When I go to Vegas, I frequently stay at The Venetian (owned by LVS). However, I'm uber-bearish on Vegas, and recently held short equity positions in LVS and WYNN. I covered the majority of those positions last week, but I have a tiny short in LVS still, and will likely add to that short position on strength. In February of 2008, I stood outside the Planet Hollywood with Big Show, looked around at all the cranes, and said "we HAVE to short this place." However, I thought Macau was the main driver of earnings at that time, and that everyone knew that Vegas was a bubble heading for disaster. I was dead wrong about the second half - it clearly wasn't priced in. I still don't know about Macau (which accounts for roughly half of their earnings (EDIT: Vegas was about 30% of LVS's 2008 Revenues, and 25% of LVS's 2009 Revenues- the 50% number is wrong). That said, here's what catches my eye as I peel through the LVS Q4 Earnings Call Transcript:
"Cash flow generation of The Venetian Macau continues to mirror our strategy. For every dollar of EBITDA generated at the property during the quarter approximately 49% was produced by less volatile, higher margin mass gaming and slot play. Approximately 26% was generated from non-gaming areas including our hotel, convention, banquet and retail operations had approximately 25% was contributed by the more variable, lower margin VIP rolling play."
I thought the breakdown was interesting - 1/2 from everyday chooches, 1/4 from non gaming, and 1/4 from VIPs.
"The Las Vegas properties delivered EBITDA of $57 million in the fourth quarter compared to $90 million in the fourth quarter of last year. In a nutshell, the game piece of our business is holding up pretty well, in fact the volume levels clearly are trending above what they were in 2008. The problem for us and for all Las Vegas remains room rates."
Given the massive new supply in terms of Vegas rooms, and the state of the economy, I don't see how anyone can be bullish on the future of room rates.
"Looking ahead, we will clearly realize more group rooms in 2010 than we realized in 2009. The pace of group bookings continues to improve and all signs indicate 2011 will be stronger than 2010. In 2009, we realized approximately 478,000 group room nights; as of today we have more than that number on our books for 2010. In the month of January, we realized approximately 64,000 group room up 17% from 55,000 group room nights in 2009."
Note that he's talking about group bookings - conventions. These numbers are certainly improving over 2009.
from CEO Sheldon Adelson:
"Thanks, Ken. Before we go to Q&A let me make a couple of final points. We worked very aggressively over the last year to right-size our cost structure and to clean up our balance sheet. The results of those efforts are now clear. We just completed the most successful quarter in our history, generating record revenues and EBITDA, and our balance sheet now has more than $5 billion of cash, providing significant financial flexibility and enabling us to continue our industry leading growth strategy.
We stand today on the cusp of our next major phase of Sands growth. In about ten weeks Marina Bay Sands will open its stores to the public, introducing to the people of South Asia a convention-based integrated resort destination that will be unique in the world. In less than 18 months from today, we will open additional integrated resort destination on parcels five and six on Macau’s Cotai Strip including the Shangri-La, Traders, Sheraton and extend Sheraton brands and extending position in the world’s largest gaming market on the doorstep of the world’s fastest growing major economy.
And while the Las Vegas market may not shine quite as brightly as our Asian properties in the net term, our convention based business model remains compelling, and we remain confident that our group business strategy together with our reduced cost base will enable us to perform well in Las Vegas in the years ahead, particularly in comparison with our competitors."
I read this as: "look - Vegas sucks - but Macau is the future. Although we have sizable outstanding debt ($11B), we have ample cash on hand to handle servicing that debt for the next few years, and then Macau will be cranking out cash for us." It appears that LVS does not face imminent bankruptcy concerns, as a result of their cash raising IPO of Sands Macau, but their future depends largely on the outcome of a big bet on Macau.
from the analyst Q&A:
Q: (re: Macau Q1 2010 so far) "Got it. And can you, are you able to – you able to comment generally on Chinese New Year"
A: (couldn't give specifics, due to disclosure rules) "Let's put it this way. Over the results we’re smiling we are not frowning."
Q: "I know you have your group rooms booked in largely for the year, at least for the same level year, I’ll be curious to know how those rates are trending and then what the overall impact is on your RevPAR?"
A: "Well, we’re turning down, I mean, relative to 2009 rates were 211 for actual group segment for the year, were down in the 180 range for 2010, high 170s to 180s. And again the competitive pressure is pretty relentless, I mean, to be honest with you it’s not slowing down."
Overall, I think the call was relatively boring and un-insightful. I look forward to MGM's transcript soon, and WYNN's next week. Steve Wynn is a level above and beyond his competition in terms of expressing a knowledge of exactly what's going on in Vegas, and I encourage anyone interested in the segment to make sure they read what he says. WYNN's Q3 2009 transcript is here.