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Las Vegas Sands Corp. (NYSE: LVS) , today reported second quarter financial results for the quarter ended June 30, 2007.
Company-Wide Operating Results
Net revenue for the second quarter of 2007 increased 18.6% to a record $612.9 million, compared to $517.0 million in the second quarter of 2006. Consolidated adjusted property EBITDAR in the second quarter of 2007 came in at a second quarter record $199.8 million, an increase of 11.0% compared to $180.1 million in the year-ago quarter. On a GAAP (Generally Accepted Accounting Principles) basis, operating income was $86.2 million versus $125.4 million in the second quarter of 2006. The decrease in operating income of $39.2 million was driven principally by an increase of $36.0 million in pre- opening expenses directly related to our preparations for the opening of The Venetian Macao on August 28th and other properties to be opened in the future in Macao, Singapore, and the United States.
Adjusted net income (excluding loss on disposal of assets, pre-opening expense, development expense, and loss on early retirement of debt) was $81.9 million, or adjusted earnings per diluted share of $0.23, compared to adjusted net income (excluding loss on disposal of assets, pre-opening expense, and development expense) of $121.3 million, or adjusted earnings per diluted share of $0.34, in the second quarter of 2006. The decrease in adjusted net income of $39.4 million was driven principally by increases in net interest expense of $24.4 million and depreciation and amortization of $11.3 million. On a GAAP basis, net income in the second quarter of 2007 was $34.4 million, or $0.10 per diluted share, compared to $109.3 million, or $0.31 per diluted share, in the second quarter of 2006. The decrease in GAAP net income of $74.9 million was principally driven by the pretax increases of $36.0 million in pre-opening expense, $24.4 million in net interest expense, and $11.3 million in depreciation and amortization mentioned above, as well as the loss realized on the early retirement of debt of $10.7 million.
"The second quarter of 2007 was another quarter of strong execution for our company," began William P. Weidner, president and COO. "We again delivered robust operating results at both our Las Vegas and Macao properties and continued to make steady progress in the execution of our development plans around the globe. We are now approaching a signal moment in the history of both our company and Macao. After over five years of planning and preparation, we are now less than four weeks away from the grand opening of The Venetian Macao, and the beginning of a new era in the long and vibrant history of Macao. With the opening of The Venetian Macao, the anchor of the Cotai Strip(TM) and Macao's first true integrated destination resort, with the complete set of assets and service offerings needed to generate multi-night visitation from both the region and around the world, Macao will begin in earnest to realize her true potential as a world-class business and leisure destination."
Second Quarter Highlights
Weidner continued, "In Asia, we delivered another strong quarter at the Sands Macao. Our VIP gaming win and rolling volume both set all-time quarterly records, and our second quarter visitor volume reflected healthy growth with over 2.5 million visits in the quarter, up 12.9% compared to the second quarter of 2006. Our slots business again delivered an all-time record quarter in both handle and win. The Macao gaming market continues to expand in response to the addition of high-quality capacity. That continuing strong growth in the Macao marketplace provides positive momentum as we prepare to open Macao's first true integrated destination resort, The Venetian Macao, which will bring an unrivaled set of assets and service offerings, including world-class entertainment, dining, shopping and leisure amenities, to Macao. In Las Vegas, we delivered strong results across the board, with both gaming and hotel revenues reflecting healthy increases compared to the quarter one year ago."
Weidner added, "We have continued to execute our development plans for the Cotai Strip in all areas. We recently commenced our international marketing programs, which are designed to transform Macao into a multi-night stay international destination, by bringing the world's most well-known sporting franchise, The Manchester United Football Club, to Macao. Manchester United were the first honorary guests of The Venetian Macao, and more than 500 members of the local, regional and international media covered their visit to Macao, which included a large press conference and Manchester United kids clinic both held in our new 15,000 seat arena. Each night CCTV-1 and CCTV-5, two of China's most watched television stations, with viewing audiences estimated at more than one billion people, detailed the team's visit to Macao and their stay at The Venetian Macao. The match, for which The Venetian Macao was the title sponsor, was carried around the world by additional print and media outlets to the remainder of the Asian region, the Indian subcontinent, the Middle East, Europe and the Americas.
