拉斯維加斯金沙集團 (LVS) 2005 Q2 法說會逐字稿

Good day ladies and gentlemen. Welcome to the second-quarter 2005 Las Vegas Sands Corporation earnings release. My name is Caitlin, and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session at the end of the conference. (OPERATOR INSTRUCTIONS). As a reminder, today's conference call is being recorded.

I would like to now turn the presentation to your host, President and Chief Operating Officer, Mr. William Weidner. Please go ahead, sir.

Thank you, Caitlin, and good morning, everyone, and thank you for joining us this morning. With me today are Brad Stone, our Executive Vice President, Scott Henry, our Chief Financial Officer, Rob Goldstein, President of the Venetian here in Las Vegas, and on the telephone also is Mr. Sheldon G. Adelson, Chairman of the Las Vegas Sands Corporation.

Before we begin, I need to remind you that today's conference call contains forward-looking statements that we're making under the Safe Harbor provisions of federal Securities laws. I would also like to caution you that the Company's actual results could differ materially from the anticipated results in those forward-looking statements. Please see today's press release under the caption of forward-looking statements for the discussion of risks that may affect our results.

In addition, we may discuss adjusted EBITDA and adjusted EBITDAR, which are non-GAAP measures. A reconciliation of those measures to the most complete or the most comparable GAAP financial measures is included in the press release. Please note that this presentation also is being recorded.

We had an exceptional quarter by most measures, achieving record revenues in adjusted EBITDAR in Macao, as well as strong gaming volumes at both the Venetian Las Vegas and The Sands Macao. Las Vegas growth trends continue unabated with new development proceeding and year-on-year market growth increasing materially. In Macao, the market continues to grow substantially and our marketing programs are gaining traction, leading to increasing earnings from our operations at The Sands Macao. The trends in both of these markets leave us well positioned as we execute our development plan in each area.

Our second-quarter hotel and gaming metrics in Las Vegas indicate that, thus far, the Wynn opening has been a positive for us. It's generating more traffic to our neighborhood, including a higher quality tourist, which is certainly of value to us. This is evidenced by our 7% increase in mass slot volume. There's been no affect on our ability to increase our room rates, and our average daily rate is up 5% to $231 with second-quarter occupancy remaining strong at 98.7%.

RevPAR also increased 5% to $228 -- (technical difficulty) -- and was up in each month of the quarter. Ultimately, we see the combination of The Venetian, the Palazzo and Wynn creating a very powerful force at our end of the strip.

Our recent capital investment programs at the Venetian, ranging from our high-end offerings to the pool deck innovation, are yielding strong results. In fact, the response to our Chairman's suites and Paiza Club, together with expansion and improvement of the Baccarat pit, has been extremely favorable, which tells us we are gaining more relevance and importance with the Asian customer as we continue to build the Paiza brand in the U.S. and leverage our presence in Macao. Evidence of this effect is reflected in our increase in table drop of 14% in the second quarter 2005 over 2004. The pool deck renovation has been particularly helpful in improving our competitive position against FIT business. We've added a lot of amenities, including a superior cabana product, a new pool bar, and a Wolfgang Puck restaurant.

Our projects that will be coming online include the popular New York restaurant and nightclub Tao and two new showrooms featuring Blue Man Group opening in September 2005 and The Phantom of the Opera in May, 2006.

Looking ahead, forward bookings are strong and the convention calendar continues to be robust. In fact, group bookings from August through the end of the year are up 11% at a higher average daily rate than last year. We see no diminution of group rooms demand.

Turning to Macao, we delivered substantial increases in revenue and gaming volume and record adjusted EBITDAR of $81 million. We are pleased with these results, which show growth in VIP and mass-market play, as well as slot machine volume. The acceleration of our premium business has continued as we focus on leveraging the Paiza brand and developing a stronger position in the VIP segment. We are doing this by offering a superior product at competitive commission rates as we build our commissioned representative network there. In fact, we brought on more reps in the second quarter and we are seeing the ramp-up continue this summer. Rolling Chip volume more than doubled from first quarter '05 to second quarter, and July's rolling volume exceeded $930 million, about a 40% increase from the second quarter's average of $664 million per month. July is perceived -- (technical difficulty) -- month.

We are also experiencing continued -- (technical difficulty). Excuse me, we are having some kind of a technical difficulty.

All right. To return to Macao, we are experiencing continued growth also on the mass side despite a year-on-year increase of 73% in mass table capacity from 592 mass tables in August 2004 to 1027 in August 2005. Our daily mass table volume increased during that period. Our mass table drop went from $9.5 million a day in the first quarter to $10.2 million a day in the second quarter of this year and increased further in July to $11.3 million per day. Slot handle increased 20% to 167 million for the quarter itself. July's handle was up an additional 17% over the monthly average in the second quarter. Notably, since the February opening of our (indiscernible) room, when we set records in slot volume every month.

We believe an increasing number of customers are seeking out and returning to The Sands as we build reputation for quality and strength of product. We will leverage that market advantage by increasing capacity by 30 tables by January of 2006 and with the addition of 200 tables and 250 slot machines by the third quarter, 2006. These expansions will cost approximately 80 million. They will be both cost-effective in terms of the building costs and efficient in delivering marginal dollars at high margins.

