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Rod Smith

Palazzo Financing: Sands Has IPO Plan for Resort

9 August 2004

Based on surging demand for Las Vegas as a business and leisure travel destination, Las Vegas Sands is proceeding full-speed ahead with financing for a $1.6 billion, 3,000-room resort adjacent to The Venetian.

The company, which owns The Venetian in Las Vegas and the Sands Macao and is controlled by developer Sheldon Adelson, announced Friday it is working on plans for an initial public stock offering to finance the Palazzo, the new resort's working name.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said the public stock offering has been much anticipated. He expects it to be well-received on Wall Street, both because of the economic boom in Las Vegas and the financial track record of The Venetian.

The combined Palazzo, Venetian and Sands Expo and Convention Center will be the largest resort and hotel complex in the world, with more than 7,000 hotel rooms and suites.

In addition, Deutsche Bank analyst Andrew Zarnett said, the expansion will create what will be the world's third-largest gaming company, once the recently announced MGM Mirage-Mandalay Resort Group and Harrah's Entertainment-Caesars Entertainment mergers are completed.

"The stock offering is significant because it will enable Sheldon (Adelson) to show the success he's had on a monetary basis and will give him the currency to make acquisitions in the future," Zarnett said.

The Palazzo is expected to feature more than 3,000 new hotel suites, an approximately 105,000-square-foot casino and an approximately 375,000-square-foot mall.

The original 36-story Venetian was developed on the site of the old Sands for $1.4 billion and opened in 1999.

The 22-story Venezia tower has 12 stories of rooms built over 10 stories of parking, and was completed in 2003, bringing the complex's room total to 4,049.

The company announcement of its plans for an IPO said the timing and completion of the offering are subject to market conditions and other contingencies. The announcement also said the offering will only be made pursuant to a prospectus filed with the Securities and Exchange Commission.

However, Wall Street analysts said Friday that they expect the company to register the stock offering with the SEC next week at the same time it reports its second-quarter earnings.

They also said they expect the company to initially price the offering in September. Sources close to the financing said the company hopes to have the deal done by early November.

Greff said the timing could prove to be unfortunate because of growing investor uncertainty about gaming stocks.

He compared it to the timing of developer Steve Wynn's initial public offering two years ago. Analysts had initially expected the offering to be priced at $22 a share. But it closed at $13 a share in the midst of aftershocks in the travel industry from the Sept. 11, 2001, terrorist attacks.

However, Zarnett said Adelson will still own the bulk of the company, which will add to investor confidence.

Other analysts who asked not to be named said Wall Street is in love with independent entrepreneurs such as Adelson and that investors prefer companies with proven cash flow, which Wynn Resorts still doesn't have.

Therefore, they said it is likely the new stock offering will price well, unless the stock market keeps falling. The Dow Jones industrial average closed Friday below 9,800 for first time since Dec. 1.

Construction on the Palazzo is expected to start within a month. The Palazzo is scheduled to open in the first quarter of 2007.

Other money for the project will come from net proceeds from the new senior secured credit facility, $135 million in equipment financing, a $250 million construction loan for the Palazzo mall, the net proceeds from the recently completed sale of the Grand Canal Shoppes for $766 million, and operating cash flow.