Las Vegas Sands Corp.
Q4 2006 Earnings Call Transcript

Published: 6 Feb 2007

[Operator:]

Welcome to the fourth quarter 2006 Las Vegas Sands Corporation earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. William Weidner, President and Chief Operating Officer. Please proceed, sir.

[William Weidner:]

Thank you, Tim. Good afternoon, everyone and thank you all for joining us here today. With me in Las Vegas are Mr. Sheldon Adelson, our Chairman; Brad Stone, Executive Vice President; Scott Henry, Senior Vice President; Bob Rozek, our Chief Financial Officer, and Dan Briggs, our VP of Investor Relations. Before we begin, I do need to remind you that today's conference call contains forward-looking statements that we are making under the Safe Harbor provisions of federal securities laws. I would also like to caution you that the company's actual results could differ materially from the anticipated results in those forward-looking statements. Please see today's press release under the caption of forward-looking statements for a discussion of risks that may affect our results. In addition, we may discuss adjusted EBITDA, adjusted net income, adjusted EPS and adjusted property EBITDAR, which are non-GAAP measures. A definition and reconciliation of these measures to the most comparable GAAP financial measure is included in the press release. Please note, as Tim mentioned, this presentation is being recorded. By now you should have all received our press release detailing our financial results for the fourth quarter and for the year 2006. Our results confirm that we continue to execute on our operating and development strategies both in Asia and in the United States. In Macao, The Sands delivered another strong quarter reaching a record fourth quarter gaming win. This was our first full quarter after opening our podium expansion. Our visitation and operating metrics are continuing to reflect incremental growth, even as extensive, additional high quality capacity is added to the marketplace. In Las Vegas the Venetian delivered the strongest quarterly performance of any property in the history of Las Vegas with EBITDAR reaching over $134 million, an increase of over 52% compared to the quarter one year ago. The property is clearly firing on all cylinders, and that is extraordinarily good news as we prepare to open the Palazzo this fall. Before turning to our detailed quarterly results and your questions, let me spend a few moments updating you on our thoughts about the Macao market. First, as we have said in the past, we feel that a supply-driven market condition remains in place. Gaming capacity is now being added at significant rates, and the market continues to expand in response to those increases in capacity. For the fourth quarter, Macao market grew a whopping 44.3%, and that gaming market expansion is now happening in all three segments of the marketplace

[Operator:]

(Operator Instructions) Your first question comes from Harry Curtis – JP Morgan.

[Harry Curtis:]

Hi, guys. Brad, I wonder if you could talk a little bit about your normalized margins at the Venetian, and could you give more detail on the efficiency programs that you have put in place? How sustainable are they and how broad based are they?

[Brad Stone:]

Thank you, Harry. During our second quarter conference call, we talked a little bit about some disappointments in some of our margins at the Venetian, and we have been attacking them aggressively since then. Some of them were physically related by bringing on meeting space, the meeting space we brought on in advance; some issues as far as medical benefits, and I think we have made some excellent progress. If you look at the fourth quarter results, obviously the casino revenues were stunning and benefited from a whole percentage, that was unusual. But if you look at all the departments, whether it be the rooms department, the food and beverage department, the retail departments, made great progress not only in terms of growing the revenues but all those departments also showed improved operating margins. If we look at the casino itself, particularly the table games area, I look at the calculation if we normalize the hold percentage to about 21%, which is the mid of our range of 20% to 22%, and you take a look at the costs associated with the premium business, because obviously that is where the delta was, it probably benefited us in the range of about $30 million of additional incremental EBITDA, hold percentage against the normalized 21%. If you looked at the adjusted margin based upon a reduction in our EBITDA based upon the advantage we received from the hold percentage, we still would have run about 37.6% margin. That compares very favorably to last year at 35% margin. Of course, what we have not done is adjusted the fact that there was a 26% hold in the fourth quarter of last year. So not having done that math at 21%, my calculation roughly would have run about a 37.6% margin versus last year's 35% margin with a 26% hold percentage. Certainly the gross revenues have been very good across the board, but I think our expenses are coming in line, and I think the most important thing for everybody to recognize is as we move towards the Palazzo, we will see significant, significant economies of scale as we operate those two properties together as one in the back of the house. Again, the idea is to present two different products to the front of the house, but operate them as one in the back. I think the most initial indication of that is our preopening expenses for the Palazzo are going to be very efficient compared to what a stand-alone resort would be, and I think that bodes well for additional operating efficiency as the Palazzo comes onboard and the overall complex here in Las Vegas continues to show improvements in its operating margins.

[Harry Curtis:]

Can you talk to the sustainability of it?

