Las Vegas Sands Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 18, 2023

There are 12 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the Sands Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on a listen only mode. We will open the floor for your questions and comments following the presentation. It it is now my pleasure to turn the floor over to Mr. Daniel Briggs, Senior Vice President of Investor Relations at Sands.

Operator

Sir, the floor is yours.

Speaker 1

Thank you, Paul. Joining the call today are Rob Goldstein, our Chairman and CEO Patrick Dumont, our President and COO Doctor. Wilfred Wong, President of Sands China and Grant Cheung, EVP of Asia Operations and COO of Sands China. Today's conference call will contain forward looking statements. We will be making those statements under the Safe Harbor provision of federal securities laws.

Speaker 1

The company's actual results may differ materially from the results reflected in those forward looking statements. In addition, we will discuss non GAAP measures. Reconciliations to the most comparable GAAP financial measure are included in our press release. We have posted an earnings presentation on our website. We may refer to that presentation during the call.

Speaker 1

Finally, for the Q and A session, we ask those with interest to please pose one question and one follow-up, we might allow everyone with interest the opportunity to participate. This presentation is being recorded. I'll now turn the call over to Graf.

Speaker 2

Thanks for joining us today. MacAl delivered $630,000,000 of EBITDA for the quarter and we are only 8 months into our Post COVID reopen. These are early dates. We began in Q1 with $400,000,000 of EBITDA. Q2, we did 5 $40,000,000 of EBITDA and Q and A is now $630,000,000 EBITDA.

Speaker 2

Look forward to growth in both the gaming and non gaming revenue to lift the entire market. SCO has the largest share of non growing TIG win and spot ETG win. We've always believed that completed Londoner we'll meet and perhaps exceed the earning power of an issue. Our future growth in Macao is tethered with these powerful assets, which have all the variables necessary to drive growth in the years ahead. Whether it's rooms, gaming capacity, retail, entertainment, food and beverage, we have stellar assets.

Speaker 2

There is speculation about future growth of Macao. The relevant question is can the market grow to $30,000,000,000 $35,000,000,000 $40,000,000,000 of GGR and beyond. We are firm believers that it will and may occur in a much shorter timetable than anyone realizes. This underscores our confidence in returns that we generated by our capital investment programs in our portfolio. We are staunch believers in the growth of Macau market near and long term.

Speaker 2

WES has invested $15,000,000,000 in Macao, which is the most important land based market in the world. A few reference points to consider. 3rd quarter EBITDA represents strong growth compared to previous quarters, as I mentioned. Our retail business in Macao has far exceeded pre COVID numbers. I expect the gaining portion of our business to follow the same trajectory as Singapore and accelerate 2024.

Speaker 2

Let's move to MBS in Singapore. 6 quarters into a reopening, MBS delivered a $490,000,000 quarter. The power of this building is evident based on results despite the disruptive impact and our ongoing US1.75 billion dollars renovation program. Disruption notwithstanding MBS is hitting on all cylinders from a gaming, lodging and retail perspective. Slots in ATG MBS are approaching $1,000,000,000 annually.

Speaker 2

Non rolling tables are exceeding dollars 20,000,000 of drop per day, the ADRs are escalating and our retail component is still in far beyond pre COVID numbers. MBS is a testament that quality assets prevail and validates the thesis that reinvesting in our assets will generate sustained returns. MBS has it all, an iconic building with superb decor and service levels, which attract the most desirable customers in every segment. At the completion of both phases of our refurbishment program, MBS will feature 7 70 suites. We used to have 200 suites before the refurbishment.

Speaker 2

There is no denying the future. How far can MBS go? Our expectation starts with $2,000,000,000 more in the future we have annualized EBITDA. Finally, we're bidding for a license in New York. We secured the Nassau Coliseum and the process of updating the necessary zoning requirements to move forward, we're also receiving strong local support from the local community.

Speaker 2

The resort will cost in excess of $5,000,000,000 which enables us to develop a 5 star resort with unlimited appeal. This is simply extraordinary opportunity. We are very excited about the prospect. Our bid is compelling that we are awarded the license that will be in the ground as quickly as possible. Thanks for joining us again.

Speaker 2

I'll turn the call over to Patrick before we move on to some Q and A. Patrick?

Speaker 3

Thanks, Rob. I would like to cover 2 important topics before we get on to your questions. The first is the long term margin structure we expect in our Macau business. As the Macau market revenues continue to recover, our margins will naturally benefit from an improved business mix. This quarter, our Macau EBITDA reached $631,000,000 at a 35.3% margin, which is an increase of 210 basis points compared to the Q2 of 2023.

Speaker 3

As revenues continue to grow, we expect our margin to exceed the 36% of Macau business in 2019. This quarter, The Venetian Macau grew EBITDA to $290,000,000 with margins reaching 40.1%. This is an example of our property achieving strong revenue recovery financial performance and margin that reflect the improved business mix. The long term Macao grew EBITDA to $167,000,000 during with EBITDA margin expanding 660 basis points sequentially to reach 32.2%. The strong flow through of revenue to EBITDA reflects the operating leverage of our business once the fixed costs have been covered.

