Sands to sell retail malls to raise liquidity

Friday, February 13, 2009
Issue 611, Page 2 – 3
Word count: 1425
Published in: Macau Daily Times

By Poyi (Natalie) Leung

Las Vegas Sands Corp (LVS) is going to sell the retail malls in Macau as prompted by its falling profit, which the company said was attributed to higher junket commissions and lesser high end players.

The company yesterday announced its 2008 fourth quarter earnings during a telephone conference from Las Vegas, which was followed by a press conference chaired by Asia President Stephen Weaver and Executive Vice-President Brad Stone at the Venetian Macao Resort Hotel.

While LVS’ earnings in Las Vegas for the last three months of 2008 dropped by 16 percent to US$89 million when compared to the same period of 2007, the operation in Macau also registered a decline in income despite their hotel occupancy and visitation to their properties remained strong.

The Venetian Macao generated US$112.8 million of Adjusted Property EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization and Rent) in the fourth quarter of 2008, a decrease of 4.3 percent over the same period of 2007 at US$117.9 million.

Despite a significant increase in visitation, Mr Weaver said a reduction in the Venetian’s VIP rolling volume and thus the related profit margin due to “increased junket commissions” affected the Cotai Strip property’s performance.

According to Mr Stone, the overall VIP profit in 2008 reported a 13.3 percent drop to US$431 million from US$497 million in the preceding year.

Meanwhile, a total of US$10 million was reserved for bad debt in the quarter in Macau, the highest amount the company had ever done.

In terms of Sands Macao, its Adjusted Property EBITDAR fell in the fourth quarter of 2008 to US$52.3 million, which was shrunk by 32.1 percent from US$77 million a year ago as a result of rising junket commission costs and competition from the Macau Peninsula, Mr Weaver said.

As for the company’s latest Cotai Strip property, The Four Seasons Macao, about US$5 million of EBITDAR was generated during the period.

VIP market income

In December 2008 the Venetian Macao’s non-gaming earnings reached 40 percent, whilst those in mass gaming market and VIP gaming reached respectively 45 percent and 15 percent.

The overall gaming revenue of Sands, Venetian and Plaza in the SAR was up by 47 percent from US$2.2 billion to US$3.3 billion in spite of the global economic climate.

The actual win for mass gaming tables for the Venetian Macao as well as the slot revenue in the last quarter of 2008 reported a significant increase of 16 percent and 44 percent respectively over that of the previous year.

Mr Weaver said the performance echoed the general trend of the Macau market which, according to CLSA Asia Pacific, had a 16 percent increase in mass market income and a 27 percent decline in VIP market income alone in January this year.

“We expect a further reduction in Macau’s overall gaming revenue in 2009, largely due to the reduced VIP revenue,” the Asia President added.

According to Mr Stone, high end players contributed only about 15 percent of Adjusted Property EBITDAR for the Venetian Macao in the quarter, slumped by about 32 percent a year ago when the property made US$117.9 million of earnings.

“We expect Macau’s market, the overall VIP volumes to decline in 2009 after the unsustainable growth the market experienced in 2008,” the Executive Vice President of LVS said.

“The Macau market’s increasing competitive commission structure significantly reduced the profitability of the business for gaming concessionaires throughout the year of 2008,” he added.

Hence, the company believed that mass gaming revenue was “more sustainable” as it attracted “a large number of small-stake tourists from a diversified base around the world”, Mr Weaver said.

In contrast, the VIP gaming business was “less sustainable” with win hold percentage “being fluctuated greatly” as it concentrated on a few very high end customers.

“This narrow segment has relatively minor effects on the broader Macau economy and does little to contribute to Macau’s transformation to a new economy,” Mr Weaver said.

“Since it has little connection with the tourist destination, VIP gaming is highly mobile and can be located in Macau as well as in any of the cities and countries that allow gaming, meaning this market can be easily shifted to any new gaming destination willing to pay a higher commission to gaming intermediaries,” he added.

Visitation, hotel occupancy, retail

In 2008 the Venetian Macao received about 20 million visitations, including 5.4 million in the last quarter alone.

During the Lunar New Year holidays last month, the Venetian saw 730,000 visitations in the week beginning January 26, an increase of four percent from last year.

With regards to hotel occupancy, the Venetian registered an average rate of 89 percent for the quarter, with the number having jumped to 98 percent during the Chinese New Year period in January this year.

In the area of retail performance, the Grand Canal Shoppes of the Venetian Macao and the Four Seasons Shoppes received respectively 17 million and two million of visitations last year.

According to reports from tenants, the Grand Canal Shoppes generated more than 2.5 billion patacas in retail volumes, whilst the Four Seasons Shoppes logged over 530 million patacas in the four months that it opened.

CotaiJet service

The Cotai WaterJet, a subsidiary company of LVS, carried 1.6 million passengers in the last three months of 2008, an increase of 23 percent over the preceding quarter.

The total number of CotaiJet passengers for the whole year was 3.4 million, of which 70 percent came from incremental traffic that the ferry service generated, and the remaining 30 percent came from the existing base.

Future of Parcels 5 & 6, sale of assets

According to the Asia President, LVS should be able to resume development of Parcels 5 and 6 on the Cotai Strip “once the global economy recovers and we are able to obtain financing for the project”.

“We’ve already invested 14 billion patacas in the two parcels and we’re committed to finish our projects,” Mr Weaver said.

Mr Stone also said that the company had been in “constant active discussion with banks and we’re also very anxious in recommencing the expansion in order to complement with City of Dreams and other mega resorts on the Cotai Strip”.

In order to generate liquidity, LVS has decided to offer the Grand Canal Shoppes and the Shoppes at Four Seasons for sale.

“Even in the current economic downturn, we expect qualified buyers would understand that these are trophy assets, and once sold, are unlikely to be available for sale again in the foreseeable future.” Mr Weaver said.

However, the executive stressed that it had always been their plan to sell the shopping malls, adding they had an “internal target” for the price and had received “many expression of interest”.

He also said that there was “no surprise” for the SAR government that LVS was planning to monetise its peripheral retail assets as “it has been understood a long time ago”.

On the other hand, LVS will continue with the program to sell shares in the company which will own the 3.2 billion pataca fully furnished Four Seasons apartment hotel.

“We have made it clear that the apartment hotel will not be sub-divided into strata title apartments in line with the land concession contract,” Mr Weaver affirmed.

“We’ve always intended to sell the property as we want to create a ‘vacation destination’ for people who don’t want to stay in a hotel when they come to Macau,” he added.

The Asia President said “lots of people” had shown interest to buy the shares and he expected that “within a short period of time contracts will be signed and deposits will be received”.

Mr Weaver also said that the company was confident that the monetisation of the retail assets and sale of the apartment hotel, when completed, would significantly strengthen its liquidity position.

“The proceeds of the sales will be used to reduce overall debts in Macau. By selling assets to lower our debts, we will have a more stable operation in Macau and will be in a much better position to resume development of Parcels 5 and 6,” he added.

According to Ben Toh, the Senior Vice President of Finance in Macau, the cost control plan implemented in 2008 had saved US$70 million for business in the SAR.

However, Mr Stone stressed that the company did not have any initiatives to lay off staff or further cut operating costs at the moment.

LVS disclosed yesterday that the target for cost savings initiatives had been raised to US$125 million on an annual basis across all Macau operations.

 

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