Q1 2021 Melco Resorts & Entertainment Ltd Earnings Call
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Ladies and gentleman and thank you for participating in the first quarter 2021 earnings conference call of Melco Resorts and Entertainment Ltd.
At this time all participants are in a listen only mode.
So to call and we will conduct a question and answer session. Today's conference is being recorded.
And I would like to turn the call over to Mr. Robin you and director of Investor Relations. Please go ahead.
Thank you.
Uh huh.
Thank you all for joining us today from our first quarter of 2021 earnings call.
On the call are Lawrence Ho.
Jeff Davis and.
And then Winkler and on property President and.
Accounts and Manila and Cyprus.
Before we get started please note that today's discussion may contain forward looking statements made on the safe Harbor provision of Federal Securities Law.
Our actual results could differ from our anticipated results.
In addition, we may discuss non-GAAP measures.
A definition and reconciliation of each of these measures to the most comparable GAAP financial measures are included in the earnings release.
Finally, please note that our supplementary earnings slides are posted on our Investor Relations website.
With that I will now turn the call over to Mr. Ho.
Thank you Robyn during.
During the first quarter, our integrated resorts continue to experience and gradual recovery and business levels.
COVID-19 cases continue to persist throughout the world, we have benefited from the Macau and the mainland Chinese government sufficiency and addressing the global pandemic and from their measured approach towards border reopening.
Which have been the key factor and the ongoing recovery of the integrated resort industry, and Macau and the broader and Macau economy.
And Macau has not had any locally transmitted COVID-19 cases and over a year and.
And following the guidelines outlined by the Macau government.
We have provided a safe environment for our guests and team members.
And Macao mass table games operation, which contributed the vast majority of our EBITDA and pre COVID-19 times, so another quarter of sequential improvement.
Similar to the fourth quarter of 2020.
We reported positive property EBITDA off of both art and Macau operation and our overall global operations.
While we continue to see improvements and our business volumes and Macau.
Ensuring the safety and well being of alcohol leagues customers and the communities and which we operate remains our highest priority.
We remain optimistic about the recovery and Macau and continue to expect a faster rebound and a faster growth and both the premium mass and premium direct segment, which will benefit and melco as portfolio of luxury integrated resorts.
As mentioned on our last earnings call.
Our expectation to see the benefits of pent up demand.
And mid to late March has materialized.
Business trends continue to improve and the Philippines from most of the first quarter and city of Dreams Manila generated positive property EBITDA.
And with our gaming and hospitality operations running on a limited dry run basis as authorized by passable and.
For the majority of the first quarter.
Unfortunately, all integrated resorts and then they'll all were closed in late March due to COVID-19 concerns and are currently and plan to remain close through the end of April 2020 one.
While there was a swift returned of domestic gaming demand and Cyprus casinos and the second half of 2020.
And increasing number of COVID-19 cases, let the Cyprus government to announce a second lockdown during the fourth quarter.
This resulted in a partial closure of our casinos from November 13th and a full closure from December 1st which has remained in place throughout the first quarter of 2021, and thus far into the second quarter.
Our current understanding is that the tentative date to reopen casinos along with other sectors will be on May 10.
Despite the global pandemic Melco remains committed to its global development program on.
And next major project and Macau studio City Phase two.
Construction is ongoing.
Upon completion the phase two expansion will increase studio city's hotel room inventory by approximately 60% with two new hotel towers offering approximately 900 luxury hotel rooms and suites.
Gaming spaces will be extended.
And the new non gaming attractions and will also be added, including a sudden and flex fine dining restaurants and state of the art Myspace and one of the world's largest indoor and outdoor waterpark.
On may 22nd this year.
The city will strengthen its position as the Macao, leading entertainment property with the launch of the outdoor section of the Waterpark.
To further strengthen our competitive edge and the premium mass segment in Macau.
Upgrade upgrade works continue at city of Dreams, where the fully renovated new wall reopened at the end of March.
Also at the end of March the countdown close down for renovation.
Well when we reduce the key count and transform the tower into and all three products with a targeted reopening in 2020 three.
And Cyprus.
Development of city of Dreams Mediterranean continues to progress.
After completion, it will be Europe's largest integrated resorts with more than 500 luxury hotel rooms, approximately 100000 square feet of mice space and outdoor amphitheater.
And family Adventure Park, a variety of fine dining outlets and luxury retail.
Turning to Japan.
We remain committed to bringing a world leading and I are there and.
And continue to pursue opportunities within the market.
We are currently engaged with multiple potential partners.
