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spk02: Ladies and gentlemen, thank you for participating in the first quarter 2021 earnings conference call of Melco Resorts and Entertainment Limited. At this time, all participants are in the listen only mode. After the call, we will conduct a question and answer session. Today's conference is being recorded. I would now like to turn the call over to Mr. Robin Ewan, Director of Investor Relations. Please go ahead.
spk07: Thank you. Thank you all for joining us today for our first quarter 2021 earnings call. On the call are Laurence Ho, Jeff Davis, Evan Winkler, and our property presidents in Macau, Manila, and Cyprus. Before we get started, please note that today's discussion may contain forward-looking statements made under 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. Hill.
spk08: Thank you, Robin. During the first quarter, our integrated resorts continue to experience a gradual recovery in business levels. While COVID cases continue to persist throughout the world, we have benefited from the Macau and the mainland Chinese government's efficiency in addressing the global pandemic and from their measured approach towards border reopening, which have been the key factor in the ongoing recovery of the integrated resort industry in Macau and the broader Macau economy. Macau has not had any locally transmitted COVID cases in over a year. And following the guidelines outlined by the Macau government, we have provided a safe environment for our guests and team members. In Macau, our mass table games operation, which contributed the vast majority of our EBITDA in pre-COVID times, saw another quarter of sequential improvement. Similar to the fourth quarter of 2020, We reported positive property EBITDA for both our Macau operations and our overall global operations. While we continue to see improvements in our business volumes in Macau, ensuring the safety and well-being of our colleagues, customers, and the communities in which we operate remains our highest priority. We remain optimistic about the recovery in Macau and continue to expect a faster rebound and a faster growth in both the premium mass and premium direct segments, which will benefit Melco's portfolio of luxury integrated results. As mentioned on our last earnings call, our expectation to see the benefits of pent-up demand starting in mid to late March has materialized. Business trends continue to improve in the Philippines for most of the first quarter, and City of Dreams Manila generated positive property EBITDA, with our gaming and hospitality operations running on a limited dry run basis, as authorized by PACO for the majority of the first quarter. Unfortunately, all integrated resorts in Manila were closed in late March due to COVID concerns and are currently planned to remain closed through the end of April 2021. While there was a swift return of domestic gaming demand at Cyprus casinos in the second half of 2020, an increasing number of COVID cases led 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 10th. Despite the global pandemic, Melco remains committed to its global development program. Our next major project in Macau is Studio City Phase 2, where construction is ongoing. Upon completion, the Phase 2 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 expanded, and the new non-gaming attractions will also be added, including a cineplex, fine dining restaurant, and state-of-the-art MySpace, and one of the world's largest indoor-outdoor water parks. On May 22nd this year, Studio City will strengthen its position as Macau's leading entertainment property with the launch of the outdoor section of the water park. To further strengthen our competitive edge in the premium mass segment in Macau, our upgrade works continue at City of Dreams, where the fully renovated Nuwa reopened at the end of March. Also, at the end of March, the countdown closed down for renovation, where we will reduce the key count and transform the tower into an all-street product with a targeted reopening in 2023. In Cyprus, a development of City of Dreams Mediterranean continues to progress. After completion, it will be Europe's largest integrated resort with more than 500 luxury hotel rooms approximately 100,000 square feet of MySpace, an outdoor amphitheater, a family adventure park, a variety of fine dining outlets, and luxury retail. Turning to Japan, we remain committed to bringing a world-leading IR there and continue to pursue opportunities within the market. We are currently engaged with multiple potential partners, While COVID continues to present challenges in terms of aspects of process timing and travel, IR in Japan has continued to move forward and we remain convinced that Japan represents the best potential new gaming market globally. We remain patient and continue to maintain our disciplined approach with respect to all development activities, including in Japan. Finally, I remain confident in Melco's medium and long-term growth prospects. I believe Macau is still the most attractive integrated resort market in 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 turn the call over to Jeff to go through some of the numbers.
