Earnings Call Transcript - LVS Q2 2020

Operator, Operator

Good afternoon. My name is Faith, and I will be your conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands Second Quarter 2020 Earnings Conference. All lines have been placed on mute to prevent any background noise. I will now turn the call over to Mr. Daniel Briggs.

Daniel Briggs, Executive

Thank you. Joining me on the call today are Sheldon Adelson, our Chairman and Chief Executive Officer; Rob Goldstein, our President and Chief Operating Officer; and Patrick Dumont, our Executive Vice President and Chief Financial Officer. Before I turn the call over to Mr. Adelson, please let me remind you that today's conference call will contain forward-looking statements that we are making under the safe harbor provision of federal securities laws. The company's actual results could differ materially from the anticipated results in those forward-looking statements. In addition, we may discuss non-GAAP measures. A definition and a reconciliation of each of these measures to the most comparable GAAP financial measures is included in the press release. Please note that we have posted supplementary earnings slides on our Investor Relations website. We may refer to those slides during the Q&A portion of the call. Finally, for those who would like to participate in the Q&A session, we ask that you please respect our request to limit yourself to one question and one follow-up question, so we might allow everyone with interest the opportunity to participate. Please note that this presentation is being recorded. With that, let me please turn the call over to Mr. Adelson.

Sheldon Adelson, Chairman and CEO

Thank you, Dan. Good afternoon, everyone, and thank you for joining us today. I hope that all of you are staying safe and healthy during these challenging times. While the company is facing COVID-19 challenges, we are excited that we are seeing the first signs of recovery. We are happy to report that Marina Bay Sands in Singapore is now open. And that since July 15, certain visits are returning to Guangdong Province from Macao and are no longer subject to quarantine. This is a critical first step towards the relaxation of quarantine restrictions in provinces outside of Guangdong, as well as the eventual resumption of tourist visa issuance to Macao. While the recovery in our local communities is now in its early stages, we will remain steadfast in our commitments to the health and safety of our employees and customers and to providing assistance in our host markets. We remain confident that travel and tourism spending in each of our markets will eventually fully recover. My over 70 years of business experience are the basis for my unbridled optimism that people will travel again, shop again, and come together again to enjoy entertainment and social interaction, to exchange ideas and to conduct business. Our optimism about an eventual recovery, coupled with our financial strength, enables us to continue the execution of our capital investment programs in both Macao and Singapore. We believe these investments will strengthen our leadership position in each of these markets and will provide a larger platform for future growth as travel and tourism spending returns. In Macao, we continue to make great progress in the execution of our US$ 2.2 billion capital investment program for the Londoner Macao and the Grand Suites at Four Seasons. As we complete these and other capital projects during the year and in 2021, we will be introducing a variety of world-class integrated resort elements. This includes three new all-suite hotels, more than a dozen new restaurants, additional retail, and new MICE and entertainment facilities. We are very confident that these new developments will help Macao to recapture and even increase its share of leisure and business tourism from China and the rest of Asia. We remain unwavering in our commitment to long-term investment in Macao. The scale of our existing and ongoing investments enables us to play our part in supporting the local economy of Macao today, including our support of local employment, as well as our support to small- and medium-sized businesses. I remain steadfast in my belief that Macao has the potential to become one of the greatest business and leisure tourism destinations in the world and the MICE capital of Asia. We would welcome the opportunity to invest billions of additional investment dollars and extend our contributions to Macao's diversification and evolution into Asia's leading leisure and business tourism destination. Now turning to our investment in the expansion of Marina Bay Sands in Singapore. We remain excited to be part of Singapore's continued growth as a leading leisure and business tourism destination. We continue to make progress on the MBS expansion. We believe that delays in the timing of the project are likely to occur. These delays are principally related to the impact of the pandemic, and we will provide additional updates in the future as conditions continue to evolve. In advance of the expansion, we will also continue to reinvest in Marina Bay Sands to enhance the customer experience and the tourism appeal of the resort. Finally, turning to Las Vegas. The eventual recovery could take more time here than in Asia, particularly because of our reliance on group meeting business. We remain confident that Las Vegas will remain one of the greatest leisure and business tourism destinations in the United States. Regarding our balance sheet, maintaining a strong balance sheet makes great businesses, where we weather the storm caused by this pandemic. Our balance sheet strength enables us to invest in promising future growth opportunities, and positions the company to deliver industry-leading growth in the years ahead. We are deeply confident that the eventual recovery in travel and tourism spending and the strength of our business model will enable us to deliver both growth and the return of capital to shareholders in the future. Thank you again for joining us on the call today, and now we'll take questions. Faith, we're ready for questions.