While COVID-19 continues to present challenges in terms of aspects of process timing and travel.
And Japan has continued to move forward and we remain convinced that Japan represents the best potential new gaming market globally.
And we remain patient and continue to maintain a disciplined approach with respect to all development activities, including in Japan.
Finally, I remain confident and melco medium and long term growth prospects.
I believe and Macau still the most attractive integrated resort market and the world.
Our balance sheet was further strengthened by our recent capital market transactions, enabling us to overcome near term challenges while investing for the future.
With that I'll turn the call over to Jeff to go through some of the numbers.
Thanks, Lawrence and the first quarter of 2021, we reported group wide property EBITDA of approximately $30 million, while luck adjusted property EBITDA came in at $54 million.
On a sequential basis. This represents a 10% increase and our luck adjusted group wide property EBITDA.
And.
Studio City, and Alterra EBITDA was negatively affected by an unfavorable VIP win rate by approximately $17 million 4 million and $10 million respectively.
A favorable VIP win rate positively affected EBITDA at CODI and Manila by approximately $8 million.
On a consolidated basis overall results were negatively impacted by approximately 23 million.
Details of these adjustments can be found and the supplementary earnings slides posted on our Investor Relations website.
Turning to our balance sheet to optimize our capital structure and January studio city issued $750 million of 5% senior notes due in 2029.
Proceeds were used to refinance the $600 million of seven and a quarter senior notes due in 2024 with the remainder of the proceeds raised to be used for phase II Capex and general corporate purposes.
The transaction reduced our average borrowing rate and extended our maturity profile with studio city is next debt maturity not until 2025.
Also on January Melco utilized favorable market conditions to tap and $5 37, and 5% senior notes due 2029 for an additional $250 million.
<unk> was priced at 103.25% of par, which resulted in an effective borrowing rate of approximately four 9%.
At the end of March we had approximately $1 6 billion of cash on hand.
When combined with our Undrawn revolver facilities, and Macau and Manila of approximately 2 billion. This implies available liquidity of approximately $3 6 billion at the end of March.
To provide more clarity on our capital structure Melco, excluding its operations at studio city in the Philippines, and Cyprus had cash of approximately $770 million and gross debt excuse me.
Approximately $4 1 billion at the end of the first quarter of 2021.
And as we normally do and we'll give you some guidance on nonoperating line items for the upcoming quarter.
Total depreciation and amortization expense is expected to be approximately $145 million to $150 million.
Corporate expenses expected to come in at approximately 20% to $22 million and consolidated net interest expense is expected to be approximately $85 million to $90 million, which includes finance lease interest of $7 million relating to city of dreams, Manila and $5 million to $8 million of capitalized interest.
That concludes our prepared remarks, operator back to you for the Q&A.
As a reminder to ask a question you will need to press star one on your telephone.
All your question press the pound key.
Yeah.
Your first question comes from the line of Joe gross of Jpmorgan. Please ask your question.
Good evening guys. Thank you for taking my question.
Hello.
Lawrence a quarter ago, it was tough not to notice.
And an incremental change and you're telling them more optimistic.
The tone from you has that optimism.
Waned at all in terms of what you've seen so far.
Through April and can you give us a sense of how you think the Golden week holiday plays out next month and then you also mentioned a quarter ago that you thought by the end of this year you thought mass table games, whether it would be at levels consistent with 2019, you still see a.
A path.
And.
A reopening and a recovery that kind of gets you to where the market to those levels at the end of this year.
Hi, Joe So why do I.
David to give more details later on but generally.
And my view remains the same from the last quarter. So.
On the last quarter call, we talked about.
The recovery really beginning in March and and I think we saw that you know and the beginning of the first couple of months of the year, China had some COVID-19 issues as well and the northern parts of it and.
And they very quickly got it under control and and so as of March we did start seeing a rebound.
And and we're very we're encouraged by what we've seen in terms of the forward bookings for the May Golden week I think the key is.
Will it sustain.
Going forward or is it just going to be a blip during the holidays I think all confidence comes from the fact that judging from the consumption in China, especially and luxury retail and luxury goods that people off.
On a license going back to normal within China, and the number of COVID-19 cases and China.
On any particular day is single digits at best for a country with one 4 billion people.
So we are encouraged by that and we.
Having said all that it is still a gradual recovery so there.
And the issue with Macau right now it's not so much.
COVID-19 because after all and Macau haven't had a single and locally transmitted COVID-19 cases and over a year.
It's really getting people to be able to travel to Macau and.
And Asia and China in particular.
