拉斯維加斯金沙集團 (LVS) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Las Vegas Sands Corporation First Quarter 2006 Earnings Conference Call.

My name is Onika and I'll be your operator for today.

At this time, all participants are in a listen-only mode.

We will conduct a question and answer session towards the end of this conference.

If at any time you need assistance during the call, please press star zero and a coordinator will be happy to assist you.

As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes.

At this time, I would now like to turn the call over to Mr. William Weidner, President and Chief Operating Officer.

Please proceed, sir.

Thank you, Onika, and good afternoon everyone, and thanks for joining us today.

With me today are Mr. Sheldon Adelson, Chairman of our Company;

Mr. Brad Stone, Executive Vice President, Mr. Scott Henry, our Chief Financial Officer; and Mr. Rob Goldstein, President of The Venetion Las Vas.

Before we begin I need to once again 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 caution you that the Company's actual results could differ materially from the anticipated results of 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 EBIDAR, which are non-GAAP measures.

A reconciliation of those measures to the most comparable GAAP financial measure is included in the Press Release.

Please note that this presentation is also being recorded.

Those of you that follow the Sands Corporation know that 2005 was a very important highly successful year for the Company.

Our financial performance reached record levels and our development activities produced an exceptional pipeline of growth opportunities.

I am pleased to report that we've maintained that momentum on all fronts in our first quarter of 2006.

From financial, operational, development and execution perspectives we've made substantial progress.

Some of those highlights include the first quarter net revenues that came at 530 million.

That's an increase of over 31% over the first quarter of 2005 and marks an all time record for the Company.

First quarter adjusted EBITDA came in at nearly 205 million.

That's a 23% increase over the first quarter of 2005 and also marks an all time record for the Company.

We completed a number of targeted capital improvements at our operations in Las Vegas and Macao, which have not only enhanced our competitiveness, but also improved the bottom line.

In Las Vegas construction on our Palazzo core is at level 14 and our Macao construction is at level 35.

We made significant progress in executing the development of the Cotai Strip in Macao, which I'll talk about in greater detail later.

We have continued our efforts to secure additional development opportunities to add to our growth pipeline.

We have added senior executives in both operations and development functions to help in the execution process.

And finally, we've taken steps to enhance our financial position ensuring that we have the capital and flexibility to fund our growth initiatives and pursue new opportunities going forward.

Turning to our quarterly results, we started year 2006 with a record first quarter reflecting strong growth across the board at both our Las Vegas and our Macao properties.

In Las Vegas we delivered strong results in each component of our business, hotel, casino, convention and food and beverage.

Our Las Vegas EBITDAR came in at just over 101 million.

Table games volume was up 17.6% over the same quarter last year, while hold came in within our expected range at 22.1% versus last year's first quarter hold of 23.8%.

We had the best first quarter in the history of the property in the hotel and food and beverage side of the business.

The recent expansion of our meeting facilities continues to provide us with both greater capacity to book group business and increased booking flexibility.

Increased group business led the way to delivering a first quarter RevPAR increase of 4.6%, driven by an all time high occupancy rate of 99.9% and an ADR that also increased $249 and if catering revenues are added to room revenues and divided by available rooms, the rooms in catering RevPAR grew from $304 in the first quarter of 2005 to $333 in the first quarter of 2006, an increase of nearly 10%.

This result highlights the value of the sustained competitive advantage of our original convention based business plan and bodes well for our ability to foster continued same store RevPAR growth in the years ahead and for the opening of the Palazzo in the third quarter of 2007 which allowed us an expansion and extension of that strategy to a significantly larger asset base.

Later we will touch on our plans to add over 1 million square feet of additional meeting and convention space to further drive business for our Venetian and Palazzo complex.

Targeted capital improvements at the Venetian continue to bear fruit.

The opening of the Paiza club and the renovation of our high-end suites have played an important role in our ability to attract more premium customers and grow our high-end business in Las Vegas.

Given the success of our Paiza club, we continue to invest in our high-end suite capacity and we're in the process of renovating our three Presidential suites and establishing our 34th, 35th, and 36th floors here at the Venetian as an identifiable VIP enclave.

As we've noted in the past, an important component of our high-end strategy is our cross-marketing efforts with the Sands Macao and at its Paiza club, particularly as we establish a relationship with an increasing number of VIP players in that region and as we increase our Paiza club capacity in Macao.

Our strong Las Vegas baccarat business growth reflects the success of that strategy with baccarat drop increasing over 40% this quarter compared to first quarter last year.

Turning to our entertainment offering, we're very pleased at the response to Tao and Blue Man Group, both opening last fall.

Tao and Blue Man have generated significant traffic and clearly represent an additional dimension in terms of overall ambiance and appeal of the property, particularly to a younger market demographic.

In April, we opened our new 39 table state of the art poker room further broadening our offering to this market segment while generating incremental traffic.

As we look out at the remainder of 2006 and into the year 2007 we've initiated projects designed to further strengthen and re-merchandise the Venetian, both in terms if its general appeal and in its ability to produce incremental cash flow.

The new 1,800 seat Phantom Theater hosting Phantom of the Opera, the Las Vegas Spectacular, remains on track for a June opening.

