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LAS VEGAS-Las Vegas Sands Corp. posted a nominal net loss for the first three months of the year, a period that included the opening of its newest Strip resort, the Palazzo. The $1.9-billion, 3,000-room resort development sits next to its Venetian resort and in front of its Sands Expo and Convention Center complex, which is being eyed for redevelopment. In addition to the Venetian and the Palazzo, Las Vegas-based Sands owns two properties in China, the Sands Macao and Venetian Macao.

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

“Our first-quarter operating results reflect both an intensely competitive operating environment in Macau as well as a weaker economic environment here in the United States,” says William Weidner, Sands president and chief operating officer.

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 to the Palazzo, net revenue at the company’s Las Vegas properties rose 21% over the previous year to $351.6 million. Net revenue at the Venetian Macao, which opened in August, was $455.7 million. While net revenue at Sands Macao fell 23% to $268.3 million.

Weidner told analysts Wednesday afternoon that the company “paid the price” in the first quarter for its earlier decision to increase inventory for Las Vegas tourists rather than conventioneers in 2008. The weakening economy has slowed tourism, resulting in “lower occupancy than we planned,” he said.

At an investor conference earlier this year, Sands revealed that is considering replacing the 1.2 million-sf Sands Expo & Convention Center with a new $680-million development on an adjacent site. The move would create a state-of-the-art convention facility with improved access while freeing up the existing site abutting the backside of the company’s Venetian and Palazzo resorts for redevelopment. Sands has submitted plans for the new convention center with Clark County and hopes to have it up and running in 2010. Company executive Brad Stone told investors the existing convention center site could hold 10 to 14 million-sf of new development.

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

In addition to the slowing tourism in the US, Weidner told analysts the company lost a significant amount of market share among high rollers in Macau. Some of that share was lost to MGM Mirage Inc., which opened MGM Grand Macau, its first property there, in December. To win back high rollers, Weidner said Sands has boosted commission rates to operators who bring in said high rollers and will ramp up 24-hour ferry service from Hong Kong.

It appears Sands will have time to boost returns before more competition arrives. The leader in the Macau market, Edmund Ho, reportedly told lawmakers there last week that beyond those already approved, which includes Sands’ developments, no new casino licenses would be issued in the near-term. Sands second Cotai Strip property, the Four Seasons Macao, which is adjacent to The Venetian Macao, is scheduled to open this summer.

Back in Las Vegas, Sands reports that while its revenues increased dramatically due to the addition of the Palazzo, its average daily rate at the Venetian during the first quarter fell to $274 from $276 in 1Q07 and its occupancy decreased to 91.1% from 98.8% in 1Q07. RevPAR at the Venetian decreased 8.4% to $250 from $273 in 1Q07. The Palazzo’s ADR was $244, while occupancy of available guestrooms was 79.1%, generating REVPAR of $193. The Venetian Macao’s ADR was $232 while the occupancy per available guest rooms was 78.6%, generating REVPAR of $183.

With regard to new construction, Sands is currently developing the 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 than 750,000 sf of retail space; three large entertainment venues; and gaming. Sands Bethworks’ first phase will feature a hotel, retail space, 5,000 slot machines, a multi-purpose event center, and dining and entertainment options. The resort will also be home to the National Museum of Industrial History, an arts and cultural center, and the broadcast home of the local PBS affiliate.”

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