Las Vegas Sands Corp Q3 2009 Earnings Call Transcript

Oct.31.09 | About: Las Vegas (LVS)

Las Vegas Sands Corp (NYSE:LVS)

Q3 2009 Earnings Call Transcript

October 29, 2009 4:30 pm ET

Executives

Daniel Briggs – VP, IR

Sheldon Adelson – Chairman and CEO

Mike Leven – President and COO

Rob Goldstein – EVP

Ken Kay – SVP and CFO

Analysts

Joe Greff – JPMorgan

Janet Brashear – Sanford Bernstein

Cameron McKnight – Buckingham

Dennis Forst – KeyBanc

Larry Klatzkin – Chapdelaine Credit

Rachael Rothman – Wedbush Morgan

Robin Farley – UBS

Operator

Good afternoon. My name is Dixie and I will be your conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands Corp. Third Quarter 2009 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions). Thank you.

I would now like to turn the conference over to Mr. Daniel Briggs. Sir, you may begin.

Daniel Briggs

Good afternoon, everyone, and thank you for joining us today. On the call with me today are Mr. Sheldon G. Adelson, our Chairman and Chief Executive Officer; Mike Leven, our President and Chief Operating Officer; Rob Goldstein, Executive Vice President and President of The Venetian Las Vegas and The Palazzo; and Ken Kay, our CFO.

Before we begin, I need to 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. I would also like to caution you that 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 EDITDA, 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.

I will now turn the call over to Mr. Adelson.

Sheldon Adelson

Thanks, Dan. Good afternoon and I thank you all for joining us today. We now a press release detailing our financial results. From my perspective, I’m very pleased with our progress in the third quarter and I’m enthused about the future in each of our major markets, Macau, Singapore, and Las Vegas.

The successful implementation of our cost savings programs has enabled us to significantly enhance our cash flow generation and operating margins across our entire portfolio of properties in Macau and for the company as a whole. In our most recent quarter, the Venetian Macao achieved two important records. First, the property delivered EBITDAR of $150 million and second, and at least as important, the Venetian reached an EBITDAR of 30.5%, an increase of 450 basis points compared to the third quarter of 2008.

The Sands delivered a whopping 80% increase in EBITDAR to $77 million during the quarter and expanded its EBITDAR margin by over 1,000 basis points to over 27%. These results illustrate the significant operating leverage that can be achieved by our businesses when cost structure is properly aligned with revenue. In fact, through the first 26 days of October, we have made approximately $100 million of adjusted property EBITDAR across our Macau properties, which represents the strongest monthly operating performance in our five-year operating history in Macau.

While the third quarter’s results in Las Vegas reflected the economic environment, unusually low table game hold, and a challenging summer room rate environment, table volume and our slots strategy do show some encouraging trends. And the execution of our cost savings programs has positioned us to deliver improved operating margins and cash flows as the economy recovers.

Here is the good news in Las Vegas. We just completed the best quarter in our history with respect to booking new group room nights in Las Vegas and today, we have more group room nights on the books of 2010 than we expect to realize in all of Calendar 2009. FIT rates are also beginning to firm, particularly on the weekends. While the financial and automotive sectors have been weak this year and the first nine months of 2008 presented a difficult comparison, Las Vegas remains the most cost-effective convention venue in the world. Our property is designed specifically to serve the convention and group meeting segment in an efficient and cost-effective way.

Technology, pharmaceutical, fast food, consumer segments and even certain segments of the financial sector are increasingly booking business for 2010 and 2011. We are confident in and are uniquely positioned to take advantage of a rebound in 2010 compared to 2009 in this vital component of our Las Vegas business.

In Singapore, we continue making excellent progress on the development of Marina Bay Sands. We topped out the three 355-story hotel towers in July and now, moving on to construction of the SkyPark, which is the final major structural feature of the property. Tanasijevich [ph] and leadership team in Singapore are making steady progress on pre-opening activities for each of the major operational areas of the property including hotel retail, food and beverage, group meeting and convention and gaming operations.

In fact, last week we revealed our lineup of six celebrity chefs and announced that The Lion King will play an extended engagement in one of our theaters beginning on September 2010. We remain focused on in opening of Marina Bay Sands in the first quarter of 2010.

Finally, with respect to our liquidity and capital resources, we have made substantial progress over the last three months. During the quarter, we successfully amended our Macau credit facility and completed $600 pre-IPO financing of exchangeable bonds. We also continue to advance our efforts for the contemplated listing of our Chinese operations on the Hong Kong Stock Exchange. We would certainly like to share more of that matter with you, but our Advisors tell us that the applicable rules prevent us from doing so at this time. From my perspective, I am very pleased with the focus.

Now, I’d like to turn the call over to Mike.

Mike Leven

Thank you, Sheldon. Before moving to a quick review of the operational highlights of the quarter, I want to share that we have effectively completed the implementation of our $500 million cost savings program. We consider the savings achieved to be permanent and we will continue to strive for cost effectiveness in the future.

Moving to the current quarter’s operation, as Sheldon mentioned, the Venetian Macao delivered record EBITDAR of $150 million during the quarter. EBITDAR margin was also a record at 30.5% of revenue. Despite the economic Tsunami, visa restrictions, typhoon season, and the fear generated by the H1N1 virus, we delivered a record quarter. Visits to the property have remained strong with the Venetian Macao enjoying more than 17 million visits in the first nine months of 2009. That healthy visitation contributed to market leading mass play during the quarter while rolling play continued to remain robust.

Now that the cost savings of right-sizing programs are effectively completed, our focus will naturally turn towards revenue growth. The highest margin segment of the gaming market in Macao is mass table and slot business. The Venetian Macao remains the clear market leader in mass play, delivering non-rolling drop of $839 million and slot handle of nearly $610 million.

Our Cotai ferry service, which carried over 1 million passengers in the third quarter, remains an important infrastructure component, supporting visitation and mass play of the Venetian Macao and the Cotai strip. Our integrated resort model, including convention and group meeting business, as well as entertainment offerings continue to support our mass gaming business. Looking ahead, we expect the City of Dreams complex to mature over time, increasing both our ferry occupancy and visitation to the Venetian.