Operator, Operator

Thank you, sir. Your first question is from Joe Greff from JPMorgan. Your line is open.

Joe Greff, Analyst

Good afternoon, everyone. My first question is about Macao. I would like to know what benefits you anticipate and what you have observed in the past week since the Guangdong quarantine requirement was lifted. This is a two-part question. First, do you believe that the easing of travel, without any additional restrictions or new visa issuance, can help you reach EBITDA breakeven in Macao? Second, looking at the last 8 to 10 days, how does this period's performance compare to the performance between February 20, when the casinos reopened, and March 20, when Guangdong started the quarantine requirement? I also have a related follow-up.

Rob Goldstein, President and COO

Yes. Joe, hi, it's Rob. There's a significant difference between the dates you mentioned and the current period. We see Macao as our biggest opportunity, but it’s important to understand that without the revival of the Individual Visitation Scheme, there’s little hope for the casinos to recover. The visitor numbers are around 2,000 to 3,000, and we've taken the first major step by removing the quarantine. The next important step will be reviving the IVS, and while we hope that will happen, we don't know when. Additionally, we need to see other provinces open beyond Guangdong. The financial impact of lifting the quarantine is minimal without the IVS revival. After Guangdong, it will help, but we still need other provinces to reopen as well. Therefore, comparing the period you mentioned with today is not particularly useful; it's quite different now. We’re left with non-expired IVS visas, which are decreasing, making the impact negligible. The financial results from victory are solid, and once the IVS is reinstated, and more importantly, once we get beyond Guangdong, we remain optimistic about the potential. We are strong believers in the pent-up demand theory and confident that our business will recover well. However, I cannot, nor can anyone else, provide a specific date for this revival—it could be next month, in the fall, or later. We need to be patient and committed, and I truly believe the business will bounce back. We'll wait for that day.

Sheldon Adelson, Chairman and CEO

So this is Sheldon. For those who think it will take a few weeks for each step, the waiver of the quarantine upon returning from Guangdong Province might take two weeks, and then they will open another province, doing it gradually until most or all provinces are open. The Macao government understands that the IVS game is crucial and that we need it. We are also hopeful that this will happen sooner rather than later, but there is no guarantee; it's just our hope.

Joe Greff, Analyst

Great. That's helpful, Sheldon. Thank you. And then sorry to ask the Las Vegas question so early in the queue here. But Rob, can you give us a sense of group and convention activity cancellations, attrition rates for the fall and the rest of 2020, what you're seeing for the first half of next year, and then maybe, importantly, what you're seeing with respect to Las Vegas airlift capacity for the end of this year for October through December? Thank you.

Rob Goldstein, President and COO

Sure, Joe. As you know, we're operating three different businesses: Singapore, Macao, and Las Vegas. Out of these, I have the least favorable view on Las Vegas. The city, along with our company, heavily relies on the return of group, convention, and banquet segments, and I see no signs of that happening in 2020. There's little activity on the horizon; while there may be isolated events, nothing significant is on the way. Las Vegas cannot function effectively without these segments returning. With limited hotel occupancy and perhaps only 50% capacity on weekends, it can't generate revenue. Essentially, we are functioning like a regional casino that depends on business traffic. Airlift capacity is around 40% of what it used to be, and occupancy levels are much lower than before. Thus, we are facing serious challenges in Vegas. Looking ahead, I am not optimistic about the group and convention sectors. Even if a vaccine comes or the situation eases, I believe the recovery of large group business will be the slowest, as younger, tech-driven individuals are generally more hesitant to travel. In my view, we can expect zero meaningful return of group and banquet business for the rest of the year, with maybe a few exceptions. I don’t want to make predictions for 2021 because I lack enough information about the vaccine or the virus and cannot forecast future developments. However, I have to honestly say that Las Vegas is in a tough position. Unlike Macao, where there is a strong belief that recovery will happen much quicker, especially this fall, Las Vegas is reliant on airlift and group and convention traffic. It’s no longer a market driven by casinos. We are really struggling. I believe this experience reflects not only the situation at the Venetian and Palazzo, but likely for other properties as well. It's a stark contrast from our previous performance of $0.5 billion a year when everything was operating smoothly. Today, it's a painful experience, and I anticipate that this pain will continue into the near future. I think 2021 could be a turning point, but that will depend on perspectives regarding the virus and vaccine situation. I also want to caution that large-scale businesses, like ours, may face the greatest challenges in terms of customer return. In all my years in Las Vegas, I have never felt more pessimistic about the immediate future, although I hope for a better long-term outlook.

