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Las Vegas Sands Corp. (NYSE:LVS)

Q4 2009 Earnings Call Transcript

February 17, 2010 4:30 pm ET

Executives

Dan Briggs – VP, IR

Sheldon Adelson – Chairman and CEO

Mike Leven – President and COO

Rob Goldstein – EVP and President & COO of The Venetian & The Palazzo Las Vegas

Ken Kay – SVP and CFO

Steve Jacobs – President & CEO, Sands China Ltd.

Tom Arasi – President & CEO, Marina Bay Sands

Analysts

Joe Greff – JPMorgan

Felicia Hendrix – Barclays Capital

Cameron McKnight – Buckingham

Larry Klatzkin – Chapdelaine

Janet Brashear – Sanford Bernstein

David Bain – Sterne, Agee & Leach

Dennis Forst – KeyBanc Capital

Robin Farley – UBS

Chris Woronka – Deutsche Bank

Operator

Good afternoon, my name is Kerry and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Las Vegas Sands Corporation’s fourth quarter and yearend 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) I’d like to turn the call over to Mr. Dan Briggs, Vice President of Investor Relations. Thank you. Mr. Briggs, you may begin your conference.

Dan Briggs

Thank you, operator, and 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 and The Palazzo Las Vegas; Ken Kay, our CFO; Steve Jacobs, CEO of Sands China Ltd.; and Tom Arasi, CEO of Marina Bay Sands.

Before we begin, I need to remind you that today’s conference call will contain forward-looking statements that we’re 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. Thank you all for joining us today. I will begin the call today by sharing a few general thoughts on the quarter. I will then hand the call over to Mike Leven to provide some additional data. In Macau, I am pleased to report that we generated more EBITDAR from our three properties during the fourth quarter of 2009 than in any other quarter in the company’s history. We continued to lead the Macau market in its most important measure of financial performance. Notwithstanding the often quoted gross gaming market share figures, we firmly believe that EBITDAR is the appropriate measure of overall financial performance. And that growth, in this metric, along with increasing returns on net invested capital will translate directly into shareholder value.

Total net revenue at our three properties did increase 25% compared to last year’s fourth quarter, but most importantly adjusted property EBITDAR increased a whopping 48% across our portfolio of properties in Macau. For the Venetian Macao, EBITDAR for the quarter was a record $175 million, an increase of over 55% compared to last year's fourth quarter.

EBITDA margin increased to 30.6%, another quarterly record. The Four Seasons Hotel Macao and Plaza Casino also had its best quarter yet. The strength of our business model in Macao is clearly on display in our quarterly results. Our focus on the highly profitable mass gaming hotel and retail businesses together with our attention in cost control and efficiency has allowed us to grow our EBITDA faster than others in the market that rely more heavily on lower margin segments for growth.

A strong quarterly performance provides momentum as we resume the construction process on our largest Cotai Strip development today, casinos five and six directly across the Cotai Strip from The Venetian Macao and Four Seasons Hotel Macao. We like to call that development ‘The Game-Changer’ because we believe the addition of the – to the Cotai Strip of a development of that scale at 13.3 million square feet together with its resident cornucopia of world-class attractions in the Manadies [ph] will change the dynamic of Macao quite dramatically.

The first phase of the development featuring 3,700 hotel rooms from the Shangri-La, Traders and Sheraton brands will open in June 2011, around 16 months from today. The second phase of the development will open approximately six months thereafter and will feature an additional 2,300 rooms from the Sheraton Towers brand totaling 6,000 keys.

We are confident that the addition of our latest integrated resort development will both enhance Macau's appeal as a tourism and nice destination, and extend our position in some leading mass market operator in Macau. Also during the quarter, we completed the sales of a minority interest in our Macau operations. So the listing of Sands China Limited on the Hong Kong Stock Exchange. SCL now trades in Hong Kong under listing code 1928, must have been a good year.

We were pleased to both increase our cash reserves to just under $5 billion of unrestricted cash on our balance sheet and to offer Asian and other investors the opportunity to participate in the future growth in Macau through Sands China Limited.

Turning to our Marina Bay Sands development in Singapore, we are now entering the final stages of our pre-opening activities and expect to announce the specific April opening date next week. SB in Singapore opened last Sunday an early indications are that, that our activity is brisk and robust. This contributes to our enthusiasm about the property’s potential to generate both significant growth and strong returns. We look forward to introduce this iconic destination resort to the world in about ten weeks, and to formally celebrating its debut with the people of Singapore in a grand opening celebration in June.

Finally, let me spend a moment on Las Vegas. The good news is that group business is returning. In fact, our group business was up 20% in the first 40 days of 2010 compared to last year. Forward bookings were also increasing for both 2010 and 2011. Two things, The Venetian and The Palazzo was purposefully built to serve this customer segment and with two in a quarter mainly with exhibition and meeting space as well as 7100 all suite rooms and Marriott dining and entertainment amenities. We believe we are extremely well positioned to benefit as the recovery in the group business sector continues. So, overall from my perspective I am extremely pleased with both our performance today and our positioning for the future.

I’ll now turn the call over to Mike.

Mike Leven

Thank you, Sheldon. I will add just a couple of big picture points because I think the results pretty much speak for themselves, and we want to allow plenty of time for your questions.

Our operating results clearly reflect our right-sizing and efficiency initiatives. We have eliminated over $500 million of costs from our expense base. We are working hard to make sure that a culture of efficiency and a focus on cost control would be among the most important pillars of our future success.

Our strong results in Macau reflect that focus on efficiency and a healthy gain in market. The Venetian Macao remains the clear market leader in mass play in Macau, delivering non-rolling drop of $905 million and a record slot handle of $659 million for the quarter.

We strongly believe that the development of critical mass on Cotai Strip, including the City of Dreams as well as Galaxy’s plant property at Cotai, and our development phases [ph] five and six, it not only expand the market but in greater mass play as well as greater hotel and retail revenues to our current, the future properties, but also will contribute to the maturation process of the Cotai Strip as evolution as Asia’s premier business and leisure destination.

