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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the Las Vegas Sands, First Quarter 2020 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to Mr. Daniel Briggs. Thank you. Please go ahead.
Thank you very much. Joining me on the call today are Sheldon Adelson, our Chairman and Chief Executive Officer; Rob Goldstein, our President and Chief Operating Officer; and Patrick Dumont, our Executive Vice President and Chief Financial Officer.
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 provision of federal securities laws. The company's actual results could differ materially from the anticipated results in those forward-looking statements. In addition, we may discuss non-GAAP measures. A definition and a reconciliation of each of these measures to the most comparable GAAP financial measures is included in the press release.
Please note that we have posted supplementary earnings slides on our Investor Relations website. We may refer to those slides during the Q&A portion of the call. Finally, for those who would like to participate in the question-and-answer session, we ask that you please respect our request to limit yourself to one question and one follow-up question, so we might allow everyone with interest the opportunity to participate. Please note that this presentation is being recorded.
With that, let me turn the call over to Mr. Adelson.
Thank you, Dan. Good afternoon, everyone, and thank you for joining us today. I hope all of you, your friends and families are in good health during these challenging times. The COVID-19 pandemic is unlike anything I've ever seen in my business career. While this pandemic brings many challenges, it also presents each of us with an opportunity to make a difference and to provide assistance to all those who have been impacted.
Our company is fortunate to have the financial strength to enable us to focus our efforts on the safety and security of our team members and customers, and are making a difference to those in need in each of our host communities in Macao, Singapore and Las Vegas.
We don't know how long this pandemic will last, but we are confident that travel and tourism spending in each of our markets and around the world will eventually recover. As surely as day follows night, people will travel again, shop again, come together again to enjoy entertainment and social interaction, to exchange ideas and to conduct business. Focusing on the support for our team members and communities today will position us to recover more quickly as the impact of the pandemic eventually subsides; it is also the right thing to do.
Our optimism about an eventual recovery, coupled with our financial strength enables us to continue the execution of our previously announced capital investment programs in both Macao and Singapore. We believe these investments will strengthen our leadership position in each of these markets and will provide a larger platform for future growth with travel and tourism spending eventually recovering.
In Macao we are making great progress in our $2.2 billion capital investment program with The Londoner Macao and The Grand Suites at Four Seasons. In addition to these large projects with which you are already familiar, we’re moving full speed ahead with a number of other investments which we think will increase both the effectiveness and the diversification of our integrated resorts portfolio.
Now is not the time to pause or slow down investment in Macao. We see the opportunity and possess both the financial strength and the strategic commitment to make additional investments. With our effort to accelerate investment in Macao, we intend to play our part in supporting the local economy in the short term and ensure we are in the leading position to capture the eventual recovery in tourism spending. I remain steadfast in my belief that Macao has the opportunity to become one of the greatest business and leisure tourism destinations in the world, and the MICE capital of Asia.
As I've said on many occasions, we welcome the opportunity to invest billions of dollars and additional investment and contribute to Macao’s diversification and evolution into Asia’s leading leisure and business tourism destination.
Turning to our investment in the expansion of Marina Bay Sands, Singapore, we remain excited to be a part of Singapore's continued growth, as a leading business and tourism – and leisure tourism destination. We continue to make progress on the MBS expansion. We’ll provide additional updates in the future. We will also continue to reinvest in Marina Bay Sands to enhance the customer experience in advance of the expansion.
Finally, turning to Las Vegas, the eventual recovery could take more time here than in Asia, but we are confident that Las Vegas’s best days are ahead of it and that Las Vegas will remain the greatest leisure and business tourism destination in the United States.
Let me now spend a moment on capital allocation. Maintaining a strong balance sheet makes great business sense, while we weather the storm caused by this pandemic. The balance sheet strength will enable us to invest in promising future growth opportunities and we’re positioning our company to deliver industry leading growth in the years ahead.
While we have suspended our dividend program, we remain confident that the recovery in travel and tourism spending, and the strength of our business model will enable us to deliver both growth and the return of capital to shareholders in the future. I assure you I have not said ‘yay dividends and yay buybacks’ for the last time. I'm looking forward to saying them again and hopefully very soon.
Thank you for joining us on the call today and now we’ll take questions.
[Operator Instructions] Your first question comes from the line of Joe Greff with J.P. Morgan. You may now ask your question.
Good afternoon everybody.
Yeah, hi Joe.
Hope all of you and your families are well and healthy. So my first question relates I guess to things that we would Macao travel impediments or restrictions, IBS, Airlift, Ferry, the quarantine imposition by Guangdong. I know this is a tough question, but do you have a sense of when those things start to get relaxed and then maybe more importantly than timing on those four buckets, more on how those things will eventually roll out.
This is Sheldon. I can only quote some of the rumors that we've heard. We have nothing positive and nothing definite, but the rumors we've heard that it's going to start in sometimes the middle or end of May.
Joe just to elaborate. I think to Sheldon's point, we follow the same sources you do, perhaps ours a little better. We do believe there'll be some opening in May perhaps or June we're hopeful, but as you know it won't be a flick of the switch and it’s all different timing to which provinces.
