拉斯維加斯金沙集團 (LVS) 2014 Q3 法說會逐字稿

Good afternoon.

I would like to welcome everyone to the Las Vegas Sands Corp.

third-quarter 2014 earnings conference call.

I would now like to turn the call over to Mr. Daniel Briggs, Senior Vice President of Investor Relations.

Thank you, Courtney.

Before I turn the call over to Mr. Adelson, please let me remind you that today's conference call will contain forward-looking statements that we are making under the Safe Harbor provisions of federal securities laws.

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 Forward-looking Statements for a discussion of risks that may affect our results.

In addition, we may discuss adjusted net income and hold normalized adjusted net income, adjusted diluted EPS and hold normalized adjusted diluted EPS, and adjusted property EBITDA, and hold normalized adjusted property EBITDA, all of which are non-GAAP measures.

A definition and a reconciliation of each of these measures to the most comparable GAAP financial measures are included in the press release.

Please note that this presentation is being recorded.

We also want to inform you that we have posted supplementary earning slides in our Investor Relations website for your reference.

We may refer to those slides during the Q&A portion of the call.

Finally, for those who would like to participate in the Q&A session, we ask that you please limit yourself to one question and one follow-up, so we might allow everyone with interest to participate.

With that, let me please introduce our Chairman, Sheldon Adelson.

Thank you, Dan.

Good afternoon, everyone, and thank you for joining us today.

I am pleased to report that we continue to execute our strategic objectives during this quarter despite some obvious challenges in the VIP gaming segment in Asia.

We delivered a solid set of financial results, increasing our companywide EBITDA to $1.284 billion, but who's counting?

In Macau, we achieved a third-quarter record of $809 million in adjusted property EBITDA.

In addition, we continue to return excess capital to shareholders -?

yay, dividends.

Notwithstanding the recent cyclicality in Macau, I am as confident today as I have ever been in the long-term future of our Company.

This confidence is not based on whimsical fancy, but is founded on the Company's sustainable strategic advantages.

Before I take you through some of the highlights for the quarter, allow me to spend a moment to reflect on our Company's strategic position.

First, we are the creators of the large-scale convention-based integrated resort.

As a result, we enjoy the benefit of revenue diversification, and we are able to cater to virtually every type of business and leisure visitor.

Today, well over 80% of operating profit in Macau in both our Macau and Singapore operations comes from mass gaming and non-gaming segments, with less than 20% of profit coming from VIP gaming.

I built these results in Asia to capture the long-term growth of consumer spending in Asia.

Scale, diversity and critical mass should position us well for future growth; but these advantages already allow us to out-earn our competitors, as we always have on the bottom line where it really counts.

The first half of 2014, we secured 34% share of overall EBITDA in Macau's six-player market.

Let me point out to you that the highest of the also-ran was 18.4, just -- we're just under twice and excellent.

The next one was 13.7.

The one below that was 11.2.

The one next to that was 13.4, and 9.4 was last.

We are at -?

[2/2014] -- second-quarter 2014 --we are at 33.9; but for the third quarter, we are 34% -- substantially in excess of both our fair share of table capacity and our 23% share in gross gaming revenue.

Going to EBITDA as opposed to revenue is the thing that matters most.

I've been saying this for years.

Likewise in Singapore, we generate around 60% of the total EBITDA in a duopoly market.

Second, the sheer size of our cash flows, with annual consolidated EBITDA of over $5 billion, allows us to pursue development opportunities in new jurisdiction and aggressively return capital to shareholders.

Again, yay, dividends.

Whether our growth is ripped faster or slower in any given quarter does not alter this unique strategic advantage.

When others hesitated or counseled otherwise, I pursued development opportunities in both Macau and Singapore currently -- concurrently.

As a result, I'm happy to say that the Company today can simultaneously reinvest capital in existing operations and future projects, today growing a generous dividends and continue with a judicious share repurchase program.

Now let me take you through some of the highlights of our results in Macau for this quarter.

Macau adjusted property EBITDA grew by 3.2% to $808 million in quarter-three.

The gross gaming revenues declined by 5% year-over-year versus the Macau market decline of 7%, so we out-bested the market again.

Clearly, Macau's VIP market we can further during the quarter.

The reasons for this ongoing VIP decline are well-documented and I don't think I need to repeat them here.

Everyone is talking about China reducing its growth from 7.5% to 7.4%.

That's a reduction in growth of 1/10 of 1%, which can easily be a rounding error or a meaningless loop.

I don't think anyone could perceive an economic slowdown by GDP, changing 1/10 of 1%.

I think when it turns from 7.5% to 7.6% growth, I guess it will be happy days are here again.

The important point is that growth in China continues.

The mass business in Macau is still growing at 15% per year, the envy of a lot of industries.

15% growth is still very solid topline growth, and we believe the mass business in Macau will continue to grow for the foreseeable future.

And in particular, as new supply comes online in Macau, which very clearly remains a supply-driven market.