Advanced ticket sales for the production, Phantom Las Vegas Spectacular, are extremely brisk.

Construction continues on a third theater, adding 800 more entertainment seats to our offering.

The theater is expected to open in August with a show by the celebrated comedian and entertainer, Cory Brown.

Mario Batali, the award-winning chef, will open a new restaurant at the Venetian later this year.

The restaurant will be modeled on his highly successful New York creations of Babbo and Lupa.

Phase II of our pool deck renovation, which includes the completion of upgrades to the balance of the pool area, the addition of more luxury cabanas and the creation of our new Tao beach area, an elegant and sophisticated European style pool-deck area, will be completed by this summer.

In terms of our room product, we're in the planning process to complete the renovation of all of our all suite rooms in the Venetian Tower.

It's likely to commence later on this year.

The renovation process will update, improve and contemporize our Venetian rooms, while minimizing disruptions to our current business.

These initiatives illustrate one of the advantages of building a large all suite building with a timeless Venetian theme.

We can reconfigure, reinvent and re-merchandise the property from a base that does not limit re-positioning.

For example, our large all suite rooms can be continually renovated and contemporized.

No one has yet come up with the ability to make a 400 square foot room larger.

No one has invented yet a wall stretcher to accomplish that, so having a timelessly themed base building originally designed as an all suite product with a strong retail presence, restaurants and entertainment offerings that can be continually refreshed and re-merchandised, which also happens to be interconnected to millions of square feet of meeting and exhibition space, provides a distinct competitive advantage for sustaining long-term market leading positioning.

Construction of the Palazzo all suites resort remains on schedule for their third quarter 2007 opening.

Our retail leasing activity at the Palazzo mall is also going well led by our agreement with leading retailer Barney's of New York to provide an anchor to that mall lease-up process.

Finally, we're currently in the process of working through the county approval process to add a new 1.1 million square foot convention facility to complement our existing Sands Expo and Convention Centers.

Assuming the approval process continues to progress on a timely basis, completion is expected in spring of 2008.

This expansion along with the Palazzo opening in third quarter 2007 will allow us to book more larger groups creating incremental group demand for our rooms and creating the expectation of a positive impact on room rates and RevPAR at the Venetian and at our new Palazzo, again, opening in third of '07.

Turning now to our performance activities in Asia, our Sands Macao property turned in another record quarter generating adjusted EBITDAR of over $130 million, up over 50% from the same quarter last year and, more importantly, in the traditionally seasonally soft first quarter.

We're particularly pleased with the momentum in our mass casino business.

Despite significant increases in mass table and slot capacity in the Macao market the total number of tables have increased by 40% in that marketplace year-on-year and slot capacity has increased by 60%.

And the addition of tables and slots at our own Sands Macao we've added 80 tables and 90 slots on a year-on-basis.

Despite those additions to capacity, the win per table per day and win per machine per day actually increased.

That's a remarkable performance, particularly in the traditionally weaker first quarter.

At the Sands Macao, mass table drop reached 11.7 million per day in the quarter.

That's up from 9.5 million per day in the first quarter of 2005 reflecting both, the success of our promotional programs and our expanded capacity.

We actually opened our level that we call the Fortune Gaming area adding 28 additional tables in January and added another 52 tables by reconfiguring the main floor over that same period.

Slot handle grew 78% reaching 247 million.

Our win per table per day, our win per slot unit per day growth, despite larger increases in capacity, support our belief that we will continue to see outstanding growth in both, our mass table and slot business over the longer-term, despite the addition of new capacity to the market place.

This is particularly gratifying news to us providing further validation of our innovative approach to the Macao market.

When we developed our strategy for Macao back in 2001 we communicated to the markets our view that the mass market in Macao would grow dramatically, as the right type of product was introduced into the market place.

The lynchpin of our strategy in entering the Macao market was our belief that the principle drive for Macao's future growth would be the growing Chinese economy, the rapid rise of Chinese disposable income and emerging consumerism.

We said we would focus on that growing mass market first and then follow-on with developing the VIP market.

The success of our Sands Macao validates the efficacy of that initial part of our strategy and supports the rationale for our broader strategic direction in Macao.

In the next step of that strategy we said we would build a Venetian Macao, as Asia's first true Las Vegas style mega-resort complete with thousands of all suite rooms, major themed grand canal retail space, large convention facilities, Las Vegas style show rooms, an MGM Grand garden style arena, hundreds of thousands of square feet of casino space and thousands of slot machines to appeal directly to that new emerging market, the mass Chinese consumer.

Addressing that market with a full Las Vegas style product, something entirely new and compelling to the market place.

We also said that development of Asia's Las Vegas strip would maximize the opportunity created by that growing Chinese economy, the Policy Directors of Central Government of China and in the longer-term increasingly consumerist Chinese middle class.

So how are things turning out five years later?

I'll have to say pretty well so far.

The statistics concerning the increased Macao visitation from Mainland China up 19.8% in the first quarter 2006 compared to first quarter 2005.

