Las Vegas Sands Corp. — Q2 2010 Form 10-Q
Reporting period: Three and six months ended June 30, 2010. Unaudited consolidated results cover U.S., Macau and Singapore operations. Marina Bay Sands opened in stages beginning April 27, 2010; Las Vegas Sands owned 70.3% of Sands China Ltd.
Financial performance
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Net revenue | $1.594 billion | $1.059 billion | $2.929 billion | $2.138 billion |
| Operating income (loss) | $166.8 million | $(171.3) million | $308.6 million | $(135.1) million |
| Net income (loss) | $78.5 million | $(178.3) million | $126.4 million | $(214.1) million |
| Net income (loss) attributable to LVS | $41.8 million | $(175.9) million | $59.4 million | $(210.5) million |
| Net loss attributable to common stockholders | $(4.7) million | $(222.2) million | $(33.6) million | $(303.1) million |
| Adjusted property EBITDA | $473.5 million | $247.6 million | $844.5 million | $507.6 million |
Q2 net revenue rose 50.6% year over year, driven by Macau growth and $216.4 million of Marina Bay Sands revenue. Casino revenue increased 62.2%; non-casino revenue lines also grew. Operating margin was 10.5%, versus a 16.2% operating loss margin in Q2 2009. Adjusted property EBITDA increased 91.2% in Q2 and 66.4% for the half year. Macau EBITDA growth was strong; Las Vegas operating-property EBITDA declined 15.5% in Q2 but was up 2.0% for the half year. Marina Bay Sands and Sands Bethlehem had no comparable full prior-year operating period.
Despite positive consolidated net income, preferred dividends and accretion to the redemption value of preferred stock resulted in a net loss for common stockholders: loss per share was $0.01 in Q2 and $0.05 for the six months.
Cash flow, debt and liquidity
- For the six months, operating cash flow was $637.9 million, compared with $307.8 million in 2009. Investing cash outflow was $1.316 billion, including $1.127 billion of capital expenditures; financing cash outflow was $765.8 million. Cash declined $1.437 billion to $3.519 billion.
- At June 30, cash and cash equivalents were $3.519 billion, short-term investments were $173.5 million, and restricted cash totaled approximately $96.6 million. Management reported approximately $3.69 billion of unrestricted cash, equivalents and investments.
- Total debt was approximately $10.396 billion, including $569.2 million of current maturities; long-term debt was $9.827 billion. Debt decreased from approximately $11.025 billion at year-end 2009, principally after repayments of U.S. and Macau revolving borrowings. Net interest expense was $155.2 million for the half year, up from $136.0 million.
- Available borrowing capacity at June 30 was $888.0 million under the U.S. senior secured facility, $467.7 million under the Macau facility and SGD 116.4 million (about $83.9 million) under the Singapore facility. The filing reports U.S. and Macau leverage ratios of 5.5x and 2.1x, respectively, against covenant maxima of 6.0x and 4.0x for June 30; the limits tighten later in 2010.
- After quarter-end, the company drew $750 million under the new $1.75 billion VOL facility for Cotai development, repaid the remaining $129.6 million Macau revolver balance and began discussions to amend its U.S. credit facility.
Material changes, outlook and risks
- Marina Bay Sands contributed new revenue and EBITDA, but remained in a phased opening and construction ramp-up. The company expected to progressively open most of the resort during 2010 and projected about SGD 1.7 billion of additional spending through 2011, including about SGD 1.0 billion in 2010.
- The company was mobilizing to restart phases I and II of Cotai parcels 5 and 6, supported by the VOL facility and SCL offering proceeds. Phase I was targeted for completion in Q3 2011; subsequent phases had additional projected costs and schedules. Further financing would be required for other Cotai projects.
- Construction of the Sands Bethlehem hotel tower had restarted, with opening expected in Q2 2011 and about $55 million of remaining spending stated for completion, FF&E and outstanding payables. Other Bethlehem components remained suspended. Table games began in July 2010 after licensing.
- Other suspended developments included the St. Regis Residences in Las Vegas and Cotai parcels 3 and 7 and 8. Management warned that prolonged suspension, insufficient funding or abandonment could result in impairment charges, contract penalties or loss of hotel management agreements. Macau land concessions carry completion deadlines; failure to obtain extensions could put substantial capitalized project costs at risk.
- Management believed cash, operating cash flow and available borrowing capacity would fund the revised development plan and support covenant compliance, but this depends on continued operating performance and access to financing. The filing gives no formal earnings guidance.
- Key risks include substantial variable-rate debt, tightening leverage covenants and potential cross-defaults; a 100-basis-point rate increase was estimated to raise annual interest cost by about $101.5 million. The company also cited economic and travel demand, gaming regulation, project delays and approvals, foreign-exchange exposure, and operating concentration in Las Vegas, Macau and Singapore.
- Contingencies include a $58.6 million judgment in the Suen litigation under appeal, for which no reserve was recorded because management did not consider a loss probable or estimable; preliminary securities class actions; and potential SAFE penalties relating to China payments. The company also noted uncertainty over whether bankrupt GGP could make any final payment related to The Shoppes at The Palazzo.
Important facts for investors to verify
- Whether operating momentum and property EBITDA persist, especially in Macau, Las Vegas and the new Singapore resort, while accounting for gaming win-rate volatility.
- Actual project cash requirements, opening timelines and financing availability for Marina Bay Sands, Cotai and Bethlehem.
- Quarterly covenant headroom as leverage limits tighten, and the final terms and completion of the proposed U.S. facility amendment and VOL funding.
- Whether the GGP mall sale produces an additional payment, and developments in the Suen appeal, securities litigation and SAFE matter.
- How preferred dividends and redemption-value accretion affect earnings attributable to common stockholders and per-share results.