Joe Greff, Analyst

Thanks, Rob, thanks, Sheldon.

Operator, Operator

Your next question is from Robin Farley from UBS. Your line is open.

Robin Farley, Analyst

Great. Thanks very much for taking the question. On last quarter's call, you had expressed some interest in potential M&A activity. And I just wonder what your current thoughts on that are? Thanks.

Patrick Dumont, CFO

Rob, do you want to take that one? Yes, sure.

Rob Goldstein, President and COO

Please. So as we've said, as a consistent theme over the last quarters, we're very focused on returns. Our Chairman is a very returns-focused guy. And I think his mandate has always been to maximize those returns. And I think you heard him on the last earnings call, and he's here today, so we'll probably have some additional commentary. You mentioned M&A, but I think that was done in the context before the benefit of the massive government stimulus programs were seen. And there was a belief that there might be an opportunistic way to take advantage of the environment and capitalize on great assets that could be purchased perhaps below replacement cost or perhaps in a cyclical trough where the acquisition could make our required returns work. And I think in this environment, given where we are today, there aren't a lot of those opportunities available. That being said, I think we'll continue to look. I think we have an opportunity if something comes around, and we'll continue to keep our eyes open. But at this point, we're still very returns-focused. I think we're not going to be an M&A driven shop. But at the same time, if something comes up that's incredibly compelling; I think we'll be happy to take a look at it.

Robin Farley, Analyst

Thank you for that. I have a follow-up question regarding the impact of the pandemic. Do you expect that the concessions in Macao will be extended for another year, potentially delaying the entire rebid process? Is this something that seems likely or has it been communicated to you in any way?

Rob Goldstein, President and COO

Robin, it's Rob. Nothing has been communicated by the government whatsoever. We will remain waiting for their advice and counsel. As of this time, nothing has been said about extension or timetables.

Robin Farley, Analyst

Okay, great. Thank you very much.

Sheldon Adelson, Chairman and CEO

I want to bring up something from two questions ago. The withholding of the groups, the non-attendance of the groups is both the state and a federal requirement. The state and the federal could say, you can't have a gathering of any more than, say, 50 people. You can't have conferences and trade shows with gatherings prohibited of more than 50 people. So we have to wait until the state and federal government opens the door for that.

Operator, Operator

Your next question is from Carlo Santarelli from Deutsche Bank. Your line is open.

Carlo Santarelli, Analyst

Hey guys, thank you very much. Rob, on the last call, you talked a little bit about the cadence of how provinces would come online, and I was just wondering if anything has changed with respect to your, you talked about being a staggered province-by-province, IVS, kind of release, so to speak, or if there's anything further beyond Guangdong. I know you touched on it a little bit earlier, but is it still your expectation that it will be a staggered process?

Rob Goldstein, President and COO

Yes. Again, I don't have the insight beyond what it's all hearsay. Just be clear, we're not getting official words from the government. But the consensus among those who seem to understand how the government thinks about this is, obviously, we're much more careful than we are here in the U.S.; the tolerance is much lower for the spread of the virus. But what we hear from various sources is that the IVS, when it happens, will stay limited to Guangdong. And then the eventual movement into other provinces will be gradual throughout the course of the fall. That's what we're being told. It won't be a green light and all things open up one time. I think they're going to do it very orderly, and you see that with the quarantine. I think the IVS will be the next issue whenever that happens, hopefully sooner rather than later. But yes, I believe it's staggered throughout the fall, perhaps even beyond the fall. But I've never even said this will be lights go on one day, and boom, China opens up to Macao. We've never heard that from anybody, and we've heard from a lot of people.

Sheldon Adelson, Chairman and CEO

Rob, I'll give it a try.

