Casino operator Melco Resorts & Entertainment Ltd will “try to do a major property relaunch Phase 2 opening” for its majority-owned Macau complex Studio City, “some time in the first quarter of next year or early second quarter,” said on Tuesday Lawrence Ho Yau Lung (pictured in a file photo), chairman and chief executive of the group.
He was speaking on the firm’s conference call, following its third-quarter results issued that day.
“We’re very excited about Studio City Phase 2. But the reason we’ve opened this kind of piecemeal,” up to now, “is we’re gradually rolling more and more product into the market.”
He added there was also a “major retail renovation” at the property. “Over the next two or three months, most of those retail tenants will be open,” he stated.
David Sisk, chief operating officer of Macau resorts, gave some colour on what had opened so far in Studio City Phase 2, including the September launch of the W Macau hotel.
“The W also skews to a much different demographic and is particularly popular with women,” said Mr Sisk. “This, hopefully, over time, will allow us to continue to expand our database,” he added.
The executive also observed, referring to the customer database of the W hotel-brand’s promoter, and the guest profile for the W Macau hotel: “It’s probably about a 15 percent casino business, 85 percent cash where we’re really looking to try to rely on the Marriott Bonvoy system to bring in some different players or different customers for us.”
Mr Ho added that in October, Studio City casino games drop produced “an all-time high in the history of the property”. Mr Sisk said the same applied to the group’s Macau flagship, City of Dreams.
The COO Macau resorts also mentioned that The House of Dancing Water – a previously long-running stage show at City of Dreams and that had been a pre-pandemic favourite with Chinese visitors – was to relaunch “probably late in the fourth quarter of 2024”.
Geoffrey Davis, the group’s chief financial officer, said the return of the show would add about US$100,000 per day to group costs.
Player reinvestment, other costs
Mr Davis said Macau operating expense increased to approximately US$2.5 million per day in the third quarter of 2023, from approximately US$2.4 million per day in the second quarter.
This was mainly due to “addition of full-time employees across our properties, including the opening of the W Macau in September and increased marketing costs,” stated the CFO.
“Despite the increase in cost, our EBITDA [earnings before interest, taxation, depreciation and amortisation] margin increased slightly quarter-to-quarter.”
“We anticipate in the fourth quarter that number [daily operating expense] looking more like US$2.6 million,” he added.
But Mr Davis reiterated the group “anticipate 20 percent to 25 percent” of cost savings made during the Covid-19 pandemic, “would be permanent”.
The CFO also stated: “We continue to focus on reducing debt and deleveraging. We repaid US$100 million in debt during the third quarter of 2023 and repaid another US$100 million at the end of October.
“We currently have approximately US$1.2 billion drawn on our revolving credit facility, which gives us around US$750 million of undrawn and available committed revolving credit facilities. We will continue to closely monitor our free cash flow, which will drive further debt reduction.”
A number of investment analysts on the call asked about player reinvestment costs in the Macau market.
Mr Sisk said player-reinvestment rates had “climbed a bit” in the Macau casino sector, as the market recovery has been driven by the premium-mass player segment, rather than what he termed the “base mass”.
Players were shopping around among the six Macau operators, he suggested. “There’s a lot of people… going out and trying other properties, understanding what may be out there. So that’s.. contributed a little bit to [a]… rise in the promotional or reinvestment rates,” stated Mr Sisk.
He observed that with the addition of circa 900 rooms at Studio City via the combination of the new Epic Tower that launched earlier this year, and the W Macau hotel, “that’s given us the opportunity to go deeper into our database to go out and be a little bit more aggressive, which is also driving some of our reinvestment rates as well’.
Though he added: “I think over time, that will moderate… and we’ll probably get back to those 2019 levels” of player reinvestment.
Mr Sisk also noted that the fact market-wide there were fewer VIP players post-pandemic, had contributed to some volatility in gaming business.
Mr Ho said, addressing wider market focus on the sustainability of China consumer demand: “We understand the investor appetite over the last six months of the year and the so-called China risk or decoupling: that’s something we can’t control. All we can do is really put our head down and make sure that we continue to deliver the earnings.”
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