There's really a zero tolerance with regards to COVID-19.
And so it's just when can people travel freely so I think on that and maybe David can provide more and more color.
Alright.
Hey.
And just a few of them and things is that we're looking at in relation to the Golden week and one of the things. We do is non back and kind of track against low cost kind of for significant periods.
Three of the periods are since we've opened essentially after the COVID-19 crisis, let's say, but if you look at for the October Golden week, and 2020, and if you look at the Western New year for 2020, you look at Chinese new year for 2022 are period for the Golden week and May is tracking.
Ahead of those.
And three areas.
Which is again, giving us a lot of confidence and we're feeling very good about that if you go back and you run it against what we were for the May Golden week in 2019, we're still a little bit behind there, but I think we'll close the gap as we continue to move forward here.
Feel pretty strongly that.
We will close the gap I think.
And as I said, we're running a little bit behind.
And some other players I think will end up playing up to where we were before more importantly, though I.
I think as long as the visa hold out will be okay.
We haven't seen too much trouble at the vs as yet, but we every now and then we do get some haphazard kind of word from one of the provinces that one of our customers and maybe become a little bit too often and maybe get to work. They shouldn't come. So you haven't seen a lot of that but again and why that holds out and we feel very very confident and.
In relation to I think in terms of the recovery and what we're seeing we saw obviously March as we said on the call last time was very strong for us on.
It started off a little bit slow and April was.
Some of them with the Easter holiday and changing and people are going and visiting our ancestors.
It's really kind of.
Picked up quite a bit over the last couple of weeks, we think that's a strong indicator as we head into the May Golden week as.
And we look out towards the rest of the year as Lauren said I think we're fairly confident that the market is starting to recover particularly on the day outside that hopefully by the end of the fourth quarter that we will be back to where we were let's say in 2019 with US 2019 levels showing up in the fourth quarter of 2021.
Thank you very much for your thoughts guys.
Your next question comes from the line of Billy loans.
From Bank of America. Please ask your question.
Thanks.
And thanks for taking my questions I have two questions as well.
First question is like I think we noticed that like recently the visitation numbers continue to improve but the G. G. All our improvement and slow down a bit. So I just wanted to what have you guys seen and your properties in terms of customer mix and the stage of.
Recovery have you seen the mix of customer change and have more me I'll Cry Moscow.
And the mix or how does that compare to the high end premium mass and the regular premium and loss. That's my first question and then my second question, maybe just one Josh <unk>.
Opinion and from Lawrence and.
Think the cheese and excited about Hong Kong mentioned about.
Creating some type of traveler bubble with Macau.
What's your view on that and how likely you think there will be some type of connection between Hong Kong and Macau.
And the next few months.
Hey, Billy and one of my answers. The second question first and then David can answer the first question.
In terms of the Hong Kong Macau travel corridor.
And it would be great and it happened because Hong Kong traditionally has been 20% to 25% of our business and and in Macau and and similar to the two southern China.
That business is always a really really good one.
But.
As I mentioned very early on.
China and Macau because.
And Macau has firmly and and rightfully so by far and away. The most important market for Macau is always going to be China, and China has a zero tolerance policy with regards to COVID-19 cases.
So I.
I think Macau would have to balance the Hong Kong travel corridor with not jeopardizing.
What they have with China, right now and so I think previously they've talked about well if they're there weren't any.
Less than 10 locally transmitted cases for two consecutive weeks that was kind of the thinking they had and then I think that was.
Revised too.
And with zero unknown origin, so, but I I heard I I read and the news as well that the Hong Kong Chief Executive met with the Macau Chief Executive last week at the day that the Boa form so hopefully they are together with China and figuring something out.
And as part of that corridor, and so I'm optimistic.
Leaders are talking and discussing.
And hopefully something and and also I think the worst of the COVID-19 outbreak and Hong Kong on the fourth wave or fifth wave or whatever they called it.
Is relatively under control now so that would be a huge thing for US you know again 20, and 25% of our business. So maybe David if you could answer the first question.
Sure.
And again.
And maybe a tale of two cities here, a little bit and a sense that you kind of look for us the premium mass and mass less customers for city of Dreams continues to drive our recovery and we've also seen that translate into a lot of sales on the retail side from the high and from those.
Let's call them high and or luxury or high end fashion sales.
Sales as well and studio city is much more of them now and kind of wait and the mass players.
Visitation is up to your point announced players do not seem to be quite as strongly as they have and accounts.
And I think that needs to be more of a function of just maybe it's a bit of a different customer coming in right now.