The rapid growth of the mass gaming market in Macao up over 40% this quarter compared to the quarter one year ago, the continuing support of Policy Directors of the Central Government with respect to the special administrative regions of Macao and Hong Kong, all continue to support and validate that original strategy.

In addition, the expansion of the individual visit scheme, the IVS scheme, with 19 more cities being added just this week, the increases in the amount of Chinese currency that may be converted to hard currency by Chinese visitors and the continuance of retail goods taxing policies favoring Hong and Macao's retail and tourism sectors all bode well for the future growth of the Macao market and the strategy we put in place to capitalize on that growth.

We believe these continuing positive trends validate our original strategy to maximize the emerging opportunity.

The multiple expansions of the Sands, the creation of the Venetion in Macao, the development of the Cotai strip with its convention, malls, hotel and entertainment attractions and the pursuit of Henjqin Island, a 1,600 acre Summerland style vacation home development in Mainland China next to the Cotai strip, are all pieces of that broader strategy.

Returning to the quarter results of the Sands Macao on the VIP market side, rolling chip volume came in at 3.7 billion in quarter one compared to 885 million in the first quarter of 2005.

We are pleased to report that we remain capacity constrained, as we ramp up on the VIP side of the business, particularly during peak playing times and look forward to the opening of our Paiza Club expansion later this month.

That expansion will add 16 VIP tables, an incremental capacity increase of 30% to the Paiza Club to accommodate the needs additional junket reps and sales agents that will contribute to our high-end sales network.

That will add strength to our Paiza marketing activities in Asia to directly support Macao and indirectly support Las Vegas.

Another trend that we recognize early continues to evolve, increasingly affluent mainlanders earning hard currency due to their exporting activities and additional favorable policy directives from the Chinese government.

For example, as of May 1st, Mainland Chinese may now convert 160,000 RMB, the equivalent of $20,000 U.S. annually, to hard currency to be used for investments outside of Mainland China.

This is an indication of the future direction toward a more freely tradable currency, which portends greater growth for Macao, particularly for the VIP room revenues.

Our strategy for growth and expansion in the burgeoning Asia market remains clear.

At the Sands Macao, as I mentioned a moment ago, we will open our Paiza Club VIP market expansion later this month.

The balance of our podium expansion, which will add over 250 mass tables and nearly 300 slot machines to our current capacity, remains on track for an August opening.

Upon completion of the program we expect to have a total capacity of between 700 and 750 tables and 1,200 slot machines, over three times the initial capacity of the Wynn Resort opening in September, capacity to meet the increasing importance of the mass market we identified and targeted as early as 2001.

Construction of the Venetian Macao, which will anchor the Cotai strip, remains on schedule for summer 2007 opening.

We have now reached floor 35 of 39 total floors and will be topping the building off by the end of this quarter.

On the remainder of the Cotai strip we're continuing to make significant progress in all aspects of development.

As we've related before we've entered into non-binding letters of intent with Four Seasons, Hilton, Conrad and Starwood, Sheridan and St. Regis brands.

We expect to sign definitive agreements this summer.

We've already signed definitive agreements with Shangri-La covering the Shangri-La and Traders brand.

Agreements with additional operators for the remaining sites on the Cotai strip are under negotiation.

On the retail side we continue to make incremental progress in leasing the malls on the Cotai strip.

At our last update one month ago we announced that we had reached commercial terms with more than 115 premium retailers on almost 400,000 square feet of retail space.

Today, thirty days later, we have continued to make steady progress and I am pleased to report we've reached commercial terms with additional parties and now have come to terms with more than 135 retailers, which will rent over 500,000 square feet of retail space with base rents averaging well in excess of $130 a square foot and percentage rents ranging from 10 to 18%.

That represents over 40% of the approximately 1.2 million square feet of available space in the Grand Canal shops and the adjoining mall at the Four Seasons in Macao.

We're negotiating the definitive leasing documents with these retailers at this time.

We're also pleased with the enthusiasm of our retail customers on the Cotai strip, a number of whom have expressed an interest in leasing additional space from us in the malls we plan to construct in conjunction with the remainder of the strip itself.

This additional Cotai development will add another 2 million square feet of retail space.

As we have related in earlier discussions of our mall leasing activities in Macao, we believe that the steadily increasing sales per square foot results reported by retailers in Hong Kong fueled largely by mainland Chinese shoppers drawn by the approximate 30% tax advantage of purchasing luxury goods in China's special administrative regions of Hong Kong and Macao, continue to validate our strategy of developing valuable non-core assets to both attract patrons to our properties and maximized returns on investment.

Turning now to the development of our Macao convention business, we will be reporting formally next week that we've secured binding commitments from a number of trade show organizers, including Reed Elsevier for a multi-year agreement on multiple shows with the world's largest trade show organizer and the AAPEX, the Asian Automotive Aftermarket Products Expo, the Asian version of a large important trade show that we've hosted here in Las Vegas for fourteen years, as well as a number of other shows.

In addition, we've received dozens of additional expressions of interest from other trade shows to be produced at our Venetian Macao convention and meeting facility.

Turning to our entertainment offerings on the Cotai strip, we announced earlier this week that we have reached an agreement with Cirque de Soleil to provide a permanent home here, their first in Asia in our Cirque de Soleil Theater at the Venetian Macao on the Cotai strip.

