Macau casino operator MGM China Holdings Ltd earned net revenue of US$630 million in the first three months of 2015, a 33 percent decrease compared to the prior year quarter, it said in a Hong Kong filing on Monday. Factors affecting the result included a halving year-on-year in the volume of VIP chip turnover at MGM Macau (pictured), said analysts.
Additionally, MGM Resorts International, parent of MGM China, stated the latter’s MGM Cotai resort is now scheduled to launch in “the fourth quarter 2016”. Previously it had referred to the scheme – which has a capital budget of HKD23 billion (US$3 billion) – as earmarked for a “fall” (autumn) 2016 launch.
The news came as the Macau unit – 51 percent owned by MGM Resorts – announced on Monday to the Hong Kong Stock Exchange its unaudited first quarter 2015 results for its existing Macau operations at MGM Macau in the city’s downtown district.
Operating income under U.S. GAAP for the three months to March 31 was HKD561.26 million. Some other key numbers were expressed in U.S. dollars.
MGM China’s main floor table games revenue at MGM Macau decreased 13 percent compared to the prior year quarter. VIP table games revenue declined by 45 percent, which the firm said was due to a 51 percent fall in VIP table games turnover compared to the year-prior period, while hold percentage increased to 3.3 percent in the current year quarter compared to 3.0 percent in the prior year quarter;
MGM China’s adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) was US$148 million, a decrease of 38 percent compared to the prior-year quarter, including US$11 million of licence fee expense for the MGM branding in the current year quarter compared to US$16 million in the prior-year quarter.
Operating income for the period was US$72 million compared to US$165 million in the prior-year quarter.
MGM China paid a US$400 million dividend in March 2015, of which US$204 million was distributed to MGM Resorts and US$196 million was distributed to non-controlling interests.
Anthony Wong and Angus Chan, of UBS AG in Hong Kong, said in a note on Monday that MGM China’s first quarter EBITDA had met “subdued expectations”. The institution added that the MGM Macau property continued to hold around 10 percent gross gaming revenue (GGR) market share, which it described as “a consistent achievement since 2011, despite multiple new project openings” in the city.
“MGM [Resorts] now targets a Q416 opening for MGM Cotai, from ‘fall 2016′ before,” added the UBS team. But they warned: “We have highlighted before…risks that the project opening could be pushed back three to six months to later 2016 or even into 2017. In mid-February, management commented that construction of hotel towers was on [the] 16th floor. Since then this has only progressed to [the] 19th floor, which is slower than normal progress, in our view.”
Analysts Christopher Jones and John DeCree of Union Gaming Research LLC said in a note on the parent MGM Resorts: “In Macau, adjusted property EBITDA of US$149 million was below our estimate for US$159 million and the overly optimistic Street…consensus of US$170 million. Property margin in Macau came in at 23.6 percent, down about 200 basis points from 1Q15 with VIP volumes down 51 percent and mass table win off about 14 percent.”
MGM Resorts had reported that total net income attributable to the group had increased by 65 percent in the first quarter of 2015 to US$169.85 million from US$102.65 million in the year-prior period, and that earnings per share increased by US$0.13 year-on-year
Connecticut-based hedge fund Land and Buildings Investment Management LLC, an investor in MGM Resorts which has been calling for the firm’s buildings to be spun off into a real estate investment trust (REIT), said in a filing to Nasdaq after the gaming operator’s first quarter results: “We were gratified to hear today the first credible signal, in our view, that a REIT structure could play a ‘pivotal role’ in monetising MGM’s undervalued real estate and that the company is willing to sell ‘any of [our] assets’ to reduce leverage and unlock value.”
The hedge fund added: “However, we believe it is evident that MGM’s management and board have only acquiesced to truly exploring these potential paths for maximising shareholder value following the public pressure from our March proposal and proxy contest.” The latter was a reference to the hedge fund nominating its own candidates as directors for the MGM Resorts board.
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