"We have advanced the leasing of our retail space on the Cotai Strip, where we have effectively completed the leasing of our retail space at The Grand Canal Shoppes in The Venetian Macao and at The Shoppes at the Four Seasons Macao. In addition, we have now begun the leasing process and have signed definitive agreements with more than 70 retailers at Cotai Central, the nearly 800,000 square foot mall in the massive podium of the complex anchored by the Sheraton Macao, the St. Regis Macao, the Shangri-La Macao and Traders Macao, which is located directly across the Cotai Strip from, and will be connected by air-conditioned walkover bridge to, The Venetian Macao and the Four Seasons Macao. Our convention, tour and travel, and corporate meetings businesses are each ready to begin operations concurrently with the grand opening of The Venetian Macao. In addition, our construction, design and development work on each of our other six sites on the Cotai Strip continued to progress, and we continued to advance our master-plan to develop a complementary trade-fair, convention, and leisure destination on Hengqin Island, in Zhuhai of the People's Republic of China and adjacent to the Cotai Strip. Finally, we completed a $5.0 billion credit facility which simplified our administrative reporting requirements and significantly increased our flexibility to move quickly to take advantage of emerging development opportunities worldwide. In Las Vegas, we continued to make significant progress on the construction of The Palazzo, which was topped off in June and which is scheduled to open in late 2007," said Weidner.
Las Vegas Second Quarter Operating Results
In the second quarter of 2007 in Las Vegas, hotel revenues increased 6.0% to $93.3 million versus $88.0 million in the second quarter of 2006, despite having approximately 4.6% fewer rooms available in the second quarter of 2007 compared to the quarter last year, due to the ongoing suite renovation program at The Venetian. The Venetian's average daily rate (ADR) increased 9.9% to $266, compared to $242 in the second quarter of 2006. The Venetian's occupancy of available guestrooms increased to 100.9% during the second quarter of 2007, which compares to 99.5% during the prior year period, generating revenue per available room (REVPAR) of $268 in the 2007 period, an increase of 11.2% versus $241 in the 2006 period.
Table games drop increased 10.5% to $281.0 million in the second quarter of 2007 versus $254.2 million during the second quarter of 2006. Slot machine handle (volume) increased 7.7% to $562.8 million in the second quarter of 2007, compared to $522.7 million during the second quarter of 2006. As a result of the above, casino revenues increased 19.8% to $85.4 million in the second quarter of 2007, compared to $71.3 million a year ago. Table games win percentage (calculated before discounts) was 20.1% in the second quarter of 2007, compared to 17.6% in the second quarter of last year. This compares to our expected range of 20% to 22%. Slot win percentage (calculated before discounts) was 6.1% in the 2007 second quarter, compared to 6.2% in the second quarter last year.
Food and beverage revenues increased 28.1% to $45.1 million in the second quarter of 2007, compared to $35.2 million in the 2006 period. Retail and other operating revenues were $29.8 million in the quarter, compared to $28.3 million in the second quarter last year, an increase of 5.3%.
On a GAAP basis, operating income for The Venetian increased 30.8% to $57.0 million, compared to $43.6 million in the 2006 period. Adjusted property EBITDAR for The Venetian increased 31.7%, to $83.2 million, compared to $63.2 million for the second quarter of 2006.
"We continue to see strong performance across the board at The Venetian," continued Weidner. "Our convention-based strategy continues to drive increases in our room rates and REVPAR. In fact, our room revenue was up 6.0% in the quarter, despite the fact that our rooms available for occupancy were down 4.6% due to our ongoing remodeling program at the property. The benefits of our targeted capital investments are contributing to solid top-line performance at The Venetian. Our high-end business continues to benefit from our activities in Asia and our investments in the infrastructure and amenities vital to our competitiveness and success in this important segment. Our ongoing efforts to generate operating efficiencies across the property have allowed our top line enhancements to consistently flow through to our adjusted property EBITDAR at the Las Vegas property, and we expect the opening of The Palazzo later this year to generate significant additional operating efficiencies.