spk00: Thanks, Lawrence. In 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 in our luck-adjusted group-wide property EBITDA. At COD, Studio City, and Altera, 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 COD 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 in the supplementary earnings slides posted on our investor relations website. Turning to our balance sheet to optimize our capital structure, In January, Studio City issued $750 million of 5% senior notes due in 2029. The 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's next debt maturity not until 2025. Also in January, Melco utilized favorable market conditions to tap the 5.375% senior notes due 2029 for an additional $250 million. The tap was priced at 103.25% of par, which resulted in an effective borrowing rate of approximately 4.9%. At the end of March, we had approximately $1.6 billion of cash on hand. When combined with our undrawn revolver facilities in 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, the Philippines and Cyprus, had cash of approximately $770 million and gross debt, excuse me, of approximately 4.1 billion at the end of the first quarter of 2021. As we normally do, we'll give you some guidance on non-operating line items for the upcoming quarter. Total depreciation and amortization expense is expected to be approximately 145 to 150 million. Corporate expense is expected to come in at approximately 20 to 22 million, and consolidated net interest expense is expected to be approximately 85 to 90 million, which includes finance lease interest of seven million relating to City of Dreams Manila, and five to eight million of capitalized interest. That concludes our prepared remarks. Operator, back to you for the Q&A.
spk02: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Your first question comes from the line of Joe Gref of JP Morgan. Please ask your question.
spk10: Good evening, guys. Thank you for taking my question. Lawrence, a quarter ago it was tough not to notice an incremental change in your tone, a more optimistic tone from you. Has that optimism waned at all in terms of what you've seen so far? you know, through April? And can you give us a sense of, you know, how you think, you know, the Golden Week holiday plays out next month? And then you also mentioned, you know, a quarter ago that you thought by the end of this year you thought, you know, mass table games would be, you know, at levels consistent with 2019. Do you still see 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.
spk08: Hi, Joe. So why don't I ask David to give more details later on, but generally, 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 I think we saw that. In the beginning of the first couple of months of the year, China had some COVID issues as well in the northern parts of it. And they very quickly got it under control. And so as of March, we did start seeing a rebound. And we're encouraged by what we've seen in terms of the forward booking 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 our confidence comes from the fact that judging from the consumption in China, especially in luxury retail and luxury goods, that people are, you know, life is going back to normal within China. You know, the number of COVID cases in China on any particular day is, single digits at best for a country with 1.4 billion people. So we are encouraged by that. And we haven't said all that. It is still a gradual recovery. So the issue with Macau right now is not so much COVID, because after all, Macau haven't had a single locally transmitted COVID cases in over a year. It's really getting people to be able to travel to Macau. And in Asia and China in particular, there's really a zero tolerance with regards to COVID. And so it's just when can people travel freely? So I think on that, maybe David can add more colors.
spk03: I think it's a few different things that we're looking at in relation to the Golden Week. One of the things we do is we've gone back and kind of tracked against what's called kind of four significant periods. Three of the periods are since we've opened essentially after the COVID crisis, let's say. But if you look at for the October Golden Week in 2020, if you look at for Western New Year for 2020, you look at Chinese New Year for 2022, our period for the Golden Week in May is tracking ahead of those 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 where 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. We feel pretty strongly that we'll close the gap. I think, as I said, we're running a little bit behind. Some of the players, I think, will end up playing up to where we were before. More importantly, though, I think as long as the visas hold out, we'll be okay. We haven't seen too much trouble with the visas yet, but every now and then we do get some haphazard kind of word from one of the provinces that one of our customers has maybe come a little bit too often, maybe gets the word they shouldn't come. So we haven't seen a lot of that, but again, as long as that holds out, we feel very, very confident. 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. April, it started off a little bit slow in April, which we knew it would with someone with the Easter holiday in Chi Ming, as people were going and visiting their ancestors. It's really kind of a... picked up quite a bit over the last couple weeks. We think that's a strong indicator as we head into the May Golden Week. As 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 math side, that hopefully by the end of the fourth quarter that we will be back to where we were, let's say, in 2019 with those 2019 levels showing up in the fourth quarter of 2021. Thank you very much for your thoughts, guys.
spk02: Your next question comes from the line of Billy Nung from Bank of America. Please ask your question.
spk04: Thanks. Good evening, and thanks for taking my questions. I have two questions as well. The first question is, like, I think we noticed that, like, recently the visitation number continued to improve, but the GGL improvement slowed down a bit. So I'm just wondering, what have you guys seen in your properties in terms of customer mix in this stage of recovery? Have you seen the mix of your customer change and have more main or grind masks in the mix? Or how does that compare to the high-end premium masks and the regular premium masks? That's my first question. And then my second question is, Maybe just want to ask an opinion from Lawrence. And I think the Chief Executive of Hong Kong mentioned about creating some type of travel bubble with Macau. What's your view on that? How likely do you think there will be some type of connection between Hong Kong and Macau in the next few months?