[Brad Stone:]

Again, the sustainability of it, I think currently we feel comfortable we can sustain it through the opening of the Palazzo, and I think the real good news is once the Palazzo opens, we anticipate seeing a nice ramp-up in margin as we become extremely efficient in terms of particularly our overhead costs and our G&A costs. So the sustainability, I believe, is there through the third quarter until we open the Palazzo, and then I think we move upward again and improve the margins post-Palazzo opening.

[Harry Curtis:]

And then I had a question for Bill or Sheldon with respect to Hengqin. You have estimated your profit per foot at Hengqin would be comparable in the neighborhood of the profit per foot at Mission Hills, and I am wondering how comparable you think your development is going to be versus other projects in and around Macao and what the difference might be?

[William Weidner:]

I think what we talked about was not necessarily profit. We did talk about what Mission Hills was garnering in terms of a sale per square foot. My recollection was somewhere between at the low-end $700 or $800 a square foot; at the high-end, $1,100 or $1,200 a square foot, and the larger places were generating sales per square foot at higher numbers, which is kind of a similar to what happens in Hong Kong. But I think Mission Hills obviously is solely focused on golf. What we're doing at Hengqin Island, we not only have the golf amenities that we will be developing, but we will have yachting amenities, water sports plus the appeal, I guess you would say, of the Cotai Strip, which has something that neither Mission Hills nor any other place has

[Sheldon Adelson:]

That is not Mission Hills. That is Hengqin Island.

[William Weidner:]

Pardon me, did I misspeak myself? Hengqin Island is to be positioned above where Mission Hills market position is because of the multifaceted appeal that we can develop on Hengqin Island.

[Sheldon Adelson:]

I think the marketing strategy for Mission Hills is for buyers to come mostly from Shenzhen and Hong Kong. We think the buyers for our condo properties, of which we hope to have 20,000 or 30,000 -- we don't really know yet -- plus maybe 20,000 or 30,000 hotel rooms, will be from all around China because they are selling primary homes there, as well as some weekend homes. We are selling second homes. That is our intention. I look at it as a housing supply for the Cotai Strip.

[Harry Curtis:]

Very good, thanks very much.

[Operator:]

Your next question comes from Steven Kent - Goldman Sachs.

[Steven Kent:]

Two things. Bill, I think in your opening comments you suggested that maybe the customers that influence some of the results in Vegas, especially at the high end, may have come from another market, I'm assuming Asia. Could you just talk a little bit about that flow? You talked about that a couple of months ago that you were targeting that. You are starting to see that benefit. Maybe you could just give us a little bit more color there. The second thing is, just on the mass market table drop, which has been roughly flat the last quarter or two, could you just talk about where you see that going? Obviously I think the new hotel tower should help, but you have had some other initiatives over the past couple of months. I'm wondering if they are starting to gain traction, or do you really need the hotel tower and essentially the Venetian Macao to more aggressively target that mass market customer?

[William Weidner:]

Steve, let me answer the first one, and I will turn the second one over to Brad who has got more specific detail on the mass market activities. What we have basically said, pretty well all along, is that the more we increase our activities in Asia and the more people know who we are and the more people recognize what it is we do and the more that we develop the reputation of a high-quality operation, then the more opportunity there is for our salespeople to reach out into those markets with people who have a familiarization with our brand. So we see that just beginning now. We're really kind of just at the tip of the iceberg. It has only been in the past three or four quarters that we have actually penetrated in a major way that high end marketplace. We see some of the value of that this fourth quarter with a number of high end individuals that know of us or that either come directly or indirectly from our activities in Asia. As we opened the Paiza Club at the Venetian Macao, I touched on that. The Paiza Club there is an entirely separate hotel. While it is a part of the mega complex, it is its own self-contained entity that allows us to provide services to that high end customer that just does not exist in Macao now. So, as we take our next steps into that marketplace and we penetrate it further, I think we see more and more value to whatever we do in the world from the exposure to our products there, whether it be here in Las Vegas, Singapore or other places. I also mention that the Palazzo, I mean we retrofit the Venetian here with our Paiza Club here to try to make it more responsive to that high end Asian market, but we actually built into the Palazzo amenities that we learned in our developments there in Macao. So I think we see more and more value directly obviously to Macao in terms of the Venetian Macao Paiza Club, and then more and more value indirectly as we penetrate those markets more deeply there in Asia. Brad, do you want to talk a bit about the mass market?