Rob Goldstein, President and COO

Yes, please go ahead, Sheldon. If you want more insights, bring it on. We're optimistic about Macao; I believe among all the places we operate, Singapore is somewhat central while Vegas is more established. However, Macao holds great potential, and we're eager to witness its revival, but we need to be patient and wait for the right moment. As you know, this is the best regional market in the world. It's not reliant on air travel—only 10% of customers come from air, the rest arrive by sea and land. It's interesting how accessible Macao is by land and sea, rather than by air. In general, regional markets tend to recover more quickly, and I think Macao will follow that trend. Once the restrictions are lifted, I expect a surge in visitors who won’t need planes. They'll require social distancing on flights. This is a significant advantage for Macao, especially when the governments feel ready to open the borders. Next question? I'm sorry.

Carlo Santarelli, Analyst

I just wanted to ask about Marina Bay Sands. When everything is functioning well, it really generates significant cash flow. However, given the current limitations due to social distancing and the challenges with air travel to Singapore, do you believe the property can reach a breakeven point soon? I noticed in your presentation that the operating loss was around $65 million a month. Considering the recovery of development activities, is it feasible for that property to move closer to breakeven in the near future?

Rob Goldstein, President and COO

Yes, it is. We are hopeful. Just to clarify, the casino is currently open. However, we do have limitations with only 300 live table games and 1,500 slot ETGs available. We expect to regain all that by the 27th of this month. The market is affected by airlift, as it operates as a hybrid market with significant local business due to the many affluent foreigners living in Singapore. We are fortunate to have a strong foreign clientele who have permanent resident status. That said, we would like to see an increase in airlift and hope for Malaysia's reopening. In answer to your question, we feel very lucky and fortunate about the current situation in Singapore. The casino is attracting customers, and our occupancy has been largely driven by the casino, making for a strong occupancy month, with some cash demand coming from staycations by Singaporeans. The border remains closed to Malaysia, except for a few essential business travelers. While Singapore faces challenges, it is still able to generate revenue and is on track for a nice turnaround. We are grateful that Singapore is returning to normal and is currently our best prospect, significantly better off than Las Vegas. However, to reach the property's maximum potential of $1.6 billion or $1.7 billion, we need to see airlift return and the casino fully operational. Still, we feel positive about the developments in Singapore. We are thankful for being operational and seeing customers again, and we feel optimistic about the future.

Carlo Santarelli, Analyst

Thank you very much, guys.

Operator, Operator

Your next question is from Shaun Kelley from Bank of America. Your line is open.

Shaun Kelley, Analyst

Hi everyone. Rob, maybe just a follow-up on Singapore. I mean I think it's a little harder for us to track just some of the local policies in that market about the reopening and what needs to be done in the airlift side. So, anything you could point to as it relates to either agreements on creating local travel bubbles, be it Malaysia or China? And could you just remind us of what are the key source markets that you really need to see open up to make that property look a little bit more like normal?

Rob Goldstein, President and COO

Yes. The first thing we need is the airlift, which I currently cannot provide much insight on. I hope it improves, but I don’t anticipate airlift being beneficial for the Singapore property for the remainder of this year. The market appears to be largely confined to Singapore itself. There is a possibility that Malaysia could open up since they have controlled COVID, implementing similar measures to Singapore. Due to the relationship between the joint venture board and both countries, there may be a chance for some limited leisure travel to Malaysia in the fourth quarter. I do not see Indonesia opening up, although there is speculation about potentially launching some business routes through China, which isn’t happening right now. Nevertheless, we are fortunate to have a wealthy clientele of foreign residents in Singapore, and I expect positive results from Singapore in the fall. However, I do not foresee a significant amount of air traffic or foreign visitors to Singapore for the next four to five months.

Shaun Kelley, Analyst

Great. Thank you. And just as my follow-up, as it relates to Las Vegas, obviously, one of the biggest questions we get is on the corporate and convention side across the whole global hotel business. And I was curious, as you talk to some of the bigger convention and groups or you break down your own business, just any thoughts about some sort of structural change as it relates to any of that activity? I mean, there are so many barriers that it’s really hard for people to probably extrapolate too much right now, but just any thoughts you have about just demand levels more permanently changing due to conference calls and activity levels or just how do you think about that?

Sheldon Adelson, Chairman and CEO

No.