My French is a little wanting here.

An additional benefit of the extension of our strategy to develop integrated retail, convention, trade show and entertainment offerings for our Venetian Macao on the Cotai strip is the growing realization that, both in Macao and Mainland China, that our activities demonstrate our confidence in and commitment to making Macao a world class, multi-faceted destination, which is not solely dependent on gaming, just as Las Vegas strip has become.

This advantages us politically both in Macao and in Mainland China.

To that end we're looking just a few hundreds away from our Cotai strip towers at 1,600 acres of land on Henjqin Island in the Peoples Republic of China, which would provide us with a tremendous opportunity to leverage our presence in Macao and realize both the derivative real estate value of the Cotai strip and the ability to fuel the strip with patrons occupying second homes only several hundred yards away.

Think of it as a housing expansion of the Cotai strip, Cotai West, if you will.

We are making great progress with our master planning work.

We continue to discuss the approval process with the government of the PRC.

We remain enthused about the level of interest we're finding in terms of branded amenities, partnership interest and government support and Henjqin Island development continues to be subject to receipt of the necessary government approvals, but we're working diligently toward that end.

As most of you know, we're in the process of closing a $2.5 billion senior secured credit facility to fund our near-term growth plans in Macao.

That includes the Sands podium expansion, The Venetian Macao and the Four Seasons, as well as funds to start construction on our two additional complexes for sites five and six and predevelopment activities three, seven and eight.

We expect that facility to close shortly.

In terms of other development activities worldwide, we're continuing to pursue many promising opportunities.

In Singapore we have filed our proposal for a spectacular project in the Marina Bay site to be called the Marina Bay Sands.

The Marina Bay Sands proposal includes plans for an integrated resort with 2,500 hotel rooms, 1.2 million square feet of flexible meeting, incentive, convention and exhibition space, the so called mice market business, an additional 1 million square feet of retail space, three large entertainment venues and 160,000 square feet of gaming space, which will include our high-end Paiza Club brand.

As is the case with an emerging China driving an expanding North Asian economy the growing Chinese economic engine, along with that of India, will bode well for the economies of South Asia, particularly Singapore.

We believe that we are the beginning of the Asian century and look to use our huge footprint in Macao in North Asia with millions of square feet of meeting and convention facilities, thousands of mass and VIP gaming tables, thousands of sleeping rooms and millions of square feet of retail space to build a relationship with Asia meeting organizers, junket and high-roller sales agent, tour group organizations from China, Japan, Korea and elsewhere and with international retail brands.

We'll use these relationships in Singapore, Las Vegas and elsewhere to bring real value to the jurisdictions that we operate in, to expand our integrated convention resort business model, as other nations seek to adopt casino based developments to augment their tourism economies.

Specific to the Singapore bid, we believe our large footprint in North Asia differentiates us from our competitors there and singles us out as the only bidder who can underpin claims for the maximum success of a Singapore integrated resort with both real world results on the ground and on rival breadth of relationship with partners and customers in North Asia.

By way of illustration, according to the World Travel Organization forecast, North Asia will be the source of almost 300 million exit travelers annually by the year 2020 tripling from today's count with China alone expected to grow from about 30 million in 2005 to over 100 million visitors out of North Asia in just that fifteen-year period.

When we look at additional ways to take advantage of the valuable footprint we're developing North Asia we do not limit ourselves to Singapore.

There are many intriguing opportunities around the globe, particularly in Europe, that we're constantly evaluating based on their potential opportunity.

You might expect to hear from us about that in the very near future.

On the domestic front we have filed our application with the state of Pennsylvania for our proposed development of the abandoned and subsequently acquired by us Bethlehem Steelworks in downtown Bethlehem, Pennsylvania, the closest casino to New York City, less than an hour's drive away from the affluent northern New Jersey suburbs of New York.

We expect to hear by the end of the year whether we will be granted that license or not.

I know this all sounds like a mouthful, but we remain focused on executing our step-by-step plan.

At the same time, we continue to develop a pipeline of extraordinary opportunities to propel our growth strategy forward.

As I mentioned earlier, we have added two Senior Executives to our team, Mark Brown, formerly the COO, President and CEO of the Trump organization, has joined our Macao operating management team and Michael Schindler, former Senior Vice President of Development for the Hyatt organization, has joined our development team.

We're finding the attraction of our growth platform to be a compelling factor in recruiting highly talented executives interested in professional growth and to share of the future value to be built by the execution of our plan.

It's gratifying to see our strategic vision being realized and it's clearly an exciting and energizing time, both for our Company and for its management team.

And with that, I will now turn the program over to the operator to begin the Q&A session.

[Operator Instructions] Your first question comes from the line of David Anders with Merrill Lynch.

Maybe you could give us a little more on the timeline and what's required for Henjqin Island, as far as I know there was certain levels of government you had to go through.

Could you bring us up to speed on where we are and what's left and if there's anything we should be monitoring to kind of keep track of the progress?

As in any development involving applications to the central government of Mainland China, it's always extraordinarily difficult to figure out a timeline.

