Everything on the Red Dot!Everything on the Red Dot!

Marina Bay SandsIntegrated Resort

Singapore

Jon McCallumSing Ai LeeJulian PetrescuEemei Tang

Introduction

• What is the IR• Who are the players• Las Vegas Sands Corp (LVS)• LVS’s entry decisions

– Macro lens– Industry lens– Firm lens

• Risks• Assessment• Conclusion

An Integrated Resort – The Marina Bay Sands (Singapore)

• One of two casino concessions awarded by the Singapore government in May 2006

• Targeted to open certain features in December 2009

• 15,000 sq meters of casino space• In addition to the casino, the integrated resort will

include, among other amenities, a hotel, a retail complex, a convention center and meeting room complex, theaters, restaurants and an art/science museum.

Players in Singapore

Two casino concepts with very different focus:• Las Vegas Sands in Marina Bay IR

– business, high rollers, MICE– “strengthen Singapore's position as a leading Meetings,

Incentives, Conventions & Exhibitions (MICE) destination and possess unique design elements that will provide a memorable image for Marina Bay”

• Genting International with Star Cruises, Universal Studios on Sentosa IR– “large-scale, family resort with a host of world-class

family leisure attractions”

Macro Lens

+Stable+One of the least corrupt countries in the world +Legal system is based on the English common law -Govt sought opinion of people but overruled consensus on IR

Politics

+GDP growth: 7.7%*+GDP per capita: US$35,163*+Annual Inflation rate: 2.1%*+Visitor arrivals(‘000): 10,284*-Revised projections: economy will shrink by 2-5% in 2009

Economy

•Government-linked corporations•SMEs – regional ethnic Chinese+MNC-friendly+Govt encourages foreign investments for creation of jobs and stimulation of economy+Gaming tax rate = 17.3% (vs 39% in Macao)

Business System

•Population: 4.6M*+Unemployment rate: 3.1%*+Low crime rate: 709 per 100K+Travel time from Major Airport: 25 minutes by car+Bayfront MRT station (2013)-Terrorism- Outbreak of diseases i.e. SARS

Other

*Source: Singapore Department of Statistics (2007)

Industry Lens (1)

- Local: low+ Regional: high

•Indonesia, Malaysia, Thailand, India•International: possibly high

•1 mil. + Chinese arrivals to Singapore (2006)•Holiday 47%, Business 22%, Visit 18%, MICE 2%

Market growth

WW•~US$300 bil. gaming revenue (2004)Regional+ US$ 26 bil. (Indo, Thailand, India, Malaysia)+ Macau’s is US$22 bil.+ Macau has 27 mil. visitor arrivalsSingapore+ 54% Singaporeans gambled in the last year;1 mil. visited Genting

Market size

Industry Lens (2)

-Timing-Building on track, other corporate developments suspended+Macau Sands had much fewer losses than Las Vegas: resilience of the local gambling market?

- Lack of requisite skills (e.g. croupier)- Low service orientation in Singapore

Other

•Casinos in Macau-Sands’ own: Venetian Macau - cannibalize our own?•Macau has wider reach (3 bil. people within 5 hr. flight vs. 2 bil. for SG)•Visa restrictions for Chinese?

•Casino de Genting•Going upmarket, but might create demand for Sands (?)

•Local gambling-Very different market

Competition

Las Vegas Sands Corp.• Las Vegas

– The Venetian (92.2% occ, LTM EBITDA: $314M)– The Palazzo (94.5% occ, L9M EBITDA: $96M)– The Sands Expo and Convention Center– The Congress Center

• Bethlehem, Pennsylvania– Sands Bethworks (IR under development)

• Macao– Sands Macao (98.8% occupancy, LTM EBITDA: $239M)– The Venetian Macao (92.1% occupancy, LTM EBITDA: $504M)– Cotai StripTM (IR under development; to open in 2009)

• Singapore– Marina Bay Sands (IR under development)– (2010E: 90% occupancy, Implied EBITDA of $504M + $436M* = $940M)

*MBS implied EBIDTA = Venetian Macao EBITA + Differential tax treatment in Macao (39%) and Singapore (17.3%)

Established player in the U.S. and Macao casino industry, but can similar level of success be achieved in Singapore?

ADR = Average Daily Rate per rented room LTM = Last Twelve Months; L9M = Last 9 Months 3Q 2008 figures

Firm Lens – The Good Stuff

•Experts•30-yr casino licence(10-yr exclusive)•60-yr land lease•MRT station at IR

Resources

•Brand•Goodwill with Govt•IT•Equipment

Assets

•Mgmt & development expertisefor MICE IR cum casinos in US•Pioneer of casino & conventionsconcept•Experience in training casino staff•“Las Vegas”-style gaming

Competencies

•Govt support•Implicit govt guarantee in badeconomic climate

Other

Overall Risks for Firm• Macro-economy

– Previously high construction costs greatly increased development costs– Low level of indigenous demand– Small open economy sensitive to external shocks

• Political risks– Casino license may be terminated prior to expiration “in order to serve the best interests of

the public” (“Fair compensation” to be paid)– Required to regulate casino access by Singaporeans and non-Singaporeans; and those relating

to social controls and maintaining law and order– Popular opinion might become more strongly negative once “vices” emerge

• Business/ Industry risks– Initially required investment of at least SGD3.85B. Already exceeded. Projected total cost

SGD7.15B or USD 4.5B.– Key constraint: gaming area =< 15,000m2

– Pay “externality” fee renewable 3-yearly– More new casinos coming to Singapore

• Firm-specific risk– High leverage >> $1.52B mkt cap vs $8.8B debt (83%)

AssessmentIs it going to work?Major Issues Can be overcome?Is the international potential realisable?