Speaker 3

The transformation to Lundgren has created world class product that is a must see for visitors for the cap. We will naturally have some construction disruption in 2024, but we expect future EBITDA growth and margin expansion over time. So that's Macau. The second item I wanted to cover is an update on our plans for the return of capital to shareholders. Our Board of Directors has authorized a $2,000,000,000 share repurchase through 2025 and we're looking forward to restarting our share repurchase program.

Speaker 3

In the 9 year period from 2012 in 2020, we returned over $22,000,000,000 of capital to Las Vegas and shareholders in the form of dividends and repurchases, which was split roughly 80% dividends and 20% to share repurchases. As we consider our future capital return, we expect share repurchase will be more heavily weighted than dividends. We believe repurchases will be more accretive than dividends over time as they reduce the denominator. We fundamentally believe in the compounding long term benefit of share repurchases. So that's the capital return update.

Speaker 3

Thanks

Speaker 4

for joining

Speaker 3

us again today and let's move to Q and A.

Operator

Thank you. Ladies and gentlemen, the floor is now open for questions. We ask each participant to limit yourself to one question and one follow-up. Please hold a moment while we poll for questions. And the first question today is coming from Carlo Santarelli from Deutsche Bank.

Operator

Carlo, your line is live.

Speaker 5

Hey, guys. Patrick, thank you for the additional color. Rob or anyone over in Macau maybe this seems best for, but as you guys think about the base and the premium mass, it looks like in the quarter you guys kind of converted some premium mass tables to base mass tables and obviously with the increases in visitation that makes sense. Is that something you expect to do going forward? Do you have what you need basically in terms of the premium mass footprint in terms of table count at this point?

Speaker 2

The beauty of our business model is we've got plenty of capacity to do whatever we want. We'll move to the market. As you saw in the quarter, we moved tables around to accommodate where we saw demand. But again, with the number of rooms and our table capacity, we can grow into any market, in any segment that shows strength and that's what happened here. The truth is I expect that we will look forward in the future and show growth both in base and premium.

Speaker 2

Our assets are built to be just this, which is versatile, able to accommodate the market. Graham, maybe you have some color. That's true of any market. The only difference in this market for me is we have such a huge amount of table supply that we're very nimble. Grant?

Speaker 4

Yes. Thank you, Rob. Yes, I think the repositioning this quarter for more towards base mass tables, that's just a natural part of our optimization between the segments and of course, as you rightly referenced, the summer saw a big increase in visitation and the base mass business. So that was just a natural repositioning to optimize the table count, as you can see sequentially, a win per unit increased substantially in premium mass, up 19% and base mass, even though we reorientated the table count towards base mass, we also increased the win per unit by 7% sequentially. So I think that you can see very clearly that we actually did optimize pretty well for the quarter between the two segments in terms of table capacity.

Speaker 4

And these numbers will change again as the market evolves depending on which segment is growing faster.

Speaker 5

Great. And then thank you for that. Patrick, if I could just kind of follow-up on the Venetian and acknowledging there was some high hold in the period on the VIP side, but it's a relatively small number in terms of revenue. As you think about kind of the margin profile, the 40.1% margins in the period at the property kind of rivaled 2019 despite annualized 3rd quarter net revenue being down, I think, close to 18% versus what you did in 2019. If we think about that gap, that $600 odd 1,000,000 flow through, getting back to kind of 19 net revenue levels at that property or any other property, how would you think about kind of the incremental flow through on that incremental net revenue?

Speaker 5

And perhaps we could obviously take it from there to get a sense for where margins could kind of prove out over time.

Speaker 3

So it's a great question. I think for us, the first thing is, this is what happens when you cover your fixed cost base. So when we were 70% recovered, we had to cover our fixed cost base in Macau. And as the market recovered and as tourism and visitation continue to grow, we will reach our run rate margin levels, which we always felt was this context. So what do you see The Venetian is a result of a great product that has it's really an example of a property reaching a more run rate level of we

Speaker 4

have a strong quarter of expiration post pandemic

Speaker 3

and the performance in margins have results. And we feel very strongly that the creation of Macao is going to run as mass visitation continues to return to the market, remember Macao visitation is still about 20% less than it was pre pandemic, we're down about 1,000,000 visitors in the same period. So we feel very strongly about the margin potential. We're very proud about what's going on at the Lunder. We think the market is starting to understand that product, how great it is, and we're starting to see the results in terms of productivity in terms of market.

Speaker 3

But again, in that product as well, we think there's more room to run. So I think it's it's a great testament to the team there, the work they've done to grow these businesses. But to be fair, we think there's strength in margins to continue as revenue continues to come into the market through visitation.

Speaker 5

Great. Thank you very much guys.

Operator

Appreciate

Speaker 2

it. Thanks, Karl.

Operator

Thank you. The next question is coming from Joe Greff from JPMorgan. Jody, your line is live.

Speaker 1

Good afternoon, guys. Before COVID, you guys used to disclose department margin ranges for base mass table games and premium mass table game ranges. I think base was 35% to 45% and premium mass 25%, 40%. Are those margin ranges or the midpoint and higher still viable? Or does the Londoner and that ramp and clearly is in ramp mode right now, does that cause those ranges to be more middle or the lower end of that range is in the aggregate in Macao.