We’re hoping for first the IBS is reinstated, that’s pivotal, and then the 14 day quarantine for re-entry into China is equally important as you know. I think the IBS, the first place in the 14 day quarantine, the first place we’ll see some bright lights will be in Guangdong and then provinces will follow throughout the summer. It won't be one flick of the switch and all provinces open equally. I think though as you know Guangdong is pivotal. Once that's open, it opens the door for others to follow.
It will be a gradual process and the one thing we're grateful for is that the majority of our income is derived from Asia, which as you know has been through these situations, be it SARS or be it Swine Flu or in the past they are more conversant with the problems and so we think the recovery there is going to be back to gambling, back to visitation, will come rather quickly, but it will come in gradual phases throughout the summer. It will be Guangdong and then other provinces to follow. Airlift maybe still muted for a while in terms of how much - I think trains will be running.
We feel pretty confident we’ll be back to a much better place this summer and then a much better place in the fall, and we have seen evidence of pent up demand like crazy from our customers who are asking when and we talk to them pretty regularly. So we feel pretty good about the return of Macao first, far beyond what we're going to see in the U.S.
Excellent! Great! And then just another question related to Macao and maybe this is a question for Patrick or Dan on the call. Thank you for including in the slide deck the monthly OpEx for Macao, the $110 million. How much of that $110 million relate to the premium and base mass segment? And so in other words, you know when that – those segment's come back, you're looking at incremental margins much higher than say the 35% to 36% that the margins are overall. So in other words, what would those margins be at that 35% plus be without those fixed charges that you're currently sustaining without much revenue growth or much revenue?
Hey Joe, it’s Patrick; thanks for the question. I think if you look back at our margin over the last couple of years, as the premium mass and mass business grew, those margin areas are probably appropriate for a recovery under normal run rate conditions. And so if you think about our expenses broken into categories, our largest expense is really gaming tax, which is variable, followed by our payroll which is not, and then a whole host of other things related to property operations, fixed property costs and things related to just general consumables.
And so some of those things are variables, but it will be very hard to characterize and say a particular market segment would result when it started back in you know call it higher margins because of this trough. And I think the way to think about it is, we've been very focused on managing towards margins over the last couple of years anyway. And so the team there and through our work together, we've been very focused on increasing our cash flow as we grew revenue in higher margin segments.
So I don't think you should look at a rebound through a particular segment and say that will expand margins. I think what you can do is take a look at this and say our business already had plenty of leverage in it. We have plenty of liquidity to manage through this very difficult time, and then when things do rebound we’ll continue to be focused on margins as we were before and look to control the costs that we can control. And I think to look at it on a segment basis would be difficult, because in reality we have to open the properties.
And so you know we're going to have strength in every segment. I'd like to believe that when things recover we're going to see that strength that we saw in 2019 and 2018 and the years before. We had a great trajectory heading into 2020 and I'd like to believe that we’ll continue to maintain the very strong operating leverage that we had on a run rate basis when things recover.
Great, thank you so much guys.
Thanks Joe.
Your next question comes from the line of Felicia Hendrix with Barclays. You may now ask your question.
Hi! Thank you so much. Great to hear you all, and Sheldon, definitely wanted to thank you and the company for all you've done to get important PPE to the healthcare workers out there.
So Patrick…
I’m sorry. I didn’t hear what you said.
I just – I was thanking you for all that you and the company have done to get the important PPE to healthcare workers.
Great, thank you.
Yeah, thank you.
We’re still doing it. We got a plane – we have sent four more 747 trips to go to China to pick up more of the masks and PPE. So listen, something we do like that potentially saves lives and it's nothing for us, particularly the fuel – the cost of fuel is nothing. So we could fly over there and come back at a very low cost.
That's great. Patrick, just to stay on the topic of the OpEx and the monthly cash burn, one of the things that we've kind of struggled with as we’ve tried to model in you know a gradual recovery is kind of how to flex that cash burn. So you know obviously you're not going to go from 110 back to your full run rate, right, and it's going to ramp up. So is the right way to think about it is just kind of like – and I know that most of its – a lot of it’s variable, so the way we’re thinking about it is like to just kind of like pro-rata, like run it, rate it versus in terms of how like you're ramping up.
So is that the right way to think about it and more importantly I'm wondering you know, as you kind of work to really mitigate costs as you've been in almost like shutdown mode, are there things that are going to kind of stick or are there going to be cost mitigation efforts that you've made now that are going to benefit you in the future.
So, kind of a two part question there. You know, I appreciate the detail. I think the way to think about margin recovery is that when you look as it part of an uncontrolled operating expenses, you know call it across ’19. That represents a little bit more than 60% of our total expense structure. And so when you think about that and you think about sort of our controlling operating expenses, that was kind of in the 38% context.
And so what you'll see is that those uncontrollable expenses which are mostly gaming tax, which actually was about 60% of that, you know of that little more than 60, about 60% of that is gaming tax, that's really going to drive the way the margins look, because we will start getting operating leverage. So if you think about that other 38% that's controllable, some of that’s variable.
Our payroll, although you’d say that it was something that is under control, you know we've taken the [doctor] [ph] and that we want to keep our team together, and so that's something that we're very focused on. So when you think of our two largest expenses as the gaming tax and as the payroll, you can kind of walk into what that margin might look like during this, call it transition period of ramp up.