All we can say is that our local authorities that we interface with at three different levels-- that's at the [Duhai] City Planning level, at the Provincial level in Guangdong Province and at the regional level in the nine plus two, all are telling us how to step forward in the time frames that we need to make our submissions within.

They have indicated to us that, of course, the next steps are to Beijing.

They package up all the information we've provided to them, their endorsements and we receive endorsements from each of those there levels.

We now make the submission to Beijing.

I think I had mentioned last time we were going to be making that submission right around now and we've already made that communication.

And now, really it's up to the Central Government to determine whether our project fits with their overall strategic plans and the strategic plans for the Pearl River Delta Region.

We believe we've touched all the bases.

We think this is a picture postcard example of the kind of development that they want for the expansion of the tourism business there.

We're confident from that regard, but no one can be 100% confident in the Central Government's decision either from the standpoint of its ultimate decision or the time that it takes to make that decision.

So all we can do is provide you the best information that we have and keep our fingers crossed, quite frankly.

And I'm not sure there's anything that would publicly help validate because these things tend to be done quietly because of Asian face issues and the government itself wanting to make sure that it goes through its process.

And all we can do is try to provide you the best information we can from our perspective as we move along.

Just as a follow-up, Scott, maybe you could comment on development expense.

How should we think about that going forward because it is a lumpy line item?

Development expense in terms of the rollout and how it's spent, David?

Just absolute dollars because the 9 million was a fairly large number and I'm wondering is it going to stay at that rate for the next several quarters or drop back to that $5 million rate?

Look, I mean Singapore represented a little more than 100% of the increase over the last year in this quarter.

You're right.

It is going to be lumpy, David, and because we're chasing after things that seem to make a lot of sense to us, different things heat up at different times.

I think the number is a bit larger than you could probably expect to see on a recurring basis every quarter but again, it's going to be lumpy.

Your next question comes from the line of Lawrence Klatzkin with Jefferies.

A couple questions here.

As far as your option expense compared to your competition seems on the low side.

I know you're ramping up and you're getting a lot of new good people.

Could we expect that as people get compensated that the option expense should go up?

Our option expense is lower than other in our space and as we add people to the mix of Senior Executives, what do you expect would be the option expense going up, that's his question.

Well the new employees are so happy to be with us they're willing to take fewer options.

By the way, Larry, how come you weren't first on the Q&A?

David needs his time.

Larry, it's safe to see you would see increasing options expense as we attract more people to the organization to be able to actually exercise this.

I'm not sure what the average is among our peers.

I know it's much larger than what our option expense is now because we're a newer company, but I think you would expect to see a gross growing option expense, but I don't think you'd see it approach that of our closest competitors.

As far as just some housekeeping, our timing of CapEx over the next year and by quarter if you guys could give some indication on how it's bouncing up and down?

You always ask that question, Larry.

I enjoy it because I always answer it the same way.

For the balance of the year, we're not going to break it out by quarter, but for the balance of the year we forecast capital expenditures of $1.8 to $2 billion; 1.2 to 1.3 billion of that amount we expect to spend in Macao on a combination of the Venetian, the Sands podium expansion and some additional development work on sites five and six and site two predominantly, as well as a fair amount of site work, design work and other preconstruction work on sites seven and eight.

The balance we expect to spend in Las Vegas, lion's share of that on the Palazzo.

Now, seasonality, do we see seasonality on any quarter at Macao, what should we be expecting now that you guys have been in there a little while?

Brad, I think Brad has a good handle on that.

I think, yes, we're starting to get a sense of it.

It was a little challenging, as always, because the rules are always changing about how many people let in, as Bill said, just this week more people are allowed on the IVS team.

But certainly, as we mentioned in our conference call, that the first quarter is probably going to be our weakest quarter overall.

Believe it or not that's because predominantly Chinese New Year.

Chinese New Year over there, while it's successful in Las Vegas part of the reason it's successful in Las Vegas is why it's not as successful in Macao.

A lot of the higher-end wealthier people travel during that time period and a lot of the gamblers, quite frankly, enjoy the time to come to Las Vegas.

On the mass side, Chinese New Year's is kind of an interesting holiday where it runs for about ten days, but the first five days are family days and, frankly, the five days after the initial start of Chinese New Year's are probably the five weakest days of our year, given the fact it also has less days in the quarter.

I think we'll continue to see the third quarter be a strong quarter.

It's a similar vacation period in China.

The mass business is very strong.

I think we'll have a little bit of disproportionate amount of mass versus high-end during that time period.

Obviously, that's higher margin business for us, so that should be both a good volume quarter as well as a good margin quarter.

And then the two shoulder periods, which I think will be very similar are the second an fourth quarter with good solid business, not as strong mass business during the third, but perhaps better quality high-end business during the shoulder periods between the first and third and between the third and the first quarter.

You said more money is being allowed to come out of China for individuals.

Could you give us exactly what we're talking about here?

What I mentioned when I talked about that, that's a brand new policy that was just adopted week-- or announced last week.

The illustration I was making there is that central government has said, okay, now it's okay for Chinese to cash their soft currency for hard currency to make investments directly outside of China.