Cash flow generation of The Venetian Macau continues to mirror our strategy. For every dollar of EBITDA generated at the property during the quarter approximately 49% was produced by less volatile, higher margin mass gaming and slot play. Approximately 26% was generated from non-gaming areas including our hotel, convention, banquet and retail operations had approximately 25% was contributed by the more variable, lower margin VIP rolling play.

We remained focused on developing and growing our premium direct business, which is the higher margin segment of VIP rolling play. The direct VIP play at The Venetian Macao grew to $1.7 billion or approximately 70% of the more than $10 billion of roll-in volumes during the quarter. At the Four Seasons Hotel Macao and Plaza Casino which is clearly benefiting from our 19 Pieza mansions rolling volume grew impressively to $3.8 billion, while direct VIP business accounted for $1.1 billion or 29% of that amount.

Let me spend a moment on the Sands Hotel. The Sands Macao EBITDA increased 8% to $56 million for the quarter reflecting healthy gaming volumes and the execution of the right-sizing and efficiency programs. Our flow through the EBITDA was less pronounced at Sands this quarter because of approximately $12 million of high reserves for receivables primarily relating to one long-time player.

The Sands remains a market leader in mass play on the Peninsula, delivering non-rolling drop of $579 million and a record slot handle of over $352 million, an increase of nearly 40% compared to the fourth quarter of 2008. Rolling volume of $6.6 million was the highest of the property since the third quarter of 2008. The operating momentum of our Macao properties continued in January of this year with strong year-over-year growth despite the fact that Chinese New Year fell in January last year.

So that covers Macao. Let me spend a moment on Sands Bethlehem before Rob covers Las Vegas. Historically, it has taken about 17 months on average the slot palace [ph] in Pennsylvania to complete their initial ramp-up. Since we only opened the property in May of last year, it clearly remains the early days of Sands Bethlehem. We continue to believe the property has great potential, particularly given the introduction of table games in the Pennsylvania market, which will occur later this year.

With respect to our current performance we generated $6 million of EBITDA for the quarter. We look to improve that performance in the near term to enhance marketing programs. We are also resuming that development strategy in light of the introduction of table games and are preparing to submit our applications to install table games at Sands Bethlehem to the Pennsylvania gaming control business. We expect to introduce approximately 80 tables to the property in the third quarter. The table games offering should enable us with a broad custom segments, enhance our revenues and should contribute to great profitability of property overall

With that let's go to Rob in Las Vegas.

Rob Goldstein

Thanks, Mike. The Las Vegas properties delivered EBITDA of $57 million in the fourth quarter compared to $90 million in the fourth quarter of last year. In a nutshell, the game piece of our business is holding up pretty well, in fact the volume levels clearly are trending above what they were in 2008. The problem for us and for all Las Vegas remains room rates. Decreased hotel, food and beverage revenues is still the high margin segments of our Las Vegas business grew up profitability in this quarter. In addition low table hold also negatively impact our results by our $20 million.

Table game drop was $509 million from the fourth quarter, a modest increase in the fourth quarter of 2008 while slot one was $51 million for the quarter, about the same as 2008 fourth quarter.

Our January performance in Las Vegas is quite healthy compared to last year, principally due to revenue growth and continued impact of our right-sizing initiatives. ADR for the month reflected a slight increase from last year, that's particularly promising result given last year’s ADR in January included some room blocks having booked at a higher pricing levels existed before the economic downturn.

Looking ahead, we will clearly realize more group rooms in 2010 than we realized in 2009. The pace of group bookings continues to improve and all signs indicate 2011 will be stronger than 2010. In 2009, we realized approximately 478,000 group room nights; as of today we have more than that number on our books for 2010. In the month of January, we realized approximately 64,000 group room up 17% from 55,000 group room nights in 2009.

As Sheldon mentioned in his comments, we do expect that pricing will turn around and business expansion and economy eventually strengthen. Until then we will continue to focus on providing service to our business customers, and work to ensure that our all suite integrated resort offerings remains the most attractive destination for business in the Las Vegas market.

So in summary, our gaming business is relatively healthy with volumes turning above 2008 levels and our costs are down. Given that backdrop, we are confident that Los Vegas properties will exhibit significant operating leverage as pricing in the group’s business segment proves.

With that, I will turn it to over to Ken.

Ken Kay

Thanks, Rob. As Sheldon mentioned earlier, during the quarter we completed the sale of a minority interest in our Macao operations. We also made marked progress on our de-leveraging strategy and mitigated the financial risks associated with covenant compliance on our credit facilities. We now have in excess $5 million of cash and cash equivalence on our balance sheet. That cash has significantly increased our financial flexibility and will enable us to execute additional component of our de-leveraging strategy in the future. Excluding our development financing in Singapore, we paid down or retired in excess of $1.1 billion of debt during the quarter.

In addition to our cash balances of December 31st, we have approximately $850 million of availability under our undrawn credit facilities at current exchange rates, principally through our Singapore credit facility. So together we have approximately $5.85 billion of cash, cash equivalents and available sources of liquidity.

The principal uses for that $5.85 billion include approximately $1.5 billion of capital expenditures, pre-opening FF&E and construction period interest to spend of our Marina Bay Sands development in Singapore through the end of calendar 2010. An additional $400 million principally retained its payments on the development will be paid out of cash flow from the completed property in 2011. Further, approximately $400 million in additional equity contributions will be made toward the development of parcels five and six on the Cotai Strip in Macao.

In addition, in March we expect to close the previously announced $1.75 billion credit facility to fund construction of parcels five and six in Macao. The equity and project financing is sufficient to complete the first two phases of that development, which will features over 6,000 hotel rooms and all the major cash flow generating components of the development.

