Las Vegas Sands Reports Record Q1 Results
Net revenue for the first quarter of 2006 increased 31.3% to a record $530.4 million compared to $403.8 million in the prior year's quarter. Adjusted net income for the first quarter of 2006 improved to $134.8 million, or adjusted earnings per diluted share of $0.38, versus adjusted net income of $103.1 million, or adjusted earnings per diluted share of $0.29, in the first quarter of 2005. (*) Adjusted net income and adjusted earnings per diluted share in the first quarter of 2006 exclude loss on disposal of assets, pre-opening expense, development expense, and certain stock offering costs. Adjusted net income and adjusted earnings per diluted share in the first quarter of 2005 exclude loss on disposal of assets, development expense, charitable contributions, and loss on early retirement of debt. On a GAAP (Generally Accepted Accounting Principles) basis, net income in the first quarter of 2006 was $121.8 million, or $0.34 per diluted share, compared to $7.1 million, or $0.02 per diluted share, in the first quarter of 2005, when net income was affected by a significant loss on the early retirement of debt.
Consolidated adjusted property EBITDAR in the first quarter of 2006 came in at a record $204.5 million, an increase of 23.0% compared to $166.2 million in the year-ago quarter. Operating income improved significantly to $148.9 million versus $125.3 million in the first quarter of 2005.
"The first quarter of 2006 was another record earnings quarter for our company," began William P. Weidner, president and COO. "We delivered outstanding results at both our Las Vegas and Macao properties. And we continued to execute our development plans for The Palazzo in Las Vegas and for both The Sands Macao and The Cotai Strip(TM) in Macao, as we lead the historic effort to create Asia's Las Vegas(TM)." In addition, we identified and progressed on a series of additional growth initiatives designed to enhance our strategic position, and are in the process of completing a $2.5 billion credit facility to support our development plans in Macao."
Las Vegas First Quarter Operating Results
In the first quarter of 2006 in Las Vegas, table games drop increased 17.6% to $363.5 million versus $309.1 million during the first quarter of 2005. Slot machine handle (volume) increased 5.0% to $529.5 million versus $504.4 million during the first quarter of 2005. Casino revenues were $97.1 million in the first quarter of 2006 compared to $94.7 million a year ago, an increase of 2.5%. Table games win percentage (calculated before discounts) was 22.1% in the 2006 quarter compared to 23.8% in the first quarter of last year. This compares to our expected range of 20% to 22%.
The Venetian's average daily rate (ADR) was $249 during the first quarter of 2006, compared to $243 in the first quarter of 2005. The Venetian's occupancy of available guestrooms was 99.9% during the first quarter of 2006, which compares to 97.8% during the prior year period, generating revenue per available room (REVPAR) of $248 in the 2006 period, an increase of 4.6% versus $237 in the 2005 period. Hotel revenues were $89.6 million during the first quarter of 2006 compared to $85.4 million in the first quarter of 2005.
Food and beverage revenues were $43.3 million in the first quarter of 2006 compared to $35.3 million in the 2005 period, an increase of 22.7%. Convention, retail, and other operating revenues were $34.2 million in the quarter compared to $27.3 million in the quarter last year, an increase of 25.3%.
On a GAAP basis, operating income for our Las Vegas operations was $79.3 million versus $80.8 million in the 2005 period. Adjusted property EBITDAR from our Las Vegas operations was $101.1 million. This compares to $98.4 million of EBITDAR from Las Vegas operations for the first quarter of 2005, an increase of 2.7%
"We are seeing the benefits of our targeted capital investments at The Venetian," noted Weidner. "The recent addition of 450,000 square feet of carpeted meeting space continues to fuel increases in group business and related food and beverage revenues. Our casino business was also strong, as both table drop and slot handle reflected healthy increases compared to the quarter one year ago. Our Blue Man Group Theater, Tao restaurant/night club and new Poker Room, which opened last month, are driving incremental visitation to the property, and we expect our new promotion of Phantom of the Opera -- The Las Vegas Spectacular to contribute additional visitations when it opens in June.
"Looking further ahead, construction of The Palazzo remains on track for a third quarter 2007 opening. Upon completion, the Venetian and Palazzo together will encompass the largest integrated destination convention resort in the world, with over 7,000 hotel rooms, 1.1 million square feet of carpeted meeting space, and 1.15 million square feet of convention space. We believe this property will provide an excellent platform for growth in Las Vegas for years to come."
Macao First Quarter Operating Results
In Macao, first quarter casino revenues increased 62.7% to $278.2 million versus $171.0 million in the 2005 period. The Sands Macao reported record adjusted property EBITDAR of $103.4 million for the first quarter of 2006 compared to $67.8 million in the first quarter of last year. On a GAAP basis, operating income in Macao was $90.1 million for the first quarter of 2006, an increase of 48.9% compared to $60.5 million in last year's first quarter. Table games drop (the Non-Rolling Chip segment) was $1.06 billion in the first quarter of 2006, reflecting a year-over-year increase of 23.8% versus $855.4 million in the first quarter of 2005. First quarter 2006 Rolling Chip volume was $3.70 billion, compared to $855.7 million in the first quarter of 2005.
Non-Rolling Chip table games win percentage (calculated before discounts and incentives) came in at 18.6% in the first quarter of 2006, while Rolling Chip table games win percentage (calculated before discounts and commissions) was 2.5%. These results compare to our expected Non-Rolling Chip table games win percentage (calculated before discounts and commissions) of 17% to 19% and Rolling Chip table games win percentage (calculated before discounts and commissions) of 2.5% to 2.8%.