Speaker 3

So I think for us, because of the mix of business and where we're investing, we sort of run the business in aggregate. So what we're looking at is the 40% margin that the Venetian just put up in the quarter the 660 basis point expansion in margin that the longer saw as the market discovered how great it was and we started getting more visitation and more growth. So I think for us that's really how we're looking at it. Departmentally, I think we manage the business overall. And as Rob said earlier, we're going to shift assets to the segment that is most productive and provides the best returns.

Speaker 3

So I think for us, we're not really looking at that as a guide. We're really looking at overall productivity of our asset base in total, I think one thing that's interesting to consider is so in Macau, room occupancy was 96% versus 95% in the same period of 2019. But the thing that's interesting is we're actually driving more daily casino nights at higher yields per room. And so in the premium mass segment, we're seeing that recovery, but our base mass segment is starting to recover strongly. And this is really what you see is the businesses that used to support Macau Mass Tourism continue to come back online after what was basically a 3 year hiatus.

Speaker 3

So this increased visitation will drive base mass revenue growth and we'll start to see margin return to a more normal mix. So I wouldn't look at the departmental. I would look at the recovery in the aggregate margin of the operating asset. That's kind of how we're managing the business and we're trying to manage segments throughout.

Speaker 2

And we look at EBITDA.

Speaker 3

And then we look at EBITDA, which is the most important thing. Thank you, Rob.

Speaker 1

Thanks. And then with respect to the buyback that was great to see, Patrick, do you look at that as more episodic or opportunistic? Or do you look at it as There's a minimum level or a consistent level per quarter per year that you would look at?

Speaker 3

I think we're going to be measured across time. I think we want to return capital through share repurchases in a meaningful way. We think there is a real benefit to reducing the denominator, we think it's accretive. We think there's a compounding effect in share repurchases. And so we're looking forward to do it on a regular basis.

Speaker 3

The amount is to be determined, but for us, you see the size of the authorization, you see our balance sheet strength, you see the amount of cash flow we're generating out in the business, and We're going to go out and be aggressive. I think for us, we fundamentally believe in the dividend. But if you look at that split that we had, let's call it pre pandemic of a return on capital I think we're looking to be majority share repurchases and get that benefit. And so if you look at how we've returned capital historically in a regular and repeatable way, I think we're going to look to do that again.

Speaker 2

Hey, Joe, we can't help but be somewhat opportunistic as we look at the market. Our stock is trading roughly the COVID levels and we think our billings are going to make $5,000,000,000 and more $40,000,000,000 $50,000,000,000 in the next decade. It's hard not to look at the stock and see that's opportunistic. On the other hand, we also like to be long term and be consistent. So it's kind of a mixture of both.

Speaker 2

But it's hard for us to sit here today and look at pricing is if we're closed in Macao or half open in Macao in Singapore, not think there's opportunity, but we also have a long term perspective.

Speaker 1

Great. Thanks, Rob. Thanks, Patrick. Thanks, Dan.

Operator

Thank you. The next question is coming from Robin Farley from UBS. Robyn, your line is live.

Speaker 6

Great. Thank you. I wonder if you could give us some thoughts on kind of what it's holding back that lower spending customer. It sounds like transportation bottlenecks are no longer really the issue in Macau. If it's the RMB depreciation, is that something we have to kind of wait for that to anniversary next year?

Speaker 6

Or I guess what do you think will change that, the kind of visitor levels for that lower spending segment? Thanks.

Speaker 3

Yes. I think it's interesting if you go to Page 16 of our deck, and by the way, we debate this all the time. I think the I think what you'll see is that visitation is from China excluding Guangdong is 72%. Guangdong is back to 92, but if you look at the airlift, Macau Airport was only at 64% 2019 capacity in the quarter and Hong Kong was only at 63%. So it's a pretty meaningful difference.

Speaker 3

And so, frictional transportation difficulties are still real and they're getting better. Customers can get to Macao a little more easily in this quarter than they could have before, But we're still not back to normal. And so what we're starting to see is, as I mentioned earlier, some of the infrastructure for mass tour groups are returning, which is very positive, we're starting to see some of the increased volumes due to their visitation. Some of the higher value customers, premium mass customers and VIP customers, airlift isn't great. And some of this airlift coming into Macau is domestic and some of it's international.

Speaker 3

So I think for us, as we see this airlift capacity recover, we're going to start to see more entertainment and of course benefit not only us, but also the entire market as more people are able to get here more easily. But I think the recovery story is not fully there in terms of air travel and in terms of accessibility. I think it's on the way, but it's not fully back.

Speaker 6

I guess I'm thinking that the air travel wouldn't necessarily be where the lower spending customer will be coming from the and high speed rail, I think, is back to pre COVID levels. So I just Is there anything else that you think is impacting it that needs to change, whether it's policy in Mainland China or it's kind of anything else outside of that transportation issue? Thanks.

Speaker 2

Brad, do you want to jump in here?

Speaker 4

Sure. Yes. I think Robin, the well, Patrick referenced 72% out of non Guangdong. Actually, if you look at the regional differences between provinces. I mean there are some of the higher spending provinces are actually way above 2019 in terms of visitation and some Are lower than 2019.

