Sands’ earnings report offers a little good, a little not so good

By Liz Benston

Thursday, July 31, 2008 | 2 a.m.

At a time when gaming investors are hypersensitive, it’s hard to tell from the Las Vegas Sands’ earnings report, issued Wednesday, whether company profit in the second quarter was up or down.

Public companies are required by law to report their quarterly performance based on “generally accepted accounting principles,” or GAAP. But Wall Street analysts typically focus on “adjusted,” non-GAAP figures calculated by companies that exclude costs such as taxes and one-time expenses. These numbers sometimes look more favorable but are justified because they remove elements that may obscure how well management did during a given period.

On Wednesday, Las Vegas Sands reported adjusted figures that were notably better than its GAAP numbers. And it filed a separate document with the Securities and Exchange Commission defending its use of the adjusted figures.

By one measure, earnings at the company’s Venetian and Palazzo properties in Las Vegas rose 28 percent in the second quarter versus a year ago. On a GAAP basis, operating income fell 26 percent, with the difference attributed to an increase in depreciation and amortization costs related to opening the Palazzo in January — two elements included in GAAP earnings.

Adjusted profit at the Sands Macau in China fell 54 percent, and GAAP operating profit fell 62 percent. The Venetian Macau hasn’t been open a year.

Overall, adjusted company earnings, before certain items, rose 44 percent, but operating income, a GAAP figure, fell

15 percent over the same period. By another measure, adjusted profit fell 62 percent, and bottom-line GAAP figures showed a $9 million net loss in the quarter versus a gain of $34 million a year ago.

Before the earnings report was issued, company stock had risen 9 percent.

After the news was released, the stock fell 4 percent in after-hours trading.

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With financing having become cost-prohibitive, it’s possible Deutsche Bank, the primary lender for the Cosmopolitan, will end up owning the property because prospective buyers won’t have the cash to buy it out of foreclosure.

That might be the best option for the $3 billion resort, which will have more than a year and a half while under construction to hope the economy improves before opening for business, potentially under new ownership. In the meantime, keeping track of who’s running the place has become confusing.

Deutsche Bank is paying New York-based developer Related Cos. to manage the resort’s development as it moves through the foreclosure process. And hotel giant Hyatt, originally tapped to run the hotel, is booking convention dates at the property, which is scheduled to open in early 2010. Since the bank began foreclosure proceedings, the resort’s condominium sales team has stopped selling units to new buyers.

That might not be a big deal given how demand has slowed in the United States. But it’s thwarting business for the Cosmopolitan, where foreign buyers with cash in hand (and affected little by the subprime mortgage mess that has swept the country) have been turned away.

Several penthouse suites offering the best Strip views have yet to be offered for sale.

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Harrah’s Entertainment counts among its board members former Pittsburgh Steelers wide receiver Lynn Swann, as well Frank Biondi Jr., who led Viacom and Universal Studios in the 1990s. MGM Mirage’s board includes former Labor Secretary Alexis Herman and Alexander Haig, secretary of state under President Reagan (not to mention the inventor and infomercial pitchman for Ronco’s Showtime Rotisserie).

But in the world of celebrity board members, Morgans Hotel Group, owner of the Hard Rock Hotel in Las Vegas, has landed a star of a whole different aura, Deepak Chopra, the medical practitioner and spiritual leader known for his prime-time TV appearances, best-selling books and upscale wellness centers in New York and California.

Chopra was appointed last week to Morgans’ board along with two executives with more typical resumes.

The New York-based company is known for its ultrahip Mondrian, Delano, Clift and Hudson hotels. Designers rave over the hotels’ high-concept decor, calling it “sexy” and “gorgeous,” even “bewitching.” The word “spiritual” isn’t one of them — though lounging on white leather while gazing at an infinity pool might be considered a spiritual experience for some world-weary travelers.

The company, which expects to build Mondrian and Delano hotels at Boyd Gaming’s Echelon resort on the Strip and has broken ground on a major expansion at the Hard Rock, says Chopra will be helpful in the company’s global expansion.