[Brad Stone:]

Yes. On the mass markets, I think we often make the mistake in Macao of we define three markets

[Sheldon Adelson:]

I just want to say that it is significant to us that our income and our visitor volume was flat or increased. I don't think any one of the three months we suffered a decline. Notwithstanding the fact that our internal projections and our budget anticipated a decline from the competition of both Wynn and StarWorld, and we are very happy to say that our attendance continued to rise, which indicates there is a loyalty factor that we were not sure of, to the customers that have been coming to us amplifying our first mover advantage. So we think it is very significant that instead of going down we stayed flat and then we recovered. We did not recover from a fall. We just got back the increases. In December I think our market share was 21%. That was significant. So instead of competition hurting us and creating a long-lasting impact, it actually helped because it is very clear that new quality product coming into the marketplace is going to expand the market significantly and that bodes very well for our new market projections for the Cotai Strip.

[Steven Kent:]

Thanks.

[Operator:]

Your next question comes from Larry Klatzkin - Jefferies.

[Larry Klatzkin:]

Hi guys. My identity has changed, but the questions are the same. A couple of things. One, host dynamics, with Steve’s change in the way he is doing host, where have you found gaming, and where is that going right now?

[William Weidner:]

I am not sure we understand the question. Host dynamics?

[Larry Klatzkin:]

You know, where you are saying you guys have been saying that Steve Wynn is working and running the host a different way than the rest of the market.

[Sheldon Adelson:]

No, no, not the host. The junket reps.

[Larry Klatzkin:]

The junket reps, sorry.

[William Weidner:]

Yes, it is hard to know exactly how Wynn Resorts is doing. We have two different approaches. We pay a commission on the roll. The Wynn organization has chosen to go with they call it a 60/40 split of revenues, and a lot of it depends on the junket rep and what their motivations are, whether they want to share in the risk, which they do under the more traditional Macao formula, or whether they want to be paid a commission, which is the formula we have chosen to take. So it is hard for me to comment without knowing what is happening with the Wynn Resorts property. We are very pleased obviously in terms of our ability to the compete. This is a people a market that people said for years we were not going to be able to compete in, and we're doing excellently in that market, and the best is yet to come when we open the additional rooms at The Sands and when we open the Venetian Macao. So it is a different model, Larry. It is hard for me to comment directly on it. Some reps participate in both. Some prefer ours, and I'm sure there's some that prefer that other model.

[William Weidner:]

Larry, I just want to add a couple of other observations to that. One of the things that we had indicated when we started in this VIP market is we said that the macro trends in Mainland China were really trending in our favor, and that is the more freely tradable RMB of Mainland China opening to the individual visitor scheme, and that would affect the ability for the more traditional junket rep operators to maintain their hold on the marketplace. So two things have really happened. As I mentioned, the increase in the IBS scheme. The IBS scheme opened in the quarter just in the past two months to another approximately 50 million Mainland Chinese out of five more cities. I would also point out that as of February 1st they now allow mainland Chinese to bring $50,000 worth of RMB across the borders as opposed to $20,000 of RMB. That is what I think is driving some of those VIP market year-on-year increases, and more importantly, that is what, quite frankly, allows the customers to deal directly with our rep network as opposed to dealing with what the traditional rep network is. So it is a combination of being able to add more reps to the marketplace, as well as macro changes in the market that are really driving a lot of that VIP incremental revenue.

[Sheldon Adelson:]

What I would like to say is that contrary to what was expected, we have held our own against the new competition at the beginning of the competition's appearance, and we have significantly increased our high end market share. So it is not true that our competitor is leading the high end of the market for American operators. We believe we are, although we have not seen the figures, but our high end income has grown so significantly that we find it difficult to believe that either the StarWorld or Wynn are running ahead of us, and we continue to aggressively penetrate that high end of the market.

[Larry Klatzkin:]

All right. How is the Cotai ferry terminal faring? I know they are expanding it to a bigger terminal. Does that mean a delay, or can you get a partial opening on time?

[William Weidner:]

We're going to get a partial opening. Originally the government said they were going to extend the opening time into '08. We're getting ferries at the end of '07. We will have several ferries by November and December that are 420 person ferries that carry twice as many people as the hydrofoils do. So we have petitioned the government to open up partway, and our President of Asia, Steven Weaver, told me just a few days ago the government has approved it, and they expect to open in time for us. However, it is always a long way between a lip and cup, and anything can happen over there. But Bill and I are going over tonight, and we will see the chief executive this week we hope, and we will discuss that with him, and I will have a better answer next week.

[Larry Klatzkin:]

So wasn't it growing it from eight days to 12 is what they are doing?

[William Weidner:]

Yes, I think that is the number.

[Larry Klatzkin:]

Okay. That is excellent.

[William Weidner:]

One is 11.

[Brad Stone:]

Maybe more. 16 is what they are proposing.

[William Weidner:]

16 now.