As part of this expansion, we will be repositioning certain elements of the property in order to appeal to a broader audience and enable us to better meet peak demand periods. In recent weeks, as seasonal increases in the mass segment kicked in, we began rolling out a series of marketing programs to further build brand loyalty and improve our competitive position against that market.

Continuing with Macao, we are often asked by investors how they should view growth forecasts and market trends in Macao. Well, in our view, the market will become more consistent over time. Month-to-month comparisons will be somewhat uneven as specific events unfold that effect near-term visitation and expenditure results. When specific events occur, like the opening of additional cities to the Chinese (indiscernible) individual travel program or the opening of new attractions in Macao or central government policy changes like increasing the amount of currency Chinese visitors may bring across the border or the renminbi revaluation increases against the dollar which happened just last week, the effects of those kind of events do affect near-term casino revenues.

The macroeconomic situation, however -- that is the lead indicators coming from the premier regional economic engine -- mainland China, continue to be consistently and enormously positive. As foreign direct investment pipeline -- as a foreign direct investment pipeline approaching $1.1 trillion drives export increases, which in turn drives increases in China's GDP and individual wealth creation, the macroeconomic picture is extraordinarily bright. In the first half of 2005, exports increased over 32% and GDP for mainland China increased 9.5%.

I returned last week from visiting the mainland cities of Chunzu, Wanzao and Zhuhai and the amount of infrastructure construction is truly hard to believe. I will return to have a meeting with Macao's Chief Executive officer, Edmund Ho, after his return from the 9 plus 2 economic forum where they discuss regional cooperation plans for expanding manufacturing and tourism development for the Pearl River Delta. The potential from his experience and from the communication among those individuals in South China is -- for the future of South China is truly enormous.

It's not over exaggerating to say that that opportunity could be described as historic. During the quarter, analysts from Morgan Stanley and CLSA have independently forecast the gaming market at Macao to reach about 12 billion by 2010. Just yesterday, Jake Cohen (ph) of Banc of America forecast that gaming volume in Macao would reach 14.3 billion by 2010. We think these estimates range from conservative to reasonable. We believe that our market share, particularly in the mass casino business, where we are the market leader, will continue to improve.

We also believe that our casino market, while it will increase dramatically, noncasino revenues will increase geometrically as Macao matures into a multifaceted tourist destination, just as Las Vegas has matured in a similar way in the past few years. In the meantime, we will be building our data base, establishing our brands and solidifying customer loyalty as the market demand, particularly from the mainland, continues to grow at double-digit rates.

The 2007, 2008 timeframe will mark a tectonic change in Macao as it emerges as a world-class, high-end casino destination and resort on the doorstep to China. By 2010, with the completion of massive regional infrastructure improvements, roads, rails, bridges linking the west side of the Pearl River Delta and connecting it to Hong Kong to the East, the gain will truly change forever. We believe that, when today's opportunities are realized, we will look back and say it was obvious from the lead indicators. We believe the situation is somewhat similar to Sheldon Adelson's call on the importance and the value of the convention market for the future of Las Vegas made in 1995.

To that end, our plans to develop the Cotai Strip are progressing well. As we communicated during the second quarter, we've made the strategic decision to own more real estate and operating businesses in Macao, which will allow us to mine greater value from that burgeoning market. We believe there's a tremendous upside opportunity of having a very large, dominant, multifaceted development platform in Macao and intend to maximize that opportunity by creating destination on the order of what exists today in Las Vegas.

As most of you are aware, our model has proven that we can create superior returns on invested capital by selling noncore assets. That same opportunity exists on a much larger platform in today's Macao. For example, we will develop a hotel intended to be branded under the Four Seasons banner, adding 400 hotel keys, 600 service department units and over 100,000 square feet of retail space.

Across the Cotai Strip, we are master-planning two 3000-room hotels, building approximately 1500 rooms in each, the first phase of each, with service departments, 450,000 square feet of retail space. We plan to develop and own those properties under third-party brands and we currently are negotiating contract documents with Shangri-La Hotels, Four Seasons and Starwood Hotels.

Additionally, a third-party investor is in discussions with the hotel Conrad (indiscernible) brands for a 1500-room hotel on the Strip, and Far East Consortium reported in the Hong Kong Standard newspaper that they would develop 2400 rooms in their first phase, including Intercontinental, Holiday Inn, Dorset and Cosmopolitan brand names.

Construction of our own Venetian Macao casino resort, which will anchor the Cotai Strip, remains on track. As part of our strategic decision to develop a larger development footprint in Macao, we will build out all of our 3000-room capacity at additional costs of about $165 million in The Venetian Macao's initial stage. We formed a convention and trade show marketing team, bringing China convention market expertise in the form of Wolfrom Deaner (ph), the former head of the Shanghai Expo Center, and combining it with our own expertise in the form of Hal Lord, Vice President of sales with 35 years of convention sales experience, 25 of which of those are in Asia.

