Asian casino developer and operator Melco Crown Entertainment Ltd made a loss of US$12.3 million, or US$0.02 per American Depositary Share (ADS), in the fourth quarter of 2015 it said in a filing to Nasdaq on Thursday.
The firm’s chief financial officer Geoffrey Davis said a factor in the quarterly loss was “provision of approximately US$30 million against the value-added tax receivable for our City of Dreams Manila [venue], which negatively impacted net income for Melco Crown Entertainment during the quarter.” That was a reference to the gaming resort that Melco Crown manages in the Philippines capital.
Mr Davis added that as a result of “this and other changes we recorded a net loss under U.S. GAAP [generally accepted accounting principles] during the fourth quarter of 2015, which meant that no dividend would be payable under our current ordinary dividend policy.”
The firm did announce a special dividend amounting to US$350 million.
“As visibility regarding our operating and regulatory environment continues to improve, we remain committed to maximising cash distributions to shareholders, which includes a review of our current dividend payout ratio of 30 percent of net income attributable to Melco Crown Entertainment,” said the firm’s co-chairman and chief executive, Lawrence Ho Yau Lung,.
A note from brokerage Sanford C Bernstein Ltd said the special dividend amounted to US$0.6438 per ADS. It was “the largest dividend by far since it started paying dividends in the first quarter, 2014,” said the brokerage’s analysts Vitaly Umansky and Simon Zhang.
The unaudited net loss in the fourth quarter compared with net income of US$92.9 million, or US$0.17 per ADS, for the firm in the fourth quarter of 2014.
The net loss attributable to non-controlling interests during the fourth quarter of 2015 was US$65.6 million. It related to Studio City – a new casino resort on Cotai in Macau in which Melco Crown has a 60 percent equity interest – and City of Dreams Manila, which the firm operates alongside other capital investors in the Philippines that were responsible for that resort’s construction and for acquiring its gaming licence.
The group’s net revenue for the fourth quarter of 2015 was nearly US$1.06 billion, representing a decrease of approximately 6 percent from US$1.12 billion for the comparable period in 2014.
The firm said the decline in net revenue was primarily attributable to lower rolling chip revenues and mass market table games revenues in its Macau properties City of Dreams and Altira Macau, “partially offset” by the net revenue generated by Studio City and City of Dreams Manila. Those venues started operations in October 2015 and December 2014, respectively.
“We delivered a strong set of operating and financial metrics in what is a still challenging environment in Macau, with our Macau-wide mass-market table games revenues increasing on both a sequential and year-over-year basis in the fourth quarter of 2015,” said Mr Ho.
Studio City ramping up
“With the successful opening of our latest integrated resort, Studio City, we have further expanded our market share in Macau and increased our exposure to the more resilient and profitable mass market segments,” he added.
Melco Crown’s market share of Macau’s casino gross gaming revenue (GGR) reached “an all time high” of 16.7 percent in January, according to a note from Sanford Bernstein on February 11.
Studio City – which hosts a concert on Saturday and another on Sunday by American singer and performer Madonna – started operations part way through the fourth quarter, on October 27.
For the quarter ended December 31, 2015, net revenue at Studio City was US$123.2 million. Studio City generated adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$12.6 million in the fourth quarter.
Mass-market table games drop at Studio City was US$365.3 million and the mass-market table games hold percentage was 22.4 percent in the quarter.
Studio City became the first major casino resort in Macau to open without any junket tables for VIP play. Management was asked on the conference call following the results whether it had plans to introduce what was termed “premium direct” tables.
“We are still undergoing a study, a feasibility study seeing some of the introduction of premium direct or perhaps some VIP or junket business into Studio City, but I think it’s [at an] early stage,” said Ted Chan Ying Tat, Melco Crown’s chief operating officer.
He added: “The yield of Studio City is still below the market average at this stage, but we see a good improvement on a monthly basis.”
Studio City’s gaming machine handle for the fourth quarter of 2015 was US$264.9 million. Total non-gaming revenue at Studio City in the quarter was US$37.8 million.
