validate any macro pressure at this point?

Patrick Dumont (President and COO)

So I'll tell you what's interesting. You heard Rob earlier reference our retail productivity. We, you know, we are in very fortunate markets. So Singapore is an unbelievable place to do business. It's just a great place to visit as a tourist. There's a lot of exciting things to do there. It's a great business environment to trade, and I think Singapore has benefited from its years of investment in the structure. And people are going there, and people are going there and consuming. And so, you know, we don't have a huge physical plant there. You know, we've got, you know, 2,500 hotel rooms or, you know, going down, as we add more suites.

I think in Macao, we're less than 1% penetration in the market. And so when you look at, you know, business and leisure tourism opportunities, I don't know that, you know, we're impacted like a broad-based consumer staple. I think we're for a narrower segment. We don't appeal to everyone, but I think we're a great tourism asset in both of our markets, and we've continued to see growth through different cycles, because of who we appeal to and the volumes that we need to be successful.

David Katz (Managing Director and Equity Research Analyst)

Got it. Thank you very much. Appreciate it.

Operator (participant)

Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.