[Larry Klatzkin:]

Okay. So doubling it basically? Okay. And then just a little bit of guidance for the upcoming period, just the depreciation and option expense, corporate, any indications on that stuff?

[Bob Rozek:]

Let's take that offline.

[Larry Klatzkin:]

Okay. That is fine. That is it, guys.

[Sheldon Adelson:]

We don't give guidance. That is our policy.

[Bob Rozek:]

There is the answer.

[Sheldon Adelson:]

It is tempting sometimes, but I think we have to follow our own policy.

[Larry Klatzkin:]

All right. Thanks, guys. Good results.

[Operator:]

Your next question comes from Joe Graf - Bear Stearns.

[Joe Graf:]

Hi, everyone. I have three questions, the first two for Brad. If we look at Las Vegas or the Venetian in the fourth quarter, if we adjust for table hold, what would win per table per day be? And then if I do the math for the Sands Macao in the fourth quarter, it looks like you benefited slightly from favorable hold percentage. I was hoping you could help me with the math on that?

[Brad Stone:]

Yes, I don't have that in front of me. I guess I was so busy reading your 140-page report.

[Sheldon Adelson:]

But I would like to comment I thought your first report -- while 30 pages -- was very comprehensive and very detailed.

[Joe Graf:]

Thank you.

[Sheldon Adelson:]

I don't agree with your conclusions.

[Joe Graf:]

I was waiting for that comment.

[Sheldon Adelson:]

But I thought it was very comprehensive. I thought you did a very good job.

[Brad Stone:]

I guess the easiest way to do it, without me actually doing the math Joe, is we feel we were advantaged by about $60 million of table revenue during the fourth quarter of this year in terms of that difference between 36.7% and 21%. So you take that and we obviously divide by roughly 130 table games, and that is what the advantage would be. The net result of that would be about $82 million of table win divided by the same amount, so you can do that math and come up with that. I don't have that stat in front of me. I am sorry, the second question?

[Joe Graf:]

Sands Macao, it looked like you had slightly positive –

[Brad Stone:]

In the Sands we are right at then end of our range there. We say our range is between 2.7% and 3%. The midrange is about 2.85% on the Rolling Chip program. We came in at 3.1%, so we were slightly above that. If you took it down to the way we do our calculation, if you looked at the 3.1% to the 2.85% and what we have been doing is increasing the roll and saying that to generate that we would have had additional commission, it would have cost us about $5 million of EBITDA for the quarter.

[William Weidner:]

If you think that 2.85% is the right number. I mean that is our estimate. That is what the market has been since the beginning you would say. But now we have had billions and billions of roll, and it may very well be that our experience will be above 2.85%.

[Joe Graf:]

Great. And then one final big picture question for you, Bill and Sheldon, as well; either based on your conversation with the folks in Beijing or with this Project Coordination Committee, in terms of the tax rate on the profits on Hengqin Island, what are you guys being told? Have you guys had any conversation since that Wall Street Journal article a few weeks back, if you can talk about that a little bit?

[William Weidner:]

Yes, we have had conversations. We have had conversation at the local level with the folks in Zhuhai, and we spent some time talking to our advisors in Beijing, accounting people and things of that nature to try to get some idea of how and where and what happens with this announcement. All we can say right now is we are not sure exactly how and whether and when it is applied. It has been on the books since the early '90s -- '92, '93. They have either chosen not to enforce it or to enforce it selectively. It may be enforced selectively in the areas where they feel the housing market is moving too aggressively and speculation is rampant in places like Shanghai and Beijing. They may choose to either not enforce it or enforce it differentially in places where they want to incent a development, for example, in the Western part of the country. So I think the best answer to give is that yes, we have had active discussions. No one that we have talked to so far knows exactly how it is going to be implemented, and they say that more clarification will probably be coming out of the central government in terms of how it might be applied and whether it might be applied in a situation like Hengqin Island.

[Operator:]

Your next question comes from David Anders - Merrill Lynch.

[David Anders:]

Two questions. First, with the depreciation in the quarter, was there any catch up, or is that kind of depreciation and amortization level for the current assets? And then secondly, Brad, how about the sustainability of the Sands Macao margins? I noticed those dipped a little sequentially. Was there anything unique about those?

[Bob Rozek:]

The depreciation and amortization that you saw in the quarter, there was no catch up, so that is the current run-rate that we have in place.