While the high margin mass table business and slot business are critical to our success, we will also continue to execute our successful strategy in the VIP market. The Venetian Macao rolling chip volume was a healthy $9.1 billion during the third quarter and we also continue to grow our direct VIP play. This higher margin business, which does not require the services of a gaming promoter, represented a record 19% of our rolling volume for the quarter and contributes to the higher margins on our VIP play overall.

The VIP business remains an important component of our business, contributing just under 20% of our contribution to EBITDAR at the Venetian Macao. The diversified nature of the Venetian Macao’s cash flow remains evident with approximately 28% of our contribution during the quarter being generated from non-gaming sources, principally hotel rooms and retail, while approximately 53% was produced by the stickier, less volatile, higher-margin mass gaming and slot play.

So that completes the update on our operating strategy for the Venetian Macao. Let me spend a moment on the Sands, Sands Macao. The Sands EBITDAR increased 80% to $77 million for the quarter compared to $43 million in the third quarter last year. EBITDAR margins reached 27.5% for the quarter compared to 17.1% in the third quarter of 2008. Those results reflected healthy mass gaming volumes and the execution of our cost savings and efficiency programs.

The Sands remains the market leader in mass play on Macao peninsula, delivering non-rolling drop of $626 million and a slot handle of over $327 million. Rolling volume of $5.5 billion was down compared to a quarter one year, but improved sequentially. Our direct rolling play, as a percentage of total rolling play, also increased during the quarter, reaching 11.6% of total rolling play.

Let me now briefly discuss the Four Seasons Macao and Plaza Casino. This property generated over $10 million in EBITDAR during the third quarter. Our 19 Pieza mansions came online during the quarter and have particularly been valuable in generating direct rolling play. Nearly 50% of our $2.2 billion in roll volume during the quarter came through this direct channel.

Awareness of the property continues to grow, with weekend play and visitation gaining momentum. The Four Seasons hotel reached a 56.2% occupancy during the quarter, with an ADR of $294, which we believe is the highest cash ADR in Macao.

Finally, before we leave Macao, I want to spend a moment on the importance of the leadership team, which we now have in place there. While this quarter’s numbers are impressive, what has become increasingly clear to us is that our management team are providing real business leadership. This leadership team have been empowered to make the decisions and to decisive actions needed to proactively manage our business.

Our Macao management team’s contribution has clearly impacted our current period financial results in Macao and that leadership continue – will continue to pay dividends in the future. But importantly, our reputation as a community partner and employer has been enhanced in the process. That success is at least as important to the execution of our long-term strategy as this quarter’s results.

So that covers Macao. And Sheldon already discussed the progress we are making in Singapore. So let me just spend a moment on Sands Bethlehem before Rob covers Las Vegas.

Sands Bethlehem continues to enjoy strong support from the City of Bethlehem, the people of Lehigh Valley, and the wider region. Visitation to the property, particularly on weekends, has been healthy while mid-week visitation and play have been disappointing. We expect to increase visitation and play at the property during the play as our player development promotion and busing programs mature in the months ahead.

And we are closely following the state’s legislative process regarding the potential introduction of table games in Pennsylvania. With Sands Bethlehem’s close proximity to New York City, the introduction of table games, particularly if the legislation includes a favorable tax rate, could provide a wonderful opportunity for us to expand our business, as well as our employment in the Lehigh Valley and much needed revenues for the Commonwealth of Pennsylvania. We are already prepared to move quickly to establish table games when a final law is passed.

With that, let’s go to Rob and Las Vegas.

Rob Goldstein

Thanks Mike. Las Vegas Properties delivered EBITDAR of $34 million in third quarter. Last year, we generated $73 million in the third quarter. The greatest single impact was caused by low table hold, which impacted our revenues in Las Vegas by approximately $40 million. Hotel revenues were also a major issue, down $32 million, principally as a result of lower ADR. Occupancy for our combined 7,100 suite was 88% this quarter and ADR, $172.

A lower mix of group and corporate business contributed to a $14 million decline on bank revenue compared to last year’s third quarter. Table drop was $430 million in the third quarter. They were $477 million last year. Despite the decline, we did see healthy activity level including a 3.8% increase in our premium baccarat op over the previous year, a 24% sequential increase over second quarter of 2009, which is encouraging.

The economic environment last year was obviously in a better place than this year. But our hold on high-end play is usually higher than other table segments. So the unusually low table hold in that segment is particularly impactful this quarter. We also continue to focus on profitability and yield management in our slot business. Our hold was 7.8% this quarter, up 108 [ph] basis points over the third quarter of last year. Slot was $52.4 million during the quarter, a strong performance in this very difficult market.

Looking ahead, we do see some bright spots in Las Vegas. People do continue to visit our properties, we are very busy here. One example, Jersey Boys, our marquee entertainment offering at Palazzo, is now running in excess of 80% in its 1,600-seat theater. We frequently host over 5,000 customers on a show each evening across our two properties and we continue to enjoy excellent visitation in both the Venetian and the Palazzo.

Sheldon referenced the group side in earlier in his comments and we do see stronger bookings in ’10 and ’11. We demand returning. 2009 obviously represents the weakest year of the group demand in recent Las Vegas history with a special weakness in the automotive and the financial industries. However, in 2010, the last three months, we booked over 300,000 group rooms for 2010, ’11. (inaudible) this increase in group business, we'll now see it flow through to our higher-margin businesses, including catering and banquets, which have been very successful in the past for Venetian and the Palazzo.

We have been gradually raising our rates and expect to see rates continue strengthen throughout 2010 and 2011. We've also taken additional steps to upgrade our leisure, sales and marketing capabilities, which will serve as a strong complement to our group business. Rates have shown an upward trend on weekends, and we expect that upward trend to begin to take hold in mid-week period in near future.

We believe Las Vegas is far from finished as a business destination. On the contrary, we believe Las Vegas means business, and across our suite resort offerings, things remain stronger as the days go on. (inaudible) represent over 178,000 group room nights in January and February 2010. We also believe our diverse dining, retail, and entertainment offerings appeal to a wide range of customer tastes, and budgets.

