Las Vegas Sands Corp. will invest more than $2 billion in its Macau operation over the next two years as the company gears up for the renewal of its license in the Chinese enclave.
Company executives detailed the investments in their third-quarter earnings call Wednesday.
The bulk of the investment is in the renovation, expansion and rebranding of the company’s Sands Cotai Central complex into The Londoner Macao, a $1.35 billion plan first announced a year ago.
In addition to creating The Londoner, the company is spending $400 million for the 370-suite St. Regis Tower Suites Macao and $450 million for a 290-suite Four Seasons Tower Suites Macao. Both are expected to be completed by the first quarter of 2020.
The Londoner project will begin next year and phased to create minimal disruption during peak business periods with completions expected throughout 2020 and 2021.
That investment — on top of the $13 billion Sands has put into Macau in the 14 years it has had a presence there — is expected to persuade Chinese government leaders to renew the company’s concession in Macau, due to expire in 2022.
Some analysts have speculated that with tensions growing over trade with China and the prospect of tariffs being imposed, licenses for three American casino companies could be at risk. Concession renewals are scheduled for Wynn Resorts Ltd. and MGM Resorts International in 2020.
Sands President and Chief Operating Officer Rob Goldstein, responding to inquiries about the concession, said he believes his company has proved its value to China by investing in 13,000 hotel rooms, more than 2 million square feet of retail and abundant convention space.
“We built an arena when people thought that was a crazy idea,” Goldstein said. “I just don’t know what else you can do, but do what you’re told to do and we have done that. We are big fans of China, we’re big fans of Macau, we’ve been wildly successful and our $2 billion statement in the call to bring the Londoner to fruition … is proof positive that actions speak louder than words.”
Goldstein said Sands has weathered visa and border restrictions, junket issues and the Great Recession and has still built more than $3 billion in annual cash flow.
“If there’s not a vote of confidence in that, I don’t know what is. We believe our concession is not at risk,” he said.
Most of the commentary in Wednesday’s call centered around Macau, which represents around 60 percent of the company’s cash flow.
For the quarter that ended Sept. 30, Sands reported earnings of $699 million, 73 cents a share, on revenue of $3.37 billion. Earnings were up 2.2 percent compared to a year ago with revenue up 6.6 percent.
The company missed Wall Street analysts’ expectations of a 9 percent climb in earnings, but was nearly right on an expected 7 percent increase in revenue according to Zacks Investment Research.
Company officials expect Macau’s mass market could grow over the next year and a half after Tuesday’s opening of the 34-mile Hong Kong-Zhuhai-Macau bridge that potentially connects millions of tourists in Hong Kong to the only place they can legally gamble in China.
“I think its unequivocal that the potential of that bridge to drive more people to Macau is terrific and, for us, the footprint makes it more terrific than for others,” Goldstein said.
Executives spent little time on the company’s Las Vegas results, which showed a 2.1 percent decline in net revenue to $379 million, despite a 26.4 percent increase in table-game drop and a 5.2 percent bump in slot handle. Most of the decline resulted from lower room rates and occupancy that executives said was a “blip” from normal operations, primarily because of a slump in convention traffic and special events attendance. Occupancy rates fell 2.6 points to 94.4 percent, driving rates down $2 to $225 a night.
The third quarter of 2017 had two big boxing matches, including the Floyd Mayweather-Conor McGregor exhibition that drew big crowds.
“Vegas had a tough third quarter, especially in MICE (meetings, incentives, conferencing and exhibitions) segments,” Goldstein said. “The fourth quarter looks pretty good and we believe will go back to over 800,000 room nights dedicated to convention space in 2019. There was a blip in the third quarter. We don’t have the scale like some people, but we’re pretty confident the fourth quarter resurrects and next year looks more typical with solid MICE business and room business in 2019.”
Sands shares tumbled 2.6 percent, $1.37 a share, to $52 a share on above-average volume trading. After hours, the issue rebounded 1 percent, 50 cents, to close at $52.35. During the day, the price dropped to its 52-week low, $51.88 a share.
The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.
Las Vegas Sands
Third-quarter revenue and earnings for Las Vegas-based Las Vegas Sands Corp. (New York Stock Exchange: LVS).
3Q 2018 3Q 2017 Change
Revenue $3.37 billion $3.16 billion +6.6%
Earnings $699 million $684 million +2.2%
Earnings per share 73 cents 72 cents +1.4%