So will we run, you know call it the 33% EBITDA margin we were running before right out the gate? Unless there's an immediate snapback recovery, that might be a little challenged. But when you look at the expenses that we have controlled and you look at the marketing expenses and the way that we look at the other parts of the business, we've been able to control costs in a very disciplined way. You know we went – you know the business has experienced other troughs before and we've always managed expenses to ensure liquidity and to ensure the proper recovery when it comes around.
And so I think, are there some margin opportunities? Sure, but I think it also depends on what segment comes back and when. As you know that the junket segment is obviously much lower margin and less contribution, providing then the mass and premium mass segment. So if we get huge volumes of mass business, our margins are going to look tremendous right out of the gate.
So I think for us a lot of it depends on what segment of the business you call the recovery on first. So I think given that expense structure, given the – your view that you may have on recovery of the business, you can kind of formulate a transitional margin process for the business.
Okay, that's really helpful, thank you. And Patrick, this is probably also for you as well. You know obviously you guys have been doing a lot of stress testing on the company, led you to the dividend decision. Just wondering, you know how deeply have the stress tests cut into the liquidity cushion, and would you be willing to take on more debt? And if so, where would you see that maxing out and then what milestones would you have to reach to reinstate the dividend?
So I'll leave the last part of the question for the Chairman, since that's really something that falls to him, but I think the key thing for us here is that as we mentioned before in prior earnings calls, is we’re very focused on looking at the liquidity of the company; very focused on looking at the long term objectives of the Chairman.
Our highest and best use of capital is reinvestment in high-growth projects, and if you look at our track record on return on invested capital and the projects that our Chairman has led, it's tremendous. And so our goal is to preserve that liquidity and also to continue and invest in our key markets to drive that high ROIC, and so if you look at the Chairman's notes and the strategies he’s laid out, we are continuing to invest in these markets to ensure that we get the high returns going forward when the market does recover.
That being said, we look at a variety of scenarios. We have a lot of different downside cases, a lot of different liquidity scenarios, a lot of different CapEx scenarios, so that we ensure we can analyze things to a satisfactory in which the Board feels comfortable making a decision with the Chairman and that's what we've done here.
So if you look at page eight in the deck, you can see that we’ve laid out the cash and available liquidity. You can see that right now under the current conditions as we presented them, we can go more than 18 months and invest in completing the projects in Macao and continue along with Marina Bay Sands new developments, and so that's very encouraging for us. We feel very strong about our balance sheet position, our Board feels very confident in our ability to weather the storm.
And that being said, if for some reason we felt like we needed access to the capital markets, we spend a lot of time working to ensure that we had access to the most deep and most liquid market in the world, which is the high grade bond market, and so as an investment grade company, the investment grade bond market opened very quickly after the impacts of coronavirus hit the capital markets, and issuers do have access, and we feel very comfortable at our ability.
We feel great about the high grade markets and at some point if the Board makes a determination with management that it makes sense to raise additional equity, we’ll have the ability to do so, we're very confident about that. But at this time we're very comfortable with our liquidity on-hand; we’ve shown the analysis on page eight and you know we're looking forward to a strong recovery, so we can benefit from the huge CapEx developments that we've been undertaking during this time.
And then one last question, I think the second part of that, was that you directed something that would probably best be answered by the Chairman, which is kind of view on dividends and when the dividends may come back and what that looks like. And so if that’s okay, Sheldon, I’ll turn the call back to you.
Thank you, Patrick. We will reinstate the dividend after discussing it with the Board of Directors. When things get back to where we were, it’s very simple. I don't think it's a long time away. If the rumors are – Macao is a big percentage of our, both GGI, Gross Gaming Income and our EBITDA, and I think that is the level that will come back first. Then probably Singapore and Vegas, in that order perhaps.
So if what Rob says is true, the people are dying and anxious to get back to – no, we don't want them to die – get back to Macao to enjoy themselves, then it should come back sooner rather than later.
Listen, I'm the largest shareholder, my family and I, and we want the dividend reinstated more than you do. So if you could see the amount of money that we're not getting, I would certainly like to have that in our savings account, so we’ll reinstate the dividend as soon as we get back to earning some money.
Okay, thank you very much.
You're welcome. Thank you.
Your next question comes from the line as Thomas Allen with Morgan Stanley. You may now ask your question.
Thank you. So I think we’re all trying to figure out what the business is going to look like in the future when things come back. Macao reopened at the end of February and there were a couple weeks there before the travel restrictions went to place in Guangdong and got stricter Macao. Can you just qualitatively talk to us about what business was like then and how social distancing measure has impacted your business?
And on a similar vein, can you just talk about how Singapore was performing? I know you put the monthly numbers on slide seven, but just qualitatively how social distancing measures were impacting Singapore during the time period before it closed. Thank you.
Thomas, it's Rob. I think in Singapore social distancing did have an impact, because we’re limited there in terms of size of the operation. I think we’ll have an impact on Singapore in the future. The question is how long those social distancing [inaudible] stay in place and we just don't know, but it will have an impact, negative in terms of Singapore.