spk08: Hey Billy, why don't I answer the second question first, and then David can answer the first question. In terms of the Hong Kong-Macau travel corridor, it would be great if it happened because Hong Kong traditionally has been 20-25% of our business in Macau. And similar to southern China, that business is always a really good one. But as I mentioned very early on, China and Macau, because Macau has firmly, 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 cases. So 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 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 to with zero unknown origins. But I heard, I read in the news as well that... The Hong Kong chief executive met with the Macau chief executive last week at the Boa Forum. So hopefully they are, together with China, figuring something out as part of that corridor. So I'm optimistic. The leaders are talking and discussing, hopefully, something. And also, I think the worst of the COVID outbreak in Hong Kong, 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. Again, 20-25% of our business. So maybe, David, if you could answer the first question.
spk03: Sure. So, Billy, again, it's maybe a tale of two cities here a little bit in the sense that you kind of look for us, the premium mass and mass class 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 end, from those, let's call them high end or luxury or high end fashion customers. sales as well. Studio City is much more of a mass kind of place and the mass players, while the visitation is up to your point, the mass players do not seem to be playing quite as strongly as they have in the past. I think that may be more of a function of just maybe it's a bit of a different customer coming in right now. The mass plus players still seem to play very well over there. The premium mass players are still playing up, but let's call that maybe that mass mass or that grind mass, as you call it, is playing down a little bit. I think obviously that will kind of get a better sense of things through the golden week here since the bottoms will be up significantly, but that's kind of where it sits right now.
spk04: Thanks a lot. That's very helpful. Thanks.
spk02: Your next question comes from the line of Josh Choi of Citigroup. Please ask your question.
spk09: Thank you very much. So I have a couple of questions. Firstly, SANS opened the Londoner in February. I just wondered if you see any changes in the way your competitors compete in particular in premium masks after the opening? And based on your best estimate, have you gained or lost market share in premium master in the first quarter? And my second question is a housekeeping one. Would you please tell us if there are any one-off items during the first quarter? Specifically, I remember there was a reversal of staff bonus done in the fourth quarter last year. And would you please remind us what the amount was? And assume that didn't recur this past quarter, right? Thank you.
spk08: Hey, David, do you want to take the first one? And I guess Jeff will take the second one. Great.
spk03: So, Josh, if you look at the Londoner, I think it's a nice product that Sands has put out there. Lawrence and I got a chance to take a tour of it back in February. I think they've done a nice job. It's a highly themed property. It's nice. We've not seen much of an impact from Londoner. I think we're hopeful that Londoner does draw more players because I think that gives us all an opportunity, especially given our proximity with City of Dreams. to draw a lot of those players in and bring them over to our side of the street, so to speak. But we've not seen any impact from the Londoners so far. Our premium mass, 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 I would have thought during this COVID period. So it just seems to be very strong and very good for us.
spk00: Okay, and I'll take the second question. Hi, George. So you're correct. In the fourth quarter of 2020, we had a reversal of a management bonus accrual of about $16 million. And, of course, no bonus, no normal bonus provision. So just the $16 million reversal. And then in the first quarter of 2021, we had a more normal bonus accrual that hit one cube. Other than that, no material one-time charges in the first quarter.
spk09: Thank you very much. That's very clear. Thank you.
spk00: Thanks, George.
spk02: Your next question comes from the line of Praveen Chaudhry of Morgan Stanley. Please ask your question.
spk01: Thanks very much for taking my question. Hi Lawrence, hey Jeff, hey Evan, hey David. My question, the two or three questions here. First one is, Lawrence can you talk about what is the biggest impediment of people coming to Macau at this point in time? Is it the visa which is not automatic, it's manual? Is it the negative test that they have to show? Is it 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. The second question is related 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 the last one, it seems like there was no bad debt provisions last year. The bad debt provisions have been much bigger. Can you first let us know what is the bad debt provision and the explanation for it dropping off in Q1F21? Thank you so much.
spk08: Hi, Praveen. So, I do think the biggest impediment of people coming to Macau is e-visa above anything. The PCR test is an annoyance for a lot of people, but at the same time, unless the world comes together and come up with a vaccine passport anytime soon, 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 the e-visa thing is really the main impact. And if anything, during COVID, I'm seeing a divergence of Hong Kong and Macau because in the past, people really talked about Macau and Hong Kong in one bucket when they come to Hong Kong and Macau. But nowadays, I think people do look at Macau differently considering how well Macau has controlled COVID. And I think politically as well, Macau is much more aligned to China And so I think that's the reason why probably one bright spot we haven't spoken about on this call is retail. Retail in Macau has done very well. It's probably at close to 2019 level. It's probably going to be above 2019 level very soon. And so you're seeing some of that customer mix before where they used to go to Hong Kong to go shopping and buy goods. they're doing that in Macau as well. So I think that once the e-visa is sorted out and China is comfortable again for people to travel more freely with Macau, I think that that will have a huge uptick for us in terms of visitation and a massive impact in terms of business. I guess, Jeff, you want to take that second question?