I have been saying this for years and my words will continue to come to pass.

Also, as I have said in the past, all things in life are cyclical.

We have experienced cyclicality in Macau in the past, and we believe that the current softness in the environment in Macau today is also cyclical, and that it is only a matter of time before the cycle reverses itself.

No one has ever suggested that the behavior of Chinese and Asian people, which has been established over a 3,000-year history, is going to change.

The important point is that our strategy hasn't changed.

Our business will continue to be anchored around the mass market and the secular growth of Chinese tourism.

We have a unique portfolio that is designed to appeal to virtually every type of visitor to Macau.

Our property visitation in quarter-three reached a new record of 18.2 million, up 8% year-over-year.

Our mass table revenue grew by 15% in the quarter, while our ETD revenues grew by 33%.

Our hotel room optimization strategy continues to yield successful results.

Sands Cotai Central achieved a new quarterly record in mass table revenues, growing by 27% year-over-year -- boy, I would say that's a ramping up -- and supported by a 24% increase in hotel rooms allocated to the mass casino.

Retail sales at our malls grew by 9% year-over-year against a backdrop of declining retail sales in Macau.

The sales in our malls now account for nearly 40% of Macau's retail goods and categories in which we have a presence.

Overall, non-gaming revenues grew by 15% during the quarter.

Sands China accounts for over half -- over half -- of the total non-gaming revenues of the six gaming operators in Macau.

Out of the six, the average -- their fair share would be 16% and a fraction; we are over half, which demonstrates our clear leadership in this important and profitable segment.

Everyone likes to talk about Macau's diversification from pure gaming, whereas we are the only ones actually delivering on all aspects of that diversification.

From the outset, my commendment to the government at bringing diversification to Macau has been unwavering.

I believe diversification is important for Macau and I believe diversification is important for our business.

The financial success of our business in Macau has also allowed us to share the financial benefits of our growth with our employee team members in Macau.

We are by far the largest employer in Macau.

And we have provided generous wage and benefit growth for our team members throughout the years, as well as unrivaled opportunities for their professional development and career progression.

There has been a great deal of noise lately from certain critics, certain circuits, about the negative impact of rising labor costs in Macau.

Let me share with you that we are more than happy to increase the salaries of our employees there.

And while our employee compensation and benefit costs have increased in dollar terms, meaningfully, as we have grown in Macau from about $450 million in 2010 or 10.9% of SCL's net revenue, to what will be slightly over $1 billion in the 2014 year, approximately 11% of net revenue.

So how does that make a difference to us when, over four years, our revenue has outpaced -- our increase in revenue has outpaced the increase in wage and benefit dollars?

Clearly, our labor costs have remained very stable over the last four years when measured as a percentage of revenue.

And our rate of growth in net revenue has kept up with the growth in labor costs -- in fact, in some cases, exceeded it.

To come back to our three unique differentiators -- first, the scale of our hotel room inventory, catering to the broadest range of offerings and customer segments.

Second, our retail mall portfolio.

By the way, we have secured commitments by retailers for 85% of the retail mall at the Parisian and we are more than a year away from opening there.

Our fourth mall, The Parisian, is our fourth mall in Macau.

Third, our unique and ambitious event center and entertainment strategy, fully utilizing our advantage in having multiple performance venues, particularly the Cotai arena.

We now have a track record of bringing world-class events to Macau.

I don't believe any of these unique competitive advantages can remotely be matched by our competition, even after the completion of the next phase of their developments.

While there have been, and will continue to be, cyclical bumps along the path of secular growth, I have every confidence in our ability to continue to grow over the long-term.

We have a still underpenetrated Chinese market.

We have improving transportation infrastructure.

And we, Las Vegas Sands, through Sands China, have a uniquely differentiated portfolio of properties and product offerings in Macau.

So that completes my opening remarks on Macau operations.

Now let me turn to Marina Bay Sands in Singapore.

We generated $352 million of EBITDA in Marina Bay Sands during the quarter, while hold normalized -- normalized hold EBITDA was $15 million higher at $367 million.

Despite a 34% decline in rolling volumes, our hold normalized EBITDA is down by only 2% year-on-year.

I think this again demonstrates the quality and resilience of the cash flow generation at MBS.

Mass win per day reached -- and this is a number we have been reporting to you for the last year or two -- reached an all-time quarterly record of $4.8 million, up 7% year-on-year, principally driven by our successful efforts in bringing in the foreign premium mass customers to Singapore.

In the VIP rolling segment, we have chosen to cede some lower volume revenue and have focused our efforts on long-term profitability.

We would much rather take in the lower-cost high-end of the market and let somebody else take the much higher-cost/lower-margin end of the market.

We maintained a prudent reserve ratio -- a very prudent reserve ratio -- during the quarter, and will continue to maintain the highest compliance standards in the industry.