Speaker 4

So I think there are just some regional differences depending on a whole host of factors ranging from the transportation to the availability of hotel rooms and so on and so forth and their propensity To go cross border in their trips. I mean, this is the first set of summer holidays since COVID. And And I think what you see is actually a very strong acceleration in that non Guangdong visitation this quarter. So we're really up 22% overall visitations, but within that Mainland China is up a lot more sequentially. And that is also reflected in the property visitations that we saw this quarter, the 17% increase In the face mask revenue that we saw.

Speaker 4

So it is picking up, but it just accelerated at a different pace from the premium mass, which as you know came back right from the start in a stronger fashion than the base mass. So I think as more hotel inventory is actually opening up and the propensity improves, people Yes. And my cattle market is back with all the non gaming investments and events that are driving the interest in the destination. I think that base mass segment will naturally improve over time as it did already significantly this quarter.

Speaker 6

Okay, great. Thank you all. Thanks.

Operator

Thank you. The next question is coming from Stephen Grambling from Morgan Stanley. Stephen, your line is live.

Speaker 7

Hi, thanks. This may be a bit myopic, but we'd love to hear a little bit more color on how Golden Week may be trending and how the pace of recovery has continued across different customer categories more recently, especially around these big events that you seem to have given kind of a step function move in the recovery historically.

Speaker 2

Steve, we traditionally don't talk about current quarter, we'll keep that intact here as well. I think you look at the numbers in the market as they print, you see the strength of Golden Week's pre evident, The numbers print by the government and other sources, but we never comment any side of the quarter.

Speaker 7

Fair enough. And maybe Changing to something more specific. Go ahead.

Speaker 4

Sure.

Speaker 3

I wonder

Speaker 7

if Phase 2 would be would love to just hear anything around potential near term disruption. I think that that's we starting in November and then when that might be felt most and when we can anticipate the re ramp.

Speaker 2

Yes. I'll turn to Grant. There will be some disruption, but we still feel as though the initial results on there are obviously we're looking at it as a future hope the Lundy's prospects. I'll have Brand take it through 'twenty four, both room and casino, I'm seeing that better and how we see it.

Speaker 4

Yes, sure Rob. I think clearly we will go out to minimize the impact on the guest experience in the business operations, this is something that we have managed many, many times over the years. And indeed, we did that during 2019 when we started the Holiday Inn conversion into the Londoner Hotel, I think you'll see some disruption on the gaming side in the middle of next year. And I think we'll be managing the Sheraton Tower renovation methodically and judiciously over the entire period over the next 15, 18 months, so as to really continue to enhance the yielding on the customer front, but at the same time, try to get these works done as quickly as possible. I think the intent here is to move forward and complete the renovation And the repositioning of the entire south side of the resort, the Sheraton Towers and Pacifica Gaming as quickly as possible, the sooner we make the entire resort Londoner, the better it will be for everyone, our guests, our staff, our business and the brand positioning.

Speaker 4

So the only other point I would make is we should take note that this part of the property portfolio is the lowest yielding part of the entire Cotai portfolio that we have both on the hotel and the gaming side. So we do hope to be able to successfully manage to minimize the disruption to the business, but when we get to completion on the other side, in the first half of twenty twenty five, I think the earnings power through the holistic and expanded experience of the London and Macau will be significantly enhanced. That's the goal.

Speaker 3

Hello. And just sort of one thing to think about. Yes, one thing to think about. So we're very focused on return on invested capital and growth in Macao. And so our anticipation is that the returns on these investments will be commensurate with those that we had previously and will drive meaningful growth.

Speaker 3

And by the way, the initial market reaction to this product really to what's been brought online so far really helps us with this view. Given the customer response and the performance of the asset, in the long run, we believe that the completed lender when it's done will be on par with the Venetian. That's where our target

Speaker 2

is. I'd also add to Grant's comments, Stephen, just again, the size, the scale Our portfolio gives us flexibility. We have 10,000 or 10,000 other rooms. Money gets seen in this new customers too. So I think we minimized the disruption and maximized the opportunity to deploy the rest of our assets to keep our business strong despite that.

Speaker 2

And to Patrick's Common, one of those things is going to be a juggernaut. They'll be neck and neck, maybe exceed those two assets that are going to be, excuse me, important in the future. But getting through 'twenty four, While not easy, I think it's very manageable to see deploys other assets in the portfolio intelligently.

Speaker 7

Thanks. I'll jump back in queue.

Speaker 2

Okay. Thank you.

Operator

Thank you. The next question is coming from Chad Beynon from Macquarie. Chad, your line is live. We can come back to Chad later. The next question is coming from Shaun Kelley from Bank of America.

Operator

Shaun, your line is live.

Speaker 8

Hi, good afternoon, everybody. I just wanted to go back to the margins in Macau and maybe that flow through discussion a little bit more. If we look at it, it does look like flow through just sequentially was a bit better in the Q3 here than in the second. I was just wondering if we could get a little color on sort of maybe some of the mix impacts that drove that. Was that normalized staffing, was it some of the non gaming amenities which are now kind of fully back on, which flow through at really good rates like retail and hotel?

Speaker 8

Was it So the base mass mix coming back, just kind of how do you see it in terms of what maybe some of the factors were that drove that because it does look quite impressive?

