“Standout” at Sands; Station challenges South Point

Despite attenuated revenues of $1.2 billion in the second quarter, Las Vegas Sands was the beneficiary of what one analyst termed “creeping expectations” on Wall Street. Or, as Deutsche Bank‘s Carlo Santarelli put, “we continue to believe LVS represents one of the more compelling medium- to longer-term risk-reward stories in our coverage universe.” How come? Managed expectations, in large part. Losses in Macao were not as bad as feared and Marina Bay Sands in Singapore (55% of the company’s equity now) is prompting higher forecasts, as the city-state loosens its Covid-19 restrictions. Regarding Macao, “management had little to say” but numbers were “soft” and the company expects to lose $110 million a month in cash flow and rents as long as the current shutdown persists.

Credit Suisse analyst Ben Chaiken heaved a sigh of relief that Sands’ 2Q22 cash flow was $209 million, compared to the $197 million he expected and Wall Street’s $150 million. “Standout” performance at Marina Bay Sands ($325 million in EBITDA) was offset by losses in Macao, though. As Chaiken put it, “Macau can’t get much worse (casinos closed), the balance sheet is in great shape, and the Singapore rebound (faster than we expected) could provide some insight into what an eventual Macau recovery could look like (maybe).”

Singapore still has a long way to go, despite grossing $622 million: Passenger loads into Changi Airport were 35% of 2019 levels in April and 46% in May. “As such, there is still considerable upside remaining as passenger volumes improve back towards 2019 levels,” said Santarelli, looking at the bright side. South Korea, Japan and China aren’t pulling their weight, in terms of tourism, but Indonesia and Malaysia are somewhat compensatory. Cash flow at the megaresort was $319 million, almost $20 million more than Sands bosses expected. Slot play is higher, VIP action well down but the mass-market customer is mostly making up for it. Despite $825 million remaining to be spent on the new, $1 billion hotel towers, management is confident of making an end-of-2023 deadline.

J.P. Morgan analyst Joseph Greff found the Singaporean news “very encouraging,” going on to elaborate that it is “exceeding our above Consensus estimate on improving market-wide visitation and airlift capacity additions and meaningfully better than expected spend per visit across mass, premium mass, and VIP segments,” with mass-market win at 91% of pre-Covid strata. Slot win is actually ahead of 2019 by 1o%.

Predictably, Macao stank, with revenue and visitation both down 83%. Mass-market table win was a relative bright spot, only 57% off last year’s pace (premium play was a -84% wipeout), with Sands’ myriad Macanese properties garnering 26% of mass-market action. Sands China has bought itself some time because the parent company has waived leverage and interest covenants on a billion-dollar loan. Unfinished capex is down to $100 million. Further on the plus side, the new gaming framework “alleviated concern and is progressing nicely.” Greff reiterated that investors have ceased to pay attention or even give a damn about Macao, adding, “We don’t think there is a strong view for any GGR ‘come-back’ for Macau until next year (at the earliest) since it’s been near impossible to predict easing of mainland China’s zero COVID-19 tolerance policy.”

Added Macanese academic I. Nelson Rose, “You know you are in deep trouble when one of the leading newsletters in your industry discusses the ‘silver lining‘ in being shut down.” Alluding to Sands (among others), he continued, “At least the American-owned casinos can funnel money from the U.S. or Singapore for a while, until their shareholders rebel.” (As for stateside crybabies, be it known that not wearing a mask in public in Macao gets you five months in the slammer and it’s a criminal offense to merely walk your dog in public.) Even when the casinos are open, Rose’s spies counted 27 (yes, all of 27) patrons in of them.

Getting back to Sands, as one might expect when reporting such numbers, execs had very little commentary to offer, even keeping mum about New York City beyond expressing some impatience with the license-tender procedure. Offered Santarelli, “It would not surprise us if the process for the 3rd license is drawn out, with several curveballs along the way, given the numerous complexities and varying constituents in the New York City area that will need to be satisfied.” CEO Rob Goldstein and his colleagues were Chatty Cathies about the digital sphere but did not budge—even amid increasing talk of consolidation—from their stated strategy of building from within rather than growing through acquisitions.

Years after seemingly having thrown in the towel on its Cactus Lane project, a potential challenge to Michael Gaughan at South Point, locals giant Station Casinos has doubled down on its wager. Tripled down would be more like, as it’s adding 126 acres to the 57 it already owns. And it got the dirt for dirt cheap: $172.5 million. To add novelty to the package, the aggregate acreage is bisected by Cactus Lane (where it intersects with Las Vegas Boulevard), which may explain with the smaller, northern parcel is still technically for sale.

In addition to being a dagger thrust at Gaughan (one which the latter should be well-positioned to parry), it also complicates matters for Penn National Gaming, whose soon-to-be-expanded M Resort is within shouting distance of “Cactus Station.” The backside of the Cactus site, furthermore, butts up against I-15, which will give it potential curb appeal to drive-in customers and explains why they’re already positioning it as a “destination” property, according to the Las Vegas Review-Journal. The purchase also marks an acceleration of the company’s development timeline, as President Scott Kreeger told the R-J that Station wants to have another project in the pipeline as soon as Durango Casino & Hotel opens. Regardless of whether that’s Inspirada or Cactus, with no locals other companies moving dirt in the Las Vegas Valley, Station’s most aggressive competitor is Station itself.

In a depressing sign of the times, Athena Security proudly announced that it has been approved by the Pennsylvania Gaming Control Board to sell metal detectors to all casinos in the Keystone State. While this is a safety measure we support on principle, it is very unfortunate that companies like Athena should have to put it into practice.