"Construction of The Palazzo, which has been designed to include all the amenities and features necessary to service our important premium business, is now entering its final phase. The Palazzo is scheduled to open its gaming, hotel and restaurant products to the public on December 20th, while The Shoppes at The Palazzo, anchored by Barneys New York and featuring many of the world's leading luxury brands, will open in January 2008. Upon completion, the comprehensively renovated Venetian and newly opened Palazzo complex will represent the largest integrated destination resort in the world, with 7,128 hotel rooms and 2.3 million square feet of meeting, convention and exhibition space. In addition, we expect to obtain back-of-house and other operating efficiencies of between $40 million and $60 million for the combined complex once The Palazzo opens. We believe the combined Venetian and Palazzo complex will provide an excellent platform for profitable growth in Las Vegas for years to come."
Macao Second Quarter Operating Results
In Macao, second quarter casino revenues increased 21.6% to an all-time quarterly record $373.5 million versus $307.1 million in the 2006 period. The Sands Macao reported adjusted property EBITDAR of $116.6 million for the second quarter of 2007, compared to $116.9 million in the second quarter of 2006. The Sands' adjusted property EBITDAR continues to reflect an elevated level of expenses at the Sands Macao. In the second quarter, we experienced approximately $11 million of elevated expenses associated with investments in our human resources and the retention bonus portion of our VIP rolling-chip program. These elevated expenses are driven principally by our preparations for the opening of The Venetian Macao, and we expect them to be eliminated from the Sands Macao upon the opening of The Venetian Macao. On a GAAP basis, operating income for the Sands Macao was $104.7 million for the second quarter of 2007, compared to $105.6 million in last year's second quarter. The Sands Macao operating income also reflects the approximately $11 million of elevated expenses described above.
Second quarter 2007 Rolling Chip volume increased 70.4% to an all-time quarterly record $7.3 billion, compared to $4.3 billion in the second quarter of 2006. Table games drop (the Non-Rolling Chip segment) was $0.9 billion in the second quarter of 2007, compared to $1.0 billion in the second quarter of 2006.
Non-Rolling Chip table games win percentage (calculated before discounts and commissions) came in at 18.4% in the second quarter of 2007, while Rolling Chip table games win percentage (calculated before discounts and commissions) was 3.44%. These results compare to our expected Non-Rolling Chip table games win percentage (calculated before discounts and commissions) of 18% to 20% and Rolling Chip table games win percentage (calculated before discounts and commissions) of 3.0%.
Slot handle (volume) for the second quarter of 2007 was a record $317.4 million, representing a 20.6% increase versus $263.2 million in the second quarter of 2006.
Food and beverage revenues increased 43.2% to $12.6 million in the second quarter of 2007, compared to $8.8 million in the 2006 period. Retail and other operating revenues increased 66.7% to $1.5 million in the quarter, compared to $0.9 million in the second quarter of last year.
Weidner stated, "We remain extremely pleased with our performance at the Sands Macao. Despite the introduction of significant high-quality, competitive product in the Macao marketplace, our VIP business has shown strong growth, our visitation statistics continue to increase, and our operating performance remains strong. With the opening of The Venetian Macao later this month, we will have the ability to significantly reduce the cost structure at the Sands Macao, as we allocate our human resources more efficiently across a larger asset and revenue base. Looking ahead to September, the completion of our new 238 suite hotel tower will add a significant amount of increasingly important suite inventory to the Sands' product offering, enabling the Sands Macao to offer a world-class suite product to a far greater number of its customers in the years ahead."
Other Factors Affecting Earnings
Interest expense, net of amounts capitalized, was $54.4 million for the second quarter of 2007, compared to $23.7 million during the second quarter of 2006. The increase is primarily the result of increased borrowings which support the company's growth pipeline and current and future development, including borrowings related to the company's new $5.0 billion credit facility, the $3.3 billion credit facility to support our developments in Macao, as well as borrowings related to the $1.4 billion credit facility to support the development of The Marina Bay Sands in Singapore. Capitalized interest was $58.0 million during the second quarter of 2007, compared to $20.9 million during the second quarter of 2006.
Stock-based compensation expense was $8.6 million in the second quarter of 2007, compared to $2.9 million in the second quarter of 2006.
Pre-opening expenses related principally to the pending opening of The Venetian Macao, as well as The Marina Bay Sands and The Palazzo, were $40.3 million in the second quarter of 2007, compared to $4.4 million in the second quarter of 2006.