All of this is another policy direction.

I think the key think I was trying to point out is the central government of China is a little like an oil tanker.

You can't turn it on a dime and when you see incremental decisions being made out of central government and they support an overall direction, I think you can be confident that oil tanker will continue in its direction.

It can't and won't turn on a dime.

So while over the last couple of years we've seen direct benefit of Chinese being allowed to bring more and more soft currency, turn it to hard currency and come gamble with it.

Another announcement by central government of another way of converting soft currency to hard currency, even though they talk about investments, it's just another data point to follow.

I think it's pretty clear that eventually over some time horizon the central government will, in fact, go to an open currency policy.

If they go to an open currency policy that's a huge development for us, particularly as it relates to the VIP business.

Right now we deal with a lot of middlemen between the owner of currency and the gambler at the table.

If the currency is opened all together then that changes the game altogether, so it's a big, big development for us.

We see that over some time horizon over the ensuing years as being another huge jump in the ability of that market to generate more income.

So I only used it as an example of a data point.

Currently though the individual visitor coming can-- I think the daily amount that they can actually convert I think is in the area of 6,000 U.S. and that's on a 24-hour basis.

They can wait 24 hours, hit the ATM machine and draw down another 6.

And that's up from like $2,500 when we opened the Sands.

Right.

So that directly goes to the mass market and we think that policy will continue on the high-end, as more and more people are allowed to bring larger amounts of money out, that helps the VIP market.

So I was only pointing that out by way of illustration.

Your next question comes from the line of Bill Lerner with Prudential Equity Group, LLC.

Two questions.

One, you know my sense is the strength of the IVS scheme probably becomes more obvious as infrastructure moves along.

Can you give us a sense of this general-- maybe provide us an additional level of comfort as competitive supply comes online near term?

So for example, what's the update on the capacity increase to the [Lotus] bridge and so forth and then I just have a quick follow-up?

I don't think it's as much driven by capacity, as it's driven by product.

I mean the Mainland Chinese put up with a lot to move from one place to another.

I mean if 300 million people move from one city in China to another city in China during their holiday breaks they're putting up with a lot of lines, a lot of difficult ways of getting, as I say, from one place to another.

The more compelling the product, not that infrastructure isn't a part of the equation, the more compelling the product in Macao the more penetration there will be in the IVS scheme.

I think the last statistic we looked at was only about 1.2 or 2% of the total people who are allowed to come to Macao under the IVS scheme have actually done it.

What it means is, is the more compelling that the product is as a destination in Macao, a higher penetration will be made.

I think in the U.S., the statistic as I recall, it was about 11% or something--?

Las Vegas is about 14% of the U.S. population.

Atlantic City is like 70% of its market, so.

So we would expect to have a very high penetration of the Guangdong market in terms of multiple visits and it should be more like Atlantic City and as Macao becomes a legitimate multi-purpose, multi-faceted destination marketplace I think we'll go from 1% or 2% to something closer to what Las Vegas is.

And so that's the huge value of the upside to that IVS scheme.

That's helpful, Bill.

And then just a follow-up, if you do get Marina Bay would it be your strategy-- and I don't know what you want to say here-- but would it be your strategy to sell that 1 million square feet of retail space like you have, obviously, in a few cases in Vegas and like you are in Cotai or is there something that would preclude you from doing that in that market?

Well, the answer is there is something that precludes us from doing it.

We'd love to be able to do it, but we can't.

There is a ten-year moratorium on selling the mall space, but we think it's a terrific asset.

We think that asset then helps drive our yields out of Singapore.

We think it's just part of the overall program.

We're looking for ways to see if there's some opportunity to monetize it in some way or another, but right now the government say's that we cannot do it, so we can't do it.

Your next question comes from the line of Celeste Brown with Morgan Stanley Dean Witter.

Just in terms of the convention business that you mentioned, Bill.

How does that relate to the announcement you made I think at some point last year also relating to conventions?

I think it was maybe relationships at that point and this is direct trade shows themselves.

Well, we talked in terms of the twenty letters of interest or commitment or whatever you call it from the individuals.

As I say, next week it looks like we'll have a more definitive update.

And so what we're doing we're turning those letters of interest now into definitive agreements and, as I've mentioned, I only mentioned two of the shows that we'll be talking about next week in a more formal press release, but we've also added more expressions of interest, so the pipeline in converting twenty to a number of shows will then be refilled by letters of intent that then get turned into actual contracts.

So probably be better next week when we actually announce those commitments and signed agreements that are either in the mail or on the desks of certain people to get a better sense of it, but I just wanted to provide a glimpse of where we are in the convention process there and give the markets a sense that we do have momentum on that side.

Great and then, in terms of the high-end business you're new to the business I guess in the market.

Do you anticipate moving some of your business to the Venetian when it opens or do you think the high-end business at the Venetian will be incremental to what you're getting at the Sands Macao today?

I think we're going to see-- it's going to be-- it's certainly the people that are enjoying the Sands Macao are going to want to see and be involved and we'll have a lot of cross-marketing between the two properties, but I think the Venetian is such a unique asset in terms of its infrastructure.