In Macao I think we’re in a much different position because the scale and size of operations enable us to – we have so much square footage there and so many more slots and tables that I think we can do much better business in Macao than in Singapore vis-à-vis social distancing. But I think that the area you talked about, the time periods obviously were impacted not just by social distancing, but you know demand slowed because it was more difficult to get there and there was more concerns about access and it was a confusing time in both markets in terms of visas getting in, getting out of quarantine. I don't think it's an adequate snapshot when rebound comes.
I think once in Macao we opened the doors back up in the 14 day quarantine and the IBS team is back in place. I think we'll be able to do quite well and the social distance will have a minimal impact in Macao, again the size and scale of our operations in the numerous table slots and square footage.
I think in Singapore we’re going to have a lot of demand. I spoke to the team this morning and they were laughing about the amount of people calling to complain about the fact we’re closed and want to come gamble. I do believe we'll see a lot of demand in Singapore. I am concerned that may have a negative impact. I cannot tell you obviously what that'll be, but I think we’ll have more demand come this summer, especially come fall, and Singapore could be adversely impacted by social distancing, so it remains to be seen.
Nice job. And then just as my follow up, when you announced the dividend cut, in the prepared commented it said miscellaneous [ph] and I think you wrote, ‘I see many strategic opportunities for our company precisely because our financial strength.’ Could we just have some more detail on this comment? I think some people are interpreting it to imply that you would be interested in M&A. Is that the right perception? I think Patrick talked about high growth opportunities earlier. I just want to clarify those comments.
I'd like to reaffirm what you're thinking. It does mean that we're interested in M&A. One of the reasons why we're the biggest and we've got the best balance sheet in the industry, our market cap up until this – till this virus came, was equal to the combined market capital of all our competitors in the U.S. combined. So it's – I'm not going to give up on developing integrated resorts. I'm going to add on to our strategic thinking or strategic priorities that we can acquire, because most of the other companies, one, don't have the balance sheet that we do, and they don't have the potential market that we do, and we can go in and acquire one or more operations that if – of course the price has to be right and so are now taken on the strategy of both acquiring and building and developing.
And if I can just quickly follow up on that, any changes to your views on what markets you'd like to be in?
Not really, but we've always wanted – we’ve always said that Asia is the best place for us. Because number one, in this virus shutdown the agents have been through this for a long time, for several times, so they are used to it. And when it opens up again, they're just going to come back and continue, maybe at a higher pace to make up for lost time that they have experienced. So Asia has got the population, is the most inclined to play, to gamble than other populations. So it looks like if we can find something good in Asia we'd certainly like to do that.
Thank you.
Either to acquire or to build.
Your next question comes from the line Steven Wieczynski with Stifel. You may now ask your question.
Yeah you guys, good afternoon. Rob so maybe you can help us think about the Vegas market a little bit at this point, but obviously with what's going on, you probably have seen a drastic slowdown in convention traffic. But wanted to you know understand what you're seeing in terms of the folks that did have convention meetings on the book. Are they willing to rebook at a later date or are they holding out at this point?
Yeah, good question. We see a different path in Vegas than in Asia. Again, Sheldon referenced not the comfort, but the exposure Asia’s had to the viruses and these kinds of things. As you know when your applying to Asia, you know temperature testing and mass are kind of the way it works over there anyway. So I think that the U.S. has never experienced on our shores these kinds of thing.
So as it relates to the group market, I'm surprised. I just talked to George this morning, who runs our building here, George Markantonis. He's saying strong demand in August from multiple groups and he feels the demand is there. The question is going to be Airlift in the Las Vegas. I don't know how Airlift will look in the 90 days. I don't know how you know the economic impact in terms of how Americans will spend money to think about being here, but group business appears to be out there for August and into the fall. They are not canceling the 21; they are rebooking into late summer and fall. I think demands there – I spoke to some of our competitors, the same thinking applies there.
I don’t think Vegas has a problem with getting whose back into place. That we have the proper social distancing, the proper etiquette in place to protect people, and I think that's going to be, it looked like Asia which is a lot of social distance, a lot of controls to make sure it's as safe as we can make it, cleanliness and etcetera. But apparently George thinks the demand is there and I've heard that from multiple companies in town. I thought they’ll push back in ’21, but they haven’t. Its August, September, October and November pretty strong demand, so…
I can tell your coming from that business myself. This is Sheldon. They can't – a lot of the companies, both private and association wise are relying upon their shows to expand their own businesses and to do what it is they usually do with the show; research, recruitment, etcetera, and so they don't want to give up on that. It’s not - we can only have it at this time, and we can – if we don’t have it at this time, we are not going to ever have it again, that's not the case at all. We don’t have it and make up for the loss of time as soon as they possibly can.
Okay, got you. And then Patrick, you give a lot of color around the dividend, the dividend cut and maybe this is for you or Sheldon, but was there ever the thought – I mean it seems like your liquidity position is very strong, your balance is very strong. Was there every the thought of keeping some small dividend in place just to maybe keep a little bit of a different investor base included in your stock for the time being or is it always just kind of 100% cut or keep it?
This is not – this is Sheldon. We haven't eliminated the dividend, we’ve just suspended it, and yes, we could come down to a cut rather than a total suspension. We'll see what happens; how fast we open places and what kind of income we are going to experience.
Listen, I’m in your – we are all in the same boat. As I said, I own the largest amount of stock, my family and I, of anybody and I want to see the dividend recover and to maintain it as long as possible.