As of December 31st, total debt was $11 billion, while our cost of borrowing remains low. Our weighted average interest rate for the quarter was approximately 4% compared to 6.1% in the fourth quarter of 2008. At our current levels of operating performance, our cash balances provide ample cushion for compliance (inaudible) group covenant compliance purposes at December 31st, 2009, our trailing 12 months EBITDA was $412 million, our total gross domestic debt was $5.2 billion, our cash balances up in the US restricted group were $3 billion and our calculated net debt was $2.2 billion.

Our leverage ratio was 5.3 times compared to a maximum leverage covenant under our US credit facility of 6.5 times. For the Venetian Macao restricted group at December 31, 2009, our trailing 12-months EBITDA for compliance purposes was $940 million. Total gross debt at the Venetian Macao restricted group was $2.6 billion, and our leverage ratio was 2.81 times compared to a maximum leverage covenant of 4.5 times. We remained focus on maximizing operating profitability to enable debt reduction while our business will naturally generate a significant amount of free cash flow that will enable de-leveraging in the future. We also expect to execute in due course the sale of non-core assets which will enable significant debt repayments and enhance return on investments.

With that I will 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. We worked very aggressively over the last year to right-size our cost structure and to clean up our balance sheet. The results of those efforts are now clear. We just completed the most successful quarter in our history, generating record revenues and EBITDA, and our balance sheet now has more than $5 billion of cash, providing significant financial flexibility and enabling us to continue our industry leading growth strategy.

We stand today on the cusp of our next major phase of Sands growth. In about ten weeks Marina Bay Sands will open its stores to the public, introducing to the people of South Asia a convention-based integrated resort destination that will be unique in the world. In less than 18 months from today, we will open additional integrated resort destination on parcels five and six on Macau’s Cotai Strip including the Shangri-La, Traders, Sheraton and extend Sheraton brands and extending position in the world’s largest gaming market on the doorstep of the world’s fastest growing major economy.

And while the Las Vegas market may not shine quite as brightly as our Asian properties in the net term, our convention based business model remains compelling, and we remain confident that our group business strategy together with our reduced cost base will enable us to perform well in Las Vegas in the years ahead, particularly in comparison with our competitors.

With that, we’ll move to your questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from Joe Greff with JPMorgan.

Joe Greff – JPMorgan

Good afternoon everyone. Thank you Mike for clarifying about the Sands Macau reserve being largely one long time customer. Can you help us understand if you could do by property if you want to do it from Macau in the aggregate at the end of the fourth quarter to what sort of outstanding receivables you have out there and what’s reserved against that, anything you want to talk about sort of collection history in general. Obviously, we’re all reading articles about China tightening. I guess how concerned are you that you’re adequately reserved?

And then second Macau related question, if you can help us understand, I guess, what percentage of your VIP junket related business is on a revenue share basis? And then where are you on a percentage of revenues relative to what you think the market or where the market is right now?

Sheldon Adelson

That’s about 10 questions.

Joe Greff – JPMorgan

I have a couple of more to add to that.

Ken Kay

Let me address the receivables, and then –

Sheldon Adelson

Joe, the memory is first thing to go. I can't remember all those questions.

Ken Kay

Let me address the receivables and then Steve will take the rest of it. At the end of the year, I mean, you got to break down the total receivables between Casino hotels and other, but I think where your focus is more on Casino, we got about let’s call, $440 million approximately of receivables. We have about 22% reserve for doubtful accounts against that (inaudible) will be higher than Las Vegas about 28%. But in Macao you’ve got to break it out between kind of the junkets and non-junkets. So if you back out the junkets (inaudible) receivables, which is a fairly modest reserve against that – reserve against the remaining receivables balance is about 32%, which we think is adequate. And part of, I think, what went on during the course of 2009 was a little bit of catch up with regard to some of the slower paying accounts and thus approaching it more conservatively in that regard.

Steve Jacobs

Joe, I think the second part of your question was what percentage of the junkets has switched to revenue share versus the volume base. We had 19 contracts that were up for renewal at the end of the year and of those 19, 15, 16 of those actually chose the volume based. I’ll tell you at the end of our next quarter what the actual share will be, because we’ve got a due respect month-to-month changes between the revenue base and volume base.

Joe Greff – JPMorgan

Thank you.

Operator

Your next question comes from Felicia Hendrix with Barclays Capital.

Felicia Hendrix – Barclays Capital

Hi, good afternoon.

Ken Kay

Hi, Felicia.

Felicia Hendrix – Barclays Capital

Hi. Just a few questions for you. In Macao some pluses and minuses in terms of hold, some places better, some places lower than – is there a net impact you can give us so you can help us through that?

Ken Kay

Sure. In the quarter the holding pack was probably about, it was about a little bit north of $50 million that they were favorable.

Felicia Hendrix – Barclays Capital

$50 million favor?

Ken Kay

Yes. Okay.

Felicia Hendrix – Barclays Capital

And then –

Sheldon Adelson

On EBITDA.

Felicia Hendrix – Barclays Capital

Okay. Now just going back to that bad debt, at Sands Macau, part of – prior part of bad debt issued but our margin that the rest wasn’t unexpected so (inaudible)?

Ken Kay

Whatever we really can't hear you on the cell phone.

Sheldon Adelson

You must be moving around on a cell phone because we can't understand, your voice is distorting.

Ken Kay

We heard something about margin degradation at the Sands Macau; can you try to restate the question?

Felicia Hendrix – Barclays Capital

Yes. Is it better?

Ken Kay

Yes.

Felicia Hendrix – Barclays Capital

Okay. What I was wondering is Macau part of the differential I think what allows us a debt expense but it also fell short of expectations, I was wondering other than hold is there anything out there that would be impacting margins?

Ken Kay

I can't understand what you say?

Sheldon Adelson

She is talking about the margin impact.

Ken Kay

Yes, I think the question is the perceived degradation of the margin at Sands, is that correct?

Felicia Hendrix – Barclays Capital

Correct.