We are confident our Las Vegas properties will generate solid cash flow in the quarters ahead and will exhibit significant operating leverage as room rates in group business return to a more normal place.

With that, I’ll turn the call over to Ken Kay.

Ken Kay

Thanks, Rob. As Sheldon mentioned previously, advancing opportunities that will generate liquidity enhance our financial flexibility and enable us to execute our deleveraging strategy is an important aspect of our plan. During the quarter, we completed an amendment to our Macao credit facility and a $600 million exchangeable bond financing that enhanced our liquidity.

As of September 30th, we had over $3.3 billion of cash and cash equivalents on our balance sheet. In addition, we had approximately $1.2 billion of availability under our undrawn credit facility at current exchange rates, principally through our Singapore credit facility. So together, we have approximately $4.5 billion of cash, cash equivalents and available sources of liquidity.

The principal uses for that $4.5 billion include approximately $1.1 billion of capital expenditures, pre-opening, FF&E, and construction period interests to spend through the opening of our Marina Bay Sands project. We are currently in discussions with financial institutions to raise project financing to be able to complete the majority of parcels five and six in Macau, and we are optimistic that we will be able to secure sufficient commitments from vendors.

Total debt is $11.8 billion, while the cost of borrowing remains quite low with a current weighted average rate of approximately 3.8%, reflecting a healthy reduction from the weighted average rate of 5.6% in the third quarter of 2008. With respect to our debt covenant, our domestic credit facility, our trailing 12 months EBITDA at September 30th, 2009 for compliance purposes was $451.6 million.

At September 30th, 2009, our total gross domestic debt for compliance purposes was $5.2 billion. Our cash balances within the U.S. restricted group were $2.7 billion and our calculated net debt for covenant compliance calculation purposes was $2.6 billion. Our leverage ratio for covenant compliance calculation purposes was 5.75 times compared to a maximum leverage covenant for our U.S. credit facility of 6.5 times.

For the Venetian Macao restricted group, our trialing 12-month EBITDA at September 30th, 2009 for compliance purposes was $908.5 million. At September 30th, 2009, the Venetian Macao restricted group, total gross debt for compliance purposes was $3.2 billion. Our leverage ratio for covenant compliance calculation purposes was 3.48 times compared to a maximum leverage covenant for the Venetian Macao restricted group of 4.5 times. Our cash balances within the Venetian Macao restricted group were $572 million.

We remain focused on maximizing operating profitability to enable deleveraging. While our business will throw off a significant amount of free cash flow that will enable deleveraging in the future, we also expect to execute in due course the sale of non-core assets, which will enable significant debt repayment and enhanced equity returns.

With that, I’ll turn the call back over to Sheldon.

Sheldon Adelson

Thanks, Ken. Before we go to Q&A, let me make a couple of final points. As we have said throughout this call, we remain focused on the continued execution of our plan. The successful execution of our plan will enable us to both execute our deleveraging strategy and to resume our industry-leading growth trajectory.

Our highly profitable business in Macau, which benefits from our focus on higher-margin, lower volatility mass gaming and non-gaming revenues is positioned to enjoy significant operating leverage as the world’s largest gaming market on the doorstep of the world’s fastest-growing major economy, inevitably expands in the future. While the Las Vegas market remains a challenging one today, things will naturally get better as the domestic economy and consumer confidence in the United States eventually improve.

I am confident that our group business strategy together with our reduced cost base will enable us to perform quite well in the years ahead. And our Singapore property, an asset with the potential to generate outstanding growth, is targeted to open in less than six months from today.

Finally, let me point out that there are natural peaks and valleys in every economy in the world and the global economy as a whole. As Asian asset markets fully recover in the future, we will be in a position to execute an important component of our fundamental business strategy, the sale of non-core assets. Those eventual sales, which we expect to complete during periods of relative strength in the economic cycle, when reasonable asset sales prices may be achieved or enable us to both fully implement that deleveraging strategy and to significantly enhance our equity returns.

With that, we will now go to Q&A.

Question-and-Answer Session

Operator

(Operator instructions). We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Joe Greff with JPMorgan. Joe, please go ahead.

Joe Greff – JPMorgan

Thank you. Good afternoon, everyone. Ken or Sheldon, I was hoping – I’m not sure if you actually mentioned this, I'm juggling two conference calls here, but I was hoping you could touch on the project financing and the update there. I think there have been some articles in the press lately that is kind of doubting your ability to do that. If you can give us an update on that. And then, a timing perspective. Do you expect to get that complete before the IPO road show in Hong Kong? And then I have a couple of follow-ups to Rob in Las Vegas.

Sheldon Adelson

Well, our counsel makes us very much aware of the regulatory requirements in Hong Kong. And very, very strongly admonished us not to have any discussion about what’s happening. However, I can tell you that we expect to have some news for you in the very near future.

Joe Greff – JPMorgan

Okay. And then Rob –

Sheldon Adelson

Very near future.

Joe Greff – JPMorgan

The very near future? Okay. Rob, the comments on the group bookings in Las Vegas for 2010, 2011, can you comment on pricing and then, if you can give us a sense of next year your expectations for what percentage of room nights would relate to the group, the convention side and how does that compare to what – where you think you’ll end up for '09?

Rob Goldstein

Sure.

Joe Greff – JPMorgan

And then, also helping us understand that group dynamic. Where do you think that rate is for group relative to the non-group? Is there still a premium there whereby you would get some sort of mix benefit next year assuming that mix towards group is a little bit greater next year versus this year?

Rob Goldstein

Okay. Well, first let’s begin with the fact that we are thrilled groups are returning. This last quarter, obviously has been a long quarter for us in terms of our whole percentage and the market in Las Vegas across the board and every segment was challenged, but we are really encouraged about these 90 last days we booked enough business – to do 300,000 additional room nights for next year the last 90 days and it continues into October, Joe, we are encouraged. So we are seeing demand, which we hadn't seen honestly in most of '09 – all of '09.