[Brad Stone:]

As far as the Sands goes, a couple of things are happening with the Sands. We have obviously mentioned that we've grown significantly in the premium end of the business. Obviously that mathematically as it goes, currently our mix last year of the Rolling Program is about 34% of our revenue on the table side, this year it was about 48%. So again, a large growth in that area, lower margins. That is one of the reasons that it has come down somewhat. Additionally, we find ourselves we are building a very robust organization over there with the opening of Cotai and the Venetian. While some of that gets charged off the pre-opening, not everything does, and we are in it for the long haul there. So the Sands is perhaps taking some of the burden of development of world class executives that we have brought in from General Electric, from Exxon Mobile. So we are seeing some of that pressure. Lastly, opening the expansion of the table games in the September timeframe, we're still working through that. We were obviously working through that most of the fourth quarter in terms of how to optimize our staffing levels with that rather major expansion. So I think you will see margins expand and get better as we get better at doing some of that work, but also, as we bring back a very profitable segment of that market which in the short term we have not grown as aggressively like, and that is the higher end of the mass market.

[David Anders:]

Thank you.

[Operator:]

Your next question comes from Celeste Brown - Morgan Stanley.

[Celeste Brown:]

Good afternoon. A few questions. First, I know that it is tough for you guys to speak about Hengqin Island, but I think in the past you have talked about a groundbreaking potentially sometime in the first quarter of this year. Is that still on track? Secondly, Talban, which is one of most respected retail REITs in the world, has talked about joining the project next door to you guys on the Cotai Strip. Do you see that as a risk in terms of your ability to lease out further space, or do you just see that as potentially something more positive for retailers seeing a company like Talban sort of validating that market?

[William Weidner:]

I guess those are two questions I guess. One, I have spoken personally with Talban a few months ago about joining with us on what we're doing on the Cotai Strip. We basically said we don't really need it. Why would we share whatever we're doing since we already have traction, already have a leasing group in place, etc. I think it is a real compliment to the idea. People thought the idea was, I won't say a crazy idea, but not one recognized the value of what retail could be in Macao until we got enough traction to where somebody like Talban is attracted to it. So it does not bother us in terms of our leasing activity, and I think it is kind of a compliment, I guess you would say and call it a way of validating the decision that 400 plus retailers have already made.

[Sheldon Adelson:]

Let's just say imitation is the sincerest form of flattery. But let me add something that most people just don't see. We are going to have 20,000 hotel rooms and several thousand condominiums all connected through all weather air-conditioning connectors. All the 12 brands that Macao Studio City property, we call it the Asian TV site because that was what was originally projected for it, is going to be standing out there alone. The retailers know that in our 3 million square feet of space they are getting the output of as many as 40,000 people. Plus, we anticipate bringing in tens of thousands of more daily on busloads to come to shop 3 million square feet. So if you were a shopper and you were staying in one of our 20,000 rooms, would you leave the property, walk down the street and go to another property simply because it is standalone and Talban developed it? I can assure you that the American developers mean little or nothing to Asian retailers. So the fact that we built the second-highest grossing shopping mall per sales per square foot in the history of the United States when we first opened the Grand Canals Shops at the Venetian gives us the findings that the retailers in Asia were looking for. So I think that Talban is a Johnny-come-lately because the operators of the property simply could not do it themselves, and yes, it is nice to be flattered, but we don't back even consider that competition, no less serious competition.

[William Weidner:]

We are reluctant to name dates again. I mean this is a process, and we try to be as straightforward as we can about having never developed in Mainland China before and having gone through so far a little over two years worth of process. We keep on saying that we are pleased with the progress, but rather than necessarily putting dates on things, we're trying to keep the markets informed on the step-by-step indications that we get. As I said, the latest one was January 10 when we actually got the Zhuhai governmental letter with the official red star chop on it indicating that they have appointed the committee that specifically addresses our master plan for that particular site. So rather than us passing on to you what we're necessarily being told are the next steps, we will pass on to you as the next steps are confirmed. So the next communication probably would be approval of master plan if we get again an official sealed communication on it, we will mention that. And then the next step to that is the actual parcel process, and that is where the groundbreaking would take place on one of those parcels. But again, we will be talking about that as we receive the confirmations going forward.

[Celeste Brown:]

Great, thanks. And just one more question on the retail since we are on the topic. How much of the retail do you expect to open at the Venetian with the casino opening, and then when do you think you will have the full square footage up and running? I know it is difficult to get it all with so many square feet all up at the same time.

[Sheldon Adelson:]

We opened the Grand Canal Shop with fewer than the 60 or 70 shops that eventually fully opened in Las Vegas, and I will let Brad tell you about it.