Speaker 3

Thanks for that and appreciate the question. I will tell you that there's a little bit of magic to it. It's called revenue increased 28.9%. So for us, it really is just more people showing up, spending money at the product, recognizing how great it is and increased demand. Mean it's a phenomenal product.

Speaker 3

We were there last week. It really looks great. The team is really providing unbelievable customer service And it's a highlight for Macau. It's a great asset and will continue to grow. And for us, it was just covering the fixed cost base.

Speaker 3

We just had to get open. It was not a known product in the market. People are starting to figure it out and it's going to keep growing. And so for us, this was really just growth in revenue across all segments. That was really the secret to it.

Speaker 8

Great. Thanks, Patrick. And then as my follow-up, I just want to dig a little deeper into the buyback authorization obviously a big kind of strategic change. Could you give us a couple parameters? I mean pre COVID, the company was actually pretty high on its sort of overall payout ratio.

Speaker 8

You obviously have a pretty ambitious capital program across potentially New York. Certainly what you want to do on this on the big project in Singapore, some renovation activity and some of the CapEx in Macau. So should we think in parameters of a payout ratio and maybe how could we put some numbers around that if possible? And then just help us think about medium term leverage just given you're probably the most underlevered gaming company I've ever covered. So a bit complement to where you sit at the but obviously it presents a

Speaker 4

lot of potential firepower there.

Speaker 3

So really, really appreciate the commentary and the question. I will tell you, so right now we're sitting on about $5,600,000,000 worth of cash system wide. Macau has started to become very cash generative. Singapore is very cash generative. So the way we think about this is due to the timing of our development obligations in those cash flows, we will be able to do all we'll be able to invest in our core markets and growth, organic growth and through redevelopment of key assets, we'll be able to do IR2 in Singapore.

Speaker 3

We'll be able to do our concession commitments in Macau and then we'll have excess capital and we'll pursue New York and we're going to pursue other growth opportunities in new jurisdictions. We'll be able to do it all because of the timing of the cash flow, the cash we have on hand and the cash generative nature of our assets. So in terms of a payout ratio, as we addressed earlier in the call, we're not going to be as heavily weighted towards dividends as we were before. So if you look on Page 30, we sort of included a look what were our prior return of capital programs looking like for both share repurchase and dividend. And on Page 30, what you'll see is historically we were very dividend weighted.

Speaker 3

As your point about payout ratio, we don't typically guide to payout ratio, but the point is well taken. We're looking really to flip it. So for us, the majority is actually going to end up being share repurchases because we're very focused on growth. So we can grow the company's EPS through share shrink, we're going to do it. We can grow through capital allocation through high growth projects, we're going to do it.

Speaker 3

It's really an ROIC and we're going to pursue it aggressively. And the good thing is we've got cash on the balance sheet, we've got cash generated assets and we have a historical program to provide a good guide that we can launch off of and really hopefully drive real shareholder return in the future. So that's kind of how we're thinking about it.

Speaker 4

Thank you very much.

Speaker 3

Sorry, one thing. Thank you, Dan. You mentioned leverage and this is a very important thing. So prior to the pandemic, we spent about 5 years transforming the company to be an investment grade name. We thought this was really important.

Speaker 3

It gives us access to the largest most liquid debt market in the world. It gives us a very efficient cost of capital, which in the long run provides flexibility, but also drives returns on our new projects. And so having this investment grade balance sheet also helps us in new jurisdictions because we have the financial capability to execute on projects we propose. So for us, we like being leveraged 2 to 3 times on a gross basis. We've said it before, you've heard it from us on prior calls, nothing's changed.

Speaker 3

We still believe that. We think we'll delever over time through EBITDA expansion. But more importantly, I think for us, that's a key metric so that we maintain our investment grade rating for all the benefits we just described. So That's kind of how we're thinking about it.

Speaker 8

Thanks for that.

Speaker 4

Thanks, Sean.

Operator

Thank you. The next question is coming from Brandt Montour from Barclays. Brandt, your line is live.

Speaker 9

Great. Good evening, everybody. Thanks. So for Marina Bay Sands, 1st, in your slide, you show flight capacity hovering around 80% recovered. Based on the momentum that you guys are seeing in that asset, do you still feel like you need that last 20% of China inbound to fully recover to hit that $2,000,000,000 run rate target and can that happen actually while Tower 3 is under Reno?

Speaker 2

What's happening, isn't it? I mean, this quarter we just did $490,000,000 I hate to say if it's happening. Good question. We always need China, let's be clear about that. We always want more business small countries.

Speaker 2

But I think what you're seeing in Singapore is a very diverse bunch of assets all coming together. I think the biggest story is the Suite product, which you haven't seen is pretty extraordinary. When it goes from 200 $7,970,000,000 it's just a very potent combination of great food and beverage, great service and enables us to get to places we never thought of before. The real question for me is I think $2,000,000,000 is our goal in the future and beyond. The real question is when you get more China, when you get more flights, when you open up totally.

Speaker 2

The thing about we talked about Singapore, it's been open about 6 quarters now. If you follow the trajectory of Singapore, we're hoping the same thing happens in Macau. We're very early stages in Macau. Singapore opened up, it wasn't that powerful in the 1st couple of quarters. And it went along, all of a sudden it caught fire and now it's suddenly performed.