Second part of that would be obviously rate. Rate is still challenged, let’s not be confused, we are still not seeing the rates we saw ’06, ’07, before what happened last summer and fall. But we are encouraged, rates in excess of $200 for our group booking and for us what's really important, because I think you know our banquet business is vital to us. We – you could see by the quarter comparisons our banquet business is the big part of our – is almost like a slots business for us. It has huge margins, 55%, 60% and with the group bookings we are seeing, we are seeing return to banquet, which is very encouraging.

I think we are going to lead the market in terms of the larger groups. We’ve booked about 11 for the first – in these last 90 days for 2010 and we are seeing more demand in the tech and pharmaceutical and fast food areas. We actually picked up, believe it or not, a financial group. A major financial for next year as well. So we are seeing returns. I would – I think there is a premium to other segments still. That premium defined as better rate, but also strong F&B, which for us again is pivotal.

I wouldn't tell you we are out of the woods yet. I wouldn't be so bold as to say it’s fully recovered, but there is times of real life in that segment, which for us and even for Las Vegas, I think mid-week group business is critical, it’s vital, it’s material before this market can recover because it puts pressure in the FIT wholesale segments and gets us out of the weaker casino segment.

So we are very encouraged by the trends and again, demand is back, rate is not back as much as we anticipate. Large-scale bank books are back and I think it bodes well, not just for these properties, but for the market as a whole.

Sheldon Adelson

This is Sheldon. I'd like to add on to that by saying that group demand in the 200s is somewhat better than the rates we’ve been hearing around the town and I would like to emphasize that our property was specifically designed to the convention market. So notwithstanding what other people say about their convention business, that’s what we are built for. We are a convention-based marketing strategy. And if other people did build where we build, then we’ll get the business. If group rates are in the 200s, FIT rates ought to be moving back to the 300s.

Joe Greff – JPMorgan

Okay, great. And then one final comment, Sheldon. I think you addressed this in your earlier comments, talking about Macau in October. Can you just repeat that? Did you say in October you guys are doing about $100 million in EBITDA in Macau?

Sheldon Adelson

That’s correct.

Joe Greff – JPMorgan

Great. Thank you – okay, I don't want to shortchange you, and hopefully you don't play unlikely. Great.

Sheldon Adelson

That’s quite a number.

Operator

Your next question comes from the line of Janet Brashear with Sanford Bernstein. Janet, please go ahead.

Janet Brashear – Sanford Bernstein

Thank you. Rob, if I can just push on Las Vegas a little more relative to the group bookings, when you say it’s your best quarter for new booking, how many of those are in 2010 versus 2011 percentage wise and can you tell us a little bit about what’s going on with attrition, if it’s better, worse or otherwise unchanged?

Rob Goldstein

I’ll start with your first question, Janet. I mean, the 94% of – we've actually booked 348,000 room nights in the last – including October, that’s third quarter plus October thus far and the huge majority is in 2010. First quarter will do about 178,000 group room nights right now on the books.

Rob Goldstein

Right, for us – excuse, it’s correct. Correct, good – well said. It’s going to be 178,000 just in January, February; 91,000 in January. So – again, we are seeing a return of demand, which is the predecessor to – hopefully to rate movement. I think it just bodes – again, it bodes well for us and it’s a reason that the currents has happened this summer in the middle of the misery of the rest of the economy. So it feels good to us. And the only segment missing again – totally missing, is auto. So we feel good.

Your second question was regards to attrition?

Janet Brashear – Sanford Bernstein

Yes.

Rob Goldstein

We are seeing a lessening of attrition. It gets – in fact, it's a non-event as we move forward. It gets – it was a big event the last six, seven months. We are seeing it go away and not be material at all, Janet. So we are pleased about that.

Janet Brashear – Sanford Bernstein

When you look at Las Vegas versus other convention markets, would you say now at this point that you are the same as other convention markets or do you still feel like it’s worse than Las Vegas?

Rob Goldstein

Well, I just feel this way. I can't speak to other markets because I don't know well enough to speak about them, but in Las Vegas – I still believe this. Planners want to be here; there is a return to a belief that this is a wonderful place because it’s an adult destination. It’s a very economical destination, it’s a very desirable and accessible destination and I think planners are simply returning – they’ve got new business. We had a – I won't tell you the institution, but a major financial came in this week and committed to us and the comment was it’s the best bargain out there and with the best access and the best demand to come to.

It’s irrefutable, Las Vegas is special on so many different levels, it’s special and I find it hard to believe people don't see a return in this market. What we are seeing though is perhaps quicker than we expected. And it’s very gratifying. To Sheldon’s comment about these buildings are built for that, we began – that our underpinnings here this year with the Venetian Palazzo and it continues to be the underpinnings of our mid-week success. But I think also for Las Vegas, it’s undeniable despite all the problems we’ve had and I won't get into the issues and the politics, but this is just a very desirable place for meeting planners and they are telling us that. They want to come back to the city.

And I don't know how it doesn't return. It's much more desirable than any other place in the country rate-wise, accessibility, demand from customers, it has it all. I mean, it’s – we are very proud of it and think it’s going to return in a big way in ’10 and ’11. We believe that very strongly.

Janet Brashear – Sanford Bernstein

One final –

Sheldon Adelson

Janet, it makes me puzzled when I hear people talk about or question whether or not things are going to return to normal. I ask everybody who is on this call. Has anybody seen either an expansion or a contraction line that always went in the same direction? The answer is, obviously, no. Just like night follows day and day follows night, there are peaks and valleys throughout the economic cycle and virtually everything in life.

There is no doubt whatsoever that the economy is returning and will return. We'll find that – we don't know how high the peak will be, we didn’t know how low the valley would be, but there will be peaks and valleys and therefore, the convention market is returning because having come from that market, I know very well that most industries cannot operate without the need to get together and to exchange information, to share information, and to do all the other things that are done at conventions.

Now, Janet, I want to point out to you, I did notice in your report that you’ve put in a parenthetical statement that said, can't they come up with a better name than five and six. Mike and I – Mike and I brought our heads together and we said, “Okay, she’s right. We are going to call it the game-changer.” So we hope that you could refer to lots five and six as either the Shangri-La Sheraton lot or the Sheraton Shangri-La lot or the game-changer.

Janet Brashear – Sanford Bernstein

We can’t use the game-changer because that’s what we are calling Singapore, right?