Okay, great. Thanks guys, I appreciate it.
You’re welcome.
Your next question comes from the line of Shaun Kelley with Bank of America. You may now ask your question.
Hi, good afternoon and I want to echo the sentiments that I hope everybody's safe and healthy. Just wanted to follow-up on maybe the Singapore recovery, because this market is – you know it's relatively unique to Las Vegas Sands. I appreciate all the extra color and disclosure you gave there. Can you maybe Rob give us a little bit more color on just sort of the current customer mix there and how you expect maybe that to trend as Asia kind of reopens, maybe between you know kind of your VIP customers and a little bit of the mass market there. Where's it coming from and how do you think the source markets are going to react in that market.
Well, currently as you know the customer mix there is zero since we are closed till June 1. The team is pretty confident that we'll get opened in June. It doesn't pretty much concern that it will be extended beyond this. They seem like they can – had you saw the journal this morning, the majority of the problem is in the – has been isolated. I think Paul and Andrew and all the guys there told me this morning, they feel pretty confident we’ll open in June.
So local market was thriving and they think we’ll thrive. In fact they were talking about the amount of people calling to complain that they couldn't gambles. We feel pretty confident that the local market will bounce back immediately, and be pretty strong actually because it's an activity people enjoy being part of in Singapore and we are very confident that rebounds really quickly in June too.
The local market, these foreign local markets, meeting Indonesia, Malaysia, I’m not too strong on, because I think that those countries are facing challenges. I'm not sure the borders will even be open to those people, but I feel less aggressive in terms of rebound of our local market thus far and meeting again the countries nearby. Indonesia, Malaysia, a bit of struggle right now. I think we’ll be slow to see t that return. I think we’ll be quick to see return to China, if we get open, the border is open and the Chinese are able to come. I think that will cover rather quickly.
I think Singapore becomes positive right away in June, and then ramps up throughout the summer, but it will miss some key elements of local foreign markets surrounding the neighborhood.
I don't think Malaysia or Indonesia will be simple to get back to Singapore for the summer. I do think China and local play will be strong. I know local play will be strong because it drove our business prior to closing and we hear anecdotally that people are really frustrated and want to go back to gambling in the casinos.
Well, also as you mentioned, you know Shaun you know, you've been to Asia enough, but the idea of wearing a mask or social distancing or thermometer checks will not be difficult for the customers in local Singaporeans, nor Chinese's visitors, they'll except it, they’ll deal with it and as you know the high end bankrupt business anyway is people in rooms two or three and in large rooms, so no problem there.
The only thing I'm concerned about is, if we get into a mass business, there again quickly is what we may lose – the spread can be difficult vis-à-vis the main gaming floor, because we'll be social distancing the slot machines etcetera. But once again, like a lot of markets we have a lot of very high end who play both slot ETG and table. I think we accommodate.
We may be at risks where it relates to masses of people coming in and the slot machines not having enough capacity and saying the tables mass. No risk on the high end mass or risk on the mass.
And again, I think Singapore is going to be like Macao, quick to recover. Unlike the U.S. which I think is more drastic and slower. Their ability to acclimate to this environment has improved in the past. They've lived through SARS, they’ve lived through Swine Flu, they’ve lived through a lot of things and they always are going to come back and they come back much quicker than we anticipate.
So we feel bullish with the caveat that you know our foreign business around us, our neighbor's foreign business might be pushed back into the fall and not be there. We feel strongly our high end Chinese business will cover rather quickly. We know it will, because the demand is there.
Great! I really appreciate all the detail on that Rob. And then sort of the other way to split out the trajectory recovery in Macao, I think you talked a little bit about the restrictions there and the difficult read in March, but did you see so what we were able to see in March. I mean was it really that VIP was the only thing or was the primary market that was available at that time, just given the broader travel restrictions, is that kind of the way to read the data that we have thus far. Is that kind of what – a little bit of what you saw in that market just so we can characterize it for investors?
Yeah, I wish I can give you a better color, but we just saw such a turn down, now that the business has turned out. People – I read these things, at the high end people will come back first or the premium mass to come back to the mass mass. I don't think we saw evidence of that in those two weeks. I think is was so confusing and the restrictions etcetera.
I just don’t think there was good evidence of what’s going to happen in the future. What I do believe is that China is going back to work, they're going back to travel and when the IVS and the 14 day quarantine are taken away, I think all segments come back and come back rather healthy. I think by – you know by late summer, early fall we are going to see some nice profitability out of our Asia properties. By late fall, by you know thanksgiving or October, I think you’ll see very strong return to a better time over there.
We feel just extremely confident that Asia gets better quicker and you are seeing already in China with the travel restrictions being eased. What I don't know is the province by province access into Macao, how that will happen, but it will happen and I think there's been a strong claim made by the Macao government to get started, they're hoping to see the restrictions eased.
I just don't think the two weeks, three weeks could be really a strong indicator of how it’s going to come back. I think it comes back across all segments. I'm not a believer it's just going to be the high end. I believe it’s going to need plenty of mass people as well.
Thanks Rob. The optimism is definitely refreshing, so I appreciate it.
Thank you, we're optimistic. The world will recover.
Your next question comes from the line in Stephen Grambling with Goldman Sachs. You may ask your question.