Ken Kay

Okay. There is couple of things to going out. One, we talked about the reserve that we took for a long-time outstanding receivable, that was about $12 million. The second had to do with the incentive cost which we booked fourth quarter, which is our bonus, typically that is accrued quarter-to-quarter, as we’re digging into the tail-end of our fourth quarter, moving ahead and we reserve all of our bonus for the fourth quarter.

Felicia Hendrix – Barclays Capital

Okay. That’s helpful. And then just, are you guys seeing at the Venetian Macao, City of Dreams has now started a new marketing program, are you guys seeing any kind of impact from that at all, anything promotional coming from them?

Ken Kay

We certainly see their volumes picking up which is very positive Cotai Strip. That’s your Get-Lucky campaign. You can’t miss it everywhere you go, even on the Do-Not-Disturb sign; it has to get lucky, which is quite pleasant. I don’t know how people are getting lucky but certainly the (inaudible) we’ll research that later. The overall – I think that from what we can tell is going up, and is going up favorable to (inaudible) and that accounts reserve by no means conclusive, but rather directionally correct.

Felicia Hendrix – Barclays Capital

Okay, and then finally –

Sheldon Adelson

Felicia, I’d just like to clarify what Steve said before about that write-off. That was not really a really a long-term write-off. The debt started about a year ago, and a long term write-off in our terms, I mean, the write-off of a long-term debt would be somewhere in excess of a year. Our payments are being made on this, not as much as we would like. The man was a major, he was in a play, he was also a player but he was also a junket rep, and the amount of money that was build up was not on the basis of him playing but was as a junket rep.

So, we cut our junket rep relationship with him. He does have other assets; he has been a customer of our company and certain executives in the company for over 20 years and has always paid his debts. And we feel confident, and frankly I had a sort of warm discussion with our CFO about the necessity to take that. It was really heated, he was going to take my cane and beat him over the head but I was dissuaded from hitting him, only because he is about a foot taller than me. And so, I objected to that write-off but he claims that PW required us to write it off, PWC. And then, that was an extraordinary write-off. That’s not a usual kind of write-off.

Felicia Hendrix – Barclays Capital

Right, understood. Thank you. Rob, in Las Vegas, are you seeing any promotional activity in gaming and play at all?

Rob Goldstein

Well, on the gaming side, there is increased pressure I think on the high end on some discounting in airfare but I don’t think it's exceptional, probably Las Vegas remains room rate, and now I think the gaming issue. For us, it’s not an issue, it’s more room rate remains in all segments that pressure.

Felicia Hendrix – Barclays Capital

Okay. And on that subject, obviously, competitors are trying to build market share in the convention business, I was wondering what you guys are doing to try to maintain your market share?

Sheldon Adelson

We’ve actually – I know that one of our competitors has been boasting about taking business from us. The bottom line is that we’ve done a calculation and we’ve taken more business from them than they have from us. And we allowed them to take some business from us because in one case there was group of thousands of room nights that they gave an $80 less rate on the rooms than what we quoted and what we were willing to give, we gave up that group, let it go to the area [ph] wherever they want.

For one unit, the group has come back and signed us as the more realistic rates for the following two years. They talked about – MGM talks about standalone business from us. We take more business from them then they do from us, and the fact of the matter is that they just don’t have the experience from having been on other side of the desk in dealing with conventions later on the standard service and the issues that have to addressed, so, we don’t want to buy that business. We were complimented by a competitor with whom one of our colleagues had dinner last week, and that competitor said, that the industry recognized that we were the only one that was our rates up there and everybody wishes they do can hold their rates up. But maybe we will set a leadership role and perhaps they’ll keep their rates up.

Felicia Hendrix – Barclays Capital

Okay. Thanks a lot.

Ken Kay

Thanks, Felicia.

Operator

Our next question comes from Cameron McKnight with Buckingham.

Cameron McKnight – Buckingham

Good afternoon, guys. How are you?

Sheldon Adelson

We are good.

Cameron McKnight – Buckingham

Sheldon, just wondering if you could elaborate for us on the current quarter-to-date, quarter-to-date conditions that you are seeing in Macao especially in the mass market in January and February?

Sheldon Adelson

Well, first, this as a quarter, we can't get into that because we are public [ph] in Macao and we can't disclose any information for January and February; hear it over yes when SCL hasn’t disclosed it yet.

Cameron McKnight – Buckingham

Got it. And can you, are you able to – you able to comment generally on Chinese New Year and how –?

Sheldon Adelson

Let's put it this way. Over the results we’re smiling we are not frowning.

Ken Kay

Yeah. We have our lawyers down. A gut shot, just put a couple of things in –

Sheldon Adelson

Oh, I guess, gut shot.

Ken Kay

A couple of things in the context with regards to Macau. This is an odd number; it’s usually a Macau number. If you look at January '09 versus '08 up significantly. If you look at a press clipping that came out yesterday or the day before, for the expectation for Chinese New Year is exceptionally strong. We got to make the mass market. We always have, nothing has changed. So as Sheldon said, we’re quite pleased with where we we’re at today vis-à-vis our expectation for Q1.

Cameron McKnight – Buckingham

Right. Thanks. And some have been talking about a commission war erupting with SJ, [ph] are you seeing any evidence of that?

Ken Kay

None to-date but I would necessarily carve that as SJ [ph] with the new restrictions on the junket commission caps. You have seen over the last really five to six months, a fair amount of jockeying from all of the different concessionaires, the simple truth in Macao is you can’t buy business through commission and you could move share of a point, two point, three point, through changes in those commission rates, but it is not sustainable, what you can’t build a business on gimmicks or on incentives, it got to be built on the fundamentals. So, notwithstanding the fact that from time to time some of our competitors raise their commission rates. At the end of the day it comes back to haunt them and everything settles back down to a sustainable level.

Cameron McKnight – Buckingham

Okay. Great, thanks. And finally, Sheldon, could you give us some color on the convention calendar in Singapore? I understand you have late on [ph] you speaking at Lawyers conference in early May.