[Brad Stone:]

Yes, I think to answer your question, it is a lot of square footage to open at once, and what we are looking at doing, a leasing team over there is focusing on one of the canals zones, the big wow space in the square, and opening what is still significantly larger than the current Grand Canal Shop here in Las Vegas with the gondola rides, the streetmosphere, et cetera. So that is where our focus is. And then the opening really in three phases with the third phase being completed in the fall. So it is not a long time between the phases, just the practicality of getting that many tenants into that building in the time available and realizing that we can ramp that up, that if we opened retail space that in and of itself is larger than that which exists in Las Vegas with the amenities of a gondola ride, with the amenities of the streetmosphere and, of course, retail brands, we think that will be sufficient to open the property and, like I said, it would ramp probably over a four to five-month period.

[Operator:]

Your next question comes from Robin Farley - UBS.

[Robin Farley:]

I have got three or four questions. First, for Hengqin, it had sounded like there was initially going to be sort of one final approval that was forthcoming, and it sounds now like you were talking about after the master plan then there would be approvals for a series of land grants and then approvals for each piece of construction on there. That sounds like maybe it pushes the timeframe out over the year or maybe even a several year period?

[Sheldon Adelson:]

Do you want the questions answered one at a time?

[Robin Farley:]

Sure.

[William Weidner:]

Well, the one is the adoption of the full master plan. It always was anticipated, as I had indicated before, that we will take this thing and develop it over about a 10-year period in phases. So I don't think it is really a change. It is just the key I guess you would say of macro, shall we say, step is that the master plan itself is adopted up and down the approval line. And then right behind that would come the initial stage. We ourselves split this thing into several different stages, so I don't think that is really a change, and I don't think it really changes the timing process in terms of moving forward.

[Sheldon Adelson:]

When you think of the fact that we plan 80 million square feet or at least that is what is allowable, I cannot imagine any one municipal government the size of 1.5 million population town like Zhuhai approving and giving final approval to build permitting 80 million square feet simultaneously. By virtue of its scope, it has to be done in many different phases.

[Robin Farley:]

Can you talk about the timeframe for starting to sell the Four Seasons apartments? I assume that is still on track for an April '08 opening, and so what would be the timeframe for selling those to have that complete in advance of the opening?

[Sheldon Adelson:]

We're hoping to put on an aggressive push. We're going to open the Four Seasons I think in the first quarter of '08.

[Brad Stone:]

The Four Seasons property itself we are forecasting the first quarter of '08, and then the condominium project is about six months behind that. Obviously it is a large structure. It is 39 stories tall, so it takes us a lot longer to get to the top of the Four Seasons. Currently we are under construction on our preview center in Hong Kong as one of the pre-marketing tools. So similar to what most major sellers of these types of products have is a place that you can show actually what you're going to buy. That is currently being developed in one of our buildings in Hong Kong, Lippo Tower, and I'm not sure exactly of the timing. It is very soon to get done, and that would really probably be the key launching of the sales of that product.

[Robin Farley:]

So the release of condo sales would be third quarter '07?

[Brad Stone:]

I think we will see ourselves starting that probably in the second quarter.

[Robin Farley:]

Looking at the Macao property, I realized there was a greater mix of VIP revenue. But even when you adjust for that mix, it seems like the margins were maybe a little bit lower than we would have expected, the EBITDA margins. You talked about building up the management and things. So I guess adjusting for the mix change, are you expecting margins to stay at this level or to move up from what we saw in Q4?

[William Weidner:]

I think two things. If you look at the expenses in Macao, it is pretty simple. It is down to taxes, commissions and payroll, and that is where it all resides. That is almost all our expense. The commissions are going to follow the junket programs, and they will affect our margins. Taxation is constant no matter what form of revenue it is obviously, and our payroll is really, as I tried to explain, is really two components. One is the component that relates to developing infrastructure, developing executives and developing the overhead, let's say, to grow the company, not only at The Sands but also at the Cotai site. The other is getting ourselves efficient in terms of the payroll on the mass floor. Things that you run into in Macao that did affect us in the quarter is getting efficient on the mass floor is important because we have tip subsidies and things that we pay in order to round out the salary of the Macao Casino worker. So those are things that we want to make sure our payroll is reflective of the volumes on the mass floor, and we're working towards that. At the same time, we're kind of in a funny situation because, as you try and control that expense, you realize that right around the corner you're going to be opening a very significant property in Cotai. So it is my belief that in the short-term that we may have, I would not say continued pressures, but we're not necessarily going to be in a mode where we try and trim costs just to expand them again in the June/July timeframe as we open the Venetian. So I think my sense of it is that most of it is going to be driven by mix of business in the short-term. We're not going to necessarily, while we try and control our costs, we're not going to go into some cost-cutting mode as we rapidly expand the company in the next four months, five months.

[Operator:]

Your next question comes from Jake Hogan - Banc of America Securities.