In terms of the real estate and retail opportunities, we've hired a gentleman by the name of Steven Weaver as Senior Vice President of Retail-Asia who was a director of asset management for (indiscernible) Asian retail real estate mall management business and Jones Lang, the sales retail real estate Asia in Asia Pacific. Steven will lead our real estate and mall development activities.

Additionally, we've retained a major leasing broker and mall manager to lease the massive Grand Canal Shops in Macao in order to organize retailers anxious to sell merchandise to new mainland Chinese consumers, whose the by way average retail spending per visit last year has grown to number one in the world, having surpassed that of the Japanese. We believe there's huge retail opportunity there. We're currently reviewing financial proposals to raise ring fence financing backed by Sands Macao cash flow to construct these expanded facilities.

In other development fronts, we are cautiously optimistic about the opportunity in Singapore. If returns are sufficiently attractive, we will continue to pursue that opportunity aggressively. We've responded to additional requests for information in the RIP process there in Singapore, and that process is moving along. We've continued to pursue development opportunities in the UK, Europe, Pennsylvania, Massachusetts and other venues and we will continue to be active in that regard.

With that overview, I will ask the operator, Caitlin, to open the call to questions about our performance for the quarter and our development and growth strategy.

Thank you, sir. (OPERATOR INSTRUCTIONS). Bill Lerner of Prudential.

Thanks, guys. Just two quick questions, one on The Venetian Las Vegas -- can you just run through anything you think was atypical or unusual in the quarter relative to what you've experienced in the past?

Then the second would just be a follow-up on your comments, Bill, about the convention opportunity in Macao. What is it that you're seeing there? Can you give us some color on early demand? Thanks.

Okay, I think the first question would be best answered by Brad Stone. Brad is right here.

As far as Venetian goes, I think, again, the rate, the occupancy was very strong. Our RevPAR was strong and consistent with what we had said in the second -- in the first-quarter conference call -- that as we look into May and June, post Wynn, we saw no resistance of rate and we saw high occupancy. We did have less group room nights, consciously, in the second quarter. We saw an opportunity to both drive up the group room night on the base as well as increase the amount of transient volume at a higher rate. That did have an effect on us in terms of some of our banquet revenues. As Bill said, as we look at the rest of the year, our group bookings are up actually on a year-to-year basis from '04 to '05 for August forward at a higher rate.

On the slot side, we were pleased to see the mass volume increase by 7% with the opening of Wynn Resorts. We did have a bit of an anomaly last year in that we had one customer who put about $33 million of handle into the $500 slot machine, and if you look at the resulting being down year-to-year, while we showed growth on the mass side, it was offset by the activities of this one customer at the $500 slot. So, not too much that this year was an anomaly as much as last year was truly an anomaly to have that type of volume. That customer, by the way, is a steady customer; he's really a table player, but last year, like I said, he indulged himself in the $500 slots. I think, when you look at our handle on the sense of what is typical, we've looked at ourselves being up. The anomaly is what was really the difference on a year-to-year basis.

Other than that, there's the volumes on the table side. As Bill said, we're strong. We saw the products that are coming online supporting that, so really the true anomalies, if any are that we had more transient room nights than typical, but that was a conscious decision. That drove our occupancy and rate. Again, we saw a positive effect after the Wynn opening, and the one anomaly of the slot customer.

Brad, this is Sheldon. I will answer the question regarding the conventions.

Quite surprisingly, the convention market is quite robust in China. It is continuing to grow; I won't say exponentially, but it's continuing to grow quite substantially. We've met with myself and other people. As a matter of fact, they have come into Las Vegas and is jockeying for position for dates of different industries for shows. As a matter of fact, the response to the convention market has been so exciting that I've personally flown to Macao and asked the chief executive, Edmund Ho, for additional acreage to expand the size of the convention center. Failing that availability, we will build additional exhibition facilities on lots 5 and 6.

That's helpful. Thanks, guys.

Robin Farley of UBS.

A couple of questions -- one is, just looking at the increasing expenses in Macao relative to increasing revenue, can you talk about where expenses -- what level they may ramp up to, before the expansions -- just will you expect to be regular expense level there?

Well, Robin, the expense increases that you see in Macao are almost solely driven by the increasing commissions paid to commission reps. So, as we talked before, we see margins in mass market in the 40-plus range, and we talked of margins in the VIP Rolling Chip program being more in the teens, mid to high teens. So as you blend the business between the ramp-up in the Rolling Chip program and the commissions paid to representatives there, that pretty well solely explains the increase in cost. Obviously, we are driving more profitability out of it, and as we ramp up more and as the Rolling Chip volume increases, yes, you'll see some increases in cost but you'll also see some increases in the total number of turnover. Obviously, with approximately a 39% tax, gross revenue tax, as gross revenues increase, then the tax expenses also increase.

sure. No, I was just looking at the expense increase above the revenue level increasing outside of the tax. But --

Yes, that's just the mix of businesses and the commissions that are related to that mix. I mean, the strongest growth -- we've grew very well terms of our mass business at the 40% margin, but we grew exponentially at the high-end, so when you blend it together, the effect is some margin pressure -- a lot more profitability but a little bit of margin pressure as that mix was accelerated towards the VIP side.