Sheldon Adelson

Tom, do you have anything to say about that? Tom Arasi is the CEO of Singapore.

Tom Arasi

Yes, hi. We have a significant piece of group business IPBA coming in at that time end of the month, and there is discussion about potential VIP speakers there. We’re not aware that anyone is absolute confirmed, however.

Cameron McKnight – Buckingham

We understand that Al Gore is speaking, (inaudible) is speaking. I think for Singapore….

Tom Arasi

Yes.

Cameron McKnight – Buckingham

We also have another group, a bank, having a big group, just a weak performing week.

Tom Arasi

Correct

Cameron McKnight – Buckingham

Group just a week, the final week.

Tom Arasi

Yes, the Calendar is building, particularly as very get closer to announcing opening dates, particularly if people see everything coming together. So, we are pleased how well that’s moving along.

Cameron McKnight – Buckingham

Right. Thanks very much guys.

Kevin Kay

Thanks, Cameron.

Operator

Your next question comes from Larry Klatzkin with Chapdelaine.

Larry Klatzkin – Chapdelaine

Hey, guys.

Sheldon Adelson

Hi, Larry.

Larry Klatzkin – Chapdelaine

Nice to see The Four Seasons start to respond. Couple of things, one, the bonus reserve you said it all did in the fourth quarter this year, how’s that compare to what you reserve in the fourth quarter last year?

Sheldon Adelson

Yes, the –

Larry Klatzkin – Chapdelaine

Okay. As for as table games upside and Bethlehem was kind of minor for you guys but what do you guys thinking, you said eight tables?

Sheldon Adelson

80.

Larry Klatzkin – Chapdelaine

Okay. I misheard it there. Okay, so you think it could be a significant gain to the property?

Sheldon Adelson

Well, all of the form of the forecast for Bethlehem and for table games, which has been published by many of the analyst community, is just about where we are projecting the situation. We think that 80 tables appropriately aligned and trained and can generate the numbers that have been published. It should be a big impact not only in table game themselves but on the rest of the facility in terms of restaurants and all of that as well.

Mike Leven

Will be the closet casino to New York City, and of course to Northern New Jersey, and as far as we can see by alliance [ph] city, they continue to decline, and we may pick-up an incremental chunk of business out of city too.

Larry Klatzkin – Chapdelaine

Okay. That’s good. As far as the VIP commission rate in Singapore, what are you guys seeing; I know Ken I think has talked about high numbers, what do you guys expecting the commission rate to be in your opinion?

Sheldon Adelson

This commission rate and those commission rate Larry, as you probably recall, pardon me, equity days, and the commission rate for a junket rep in the field which I called a field sales person, is kept at a few thousand dollars. But it’s not the Macao style commission. So the second commission rate is the Macao style commission rate for which the junket reps perform three functions. One, they find a customer, two they provide the credit, and three they get the money into our venue from where they come. Obviously we can’t have anything to do directly with that, and we’re not going to.

And to the best of our knowledge, they say, Genting says that they intend to pay 1.5, but the Singapore government continues to maintain unequivocally, and when the Singapore government maintain something unequivocally you can go to sleep on that. You can bank on it. They say there will be no junket reps of the Macao style. They don’t want people to come in and earn 40%, 50% or more of the gross income and they – to the best of our knowledge they have received very, very few applications probably only applications from somebody in the former category of junket reps, not the ones who provide the credit.

So it’s still, a moving target. My personal take on this is that if there were junket reps, they will be of the formal type, and not because the government want to necessarily improve them but because they are not going to apply. Everybody, everyone of our company’s directors that has applied, including myself say it’s the most comprehensive, the most detailed application they have ever had to fill out in their lifetime. So, I don’t think, well, I am positive but the junket reps in Macau are not going to provide the information that Singapore gaming control authorities want.

Larry Klatzkin – Chapdelaine Credit

All right, so you stop to give the gamblers kind of discounts, so what do you guys think like, you're probably giving them 0.7 to 0.9 to the gamblers or combination of versus the 1.25 you giving in Singapore, is that reasonable?

Ken Kay

That is right. I suspect, and all my estimates have been figured on about 0.7 to 0.75 or 0.8, direct to the player that want to get compensated and even out the neutralized the house advantage a little bit. We would rather, we're going to give them the option of Las Vegas way, or the rolling chip way.

So, if somebody says well, I'm not, I want to do a rolling chip, so I just want to know that if I lose I want a discount of X%. And we’re not trying to have it that way because on the roll we have to pay when we lose, on the losses we pay on that. And we are much better off that way in my opinion.

Larry Klatzkin – Chapdelaine Credit

So, this would actually mean maybe next year what, 15, 20 basis points of margins at Macau?

Ken Kay

It’s – well, if we don’t get, I feel that we should be getting 30 to 40 percentage, 30 or 40 basis points, not basis points, 30% to 40% more, just on the taxes alone, we will pick up at least 24% and if now integrated resort model if we make 28% or 30% and we add another 24%, never mind the savings on the junket reps, we are 54% of gross and if we pick up, it depends upon the ratio of high-end versus math but let’s take around a number of 50/50. It’s 44%, we save it 1.25% and let’s say we get half of that. So we would save 0.22 on the total, and if we give half of that to the player we would save about 11% which could bring us to an extraordinary EBITDA margin. I mean, it’s so large I don’t want to – it sounds like blue sky, but I don’t see any reason why it can’t occur.

Rob Goldstein

Keep in mind that the rolling director the customer also the big variable there is credit, right. Not just about, this is no junket reps, it's question of not what we pay or Genting pays, the question is who wants to issue in cost to credit, that will determine in part what the rolling number is.

Larry Klatzkin – Chapdelaine

So you guys put a chunk of money that you are willing to use for credit in Singapore, sort of, will be significant?

Rob Goldstein

Yes. Our model is to be in the credit business in Singapore with creditworthy customers and right people we can collect from in a direct fashion, yes.