We have an excellent infrastructure on a limited basis in our current facility at the Sands.

We'll multiply that by 10 in terms of what we'll be able to deliver through the Venetian product, both in terms of spas and suite products, restaurant options, entertainment options, as well as a very significant Paiza Club with same type of services and in some cases because of the fact we have physical room, even superior services.

So I think the answer is we are going to generate and see a lot of new market that as product in Macao becomes better, more room product is available for people to stay overnight.

I think that was mentioned yesterday on the Wynn call.

We believe similarly that as product gets better that we're going to expand and be a more acceptable gaming product to, not only the mass market, but the very high-end market as well and the Venetian will definitely on that.

From a strategic perspective what we did, if you think of the Sands on Peninsula or Macao, and most of you have been there and see where it's positioned, positioned next to the ferry terminal, next to where the helicopters land from Hong Kong.

As we looked at this thing strategically and said there will always be a day trip market to Macao.

It's not necessarily going to go away, so the Sands is aimed at that day trip market, both on the high-end for a convenience situation or from the helicopters and on the mass end in terms of people going down Avenue [Amazad] as they progress on their visit from Hong Kong.

So strategically the Sands was always positioned against that convenience buy on the high-end.

And then the strategy on the Venetian Macao was the multi-day stay, so there'll be a little bit of difference, but longer term stay people also come to -- a little bit of overlap, I guess you would say, also come right now to the Sands Macao, but we see them as being very distinct marketplaces and so we think that Venetian is largely incremental.

Celeste, you said at the beginning that we said that we were moved to the high-end market I'd just like to correct that.

We have not moved to the high-end of the market.

The only hesitancy we had going into that market was the limit of the bet when we first opened in 1999 here at the Venetian, but before the end of the first year we were up to par in terms of the maximum allowable bet with our competition.

In Macao we certainly are very aggressive on the high-end market.

Our hesitation in Macao was simply to make sure we wouldn't loose our license in Las Vegas.

And so, the initial months we were trying to put the procedures in place, money laundering, other kinds of things to make sure that we were fully prepared to then move into the more sophisticated, I guess you would say, high-end market there in Macao.

Your next question comes from the line of Robin Farley with UBS.

Can you talk about the timing for pre-selling any residential space in Macao?

We are in the process of recruiting the sales and marketing organization at this time.

We intend to build preview apartments in both Macao and in Hong Kong and we're on the move.

We're starting that process now, but the first things we had to focus on was the retail in terms of the code real estate marketing activity because the lead time to get that sold and designed and up is much longer than ordinary apartments or we'd prefer to call them vacation suites.

And, so the vacation suites have been designed and that's it.

I mean we don't have to wait until they get the interiors designed and built before we can sell them like the retail, but we'll be very aggressive on that.

Our first project is 600,000-- well, we said 600 apartments about 900,000 to 1 million square feet in the standalone building on the Four Seasons Property that we called The Residences at Four Seasons and they’re larger than the average size, so instead of 600 I think they'll be more like 400 of a larger average size, but we still hope, and expect, to get the number that we're looking for.

I think the important thing to point out is the strategy for the vacation suites is similar to the strategy for our mall.

By developing a non-core asset and then, call it monetizing that asset and then reutilizing that asset as an attractor for incremental business.

So if we're successful in selling vacation suites to wealthy Chinese, they either put it in a pool or they come visit it themselves and not only do we create real estate value, but we create additional reasons for wealthy Chinese to come and visit, so it's much like the mall.

Once the mall was developed and whether it's monetized or not it continues to be an attractor of mass market because it's a good place to come, just like here in Las Vegas.

It's a similar strategy there exercised both in the mall market as well as what we call these apartments, and we don't want them to be perceived as places where people live because they're not intended for places for people to live.

They're places for people to come and visit the Cotai strip for longer periods of stay than simply a transient single room, but nevertheless they're aimed at a market that would turnover.

In other words, come and visit periodically and spend a week or more.

We're intending to open a Four Seasons in December of '07 and the apartments will be occupied, at least for [inaudible] of April '08, but if we do the kind of job we think we can do the apartments will be sold long before we open.

Will you start selling before the end of this year or--?

Oh, yes.

I believe we will.

Great and then two Las Vegas questions.

One is, I think this is the first quarter you didn't breakout the convention center cash flow separately?

I'll answer because it now an integral part of our business and so it will be just like, if you look at Mandalay Bay that would be-- well, with Mandalay Bay, should Mandalay Bay breakout it's meeting facilities.

We just thought it was more reflective of what the market does.

It's a marketing tool for the property and there's no reason why they should be broken out together.

We sort of continued to do what we've been experiencing since we opened here, so we just in the last couple of quarters we broke it out separately, but there's no necessity and there's no marketing or operational reason why we should continue that.

All right.

And then, the last question is in your introductory comments you made reference to Venetian room remodel.

Can you just give a little color on the timing of that and sort of how many rooms out of service and what period of time and the budget?

Yes, Robin.

We're working through that right now.

The timing of it would probably be towards the very end of this year.

Simply as we go through the planning process, the selection process we will be building a number of model rooms and selecting furniture, so that timing of selection and then the actual ordering and fabrication probably means the project will start towards the latter part of this year.

