Hong Kong-listed Melco International Development Ltd says one risk associated with the ongoing Covid-19 outbreak is casino resort tenants failing to fulfil their respective rent payments. The warning was made by the firm in its annual results announcement, filed on Tuesday to the Hong Kong bourse.
Melco International is the parent firm of casino operator Melco Resorts and Entertainment Ltd. The latter operates casino resorts in Macau and in the Philippines. Melco Resorts also has casino operations in Cyprus and owns a 10-percent stake in Australian casino firm Crown Resorts Ltd.
“The Covid-19 outbreak and the related events have also caused severe disruptions to the group’s resort tenants and other business partners, which may increase the risk of these entities defaulting on their contractual obligations with the group,” said Melco International in its latest filing.
Some casino resort operators in Macau had previously announced special rent-free periods for retail tenants at their complexes, to help those retailers cope with challenges brought about by the current business environment. Melco International made no reference in its announcement to having in place such a scheme.
The firm acknowledged that the Covid-19 pandemic already had “significantly disrupted” its operations in the first quarter of 2020, namely via: “severe travel restrictions” imposed by a number of countries; introduction of “temporary business closures”; and “other prohibitions have been imposed by the People’s Republic of China, Macau, the Philippines, Cyprus and other countries throughout the world.”
Melco Resorts’ casino operations in Macau were suspended in February for a 15-day period as mandated by the local government. Its City of Dreams Manila has been closed since March 16 following a suspension of all casino operations in the Philippine capital ordered by the country’s regulator, scheduled to last at least until April 14. In Cyprus, the local government has ordered the suspension of all casino operations for four weeks from March 16.
“As the disruptions are ongoing, [Melco International] expects such adverse effects will continue, and may worsen beyond the first quarter of 2020,” the firm stated in its annual results announcement.
It added: “The group is unable to reasonably estimate the financial impact to the group’s future results of operations, cash flows and financial condition due to uncertainties surrounding the business closures, travel restrictions and other events related to the Covid-19 outbreak.”
Firm in ‘best’ shape to fight Covid-19 impact
In a statement included in the announcement, company chairman and chief executive Lawrence Ho Yau Lung admitted that “rarely has the difference between the recent past and the immediate future been as stark as it is today.”
He added: “While 2020 will inevitably be dominated by the unfolding of the Covid-19 crisis, we enter this year of uncertainty in the best of financial and operational health. Our modest gearing ratio, recent cost cutting measures and capital expenditure deferrals allow us to maintain our regular dividend programme and position us well to counter the hurdles posed by Covid-19.”
Melco International reported net revenues of HKD44.99 billion (US$5.80 billion) for calendar year 2019, up by 10.5 percent compared to HKD40.72 billion for a year earlier. “The increase in net revenues was mainly attributable to increased casino gaming revenue as a result of better performance in the mass market table games segment,” said the firm.
Adjusted earnings before interest, taxation, depreciation and amortisation were HKD12.50 billion, representing an increase of 15.1 percent in year-on-year terms. Profit for full-2019 stood at HKD1.77 billion, up by 10.5 percent compared to HKD1.60 billion for 2018.
Melco International’s board recommended the payment of a final dividend of HKD0.0301 cents per share, totalling approximately HKD45.6 million, for the year ended December 31, 2019, subject to approval by the company’s shareholders.
The proposed dividend is expected to be paid in early July.
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”Despite the re-opening of the integrated resort [Okada Manila], we believe there are significant risks to the segment’s recovery in view of travel restrictions, potential new outbreaks and further lockdowns that could weigh on earnings and cash flows”