Hi, good afternoon. I’ll eco the well wishes to all of you and your families and also Felicia’s on the personal protective equipment as my wife is actually one of those healthcare workers needing it, so thank you.
My first question is a follow-up on the comments around M&A. Can you elaborate on the guidelines that may dictate whether you would pursue individual assets versus whole companies? How willing regulators may or may not be to these types of transactions and where you generally would expect the biggest synergy potential?
Sheldon, you want to take that or do you want us to take it here in the office.
Take it there.
Okay. So its Patrick, and thanks for the question. I think you know one thing that you should sort of look at in terms of the lens we might examine M&A up through – it’s just on our long term views on returns, and so you the Chairman has been very strict about the way we deploy capital in order to ensure that we get the right returns to justify things and that's always been true in developments and it will certainly be true through any M&A transactions.
And so I think the way we are thinking about it is, and from the discussions that we've had, just around trying to be opportunistic, we are looking to see high quality assets where they are in key markets where it may be cheaper to buy them to build, and you may find something that is attractive and fits into our overall strategy in the long run, and I think we're going to be very returns focused.
Clearly our industry is heavily regulated and we're going to have to ensure a proper compliance as we always do, and we are going to have to look very carefully at those opportunities in that context. And I think you know it's not as if this is something that will happen immediately. This is going to evolve over time and we’re going to have an opportunity to take a very hard and disciplined look and see if any of those opportunities are attractive to the Chairman of the board. And so I think that's kind of how we'll think about it.
Thanks and then maybe a follow-up on Shaun’s question around Marina Bay Sands. You talked to the revenue trajectory, but can you just remind us of the puts and takes that might impact that property's margins relative to others as we think about the reramp since it looks like you had very solid margins this quarter and it looks like even the OpEx per day in the zero revenue is better than peers. Thanks.
So I think overall in Marina Bay Sands, the margins in that property are really tremendous. I think a lot of that has to do with the original strategy that goes back to the Chairman’s view that creating a very high quality with integrated resorts and multi-amenities to the highest level would produce high margins, and you see the results since the history of the opening of the property. That strategy has been spot on and it’s really delivered. It's been a tremendous asset and has driven tourism and has really contributed to the market of Singapore, and I think it's been great.
I think to Rob's comments earlier, we know that there's a lot of pent-up demand and you know I think the opportunity here for us is to look at it for the long run. I think we're very focused on deploying capital there. We have a bunch of projects to help it enhance and improve the offering at Marina Bay Sands that we think will be margin enhancing and cash flow enhancing.
I think we're very focused on the development in Tower 2. You know the Chairman's vision there is great and we're very excited to get that arena open. We think that will add to the tourism offering of Singapore. We already have some market test about that, because we have the – you know we obviously have the arena in Macao that we operate and it's a great tourism asset and it works very well with the mass business and premium mass business. So we see a corollary there in Singapore where we can drive significant visitation from the around and catchment area out of that arena.
So I think if you look at Singapore over the next couple years, we're going to see what we hope is very high value returns on the new deployed capital, in a market that continues to maintain very high margin structure. And so, while we don’t know exactly the pace of recovery that we’ll see today, we do know that in the long run and as Rob said when things were covered because of the demand, we're going to be poised to take advantage of it and continue to deliver very high margins and strong cash flow. So that's kind of how we think of that.
Thanks so much for all the color and perspectives. Best of luck!
Your next question comes from the line of Carlo Santarelli with Deutsche Bank. You may now ask your question.
Hey, thank you. Thanks everyone for the comments. I think this one’s probably best for you, as you think about kind of the near to medium term and maybe make the assumption that specifically in the Macao I would imagine the two sub-segments of your gaming business will ramp at different speeds. Have you guys adjust strategically at all to maybe pivot business over more towards a VIP customer that might be more pronounced [inaudible] or do not see it that way.
We had a little problem hearing you. Are you saying that – we couldn’t catch all that. But you are saying that you think VIPs are going to ramp much quicker than mass?
Well, I'm asking if that is your opinion and then if you came in the business at all differently. So I kind of wanted to read your perspective on that?
No, we’re not going to think that way. We believe the mass premium – we believe the pent-up demand is real in all segments and if anything, I think it will be a mistake to think that way. We believe this is going to open up to a lot of business come this summer and the fall.
The social distance, we’ll have to work through, but I think Asians and Chinese are as they open that market up, open their country up, as those quarantine barriers come down and the IBS comes up, I do think we are going to see a return on all segments. We are pretty confident the Macao is also making some money this summer, and a lot of money come fall. And again I'll be redundant here, but the Asians, we've never seen this kind of a virus on our shores here in the U.S. where we’ve kind of taken aback and shell shocked by it. Asia has seen it numerous times, they understand it, they dealt with it.
You guys Hong Kong is open and operating. It never closed in terms of retail and restaurants and they're walking around with gloves and mask and sanitizers and temperature checks. Everything is open in Hong Kong in terms of the restaurants retail and I think their statistics are pretty excellent relative to the rest of the world. They can deal with it and Macao will deal with it and I think visitation will be – I think it'll be a mistake to try to handicap which segment is back first. I think they all come back and we're pretty anxious to see that happen in the 60 days with the first phase and then hopefully by late summer it really kicks in all the way.
