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Rod Smith

Gambling Beyond Nevada: Sands Macau Off to Roaring Start

15 September 2004

The first American-owned casino in Asia, the Sands Macau, exceeded all expectations with its first two months in operation and laid a foundation for the Las Vegas Sands Corp. to reach its goal of becoming the world's leading high-end casino resort operator, company documents filed with the Securities and Exchange Commission said.

The 1 million-square-foot casino-and-entertainment complex is already rivaling any casino operation in the West, Wall Street analysts said Tuesday.

"The early numbers show a property poised to be among the top cash flow generators compared with anybody else in the West," Susquehanna Financial Group gaming analyst Eric Hausler said.

The casino posted net income for the two months ended July 31 of $36.9 million and earnings before interest, taxes, depreciation and amortization, or cash flow, of $41.2 million, based on a table drop of $608.2 million, the $350 million stock registration statement the Las Vegas Sands holding company filed Sept. 3 shows. Total drop is the amount wagered and lost at table games and slot machines.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said the early financial results suggest the company, which also owns The Venetian, will generate enough profit in the first 12 months to pay off its entire initial investment in Macau.

"That's just unheard of in the U.S. or any other North American gaming market -- and that didn't include the high-end areas and reflected inexperienced dealers and typical startup difficulties," he said.

The $240 million Sands Macau is owned by Sheldon Adelson's Las Vegas Sands and has 319 table games, 600 slot machines, 18 restaurants, bars and entertainment venues near the ferry terminal in former Portuguese colony.

The company's registration statement said it plans to use its "first-mover" advantage in Asia and uniquely branded gaming and entertainment properties to drive record returns on investment and pave the way toward its goal of becoming the world's leading casino operator.

The Sands Macau opened in May and had more than 1 million visits in July alone.

"Macau will be a huge growth driver for the company, not only because they're there first, but because they have a plan to build on their success in Las Vegas," Deutsche Bank analyst Andrew Zarnett said.

Ultimately, he said Las Vegas Sands' $10 billion Cotai Strip development in Macau will include not just a Venetian-style resort, but also a variety of third-party hotels with smaller casinos that will pay a share of their income to the Sands in fee income.

The Cotai Strip, an area of reclaimed land between the islands of Taipa and Coloane in Macau, has been master-planned as a world-class resort area with up to 20 hotel-casinos, to be developed by eight operators, and up to 60,000 rooms and entertainment amenities.

On one of the sites, Las Vegas Sands plans to build, own and operate The Macau Venetian, a Venetian-style 3,000-suite hotel-casino and 550,0000-square-foot convention center complex, which is scheduled to open in 2006.

Las Vegas Sands has been granted control of two of these remaining sites and has received approval from the government of Macau to develop four other sites in cooperation with third parties.

"This is visionary. (Adelson) is involving a lot of other companies by bringing their brands to his market," Zarnett said. "He's going to create a minicity with the focal point being The Venetian. He not only benefits from his experience running a casino, but he gets to leverage huge international databases as the other companies market their properties and ultimately market his (at the same time)."

Hausler added: "Adelson is developing all this in the midst of what is arguably the best gaming market in the world right now. And it's expected to grow dramatically in the next decade because of the leadership role the Sands is taking. It's a critical piece in the growth strategy for them."

In addition, University of Nevada, Las Vegas professor Bill Thompson, who specializes in gaming studies, said Adelson's long-range plans for hotel developments will create destination options not now available in Macau, which will draw a larger number of visitors and accelerate revenue growth for Las Vegas Sands.

"Right now it's a cash cow for him, it's a grind joint. They need to find their best players and sort this out," he said. "When they do, Adelson will being them here and that'll really be great for Las Vegas."

In its stock registration statement, Las Vegas Sands says it plans to use its successes in Las Vegas and Macau as a platform for worldwide growth.

The company is exploring the possibility of operating casino resorts elsewhere in Asia, including Singapore, Japan and Thailand.

It also claims to be well-positioned to capitalize on the expansion of casino gaming in other international jurisdictions, such as the United Kingdom and is pursuing the possibility of developing and operating an Internet gaming site.

Las Vegas Sands plans to raise $350 million with the stock offering and to use the proceeds to fund these international developments, as working capital and for general corporate purposes.

Las Vegas Sands is in a "quiet period" while its stock registration statement is pending before the SEC, and company officials declined to comment.