Okay, great. Then two other questions -- one is, when you were talking about some of the development in Cotai, I don't think you said this but can you talk about when you expect to sign definitive agreements with some of the other hotel operators, and then how long after those signed definitive agreements you expect until opening? Then also, lastly, if you could comment on kind of market share convention business in the June quarter. I know you talk about the forward looking up (ph) year-over-year, in Las Vegas, the convention business.

As far as developers on the Cotai Strip, we ourselves are moving forward on the design plans but particularly the plans relating to the infrastructure to build the buildings on as we continue our negotiations with the individual hotel brands.

As I amended, Far East consortium have been quoted in the standard in terms of what their plans are. They actually have begun their exploration work on the ground itself, in what we call Site Three. So, even though we have not finalized with them, we are almost there and they are behaving and proceeding as if they had signed, so we are moving forward on the timing in terms of developing the facilities on the Strip itself.

Your second question related to convention volume; did I understand that correctly?

Yes. In the June quarter, I know you commented that forward convention business looks up year-over-year, but just in terms of market share, relative to the rest of the Vegas market convention business in Q2, if you could give us any color on your perception of that.

I can't give you color on the market share, because we don't have those numbers. I will tell you that our group room nights were down about 28,000 on a year-to-year basis. Again, we make our decisions in terms of pieces of business. We look at what we believe the demand is on the transient side and we choose the business which we think is going to yield the most EBITDA for us.

Looking forward, as Bill said, we've been able to secure higher rates. We are more aggressive in the flow and booking (ph) because that's where we see the most opportunity and that's why we -- or actually show growth a rate year-to-year in our group business the second half of the year.

One thing that is also going to be very beneficial to it, and Bill touched on it, was we will be opening 450,000 additional square feet. In the fourth quarter, we will be opening about two-thirds of that space, and right after the first of the year, the remaining 150,000 square feet. This is a great tool for our sales department to take advantage of having that space so we can start leveraging higher rates, particularly as the groups that need a disproportionate amount of meeting space relative to their rooms. So it allows us to expand our market and allows us to have our way a little bit more with the market in terms of demanding higher rates. So, we think the picture, particularly with that new asset coming online at the end of the year, bodes well for our ability to not only drive rooms but rate going into 2006.

This is Sheldon.

To clarify that question, it's not that we don't have access to those figures; the figures don't exist. In order for those figures to exist, every property would have to disclose all of their customer activity. I don't think anybody is about to do that. So they just don't exist. We are quite satisfied with the level of customer loyalty that we have and potential for increasing business.

Okay, great. Thank you.

Harry Curtis, JP Morgan.

Just going back to Macao, I was pleasantly surprised by the margin, given the increase in your share in the VIP segment. Is that margin, as that segment grows, do you think that that margin can expand some more? What is the mix between your use of junket operators, or are you getting just more high-end play that doesn't have any intermediaries that might explain the higher margins?

Well, first of all, most of that increase came through intermediaries. Yes, we are building our base of business and there are customers that we deal with here in Las Vegas and customers that live there that we deal with in Las Vegas that actually come in on a non-commission basis. But most of the business, the increase in that business that we saw in Rolling Chip were from commissioned reps, number one.

We held reasonably well against it; we held within our range of what we think we would hold. So those margins that you looking at here, given the mix of business is similar to what we had in the quarter, in terms of mass as well as high-end, ought to be sustainable, because we think we are at a commission rate which is reasonable to draw business in and we think we are ramping up our mass business in such a way to where the blend of commission business to the mass business ought to be in this range. So, I think the margins you're seeing are about where we think the expectations might be, within a point or so.

My follow-up question pertains to -- apparently there's some numbers coming out with respect to gaming volumes in July. You've given us some color as to your own business in July. Are you simply taking share away from other casinos?

I don't have any visibility where other casinos are, but our place is packed; the place is packed. I have no idea where those numbers might come from. I mean, I was just there last week; Brad was there the week before. We went across the border, and witnessed thousands of people lining up to come through customs and immigration -- a typical July or perhaps even a more robust July than last July. So, I don't know where those numbers are coming from. There certainly aren't any evidence (sic) in our place and -- (multiple speakers) -- I mean, no evidence on the streets of Macao.

Okay, thank you very much.

Steve Kent of Goldman Sachs.

Two questions -- first just on -- (technical difficulty) -- promotional program -- (technical difficulty).

Steve, excuse me, you're breaking up so now I can't hear you.

How about now, Bill?

That's a little better.

You started off -- (technical difficulty) -- promotional program earlier -- (technical difficulty) -- maybe a couple of months ago. Can you just -- and some marketing programs. Could you just go through that in a little bit -- (technical difficulty) -- what are you doing specifically, what's the early read on it? Is that part of the -- (technical difficulty)?

(technical difficulty).

Then the second question -- (technical difficulty) -- I'm just trying to read that -- (technical difficulty) -- that change? Do you see that -- (technical difficulty)?