<unk> plus players still seem to play very well over there the amount of deals.
From a premium mass players are still playing out, but let's call that and maybe that mass mass of that right now because you call. It is playing down a little bit I think obviously that will and we'll kind.
Kind of get a better sense of things through the Golden week here and so volumes will be up significantly.
That's kind of where where it sits right now.
Thanks, a lot.
And that's very helpful. Thanks.
Your next question comes from the line of Chaucer Choi of Citigroup. Please ask your question.
Thank you very much.
Couple of questions, Firstly understands and opened the London and February and just wondering if you see any changes in the way your competitors compete in particular and premium mass after the opening and based on your best estimate gain on lost market share and premium mass unit first quarter and and I missed a good question is a housekeeping one.
Please tell us if there are any one off items during the first quarter, specifically I remember if there was the reversal of step on this done in the fourth quarter of last year, and which Lisa would you please remind us what what.
What do you meant was and then it seems that's been recurred this past quarter a thank you.
Hey, David do you want and take the first one and I guess, Jeff will take the second one.
Great.
And if you look at the lender.
<unk> product and has put out there on warrants and I got a chance to take it to Robert back in February.
They've done a nice job on the Highlands and property and it's like it's nice.
Not seeing much of an impact from weather and I think we.
We're hopeful that.
Wonder just draw more players.
And it gives us all on opportunity, especially given our proximity with city of dreams to draw a lot of those players and and bring them over to on our side of the street so to speak but we've not seen any impact from the lender and so far.
Our premium masses in terms of our premium mass share and what we've seen I think we've grown a little bit if anything I don't think we've lost any share just on the numbers that we're looking at it seems like we've grown more so than <unk>.
And I would've thought during this COVID-19 period. So it just continues to be very strong and very good for us.
Okay and I'll take the second question Hi, George.
So youre correct and the fourth quarter of 2020, we had a reversal of a management bonus accrual of about $16 million.
And of course, no no bonus no normal bonus provision so just the $16 million reversal and then in the force fourth first quarter of 2021, we had a more normal.
Bonus accrual that hit <unk>.
Other than that.
No no material onetime charges and the first quarter.
Thank you very much that's very clear thank you.
Thanks George.
Your next question comes from the line of Praveen Choudhary of Morgan Stanley. Please ask your question.
Thanks, very much for taking my question, Heather and say, Jeff and then.
Hey, David.
My question, the two or three questions here first one is.
Laurence can you talk about what is the biggest impediment of people coming to Macau at this point and time is it.
Visa, which is not automatic it's manual is it.
Negative tests that they have to show us at the Hong Kong, not opening or anything else that we're not so that once these things start showing up opening.
We can see the full normalization.
And the second question is and the need to.
Housekeeping questions, Jeff could you talk about.
Q1, Opex daily Opex, mostly Macau.
And how does it compare quarter over quarter and year over year and.
And the last one and it seems like there was no bad debt provisions last year and provisions have been much bigger.
First let us know what is the bad debt provision and the explanation for it dropping off in Q1 'twenty one. Thank you so much.
Hey, hyper V and so I do think the biggest impediment of people coming to Macau is E visa and.
Bob.
Above anything of course the.
PCR test.
And annoying for a lot of people, but at the same time unless the world comes together.
And come up with a vaccine passport anytime soon.
And that's just going to be part of life wherever you travel from city to city country to country, you're going to have to do those tests. So I do think that E. Visa thing is really the main.
The main impact.
And and.
And if anything during COVID-19 I'm seeing a divergence of Hong Kong Macau because in the past people really talks about Macau and Hong Kong in one bucket and when they come to Hong Kong Macao.
But nowadays I think people do look at Macao differently, considering how well Macau has controlled COVID-19.
And you know.
And I think politically as well and Macau is much more on line two to China and so I think that's the reason why.
Probably one bright spot we haven't spoken about on this call it is retail.
Retail and Macau has done very well is probably.
And at 20 or close to 2019 level, and it's probably going to be above 2019 levels very soon and.
And so you're seeing some of that customer and mix before where they used to go to Hong Kong to two to go shopping and buy goods, they are doing that and Macau as well.
So I think the one day evs and sorted out and China is comfortable again for people to travel more freely with Macau.
And I think that that will have a huge.
Uptake for us in terms of visitation and a massive impact in terms of business and I guess.
Jeff do you want to take the second question.
Okay. Thanks, Laurence so praveen on your Opex question.
In the fourth quarter, we were at about from Macau, only about $1 9 million a day.
And in the first quarter of 2021 that has increased to about $2 1 million.
