The $11.2-million first quarter loss, well below analysts'consensus estimate, is being attributed to new competition abroadand declining tourism at home. In the same period last year, thecompany posted a profit of $90.9 million. Excluding items such aslosses on sold assets and casino opening expenses, adjustedearnings totaled $23.6 million. The comparable result for the firstquarter of 2007 was $114 million.

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"Our first-quarter operating results reflect both an intenselycompetitive operating environment in Macau as well as a weakereconomic environment here in the United States," says WilliamWeidner, Sands president and chief operating officer.

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Due to the new Palazzo, the company saw revenue jump 72% to$1.08 billion from $628.2 million in the first quarter of 2007.Analysts expected revenue of $1.24 billion. Due in large part tothe Palazzo, net revenue at the company's Las Vegas properties rose21% over the previous year to $351.6 million. Net revenue at theVenetian Macao, which opened in August, was $455.7 million. Whilenet revenue at Sands Macao fell 23% to $268.3 million.

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Weidner told analysts Wednesday afternoon that the company "paidthe price" in the first quarter for its earlier decision toincrease inventory for Las Vegas tourists rather thanconventioneers in 2008. The weakening economy has slowed tourism,resulting in "lower occupancy than we planned," he said.

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At an investor conference earlier this year, Sands revealed thatis considering replacing the 1.2 million-sf Sands Expo &Convention Center with a new $680-million development on anadjacent site. The move would create a state-of-the-art conventionfacility with improved access while freeing up the existing siteabutting the backside of the company's Venetian and Palazzo resortsfor redevelopment. Sands has submitted plans for the new conventioncenter with Clark County and hopes to have it up and running in2010. Company executive Brad Stone told investors the existingconvention center site could hold 10 to 14 million-sf of newdevelopment.

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"We could put between 4,000 and 7,000 keys on this piece ofproperty, we could put condominiums [totaling] from 2 million to 3million-sf of net leasable square footage, and we could generateroughly 500,000-sf of additional retail opportunities," he said."It's something that we haven't committed ourselves to yet; we'resimply exploring, going through the exercise, looking at landcosts, construction costs, looking at the opportunities, again, tosell off core assets. As this slide illustrates, there's 2 millionto 3 million-sf of condos, and 500,000-sf of additionalopportunities to sell down non-core assets and buy down the cost ofthis type of investment. Las Vegas is an expensive town to build inright now, but again, we have an infrastructure set up in placethat we think we can build fairly cost effectively, and if we canbring down the cost of construction and investment by selling offnon-core assets, it seems to be the right opportunity for us."

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In addition to the slowing tourism in the US, Weidner toldanalysts the company lost a significant amount of market shareamong high rollers in Macau. Some of that share was lost to MGMMirage Inc., which opened MGM Grand Macau, its first propertythere, in December. To win back high rollers, Weidner said Sandshas boosted commission rates to operators who bring in said highrollers and will ramp up 24-hour ferry service from Hong Kong.

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It appears Sands will have time to boost returns before morecompetition arrives. The leader in the Macau market, Edmund Ho,reportedly told lawmakers there last week that beyond those alreadyapproved, which includes Sands' developments, no new casinolicenses would be issued in the near-term. Sands second Cotai Stripproperty, the Four Seasons Macao, which is adjacent to The VenetianMacao, is scheduled to open this summer.

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Back in Las Vegas, Sands reports that while its revenuesincreased dramatically due to the addition of the Palazzo, itsaverage daily rate at the Venetian during the first quarter fell to$274 from $276 in 1Q07 and its occupancy decreased to 91.1% from98.8% in 1Q07. RevPAR at the Venetian decreased 8.4% to $250 from$273 in 1Q07. The Palazzo's ADR was $244, while occupancy ofavailable guestrooms was 79.1%, generating REVPAR of $193. TheVenetian Macao's ADR was $232 while the occupancy per availableguest rooms was 78.6%, generating REVPAR of $183.

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With regard to new construction, Sands is currently developingthe Marina Bay Sands in Singapore and Sands Bethworks in Bethlehem,PA. Marina Bay Sands will feature approximately 2,700 hotel rooms;approximately 1.2 million sf of flexible meetings, incentive,convention, food and beverage, and exhibition space; more than750,000 sf of retail space; three large entertainment venues; andgaming. Sands Bethworks' first phase will feature a hotel, retailspace, 5,000 slot machines, a multi-purpose event center, anddining and entertainment options. The resort will also be home tothe National Museum of Industrial History, an arts and culturalcenter, and the broadcast home of the local PBS affiliate."

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