Steve, we can't hear you. I mean, I think we will jump in and answer the first question I think you asked was about -- we had talked, in the last conference call about, during the letter part of the second quarter and going into the third, starting to ramp up in terms of marketing programs. Well, certainly we've ramped up in terms of expansion in the high-end side. Our programs on the mass side are just now beginning to kick in. They relate to more sophisticated bus programs, not just shuttle programs from the ferry terminal and border but overland coaches coming in from mainland China. We've begun sweepstakes programs, data base management. We've seen some early successes in terms of the response to those types of programs. We will be introducing card programs that have meaningful associations to them. So most of what I will call the more mass-oriented marketing programs are just beginning to take shape in this quarter and really aren't reflected in the second-quarter results.

Juxtaposed to that, we have been, as we said at the end of the first and going into the second, aggressively trying to grow our high-end business to take advantage of the wonderful assets we have there. That will continue. That is primarily where we saw marketing activity, let's say yield results, in the second quarter.

Okay, thanks.

David Anders of Merrill Lynch.

Thank you, I have two questions. Could you give us some guidance for your development expense going forward? It jumped in the quarter. Is 5 million a quarter a decent run rate, number one? Number two, could you just give us a big picture walk-through now of kind of the timing of the Cotai development for you? Are we still on track for first half of '07 with the two larger hotels? I'm just having a hard time of keeping track how many hotels are going to open and what the costs will ultimately be.

I think, as far as the costs go, we certainly understand the cost structures of our own hotel and the addition of the 1500 rooms, and we've quoted that number. We are now working on more definitive numbers for the other hotels. Brad, maybe you can make a comment on where we are in that property?

Yes, we are -- for example, the Venetian hotel, we've said, in the past, we are about a $1.8 billion project. Bill mentioned today that we have decided, because we feel it's the most cost-effective way to add additional rooms -- and again, our pleasure over the -- how strong we view the convention market and the Macao opportunity -- we decided to proceed with filling out the remaining 1500 rooms. So, the project at the Venetian is in the $2 billion range. At this point in time, we're very pleased that about 60% of the project is hard bid. The areas that I usually have most concern over, meaning the electrical and mechanical and plumbing, are almost entirely bid out, as it is the foundation work obviously as that proceeds. The site is very impressive; it's coming up very dramatically.

As far as timing on that particular site, we are focused on the middle of '07, having the opportunity to get that facility open. We are currently -- have submitted to the government for approval what we call Sites Two, which is the Four Seasons site, and Sites Five and Six, which are across the street. These are the sites that we've indicated that we will be developing. We are in for a planning approval on that. We're going through conceptual design at this point. Those are projects -- the Four Seasons we feel can come on around the same time frame as the Venetian itself. The other two projects across the street would be towards our goals to get those open by the end of '07.

As far as Site Three, which is the Far East Consortium site, the gentlemen David Chu is in charge of that project -- says and feels confident that he's going to open at the same time as the Venetian opens. So what we're really looking at is probably in the mid-'07 time frame, having the Venetian, the Four Seasons and the Far East Consortium site open with the other two sites across the street opening several months or five or so months to six months after that.

As far as Sites Seven and Eight, those are currently -- maybe Bill can update on those two sites with our --.

Before you finish that, I'd like to say that -- this is Sheldon -- that David Chu and I have a (indiscernible) bet as to who is going to finish first. (LAUGHTER).

I think your second question talked of development expense and ongoing development expense. I think most of the change in development expense for the quarter related to Singapore. Singapore is still something of a wild-card in that we've responded in a detailed way to their RPF changes and we will see. We're not going to get involved in Singapore unless we can make a return on investment that we feel is reasonable from our perspective. If we can't make money in Singapore, we won't be in Singapore. The opportunities are so enormous in Macao that, you know, when you try to judge the returns we believe are involved in that marketplace as a standard, there's very little comparison. So we're not going to dumb-down our ability to return invested capital by doing something that doesn't get us a return that we think is robust. But we will pursue that aggressively -- (technical difficulty) -- for returns are there to be had, and if so, then that development expense would stay in this range. Again, Singapore is driving most of that development expense. The other development opportunities are less intense than the Singapore opportunity is, and that's what's driving that $5 million margin -- pardon me, that $5 million number.

Felicia Hendrix of Lehman Brothers.

Good morning, guys. A few questions -- first, with Macao, regarding the mall and the potential sale, you had spoken in the past about cap rates around the 4% range. I'm wondering if that rate still stands. Then also, if I understand correctly, the Four Seasons will also have a mall area that might connect to your other mall, so is that included when you think about selling the mall?

Then as far as the other sites that will open, do you think that those are going to open with 3000 rooms as well? Obviously not the Four Seasons, but the other hotels. Then I think someone was just saying what sites Seven and Eight were, but that just kind of fell off. I was wondering if you could touch on those.

Then I have a few questions on Vegas, but I will wait until after you're done with Macao.

Let's start with the first. The Four Seasons mall space is planned to intersect with and connect to what we're doing at the Venetian. Then I mentioned across the street. On what we call sites Five and Six, we're planning about 400,000 square feet of mall space there, so about 1.5 million square feet of mall space between the Venetian and the properties across the street.

