VENETIAN REPORTS JUMPS IN NET REVENUES, CASH FLOW

Tuesday, 6 Feb 2001
 

By DAVE BERNS
lasvegas.com Gaming Wire

   LAS VEGAS - Operators of The Venetian will double the size of the 
Strip megaresort's baccarat pit, add semi-private gaming and dining 
rooms, and expand or remodel 18 suites to accommodate high-end 
gamblers, company executives said Tuesday.
  The property's original convention-driven business plan with a boost 
from weekend tourists did not anticipate that the Venice-themed 
hotel-casino would deal to the highest-level gamblers.

   But that focus changed in late 1999, as The Venetian attempted to 
gain a percentage of the high-end and premium gamblers who visit Las 
Vegas from Asia, Europe and cities throughout the United States.
   That said, Brad Stone, executive Vice President of Venetian parent 
company Las Vegas Sands Inc., said high-end casino play at the 
21-month-old Venetian is not expected to grow this year at the same 
rate it did last.
   "We want to tighten expenses somewhat and not be afraid to turn 
away some business," Stone said.

   Discussion of the high-end additions - part of an estimated $28 
million of capital expenditures anticipated for The Venetian this 
year - came during a morning conference call to discuss fourth 
quarter and end-of-year results for Las Vegas Sands Inc., owner and 
operator of The Venetian and its adjacent shopping mall.
   For the quarter ended Dec. 31, the privately owned Las Vegas Sands 
generated net revenues of $149.9 million, up 33 percent from the 
$112.5 million generated in the fourth quarter of 1999.
   Profits for the quarter were $5.1 million vs. a loss of $7.4 
million a year ago, with cash flow increasing 35 percent to $49 
million.

   That cash flow figure - a measure of earnings before interest, 
taxes, depreciation, amortization and rent - places The Venetian 
complex third on a list of Strip cash flow generators behind MGM 
Mirage's Bellagio and MGM Grand.
   "We did it from a standing start without a high-end customer base 
... or a slot base," said Las Vegas Sands President and Chief 
Operating Officer Bill Weidner.

   The company has public debt, prompting Tuesday's conference call 
and quarterly filings with the Federal Securities and Exchange 
Commission.
   For the year ended Dec. 31, Las Vegas Sands generated net revenues 
of $589.7 million, more than doubling the $252.7 million reported 
last year.
   Full-year profits totaled $16 million compared with a 1999 loss of 
$65.6 million.
   Cash flow for the year was $195.9 million vs. $37.7 million a year ago.
   The Venetian reported a 12-month hotel occupancy rate of 95.2 
percent with an average nightly room rate of $182. That compared with 
1999 figures of 81.7 percent and $159.
   Slot machines, a strong measure of low- to mid-market wagering, won 
$132 per machine each day from gamblers, up from the 1999 figure of 
$99 and greater than the Strip daily average of $110.
   Table games won $5,200 per table daily, up from $2,780 last year.
   "The basic plan works. The business plan works," said Venetian 
President Rob Goldstein. "I think our job now is to mature the 
business and look for opportunities within our buildings."

   That plan was criticized in the weeks after The Venetian's May 1999 
opening, as construction delays and county safety testing forced a 
phased unveiling of the $1.5 billion, 3,036-room hotel and shopping 
mall.
   The atmosphere was further tarnished by a series of lawsuits filed 
by subcontractors who worked on the project and charged that Venetian 
Casino Resort LLC and contractor McGovern Bovis Inc. failed to pay 
them for their work. Those suits continue to work their way through 
federal and state courts.
   In recent days, Las Vegas Sands Chairman Sheldon Adelson, the 
property's curmudgeonly majority owner, has spoken of breaking ground 
by early next year on a second $800 million to $900 million phase at 
the site, which would see the addition of 3,000 rooms.

   Las Vegas Sands' Weidner chuckled during Tuesday's conference call, 
saying that such talk was premature, as company executives continue 
to work to secure financing for the project.
   "We are competing construction plans but not ready as yet to 
discuss how the financing works," Weidner said. "It's too preliminary 
to say it's a done deal."
   The timing for the construction of a massive phase doesn't appear 
to be good, as thousands of business plans languish nationally 
because of a lack of affordable financing, said John Kempf, a Goldman 
Sachs vice president who studies the casino industry.

   But by the time Adelson raises the money and completes 
construction, two or three years will have passed, and the national 
economy should have recovered from any doldrums, Kempf said.
   "More important, Vegas needs to reinvent itself every couple of 
years," he said. "That's what keeps driving people to visit."
    Workers are moving ahead with construction of a museum complex 
that will bring to The Venetian satellite operations of the New 
York's Guggenheim and Russia's Hermitage museums.
   Both are expected to generate increased foot traffic at the center 
Strip property, while creating a new revenue generator for Las Vegas 
Sands. The museums are expected to open later this year.
   Wall Street financial analysts say Las Vegas Sands bosses have done 
a good job of implementing The Venetian's convention-driven strategy 
with a powerful boost from the neighboring Sands Expo Center.
   That business has bolstered mid-week room rates that are 
traditionally lower in the Las Vegas market, while apparently 
insulating The Venetian from some of the volatility of the national 
economy because conventions are booked more than a year in advance.

   "I believe that what was underestimated with The Venetian product 
was how underserved the high-end part of the convention business 
was," said John Leupp, a director and bond analyst for Credit Suisse 
First Boston.
  "With softness in the overall economy you could see some weakness in 
their convention business, but I think there would be more of a lag 
effect, but I don't think that would manifest itself at least for a 
year because of advanced bookings."
   Executives at The Venetian have taken shots in recent months from 
their neighbors in the high-end business who charge that the new 
megaresort has created a difficult competitive environment by 
discounting by as much as 20 cents on the dollar the losses of 
high-end gamblers.
   Competitors argue that the practice has caused them to raise their 
discount rates from about 10 percent to keep pace, cutting into their 
bottom lines.
   But Las Vegas Sands executives said Tuesday they've become a 
convenient fall guy for other companies that are simply employing a 
practice that has existed since the 1970s.
   "It's become a marketing tool as opposed to a business tool," said 
Venetian President Rob Goldstein.
 

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