Las Vegas Sands Corp, the parent company of Macau-based casino operator Sands China Ltd, announced on Wednesday that it will be investing US$1.1 billion in Macau over the next three years. The bulk of that investment – approximately US$700 million – will be used for rebranding the Sands Cotai Central property (pictured) into The Londoner Macao, said Las Vegas Sands.
“The Londoner Macao will feature dynamic new attractions and features from London including some of London’s most recognisable landmarks, an expanded and reimagined retail mall and 350 luxurious new suites, the St. Regis Tower Suites,” said Sheldon Adelson, chairman and chief executive of Las Vegas Sands, during a conference call to announce the third quarter financial results.
Mr Adelson had flagged at the launch of his French-themed casino resort the Parisian Macao in September last year, that his firm was also interested in developing a venue themed around iconic buildings of the British capital.
The company said on Wednesday it would additionally be investing about US$250 million in converting the Four Seasons Residence tower into a 295-suite hotel. The tower had originally been conceived as an apartment hotel whereby the company would be able to sell property title to investors.
Both projects will start in the second quarter of 2018 and take about “18 to 24 months” to be completed, said Mr Adelson.
“Sands Cotai Central has performed very well in the premium mass segment because of the 6,000 sleeping rooms but we think it underperformers in the base mass segment, where the highest margins reside,” said Robert Goldstein, president and chief operating officer of Las Vegas Sands, on a conference call with analysts following the third quarter results announcement.
“We believe we can grow base gaming [with the revamp of Sands Cotai Central. There's adequate capacity in that building for more gaming on the on the base mass side – the highest margin business in Macau – and that's our particular advantage in both the Venetian [Macao] and the Parisian [Macao],” added Mr Goldstein.
The executive further clarified: “We’ll take the new St. Regis suites and redo those, and we’ll leave alone the Conrad and the Sheraton. We’re going to redo the entire Holiday Inn facility and redo the façade of the building.”
The company also confirmed that it would revamp the VIP gaming areas of the Venetian Macao and Plaza Macao, with completion expected in the middle of next year. The ongoing Venetian Macao hotel room renovations should be completed by early 2018, and room conversions at the Parisian Macao are to be completed by the end of next year, according to the firm.
“The renovations will likely cause some disruption over the next two years, but in the long run should be value additive to the company,” said brokerage Sanford C. Bernstein Ltd in a note on Thursday.
“However, dividend growth may be limited over next few years as free cash flow is redirected to capex [capital expenditure],” wrote analysts Vitaly Umansky, Zhen Gong and Cathy Huang.
Third quarter results
On Wednesday, the U.S.-based casino operator reported an increase in company-wide third quarter revenue, on what it said was a strong performance from its Macau unit, mainly because of an increase in business at the Parisian Macao.
Group-wide, on a U.S. generally accepted accounting principles (GAAP) basis, Las Vegas Sands’ revenue for the three months ended September 30 increased 7.7 percent year-on-year to US$3.20 billion, said the parent.
Consolidated adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) – a non-GAAP measure – increased by 6.0 percent year-on-year to US$1.21 billion, the firm said.
Net income attributable to shareholders increased by 11.1 percent year-on-year to US$570 million, said Las Vegas Sands.
Operating income in the third quarter increased by 18.9 percent from the prior-year quarter, to US$856 million. The company said the full quarter of operations for the Parisian Macao and stronger results at Marina Bay Sands contributed to the increase in operating income in the three months to September 30. The results for the third quarter of 2016 included only 18 days of operation of the Parisian Macao, a property that opened on September 13.
In Singapore, where Las Vegas Sands developed and operates the Marina Bay Sands, adjusted property EBITDA was US$390.7 million in the third quarter, up by 13.0 percent from a year earlier.
Net revenue at Marina Bay Sands increased 4.1 percent year-on-year to US$793 million in the three months to September 30, with casino revenue up by 6.3 percent, to US$629 million.
On a GAAP basis, total net revenues for Sands China increased by 12.2 percent to US$1.93 billion in the third quarter of 2017, compared to US$1.72 billion in the year-ago period. The Macau unit reported net income of US$403 million for the period, up 24.4 percent compared to US$324 million in the third quarter of 2016.
The Macau portfolio generated US$652 million in adjusted property EBITDA, an increase of 3.8 percent over the same quarter last year, said the parent company.
The Parisian Macao recorded revenue and adjusted property EBITDA of US$418 million and US$135 million, respectively, resulting in an adjusted property EBITDA margin of 32.3 percent, said Las Vegas Sands. The company said the property recorded a rolling chip volume of US$6.95 billion for the period, with a rolling chip win percentage of 3.11 percent.
Banking group Morgan Stanley said the better-than-expected performance of the Parisian Macao was one of the surprises during the third-quarter results announcement. But the institution added that the Parisian Macao’s stronger performance suggested there had been some cannibalisation of the business at other Sands China properties.
“Parisian [Macao] luck adjusted EBITDA US$126mn beat our expectation by 9 percent,” wrote analysts Praveen Choudhary, Alex Poon and Thomas Allen in their Wednesday memo. “This is mainly driven by VIP revenue (+48 percent quarter-on-quarter), mass table revenue (+9 percent quarter-on-quarter) and revenue per available room (+12% percent quarter-on-quarter),” they added.
The Venetian Macao – the first Sands China property in Cotai – generated revenue of US$718 million for the third quarter, down by 7.1 percent from a year earlier. The property reported a 16.5-percent year-on-year decrease in adjusted property EBITDA, to US$263 million in the third quarter. Adjusted property EBITDA margin declined by 4.2 percentage points to 36.6 percent.
The soon-to-be-revamped Sands Cotai Central generated revenue of US$474 million in the July-September period, down by 8.5 percent from the prior-year period. The property reported a 11.9-percent year-on-year decrease in adjusted property EBITDA, to US$155 million in the third quarter. Adjusted property EBITDA margin was 32.7 percent, down 1.3 percentage points.
Other properties of Sands China’s portfolio – Four Seasons Hotel Macao and Plaza Casino; and Sands Macao – reported a decline in net revenues, mainly due to a decrease in casino revenue.
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Analyst at Roth Capital Partners