Sands shakes off doldrums; MGM sitting pretty

Las Vegas Sands posted a Covid-19 impacted 1Q20. Room rates nudged upward year/year from $263 to $266, at 87% occupancy, resulting in a decline in revenue per available room from $249 to $199. Sands was modestly down at the tables, from $95.5 million to $89 million, on $446 million in wagering (up from $419 million last year). Slot win took a beating, down to $49.5 million from $56 million on vastly lower coin-in (2019: $668 million; 2020: $603 million). That made for a 9% decline in casino revenue, less bad than we were expecting. If you include the zeroing out of Sands Bethlehem ($137 million in 1Q19), Sands suffered reversals on all fronts. Las Vegas Strip revenue fell 15% to an even $400 million, Macao toppled 65% to $802 million, while Marina Bay Sands slid 20% to $612 million.

JP Morgan analyst Joseph Greff was nonetheless sufficiently impressed with the numbers to upgrade LVS from “neutral” to “overweight.” He set a year-end price target of $52/share (Sands is currently at $41). Greff’s optimism was partly due to a belief that the depressed share price was transitory and driven by events like CEO Sheldon Adelson‘s dividend suspension. He also believes that “the bundle of travel restrictions that currently has strangled any visitation/revenue recovery in Macau … will start to ease in the next couple of months, and the current dreadful run-rate monthly year-over-year gross gaming revenue … declines of ~95% will improve from here.” He also, understandably, liked Sands’ deep cash reserves, predicting “LVS can last 1.5 years even factoring in project capex in both Macau and Singapore.” Greff added that Adelson’s strong chances for a Yokohama megaresort were a kind of free benefit for owning the stock.

There were some caveats, such as noting that discretionary spending may be depleted in a post-coronavirus economy, perhaps longer than anticipated, and that U.S./China trade tensions could harm Sands China‘s chances for concession renewal. (Adelson has implored Donald Trump to back off inflammatory China rhetoric, with mixed results.) Also, Singapore operations are currently suspended at least until June 1. Greff shaved 64% off Singapore cash-flow projections for the year and 73% off Macanese ones. Even so, Sands remains bullish, proceeding with a new hotel and arena in Singapore, as well as pouring $1.3 billion into converting Sands Cotai Central into The Londoner. Adelson has never lacked for confidence.

* MGM Resorts International, meanwhile, elaborated on its pre-announced 1Q20 results, which reflected a high number of convention cancellations through autumn, coming back “tentatively” in late 2020 and early next year. The company is burning through $270 million/month, including maintenance, interest payments, etc. With $3.8 billion in the bank, MGM could sit out a 13-month shutdown, if necessary. Although the company has tapped out its $1.5 billion revolving-credit facility it has no debt maturities until 2022 (excluding MGM China). It could still sell MGM Springfield and its half-interest in CityCenter. Net revenues ($2.3 billion) fell 29%, with Las Vegas off 21% but regional properties only 10% behind the pace. MGM China revenue tumbled 63% to $272 million.

Timing of reopenings was described as “uncertain, but when MGM does reopen properties, it expects to see weakened demand given continued domestic and international travel restrictions/warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty.” Maryland, Massachusetts and Ohio will probably take the lead, management says, followed by a gradual reboot of the Las Vegas Strip. (Judging by the appalling Coronavirus numbers coming out of Massachusetts, we wouldn’t bet on the Bay State.) As far as prophylactic measures, temperature checks and compulsory masks are ideas that are definitely on the table. Revenue in Macao is emaciated but the two casinos have $800 million on hand (it costs $1.5 million/day to operate). Finally, MGM has waived certain financial-maintenance covenants, pledging MGM Growth Properties-owned casinos as collateral. Unless the company’s liquidity falls to $600 million there shouldn’t be any problem.

* If gaming can’t prime the economic pump, will sports? “As a sports guy, I do believe sports is a catalyst for a return to normal, particularly baseball,” Las Vegas Aviators COO Don Logan said to Global Gaming Business. “Everyone is optimistic, and there’s a mental comfort when sports get cranked up. But we don’t know when we’ll play. This is way bigger than sports.” (Unfortunately, the story’s reference to Philadelphia as “as rabid a sports region as any” takes on a whole new meaning in the era of Covid-19.) The Casino Association of New Jersey‘s Steve Callender is holding out for the return of football, telling GGB, “The Atlantic City casino industry always saw an increase in gaming and non-gaming revenue whenever the Eagles played, regardless of the day.”

While Callender is amenable playing games to empty stadiums, Logan disses the whole idea of social distancing, saying, “It makes no sense to play without fans [and] You have the umpire, catcher and batter in close proximity.” (Couldn’t we at least have a ban on childish, nose-to-nose manager/umpire arguments?) Regardless of where baseball is played, Callender is angling for the NBA season to be finished on the Boardwalk. Wouldn’t that give business a shot in the arm?