At the same time, Marina Bay Sands continues to serve as the most important reference site for emerging jurisdictions that are considering large-scale integrated resort developments.

It's obvious that that would put us in an advantageous competitive position as a candidate for emerging market opportunities, when the first thing they are saying is, they want in Marina Bay Sands, nice-based iconic structure.

And that's what we specialize in.

Both Japan and Korea have extensively mentioned MBS, Marina Bay Sands, as their model for integrated resort development.

Marina Bay Sands is the most iconic integrated resort in the world.

That iconic appeal has given strong growth in valuation from residents of Japan, Korea and the world, to Marina Bay Sands in Singapore.

We have prepared and presented in Korea one of the most iconic buildings ever -- will turn out to be the most the iconic building in the world.

And the -- we hope and we believe that it has received a very, very strong reception ? a positive reception.

Again, we are the creators of the convention-based integrated resort.

Our meetings-incentive convention and exhibition facilities in Singapore have contributed meaningfully to Singapore's appeal in Asia as a nice destination.

Our mall at Marina Bay Sands is the most important shopping destination in Singapore, which by itself is among the most important shopping destinations in Asia.

On that note, let's move on to our potential development opportunities in new jurisdictions, to which I am traveling to.

In Japan, we are pleased to see that progress is being made.

Only this year, the DIA began discussion of proposed integrated resorts legislation, and the legislative process there continues.

We are pursuing the potential for an IR development in Japan with great enthusiasm, and believe our unique convention-based integrated resort development model will bring meaningful benefits to Japan in terms of business and leisure tourism, employment and economic growth.

We have also been spending extensive time on the ground in Korea, to which I'm also going.

And we have been doing so for some time.

As in Japan, we believe integrated resort developments can deliver significant economic benefits to the local and national economies.

In both Japan and Korea, we are willing to commit substantial capital investment to develop large-scale, truly iconic integrated resorts.

There is also the potential for Vietnam to move to allow domestic entry with social safeguards in the context of an IR development.

It could also very well be that Vietnam emerges as a jurisdiction suitable for an appropriately-scaled integrated resort.

And we are assertively exploring opportunities in that market.

Financially, we have the wherewithal to pursue developments in all three of these jurisdictions concurrently, if the opportunity to do so arises.

Our track record speaks for itself.

Our development capabilities, our operating know-how in every business segment of the integrated resort, and our financial strength are unmatched.

We believe we are exceptionally well-positioned to compete for these development opportunities.

Finally, let's invest the return of capital to shareholders.

The confidence we have in the strength of our business, and the reliability and predictability of our cash flows, have allowed us to aggressively increase the return of capital to shareholders.

Ours remains a uniquely privileged business model.

We can continue to return significant amounts of capital to shareholders through dividends and share buybacks, while retaining more than sufficient financial firepower to pursue both organic growth and new development opportunities for the periods that it will take to develop, to plan and develop these, and at the same time, to generate significant cash flow that gives us plenty of extra money.

Over the last 11 quarters through September 30, 2014, we have returned over $8.3 billion to our shareholders through dividends and stock repurchases, including nearly $7.0 billion to Las Vegas Sands shareholders and, in Hong Kong dollars, the equivalent of over $1.5 billion to the shareholders of Sands China.

Also, last year, we increased the annual dividend for LVS 42.9% for the 2014 calendar year.

In 2015, I am pleased to announce that the Board of Directors has recently increased the dividend by 30% to $2.60 per year or $0.65 per quarter.

Yay, dividends.

The increase in the dividend will take place beginning in the first quarter of 2015.

We have every intention of increasing the dividends in the years ahead, as our business and cash flows continue to grow.

In addition to dividend growth, we returned $300 million of capital to LVS shareholders this quarter through a stock repurchase program, which I believe completed the previously authorized $2 billion.

This completed the execution of our initial $2 billion LVS stock repurchase authorization -- I just said that.

I am now pleased to announce that the Board of Directors has also authorized an additional $2 billion for further stock repurchases.

We look forward to continue to utilize the stock repurchase program to return capital to shareholders and to enhance long-term shareholder returns.

In conclusion, we will continue to stay disciplined and execute our business plan.

With the right strategy and the right management team in place, I am more confident than ever about our future success.

Before I turn the call over to the operator for the Q&A session, I wanted to take a moment to thank Mike Leven for the meaningful contributions he has made to the Company over the more than five years he has served as its President and Chief Operating Officer.

His ability to execute my vision for the Company will always be appreciated.

While this will be Mike's final quarterly conference call -- as he will retire from his position as President and COO at the end of this year -- we look forward to his continuing contributions as a member of the Board of Directors for both Las Vegas Sands Corporation and Sands China Ltd.

On behalf of the 50,000 worldwide employees of Las Vegas Sands, as well as our Board of Directors and management team, and particularly from me personally, thank you, Mike, for the effort you have made on behalf of both our companies.

All of us here at Las Vegas Sands wish you all the best in the future.