Development expenses relating to our efforts in Zhuhai (Hengqin Island, in the People's Republic of China), Europe, Japan and elsewhere were $1.3 million in the second quarter of 2007, compared to $7.9 million in the second quarter of 2006.
Loss on the early retirement of debt was $10.7 million in the second quarter of 2007. This was a direct result of the early retirement of the company's senior secured credit facility, which was retired with a portion of the proceeds of the Company's new $5.0 billion credit facility.
The effective tax rate for the second quarter of 2007 of 14.4% is lower than the United States Federal statutory rate due principally to a zero effective tax rate on our Macao gaming income as a result of a temporary income tax exemption on gaming operations, which is currently set to expire at the end of 2008.
Balance Sheet Items
Unrestricted cash balances as of June 30, 2007 stood at $1.79 billion while restricted cash balances were $1.04 billion. Of the restricted cash balances, $891.7 million is restricted for Macao related construction and $93.5 million is restricted for construction of The Marina Bay Sands in Singapore.
As of June 30, 2007, total debt outstanding, including the current portion, was $7.11 billion.
Capital Expenditures and Other Activities
Capital expenditures during the second quarter of 2007 totaled $927.1 million. This includes $484.8 million for construction and development activities in Macao, $289.9 million for construction and development activities at The Palazzo, $85.3 million for construction and development activities in Singapore, $39.2 million for capital expenditures at The Venetian and The Sands Expo and Convention Center in Las Vegas, and $27.9 million for corporate and other activities.
Concluding Comments
Weidner concluded, "While we continue to deliver strong financial and operating results, and are increasingly focused on the advance marketing and related events and activities leading to the grand opening of The Venetian Macao, our future opportunities remain significant. Our track record of execution in the development and operation of convention-based integrated destination resorts clearly positions us well to continue to execute on our currently announced projects and to develop, identify and utilize our market- leading position to win additional growth opportunities worldwide.
"We remain focused on the execution of our plans to develop 'Asia's Las Vegas', a convention and leisure destination with both the scale and the world-class array of leisure and entertainment amenities necessary to generate extended, multi-night visitation, on the Cotai Strip. We continue to progress our construction and development activities on all seven sites on the Cotai Strip.
"We remain engaged in continuing extensive collaboration with the Project Coordination Committee of The Hengqin Venetian International Convention and Resort Project in Zhuhai as we integrate our development plans with Zhuhai and Guangdong Province's overall development plans for Hengqin Island.
"In Singapore, we continue to make steady progress on construction and other development activities of The Marina Bay Sands, which remains on track for an opening in late 2009. We currently have over 1,100 workers on site with work progressing on a 24/7 basis. We have now begun to accept indications of interest from retailers, restauranteurs, and other potential tenants from around the globe for tenancy at The Shoppes at The Marina Bay Sands, and we are pleased to report that the indicative rents reflected in these indications of interest reflect the strength and vibrancy of that robust market. The Marina Bay Sands will feature approximately 2,500 hotel rooms, approximately 1.2 million square feet of flexible meetings, incentive, convention, food and beverage, and exhibition space, approximately 1.0 million square feet of retail space, three large entertainment venues, and gaming space which will include our high-end Paiza Club(TM).
"In Bethlehem, Pennsylvania, we continue to advance our construction activities on Sands Bethworks(TM). The preservation and refurbishment work on the industrial icons that will be prominently featured in the Sands Bethworks complex is now nearly completed. Upgrades to the utility systems have now been completed, enabling construction of the foundation systems of the complex to begin shortly. The 126-acre integrated destination resort on the site of the former Bethlehem Steel plant is located on the I-78 corridor in eastern Pennsylvania, with 17.2 million people residing within a 75 mile radius, including the lucrative northern New Jersey and New York metropolitan markets. The property will feature in its first phase a 300-room hotel, 200,000 square feet of retail space, 5,000 slot machines, a 50,000 square foot multipurpose event center, and a variety of dining and entertainment options. The resort will also be home to the National Museum of Industrial History, an arts and cultural center, and the broadcast home of the local PBS affiliate."
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