Probably, though still significant issue

Cannibalisation of Macao No

Skilled labour Will require large investment, but Singapore government committed

License dilution No, this will be up to the government

Conclusion

• Did Sands make a good bet?– Yes, provided it survives the current crisis– The Singapore government is committed to

make this project work

• What is the key to success?– Attracting the customers, training the staff and

getting through the short term

Latest developments•“With its Macao and Singapore projects lagging badly, Las Vegas Sands has tasked a new executive team for its Asian portfolio” (www.lasvegasadvisor.com, Feb 2, 2009)

•Nov 5 SEC filing: Sands's earnings were "insufficient to cover fixed charges" by $80.1 million. Could trigger defaults on its $8.8 billion in long-term loans Could jeopardize Las Vegas Sands' ability to continue "as a going concern"

•The company had US$600+ mil. in FCF annually 3 years ago (Time Magazine, Nov 7, 2008)

•“Operating income fell 81% to US$14.6 million in Las Vegas, 39% to US$38.7 million at Sands Macao and 13% to US$61.3 million at the Venetian Macao.”(Channel News Asia, Feb 12, 2009) • much less significant drop at the Asian properties, despite the crisis

"There is no doubt in my mind the Singapore government will come in to ensure the project is completed. The government will not let it fail." (Merrill Lynch, in Time Magazine)

The EndThe End

Supplementary Slides

Risks– Change in government policy– Change in laws– Change in regulations and or interpretation– Changes in China (liberal travel and currency movements)– Untested regulations/laws on gambling in Singapore– Gov agency review and approval– Opening of new Casinos? Licenses in HK, Japan, Sing, Taiwan, Thailand possible– Ability to attract, retain, train, manage and motivate employees– Sensitive to “discretionary consumer spending” (hotels, conventions and trade

shows will all be hit by a down turn)– Willingness of customer to travel

• Infection diseases (SARS, Avian Flu)• Terrorist action

– License• Minimum investment required (cash and time)• Annual fee• Restrictions on gaming area and machines)

Political Promises to Singaporeans• Two Resort Complexes

– Integrated resorts at Marina Bayfront and Sentosa

– Casino to fill less than 5% of total floor area at each complex.

– Marina Bayfront: Business and convention facility on a 12.2-ha site

– Sentosa: Family-friendly resort on 47-ha site

– Total investments of around $5 billion– 35,000 new jobs– $1.5b annual boost for GDP– Contracts to be awarded by end of

the year and resorts operational around 2009

• Gambling Controls– Casino entrance fee for Singapore citizens and PRs:

$100 a day and $2,000 a year. Moneycollected to go to Singapore Totalisator Board for charitable causes

– Spouses and family members can ask that people with gambling problem be denied entry

– Bankrupts, people on public assistance and those with poor credit records will be excluded

– Locals cannot use credit cards post-dated cheques or get credit from casinos

– No advertising by casinos in local media– Home Affairs Ministry to set up Casino Regulatory

Authority– Ministry of Community Development, Youth and

Sports to set up National Council onGambling

– Public education programme on danger of gambling to begin in July

– National wellness centre to be up to help compulsive gamblers

Informal Interview with MTI• Business model

– Sands: MICE; Genting: Family entertainment; no overlap– Differentiated from Macau by MICE model: mainly business visitors– Use Marina Bay Sands to showcase MICE/IR model to enter other Asian cities

• Key resources– Very long land lease– 10 year exclusive casino concession (together with Genting, the other concessionaire)

• Downsides– Required to have high local worker content– Skilled casino workers– Ability or willingness to operate social restrictions for locals– Key constraint: gaming area restricted as will be gaming revenue

• Viability– Sands broke even in Macau in 9 mths– Recent trouble due to several devt projects exceeding cost and weak revenue in Macau and the US– No explicit promises of govt aid in Singapore

• Prognosis– Very profitable in long term barring worldwide economic depression

References• http://www.integratedresorts.com.sg/• Informal interview with Deputy Director (Tourism), Ministry of Trade & Industry• LV Sand’s 10K and 10Q filings with SEC• “Singapore approves casino plan” BBC News Apr 18, 2005• “Singapore collects record S$14.8b in tourism receipts last year “

Channelnewsasia.com, Feb 3, 2009• www.lasvegasadvisor.com, Feb 2, 2009• Singapore Department of Statistics• “All Bets Off for Las Vegas Sands' in Singapore?” Time Magazine, Nov 7, 2008• “Las Vegas Sands swings to fourth-quarter loss” Channelnewsasia.com, Feb 12,

2009• “A multibillionaire’s relentless quest for global influence.” New Yorker, Jun 30 2008• “Chinese Officials Gamble, and Their Luck Runs Out” Nytimes, Jan 15 2009• Sands investor report for Dec 2008: http://phx.corporate-ir.net/phoenix.zhtml?

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