Larry Klatzkin – Chapdelaine

Is this new ruling with win on credit correction – do you think significant like The Hong Kong decision.

Ken Kay

I can only speak for Macau, but I can tell you that it has had profound impacts on your billing to get people’s attention.

Larry Klatzkin – Chapdelaine

Sure.

Ken Kay

To come back and play or pay. It was a very big watershed event for those who extend credit account. The fact that you can now collect through also –

Sheldon Adelson

So the big deal.

Larry Klatzkin – Chapdelaine

All right, we’re good guys. Thanks. I appreciate it.

Sheldon Adelson

Thanks, Larry.

Mike Leven

Larry, well listen, I want to say that we experienced between 1% or 2% default rate here in Las Vegas. I think, and my personal opinion is that if we judicious in our granting of credit, which we certainly are going to make an effort to be. We will experience a very low single digit credit default rate because the Asian people are far more face sensitive. If somebody tries to collect money, particularly if you collect money from gambling because of the stigma that is present in their social circles, and the last thing they want to do is let their government find out they are doing this. So I think that we’ll have a much higher collection success rate than otherwise thought.

Operator

Your next question comes from Janet Brashear with Sanford Bernstein.

Sheldon Adelson

Are you whispering Janet?

Janet Brashear – Sanford Bernstein

Not me, don’t know where that’s coming from. Thank you. My question is about just rates at The Venetian and The Palazzo, we know that last year The Venetian was doing 163, the Palazzo was doing 179, and as Rob was talking about the rate pressure, I am wondering what you’d expect for 2010?

Rob Goldstein

Any segment in particular, just in general?

Janet Brashear – Sanford Bernstein

Well, across the board, I know you have your group rooms booked in largely for the year, at least for the same level year, I’ll be curious to know how those rates are trending and then what the overall impact is on your RevPAR?

Rob Goldstein

Well, we’re turning down, I mean, relative to 2009 rates were 211 for actual group segment for the year, were down in the 180 range for 2010, high 170s to 180s. And again the competitive pressure is pretty relentless, I mean, to be honest with you it’s not slowing down. And everyone’s numbers in turn you have to factor in, this segment is growing tremendously and that is everybody in town is not – just they’re thumping room is off to slot and tail players at a higher rate than ever.

So, obvious factor, I think there will be big driver of your ADRs. I mean, our ADR obviously as rate pressure across the board in every segment, no one is immune to it. I am hoping we can maintain a better cash ADR than we hope to, in the past but the rate pressure will determine that and the market determine that. Every day you are getting emails, you look at the offers out there, there is pressure, whether it would be the casino segment, the FIT, the wholesale and you got to factor in these days the non-cash RevPAR segment, which is driven by the growing use of comp rules in every hotel in this town.

So, I am trying to allude your things every day, and we are trying and maintain rate I think Sheldon and Mike both referenced, our attempts is to stay above the market somewhat but rooms rates are actual down and that is a function of the marketplace, and I don’t see how that changes in the markets such trending up a bit.

Sheldon Adelson

It varies, I want to address that, excuse me. It varies from show to show, and event to event. We have a largest convention facility in the world. We have 330 meeting rooms including ballrooms, and we have got – hold room somewhere in the 50,000 person category simultaneously. Now there is no need for 50,000 people to sit simultaneously but we can overlap of smaller groups. And so if we have a group that needs the facilities that only we could provide and nobody else can provide, we maintained the leverage on the room rates.

So far the room rates on the groups have been what we’ve had been in the twos for the most part, and Rob is shaking his head, he’s saying I’m right about that. We are trending up now. We are upset that they were trending down because of the competition. But this two packages of competition, the people that small and they don’t need a lot of the breakout rooms, they can go somewhere else and the larger groups that need our breakout rooms that nobody else can provide. So, we maintain some leverage, and beside there are – it’s just – they’re coming out it's like a tsunami of groups that are signing up.

I don’t want to wish us anything but we do have a government group coming in that, we can’t say with demand like that. That stayed in a pretty good rate. And we got to face that the Las Vegas is the best convention and most cost effective, most efficient convention city on the world, and we are the leader in the convention in this market.

Mike Leven

The group segment obviously continues the most desirable segment in the city in terms of both ADR and when they attend midweek. And I think we will survive and profit from that segment but it has been challenging. The more challenging segments for everybody is the FIT wholesale, and those segments are, you can see those everyday on the internet and see who is doing what and it's challenging by any one’s, anyway you look at this, it’s a very difficult FIT wholesale market.

Janet Brashear – Sanford Bernstein

Okay, factoring all those segments is it fair to assume that your RevPAR will be down in 2010 versus 2009?

Sheldon Adelson

A what?

Rob Goldstein

A RevPAR.

Mike Leven

James, it’s Mike. I think we’ll be slightly down because there was a hangover in 2009 and the first four or five months of group business and other business that we have worked in 2008. But I think the RevPAR, I think there has been a lot of commentary by others about their RevPAR’s improvement going up and I am sure you have seen some of that. I think honestly we don’t know what the sun is going to look like at this point, which is going to determine, we had that number, we always going to end up where we don’t have groups, where we have groups I think our RevPAR will grow, where we don’t have groups it may be very difficult in the summer to hold it.

Sheldon Adelson

We just moved the group into the summer.

Mike Leven

Yes, we moved in September –

Ken Kay

It is a big show.

Mike Leven

So I think we are, sort of, in the early going, as we’ve said the early going we seem to be holding up here, but I think, inevitably I think if you are looking purely at RevPAR which I personally think is a misleading number to involve Casino cost like that will go around the city because people who use Casino comps, they think to build up their RevPAR by putting a special rate on it, we don’t do that, but other do. I think RevPAR will be closer to losing a little RevPAR this year than last year. I don’t think it’s going to affect our EBITDA in any way actually.