Our job is to provide a safe environment for our employees and for our customers, so they keep coming and there is no reinfection. But again, unlike the U.S. which I think people are concerned, even Nevada are having a hard time getting opened again, because the people are so scared and don’t have any idea.
Hong Kong, right now you can go out for dinner, you can go shopping. So they’ve kind of come to terms with much more comfortably than we have. But I think it's a mistake to try to figure out which segment resurrects quickest. I think they all come back pretty quickly.
Great! Thank you, that’s helpful. And just one follow-up as it pertains to Marina Bay Sands. It looks like just timing of CapEx has shifted a little bit up to where it was. Could you guys just kind of provide an outline for maybe the key milestones of that project and how you kind of foresee the construction process?
Sorry, are you referring – so page 11 has our CapEx expectations in the slide presentation. You’re referring to the expansion, so the new Tower for Marina Bay Sands?
Yeah, just in terms of the timeline of construction and what not.
So I think what we’ve laid out here is pretty consistent with our thinking today. I think we're really not going to start any heavy expenditure until the back half of ’21, and then we'll sort of follow as quick an execution schedule as we can follow. It's funny, the Chairman always says to us, ‘You know I build a Venetian in less than two years. You guys should do the same.’ So we are going to do the best that we can do to be as aggressive as we can be, because really we want to add these assets to the tourism portfolio of Singapore as quickly as possible.
Tokyo, I think if you look in Macao, and you look at kind of the trajectory of our latest projects, which was really from the ground up the Parisian, you can kind of see the distribution there in some of our prior presentations about how CapEx progressed. Some of that is influenced by labor availability. You know in Singapore we’d like to believe that in this particular market we’ll have the ability to pursue the schedule we’ve kind of laid out there where the majority is coming across ’22, clean up in ‘23 and then we'll see what happens. Maybe there’ll be some in ‘24 as of right now, we're not sure.
So I think our goal is to try to get this thing open as quickly as possible once we get the proper approvals from the government of Singapore, you know with obviously with their support. And just to highlight, we do have a delayed draw financing for that project and so that project is financed in advance and it's the same bank group that we've been with for years that also holds the credit facility there in Singapore.
So we're continuing to make progress; we are working on a time line there; we are trying to work as quickly as we can given the current environment and you know we'll continue to keep you updated in upcoming quarters, but we’d like to pursue the schedule as aggressively as we can.
For what it's worth Carlo, we also built and when we do open-up this summer, our Four Seasons is fully opened, operational to a 90 keys and then by the end we’ll have the London done as far as the outside and not the façade. So we're moving quickly. We have 3,000 workers on site right now to finish those projects.
Great! Thank you very much.
Your next question comes from the line of Harry Curtis with Instinet. You may now ask your question.
Good afternoon everyone. First question had to – is with respect to building margins back in Macao. Going back to the old adage, never let a crisis go by without learning from it, as you look at your, at some of your larger expenses ex-labor. So for example, marketing food and beverage, are there opportunities here to tweak the way that you operate to bring your margins back faster, so that you'll be running actually more efficiently, even with fewer guests for example?
Harry, I guess my confidence may be misguided, but I believe business in Macao is going to be strong enough we don’t have to worry about you know cutting some restaurant workers or cutting some – I just don't think there's enough margin in cutting costs if the revenues are there; I think the revenues will be there. I just feel like we're overplaying this in terms of how Asia thinks and how Asia rebounds. I think that's an appropriate commentary in question, vis-à-vis Las Vegas. I think it's a very fair question.
But in Macao and Singapore, I think we have great pent-up demand. We hear it; we feel it and we think that unless we’re misguided in that thinking, it will be a mistake to pull back our F&B, pull back on a lot of things that we do there, because again you can't overcome the enormous top-line. These are top-line businesses over there in Asia and I think they need those kinds of services, goods and services to be successful.
I don't see and may be Patrick sees it, but I just don’t see enough. Unless a business comes back to levels we believe this year, in Asia I think it would be mistaken to try to shave a few points of cost and drive margin, because the revenue should be there in my estimation.
And just one additional thing to think about. Before the start of this disruption, the beginning in the first quarter of this year, this was a very well-functioning, very well-oiled machine that ran high margins and was incredibly efficient and continually look to make itself more efficient each quarter.
And so I think we won’t look at this purely from the transition standpoint. We're going to look at this from the way we always look at it, which is to Rob's point, we've got to grow revenue and we believe that it will happen, and then we're going to continue to manage the business in a very cost efficient manner, ensuring that we generate as much cash flow and keep our margins strong.
And so I think it's difficult from where we sit today, to tell you all the things that we’ll do going forward, because we've looked very carefully at our business each quarter and we've taken costs out of it appropriately, and so I think we'll just continue to do that and try to run as efficient a business as possible.
Fair enough. Let me move on to a broader topic that looks out five to 10 years and is tied to your – to Sheldon's comments about addition spending in Macao. There’s a new Chief Executive. Some investors are questioning the relationship that the concessionaires might have going forward with the new Chief Executive, but it seems to me his most recent comments has actually been somewhat encouraging that the concessionaires have been positive for Vegas.
So my question of Vegas, Macao rather – so my question is, as you think about the future and spending in Macao, what partnerships might develop with the government or other companies or in the hospitality industry or in completely different industries that would position Las Vegas Sands to get a high return on incremental investment?