Rob Goldstein, President and COO

We'll get first Sheldon on that.

Sheldon Adelson, Chairman and CEO

Thank you. This is Sheldon. Having been in that business in the conference and trade show business for 40 years, I could tell you that there are different constituencies. There are associations that run the events; there are private entities that run the events, and there are companies that run their own events. One of our biggest customers is a company that brings several big conferences to our properties in Las Vegas during the course of the year. They can't give up on that. The fact that people are working from home and communicating from home is never going to give up on the trade show business, to meet people, to do research, to do recruitment, to announce to make announcements and product introductions. There won't be a substitute for that.

Shaun Kelley, Analyst

Thank you.

Operator, Operator

Your next question is from Felicia Hendrix of Barclays. Your line is open.

Felicia Hendrix, Analyst

Hi, thank you so much. First, just wanted to touch on your CapEx. It looks like spend on the London Hotel seems to have been pushed out. So I was wondering if you could walk us through that.

Rob Goldstein, President and COO

From the timing of the financial side? What do you want to hear? Patrick will take you through the financial side. On the timing, we are moving quickly on getting it completed, Felicia. It'll be pretty much done. Four Seasons done this fall. Londoner done interior-wise Q1 of 2020, but a lot more work on exterior-wise and there's other pieces to be done. We're going as fast as we can with the constraints of COVID. We've not pulled back in terms of trying to get it done. We're not holding back; we just have some constraints construction-wise, but perhaps Patrick will take you through the financial side.

Patrick Dumont, CFO

There are a few key updates to share. We have completed the Grand Suites at Four Seasons, and the London hotel, which has 580 suites excluding some high-end suites, is also finished. By the end of the year, we will complete the Londoner Macao, which features 368 suites along with gaming and dining options. The main gaming level at the Londoner casino will be ready, and we will finalize the high-end suites there. Additionally, we will enhance the entrance with the Crystal Palace space and add 10 new restaurants. Throughout the rest of 2021, as shown in the CapEx schedule on Page eight of the presentation, we will work on external developments including sharing spaces like Big Ben, retail areas, and other public spaces. The changes in our CapEx are primarily related to permitting, but from a customer perspective, the project timeline remains on track.

Felicia Hendrix, Analyst

Okay. So the $100 million shift from '21 and then the roughly $700 million shift from '22 that you would say most of that's permitting and maybe some COVID-related delays?

Patrick Dumont, CFO

That's right.

Felicia Hendrix, Analyst

Okay. Helpful. Regarding Vegas, we may have completely miscalculated this, but you provided the cash burn for the property. Even with that knowledge, you still performed better than we anticipated in terms of costs. We are all noticing significant negative figures, so we need to consider that. I am curious if there was anything unexpected in Vegas that allowed you to offset the lower revenues or if there were any developments during the quarter that you hadn't anticipated.

Patrick Dumont, CFO

I will take the different side of that. I'll turn it over to you. So as they kind of look at Page 5, it's really a near-0 revenue scenario. So when we're making revenue, we're actually able to benefit a little bit. So that's what you saw in Las Vegas. And so we were able to take some costs out of the business as we continue to focus on costs. As a team, we've been very focused on trying to reduce costs across all of our jurisdictions during this time. And we were able to make certain headway in Vegas. But as a practical matter, it's really just based on the revenue that we achieved during the quarter.

Felicia Hendrix, Analyst

Yes. It seems like we're just going to increase our efforts to reduce costs, so thank you.

Operator, Operator

Your next question is from Stephen Grambling from Goldman Sachs. Your line is open.

Stephen Grambling, Analyst

Thank you for the question. I was hoping you could provide more insight into margins in Macao. Considering you anticipate some pent-up demand in the market, how are you generally assessing marketing and/or lending strategies to encourage customer return? Additionally, what is your perspective on the health of the junkets as we prepare for a potential recovery?