Mike Leven

No, that’s the money maker.

Sheldon Adelson

We’ll call that a gold – a diamond mine.

Ken Kay

Janet, one more comment about rates. I hope that Las Vegas will have faith in itself, and rates will rise with all our competitors across the board because we think demand is coming back. Just we have to believe in the city and raise the rates accordingly.

Janet Brashear – Sanford Bernstein

So Rob, how does that play out over 2010 when you add City Center to the market? The demand is coming back and that’s great. Where would you say that you are most vulnerable or lease vulnerable to City Center and do you fear a rate war is erupting as all that supply gets added to the market?

Rob Goldstein

Well, that goes to the critical issue of why we built this building and back when we built it years ago, more years than I want to remember, Sheldon made two comments. One is, the all-suite product gives us a differentiation point, which is unique and he told us back then a dozen years ago or more that when things get bad, and they will get bad, the all-suite product will be very important as a differentiator.

Second thing and I think we all learned to believe it, is that the mid-week convention group business is powerful and the size of the groups we are talking about, honestly it’s not a City Center issue, it’s a question of having enough meeting space to compete for that. The kind of groups I’m talking about are too big. There's only Mandalay Bay and the LDC there that could compete with some of these groups.

And so for us, as long as we insulate ourselves by having a healthy – I’d love to see us get into the high-20s, perhaps even 30% range with groups, conventions, et cetera. It insulates us mid-week from the need to worry about any competitor. And that’s where we were for our first decade. It was as wonderful place to be, I’m hoping to get back there.

I believe we – our goal this year is get to over 800,000 group room nights on our books for 2010. If we do that and I’m believing we can do it, honestly City Center is less an issue for us than most people because we won’t be planning in that hold for FIT segment. And it also enables us to put pressure on the balance of our rooms.

So look what happened to us. We hit this economic tsunami, we lost our 44% mix of convention trade shows that made this place so profitable so many years. That’s returning, Palazzo opened exactly when it shouldn’t have opened in terms of the economic meltdown, but now as you return to the – a better group market that comes back. I think it helps us immensely and I think the great hidden secret around here was our group business drove that terrific food piece, the catering banquet, which is so – not just profitable, but it’s a wonderful segment to be in.

So – again, our goal is 800,000 nights in ’10 and grow it up higher in ’11. And hopefully the rate will follow as well.

Janet Brashear – Sanford Bernstein

Thanks, Rob.

Operator

Your next question comes from the line of Cameron McKnight with Buckingham.

Cameron McKnight – Buckingham

Hi, guys. A question to you, Rob. Based on what you’ve seen in September and what you are seeing October, do you think – do you think it’s fair to say that as far as your business is concerned, you saw rates bottom in the third quarter?

Rob Goldstein

I do. I hope I can speak for the town when I say that we’ve also believe there is more – I hope to more belief in the other segments. I know we are going to our job on the rates and the convention hall – the convention group segment. We are going to drive rates there as best we can. I hope the town – we can raise rates across the board and other segments.

I can’t believe we can get worse than what it was this summer. The fall has not been as encouraging as you all hoped to be, you can read the rates yourselves around the town. I wish we pushed the FIT rates up and wholesale better, but so far it’s been difficult and obviously, City Center will put more pressure on those segments as we come into 2010 period.

But I’d like to think we hit the bottom, I don't know.

Cameron McKnight – Buckingham

Great, thanks. And a question for Ken. Ken, could you estimate for us normalized EBITDA in both Vegas and in Macau?

Ken Kay

Normalized in Vegas –

Rob Goldstein

Let me help you with Vegas. We’ve – to be real simple about it, we’ve applied the Vegas graph, I can help you there. But in Vegas, what we’ve done is simply said, we know we lost – I’ll make my best case here, I’m a little aggressive, but bear with me. So we handled $430 million in the tables, right?

And we normalized that at what we think would have been second quarter of 21 or so. The thing you have to realize is two more impacts that causes $40 million plus of revenue, but bear in mind, when you keep losing money like we did in this quarter, with high-end play, our highest, our best customers, our very, very healthy baccarat play, unfortunately was our downfall this quarter. That segment typically holds 27, 28 historically in the Venetian Palazzo and in Las Vegas. I mean, we can tell you, on 5 billion of table jobs since we opened these stores, we would hope 27% to 28%. So these factor that back, it’s actually higher, it cost us more than $40 million.

Secondly, it impacts our table drop. So people – those people who came in with $1 million or $2 million never got to it because right from the get-go they were winner and didn’t have to draw more money down. So two negative impacts. So it probably costs us $40 million or $50 million of revenue. You apply the appropriate margins because I don't know how to do that. I don't know how you – other than the gaming tax, I can’t sit here and tell you with a straight face, I know. I’ll just give you the revenue number.

In Macau, we played a little lucky, but it’s not material.

Ken Kay

Yes. (inaudible). No, in Macau – I mean, we did a little bit better at the – on the rolling business and also the non-rolling business and probably between the two of them, it was probably close to $35 million.

Rob Goldstein

And you can make an argument.

Ken Kay

Across all the properties.

Rob Goldstein

Yes, across the entire market. But you can make an argument on our mass play there. We normalized that at 20, but you minimize it down to $20 million, $25 million. It depends on what you call normal in Macau on the mass business.

Cameron McKnight – Buckingham

Okay, great. Sure. And have you seen any impact at Venetian from – after the press report suggested that visa attritions have started to tighten again?

Mike Leven

I’ll take it. This is Mike. We have seen no impact on that and actually, there – what’s in the press has not been an official word. We never get official word as to whether they are on and whether they are off. And our month October indicates that we haven't seen any real significant change in the visa attrition.

Cameron McKnight – Buckingham

Okay, great. Thanks. And I’m not sure if you can answer this, but any update on apartment sales at Four Seasons?

Mike Leven

The only thing I can say is that we are preparing to sell them. We’ve had some inquiries from Japan and from Korea. The apartment sales are based on a co-op situation as opposed to a strata title, which has a deed associated with this, which causes us a little bit of concern because it’s not quite understood in Asia. We anticipate getting that strata title at some point in time in the near future, which will make it easier, but we have already been in contact with a number of people in Japan and Korea and have some inquiries about those sales. We are pretty optimistic about it.

