Las Vegas Sands Corp. (NYSE:LVS) held its third-quarter earnings conference call after the close of US markets Wednesday. But the numbers grabbing some investors’ attention aren’t just the 69 cents a share the company earned in the period on revenue of $3.25 billion.
It’s also president and COO Rob Goldstein’s estimate of $10 billion to $12 billion to build an integrated resort in Japan, figures that CFO Patrick Dumont said on the call could ultimately prove to be “light.”
The reference point that you make is very, very well thought-out, $10 billion, $12 billion, it does give you pause and no matter what,” said Goldstein in response to a question from Barclays analyst Felicia Hendrix on the call.
Those projections jibe with what some industry analysts have previously said about construction costs associated with building integrated resorts in the Land of the Rising Sun. Last month, a team of analysts from Fitch Ratings returned from a Japan trip and boosted their cost estimate for casino projects there to $10 billion to $15 billion from a previous ceiling of $10 billion.
Dumont emphasized $10 billion is a likely starting point for a casino-resort in “prime city locations.” Sands is focusing its Japan efforts on Tokyo and Yokohama, but other operators believe they can execute projects in smaller Japanese metropolitan areas for significantly less capital.
Likely Sands’ Most Expensive Project
Assuming LVS is one of the companies selected to build a gaming property in Japan, something analysts believe will happen, and that costs can be contained to $10 billion, the project is still likely be the priciest in company history.
Goldstein recalled that when the company built the Venetian on the Las Vegas Strip 20 years ago, that cost $1 billion, and that today, “it seems kind of comical thinking back on it today, that you can nearly build a nightclub today for $200 million in this town.”
The executive added that the cost of one Japanese integrated resort could exceed the total LVS spent on its five Macau properties.
“I mean, the cost of building in Japan is a big issue, and the way the deals are structured, it’s a challenge,” said Goldstein on the call. “And we’re the guys who — we spent $6 billion years ago, and we spent 13 or 14 and 15, we were used to writing big checks. But, all that money one IR does make, you stop and pinch yourself and say, can you get the returns that your shareholders deserve?”
It’s About More Than Costs
As of Sept. 30, Sands had $3.82 billion in cash on hand, and investment-grade credit marks from all three major ratings agencies, implying the company has the financial flexibility to handle the aforementioned Japan costs.
Return on invested capital (ROIC) is integral to evaluating the potential success of Japanese casino projects. LVS Chairman and CEO Sheldon Adelson, who participated in yesterday’s earnings call, his first this year, has previously targeted ROIC in Japan of 20 percent.
In the third quarter, Sands generated earnings before interest, taxes, depreciation and amortization (EBITDA) of $755 million and $455 million, respectively, from its Macau and Singapore properties. Japan EBITDA would likely need to be in the middle of those numbers or higher to achieve LVS’ ROIC goals.
Adelson is battling non-Hodgkin’s lymphoma, but his appearance on the Wednesday earnings call was meaningful in the eyes of some of the analysts, who said investors’ concerns about the CEO’s health could be assuaged by his participation. Shares of LVS are up nearly four percent at this writing.
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