Now I am turning it over to Q&A.

(Operator Instructions).

Joe Greff, JPMorgan.

Question for you all in the cow on the base mass and premium mass, departmental profit margin assumption, specifically referring to your slide 21 in the supplemental earnings slide deck.

The assumptions are lowered for both base and premium mass relative to three months ago.

I kind of understand -- I think I understand what's going on.

The premium mass, can you talk about what's actually going on in both segments relative to the three months ago?

And specifically, when you look at the third-quarter results, are those the profit margins that you experienced?

Or are you making further assumptions -- lowered assumptions going forward?

And then on a follow-up topic, if you can just talk about the smoking ban impact.

That's something, obviously, we all are curious about to hear your experiences.

Thank you.

I'll take it, Joe.

I'll start easy one -- smoking, we don't think has been impactful.

It's difficult all the things going on in Hong Kong and, obviously, the other pressures in Macau, all the headwinds we're facing, it's hard to really segregate the smoking issue directly.

But our anecdotal feedback is pretty positive that it doesn't appear to be impactful in any segment.

The smoking areas are being utilized and business appears to be unaffected by the smoking issue.

As for the margin issue, I think we are all aware that there is competitive pressures in the premium mass segment.

I think you'll hear that from anybody who has been in Macau recently.

We have the wonderful structural advantage of having a lot more control of our stronger positioning in the mass, mass or base mass segment.

We remain steadfast and I believe we can get a 45-plus-percent margin there.

That's somewhere we think today and tomorrow -- the decisions made by this Company 10 years ago will resonate for years to come, in terms of having more gaming positions, more sleeping rooms, more retail, and simply more control over that segment.

So we're much -- big believers in standalone inns -- and more tables, more gaming capacity, more retail, et cetera.

So, we're very secure that we can run the highest margins at 45-plus-percent in the base mass or mass-mass segment.

Competitive pressure is unavoidable right now in premium mass.

I think you'll see by other -- the competitors as well as our numbers that a win per unit is one metric, but flowthrough is another.

Our margins have dipped a bit.

I think they will -- with the declining junket situation, I think there will be more pressure on premium mass.

Having said that, our flowthrough is going to stay around 40%.

And we believe it will rise with the market getting stronger.

Again, our strength, the breakdown of our mass revenues is still leaning heavily towards the pure mass side or mass-mass side, which gives us a very strong advantage to maintain margin.

And we think the other competitors are going to have a different situation because we have obviously structurally a better place to be.

In the premium mass side, I think there has been escalating pressure and that will continue.

Shaun Kelley, Bank of America Merrill Lynch.

Just two questions for me.

My first would be -- on the buyback, I think, previously, you guys have given some kind of general target around maybe $75 million or so a month.

Just any -- kind of any guidance you could give our folks in terms of being more opportunistic on that, given the recent dip in the share price?

And then my follow-up would be on the capital expenditures, it looks like things were pushed out a little bit on The Parisian and maybe some of your other projects as well.

And I'm referring to one of the slides late in your slide deck.

If you could just give a little bit more color on some of those changes in kind of capital expenditure expectations, that would be great.

Thank you.

Hey, Shaun, it's Patrick Dumont.

How are you?

I'm great, Patrick.

Thanks.

In terms of the buyback, the focus on the Board has been that it will be programmatic in nature.

The levels hadn't been exactly set as of yet.

But it's something that we will identify over the next couple of weeks.

We just got the okay.

This is Sheldon.

We just got the okay from the Board.

I think it was Monday.

And we are having a Board meeting coming up next week in Macau.

We are having two separate Board meetings, LVS and SCL.

And we will attempt to come out with the details of the program.

It will probably be somewhat similar to what we have done, so that we could spread it over a period of time.

But then again, as there -- any opportunism arises, we should take another look at that.

And with respect to Parisian targeted opening date?

Parisian targeted opening date, we have two categories of opening date -- partial opening and complete opening.

The last -- I'm going to look at it next week.

As I said earlier, I'm going to Japan, Korea and I am also going to Macau.

The last thing I've been told is that a full opening will occur in March, but we can still achieve a partial opening of the casino and some number of rooms if the government will allow us to do that in November or December.

So it's not a binary issue.

It's maybe we have a partial opening, which has occurred in the past to us and everybody else.

So I hope we can open partially in November/December of 2015.

Thank you very much.

Thanks, Shaun.

Thomas Allen, Morgan Stanley.

Two questions on Macau.

The first one just following up on the earlier commentary regarding premium mass competition.

And also just on slide 21, you are showing the slower growth there versus base mass.

You have continued to shift tables to the premium mass segment over the past couple of quarters.

Are you going to slow that down at all?

Or are you going to shift back to mass-mass?

And then the second question is just around the Macau market in general.

Visitation continues to be quite strong, up high-single digits, but gaming revenue growth has obviously decelerated.

Can you just talk a little bit more about how the shift in the customer mix -- you know, are rated customers coming fewer times?