Speaker 2

We're surprised how It's strong, it is. And because the place is kind of torn up, if you've been there, it's got some real challenges from a physical perspective. So to answer your question, we think we can get there without more will take all the customers that you get. We think this is a unicorn asset. It's one of those places you just want to go to.

Speaker 2

You'll pay up for whether you're room product or the gaming opportunity at retail. It just is going to keep getting stronger. Do we think it's achievable? Yes. But we prefer to have all Air Lift coming in and all the potential customers in China, there's an insurer.

Speaker 2

We just have a huge faith in this product. We don't think 2 is the end. It's beginning we're in. So I do think it's important to look at give the cab a benefit of understanding we've gone from a dead stop in January, in fact, the very difficult times of no one coming to a mere 9 months later, about 80% of Q3 2019. But how much further they're going to go?

Speaker 2

I think a lot more. If you look at Singapore's trajectory, I think it's very telling what's going to happen in Macao. So I think again another illustration of what's happening, Steve, was on Page 25. I think the retail slide is just You have to look at it. I don't know how many malls you guys spend time in, but $3,000 a foot is a typical local mall.

Speaker 2

The 4 Seasons Macau is 8,400 a foot in the luxury segment and 3,700 in non luxury. Even Venetian Macau, which is not a luxury mall, is doing dollars 1700 a foot. So the power of the spending right now in retail opportunity always seem to happen first. The gaming seems to follow us. It happened in Singapore.

Speaker 2

It's going to happen in Macau. But to your question, we have huge confidence in the future of MBS. I think our investments will prove in the end, we've made works in these places supremely strong buildings with great service And great architecture, and that's what you have residing in MBS.

Speaker 9

Great. That's super helpful. And then over on Macau, On Slide 14, it shows the win per visitor coming down quarter over quarter. It's the 2nd quarter that's declined. Is that sort of wholly explainable by the reallocation of tables to base mass, which we talked about earlier in the call?

Speaker 9

Or is there any other constraints that you'd want to highlight why that sort of win per visitor is hovering around, yes, some of the quarters that we saw in 2019?

Speaker 3

Just a quick thought on Page 14. This is really driven by visitation, by the number of visitors who are showing up to the market as it averages down. But I would like Grant to comment if he has any thoughts just for some additional color.

Speaker 4

Yes. Thanks, Patrick. No, I think what you're seeing is the evolution of premium mass coming back first. So for the 1st couple of quarters after the borders reopened, you saw the revenue per Macau visitor arrival, which is What this page shows skyrocketed versus the historical levels and you are now obviously getting more of the base mass, especially during the summer, so you are normalizing. But it's important to note that you are still getting a much higher quality mix of customers even with that when you compare to the same quarter in 2019.

Speaker 4

So I think from this slide, you can see it's 610 per visit to arrival in this quarter versus $557,000,000 in the same quarter in 2019. So the narrative continues that you are getting that higher quality across every segment, a higher spend per capita, but between the premium and base mass, you're now seeing the base mass Starting to accelerate, especially during those July August summer months.

Speaker 9

Got it. So just sorry to clarify. So it's mix to the baseband, but also more well heeled customers that might be gambling slightly less like families and such. Is that kind of we will look at it.

Speaker 4

No. This is actually showing you that the mass revenue per visit arrival is actually higher than the same quarter in 2019. So actually, it suggests that the highest spend per capita is actually prevalent In all segments of the market right now. And that also shows through in the gaming sorry, in the Retail Mall that Rob referenced as well.

Speaker 9

Perfect. Thanks for all the color.

Speaker 4

Thanks for all the color.

Speaker 2

Thank you.

Speaker 1

Thanks, Brian.

Operator

Thank you. The next question is coming from George Choi from Citi. George, your line is live.

Speaker 4

Thank you very much. While we do believe concerts can help to get incremental revenues in Macau, how should we think about the associated incremental expenses? And I guess more specifically, do you expect the Ethan Chan concerts at Indonesia this month to be both EBITDA accretive and margin

Operator

enhancing at the same time?

Speaker 3

So one thing just to begin and thank you for the question. Entertainment is a very important part of our business. We're very focused on using entertainment to drive premium mass visitation and create the programs that our customers feel like they'll get experiences with us they can't get in other places. It's a very successful thing in Asia. And in fact, we just recently opened a brand new venue in the London that allows us to do that in more scale, right.

Speaker 3

So I think for us these programs are very accretive. Directionally, we think more entertainment as high quality is good, not only for the market, but also for diversification in Macau and in Singapore, I think it brings a prominence and an entertainment glow to the regions. But I would like to turn over to Grant to see if he has any additional comments About entertainment costs associated with it?

Speaker 4

Yes. Thanks, Patrick. Yes, I think we've always been pursuing the entertainment strategy to create a better, more attractive destination and that hasn't stopped since the borders reopened. In fact, we have been redoubling our efforts, as Patrick said, with the opening of the London Arena in May June. So if you look at the Q3, we actually did around 15 different show events with about 19 performances across the 2 arenas and obviously in some only 13 weekends in the quarter.

