GGR at 40pct of normal enough for Studio City break even

GGR at 40pct of normal enough for Studio City break even

Macau casino resort Studio City could achieve break even in terms of adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) if the venue is able to reach “approximately 35 percent to 40 percent” of its historical gross gaming revenue run rate. That is according to a filing on Tuesday by Studio City Finance Ltd, a wholly-owned subsidiary of Studio City International Holdings Ltd.

Studio City International Holdings is the controlling entity for the Studio City casino resort (pictured in a file photo). The firm’s majority shareholder, casino developer and operator Melco Resorts and Entertainment Ltd, runs the gaming operations at the Studio City property. Melco Resorts is controlled by gaming entrepreneur Lawrence Ho Yau Lung.

In its Tuesday filing, Studio City Finance noted the Covid-19 pandemic had an “adverse effect” on company results in the first quarter of 2020, which had “persisted into the second quarter of 2020 and beyond”.

The Studio City property generated negative adjusted EBITDA of US$9.4 million in the first quarter of 2020, compared with positive EBITDA of US$96.4 million in the prior-year period. “The year-over-year decrease in adjusted EBITDA [at the property] was primarily a result of softer performance in all gaming segments,” according to results disclosed in May by Melco Resorts.

Studio City Finance said in its Tuesday filing “any recovery” from Covid-19 “disruptions” would depend on factors such as the “duration of travel and visa restrictions and customer sentiment and behaviour, including the length of time before customers resume travelling and participating in entertainment and leisure activities at high-density venues”.

The firm added: “However, as business levels resume, we expect to achieve break-even adjusted EBITDA upon reaching approximately 35 percent to 40 percent of our historical gross gaming revenues run-rate.”

The firm did not provide a figure for its historical gross gaming revenues run rate. In full-year 2019, the Studio City casino recorded rolling chip volume of US$10.99 billion; in the mass market table games segment, drop was US$3.49 billion, while average net win per gaming machine per day was US$230 for the period, according to Melco Resorts’ 2019 annual report.

Official data by the city’s casino regulator shows gross gaming revenues in Macau declined by 96.8 percent in year-on-year terms in April, followed by a decline of 93.2 percent in May and a decrease of 97.0 percent in June.

“We expect that gross gaming revenues in Macau will continue to be negatively impacted by the significant travel bans or restrictions, visa restrictions and quarantine and social distancing requirements so long as these restrictions remain in place,” said Studio City Finance in its Tuesday filing.

The firm stated it had taken “various mitigating measures” in terms of managing the property during the crisis. They included the implementation of “a cost reduction programme to minimise cash outflow of non-essential items” and “rationalising” the firm’s capital expenditure programme via “deferrals and reductions”.

Efforts regarding a phase two for Studio City are currently in progress, according to commentary by Melco Resorts.

Studio City Finance said that in April and May, its average daily operating costs were approximately US$700,000, “reflecting a decrease from the run-rate levels in the first quarter of 2020”. The filing did not provide further information on the matter.

Studio City International Holdings had announced on Tuesday it was starting a series of private offers  for its Class A ordinary shares. The exercise could potentially lead Melco Resorts to increase its stake in the firm. It currently controls about 54.3 percent of Studio City International Holdings.

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