Or just any interesting dynamics you can highlight.

Thanks.

The first thing, Thomas, we will move tables based on market demand, obviously.

We have moved away, as you know, the last couple of years, from the junket segment into premium mass as well as pure mass.

And that will be the continuing mantra for the team over there as time tells us what to do.

It is very simply a managerial position to take that -- wherever the most money is made per table, that is where we will deploy it.

And there is no magic to what we have done in the past.

There is no magic in the future.

The market will dictate that.

At this point, as you know, there is excessive supply on the junket side and probably on the premium mass side.

So my guess we would be more focused on mass-mass where our biggest advantage resides.

As for the new growth in the visitor -- first of all, I think it's very positive that we are seeing more growth in Macau.

I think it bodes well for the future of Macau and I think it bodes well for the story.

China, we believe, is very -- continue to be very supportive of Macau.

The President will be there this December.

The infrastructural improvements continue on a massive scale.

And given a more settled environment, meaning Hong Kong becomes calmer, smoking is absorbed, we believe the Macau story will continue quite nicely, and future supply will grow demand.

And Macau will offer the Chinese growing middle-class a first-class destination.

Having said that, as you noted, there is -- not the same amount of growth in the GGRs commensurate with the growth in the pure visitors to Macau.

I think that will change in time.

We believe very much so that as new markets open up and the transportation matures, that problem will solve itself.

It's a much better situation than having less demand for the city in terms of visitor shift.

So, clearly, we want to see more GGR growth coming out of new visitors, but the numbers are what they are.

We remain very confident that the mass-mass business, which is our strength and the backbone of our strategy, will yield a great profit in the future.

And those future people coming to Macau, they all just sleep there and eat there, and go see shows, and shop; they will, in fact, gamble.

This red herring of the smoking issue, which I talk to the people in Macau every day, seems to have no impact on -- a few people grumbled a little bit about going to the smoking rooms, but they are an obedient society, and they do what the government says.

And they go to the smoking rooms, and they seem to enjoy it and they come back out.

It reminds me of, again, what the colloquial title was of the year 2000 -- there is no nature -- God and nature knew which -- must have known whether it was Eastern Standard Time or Central or Mountain or Pacific Standard Time, or maybe Hawaii Time, that -- or maybe the first reporting of midnight Australia Time -- I don't know -- but it was all a big hullabaloo about nothing.

So, to quote -- I think it was Shakespeare -- it's all a tempest in a teapot.

Was that Shakespeare?

I'm not sure.

I'll ask the (technical difficulty) -- what was it?

Okay.

(laughter)

We have a Brit here.

Is that -- you said Shakespeare?

Almost, paraphrasing.

Paraphrasing, okay.

(multiple speakers) He is not really a Brit, he's Scottish.

(laughter).

Almost not a Brit.

(multiple speakers)

Anything else, Thomas?

Carlo Santarelli, Deutsche Bank.

Thanks for taking my question.

Just on the VIP side, in Macau, it appears as if there is a little bit of a difference in the incremental margin for the addbacks.

And I'm wondering if maybe there was a delta in your direct hold this time that's causing it to look a little bit different?

I don't think so.

So, Carlo, you're asking about a mix issue.

I guess you guys get all the neat data that doesn't include our specific hold on our non-junket business?

Yes, I was just wondering (multiple speakers) --?

I can tell you that the margins in VIP and Macau are healthy.

Commission rates are not going up.

That's what I was looking for.

Thanks, Dan.

Yes.

Felicia Hendrix, Barclays.

Thanks for taking my question.

Can you -- with the new authorization, the new buyback authorization, can you just discuss for a moment how you are planning on funding that?

Will that be continued from free cash flow?

Are you planning on increasing leverage?

How are you thinking about that?

And then I have a follow-up about Singapore.

(inaudible - microphone inaccessible) (laughter)

Money?

(laughter)

According to the song, it's burning a hole in our pocket.

(laughter) We haven't addressed that yet, Felicia.

Okay, and (multiple speakers) --

(multiple speakers) We know that we have plenty of money, and we are contemplating -- we have been using all cash for the development and construction of The Parisian Macao.

And we are now going to go out and get a separate project financing that will recover a lot of the cash that we put in there.

Okay.

So, earning at the rate of 5, 5.5, 6, 6.5 that I see some of you analysts come out with, I think -- per year, I think we're going to have plenty of cash flow.

Yes, that's helpful color.

Thank you.

And then just on Singapore, Rob, you talked -- we have seen it in the numbers, you are sacrificing some of your roll for profitability, which is a great strategy.

Just trying to think about, for those of us who are modeling this, what is the optimal level of roll you are trying to get to, as you maximize the profitability there?

It's a hard question to answer, Felicia, because (multiple speakers) --

That's saying how high is up?

(laughter)

We would love to be rolling $60 billion a year.

We just have some headwinds we just can't overcome.

