Venetian room rates strong, casino unlucky

David Strow

Thursday, July 26, 2001 | 11:10 a.m.

For the second straight quarter, the Venetian's earnings have been pushed down by below-normal hold, even while demand for its hotel rooms boomed.

Las Vegas Sands Inc., parent company of the Las Vegas Strip luxury resort, today reported cash flow of $41.8 million for the quarter ending June 30. That's down 10 percent from the year-ago quarter.

"It was another very successful and frustrating quarter for our basic business plan," said William Weidner, president of Las Vegas Sands. "The encouraging fact is all these disappointing results is that demand for our property remains strong."

Revenues were off 4 percent to $136.9 million. The company did, however, eke out a net profit of $400,000; in the year-ago quarter it took a net loss of $1.2 million.

It was the second consecutive quarter of cash flow decline for Sheldon Adelson's privately held Venetian; in the first quarter, cash flow was down 20 percent. In both that quarter and the current one, the Venetian blamed table game hold.

The property's table game win percentage averaged 14.7 percent, down from 22.2 percent in the year-ago period -- a figure that doesn't take into account the cash-back rebate often given to high-rollers.

Because of this poor hold, the Venetian's casino revenues plummeted 25 percent to $54.3 million. The Venetian reported $37 million in cash flow, down from $42.6 million in the year-ago quarter; had hold been normal, Venetian officials estimated the property would have posted $49 million in cash flow for the quarter.

But poor hold isn't something that's concerning gaming analysts too much yet.

"If you make an adjustment for lower-than-average luck, you'll find they were ahead of last year on (cash flow) versus the prior year," said Andrew Zarnett, gaming analyst for Deutsche Banc Alex. Brown. "All other areas of their business continue to be very strong."

The hotel, in fact, produced more revenue than the Venetian's casino in the quarter. Hotel revenues reached $56.4 million, up 16 percent. The Venetian's average daily room rate increased from $183 to $213, and occupancy reached 96.5 percent, marginally higher than the year-ago quarter.

"(Revenue per average room night) was up 16.5 percent year-over-year, which is very strong, and indicative of the power of their product," said Jason Kroll, gaming analyst with Bear Stearns.

That strength should continue despite fears of an economic slowdown, Venetian officials said.

"Based upon current booking trends and information, and the demand for our all-suite rooms, we remain comfortable that our group room business trends remain strong," Weidner said. Demand in the free-and-independent traveler market remains strong as well, Weidner said.

Other areas of the Venetian's business also showed strength. Food and beverage revenue was up 10 percent to $18.5 million, while revenue from the Grand Canal Shops mall rose 22 percent to $8.4 million.

Business should be boosted further when the Guggenheim and Hermitage museums open in September, Kroll said.

"We're obviously looking forward to the opening of the two museums, because we think that will definitely draw people to the property," Kroll said. "That should help volume on the casino floor."

Because of strong room demand, the Venetian is continuing to move forward with its expansion project, but revealed few new details in its earnings release.

"Phase 1A" is a 1,000-room hotel tower, to be built on top of the Venetian's parking garage. It will also include a second parking garage and 150,000 square feet of convention and meeting space. The $175 million to $200 million project will be completed in late 2002.

In its earnings release, the Venetian said it is working on amending its credit facilities to pay for the project, and has received "certain commitments from certain of its existing lenders for funding of Phase 1A." These funding agreements should be completed by the end of September.

"Given that they turn away a lot of group room nights, (the new tower) should help strengthen their franchise going forward," Kroll said. "Given the continued strength of that hotel and the response to the all-suite product, (more hotel rooms) should help provide stability, given the volatility of table hold."