MGM Resorts International said Friday the casino giant believes it has a “strong liquidity position” to “weather this downturn and ultimately rebound” from the shutdown of its entire U.S. operations due to the COVID-19 coronavirus pandemic.
Las Vegas-based MGM, one of the nation’s largest casino operators, closed its nearly two dozen gaming and non-gaming properties – including 13 on the Las Vegas Strip – in an effort to slow the spread of the virus. MGM employs more than 70,000 people in the U.S.
In a statement, MGM said its balance sheet has approximately $3.9 billion, including approximately $1.5 billion drawn under its revolving credit facility. Last year, MGM paid off nearly $3.9 billion in debt. The company doesn’t have any debt obligations due until 2022.
MGM Resorts Acting CEO Bill Hornbuckle said in a statement the company’s cost-saving initiative introduced last year helped strengthen the balance sheet.
“While this will undoubtedly have a significant negative effect on our business in the near term, we are well-positioned to emerge from the current crisis in light of our strong liquidity position and valuable asset portfolio,” Hornbuckle said. Hornbuckle, who has been president of MGM Resorts since December 2012, became acting CEO on Sunday following the departure of Jim Murren.
Bill Hornbuckle, president of MGM Resorts International, photographed for Premier Magazine on August 15, 2017. (R. Marsh Starks / UNLV Creative Services)
“We believe the company will be able to manage its expenses while navigating this unprecedented event,” Hornbuckle said. “We are currently making very difficult decisions, but believe these will be in the best interest of the company long term.”
Currently, the only revenue MGM is seeing is from its two properties in Macau, which closed for 15 days in February when China was dealing with the coronavirus pandemic. However, MGM said visitation remains low as travel constraints continue to impact the market.
Deutsche Bank gaming analyst Carlo Santarelli told investors Friday that MGM could withstand a “roughly 10-month closure of its domestic assets before having to resort to further sources of liquidity.”
Earlier this week, Macquarie Securities gaming analyst Chad Beynon said MGM is burning through $14.4 million a day to maintain the company, which would give the corporation approximately nine months before it runs out of cash.
Shares of MGM Resorts, which had been rallying back over the past days, closed at $12.16 Friday on the New York Stock Exchange, down $1.29 or 9.59%.
MGM said it was “making swift decisions” to reduce expenses. The company said 60% to 70% of its operating expenses are variable and it was looking at ways to minimize costs, such as hiring freezes, furloughs, and other job reductions. MGM also plans to delay 33% of its planned capital expenditures, such as renovations and improvements, to its U.S, properties.
The company also has fixed rent payments for the remainder of 2020 of approximately $184 million and $219 million under its leases related to Bellagio, MGM Grand Las Vegas and Mandalay Bay to two real estate investment trusts. MGM also has fixed rent payments of $621 million for the rest of 2020 under its master lease with MGM Growth Properties. MGM owns roughly 60.6% of the REIT.
The company could draw additional liquidity from its real estate. MGM owns MGM Springfield in Massachusetts, a 50% interest in CityCenter in Las Vegas, and a 55.95% interest in MGM China.
The company has an agreement with MGM Growth to receive cash for up to $1.4 billion for its existing operating partnership units, which has not been exercised.
MGM said the first two months of 2020 had been a “strong start” to the year. The company had a net income of $1.3 billion, up $27 million from the first two months of 2019. The increase was primarily driven by an approximately $1.5 billion pre-tax gain related to the MGM Grand Las Vegas and Mandalay Bay sales and leaseback.
Consolidated net revenues were down 10%, however, because of the lost business in Macau due to China’s coronavirus pandemic.
Cash flow was up 27% on the Las Vegas Strip and 42% in its regional operations.
All of MGM’s properties have been closed since March 16 and the company also “experienced very high group cancellations” during that time.
“This is an unprecedented public health crisis,” MGM said in the statement concerning the coronavirus pandemic. “The company believes that it must do all it can to assist in mitigating the impact of the epidemic to protect the health and safety of its employees, guests and the communities in which it operates.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