spk00: Okay, thanks, Lawrence. So Praveen, On your OPEX question, in the fourth quarter, we were at about, for Macau only, about $1.9 million a day. And in the first quarter of 2021, that has increased to about $2.1 million. As we foreshadowed on the 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're correct. We're getting to a more normal provision level. So in the first quarter of 2021, we took a $17 million provision. And that's down from about $23 million in the fourth quarter of 2020.
spk01: Thank you so much, Jeff and Lawrence. Good luck with the May holidays. Thank you.
spk02: Your next question comes from the line of Simon Chung of Goldman Sachs. Please ask your question.
spk06: Hi everyone. Thanks for taking my question and thanks for the presentation as well. So I have two questions. Just again, looking at the VIP numbers, we've been here. Obviously, the number remains to be quite weak. And that's continued to be school of thought that the VIP would have an impact on the recovery pace of PMMRs. Just wondering how do you think about, you know, the potential further decoupling of VIP and PMMRs, and whether you think, you know, there's going to be some negative impact from the VIP onto the PMMRs in the longer run. That's the first question. The second one, can you share with us on the visitation number to your two Macau properties, if you can? Thank you.
spk08: Hey, Simon, why don't I start off with the first question and then hand it off to David. So our view from 10 years ago was that the VIP market wasn't really sustainable. And I think that has played out to be true 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 not going to be 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's business impact on premium masks, I don't know, David, you want to take a shot at it?
spk03: Sure. Simon, so I think the VIP did have a bit of an impact on our premium mass, but like anything else, I think the growth of our premium mass and just changes in our customers and how they look at things, I think they've kind of switched over from the junkets and probably too many more time with us via VIP to now the premium mass more. So while I think it may have had a bit of an impact in the beginning, I don't think it's going to have much of an impact on a go-forward basis for us. In relation to the visitation question you asked, we're probably getting about 45 to 50 percent approximately what we were seeing, let's call it, in the fourth quarter of 2020.
spk06: So your visitation number is actually tracking slightly ahead of the entire Macau visitations?
spk03: Our visitations, what we saw coming to the properties, is running at about 45 to 50 percent of what we would have seen in the fourth quarter of 2020. Again, I'm not sure. Again, the visitation numbers we get are a little bit different in terms of our people counting system. So if someone comes through a few different times, it's not a completely accurate number. So I'm not sure it correlates, let's say, completely to the Cal visitation numbers.
spk06: Understood. Those are helpful. Thanks a lot. Thanks, guys.
spk02: Your next question comes from the line of Angus Chan of UBS. Please ask your question.
spk05: Hi there. Good evening. Just a question for Lawrence. With the potential resumption of e-visa, what do you think the authorities are looking at? Obviously, COVID has been quite stable. What kind of metrics or conditions do you think they are waiting for before they resume the e-visa? Thanks.
spk08: Hey, Angus, I guess that's a that's a billion dollar question. I guess I would go back to the point that China really has a zero tolerance for for COVID. And and so On one hand, Macau and Hong Kong are part of China, but on the other hand, it's still considered special administrative regions and technically outside the border. And I think sometimes when they look at Macau and Hong Kong, they see potentially a back channel into China, because technically if somebody from U.S. Canada went to Hong Kong and Macau, And if there was a travel corridor, people can get into China. And with the variant strains of COVID, I think people are still a bit concerned. And vaccine rollout in China, Macau, and Hong Kong is ongoing, but given the large population and the fact that the the cities and China as a country have been relatively safe from COVID in the last 12 months. The vaccine enthusiasm hasn't been as high as other countries that have really suffered hard from COVID. So I would say it's really a matter of hopefully more people getting the vaccine. And that's why for us as well, we highly encourage our colleagues and staff to get the vaccine, protect themselves, protect their families, and also protect our customers in the future and do the world and humanity a favor because unless we reach herd immunity, things will never go back to normal. So I suspect China's hesitation is probably a little bit on that in terms of resuming full travel and full e-visas.
spk05: Yeah. I appreciate the thought. Thanks.
spk02: There are no further questions at this time. I would now like to hand the conference back to Mr. Eumann for the closing remarks. Please go ahead.
spk07: Thank you. Thank you, everyone, for participating in our conference call today. We look forward to speaking with you again for the next quarter.
spk01: Thank you.
spk02: This concludes today's conference call. Thank you for participating. You may now disconnect.
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