Business Context and Reporting Period
Company: Las Vegas Sands Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Operations: The Company operates integrated resorts in Las Vegas (The Venetian, The Palazzo), Macau (Sands Macao, The Venetian Macao, Four Seasons Macao), and is developing projects in Pennsylvania (Sands Bethlehem) and Singapore (Marina Bay Sands). The reporting period reflects the impact of the global economic downturn, leading to the suspension of several major development projects.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Net Revenues | $2,137.8 million | $2,191.1 million |
| Operating Income (Loss) | $(135.1) million | $169.8 million |
| Net Loss Attributable to Common Stockholders | $(303.1) million | $(20.0) million |
| Adjusted EBITDAR | $507.6 million | $576.1 million |
| Cash and Cash Equivalents | $2,585.0 million | $801.8 million (End of Period 2008) |
| Total Debt (Long-term + Current) | $10,777.4 million | $10,470.7 million |
| Capital Expenditures | $1,022.5 million | $1,910.3 million |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 2.4% year-over-year, driven by lower room rates and reduced gaming volume in Las Vegas and Macau, partially offset by the full six months of operations from the Four Seasons Macao and the opening of Sands Bethlehem.
- Significant Impairment Loss: The Company recorded a non-cash impairment loss of $151.2 million. This included $94.0 million related to reduced expected proceeds from the sale of The Shoppes at The Palazzo (due to tenant bankruptcies) and $57.2 million related to the indefinite suspension of the Sands Expo Center expansion.
- Legal Settlements: Corporate expenses increased by $28.6 million, primarily due to a $42.5 million legal settlement regarding Macau operations.
- Provision for Doubtful Accounts: Increased significantly to $41.7 million (from $14.1 million in 2008) due to economic conditions affecting gaming receivables.
- Interest Expense: Net interest expense decreased to $136.0 million (from $203.2 million) due to a lower weighted average interest rate (3.11% vs 6.37%) and reduced capitalized interest from suspended projects.
Guidance, Outlook, and Risks
- Development Suspensions: Due to capital market conditions, the Company suspended construction on the St. Regis Residences (Las Vegas), Phase I and II of Cotai Strip parcels 5 and 6 (Macau), and the Hengqin Island project. Management intends to recommence when economic conditions improve.
- Cost-Cutting Measures: Management expects to generate approximately $500 million in annualized savings ($200 million in Las Vegas, $300 million in Macau) through payroll reductions and efficiency initiatives, fully implemented by end of 2009.
- Liquidity and Covenants: The Company is actively managing leverage ratios to comply with U.S. and Macau credit facility covenants. As of June 30, 2009, the domestic leverage ratio was 6.76x (limit 7.0x) and Macau leverage was 3.83x (limit 4.0x). The Company is seeking an amendment to the Macau credit facility to allow for potential asset sales and modified covenants.
- Key Risks:
- Failure to obtain land concessions for Macau parcels 5, 6, 7, and 8 could result in the forfeiture of $1.83 billion in capitalized costs.
- Failure to complete development of Macau Parcel 3 by August 2011 could jeopardize the land concession for Parcels 1, 2, and 3, risking $3.64 billion in capitalized costs.
- Uncertainty regarding the final purchase price of The Shoppes at The Palazzo due to the bankruptcy of the buyer (GGP).
Investor Verification Checklist
- Debt Covenant Compliance: Verify the Company's ability to maintain leverage ratios under U.S. and Macau credit facilities without requiring waivers or amendments.
- Macau Land Concessions: Monitor the status of government approvals for Parcels 5, 6, 7, and 8, and the August 2011 deadline for Parcel 3.
- Asset Sale Proceeds: Track the resolution of GGP's bankruptcy and the final calculation of Net Operating Income (NOI) for The Shoppes at The Palazzo sale.
- Development Financing: Assess the Company's ability to secure project-level financing for suspended Macau and Las Vegas projects.
- Legal Contingencies: Review the status of the $58.6 million judgment in the Suen/Round Square litigation and the outcome of the ferry concession appeal in Macau.