Cap rates in Asia and Asian REITs have been in that range of high 3s to mid 4s in terms of cap rates, in terms of the sales of mall assets that we've seen in this past couple of quarters. So, we think there is a very strong opportunity there. I mentioned briefly what is happening with the traveling Chinese consumer. It has been nothing short of extraordinary in terms of the amounts of money being spent per capita by the traveling Chinese from mainland China. As I say, just this past year, they surpassed that of the Japanese, who have been driving luxury retail for the past decade. So, we just think there's an enormous opportunity there, and we are developing very high-quality mall square footage that we think we can develop into very profitable real estate investments.

We were talking about timing and development. David Chu, as I mentioned from Far East in that what we call Site Three, announced in the standard he was developing 2400 rooms. We indicated that we will be developing 3000 rooms in the first -- in the development of the Venetian and Macao. We said somewhere between 400 to 450 rooms for the Four Seasons. The two properties again on Site Five and Six, as I mentioned before, in addition to 450,000 square feet of retail space, will be developed in two phases -- 1500 rooms approximately in each phase plus a certain amount of service departments. Site Seven and Site Eight are actively being negotiated now, and they will -- Site Seven is anticipated; that investor has been talking actively with Hilton about a couple of Hilton brands. Site Eight investor is still in their process in terms of negotiations also.

Timing-wise, as Brad mentioned, we think 6000 rooms approximately are completed in the '07 time range. Shortly thereafter, another 3000 rooms on Five, Six should be in the pipeline shortly after that. Sites Seven and Eight should be in that pipeline, so that's kind of the outline of the way we see things progressing on the Strip.

I think one thing to point out is, while the talk about the Strip and the critical mass of the Strip, the Venetian Macao property alone is an enormous project. It's 10.5 million square feet; it is a fully articulated Venetian product. It would be very similar to walking into the Venetian here, except bigger. So when we take, for example, our competitors -- if you took Wynn, for example, you could stick Wynn in the corner of that development site and it would represent about 20, 25% of the square footage of the Venetian alone. So if you add Venetian, the Far East to Four Seasons, you have an extraordinary critical mass with four, five, internationally recognized brands, over 1 million square feet of meeting and exhibition space, 15,000 feet arena, 2000 seat showroom, 0.5 million square feet of gaming space. It's an extraordinary development. As I say, we could take Wynn, we could take the Hezbollah and its expansion and we could take the MGM project, stick in there and they would represent probably 40, 45% of the square footage being built on the Phase I of the Cotai Strip that's open in 2007.

Okay, just housekeeping-wise, just moving quickly to Las Vegas, can you just walk us through any luck issues that the Venetian might have had in the third quarter of '04 that we should think about as we are modeling for the next quarter?

In the third quarter of '04?

Yes.

You're referring to anomalies like the high-end slot? (multiple speakers).

(multiple speakers).

I don't have the fourth quarter of '04 in front of me but I will that, as far as -- we were talking about the slot issue earlier, and I (indiscernible) that was luck, so to speak, or at least it was volume. That was an anomaly that we haven't seen repeated; it wouldn't have been repeated in the third quarter of '04.

On a year-to-year basis, my recollection is -- and I apologize for this quarter -- is that we were pretty much normal in terms of our whole percentage, and we will get that number in just a second.

I have 18 in my model; I just wanted to make sure that was right.

As to what it was for last year?

Yes.

We are obviously 1.5 points or so below what we expected. (indiscernible)

I'll tell you what -- by the end of the conference call, we will have the number for you.

Dennis Forst of KeyBanc.

Good morning. I had a couple of questions about seasonality. The Sands Expo was down year-over-year; it was also down sequentially. What is the seasonality of the Expo?

There isn't really a seasonality to shows. It is possible that, in one quarter for one year, a large or a small show will be housed and sometimes that show goes into the next quarter and vice versa. There simply isn't any seasonality. There's always a location of different things that happen. Sometimes you get a rotating show, which means a show that goes to one city for one year and goes to other cities for the next three or four years, as opposed to an anchored show that stays in the city all the time. I don't have the details in front of me, but there is nothing unusual, nothing extraordinary that accounts for an increase or a decrease from a normal trendline.

How about in (indiscernible)? Refresh my memory on the seasonality of business in Macao?

I think that, all of the world, the seasonality is that the summer is normally a down period. Now, in our case here in August in Las Vegas at The Sands Expo, we've got major shows and we've got a full house. So, the month of June and July typically alternates, or sometimes it's more consistent to be the busier month and which will be the slower month.

(multiple speakers).

That's about it. The month of December is typical for the holiday period. Typically, the show season is very light in the last two, maybe three weeks of December.

Then the gaining seasonality for Macao -- have you been there long enough to kind of discern what that is?

Yes, I mean, generally I guess -- let's talk about a couple of different markets. The mass market, as is typical because of the summertime and people having more variable time, normally the summer is slightly more busy foot traffic-wise. The quality of the business may not be as much as on the off-season, but certainly the amount of mass business and the number of people in the marketplace as you reach late June and into early September, you'll average more people at ferry terminals and things like that.