Sheldon Adelson

Mr. Weaver who heads it up, Stephen Weaver, indicated that he was in Japan a couple of weeks ago and in Korea and the Korean people came to Macau. So he said that the indications we have before the reservations are still good from Japan and as far as Korea is concerned, they slowed down a little bit because of the exchange rate of the Korean Won, which was up to about 1,600 Korean Won to the dollar. Now it’s down to about 1,200 to the dollar. So those people are up in the heads up again.

Cameron McKnight – Buckingham

Okay, great. Thanks very much.

Sheldon Adelson

We are optimistic – we are optimistic about that.

Cameron McKnight – Buckingham

Thanks a lot.

Sheldon Adelson

You’re welcome.

Operator

Your next question comes from the line of Dennis Forst with KeyBanc.

Dennis Forst – KeyBanc

Hi, good afternoon everybody. I have three questions. First, Mike, in your commentary you mentioned 11.6% of the rolling play. Was that for the quarter, was that for all your Macau properties? What was that that you were referring to?

Mike Leven

Dennis, that was the Sands – that was just direct play – direct rolling play at the Sands Macao.

Dennis Forst – KeyBanc

The direct – out of –

Mike Leven

Out of just –

Dennis Forst – KeyBanc

Versus all of your rolling play at the Sands?

Sheldon Adelson

No, no, no.

Mike Leven

No, no.

Sheldon Adelson

No, versus going through junket reps.

Dennis Forst – KeyBanc

Yes, at the Sands.

Sheldon Adelson

Not through which – it is about half that of the junket reps.

Ken Kay

So it’s a 11.6% or so at the Sands. It’s 19% at Venetian and it’s nearly 50% at Four Seasons.

Mike Leven

What you are looking for is an increase in that particular segment in order to increase the margin. So if you can get an increase, if you see that going up, those percentages going up and where margins are going to increase in terms of –

Dennis Forst – KeyBanc

Great. Okay, good. And then for Rob, I noticed – and I think you even mentioned this. The slot hold has been going up fairly dramatically in Las Vegas. Is there a reason why that is going on? More low-denom play? Is it as simple as that or are you squeezing it tighter?

Rob Goldstein

I don't think we're squeezing – well, obviously, we are squeezing something tighter and getting the numbers up, but I think it’s a mix of gains. I think it’s less poker dependency. I think we have a very good slots team. I’m very proud of what we’ve done on the slot side and if you look at our numbers versus our competition, it’s healthy. We keep increasing our gain mix to be – I think it’s very – it’s a lot of factors, but obviously moving the game mix around, changing the per, getting rid of some of the poker teams and being more sensitive to the poker business.

And honestly, we just have been saying people to make money for us versus drive handle. We could turn the handle on tomorrow and double it, if we wanted to. It's not a big deal. We could throw some slot events and some poker events and drive the handle. Our challenge to our guys is drive the per and drive the win and make us more money. And clearly, we are very proud of where we come from. We were in the 30s, went to 40s and to 50s, our new goal is 60s per quarter and we are very encouraged by it.

So it’s a mix of gains, it’s a more sensitivity to poker. It's watching everything on the floor. It’s less and it’s also wider and better aisles, but I just think it’s in watching our costs closely. So I think overall –

Dennis Forst – KeyBanc

When you say the push from 40, 50, 60s what do you mean by that?

Rob Goldstein

Win per quarter. Our goal is – I mean, our real goal is get to a $0.75 billion U.S. win in the slot machines sometime in the next year or two. And we’ve grown – we were $38 million. You look at our progression from 19 – 2007 rather, to the current situation, we’ve grown from $35 million to $38 million to $40 million to $48 million. So we hit a high of $58 million Q3 of last year. We are now at $52 million. So it’s a combination of factors, but it’s less machines, better aisles, better per, and less poker.

Dennis Forst – KeyBanc

And modeling forward, we can use high 7% to hold percentage?

Rob Goldstein

Yes, we can.

Dennis Forst – KeyBanc

Okay, great. And then the last question was for Ken. Can you explain this valuation allowance that cost you $68 million? Was – is that a – first of all, is it a cash number?

Ken Kay

No, it’s non-cash. What that was is we had – in previous quarters have been providing a benefit for losses that we expected to be able to utilize on future tax returns, but what we did was we accelerated some reductions to be able to do that. We took a big chunk of that and applied those back to prior years for which we received a refund of $70 million earlier this year.

Dennis Forst – KeyBanc

Right. That was second quarter I think.

Ken Kay

That was second quarter. And then because of the accelerated deductions there, we expect not to be paying taxes in the U.S., and so we took a valuation allowance against those deferred tax assets just for the foreseeable future and we have a ability to carry those forward for about 20 years. So just the pronouncements dictate that if you look out over kind of the short-term horizon and you don't necessarily expect to be able to use those then you should take a valuation allowance for that and so that’s exactly what we did.

Dennis Forst – KeyBanc

Okay. And then one last one for Rob. Going back to the room nights bookings going forward, I think you said 348,000 room nights were booked.

Rob Goldstein

Booked for third quarter and thus far for the month of October.

Dennis Forst – KeyBanc

Okay. So the last four months you’ve booked about 350,000 room nights? Vast majority in 2010?

Rob Goldstein

Yes. And it was 94% I think we said.

Dennis Forst – KeyBanc

Yes.

Rob Goldstein

It’s all ’10.

Dennis Forst – KeyBanc

Yes. And half of those were January, February. Then your goal for 2009 was to book 800,000 – ?

Rob Goldstein

We are hoping it’s 800,000.

Dennis Forst – KeyBanc

For 2010?

Rob Goldstein

Across the entire ’10, the year of ’10, we’d like to get 800,000 of our total rooms sold, yes.

Dennis Forst – KeyBanc

Okay. What was it a year ago? By the end of '08, how many room nights had you booked for '09, just to give us a frame of reference?

Rob Goldstein

Quarter-to-quarter?

Dennis Forst – KeyBanc

Sure.

Rob Goldstein

Or do you mean – ?

