MGM Resorts International has pointed to operating cash and cash investments totalling US$3.9 billion as evidence it has the liquidity to ride out the COVID-19 crisis that has seen its US properties closed and Macau operations take a massive hit.
In an update on the financial impact of the coronavirus issued Friday, MGM’s Acting CEO and President Bill Hornbuckle said recent activation of the company’s asset-light “MGM 2020” plan, which has included the January sale of both MGM Grand and a sizeable stake in the real estate investment trust that holds Mandalay Bay, has placed it in a strong position to ride out the storm.
“At MGM Resorts, we are committed to doing our part to mitigate the spread of COVID-19, including the closure of our properties across the United States,” Hornbuckle said, noting that the MGM Grand and Mandalay Bay transactions has netted a pre-tax gain of US$1.5 billion.
“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.
“With the continued execution of the MGM 2020 plan, as well as the implementation of aggressive cost savings initiatives, we believe the Company will be able to manage its expenses while navigating this unprecedented event. We are currently making very difficult decisions but believe these will be in the best interest of the Company long term.”
MGM revealed group-wide net revenues were down 10% year-on-year through January and February due to the 15-day closure of its Macau resorts – MGM Cotai and MGM Macau – but added that Las Vegas Strip Resorts Adjusted Property EBITDAR was up 24% and Regional Operations Adjusted Property EBITDAR up 42% over the prior year two-month period.
Expenses for the remainder of 2020 include around US$200 million in interest payments, fixed rent payments of US$403 million under its operating agreements for MGM Grand and Mandalay Bay and US$333 million after distributions for a master lease agreement with MGM Growth Properties LLC.
However, “The Company believes its strong liquidity position, valuable unencumbered assets and aggressive cost reduction initiatives will enable it to fund its current obligations for the foreseeable future,” MGM said.
“While the Company is unable to predict when the properties will re-open, the Company continues to believe that it will be able to weather this downturn and ultimately rebound from the impacts of the current crisis.”
Recently departed former Chairman and CEO Jim Murren stated in January that MGM Resorts “continue[s] to monetize our owned real estate assets, which facilitates … retaining significant flexibility to pursue our visible growth initiatives, including Japan.” If at least some of this newly created liquidity is to be used instead to ride out the COVID-19 catastrophe, IAG notes this reduces funds available for pursuing an MGM property in Osaka, which has been widely mooted to require an enomous capital investment which some commentators are suggesting could be significantly north of US$10 billion.
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