Rob Goldstein

I think it all depends on what happens first through the last half of the year. If the – if we continue to pick up group bookings between now and at the end of the year, I think the ADR will increase, if we maintain that level of bookings. So I'm on the optimistic side of comparison to last year.

Janet Brashear – Sanford Bernstein

Thanks. If I could ask one more question on the group side, that this time in Macau, now that you have extra hotel rooms on Cotai Strip with the higher rooms from City of Dreams, and you've got five and six in the works, where is the tipping point where you become – where Macau and the Cotai strip becomes an important convention destination and you have a high utilization of your space there?

Sheldon Adelson

When the Chinese and the Asian population shrink to a fraction of what they are today. I mean, there is 1.3 million people, there is a 120 million in Japan, there is 44 million in Korea, there is 24 million in Taiwan. I don’t understand how anybody could say, one of the analysts I read the report last night said that it's very clear that the opening of Genting in Singapore made it abundantly clear that this truly is an industry that supply creates the demand.

Everybody who says where is the tipping point? I can guarantee you this, there will be no tipping point in my lifetime, and Janet there will no tipping point in your lifetime, and I know you are a lot younger than I’m, at least you look so. I'm sure you are. So there is no tipping point. How can you say there is a tipping point?

We haven’t had enough critical mass of hotel rooms to be able to bring on other conventions and now we're starting to book more and more conventions in Macau. I met yesterday with a show producer here in the United States that has 45 shows, big ones that they want to start duplicating them over in Asia, and they are going to go and take a look at both Macau and Singapore, and I don’t understand, you got a billion 300 million people and these populations are not shrinking they are growing. So, there is no such thing, it’s supply creates demand, it’s not demand creates supply.

Mike Leven

I think just to add to that point, the point of inflection where we will start hosting more meaningful and more frequent events is actually when you get five and six open. The 1400 rooms across the street at City of Dreams did not give us sufficient growth to be able to host the additional shoves, but the opening five and six and 6000 rooms is personal opinion then you are starting to talk about a meaningful capacity to a very large group to take advantage of the infrastructure that’s in there. That’s why we call it the game changer.

So I think we are well within 16-18 months to see a very profound change, and interestingly you are starting to see it now. I don’t know if they follow a little more Hong Kong and Macao papers, but about three, four weeks ago, the (inaudible) of the Hong Kong paper, we saw that the Hong Kong air show now is going to alternate every other year between Hong Kong and Macau, and that’s a very calculated event, which in connection with the Airport Authority and the Macau government, we sat down last year, we said in keeping with the mandate to diversify the economy, let’s start attacking and identifying some of these larger trade shows that we can start to migrate into Macau that will have a profound impact. So that when the extra rooms some Galaxy, City of Dreams and five to six come on board, we can actually start to use the infrastructure we’ve built towards best and high as use.

Janet Brashear – Sanford Bernstein

So, we need a critical maths of five and six. It’s not a tipping point, the tipping point is that it allows us to reach the threshold of critical mass a lot faster. It will give us 10,000 rooms. The problem with City of Dreams is they are putting four separate buildings and they only hold 350 to 400 rooms each. And that’s not sufficient capacity for each one of those brands to make an effort to send in a lot of business, because the property isn’t too small. I does not interested in filling Hard Rock and Hard Rock is not interested in filling – what do they call?

Mike Leven

High.

Sheldon Adelson

Not high, the high road what’s it from, Crown. We have 4000 Sheraton rooms, 4000 plus another 400 or 500 sand beaches to be build in the third phase or maybe along with this phase. The issue is that with 4000 rooms Sheraton has to put a major (inaudible) press on filling up those rooms, and we’re going to be along with Shangri-La and Traders is dozens of Shangri-La with the very good reputation.

I have stated several of them myself, I think they are very good, and you can't with 300 rooms at a Hard Rock hotel offer yourself as a convention property. You can't with one high the transient of 50, the other high at a 300, you can't do that. And I think that even though they resemble integrated resort then and are not truly an integrated resort that can focus or they can specialize in the convention and trader market.

Janet Brashear – Sanford Bernstein

Thank you.

Sheldon Adelson

Thanks Janet.

Operator

Your next question comes from the David Bain with Sterne Agee.

David Bain – Sterne, Agee & Leach

Thanks. First I was hoping to clarify something I said earlier the whole benefit in Macao was that a $50 million benefit to net revenue or EBITDA? I haven’t done math yet, but it was mentioned earlier.

Mike Leven

EBITDAR.

David Bain – Sterne, Agee & Leach

Okay. And I guess, I the first question, I had a question on policy shifts with regard to the tightening of credit in China and its impact to your business in Macao. I didn’t really hear the answer if there was one.

Ken Kay

I don’t know that we gave one, but I think you asked the question that was wrapped in, with Joe, I apologize for that. Clearly, David, there is lot of press, a lot of discussion going around right now in terms of the liquidity and the excess thereof and the China marketplace and the impact of Macao, little have they have start to really restrict the additional credit. That will have a far more pronounced impact on the VIP business, and I think on the junket business, and it will for us, primarily because majority of our business is mass way.

The other thing that I would show out that for consideration is everyone has assumed that there is one to one relationship between the credit market and liquidity, and the role of Macao. It would have to be profoundly different, in my opinion, for it to have a material near-term impact because the people that come particularly on a frequent basis are customers on credit that fairly liquid in most themselves.

David Bain – Sterne, Agee & Leach

Okay. And I mean, as that, sort of, bleed in there overtime, if it does, can you just given your liquidity situation, yourself be a little bit flexible with your balance sheet loan additionally to junkets with a track record to extend to their players?

Mike Leven

If anything we’ve gotten a bit more stringent over the last couple of quarters, we put in some standards and we don’t tend to deviate from those standards. It works well for us and it works well for the junkets. I think we are on par with our competitors in terms of the premium direct. So long answer to a short question, no we don’t see us using our balance sheet offset any liquidity issues from the mainland.

David Bain – Sterne, Agee & Leach

Okay. And then just final one.

