Las Vegas Sands (LVS)

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Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment See all Bears Reasons Bears: Reasons To Sell macao government restricting new casino entries 0% agree macao government restricting new casino entries The threat of increased competition by new entrants undermining LVS's massive investment in Macao and pressuring its stock price has come to an end. LVS' Macao properties will provide the bulk of its profits for years to come. The new Singapore property will add to this. Vegas will benefit from increased European visits. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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Las Vegas Sands(NYSE:LVS) owns and operates casinos in Las Vegas and Macau. The company generates over 70% of its revenue from its casinos, with dining, conventions, lodging and other services making up the rest.

LVS is popular in Las Vegas, where it owns and operates the Venetian casino. The Venetion was the first casino to focus on convention and meeting room facilities, relegating the gambling areas to a smaller footprint - at the time a major challenge to the conventional wisdom on Casino building. The Venetian is the second most profitable casino in Las Vegas, after the Bellagio.^[1]

The company's recent growth and prospects for future growth may be most closely tied to Macao, which is the fastest growing gaming market in the world. LVS currently operates Sands Macao and The Venetian Macao in Macau, China. The region is very close to mainland China and Hong Kong, where disposable incomes and spending on tourism are rising quickly. LVS was the first Western casino operator to enter the market.

[edit] Business Overview

LVS' revenue has grown significantly in recent years due to the addition of resorts in Macau. Since 2004, revenues are up nearly 87%^[2].

LVS 2006 Annual Report^[3]

However, operating income hasn't grown at the same pace as revenue. As the company is expanding operations in Macau and other locations, it has incurred substantial pre-opening expenses and other start up costs^[4].

LVS 2006 Annual Report^[5]

LVS' geographic source of revenue has shifted significantly in recent years. While just a few years ago most of its revenue was derived from Las Vegas, it has quickly shifted towards Macau. In 2006, 57% of revenue was derived from Macau, while they only derived one third of their revenue from Macau just two years earlier.

LVS 2006 Annual Report^[6]

The Venetian Resort Hotel Casino^[7] is a Renaissance Venice-themed resort on the Las Vegas Strip. The Venetian includes over 4,000 suites; a gaming facility, retail, dining and entertainment complex and a meeting and conference facility. A subsidiary of LVS owns and operates The Sands Expo Center, with approximately 1.2 million square feet, which is connected to The Venetian. In 2006, approximately 40% of the gross revenue at The Venetian, including The Sands Expo Center was derived from gaming and 60% was derived from non-gaming sources such as hotel rooms, food and beverage. The percentage of non-gaming revenue for The Venetian is sign of the casino’s emphasis on convention and trade show business. As a result, The Venetian also has higher occupancy and room rates during mid-week periods.

LVS also owns and operates the Sands Macao, a casino in Macau, China, which opened in May 2004^[8]. The Sands Macao has over 200,000 square feet of gaming facilities, as well as several restaurants, VIP facilities, a theater and other high-end amenities. Recently, a hotel tower was completed, which increased the number of suites from 51 to 289. The Sands Macao currently generates over 95% of its revenue from gaming activities. However, with the development of suites, this can expect to bring more diversity to revenue. In building these suites, LVS expects that visitors to Macao will stay for longer than one night (the current average).

In August 2007, LVS opened The Venetian Macao Resort Hotel in Macau, China^[9]. With a theme similar to that of The Venetian in Las Vegas, The Venetian Macao includes a hotel with over 2,900 suites; a casino floor of approximately 550,000 square feet; a 15,000-seat arena; retail space of approximately 1.0 million square feet; and a convention center complex of approximately 1.2 million square feet.

With the different mix in gaming and non-gaming revenue from Las Vegas and Macau, LVS currently generates most of its revenue from gaming. It is followed by rooms, dining, and other services.

LVS 2006 Annual Report^[10]

[edit] Future development

• The Palazzo^[11]: LVS is currently constructing The Palazzo Resort Hotel Casino next to The Venetian and The Sands Expo Center. The Palazzo will consist of a 50-floor luxury hotel tower, a gaming facility, and shopping, dining and entertainment. The Palazzo is expected to open in December, 2007.

• Sands Bethworks^[12]: developing a gaming, hotel, shopping and dining complex in Bethlehem, Pennsylvania, about 70 miles from New York City.

• Macao Development Projects^[13]: LVS has submitted development plans to the Macao government for six casino-resort developments in addition to The Venetian Macao on an area of approximately 200 acres .

• Hengqin Island Development Project^[14]: LVS is working to develop a leisure and convention destination resort on Hengqin Island, which is located within mainland China.

• Singapore Development Project^[15]: LVS is working to build and operate a resort called the Marina Bay Sands in Singapore, which will include three 50+ story hotel towers, a casino, retail, dining and entertainment, a convention center and other facilities.

[edit] Key Trends and Forces

• Tourism in Las Vegas: LVS depends on the sustained growth of tourism in Macao and Las Vegas. With a large pipeline of development projects, LVS is betting on the growth of both destinations. A disruption in this trend may lower hotel and casino occupancy, and decrease future revenues.

• Airline Travel: The majority of LVS’ customers travel by air. Therefore, LVS’ future profitability and success is contingent on the overall health of air travel. Terrorist attacks or disease outbreaks, such as the Avian Flu, could reduce the number of customers willing to travel to the resorts.