Rob Goldstein, President and COO

I believe that the strategy for the market is simply to open the doors and let the customers in. I am quite confident that the pent-up demand will address much of our marketing needs. We do not believe there is a necessity to provide incentives or make significant changes from our previous approach. Macao has a vibrant market, especially once restrictions are lifted. Therefore, I don't think there's a need for incentives or different strategies. It's just about opening the doors and letting the demand flow in. Regarding junkets, it remains uncertain what will happen there. There have been various issues reported in the media and discussed thoroughly. The future direction of junkets and the demand they will generate is still unclear. While this view may be unconventional, I believe that the average customer and the mass market will return strongly right from the beginning. We'll have to let the market determine the level of customer demand and the extent to which junkets choose to engage. This aspect still raises questions for me. However, I am very confident that this market does not require external stimulation; it simply needs to reopen and welcome back customers, and I eagerly anticipate that moment.

Stephen Grambling, Analyst

That's great. And as you learn from ramping down, I guess for the change in demand, are there things that you maybe will keep holding back as it relates to costs that could influence margins versus where they used to be on the recovery?

Rob Goldstein, President and COO

I believe there is potential for growth. Once demand starts to show, we can make informed decisions about how robust that recovery is. It's important to focus on executing our strategy in Macao, as we have a unique advantage; Chinese customers lack options when it comes to traveling to the U.S. or Europe. Therefore, even with Singapore's presence, Macao is likely to become increasingly attractive for Chinese visitors. I don't want to analyze the market too deeply until we see the demand and understand customer behavior, as this will drive our decision-making.

Patrick Dumont, CFO

So just one comment on the margin structure, if you think about the run rate business prior to COVID, more than 60% in Macao of our expenses were really variable, gaming taxes and sort of things related to the activity of the business. And so when you think about our controllable operating expenses, we have taken costs out of the business, but the margin structure you should expect is going to be related to the mix of business more than it is on the incremental costs we've taken out. So if we can start achieving the premium mass business that we think we can achieve with the opening of the Londoner and the Four Seasons and grow that business with this new product that is incredibly compelling, the margin structure will improve just because it will overweight towards this high-value customer. So I think I'd like to believe in the long run that the base mass business comes back and the premium mass business comes back, and we get this volume that takes advantage of some of the benefits that we've had in the margin structure. But the long run rate margins should look similar to what we've done in the past, assuming the business returns to normal.

Stephen Grambling, Analyst

Super helpful. Thanks so much.

Operator, Operator

Your next question is from Thomas Allen from Morgan Stanley. Your line is open.

Thomas Allen, Analyst

Thank you. So you obviously have one of the leading mall portfolios in the world. Can you just update us on your conversations with the tenants, both in terms of rent payments and renewals? And just help us think about that for the future.

Rob Goldstein, President and COO

Patrick, you're right. What do you want to discuss?

Patrick Dumont, CFO

Why don't you start, and I'm happy to add if there's anything that's helpful.

Rob Goldstein, President and COO

I believe we have made significant progress with our retail portfolio, which is a key component of our business. We are optimistic that it will recover strongly in Asia. MBS has already begun to pick up, while Macao is still lagging behind. We have put considerable effort into building strong relationships with our tenants in both regions, implementing rent reductions as necessary. We will adopt a wait-and-see approach once more. Our tenants have been proactive in collaborating with us, engaging in fair and open discussions about the future. I anticipate that their recovery will mirror the demand for casino hotels. As Singapore continues to strengthen, we are seeing tenants returning. However, business has not been as robust as we would have liked compared to Orchard Road, but we are starting to see improvements now that the hotel is operational. We manage over 200 tenancies in Singapore and about 800 in Macao, addressing each one based on market conditions. Unfortunately, there have been some losses due to the shutdown, and we need to assess demand before renewing base rents and percentage rents. Nevertheless, I believe we will see a quick return to normalcy in both markets. The recovery patterns will resemble those on the gaming side. It may take a bit longer in Singapore due to the local retail market situation, especially without airlift, whereas Macao should bounce back more swiftly once the borders reopen.

Patrick Dumont, CFO

We've spent considerable time with our tenants to support them during this unprecedented period, aiming to help them resume trading when the recovery discussed by Rob occurs. From our perspective, the mall is a vital asset essential to our customers' experience. We maintain relationships with some of the world’s leading brands, including those in Asia, and we are committed to ensuring the continuity of these relationships by assisting them in their recovery efforts.

Thomas Allen, Analyst

Helpful. Thank you. And then, respecting that your Asian properties aren't as MICE intensive as your Vegas properties, it does seem like there are some signs of recovery in group business in Asia. Are you seeing that in the bookings heading into 2021 through Singapore, Macao properties at all?