Speaker 4

So there were some weekends where we are doing both a show at the Londoner and also in The Venetian. And we believe this is critical to driving not just the diversification in Macau and the non gaming, but also to enhance the attractiveness and the propensity to come to the destination, especially our properties, and we can see the impact on our business. The economics of this hasn't changed. We've done this for 15 years. So we know how to calibrate the investment entertainment versus the return we get on the overall resource spending.

Speaker 4

And also there are different types of partnerships that we do in entertainment events And that can range from just pure venue rental to us being the actual promoter. So It varies and it's a calibration. It's an analysis between the revenue benefit that we get and this patient benefit that we get versus the cost and also depends also potentially on the entertainment partner as well whether they invest or they want us to co invest or us to invest. So that really hasn't changed and we've been doing it For more than a decade, but what has changed is that we are actually significantly increasing the content because we now have a new spectacular venue in the Londoner for live music, which is already getting great feedback in terms of quality At venue, both for the audience, but also for the artist.

Speaker 2

George, I would say in my experience, entertainment is an essential component of any top tier resort. And you can never underestimate how powerful it is as a statement of the customer, longevity, commitment. And honestly, for us, we wish only regret how we can't do more because it's so powerful just like retail, just like it's part of the package that makes people want to come and visit. The reason why we have been so successful at the Mediation of the region and it was true in Las Vegas, it was true in LAX City, it was true in any place I ever worked. It's always been essential to call it to be very powerful in Singapore as well.

Speaker 2

So to me, it's not even a question.

Speaker 3

It's a question how we do more

Speaker 2

of this stuff because it pays and pays and pays, Very powerful.

Speaker 4

That's very good color. Thank you very much.

Speaker 1

Thanks, George.

Operator

Thank you. The next question is coming from Dan Politzer from Wells Fargo. Dan, your line is live.

Speaker 10

Hey, good afternoon, everyone. First on Singapore, the CapEx, the $750,000,000 for Phase 2, how do you think about this maybe relative to your longer term expansion plans at the property? I know that's been pushed out and the budget's probably higher than it initially was. But I mean, is this more kind of a bridge to that? Or how should we think about that long term and maybe when we get an update there?

Speaker 2

It's commitment to Phase 1 because the product is good as it was externally, architecturally. It lacked frankly, it was necessary that what happens in Phase 2 is the best money we could spend to make that product successful and stronger. It's going to pay off enormous dividends in the future. The room product was lacking both from a size perspective, but also a finish perspective. Some of the casino space were just not very good.

Speaker 2

I always thought that MBS as good as it was architecturally, it lacked the pizzazz inside the building. And in our business, great buildings, boys prevail and prevail for decades and just grow and grow. So that money is money very well spent. It's not connecting at all. It's meant to make MBS1 a very powerful $2,000,000,000 plus product we built in Singapore years ago.

Speaker 2

The speculation was that it would never be more than $500,000,000 $600,000,000 EBITDA. We're going to push through $2,000,000,000 and beyond. And that is a testament to reinvestment and spending money wisely. It doesn't have any association with Phase 2. Patrick, Phase 2?

Speaker 3

Yes. Just To follow on what Rob said, so fundamentally, we believe it's a product driven business, right? And so that investment in quality, investment in innovation with great service and guest experience are going to drive outside returns over time, right? So, I think you're seeing that with the Londoner. And in Marina Bay Sands, the rooms we just completed, Tower 1 and Tower 2, the design is luxurious, it's residential, it has unmatched levels of service.

Speaker 3

These are the best things we've ever done and they're basically setting a new standard for hospitality and customer experience at our properties. And to Rob's point, when Tower 3 is done, Marina Bay Sands is going to be the oldest hotel property in the world. We're really focused on it. From a food and beverage standpoint, from a retail standpoint, as Rob said before, from a guest experience standpoint, that's what we're focused on. IR2 is going to be something different.

Speaker 3

It's going to be a new standalone development. It's going to have unique spaces, unique design, unique service, But it's something that's probably 6 months to a year away depending on how things go with approvals in order to get started. It will be additive to RadioBase Sands. It will grow the market for us, be a different product and allow us to also have a live entertainment venue in Singapore, is something that we really haven't added scale before. And so if you look at the power of The Venetian and what we're doing to Londoner with the venue that Grant mentioned, we will now have that capability in Singapore to drive high value tourism, to drive further growth and to really work that tourism that's related to live entertainment that we never really could do before.

Speaker 3

So for us, the expansion of Renovay Sands is a step function and growth potential. We're looking forward to doing it. We think it will be an unbelievable product. We've been spending a lot of time on it, and hopefully we'll get a chance to start soon, but completely different thing.

Speaker 10

Got it. Thanks. And then just moving to Macau, I think for the last 2 to 3 quarters, your non rolling ship win has been kind of in that 22% to 23% range. Is this a function of just really premium mass being a bigger piece of the mix or and so we should think about this kind of edging up over time back to that 23% to 24% plus range? Or is there something different in this market?

Speaker 10

And I'm sorry to harp on 1%, but when we're talking $24,000,000,000 Yes. Number of the way.