Dennis Forst – KeyBanc

Yes. If you want to do that.

Sheldon Adelson

Our object is to get – Denny, our object is to get to 40%, 45% of total room nights. Total room nights equaled about 2.5 million. So if we can get to 1 million room nights, then we consider that ideal. Absolutely ideal, it will be a complete bust-out for our convention marketing efforts. However, just coming off the recession, whatever we had last year was – a lot of it cancelled during the course of the year. So it’s not really a – all I could tell you is what our primarily objectives are.

Dennis Forst – KeyBanc

Okay. In peak days –

Sheldon Adelson

They get 40% to 45%.

Dennis Forst – KeyBanc

Yes. Sheldon, in the peak days when you just had the Venetian without the Palazzo, what was the trade mix?

Sheldon Adelson

We have 50 – our best is 50.

Mike Leven

Yes, we reached 50 some months or some quarters, but blended it was 44. And again, the beauty of that was 44 some – minimal wholesale, the balance FIT minimal casino. (inaudible) the highest rate in the city, (inaudible) used banquet business, that was a perfect place to be. In a perfect world, as Sheldon said, we get back – if we get back to 1 million on two four, two five, it would be ideal.

Dennis Forst – KeyBanc

Yes. And you think you can with the extra 3,000 at the plots or you can still get that high?

Mike Leven

We can get there, the markets there. Sure we can. Yes, we’d like to get there. That’d be optimal.

Sheldon Adelson

Bear in mind that a lot of the shows have exceeded the demand for room nights in the Venetian when we had the Venetian only, exceeded us – our ability to supply. So those rooms had to elsewhere. We are not creating more new rooms. We are just absorbing under one roof more the rooms that went elsewhere.

Mike Leven

The other thing you should know is we can get to a million rooms tonight if we want to drop rate. I mean, we turn down a lot of business these days and give it away because we don't want the rate. So getting there, it’s achievable today. Getting there at over some $200 per night, that’s more difficult.

Dennis Forst – KeyBanc

Yes. And to get to that 800,000 nights for 2010, that’s not just by December 31st. That’s – that is – includes anything you booked to 2010 in 2010.

Mike Leven

And keep in mind, right now we are anticipating this auto, pharmaceuticals come out in the – in January and February. We are hoping for more business in January, February, short-term bookings in pharmaceuticals – listen, we – it goes on everyday, seven days a week. We’d like to get to 800,000, but it hasn't happened yet. I think we will get there.

Dennis Forst – KeyBanc

Good luck, guys. Thanks for the answers.

Mike Leven

Thank you.

Operator

Your next question comes from the line of Larry Klatzkin with Chapdelaine Credit.

Sheldon Adelson

I wonder what happened the last –

Mike Leven

What happened, Larry?

Larry Klatzkin – Chapdelaine Credit

Hey, guys. A couple of questions here. Commissions in Singapore, I know that (inaudible) is still going around talking with – I think it’s ridiculous, 1.5%. Did you still season the junket operators? Do you see Macau using a licensable in Singapore and what do you think a proper commission rate should probably be?

Sheldon Adelson

We think that – we believe – we have reasons to believe – we can’t get into the reasons, we have reasons to believe that very few, if any, junket revenues, particularly of the Macau-style junket reps, with a share of 45%, 44% of the gross income will be allowed or will be licensable in – or will want to be licensed in Singapore. We are gearing up for very strong direct credits, a direct play if not all of it.

But bear in mind, we have to give about 50% of what we would otherwise give to junket reps. Like in Macau, we'd have to give 0.5%, 0.6% whatever or there are some players that would prefer the discount route instead of the rolling trip route. So it’s unlikely that – it is very likely that our percentage of win, which as we announced was about 30% at the Venetian in the last quarter, that our percentage of win – there are some analysts that are projecting double that. That the percentage of win considering the tax – the more favorable tax rates and the less slippage or drippage from junket commissions. We expect an awful lot of their business [ph].

So we are gearing up to – we've sent down our best credit-granting people, a whole team of people from here, and we expect an enormous amount of direct credit. The number of people that tell that they don't want to go, there are people that say we never want to go to Macau because of this. I mean, a lot – lots of people love Macau and more and more, but there are some people who for a variety of reasons, particularly from India and closer to Singapore than they are to Macau, there is no question about it that there is going to an enormous amount of play that people will go to Singapore.

So – listen, we are not projecting exact numbers, we are not giving guidance on those. But we have reason to believe – a lot of reasons to believe that we should be more and more optimistic about the results of Singapore.

Larry Klatzkin – Chapdelaine Credit

That will be excellent, so it would eat so much of your profits in Macau. Pennsylvania, I know it’s something –

Sheldon Adelson

It’s not going to eat up our profits from Macau. They are basically two separate markets. For anybody who –

Larry Klatzkin – Chapdelaine Credit

No, no, no. I – what I meant is that it eats up your current profits in Macau and it won’t do it to in Singapore.

Ken Kay

Better margin.

Rob Goldstein

The margin thing, not –

Sheldon Adelson

The margin? Okay.

Larry Klatzkin – Chapdelaine Credit

And then as far as Pennsylvania, I know it’s small now, but what’s the status in getting table games? Obviously, a full casino and 70 minutes out of Manhattan is a good thing. So any feelings for politics?

Mike Leven

Yes, the legislation has passed the senate. Pennsylvania, you may be aware of it. It was 18% – I think – I believe it was an 18% tax rate and a $15 million initial fee. The governor has asked the house to approve a lower tax rate and some – a variance in initial fees between the three different sized type casinos that are available and it is in the house now. There are supposed to be some decisions in the next couple of weeks, we are being told by our government affairs people. We expect it will pass in some compromised position to the House. Everybody seems to think it's going to happen and we are preparing for it to happen. To be ready for, we have the space, we have the allocated space and basically, that is the status, Larry, as of the moment.

Larry Klatzkin – Chapdelaine Credit

How much does it cost, for the hotel and the mall and the room – just your restaurant, how much does it cost to finish it out?

Mike Leven

Well, finishing out just the tables – the tables – are you talking about finishing out everything?