Rob Goldstein, President and COO

We're noticing some activity, particularly in Singapore, which we view as a starting point. While there is demand in Singapore, potential customers are hesitant to make firm commitments. We are receiving inquiries and there are some bookings, but with the option to cancel within 90 days if demand doesn't materialize. The situation varies by group type; corporate events differ significantly from larger groups that require many attendees. Currently, it seems that people are testing the waters. However, travel restrictions to Singapore complicate making substantial commitments, especially for larger groups. It's primarily a Singapore-driven market at this moment. I believe it's premature to discuss 2021 in Singapore with so many uncertainties. The same goes for Macao, which also has a short booking window. The strong gaming demand in Macao poses a challenge, as it reduces the need for MICE business and limits the number of rooms available for large groups. Our competitors are unlikely to engage either. Therefore, it feels unjust to speculate about Singapore's future without clarity on travel availability. While there are inquiries and conversations happening, most people are uncertain about logistics such as how and when they can arrive. It remains too early to make definitive calls on this situation.

Thomas Allen, Analyst

Thank you.

Sheldon Adelson, Chairman and CEO

Thanks, Thomas.

Operator, Operator

Your next question is from Jared Shojaian from Wolfe Research. Sir, your line is open.

Jared Shojaian, Analyst

Hi, good afternoon, everyone. Thanks for taking my question. Can you just talk about what's changed over the last few months in terms of your thinking on Japan? And then I guess going back to the M&A topic. I mean, have you had any inbound calls, any substantive discussions with anyone? And in your slide deck, you list Macao, Singapore, and South Korea as areas of potential development interest. Are you kind of agnostic to location? Are you more focused on the return? I mean, how are you sort of thinking about that?

Rob Goldstein, President and COO

I believe no one was more eager to engage in Japan than Sheldon and our team. We were very optimistic about Japan, investing significant time and resources, but the market conditions simply were not conducive for the kind of returns our company expects. We made every effort to succeed there and unfortunately couldn’t make it happen. We dedicated countless hours and funds to pursuing opportunities in Japan, and it’s disappointing that we couldn’t remain. We hoped for a more investor-friendly environment, but that was not the case. I am confident in our decision. Shel has been a strong advocate for our business there for many years. While we are all disheartened by the situation in Japan, the economics just didn’t align. We are eager to invest, and when conditions improve, especially in Asia, we’ll be looking for opportunities in Korea and other nations. We want to invest, but it must be in the right environment, in a country that welcomes our investment and supports the model that Sheldon has developed. It’s a distinct and capital-intensive approach that requires a government willing to understand these investments and the importance of returns. We are continuously exploring possibilities in Asia and are enthusiastic about moving forward.

Sheldon Adelson, Chairman and CEO

The regulations set by the Japanese government were not favorable for attracting the necessary investment. The high costs of construction and land in Japan did not make the investment justifiable compared to other regions. Even if the costs dropped to $3 billion or $4 billion, it likely wouldn't change much because of certain rules, including the requirement for operators to withhold taxes from foreign winners. If someone from another country wins, the government expects the operator to pay those taxes to Japan, which would discourage foreign investment. The tax structure included a 30% gaming tax and a 30% income tax, with no guarantee that tax rates wouldn't increase. There were simply too many unfavorable regulations for us to proceed. However, if there are changes, we are open to revisiting the opportunity.

Jared Shojaian, Analyst

Okay. Thank you. It's very helpful. And then just going back to Las Vegas, realizing it's obviously a much smaller piece of your business, but can you talk about what type of customer you're seeing initially; would say it's primarily a lower-yielding drive-to customers? Anything you can share there? And is there a revenue percentage you need in order to get to breakeven?