[Jake Hogan:]

I have got a few questions for you on a variety of topics. First, from a big picture standpoint, as we take a look at the gaming revenue numbers coming out of the government of Macao and that VIP business grew 61% I believe it was for the fourth quarter, the mass, which is growing 21%, which is a big number but it is obviously down from the growth rate we saw earlier in '06, are those apples-to-apples comparisons? I remember when you guys opened up the Paiza Club, and suddenly some of the VIP business of before was starting to be reflected as high-end mass business in your casino. So I'm wondering are we having a reverse effect now as others have opened into the market, or is that really an apples-to-apples year-over-year growth, and are those growth rates in line with what you were anticipating?

[William Weidner:]

Well, first of all, the mass business is going to be reflective of the travel patterns on a relative basis quarter to quarter. Third quarter is a better mass quarter than fourth quarter simply because of the way the summer vacations are and the way people travel. So I think we're going to see a reasonably steady increase in mass play as more people come to Macao. So that one I think you can look quarter to quarter, year-to-year, and I think you will see it growing approximately in step with visitation numbers. The real variable is the whole percentage, quite frankly, on the VIP market. So you will have bounces up and down. I think fourth quarter, if I'm not mistaken, fourth quarter of '05 actually was a reduction year on year over fourth quarter of '04. So you have a real magnified effect of an increase in VIP in fourth quarter of '06/'05. I also mentioned to you the macro things affecting the VIP play out of mainland China. People are allowed to bring more money out of mainland China and being able to convert it more easily and then the more opening of the IVS cities. Generally those individual visit cities are further away from Macao; therefore, people more than likely are getting an airplane to fly to Macao. Therefore, people are probably more likely to have more affluence than the masses traveling out of Guangdong Province, Hong Kong or closer places. So I think those are the factors that will affect it. I think you will see VIP play bouncing up and down more so than the mass market. But again, the mass market is seasonal, although I think you will see double-digit growth year on year, but seasonally more amplified in a quarter like the third quarter when more people are traveling.

[Brad Stone:]

I think just looking at the numbers I have in front of me for the Macao market, growth on mass I think it plays right out; is that July, August and September, the summer travel periods they grew 29%, 22% and 50%. October Golden Week grew 54% and then hit kind of a low into November and December. You are down 10%, 11% ranges. I think you will see it bounce back this month in February. We have got Chinese New Year so you will see a big growth rate because now this additional capacity is onboard, during those peak seasons that is where the capacity is really going to be taken full advantage of, including our own place.

[William Weidner:]

You have events, quite frankly, that are interesting to dinosaurs. I guess the best one is the Macao Grand Prix; and as interesting as it may be, when the Macao Grand Prix takes place, no one can move around the cities, so the growth rates are really stagnated by the fact that the streets are closed down for the Grand Prix race, something that generated incremental revenues when Macao was a sleepy little place now affects its ability to move the thousands and thousands of tourists around during the 14 days it represents.

[Jake Hogan:]

That’s helpful. Maybe one quick follow up to that. Are you seeing or hearing of, if they are not playing at your casino, players coming into Macao, VIP types, that are new to Macao that are also not from China, that Macao is becoming more of a regional draw to the community at large?

[William Weidner:]

I think we’ve seen that all along, particularly in places like Thailand and Japan and other places, yes. As it becomes more of a destination, I think it is just the beginning of the tip of the iceberg. In my part of the presentation we talked about the tour and travel people and the number of tour and travel operators in the region that are more interested now, when you get thousands of rooms in a place like The Venetian available for them for overnight trips, I think the initial reaction, for example, to Wynn and the occupancies that have been run by Wynn, are only limited by the limited number of rooms that he has, has really affected the ability for that market to leap into that next layer, I guess you would say, of regional market as opposed to local market. I think that is just the beginning of what is going to happen as we introduce those macro projects on the Cotai Strip.

[Jake Hogan:]

On a separate topic, back to the retail in Cotai. Can you give us an update as to where we are with respect to the potential monetization of that opportunity, and the many forms that it could take?

[William Weidner:]

I missed the beginning of the question.

[Brad Stone:]

Monetization of retail.

[William Weidner:]

As we come to the end of the process, the mall marketers over there in Asia call it the stinger, that is the last 10% of the space where they really start pushing through the high per square foot minimums. As we see validation and as we see the tour travel people are interested in coming for shopping and dining and entertainment, the monetization of that is really going to be driven, I think a lot, by the percentage of rents. I mean, the initial monetization if you just were going in the front door and weren’t looking to maximize would be $140 a square foot times the square feet. But the real opportunity to monetize maximum monetization is when the reps come in with a successful mall, and that sales per square foot, rentals per square foot, go to $200, $200 plus like they do in Hong Kong. I think we are patient enough with the base rents the way that they are, and we are confident enough in the overall master plan that when the percentage rents kick in, that is when we start thinking about how we monetize this thing in a maximized way.