“On a positive note, Studio City EBITDA of US$13 million (approximately 10 percent EBITDA margin) came in slightly ahead of consensus expectations of around US$8 million. We view these results as generally in line with expectations,” said analyst Cameron McKnight of Wells Fargo Securities LLC:
Union Gaming Securities LLC analysts Christopher Jones and John DeCree, and Union Gaming Securities Asia Ltd analyst Grant Govertsen said in a note: “Excluding Studio City, and on a luck-adjusted basis, Macau property EBITDA margin expanded about 100 basis points sequentially to 26 percent. This is partially attributable to the company achieving its US$50 million annualised cost savings target.”
On Thursday’s conference call with analysts, Mr Ho admitted Melco Crown would like to buy out its minority partners in the Studio City project. New Cotai LLC – controlled by funds managed by United States-based investment firms Silver Point Capital LP and Oaktree Capital Management LP – owns 40 percent of the scheme.
“It’s no secret that we would love to be 100 percent owners of it [Studio City], but ultimately, it’s a matter that depends on valuation,” said Mr Ho.
He added: “We need to be fair to Melco Crown Entertainment shareholders as well. So, right now, there’s really no intention to doing it and we are committed to returning surplus capital to Melco Crown shareholders as you can see with this special dividend.
“So, if – in due course, if there is a conversation to be had with the minority shareholders at Studio City, we’re always happy to have it. But bearing in mind that valuation is our number one concern.”
“We believe the acquisition of New Cotai’s minority interest in Studio City is a key catalyst in the medium term,” said Sanford Bernstein’s Mr Umansky and Mr Zhang.
“We are of the view that the minority shareholders of Studio City are eager sellers and that Melco Crown retains a strong bargaining position in any buyout discussion, but valuation is important,” they added.
City of Dreams
For the quarter ended December 31, 2015, net revenue at City of Dreams fell 25.3 percent to US$669.0 million, compared to US$895.5 million in the fourth quarter of 2014.
City of Dreams generated adjusted EBITDA of US$192.2 million in the fourth quarter of 2015, representing a decrease of 25.5 percent compared to US$258.0 million in the comparable period of 2014. The group said the decline in adjusted EBITDA was primarily a result of lower rolling chip revenues and mass-market table games revenues.
Rolling chip volume at City of Dreams totalled US$10.2 billion for the fourth quarter of 2015 versus US$18.0 billion in the fourth quarter of 2014. The rolling chip win rate was 2.8 percent in the final quarters of 2015 and 2014, respectively, versus an expected rolling chip win rate range of 2.7 percent to 3.0 percent, the firm said.
Mass-market table games drop at City of Dreams decreased to US$1.12 billion compared with approximately US$1.32 billion in the fourth quarter of 2014. The mass-market table games hold percentage was 37.1 percent in the fourth quarter of 2015 compared to 36.4 percent in the fourth quarter of 2014.
Gaming machine handle at City of Dreams for the fourth quarter of 2015 was US$1.07 billion, compared with US$1.35 billion in the fourth quarter of 2014.
Total non-gaming revenue at City of Dreams in the fourth quarter of 2015 was US$67.6 million, compared with US$71.5 million in the fourth quarter of 2014.
Mr Ho said on the conference call that the shopping mall expansion at City of Dreams would be “opening this summer, so before Wynn or MGM opens up,” references to Wynn Palace from Wynn Macau Ltd, due to launch on June 25, and MGM Cotai from MGM China Holdings Ltd, which is now due to open at the end of the first quarter, 2017. He added the fifth tower at City of Dreams would be opened in 2018.
For the quarter ended December 31, 2015, net revenue at City of Dreams Manila was US$80.9 million compared to US$7.6 million in the fourth quarter of 2014. City of Dreams Manila generated adjusted EBITDA of US$15.5 million in the fourth quarter of 2015 compared to US$0.1 million in the comparable period of 2014. The group said the year-on-year improvement in adjusted EBITDA was “primarily a result of full operation in the fourth quarter of 2015, since City of Dreams Manila started operations on December 14, 2014”.
For full year 2015, Melco Crown reported net revenue of US$4.0 billion, down from US$4.8 billion in the prior year. Adjusted property EBITDA for the year was US$932.0 million, a decrease of 27.5 percent from 2014.
On a U.S. GAAP basis, net income for 2015 was US$105.7 million compared to US$608.3 million in the previous year
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Lawrence Ho Yau Lung
Chairman and chief executive of international casino operator Melco Resorts