Monday, Feb. 5, 2001 | 11:13 a.m.
Pessimistic about Las Vegas? Not Sheldon Adelson.
Despite fears of a downturn in the Las Vegas gaming market, the chairman of Las Vegas Sands Inc. is as bullish as ever about his two-year-old resort, the Venetian. To prove it, Adelson said Friday he now plans to break ground on Phase 2 of the Venetian -- a 3,000-room, $800 million to $900 million second resort hotel -- by early 2002.
This expansion, which Adelson expects to take no more than two years to build, probably will not be the "Lido" project that was expected. Though the property will be a high-end property of the Venetian's caliber, Adelson said it's unlikely to be an extension of the Venetian theme.
"We're talking to our architects," Adelson said. "It might be something substantially different. It's going to be difficult to better one of the 10 grandest hotels in the world."
This project will come in addition to an 1,100-room hotel tower being built on top of the Venetian's parking garage. Construction on that $200 million tower, called "Phase 1-A," will begin by July and be finished by mid-2002, Adelson said -- and has already been financed with new bank debt, he said.
If all this comes to fruition, the Venetian resort would have 7,200 rooms by 2004, making it the world's largest hotel. The complex is adjacent to Adelson's massive Sands Expo Center, a convention and trade show venue that is responsible for many of the Venetian's room bookings at high business-traveler rates.
"(Others) can be concerned about the direction of Las Vegas," Adelson said. "I'm not worried about my direction."
Adelson has been openly discussing his plans to expand the Venetian for about a year. But his lieutenants had clarified his remarks by saying they hoped to establish a strong track record for the original resort before trying to raise money for a second.
Adelson said that track record has been established. Room rates, occupancy and demand all remain very strong, making expansion a necessity, he said.
"We need the rooms to meet our demand," Adelson said. "Phase 1-A is a quick fix between now and Phase 2."
Jason Kroll, high-yield gaming analyst with Bear Stearns, said Adelson would be assisted in his fund-raising efforts by two factors -- one, the strength of the high-yield market for established gaming operators, and two, the strong performance of the Venetian.
Kroll pointed out that Station Casinos Inc., Argosy Gaming Co., MGM MIRAGE, Harrah's Entertainment Inc. and Ameristar Casinos Inc. have all been successful in pricing large bond offerings at favorable rates in recent days.
"In terms of investor interest, there's a strong appetite for gaming paper now," Kroll said.
And, despite its early struggles, the Venetian has performed very well, Kroll said. Despite concerns about the Las Vegas market, the Strip's high-end properties show no signs of slowing, Kroll said.
"They've clearly executed their business plan and proven that an orientation to the trade and convention market works," Kroll said. "There will be a greater acceptance of the team trying to come back to the market and trying to raise funds. (Adelson) has proven to the market that he's there to stay."
In the quarter ended Sept. 30, the Venetian reported $146.6 million in net revenues, up 46 percent from the year-ago period, while cash flow rose 80 percent to $32.1 million. The company did post a net loss of $4.7 million, but this was improved from a loss of $18.2 million in the year-ago quarter.
And the Venetian's bonds, which once traded well below par, now trade above par at 105. And that makes Adelson confident raising money for a second hotel-casino will be no problem.
"One of my major bondholders said to me, 'Sheldon, if you issue a new tranche of bonds, we'll take $200 million,"' Adelson said.