Holiday periods and things like that -- but you don't see a large difference between one quarter and another there in Macao. To a certain extent, it can be driven by the anomaly of a few high-end players -- can make a difference, in terms of luck or no luck.

Okay. Then the last question -- the tax rate in Macao that you paid to China, the government, is 35%?

35%, plus 2 additional taxes that come off gross revenues. One supports the tourism; one support infrastructure, so the effective total is 39%.

39% of gaining win?

Of gaining win.

So we can essentially use that number and back that out from over operating expenses and then come to a net operating expense line, or a variable operating expense line?

Yes.

Aimee Marcel of Jefferies & Company.

I thought I'd give other people a chance to go first, for once.

A couple of questions -- one, as far as housekeeping, as far as CapEx going forward, how should we put that in for the third and fourth quarter of next year?

For the remainder of the year, Larry, we're forecasting between 580 and $600 million of CapEx through the end of this year split about 50-50 between Las Vegas and Macao.

Is that even for each quarter?

A little bit heavier in the fourth quarter than in the third quarter.

Then how about for next year goes?

I don't think, at this point, we're prepared to give you that CapEx guidance for '06. As we get closer to the end of the year, we can start giving you some greater visibility into the next quarter's -- certainly probably the first half of '06. A lot that depends on what Brad had talked about earlier, in terms of our budgets that are evolving around other projects, especially in Macao.

I understand that. Then the other thing is, for the Macao in Vegas -- and I'm sorry, The Venetian Macao -- so we're moving it from April to what would you say? June or July at this point? For when it opens?

I'm sorry, say that one more time (indiscernible).

Brad, for the opening date we are using for Venetian Macao -- we used to be April. are we now in June or July, we should be using?

I think, yes, we are in that timeframe -- end of June or so. That gives us some comfort. Again, we are shooting for the best schedule we can.

Obviously a bigger project.

But you know, I think, on the safe side, it's probably in the June timeframe.

Obviously with 1500 more rooms.

Yes.

I was coming out with the hold hit you guys had in the tables was about $6 million in the second quarter. Am I doing that right, Scott?

Yes, it's about 2% -- it's roughly about 6 million.

So obviously we bring our margins up because of that. Then as far as convention bookings in the count, can you talk about that at all? I know you've been contact -- you've been talking with her. Is there anything you can kind of give us kind of what you've booked so far?

So, we're not accepting bookings. We are accepting requests for bookings, and we try to mix and match, like a puzzle, the best shows that will do the most good for the Cotai Strip and the hotel rooms in the casino. So we are not -- we are just taking a set of dates and we're getting many different show organizers to put in their request for dates. This is more of a -- I hate to say it but I don't want to diminish the enthusiasm or the salesman, but it's almost an order-taking environment as opposed to a selling environment. We're not going to give up on the selling.

So you are saying that, if you took every order you had, you could be fully booked on the convention center for the first year?

I can't say that. I'm not saying that it's so; I'm not saying that it's not so. I just don't know. All I know is the demand is so strong that we've estimated that we believe we will use up the available space during the periods that we can do so and that we're looking for more space.

Okay. The number we should use for the Venetian Macao is you're saying instead of 1.8 billion, Scott, it's 2 billion?

I think that's a safe number to use for right now, yes.

Okay. Then as far as I guess with what you're doing I guess depreciation, just keep it at the same rate as we had in the second quarter?

Yes.

Larry, if we're going to do your figuring, we're going to take your pay! (LAUGHTER).

Sheldon, it's my pleasure! Anyway.

Before we turn to the next question, we can answer the question about last year's third-quarter hold percentage.

For this year, you are correct in that we held 18% in the quarter. I guess the human body forgets pain. The slot we did hold a little higher at 7.1% for the quarter in '04 third quarter, which is about 0.6% above the 6.5% we would expect. So we played a little unlucky in the third quarter last year by about 2.5%, and we've held a little lucky on the slots to the tune of about 0.6%.

Celeste Brown of Morgan Stanley.

Can you just discuss, as I think it's important to understand going forward, the breakdown between the overall market growth for mass and VIP in the second quarter now that it's completed?

In terms of the Macao, the growth of the Macao market broken down by mass and VIP?

Right.

For the market overall?

Yes.

You know, Celeste, I know we have that data. We get that data directly from the Macao government, but we are not permitted to release the breakdown between VIP and mass.

Are you able to discuss your share at all on either one?

Our share basically gives you the ability to back into that segmentation of the marketplace. They just don't let us do it.

Okay, I thought I would try.

(multiple speakers) -- that they send us specifically say, you know, for (indiscernible) utilization only not to be distributed outside of the company. We can't even share it with advisors.

Okay. Then in terms of the service department you're talking about, service departments you're talking about on the Four Seasons and then the other properties, is the idea there just to reduce your overall investment once you sell them down?