One is the commissions.

We remain steadfast on our belief that to pay too much commission makes no sense in terms of margin and profitability.

Second is, we are very cognizant of the atmosphere in China and lending exorbitantly in China.

So call us too conservative for today, but as you can see with this quarter's results, we are bearish in terms of that segment right now.

We would love to see a return to days of the $15 billion a quarter with appropriate margins.

It's tough to model, because as you know, it's highly concentrated.

It's driven by not as many players as we'd like it to be.

We are also in a very competitive environment vis-a-vis our competitor there plus the Philippines.

I wish I can give you color that I could believe in myself, but the team and I are working through it.

In fact, we are meeting next week to talk that very issue through.

We are trying very hard to remain focused on profitability.

And for right now, I think you can model up more growth in our $4.8 million a day and 60-plus-point margin.

I'm not as confident as giving you any kind of forecast how we see the rolling business.

It really depends on the environment.

Okay.

Unfortunately, we have a competitor that has never worked in a competitive market before.

The Gebbing Bernhardt didn't have in the competition.

They had an exclusive in Malaysia.

So, apparently they still -- they are still trying to get used to having competition.

But when they have competition, it appears as though their only response to that is to what we call, quote, by the business, unquote.

They are paying up to [1.7] and [1.8] anecdotally above for the junket -- not the junket, but the -- they're paying the same thing to the -- to premium direct -- direct VIP players.

And we're still down at a much lower reasonable number, no more than what we pay in Macau to the tempered reps.

So that's why we have -- we've grown to take over in excess of 55% of the market, GGR compared to their 45% of the market.

And who knows?

Maybe one day they will get used to competing on the basis of a quality product, if they ever build one.

And they won't have to buy the business.

I wouldn't say we are out of that business.

The one thing I would caution is that it's a very thin and concentrated business.

I'd like to say we are back in it in a big way.

We have the product; we have the demand.

And we also have the headwinds of the fact we are very, very careful and very -- trying very hard at being the most compliant people in the industry.

So moving money for us is also a challenge.

So -- but having said that, we are hoping to have a stronger day in that segment in Singapore in 2015.

And let me give you an idea.

This -- I wanted to discuss this about now where we stand competitively, what kind of advantage we have in the emerging markets.

First is when we plan an integrated resort, our competitors -- for instance, Genting and Sentosa -- we have -- when we say we have nice facilities, we have Asia's largest ballroom at 90,000 square feet, column-free, while our competitor has a 60,000-foot ballroom, which doubles up as an exhibition space, an event center.

We have over 400,000 square feet of additional -- of exhibition space, when our competitor downtown Suntec had -- or has only 200,000.

So, when we plan, we don't say, but Genting has only 17 meeting rooms; we have 250, which can be combined into smaller ballrooms that will hold 600, 700, 800 people for dinners.

And our ballroom is sold out six months in advance.

So when we go into Japan or Korea, and we say we have an integrated resort, we will go in with somewhere maybe 500 meeting rooms, and somebody else will come in and say, oh, we're an integrated resort; we have some of the components that LVS or STL has.

And they'll come out with 20 or 30 meeting rooms.

We base our meeting rooms on a formula that is calculated on so many square feet per sleeping room.

And the allocation of our total room supply toward the MICE business.

So when we say we have meeting rooms, we have meeting rooms.

Well, we talk about having a mall, we have up to and in excess of 1 million square feet of mall, and our competitors come along, and say, oh, we have a mall as part of IR.

And you see, we've got 50,000 square feet and about a dozen retailers.

So we could talk about 300, 400, 500 retailers in a mall, and that gives us the critical mass and takes us to where we are in Macau.

My original vision was, is and will be, critical mass.

But it is based upon an educated and informed calculation of how many MICE meeting rooms, how much MICE space we have based upon the number of sleeping rooms, we allocate to MICE; based upon the entertainment, the -- look, we're the only place that has a museum and a -- we have museums and we have arenas.

And we plan arenas in our future developments.

So that differentiates us between our competitive slate.

Great, thank you.

Robin Farley, UBS.

I wonder if you can talk about your interest in Japan?

If -- there is some discussion that locals may not be allowed.

And does that change the scope of what you think you could do there or what you would be willing to invest?

Since locals would have been a significant part of a project there.

From our standpoint, I will say that we will not be interested in Japan or any other country on a foreigners-only basis.

We can't do that.

Our business model won't allow it.

I could point out to you that in Korea, there was 16 -- the total is 17 casinos.

One, Kung Wa Land, is with direct -- with domestic entry.

The other 16 foreigners-only casinos don't do as much as combined as the single domestic entry casino does.

And it's different people have different estimates and depending on what time of year.

Korea is in the Snow Belt and so isn't -- North Korea is -- I'm sorry -- North of South Korea is in the Snow Belt, as is Japan.

And I've spent a lot of time in both places.

But it takes anywhere from 2.5 to 4 hours to drive, depending upon weather and traffic.

