Venetian megaresort headed toward profitability

David Strow

Thursday, March 16, 2000 | 11:25 a.m.

Buoyed by strong growth in the first two months of 2000, Venetian officials predict the $1.5 billion resort will cross into profitability this quarter.

"We would certainly hope so," said Bill Weidner, president of the Venetian. "Our March indicators are very strong. Barring some unforeseen change of luck, we'd hope to see (profitability) happen in the first quarter.

"We would see ourselves crossing over into profitable territory."

The Venetian has not posted a profit since opening May 4, 1999. Crossing into the black would be a key accomplishment for the resort, which has seen its bonds fall in price over the past 10 months.

It would also be critical to the Venetian's long-term plans to add a second, 3,000-room tower to the resort. In February, Venetian owner Sheldon Adelson said he hoped to start construction on the expansion by fall, at a cost of $800 million to $1 billion.

"Phase 2 is to a great extent already designed," Weidner said. "We will not be talking of Phase 2 until we display to the market that Phase 1 works. We are well on our way to doing that, but we are focused totally on maximizing Phase 1 performance.

"With performance as strong as we're experiencing, the time table could conceivably move up. But the (bond) markets will really tell us when it's time."

During the fourth quarter of 1999, the Venetian posted a net loss of $6.8 million, a $11.4 million improvement over its third-quarter loss. These earnings caused the Venetian's bonds to begin to stage a comeback -- the resort's senior mortgage notes now trade between 92 and 94, up from the low 80s in January.

"The numbers have been a lot better lately," said Deutsche Banc Alex. Brown gaming analyst Andrew Zarnett. "But they can't let up, given their leverage position. What bondholders are looking for is continued steady performance.

"The hard part for these guys will be moving into summer, when convention traffic drops ... sustaining the type of profitability they're able to generate when they post strong (average revenue per available room)."

The Venetian posted cash flow of $33 million to $35 million during the first two months of 2000 -- exceeding the resort's cash flow for the entire fourth quarter of 1999. Cash flow growth, rather than profitability, will be critical to bondholders, Zarnett said.

The cash flow figures do not include results from the Venetian's Grand Canal Shoppes, owned by a separate subsidiary of the resort. In the quarter ending Dec. 31, the Venetian posted cash flow of $33.9 million, up 61 percent from the previous three months.

Weidner credits the final completion of the Venetian in December and a strong Chinese New Year's for the growth.

"Some of the merger processes happening really kind of loosen the market up," Weidner said, referring to merger talks between Mirage Resorts Inc. and MGM Grand Inc., the two largest players in the high-end market. "(High rollers) look for alternatives. Being the new kid on the block ... some of that disruption really drew to our benefit. We were able to pick up some good high-end customers."

February occupancy was 97 percent, up from 88 percent in January and 83 percent in the fourth quarter of 1999. The resort posted an average daily rate of $183 in January and $185 in February.

"The Venetian is running historically high average room rates, unheard of in Las Vegas," Weidner said.

The Venetian posted substantial increases in casino operations as well. Slot handle rose from an average of $122 million per month in the fourth quarter to $153 million in January and $150 million in February. Table-game drop increased from about $60 million per month in the fourth quarter to $92 million in January and $122 million in February.

Total monthly revenues at the Venetian reached $54.5 million in January and $56.1 million in February, up from an average of $39.6 million a month during the last three months of 1999. Total daily revenue per available room -- a measure of total spending and gambling activity by hotel guests -- was $579 in January and $637 in February. Total daily revenue per available room in February was up 49 percent from the fourth quarter of 1999, and up 62 percent from the third quarter.

Attendance at the Sands Expo and Convention Center, connected to the Venetian, is expected to reach 1.22 million in 2000, a 13 percent increase over 1999. About one-half of the Venetian's rooms are sold to convention attendees.