LVS 3Q profit flat, doubling spending on Cotai revamp

Oct 25, 2018 Newsdesk Latest News, Macau, Singapore, Top of the deck  

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Las Vegas Sands Corp chairman Sheldon Adelson says the group is to double the amount it previously announced it would invest in some of its Cotai infrastructure in the next few years.

The news came in prepared comments issued with the group’s third-quarter earnings on Wednesday.

Group-wide quarterly profit was almost flat, at US$571 million, compared to US$569 million in the prior-year quarter. Nonetheless, the firm confirmed it would pay a quarterly dividend of US$0.75 per common share on December 27, to shareholders of record on December 18.

The group also confirmed on Wednesday that the board had authorised a US$0.08 increase in the company’s recurring common stock dividend for the 2019 calendar year, which it said was its seventh consecutive annual increase, raising the annual dividend to US$3.08, or US$0.77 per share per quarter.

Net revenues at the group’s Marina Bay Sands resort in Singapore, and at the Las Vegas operating properties fell year-on-year in the three months to September. In Singapore, such revenues were US$766 million, compared to US$789 million in the prior-year period, while in Las Vegas, they were US$379 million, compared to US$387 million a year earlier.

But in Macau, such quarterly net revenues rose 13.1 percent year-on-year, to just over US$2.15 billion, compared to just over US$1.90 billion a year earlier.

Mr Adelson stated in the prepared remarks regarding the Macau market: “We remain supremely confident in the future opportunity in Macau, and have therefore elected to meaningfully increase the scale of our investments in the Four Seasons Tower Suites Macao, St. Regis Tower Suites Macao and The Londoner Macao, which will now total US$2.2 billion in investment through 2021.”

The current Macau gaming rights of the group’s local unit Sands China Ltd are due to expire in 2022.

In October last year, Las Vegas Sands had said it would spend US$1.1 billion over the following three years on its Macau infrastructure, with the bulk of that figure – approximately US$700 million – to be used for rebranding the Sands Cotai Central property (pictured) into The Londoner Macao.

Bullish on Macau

Mr Adelson said in Wednesday’s filing that the newly-announced capital allocation – to be spent on the Four Seasons Tower Suites Macao, St. Regis Tower Suites Macao and The Londoner Macao – would provide “an ideal platform for growth in Macau in the years ahead”.

An investor presentation released at the same time as the third-quarter results, gave a breakdown of how the US$2.2 billion would be spent.

A total US$1.35 billion would be for the Londoner Macao conversion – the work to start in “2019” rather than the “late 2018” previously mentioned by the group – with “phased completion throughout 2020 and 2021”.

An aggregate of US$400 million would be spent on the St Regis Tower Suites Macao, with approximately 370 new luxury suites ranging in size from 1,400 square feet (130 sq metres) to 3,100 square feet, to come online.

At the Four Seasons Tower Suites Macao, there would be an expansion of the suite inventory “with approximately 290 new luxury suites, ranging in size from 2,000 sq feet to 4,700 sq feet”.

With both of the latter projects, the firm said “work is progressing,” with “anticipated completion in first quarter 2020”.

Robert Goldstein, president and chief operating officer of Las Vegas Sands, gave some background on why the firm was investing more in Macau than previously announced, during a conference call with investment analysts following the firm’s third quarter results announcement.

He stated: “… we see growth in Macau in all segments. We see our hotel rooms are knocking out numbers we never anticipated. We think there’s a demand in that market for all kinds of different things including quality hotel rooms.”

He added: “The Four Seasons will benefit dramatically by having a 300-suite facility that plays right to the PMS [premium mass segment] and to junkets. We’re going to give that property that additional space. We’ve upgraded our game there.”

The “capital expenditure increase for expansion signals a bullish view on Macau prospects,” said a Thursday note from brokerage Sanford C. Bernstein Ltd.