Larry Klatzkin – Chapdelaine Credit

Yes. Yes, you got a full casino.

Mike Leven

If we finish out everything, you’d be talking about $100 million.

Larry Klatzkin – Chapdelaine Credit

So not much at all and you’d be the – yes, okay. Good.

Mike Leven

$100 million to $150 million was the number, to finish everything.

Larry Klatzkin – Chapdelaine Credit

All right.

Mike Leven

Just so you know, with the table games – again, the first thing we’d do is do the table games before finishing the rest.

Larry Klatzkin – Chapdelaine Credit

All right. So you get the cash flow from that to pay for the rest?

Sheldon Adelson

You’ll be glad to know, Larry, you won't have to go far to play. We will be – we will be the closest full casino to New York City.

Larry Klatzkin – Chapdelaine Credit

As long as you have a large crowd table for me, I’m happy.

Sheldon Adelson

A large crowd table for being happy? Well, we could custom-make a table for you and we are going to have a tray for your tears.

Larry Klatzkin – Chapdelaine Credit

Thanks, Sheldon. And a big line of credit?

Sheldon Adelson

And a big line of credit. We know you’re good for it.

Larry Klatzkin – Chapdelaine Credit

As far as – I understand the government is starting to put some meat behind the commission caps. Is it true they’re putting some rules in with enforcing penalties and such towards Macau?

Mike Leven

Yes. In Macau, Larry, there is – there are penalties apparently in the legislation. They are not quite in yet. There has been a couple of some – some people have indicated there is some – a little bit of waffling. We think it’s still going to hold at the 1.25 and there will penalties, but a lot depends upon whether the six concessionaires hold their line.

Sheldon Adelson

The new chief executive – there is an indication that he’s going to be more cooperative of the – we’ve been told that he has a very strong opinion about our integrated resort model being the best thing for Macau and that he is very supportive of the IR model. And he is also supportive of the strata title. If we can get that done – we can done, we can sell the apartments. As Mike said, it's a little tough that they are selling when the co-op regime, but if we get the strata title, it’s going to be a cakewalk.

Larry Klatzkin – Chapdelaine Credit

All right. Well, guys, good luck with the IPO and I hear the new chief executive is also a Yankee fan. So that’s good. Anyway, thanks a lot guys.

Sheldon Adelson

I thought he was a Red Sox fan.

Mike Leven

So did I.

Operator

Your next question comes from the line of Rachael Rothman with Wedbush Morgan.

Rachael Rothman – Wedbush Morgan

Hi, good afternoon. Can you just give us a – I didn’t see it in the release and I’m sorry if I missed it, what you bad debt reserve in Macau percentage was in the third quarter and how that compares to the second quarter of 2009 and the third quarter of 2008? Thank you.

Ken Kay

Yes, hold on one second. I don't have the comparison quarter over quarter, but I can tell you that – and you have to break it down between kind of casino accounts receivable, which is obviously the biggest portion of the reserve and, for instance, hotel and other. But if you look at it in total of the various properties, it’s probably around – I want to say a total of probably about 15% in terms of total accounts receivable. And then depending on obviously kind of the mix of business from a casino standpoint, you are going to have a little bit more reserve for Venetian and Sands and obviously, the Four Seasons. But overall, I would say the reserve is about 15%.

Rachael Rothman – Wedbush Morgan

Has that changed at all from last quarter or from last year or are they essentially the same percentages that they have been?

Ken Kay

No, it will have increased. In other words, we have been more conservative with regard to some booking reserves for potentially doubtful accounts. It's really more of an issue of slow payment as opposed to uncollectibility. We find, from a quarter to quarter perspective, that just because of the nature of the economic downturn that some of the players are just paying a little bit slower. But nonetheless, we've obviously decided to be a little more conservative from a reserve perspective. And so we’ve increased them on a percentage basis over time. We fully expect to collect the vast majority of those amounts, but it will just take us a little bit longer to do so.

Rachael Rothman – Wedbush Morgan

Thank you.

Operator

Our last question comes from the line of Robin Farley with UBS.

Robin Farley – UBS

Thanks. I got two questions. One is in Vegas. I just want to clarify Rob’s comment. You said – weekend rates trending up, I think was the language that you used. Is that sequentially or is that year-over-year that you are seeing weekend rates up?

And then my other question is Macau. I know the commission caps aren’t really going to be enforced until December, assuming the legislation goes through. But there was some talk that some operators in the market were publicly saying they were going to start observing it already. Have you seen – did you see that, are you seeing that in the market, I guess? What is your perception of what’s happening with commission rates in the market ahead of that cap? Thanks.

Mike Leven

I think we’ve seen a little bit of a waffling. Steve Jacobs, the CEO of Macau, has mentioned to me that there are a couple of indications where we’ve seen a little movement, not so much in the commission cap, but the way the deals are being struck, but it isn’t major with the present time. I think Robin, what you are going to see is if the business levels hold, as they have been in Macau, there should be little wavering if the business – some of the operators see some drops, they may get a little bit more aggressive, but hopefully they won’t. So we are still very optimistic about it.

Robin Farley – UBS

And in Vegas?

Rob Goldstein

Yes, Robin, the rate increases are definitely sequential, and clearly they're not every weekend, it depends on the weekend. We see them in parts of September and October. I wouldn't say it’s every weekend. We have seen the last couple of weekends look very strong and a couple of strong weekends in September. But definitely sequential.

Robin Farley – UBS

Okay, great. Thank you.

Operator

There are no further questions at this time. I would now like to turn the conference back over to Mr. Adelson for closing remarks.

Sheldon Adelson

We are very pleased to report a – an outstanding quarter to you. And as we’ve said, October looks very good, which including a healthy piece at the Plaza, which has begun to gather steam, and reminding you again about our basic business model, which is to sell core and – sell non-core assets. We see that day approaching us more quickly than we did a few months ago. And remember, not every contraction goes down in a straight line and not every expansion goes up in a straight line. We are going to experience peaks and valleys are we are now on the uptick. So we do expect to – that there will be a good, strong peak we hope coming up in the future.

So I want to thank all of you very much for calling in and participating today.

Operator

This concludes today’s conference call. You may now disconnect.

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