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New Suites to Boost the Venetian's Performance

LAS VEGAS -- Size counts, literally.

The Venetian this week is wrapping up core construction on its new, $250 million, 1,013-suite second tower.

By adding 1,013 suites to its room count, The Venetian will cut the average cost per room of the resort by an estimated 15 percent and increase cash in one fell swoop.

Hotel operations "are the most efficient department in terms of margin," said Brad Stone, Executive Vice President of Las Vegas Sands Inc., the parent company of The Venetian, running at a 70 percent operating margin.

"When we can amortize 1,000 rooms over the same overhead, we will obviously have a higher return," he said.

The original $1.5 billion price tag for all of The Venetian's 3,036 suites, its casino and the Canal Shops, came to almost $500,000 a room.

The $250 million for the added 1,013 suites brings the total cost per unit, including overhead, down to $425,000.

"Obviously, there are some variable costs of room clerks, housekeepers and reservations agents, but fixed costs really don't expand at all," Stone said.

The new 14-story tower is being built on top of the existing 11 floor parking garage. The Phase 1A expansion will include added parking and meeting room space when the build out is completed in June 2003.

"Previously announced room projects including The Venetian are clearly driven by high levels of occupancy," said Deutsche Banc Securities analyst Marc Falcone.

Other announced projects include a 925-room tower at Bellagio, a 900-room at Caesars Palace and a 1,125-room tower at Mandalay Bay.

"The high occupancy and the number of room nights turned away at The Venetian clearly shows excess demand for the quality of experience at that property," he said.

Wall Street disappointment over returns from recent projects has clipped capital availability, reined in Strip construction and dimmed local economic prospects, at least through 2004.

"I think (the expansion) makes sense for them because of the strong demand they've had for their rooms," said Bear, Stearns & Co. high yield analyst John Mulkey.

"Historically, developments in Vegas that are just expansions of hotel rooms do not generate new visitation per se," he said, "but we still expect high returns from the rooms in (the) Phase IA (expansion)."

If the marketing plans developed by The Venetian can hold occupancy rates to current levels and attract visitors who will hold table yields where they stand, however, the property could face a boom period financially, even while analysts are saying other operators are facing tougher times.

"We start out operating at 97 percent to 98 percent occupancy year-to-date," Stone said.

Without the expansion, The Venetian has been limited to 2,300 rooms devoted to group business with its other rooms allocated to independent travelers, wholesale groups and guests to fill the casino.

"We find ourselves with (participants at) many trade shows and larger pieces of corporate business actually being sent elsewhere. We've had enough public space, but we just haven't had enough rooms," Jones said.

The Venetian will allocate an added 1,000 room to the FIT business once the new tower opens.

"With the capacity strain we've had, we feel we'll be very successful at filling the rooms," Jones said.

The $45 million, 150,000-square-foot expansion of exhibit space in The Venetian Congress Center and the Sands Convention Center will take the total meeting room area to 1.9 million square feet, "so we can stay consistent with our current business model," he said. When Phase

The Venetian model calls for filling rooms midweek with group and trade show visitors and on weekends with FIT visitors.

The design of the new tower deviates enough from the existing tower to create new marketing opportunities, Stone said.

"We are putting in a concierge level for higher end customers with 125 rooms facing the Strip on the top six floors," he said, which can be expanded depending on the demand that develops.

"We're (also) going to be more aggressive (marketing)," Stone said, "but for the most part we will rely on our traditional mechanisms, depending on trade shows during the week and FIT on weekends."

"We don't see any difficulties in filling the expansion with people looking for a higher quality experience here," he said.

The Venetian recently was named one of the top 20 hotels in North America by Conde Nast Traveler, and has been rated Four Diamond by AAA and Four Star by Exxon/Mobil Travel Guide.

"The new tower will only enhance The Venetian and set it further into an elite class of its own while in the heart of the Las Vegas Strip," said Venetian President Rob Goldstein.

"We will continue to provide the high standards of service, high speed internet access, and amenities our guests have grown accustomed to," he said.

Upon completion, the 4,049 suite Venetian will be the third largest hotel in the world by room count, following MGM Grand and Luxor.

"This will be the only place in the world where guests can enjoy 19 fine dining restaurants, the world's largest privately-owned convention center, two world Guggenheim Museums and much more all in one location and under one roof," Goldstein said.

Construction started on the Phase 1A expansion on July 8, 2002, and Las Vegas Sands Inc. is acting as general contractor.

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