Revenue, cash flow strong at The Venetian

Tuesday, Feb. 11, 2003 | 11:18 a.m.

The Las Vegas Strip's $1.5 billion Venetian Casino Resort today reported strong increases in earnings and cash flow during the fourth quarter, primarily driven by favorable comparisons to the year-ago quarter that was hurt by terrorism fears.

And the luxury resort continues to impress Wall Street with the highest room rates on the Las Vegas Strip -- a function of the property's following among weekend tourists as well as strong mid-week business driven by conventions at its attached Sands Expo Center.

Las Vegas Sands Inc., which owns The Venetian and the property's Grand Canal Shoppes retail mall, said fourth-quarter net income rose to $6 million compared to a loss of $6.5 million in the same period last year.

The company reported cash flow of $58.3 million for the fourth quarter, an increase of 37.2 percent compared to the same period a year ago.

The company defines cash flow -- a key indicator of casino performance -- as operating income before depreciation, amortization, rental expenses, pre-opening expenses, development expenses and corporate expenses.

Revenue was $154 million, up 26.4 percent from a year ago.

"Although we benefited from a favorable comparison with the Sept. 11-affected results in the same period last year, the company's strong results continued despite a slowdown in the Las Vegas travel market," Las Vegas Sands President and Chief Operating Officer William Weidner said.

The Venetian's average daily room rate rose to $199 during the fourth quarter compared to $168 during the fourth quarter of 2001. The property's occupancy rate fell to 90.4 percent compared to 95.2 percent.

"We were able to achieve strong average daily room rates from our combination of mid-week group and convention business and weekend and holiday free independent traveler revenues," Weidner said.

The Venetian achieved a record annual average daily room rate of $196 and average daily occupancy of 95.6 percent in 2002, the company said.

"We believe that the mid-week room strategy again has proven resilient during difficult economic times," Weidner added.

Those rates compare to MGM MIRAGE's average rate of $188 during the fourth quarter at the Bellagio, $107 at the MGM Grand and $105 at The Mirage.

The Venetian's "revenue per available room" -- a key indicator in the hotel industry defined as the average daily rate multiplied by the occupancy rate -- also outpaced the competition at $180 in the fourth quarter, analysts said.

"They've really leveraged their convention center for the business traveler to generate high room rates," said Andrew Zarnett, a bond analyst with Deutsche Bank Securities.

"Their business model continues to perform better than companies that rely on high rollers," added Ray Cheesman, a bond analyst with Jefferies & Co.

Last month, both MGM MIRAGE and Mandalay Resort Group slashed their fourth-quarter earnings estimates on news that high-end casino patrons weren't spending as much as expected over the holidays.

The Venetian aims to continue increasing room rates throughout the year, though that may become more challenging as it opens its 1,000-room hotel tower in June, Weidner said.

"We're not sure how much we'll increase the rate. The primary goal will be to fill the rooms."

The company is optimistic because it has booked more convention and business meeting groups in the second half of the year than it has before in anticipation of the new rooms, he said.

The Venetian's decline in occupancy is a sign that the resort is trying to maintain high room rates, Bear, Stearns & Co. bond analyst John Mulkey said.

"Our thinking is that they want to maintain some room rate integrity," he said. "When you build rooms and don't (build) attractions to add to them, it's a little more difficult to generate the rates."

The Venetian is "better positioned than most" to get a good return on rates but still faces numerous challenges this year, including competition from Mandalay Bay's new convention center, a sluggish economy, a threat of war and tough comparisons from last year's strong casino returns, he said.

The Venetian benefited from a high percentage of table hold -- the amount it won from gamblers -- in its casino last year, analysts say.

While luck can be volatile, The Venetian has taken steps to produce steadier returns, Cheesman said.

"The most important think was that they moderated the risk profile of their table business so that they were not taking huge wagers from a small amount of people," he said. "They have spread the risk around a larger group of players."