Adelson covers Venetian’s obligations of $38 million

Gary Thompson

Tuesday, Nov. 16, 1999 | 11:24 a.m.

The Venetian hotel-casino posted an $18.2 million loss for the Sept. 30 quarter, but owner Sheldon Adelson dipped into his own pocket to meet a big debt payment last Friday.

The $1.5 billion Strip resort suffered from abnormally low table-game hold percentages in August and September as well as from construction delays, according to a report it filed with the Securities & Exchange Commission Monday.

As a result, its cash flow equaled just $18.3 million for the third quarter on net revenue of $100.3 million. The company said its operating results should improve in the current quarter, as slot play and room and occupancy rates are trending higher and table-game percentages should return to normal.

Third-quarter casino revenue totaled $52.7 million, room revenue was $35.5 million, and food, beverage and retail sales added up to $22.7 million, the Venetian said. The company spent $10.6 million on promotions, including "comps" awarded to premium players.

The Venetian said it recorded table-game win percentages of 19.1, 12.9 and 17.3 percent, respectively, for July, August and September -- "significantly lower than the company's budget and industry averages."

According to the State Gaming Control Board, the table-game win rate for big Strip resorts was about 14.4 percent in the three months ending Aug. 31.

The occupancy rate for the resort's 3,030 rooms was 85 percent in July and rose to 92 percent in both August and September. The average daily rate rose to $162 in September from $145 in August and $127 in July.

In October -- the first month of the fourth quarter -- the occupancy rate slipped to 89 percent but the average daily rate rose to $184, the Venetian said.

As of Nov. 1, 59 of the 74 tenant spaces in the Grand Canal shopping mall were occupied, and the Venetian said it expects 95 percent mall occupancy by Jan. 1, 2000.

The SEC filing noted that the Venetian has "substantial debt payments due during the next 12 months," including bank and furniture, fixtures and equipment payments of $38.5 million and interest payments of $33 million each due on its mortgage notes on May 15 and Nov. 15, 2000.

"To fund these payments from operating cash flow, the company must achieve improved operating results for its next four fiscal quarters," the filing said.

During the third quarter, Adelson contributed $7.1 million cash to the resort in return for preferred stock paying him 12 percent annually. That raised his preferred stock holdings to $145.3 million.

"Substantial completion" of construction at the Venetian occurred last Friday -- six and a half months after the date called for in a contract with Lehrer McGovern Bovis Inc., which oversaw construction of the resort, the filing said.

The Venetian is seeking more than $50 million in damages from Bovis and its parent company, Peninsular & Oriental Steamship Navigation Co., for the delay. Bovis has countersued, asking for $145 million in cost overruns.

Also on Friday, the Venetian secured waivers from various lenders in return for an unspecified fee paid by Adelson and his agreement that his $25 million completion guarantee would be "unlimited in amount with respect to all construction costs arising from scope changes," the filing said.

Adelson paid about $23.4 million of such costs on Friday and contributed another $15 million in cash for working capital in return for a 12 percent note, raising his cash contribution since Sept. 30 to $38.4 million. The Venetian also paid a $30.9 million debt payment on Friday.

The filing noted that the Venetian has "bonded around" more than $284 million of mechanics liens filed against it by Bovis and other contractors. The bonds, posted last week, freed the resort from the immediate threat of foreclosure.

The Venetian and Bovis dispute who is responsible for paying the lien claimants. The filing said that if the Venetian is deemed responsible, it may seek "additional financing through bank borrowings or debt or equity financing."

"There can be no assurance that additional or replacement financing, if needed, will be available to the company and, if available, that the financing will be on terms favorable to the company or that (Adelson) or any of his affiliates will provide such financing," the Venetian said.