Rob Goldstein, President and COO

We need to attract more customers, especially mid-week, where hotels are operating at significantly low occupancy rates. Currently, we see a 20% to 30% occupancy during the week and 50% to 60% on weekends, which is not sustainable. The influx of customers relies heavily on our market reach, especially internationally and within the U.S. Despite this challenge, our marketing team has successfully brought in a strong, high-yield customer base using our airplanes and marketing lists. There is notable demand in the high-end segments of both slots and tables, and a substantial number of players have visited us. However, it takes various segments to achieve the half a billion dollars in revenue we generated in Las Vegas last year. The absence of convention business and low mid-week yields hinder our performance. While we are seeing some strong FIT demand, the overall numbers reflect a reliance on this segment. Our performance in slots and table yields may surprise you, but we are struggling with driving business in the lower demand gaming side. Las Vegas has transitioned to a hospitality-focused market, which many operators seem to misunderstand. The lack of full hotels, convention-driven mid-week rates, and banquet business significantly impacts our model. With nearly $200 million in banquet sales and excellent margins, it is challenging to operate under the current conditions, which I believe is true for the entire market. Running large-scale buildings requires more than just gaming wins, especially with occupancies of 30% to 40%. While we can generate profits on weekends, we typically see losses mid-week, which is a common scenario. Our success historically in the convention and banquet segments has driven business, yet with current occupancies, it's not feasible to run a hotel or rely on high rollers like before. The landscape in Las Vegas has changed significantly. The multi-billion-dollar properties are built on the diversified approach pioneered by Sheldon 20 years ago, moving away from strict reliance on gaming. Improvement in the airlift for groups and comfort in returning to banquets is crucial, and until then, we anticipate challenges. We remain optimistic that conditions will improve, but currently, the market is tough.

Jared Shojaian, Analyst

Okay. Thank you very much.

Operator, Operator

We're now down to our last question of the day from David Katz from Jefferies. Your line is open.

David Katz, Analyst

Hi, good morning. We all may have our own beliefs about why the demand will be present once access is available. Can you discuss any discussions you've had or data you've gathered that supports your conviction that demand will be there, as many of us believe?

Rob Goldstein, President and COO

Are you talking about, David, Macao?

David Katz, Analyst

Yes, in Macao.

Rob Goldstein, President and COO

I have been visiting Macao for nearly 40 years, and I believe anyone who has experienced it would share my views. There are several reasons for this conviction. First, the interest in gambling remains incredibly high. Second, Macao is an alluring destination, offering high-quality retail, dining, and accommodations, along with vast and diverse casinos. It's easily accessible, and currently, other travel options are limited for many, particularly affluent Chinese individuals. Macao has become an increasingly attractive place to visit. When I first went in the 1980s, it was a different setting, but by 2019, it had transformed into a realm of luxury, food, entertainment, and shopping that appeals to tourists. I am confident that when restrictions lift, there will be a resurgence in development in Macao. The key concern is whether the economy has impacted consumers' gambling capacity, which is up for individual interpretation. However, I believe the demand will return strongly and quickly. Additionally, the ongoing pandemic situation in the U.S. presents challenges; people here find the safety measures strange and confusing. In Asia, however, people are accustomed to wearing masks and managing the virus, making them more comfortable in this environment. This familiarity reflects positively on the prospects for Macao. I am optimistic that once travel restrictions ease and the border reopens, the tourism sector will rebound rapidly, catering to various market segments. There are two points to consider: the uncertainty surrounding the junket business and whether consumers have sufficient disposable income to spend. I believe they do. I feel very positive about Macao's future and look forward to seeing this sentiment validated. While this is my perspective, many others who have frequently visited Macao share the same outlook.

David Katz, Analyst

I agree that Macao is much more exciting than Walgreens. I would like to know if you are discussing what the new normal will look like or any changes in the business that might involve costs or not, and I would appreciate your updated perspective on that.

Rob Goldstein, President and COO

I think the situation in the U.S. will resemble many aspects of what we've seen before. We will see people wearing masks, undergoing temperature checks, and experiencing thorough cleaning procedures. However, this has been a standard practice in Asia for years, especially since the SARS outbreak. One of the most interesting observations I had in Macao was about the smoking rooms. Initially, there was concern that smoking would harm the market, and many believed it would deter visitors. However, I found it amusing that people took advantage of the smoking room, continuing to enjoy their experience while engaging with each other. Gambling wasn't negatively affected, and consumers in China have shown that they are willing to accept certain risks, like wearing masks and adhering to social distancing measures. This could have an impact on table counts and occupancy levels, which may be a challenge. Fortunately, we have many table games and slot machines available. I believe there may be some effects, especially on busy weekends when we reach full capacity. However, I'm ready to tackle those challenges when they arise.

David Katz, Analyst

All right. Thank you for taking my questions.

Rob Goldstein, President and COO

Thank you. Appreciate it.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.