Yes, as we as we foreshadowed on our fourth quarter call that as the business comes back we anticipated that Opex would start to also come back Ratably.
And then on your third question on the provision.
You are correct.
We're getting to a more normal provision level.
And the first quarter of 2021, we took a $17 million provision.
And that's down from about 23 million and the fourth quarter of 2020.
Thank you, so much and Jeff and alarms and good luck with me.
And holidays. Thank you.
Thanks Praveen.
Your next question comes from the line of Simon Cheung of Goldman Sachs. Please ask your question.
Oh, hi, everyone and thanks for taking my question and thanks for presentation and as well so I I have two questions.
And again looking at the VIP Lumbers, we been here obviously, the number remained to be quite weak and that's continued to be school of thought that day.
And with half of impact on the recovery pays off to be PMA Moss.
Just wondering how do you think about the potential for the decoupling up on VIP and PMA Moss and whether you think that's going to be some market to be impact from the VIP on two D. P me masa and in the longer on that suppose question. The second one.
Can you share with us on the visitation number on that.
To your two on Macao properties. If you can thank you.
And Simon and why do I start off with the first question and then and then hand it off to David.
So our view.
Even argue from 10 years ago was that the VIP market was and.
It wasn't really sustainable and I think that has played out to be true on on a number of factors.
And the VIP business has fundamentally changed so I think even within the VIP business. The junket part of it is.
And it's not going to be what it what it was in 2019 and I think more of that might shift to the premium direct side of things.
But in terms of.
The VIP business impact on premium mass.
And I don't know David do you want to take a shot at it.
Sure.
Simon and so.
And I think the VIP did have a bit of and impact on our premium mass, but like anything you all think the growth of our premium mass and just.
Just changes and our customers and how they look and say I think they've kind of switched over from the junkets and probably to a more time like this.
Via VIP to now on the premium mass more so alive and it may have had a bit of an impact and the beginning I don't think thats going to have much of an impact on a go forward basis for us.
In relation to the visitation question and that will probably get about 45% to 50% approximately what we're seeing.
Scott and the fourth quarter of 2020.
Yes.
So the visitation number and it's actually tracking slightly ahead of D and tie them on conversations.
Our visitation probably saw come into the properties is weighted about 45 to six percentage, what we would've seen in the fourth quarter of 2020 and.
And again I'm not sure and get out of the visitation numbers, we get a little bit different firms cut.
Our people counting system.
And if someone comes through a few different times.
On a completely accurate number so I'm not sure it correlates, let's say to the completely to the Macau visitation numbers.
Understood understood and those are helpful. Thanks, a lot. Thanks, thanks guys.
Your next question comes from the line of Angus Chen of UBS. Please ask your question.
Yeah.
Hi, there good evening.
And as for Laurence.
With the potential resumption and easy for US what do you think the authority are looking at obviously COVID-19 has been quite stable.
And what kind of metrics or conditions do you think they are waiting for before they resume Tvs and thanks.
Hey, I guess.
I guess, that's a that's a billion dollar question.
Right.
I guess I would go back to the point that.
China, and really has a zero tolerance for from COVID-19.
And so.
On one hand, Macau, and Hong Kong, and a part of China, but on the other hand, and it's still considered special administrative regions and and technically outside the border and.
And I think sometimes when they look at.
Macau and Hong Kong.
They see potentially a.
And back channel and to China, because technically if somebody from the from.
From U S, Canada went to Hong Kong Macau.
And if there was a.
Travel corridor or people can get into China, and and and.
With the variant strains of COVID-19. So I think people are still.
And that concern, so and and vaccine rollout and in China, Macau and Hong Kong.
And the ongoing but given the large population and the fact that day.
The cities and the and.
China as a country have been relatively slate safe from COVID-19 and the last 12 months.
On the vaccine enthusiasm hasnt been as high as other countries that have really suffered hard from from COVID-19. So I would say, it's really a matter of.
And hopefully more people getting the vaccine and that's why you know for us as well, we highly encourage on colleagues and staff to get the vaccine protect themselves protect their families and also protect our customers and the future.
And do the world and humanity and favorite because unless we reach herd immunity.
Things will never go back to normal so I suspect.
Hesitation is probably a little bit on that in terms of resuming food travel and through full evs.
Yes, I appreciate the thoughts thanks.
There are no further question at this time I would now like to hand, the conference back to Mr. Given sort of flow Sweden. Please go ahead.
Thank you. Thank you everyone for participating in our conference call today, we look forward to speaking with you again next quarter.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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And.
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