But the foreigners-only casinos in Korea cannot anticipate getting large amounts of business.

And therefore, they can't build a true integrated resort with all of its components that need the casino to subsidize the loss-making components.

So, from our standpoint, we are not interested in developing a multi-billion-dollar resort and I don't -- nobody else can.

If somebody just wants to open a small casino box and try to get people from foreign countries, say from China, to come to Korea or Japan, all they have to do is look at South Korea and Jeju Island -- it's got half of the foreigners-only casinos -- and ask ourselves whether or not a playing casino with one or two restaurants can compete with the humongous and big integrated resorts in Macau and in Singapore.

We only have to look at Australia and Philippines to see that they don't have the components of a true integrated resort.

And -- but they do a good job.

They're well-regulated.

I think -- who went out there and don't anticipate going there.

And we are not interested in foreigners-only resorts.

Okay, great.

That's helpful.

And for my follow-up question, I wonder if you can comment on, with Golden Week, whether that did -- the players that had not been to Macau in a while come back, did id help collections?

Is it your sense from the junkets that -- did that help at all with liquidity in the system?

Dan, you want to take that?

We don't want to talk -- we're not going to talk about Golden Week in the middle of October in this call.

Can't do it.

Okay.

We are reporting in the third quarter, not on where Golden Week is.

Okay.

That's in the fourth quarter.

Okay.

All right.

Thank you.

Sorry.

Steven Kent, Goldman Sachs.

You know, Sheldon, when I looked at slide 28 of your deck, I saw how well once again the mall is doing.

And I just wanted to once again ask your thoughts on selling it.

And then to combine that with the ability to use that cash -- basically sell the mall at pretty high profitability, pretty big multiples we are still seeing out there -- and then use that cash to buy back stock at an even faster pace, and just create that arbitrage.

I just wanted to see what your reaction was to that, and whether that's something -- whether those are two separate decisions?

Or whether they can be combined?

You wanted to know whether or not we are interested in selling the malls?

Yes.

I did give out the number to you above the dark long arrow spanning all the bars.

This is 19.1%.

You think that this is an appropriate prudent time to sell while we're still growing?

And that includes a little slowdown to 9% in the last quarter, the last two quarters.

Ridiculous.

Part of our properties can go up 20%, 30%.

We have expanded and improved significantly the mall at the Four Seasons, which is running on average about $5,500 per square foot him annum.

And we have the CFS Boutique shops that are running at $7,000 a square foot.

You know, I was talking to somebody with an authoritative data points in Saks Fifth Avenue in New York City, and I think it's only running at $1,000 a foot.

And I look at the Four Seasons Mall, which it does $7,000 per square foot compared to other, like Neiman Marcus and other top US brands, they don't come within shouting distance with where the malls are.

We don't yet see if we ever come down to under 10% growth, we would consider that.

I would never sell this mall at approximately 20% growth with the likelihood of more.

We are redoing a lot of the slower malls and slow retailers in Macau.

We are adding on 330,000 net rentable square feet, and we submitted four other projections, including an 800,000 square-foot retail mall under tropical guidance.

And I hope to see the government when I go there the next week.

We are the leading IR developers in shopping by far.

We actually -- as a matter of fact, one of the problems is that, say, you look at [$536 million], there is no mall [$736 million] in the third quarter of 2014 when we continue our tweaking of MBS and Four Seasons, and if we add on to -- when we add on more space at The Parisian, we are bigger than any of the REITs in Asia.

So there is no single REIT that's in a position to buy us.

As a matter of fact, we would be more in a position to buy them.

But as long as we keep growing, I can see that number going up significantly over the next handful of years.

And I don't know -- we're going to have to -- the original plan was to monetize it, and at a 4% cap rate, which we think is achievable, we should be looking at it.

But it's tough to want to sell when you're growing at 20%, 30% a year.

Okay, so that's really -- because the valuations were already there.

And it's really that you're just continuing to see growth and still see some more opportunity there.

Could I then just ask -- how are the discounts in Macau manifesting themselves?

What are the things that your competitors are doing to eat away at this?

Is it giveaways?

Is it discounts on losses?

What are they doing that allows them to effectively do this?

Especially when you look at your own properties, which are so iconic, so attractive, it's hard for me to imagine what they could be giving to get people to come to their place rather than your place.

You mean on the gaming side?

They are not discounts there.

Discounts take place here in Vegas, in the US.

We always take discounts, but it is the rolling chip for commission.

So, that's where (multiple speakers) --

(multiple speakers) You are in the mass, Steve, you are in the mass section, right?

Yes, I am talking about the mass.

What is going on there?

Steve, two things.

Mass is obviously multisegment.

And on the -- we don't see -- our margins are maintaining the highest levels in the pure mass.

And again, that's our strength.

It resides there today, tomorrow and forever, because the structural advantage due to asset class and our portfolio.

On the premium mass is a lot more competitive.