Slot handle (volume) for the first quarter of 2006 was $247.0 million, representing a 78.3% increase versus $138.6 million in the first quarter of 2005.
The substantial increases in revenues and operating income in Macao reflect robust market demand and capacity increases at The Sands.
Weidner stated, "We are continuing to make progress in Macao at all levels. We are particularly pleased with the continued strength of our mass market business. Despite significant increases in capacity in the Macao marketplace, our win per unit per day over the last twelve months has continued to increase. Looking ahead, we are preparing for the opening in May of an expansion to our Sands' Paiza Club, which will increase VIP gaming capacity, and we are on track for the completion and opening of the remainder of our Sands Macao expansion in August 2006. When the expansion is complete, The Sands Macao will have approximately 700 tables and 1,200 slot machines."
Other Factors Affecting Earnings
Interest expense, net of amounts capitalized, was $21.4 million for the first quarter of 2006 compared to $27.1 million during the first quarter of 2005. The decline is the result of the company's strategic decision to retire $850.0 million of 11% Mortgage Notes, which were replaced during the first quarter of 2005 with a combination of senior notes bearing interest at a rate of 6.375% and lower cost bank debt, and the redemption during the second quarter of 2005 of $120.0 million of floating rate notes which were secured by assets at The Sands Macao. Capitalized interest was $8.3 million during the first quarter of 2006 compared to $4.1 million during the first quarter of 2005.
Depreciation and amortization expense was $25.0 million for the first quarter of 2006, compared to $20.0 million for the first quarter of 2005.
Stock-based compensation expense was $2.9 million in the first quarter of 2006. We recognized no stock-based compensation expense in the first quarter of 2005.
Development expenses relating to our efforts in Singapore, Macao, Pennsylvania, Europe and elsewhere were $9.2 million in the first quarter of 2006, compared to $5.2 million in the first quarter of 2005. The increase of $4.0 million was principally related to our efforts in Singapore.
The effective tax rate for the first quarter of 2006 of 11.7% is lower than the United States federal statutory rate due primarily to a zero effective tax rate on our Macao net income as a result of an income tax holiday on gaming operations through 2008.
Balance Sheet Items
Unrestricted cash balances at March 31, 2006 stood at $317.3 million while restricted cash balances were $690.6 million. Of the restricted cash balances, $577.4 million is restricted for construction of The Palazzo Resort Hotel Casino, the company's second resort hotel casino property in Las Vegas.
As of March 31, 2006, total debt outstanding, including the current portion, was $1.69 billion.
Capital expenditures during the first quarter of 2006 totaled $294.2 million. This includes $196.0 million for construction and development activities in Macao, $75.5 million for construction and development activities at The Palazzo, and $22.7 million for improvements and maintenance capital expenditures at The Venetian and The Sands Expo and Convention Center in Las Vegas.
Weidner concluded, "While we continue to deliver exceptional financial and operating results, the opportunities that lie ahead are significant and broad-based. Our proven capabilities in the development and operation of integrated destination resorts position us to build and execute on a robust pipeline of growth opportunities worldwide.
"In addition, we recently submitted a proposal for a spectacular $3.6 billion project in Singapore, The Marina Bay Sands. The Marina Bay Sands proposal includes plans for an integrated resort with 2,500 hotel rooms, 1.2 million square feet of flexible meetings, incentive, convention, food and beverage, and exhibition space, one million square feet of retail space, three large entertainment venues, and gaming space which will include our high end Paiza Club.
"We continue to advance our proposal to develop an integrated destination resort in Bethlehem, Pennsylvania, on the site of the Bethlehem Steel Works, about a 90 minute drive away from Midtown Manhattan, and only one hour from the lucrative Northern New Jersey Corridor.
"We remain particularly pleased with the progress we are making in developing 'Asia's Las Vegas' on the Cotai Strip. Importantly, we have reached agreements with a prestigious group of hotel operators that will participate with us in this historic opportunity. Thus far, our hotel partners include The Four Seasons Hotels and Resorts, Starwood Hotels and Resorts Worldwide, which will operate both a Sheraton and a St. Regis hotel, Shangri-La Hotels and Resorts, which will operate both a Shangri-La and a Traders hotel, and Hilton Hotels, which will operate both a Hilton and a Conrad hotel. We are actively negotiating the definitive agreements under which these leading operators will manage hotels and related vacation suites for us on the Cotai Strip.
"Construction of the Venetian Macao remains on track for a summer 2007 opening. We have made additional progress in the leasing of our Macao shopping malls, and now have reached agreement on commercial terms with over 150 retailers for approximately 500,000 square feet of retail space on the Cotai Strip, and we continue to make good progress in the negotiation of the definitive agreements with these retailers. In addition, we have secured a number of commitments from the largest and most important tradeshow organizers in the world and received dozens of tradeshow expressions of interest for our Venetian Macao convention and meeting facility. We have also reached an agreement with Cirque du Soleil to provide them a permanent home, their first in Asia, in our 1,800 seat Cirque du Soleil theatre in The Venetian Macao on the Cotai Strip.
"Looking further ahead in the Macao region, we remain enthusiastic about our strategy to master plan a leisure and convention destination resort on Hengqin Island, which will complement our entertainment developments just a few hundred yards from the Cotai Strip. We have advanced our master plan design activities and look forward to bringing another important dimension of travel and tourism to the region over the long-term. Our Hengqin Island plans remain subject to numerous conditions, including further government approvals."