Group wide in 3Q

In the third quarter results, on a group-wide basis, Las Vegas Sands said consolidated net revenue increased 6.7 percent to US$3.37 billion, while group net income increased 2.2 percent to US$699 million.

On a generally-accepted accounting principles (GAAP) basis, earnings per diluted share increased 1.4 percent to US$0.73. Adjusted earnings per diluted share were US$0.77.

Consolidated adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) grew 6.0 percent to US$1.28 billion.

In Macao, adjusted property EBITDA expanded 15.8 percent to US$754 million. At Marina Bay Sands in Singapore, adjusted property EBITDA was US$419 million. Within the group’s Las Vegas operating properties, adjusted property EBITDA was US$76 million.

The group’s depreciation and amortisation expense for the three months to September 30 was US$284 million in the third quarter of 2018, compared to US$265 million in the third quarter of 2017.

Interest expense, net of amounts capitalised, was US$126 million for the third quarter of 2018, compared to US$83 million in the prior-year quarter.

The group’s weighted average borrowing cost in the third quarter of 2018 was approximately 4.2 percent, compared to 3.2 percent during the third quarter of 2017.

Las Vegas Sands said it incurred a loss on early retirement of debt of US$52 million during the latest reporting period.

“This loss and the increases in interest expense and net weighted average borrowing cost relate to the issuance of unsecured notes by Sands China Ltd,” said the results filing. The latter firm is Las Vegas Sands’ Macau subsidiary.

Venetian, Cotai Central

At the Venetian Macao, third-quarter VIP rolling chip volume increased 7.6 percent year-on-year, to nearly US$7.43 billion, compared to just under US$6.90 billion in the prior-year period.

But at Sands Cotai Central, rolling chip volume was down 9.9 percent, to US$2.56 billion, compared to nearly US$2.85 billion in the prior-year quarter.

The Venetian Macao’s mass-market chip drop went up 15 percent annually for the quarter, to nearly US$2.18 billion, compared to US$1.89 billion in the prior-year quarter.

At Sands Cotai Central, mass-market chip drop expanded 14.4 percent year-on-year, to US$1.65 billion, from US$1.44 billion.

Slot machine handle at Venetian Macao was up 12.4 percent year-on-year, to US$807 million, from US$718 million. At Sands Cotai Central, slot machine handle remained greater in volume than at its sister property, but was nonetheless down 4.1 percent on an annual basis, to US$1.13 billion, from US$1.18 billion in third-quarter 2017.

A Thursday note from JP Morgan Securities Asia Pacific Ltd said Sands China’s third-quarter numbers were “nothing to write home about, but (way) much better than its share performance”.

“The company continued to gain VIP share (albeit from a low base) and maintained its dominant position in mass, which were within expectations but still quite impressive. All-in-all, we can’t help but think that the recent ‘collapse’ in the [Sands China] stock is extremely overdone, and we stay overweight,” wrote analysts DS Kim and Sean Zhuang.

At Marina Bay Sands, Las Vegas Sands said VIP chip volume was down a hefty 24.9 percent year-on-year, to US$7.09 billion, from US$9.44 billion a year earlier.

Mass-market chip drop in the Singapore venue was down 1.2 percent, at just under US$1.36 billion, from US$1.37 billion.

Slot handle there was US$3.62 billion, from US$3.66 billion in third-quarter 2017, a slight dip of 0.9 percent.

Samuel Yin Shao Yang, an analyst at Malaysia’s Maybank Investment Bank Bhd – which does not formally cover Las Vegas Sands’ stock – said in a Thursday note: “Marina Bay Sands’ third-quarter 2018 VIP volume fell 25 percent year-on-year but narrower than the second-quarter 2018 fall of 33 percent year-on-year.”

He added: “Industry talk is that Marina Bay Sands is focusing less on the VIP market. That said, Marina Bay Sands’ third-quarter VIP volume was up 21 percent quarter-on-quarter.”

(Updated 2.05pm, Oct 25)

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