[Sheldon Adelson:]

I think that there will be an opportunity for Asian buyers that will consider this the most premium of trophy properties that will certainly want to get a hold of this, to go ahead and buy on the basis that we were able to sell here in Las Vegas; and that as a true-up, after two-and-a-half years. If we don’t see that reception in the market, the true-up in place based upon base rents now in a true-up, it is two years. We just have to wait until the two years are up and there is no sense of urgency, because once we have got that income the value is there. So it is not as though we have to sell it. Clearly our strategy is to sell non-core retail and still keep the benefit from what we have sold, once we establish the mall as part of the integrated resort, that is when people come. We are not selling the mall, we are selling the cash flow from the mall. We are going to maximize the return on that and we feel that the cap rate that is justified is going to be hopefully a record-setting cap rate. Fortunately, we are not in a position, under no pressure, we are not desperate for anything. We are just going to see what it is going to take to get the best. But I think that some of the buyers will want this quality trophy property to go along with our terms.

[Jake Hogan:]

Great. And as a last question, if I may, I recall that at the last conference call, I think Bill in your prepared remarks, you mentioned that Las Vegas Sands would be the first in Hengqin Island. I was wondering if you do think that there will be additional competition? Obviously I know that this is a fluid situation. Will there be, maybe not competition but other operators, developers in that market? How long would that potentially take? Who could they be, theoretically? Would it be competition for you, as you were talking about before? Would it be complementary, potentially, as well? How should we think about that?

[William Weidner:]

Well think of it this way. Macao, total, is about 32 to 36 square kilometers, depending upon how much additional land that the city has added. Hengqin Island is about 85 square kilometers, so it is almost three times the size of Macao, so it is a very large island. Secondly, the portion of the island that we have bid on is the prime portion of the island that faces Macao and borders the Cotai Strip, borders the Cotai development process; so the rest of the property is significantly south of that and doesn’t have the synergy of the primary markets, so that is my qualification.

[Sheldon Adelson:]

You can see it from Cotai. We are the only property you can see from Cotai, to the best of our knowledge.

[William Weidner:]

The developers there, including Stanley Ho and others, have tried to develop something on Hengqin Island for 20 some odd years. We are gratified that we started first and we had the head start and that the master plan is just about to be approved through the committee that was approved on January 10th. Others will have to go through the same process behind it. I think they will have a shorter development timeframe, since we have paved the way about how the whole island works, because we worked with them in terms of how the different parts of the island, what functions they will fulfill. Some parts of the island are designated for things like housing, in the further southern part of it. But the part of the island that we wanted to focus on was the part that really developed tourism/convention business, second homes, transient homes, I mean the things that would provide, as Sheldon said, the housing support for the Cotai Strip and the addition to, call it the regional economy so that the Zhuhai also, as the Mainland Chinese address, would also then be advantaged by the development on Hengqin Island. So it is a long-winded answer to the fact that yes, there will be other developers, we know that Stanley Ho and his organization has bid; we know that Lee Kashing has been interested out of Hong Kong and we know that the Lloyd family from Galaxy has also been interested in developing there. But we expect to be the first ones; we will be the first ones to have a master plan approved and the process in development. But I think it is a matter of months, perhaps as long as a year or so behind it, that the next developments might be approved.

[Operator:]

Ladies and gentlemen, we have exhausted the time set aside for questions. At this time, I would now like to turn the call back over to William Weidner for closing remarks.

[William Weidner:]

Mr. Adelson wants to make some closing remarks.

[Sheldon Adelson:]

I just want to make one statement, it was brought up once or twice about the desirability about the 40-40-20 rate to pay the junket reps for the program we have, which is 1% and after a very high number, a very high roll requirement threshold. We pay 1.1% with the 0.1% coming on in-kind compensation. If you do the arithmetic, you will find that the 40-40 – with both formats, of even a 2.5% rate, but since the experience shows that we are getting much closer to a 3.0% rate consistently, then we are closer to 2.5%, the advantage on our program brings us down to our costs, down several percentage points. That is several hundred basis points below 40. When somebody who is doing the 40-40-20 rate is stuck at 40 and we come in below, we become several percentage points below so then we can increase our profit percentage. It is easy to do the arithmetic, just check it out.

[William Weidner:]

With that, that concludes our conference call for today. We appreciate your attention and look forward to communicating many more accomplishments in the quarters ahead. Thank you again, and have a good day.