Sheldon Adelson

Bear in mind, we are actually in the price competitive because we want to increase our direct at the right place, so we don’t necessarily think it's contributory to that end because that loaning more money to the junket reps.

David Bain – Sterne, Agee & Leach

Okay. And then final one, if we can get an update on the progress or potential timeline for the sale of The Four Seasons apartments?

Sheldon Adelson

We have not made any official announcement on that. We are well aware that there is north of the $1 billion of value tied up in that asset and as prudent management you should expect us to be evaluating different ways to free that.

David Bain – Sterne, Agee & Leach

Okay, great. Thank you.

Operator

Your next question comes from Dennis Forst with KeyBanc Capital.

Dennis Forst – KeyBanc Capital

Yes, good afternoon. I had a question about

Sheldon Adelson

Are you still around?

Dennis Forst – KeyBanc Capital

Yes.

Sheldon Adelson

This is Sheldon.

Dennis Forst – KeyBanc Capital

You are around – I know it's Sheldon. If you are around, I am around.

Sheldon Adelson

Okay. Well, I remember meeting you 20 some odd years ago. At the time I was the only guys that had the stamina to go this far.

Dennis Forst – KeyBanc Capital

My wife likes to eat three meals a day.

Sheldon Adelson

I’m only kidding. I’ve only joked –

Dennis Forst – KeyBanc Capital

Yes, I know. I wanted to ask – I have been so busy putting the numbers in that I have may have missed this comment on the call, have you taken out a minority interest for FCL in the quarter? Is there some place where that is reflected in the income statement?

Ken Kay

Yes, if you look on the income statement, it’s the line just below net loss and it shows the net loss attributable to non-controlling interest of –

Dennis Forst – KeyBanc Capital

6.6 million?

Ken Kay

Correct.

Dennis Forst – KeyBanc Capital

Okay. Was there something in the third quarter also for that?

Ken Kay

Not for FCL, that would have only been in the fourth quarter.

Dennis Forst – KeyBanc Capital

Okay, what was it then in the third quarter, Ken?

Ken Kay

Well, it would have been mostly from Pennsylvania and then some other kind of joint venture arrangements we have.

Dennis Forst – KeyBanc Capital

Okay, but the line in share that 6.6 was FCL related now?

Ken Kay

That’s correct.

Dennis Forst – KeyBanc Capital

Okay, great. Say again?

Mike Leven

Just for the month of December.

Dennis Forst – KeyBanc Capital

Right, only the one month. And then, when will FCL have to release their detailed results? Not that there could be any more details than you have already done, but I am just wondering on the Hong Kong exchange what their requirements are for disclosure?

Ken Kay

We will release our SG&A on March 1 and then we will release our annual towards the tail end of April.

Dennis Forst – KeyBanc Capital

End of April. Okay, great. Thanks a lot.

Operator

Your next question comes from Robin Farley with UBS.

Robin Farley – UBS

Thanks. Most of my questions have been answered. Just want to, I want to clarify, you gave dollar amount of receivables for the whole company and then you talked about reserve percentages in your region, but I don’t know if you step aside, what is the dollar numbers receivables just in Vegas versus last year?

Ken Kay

With the total amount of receivables in Vegas and including casino and hotel and other or just a casino number?

Robin Farley – UBS

Just casino I guess versus the prior year in Vegas.

Ken Kay

I don’t have the prior year on me, but the gross receivable casinos for Vegas was about, it’s a little bit short of 160 million.

Robin Farley – UBS

I'm sorry that was 160.

Ken Kay

Yes

Robin Farley – UBS

Okay, great. Thank you

Operator

The next question comes from Chris Woronka with Deutsche Bank.

Chris Woronka – Deutsche Bank

Hi, good afternoon. I was hoping maybe we get a little color on your thoughts on potential development in South Florida, maybe some higher level things, what needs to happen for you to move forward and just general thoughts on that ex?

Sheldon Adelson

Well, let say, an exclusivity for the entire United States, a nice condo sitting on Bell Harbor. Besides that, and then, and we walked away the line that rest hotels together [ph]. Seriously I think that the tax rate is priority one. If they maintain a very high tax rate, we won't be in. if a – particularly on table games, if the allowed too many time into casinos, and it would interrupt where we think we’d like to go, then that might be a deal breaker for us. I have expressed I’ve been to Florida personally several times, as you could see I like it.

And I think that there are just too many places. We learn from the Sands, and we learn from what they are talking about in Massachusetts and in other states like Ohio, like Kentucky and Texas. They are talking about 12 tracks and 12 Racinos in Texas and they’re talking about another 12 casinos. The point is that if we can’t do our song and dance of an integrated resource, it becomes less and less attractive. We think that South Florida can attract enormous number of people from Latin and South America, number of high rollers. So, if we can do an idea in spite of the fact that there are a lot of local casinos in the Racino category, we might still be able to do it but that then depends upon the tax rate.

So that’s where we are on South Florida and same in any other US state. They are becoming more plentiful now and so we will have to decide whether or not we want to be a $50 million year casino business or we want to be in the $0.5 billion or $1 billion integrated resort business.

Chris Woronka – Deutsche Bank

Okay. Very good. Thanks.

Sheldon Adelson

I hope it's very good.

Operator

Ladies and gentlemen, this ends our allotted time for questions. Management, are there any closing remarks?

Sheldon Adelson

I would like to ask everybody anybody who have a question or comment about Singapore? I guess not. Okay. That’s it. Do we have any comments, Mike? Ken?

Ken Kay

No.

Sheldon Adelson

Okay. Steve, Tom? Nobody. All right. Thank you everybody for joining our call and having interest in our company. Now for those investors that are on the line, we want to thank you for your confidence in our company. We will do everything we can to increase shareholder value. Thank you. This concludes the call.

Operator

This concludes today's conference. You may now disconnect.

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Source: Las Vegas Sands Corp. Q4 2009 Earnings Call Transcript
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