And our goal is to have a reasonable amount of the Venetian remodeled.

And again, this is the Venetian tower, so it's the 3,000 rooms not the full 4,000 rooms including [Vanencia].

And, again, our goal would be to have a significant amount of that open by the time we open the Palazzo in late third quarter.

The timing is such-- we're working through it, as obviously the design is going to drive the amount of time these rooms are out of order, but we're being very sensitive to really limiting-- while the room will be I think fairly totally redone.

We won't be touching things like marble and electrical and plumbing and sinks, so most of the work is what I'll call more cosmetic, new carpet, new colorations, all new furnishings.

So the disruption is not what I'll call an architectural disruption.

It's more of an FF&E disruption, so we'll probably try and find times where we can take large rooms out-- large chunks.

We may, for example, in December try and get a reasonable amount done during the week before Christmas and all, but while it will have some financial impact I don't think it's on the par of perhaps some other renovations you've seen in town where the rooms have been dramatically changed.

And we'll give you some more update probably by the next quarter when we've got a firmer grasp on the program of that.

And as to what we think is probably an unprecedented record setting occupancy of the first quarter at 99.9%, it should be obvious that-- Bill and I just went to Singapore and back in about 66 hours, so he suffers from jetlag.

I don't.

Operator, we have time for one more question.

Your next question comes from the line of Jay Kogen with Banc of America Securities.

Just a few quickies on Macao and then one on Vegas.

I understand the seasonality issue with respect to 1Q versus 4Q, as you explained.

What I was just wondering when you open the Paiza expansion here in the second quarter do you expect your VIP volumes to rise as much as 30% and are you that capacity constrained kind of on a run rate basis?

And I was also wondering if you can tell me if you thought the VIP market broadly in Macao if the volumes were up?

I see the revenues but I was just kind of curious if you had the volume of the quarter?

I don't know if I fully understand the question, but I don't think we would necessarily provide that kind of lead information.

I would point out that what we did say was that it's particularly useful during those periods when we're at peak demand, so I don't know that you straight line an increase in capacity to an increase in volume.

We certainly expected to add to our volume.

That's fair.

I was just trying to get a sense as to how much it might add capacity constrain and would suddenly be up 20 or 30%, as we're looking at our models over the next few quarters.

It's not even that.

I mean even if we had no capacity increase, it's not as though we wouldn't increase volume anyway.

It's just that it's increasing rapidly as we get better at it, and as we broaden our network, and as we separate wheat from chaff, and as we tell certain junket rep operators sayonara because you're not bringing high enough quality customers.

So there's going to be a constant weeding process and a constant upgrade process.

Capacity is really only one piece of it.

In regards to the margins sequentially the revenues were up about 10 million, EBITDA was up more.

Are you doing some things from a marketing standpoint right now?

Are you doing anything from a cost standpoint that would have had that maybe slight impact in the quarter?

Just curious if you're getting ready for more competition, if you're starting to expand the marketing to a broader base of customers as you've talked about doing before?

Can you give us any sense of that or is this just kind of the way the numbers flow?

And just so we know, are you talking about at Macao?

Yes.

We're up over 50% from last year.

I don't understand what-- it's in a seasonally weak quarter.

Well, I think-- let me address the question.

I think we had a margin of 37% in the fourth quarter, 36.1% in the first quarter.

I believe that's the number.

I think what it's reflecting is continued growth in the mix of the business on the VIP side.

There's nothing that's changed dramatically.

Obviously, we are staffing up and we had some inefficiencies as we opened a new 28 games up on the table, and that's going to occur from time to time as we bring staff on and train them it hits our operating statement before we're able to generate revenues.

So I don't think the one-- the nine-tenth of one percent change in margin could be a timing of a booking issue or anything like that.

I don't think it's material or anyway reflective of any necessary trend or pattern.

That's fair.

And then last question on Macao, in regards to conventions maybe you'll give this update when you give the more formal update coming up.

I was just wondering if it is available to talk about, can you give us a sense as to where you'll be from an occupancy standpoint with conventions for years '07, '08, etcetera?

What should we expect that ramp to be for the Venetian and your other convention facilities in the market?

It's too premature to tell you at this time.

I think it's safe to say that in the initial time, we open in the summer; we have September, October, November, December.

Those are going to be experimental times.

We're hopeful that we fill all those holes in, but I mean it's going to be one of those startup periods.

We do have shows already laid into some of those dates, but I think it'll be a little lumpy at the beginning, but then as we progress further I think it'll ramp up pretty quickly.

At this time there are no questions in the queue.

I would now like to turn the call over to Mr. William Weidner for closing remarks.

Thank you for your time and attention today and we appreciate your joining us for our conference call.

We look forward to further updates in subsequent quarters.

And once again, we thank you for your time and attention.

As I mentioned, we're all energized and ready and we're happy to share our thoughts, our projections, and well not necessarily numerical projections, but activity projections with you for the future.

Thanks, again, and have a good day.

Thank you for your participation in today's conference.

This concludes the conference.

You may now disconnect.

Thank you and have a good day.