We compete in that segment as well.

And pressure there comes from labor costs, which Sheldon alluded to in his opening remarks, as well as promotional chips as well as complimentary rooms, as well as lucky chips.

There is a multitude of ways you can incent customers to gamble.

And think of this -- when the -- when there are only so many tables in the market and the junket business is eroding, people are more focused on segment.

So I think you'll see, across the board, margins in that area are going to be difficult.

We are not doing that at all in our strength, which is over $2 billion of EBITDA emanates from the pure mass side.

And that's why we remain steadfast in believing we can maintain that.

As the market is healthier, we'd like to grow margin back into the 42%, 43%, 44% range combined.

But for now, we are in the 30's in the premium mass and in the mid-40s in the pure mass.

Thanks for the color.

Sure.

Your last question comes from the line of Harry Curtis with Nomura.

Your line is open.

Hey, Sheldon, I had a quick question on a comment that you made a couple weeks ago about your -- I don't know if it was a hope or a belief that you could see an improvement in the VIP business over the coming few months.

I am just -- my first question is what -- do you have confidence behind that?

Or what might you be looking at to see that kind of improvement?

And the second question that I had is, if you guys could talk about the expected number of tables that The Parisian is going to get?

What are the formulas that if you were the Macau government, you would espouse?

Thanks.

I'll answer the last part first.

The Macau government has said repeatedly that it will give favoritism to the operator that puts in more non-gaming space than gaming.

And they said nobody will get any tables if the gaming space represents more than 10% of the total amount of space to be built.

This is our business model.

I heard that one of our competitors was enlarging their lobby significantly, so they could have a greater ratio of non-gaming to gaming.

I suppose counting lobbies might be part of that trick.

I did say that it would be a few months; I was quoted as saying two months -- and thank you, Harry, for asking that question.

I forgot that I did want to try to find a place to correct that.

It was that day or the day before that the Chinese government had said that the investigation of the corruption was complete.

I have since heard that the investigation and corruption had been narrowed to a certain segment of their society.

And it's not the impression that the press gave, based upon that day's or the day before's statement that they were stopping the investigation on the high-profile people or on the government people that were gaming.

So I would have to rethink; I don't really know.

I said that honestly and with good information at that time, but I think we're going to have to get greater clarification on what the central government means about the narrow portion.

I saw a couple of days ago that they were -- they enumerated the number of cases they were investigating.

It was somewhere around 6,000 or 7,000 individual cases.

I don't know what that means.

They said they were Party members, the Communist Party members, that amounted to about 7,000 they were investigating.

I have no idea whether that's a complete number, an incomplete number, or -- I'm sure the government is putting out the right numbers, but what that represents in terms of how much they anticipated investigating.

So if I were asked the same question again today, I would say that it's tough to say.

It could be anywhere from three or four months.

And most of the analysts are projecting that by the second quarter of 2015, that it should either already be on the growth track or will accelerate being on the growth track by the second quarter.

But one thing I will say for sure, it's not going away.

It's going to come back.

Again, nobody is changing the culture of 1.4 million people -- 1.4 billion people.

It simply isn't going to happen.

It's not if, it's when.

Does that answer your question, Harry?

It does.

If I could just ask one other quick question of Rob.

Rob, on a whole adjusted basis in Macau -- and I think I've got these numbers right, but I'm not sure -- it looks like your margins, your EBITDA margin, was roughly flat year-over-year.

And -- which I think in this competitive environment and the decline in VIP is pretty exceptional.

But the question is, given your more cautious comments about margins on the premium mass side, do you -- is it going to be tough to hold those margins flat?

Or do you think that there are things you guys can do on the expense side to at least keep those margins flat?

Two thoughts, Harry.

One is there is certain things we can do and I think the team there is addressing the expense part of the ledger.

But, honestly, what we believe is that the mass business maintains and maybe even exceeds on the margin as it gets stronger.

And this hopefully this quarter and in 2015.

So again, the great majority of our business comes out of the mass and our -- these are margin and our EBITDA is so strong in Macau is because we are a mass-driven model over there.

And so I think maintaining the margin is very, very possible, if not growing the margin.

But the question is the competitive set, what they do in premium mass segment.

That's the one thing I can't understand what will happen there.

Hopefully, that remains an environment we can work in the current structure not losing more margin in the premium mass side.

Mass-mass feels very good and we can control expense and perhaps even get some better cost control over our numbers.

But, in essence, our story is so much different than anybody else because of the fact the mass segment is our strength.

And that's where we reside primarily.

And that's the biggest part of our composite of our EBITDA.

And Harry, to be clear, on page 10 of the slide deck, we actually had a 100 bps increase in margins on a hold normalized basis from 34% to 35%.

So margin increased by 100 bps on a hold adjusted basis, despite the fact we are seeing the pressure in premium mass.

Very good, thank you.

Thank you for joining today's call.

You may now disconnect.

Thank you.