• Economic Conditions: The gaming industry as a whole is vulnerable to economic conditions. An economic downturn, in the US or in Asia, would have a negative impact on LVS' revenues. In a down economy there are fewer visitors and the visitors who do come tend to spend less money. However, LVS caters more to higher end gaming customers and that market is usually less affected by economic conditions. So while an economic downturn may have a negative impact on LVS Resorts, the company may not feel the impact as greatly as some of their competitors.

• Macau: is the fastest growing gaming market in the world, with gaming revenue compounding at 20% for the past few years^[16]. The burgeoning Chinese economy, which is close in proximity, is sending large contingents of increasingly wealthy tourists to the gambling region. While LVS is one of only 6 companies licensed to operate in Macao, the company is subject to the local foreign regulatory framework and potential political or economic instability in the area. Furthermore, Chinese travel policy may significantly affect the number of customers to its hotels and casinos.

• Interest Rates: in 2006, LVS has a debt load of about $4.1 billion and its properties are highly leveraged. In 2006, Wynn paid over $200 million in interest payments. Cash flows from The Venetian in Vegas, The Venetian in Macau, and Sands Macau are the only three sources to pay off this debt. High interest rates would make paying off the debt more difficult and reduce the cash flow available for the rest of the company, most notably the future development projects. Cost overruns in these developments, high interest rates and insufficient generation of cash flow from the completed resorts would all impact the ability of LVS to meet payment obligations. This could lead to reduced financial backing for its new development and accelerated payments of the debt.

[edit] Competition

[edit] Las Vegas

LVS faces a lot of competition in Las Vegas^[17]. While these companies have similar operations, LVS’ primary distinction is that its revenue breakdown is more diverse due its focus on conventions, and less dependent on casino income.

Harrah's Entertainment owns and operates 72 locations comprising nearly 3 million square feet of casino space as well as over 38,000 hotel rooms and suites across countries such as the U.S. Canada, the U.K., Egypt, and South America. In Las Vegas, the company owns 629,000 square feet of casino space and 20,300 rooms and suites at locations such as Bally’s, Caesar's Palace, Harrah’s, The Flamingo, and Paris. ^[18]

MGM owns and operates casino resorts in Las Vegas such as Bellagio, MGM Grand Las Vegas, Mandalay Bay, Mirage, Luxor, Treasure Island, New York-New York, Excalibur, Monte Carlo, Circus Circus Las Vegas and Slots-A-Fun. Other Nevada operations include Circus Circus Reno, Gold Strike in Jean, and Railroad Pass in Henderson. The Company has a 50% investment in Silver Legacy in Reno, which is adjacent to Circus Circus Reno. The Company also owns Shadow Creek, an exclusive world-class golf course located approximately ten miles north of its Las Vegas Strip resorts, and Primm Valley Golf Club at the California/Nevada state line. ^[19]

Wynn Resorts owns the hotel “Wynn”, which has 2,716 suites and approximately 111,000 square feet of gaming space. The company will build “Encore”, which is planned to have just over 2,000 rooms and 72,000 square feet of casino space.^[20]

^Average Daily Rate = total room revenue / total rooms occupied

^^Revpar = revenue per available room

[edit] Macau

In Macau, LVS faces growing competition as many operators are trying to enter that market. However, there are currently restrictions on the number of licenses that can be issued before 2009 by the Macau government^[21].

• Wynn Resorts opened the “Wynn Macau” in September 2006 with approximately 110,000 square feet of casino space. A second phase will more than double the gaming space.^[22]

• Melco PBL Entertainment is a locally based casino operator that owns the Crown Macau Hotel Casino, and is currently developing two more large-scale casinos. The Crown Macau caters to the VIP segment of the market with its 216 hotel rooms, over 200 game tables and over 200 slot machines. The City of Dreams is slated to open in March 2009 with 1,666 hotel rooms, 2,500 slot machines and over 400 game tables.

[edit] References

1. ↑ When 3rd Place on the Rich List Just Isn't Enough, The New York Times, January 17th 2008.
2. ↑ LVS 2006 10k, Item VII, Pg. 51
3. ↑ LVS 2006 10k, Item VIIa, Pg. 74
4. ↑ LVS 2006 10k, Item VII, Pg. 55
5. ↑ LVS 2006 10k, Item VII, Pg. 55
6. ↑ LVS 2006 10k, Item VIII, Pg. 110
7. ↑ LVS 2006 10k, Item I, Pg. 1
8. ↑ LVS 2006 10k, Item I, Pg. 2
9. ↑ LVS 2006 10Q, Pg. 5
10. ↑ LVS 2006 10k, Item VIIa, Pg. 74
11. ↑ LVS 2006 10k, Item I, Pg. 3
12. ↑ LVS 2006 10k, Item I, Pg. 3
13. ↑ LVS 2006 10k, Item I, Pg. 3
14. ↑ LVS 2006 10k, Item I, Pg. 5
15. ↑ LVS 2006 10k, Item I, Pg. 5
16. ↑ BusinessWeek
17. ↑ LVS 2006 10k, Item I, Pg. 6
18. ↑ HET 10k, Properties, p. 14-15
19. ↑ MGM 10k, Business, p. 1
20. ↑ Wynn 10k, Business, p. 2
21. ↑ LVS 2006 10k, Item I, Pg. 9
22. ↑ Wynn 10k, Business, p. 2