Well, that's the pattern that we have demonstrated here in terms of -- I think basically what's happened, if we look at it ourselves and look at where we are, we, as far as casino hotels -- when we develop these massive places, create real estate value, and maybe it's something we woke up to late in the game but if you look at Las Vegas with the value of the malls here and the value of the condominiums here, you can look at the kind of values that real estate can create. So, if we are going to spend lots of money developing these interesting places to be, we ought to be able to then utilize the noncore assets to buy down our cost of being here. So that's the strategy, and we are exercising it here in Las Vegas in terms of the sale of our mall and presale of our mall to GDP, and we are exercising -- we intend to exercise that same strategy in Macao. So, service departments are a piece of that, a part of that realizing real estate value of a noncore asset.

Okay, great. Thank you.

A follow-up question from Bill Lerner of Prudential.

Just to follow-up along those lines actually, you gave us a couple of pieces to try to figure the value of your 1.5 million square feet of retail space in Cotai, including the cap rate and the square footage. But what are you guys seeing as kind of revenue per square foot in kind of the comps that you're using? I know it might be different than -- given the bulk of square feet in Cotai, but it will just help us kind of get in the ballpark with what it might be worth.

Well, I don't know that we can disclose that. I mean, we are very optimistic about the values that can be driven in terms of per-square foot rentals that can be generated. I think one needs only to the next door at Hong Kong to see what the market potential may possibly be. If we can come in at a third to a half of what Hong Kong generates, we would have an extraordinary asset.

Okay. We've, in the past, used 70 to $80 per square foot. Is that out of a ballpark, when you did that analysis?

Well, the person most directly involved in that process is Rob Goldstein, and we are just discussing the revenue per square foot. While we can't disclose it, there's some fishing going on out there (LAUGHTER).

Where we think the revenues per square foot are. But I would say that if the revenues in Macao -- or probably in Hong Kong, you know, are -- you know, as far as the rentals are north of 200 and sometimes north of 300 in higher quality places -- that we would expect to do better than your indication. But that's just a ballpark.

Jake Cohen (ph), Banc of America Securities.

Good morning I guess, still, and (indiscernible) those numbers are conservative or at least attainable. I've got a couple of questions just going back to some of the things that we did talk about with respect to Macao, Bill, just because, at one point, you did say the month-to-month events could be a bit lumpy. Then at the same time a little bit later, you said that you're not seeing it in those dropped numbers obviously -- fairly significant on the VIP aside. Can you confirm that you're hold was at least pretty close to normal for the month of July, whether it be the mass segment or VIP or overall?

Then also I was wondering. Is it fair to say that, as we look at some of these numbers, because we are all trying to understand this a little bit better, when these numbers come out, that even though visitation is ramping, that a handful of players still really can move the needle significantly month to month? Because that's what it seems like it has been for a good part of this year.

Well, the answer to the first question is no, we can't confirm what our hold percentage looks like for July.

But secondly, yes, I guess a handful. With the VIP room activity -- with such a large percentage of the marketplace being driven by VIP room activity, what happens in some of Stanley Ho's VIP rooms, with a relative handful of players, can affect what the market growth statistic looks like. With those VIP rooms taking bets of $250,000 a hand, there can be significant swings month by month. So, I think it's better to step back, look at the macro growth statistics, look at where things are going generally, and not necessarily react. So one of the reasons why I've kind of discussed that is that, you know, we see a lot of kind of call it knee-jerk reaction to a change which is a relatively slight change in terms of month-on-month comparisons and year-on-year comparisons. Because you know, I think, if you look in the longer-term and you look at kind of the macroeconomics there, there is no question that the growth trend is pretty extraordinary and that it will continue to be so. There are going to be some lumps here and there, quarter to quarter and month to month.

Okay, thank you.

Sir, that was your final question, so I will hand the call back to you for your closing comments.

Well, I don't know that there are a tremendous number of closing comments. I think we are satisfied with our quarterly results. We could have held a little better and looked a little better in Las Vegas, and I think the numbers would have been improved. But I think the actual gross statistics here in terms of occupancy, ADR, drop, volume, etc., are holding extraordinarily well, growing year-on-year. Again, with the opening of Wynn, the effect was a positive as opposed to a negative and we see that effect continuing.

We had a great quarter or a very good quarter in Macao. We see the volumes continuing. When we talked about the gross numbers as we get into July, we look forward to growing that market base even more. I think the most encouraging thing for us on a macro basis in Macao is to not only forecast where things are going but actually experience the kinds of volume increases that we are seeing there. We are encouraged by the increase in the VIP play there and as we bring more representatives on line, we just see more and more Rolling Chip volume coming in through the door. Even more importantly, as even as new capacity is thrown at the marketplace on the mass side, we see our mass base growing, which is extraordinarily encouraging. Then we see that double-digit year-on-year growth in terms of slot handles. So we are very encouraged by the macro trends in Macao; we are encouraged by what's happening there literally on a daily basis. We are beginning to really begin to see the results of our marketing activities and the differentiation of the marketplace between the product that we built and the products that have been there for years.

So, with that as an outline, I thank you for your attention today and we look forward to reporting even more improved results as we move forward. Thank you for your attention today.

Ladies and gentlemen, that concludes your conference call. You may now disconnect.