Speaker 2

You're right to harp on it. It's something we think about quite a bit. Now that your question is an excellent one and we look at it all the time. I was on the phone last night with our Keaton Macau is just discussing its past things. We don't have an honest answer to tell you exactly why the entire industry seems to be down a 0.29 to 2 points.

Speaker 2

It's very impactful. The kind of money we're talking about, it would be worth probably a couple of $100,000,000 due to us, we'd go back 2% And does EBITDA. So it's very impactful. We just don't have a good answer. Is it mix?

Speaker 2

Maybe. Is it a removal of junket and that type of thing? Maybe. But until we have a really coherent and certain answer, we don't want to give you a response. I'd like to believe if the whole industry trades up a point or 2, I'd vote for that.

Speaker 2

Yes, I'm sure our competitors would, but we can make it happen. We need perhaps it's very simple. The math on the baccarat gains don't change. The customer best can change, ties and payers can change, flatbacks can change. So the point is we don't know the answer ourselves.

Speaker 2

A lot of people are scratching their heads. Until we have a certain answer we can still have confidence, I want to hope along with you that we trade up to 24 again because it would be a wonderful thing for us. With our volumes, it would be incredibly impactful. We'd be at $700,000,000 probably this quarter of EBITDA. So excellent question.

Speaker 2

I don't have an excellent answer, but we're working through it. Grant, do you answer that?

Speaker 4

No, you're exactly right. We don't have a clear I'll answer on that. There's in theory, actually, but just a point to make is, in theory, the premium mass being higher Higher mix in the drop actually should be positive for the whole percentage. And it could also obviously add more volatility To the metric, but I think Rob is absolutely right that we don't have a clear answer. And in truth, I mean, this is only like 8, 9 months into recovery where the segments and the customers, I mean, all that is still evolving.

Speaker 4

So I think it's also premature to make specific pronouncements on what should be the top non rolling So right now, the numbers are what they are. But as you rightly referenced, as Rob also said, 0.5 point of difference, not even just 1 point makes a tremendous difference to the numbers, the EBITDA, the margin, etcetera. So we're closely watching this, but there's no clear answer we can give on that In terms of why the whole percentage is where it is versus before?

Speaker 2

We're really in a new world in Macao and I think people really don't understand. I think it's as fast as people don't understand how quickly this thing is reopened. I mean, I know you know it, but the problem is Vegas opened, Regional's opened, Singapore's opened quite a while ago. Macau is new to the game. It's only open for 8 months, 8.5 months.

Speaker 2

So things are evolving and turning. It's happening quickly. Again, I think it's an instructive look at the trajectory of what happened in Singapore, go back to 8 months thereafter, because you watch this happen double that time. It's incredibly, I think, interesting to see the comparisons. I think this whole percentage thing It's evolving.

Speaker 2

We don't know. It would be wonderful if I ever back in 24 in Q2. It would be wonderful. But without certainty, we can only give you an answer which we don't have clarity on ourselves. And We do, we're happy to share with the market.

Speaker 10

Got it. I appreciate all the detail and the perspective. Thanks.

Operator

Thank you. And the last question today is coming from David Katz from Jefferies. David, your line is live.

Speaker 11

Hi. Good day, everyone. Thanks for taking my question. I just wanted to go back on one detail. I'm not sure if you discussed this, But I'm just looking at the historical margin levels in Singapore, which were north of 50.

Speaker 11

Could you just talk about the puts and takes of getting back to that level again or if there's some Specific headwind and then I have one quick follow-up.

Speaker 3

Yes, no problem. I think one thing to highlight is that there was an increase in our tax rate by 3 percentage points, and then there was a 1% GST. So what you see there is the impact of that along with inflation in the market. We've been able to manage expenses, manage business mix, manage pricing and push the business to it'd be better. But our long term there is going to be with strong margins, with revenue growth just based on our investment and what we're seeing in the market.

Speaker 3

So we sort of manage the productivity yield and return on invested capital. Obviously, we look at margins and do our best, but we like where this business is going and we think the future is very strong.

Speaker 11

Understood. And as my follow-up, with the very, very good quarter that you had, and it's not just for your stock, but many in our coverage, the market seems to expect some macro pressure in the future. And it's almost an obligatory question for all of our management teams. Are you seeing anything or providing anything that would validate any macro pressure at this point.

Speaker 3

So I'll tell you what's interesting. You heard Rob earlier reference our retail productivity. We are in very fortunate markets. So Singapore is an unbelievable place to do business. It's just a great place to visit as a tourist.

Speaker 3

There's a lot of exciting things to do there. It's a great business environment to trade. And I think Singapore has benefited from its years of investment in its structure. People are going there and people are going there and consuming. And so we don't have a huge physical plant there.

Speaker 3

We've got 2,500 hotel rooms are going down as we have more suites and I think in Macau, we're less than 1% penetration in the market. And so when you look at business and leisure tourism opportunities, I don't know that we're impacted like a broad based stable. I think we're for a narrower segment, we don't appeal to everyone, but I think we're a great tourism assets in both of our markets and we've continued to see growth through different cycles Because of who we appeal to and the volumes that we need to be successful.

Speaker 11

Got it. Thank you very much. Appreciate it.

Operator

Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.

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Earnings Conference Call
Las Vegas Sands Q3 2023
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