First I’ll say – I’ll repeat Sheldon's comments at the top of the call. We love to investment in Macao; we are keen to invest in Macao. I don't know you saw the Chief Executive calling us out for participating in the quarantine with our hotel rooms and commending our actions there, but we are pleased to see the recognition on that.
But I think we’ve always been consistent and Sheldon has been consistent. We want to invest as much as we can in Macao, as often as we can in Macao, and we're anxious for that day to come Harry. The minute we get the go-ahead, I think Mr. Adelson and our Board would be predisposed to write very large checks very quickly.
We've always been believers. We believe the market just has so much potential growth there. There is so much opportunity. You know the future of Macro is very bright and very diversified and we are very anxiously a part of that. I think Sheldon’s always been unequivocal in his willingness to invest, invest, invest in the future Macao. Sheldon, do you want to echo those sentiments?
Yeah, I’ll echo those.
Echo.
Ditto. Listen, we’ve – Macao is, will be the best, if not one of the best. It will be the best and the best gaming and leisure destination anywhere in the world. So there's no reason why it should grow. While Rob was taking, I was thinking about potentially it could only grow as big as Vegas does. It actually – the population that it serves is much greater than what Vegas serves and it could grow into that, but it will take a long time to go into that. We’ve got 150,000 rooms. Its only about 35,000, 40,000 rooms in Macao. So it will take quite a while for it to grow well beyond that.
Okay, thanks very much everyone.
It certainly has the growth potential.
Thanks Harry.
I appreciate it everyone.
Thank you.
And your last question comes from the line of David Katz with Jefferies. You may now ask your question.
Hi! Evening everyone, and thanks for taking my question. I wanted to just go back to the reopening and trying and envision, and Rob you touched on this on the mass side. You know what operationally it could look like from people taking ferry, border crossings etcetera. You know, are we envisioning gloves, masks and you know temperature. And I suppose I would ask the same question about Las Vegas, and you know given as you point out aptly we may not be as used to it here. What that potentially could look like, we saw some release from the Nevada Gaming Commission this afternoon.
Right, right. David, I think if you look at – I think I turn to Hong Kong as a guideline. I think the Asian people will adapt. Well yes, the answer is there’ll be temperature checks, there’ll be masks, there’ll be gloves. We are going to do whatever we can do to ensure our employees and our customers are in an environment they can have fun in and visit us and all that, but they are not going to be at risk as best we can prevent that. The rooms will be clean beyond clean, the wiping down of surfaces, the social distancing. They're doing it in Hong Kong.
I think the last time I looked Hong Kong had less than a dozen deaths and again, retails are opened. You go into Hong Kong; the restaurants you sit in are five to 10 feet apart. You get a temp check coming in, you wear gloves, wear a mask and it’s a different world, but the Asians are – there’s all kind of sanitizer, but they're doing it as we speak in Hong Kong today. I envision a similar environment here in Las Vegas and in Macao.
The difference is going to be the ability to acclimate is much higher in Asia, because for years I've been going to the airports via Tokyo or Hong Kong, Macao. When you do a temperature check and people are wearing masks, it’s not that far in that thinking. So I don't think the Asian people have a problem at all. In fact I think they are going to welcome it and be anxious to get back to having fun in casinos. I believe that from the bottom of my heart the recovery in Asia is going to happen rather quickly.
I'm not as comfortable and Vegas one of the reasons I'm concerned is because this foreign door thinking, this is I've been wearing a mask now for a while and its different, you know it is different, and I think it will be a little bit difficulty. I also wore it at the Airlift and how the airlines will be able to fly into Las Vegas, because the Airlift is an important part of our success. So although it's going to take some time, some comfort to get people to acclimate, I think it's going to happen and I don’t think there’s any problem at all that it’s going to happen in Macao.
The minute they open doors in Macao, we're ready. We have the gloves, the mask, the sanitizer, the temperature checks, but I think your best example is what's happening in Hong Kong as we speak. It’s pretty amazing. You can go shopping, you can go eating, you can do a lot of things there and life there is not usual, but it’s ongoing and that’s what we hope we can do in Las Vegas as well and adapt to the new environment until the day comes when a vaccine or cure, I believe that's going to happen.
How did we live through so many of these things? The stock market crash in ’80’s to 2001 to 2008, 2009 to SARS. People will say, ‘Oh! That’s going to change everything. It’s going to be all different. It’ll never be the same. I’ll agree. I think this thing will get fixed at some point. There will be some remedy, be it a vaccine or be it some way of getting – the medical people, there’s too many smart people out looking, but I think the world will return, but Asian will return quicker and will rebound much faster than here and there'll be no aversion to wearing a mask and gloves and social distancing. In fact they’ll welcome it as long as they can come back to Macao and Singapore.
Rob, you’re not old. You remember all those past times.
What’s that?
You are not that old that you remember all those incidents in the past.
I was much younger, so I remember them.
Dinner out sounds great. Be well everyone and thanks for taking my question.
Thanks David. See you one of these days.
Thank you presenters and thank you ladies and gentlemen for joining Las Vegas Sands, first quarter 2020 earnings call. That concludes today’s conference. You may now disconnect and have a great day!