Since the Covid-19 pandemic forced the shutdown of the U.S. casino industry a month ago, it’s estimated that MGM Resorts International has been burning through more than $14 million a day to keep its far-flung holdings going through the crisis.
Most of the money has been spent to continue to pay the 60,000 employees furloughed since the Las Vegas-based gaming giant began closing its nearly two dozen gaming and non-gaming properties, including 13 on the Las Vegas Strip, in the middle of last month.
Recent analysis from Macquarie Securities suggests that at current levels the company has enough cash on hand to hold out for at least the next nine or 10 months, although the company’s initial two-week commitment to pay salaries and benefits has since expired, and it was not known late last week whether the payments are continuing or to what degree.
It’s one of the elements that has befuddled MGM investors in the midst of a crises the likes of which the industry has never seen and whose end no one can foretell.
“Given the numerous moving parts within MGM and the considerable structural changes over the past several months, we believe MGM has caused investors the most confusion of any name within the (gaming sector),” Deutsche Bank analyst Carlo Santarelli wrote in a recent client note cited by industry newsletter CDC Gaming Reports.
Which is partly why MGM, one of the most highly regarded operators in the industry, also has been one of the hardest hit in the massive sell-off of gaming stocks that began in earnest last month.
MGM’s exposure via Macau to virus-ravaged China, where the Covid contagion is believed to have originated, hasn’t helped. Neither did last month’s hasty departure of long-time Chairman and CEO James Murren just as the storm was approaching U.S. shores.
At Thursday’s close the stock (NYSE: MGM) stood at $14.66, down 56.2 percent year to date. And this was after a major rally that may have stemmed from preliminary reports circulating late last week suggesting the spread of the virus may be leveling off. A couple of weeks ago, the shares were plumbing lows in the neighborhood of $6.
Needless to say, how long the bounce will last, if indeed it does, is unknown.
What is known is that Covid-19 is now the No. 1 cause of death in the U.S. As of late last week, it had claimed more than 16,000 lives, the most of any country. It is killing more than 1,900 Americans every day.
So obviously no one at this point is hazarding a guess as to when the casino industry will be back in business, let alone returning to something resembling normalcy.
“We expect the domestic casinos to remain closed through May,” Santarelli wrote, assuming the contagion is in decline by then. “We then assume MGM begins a staggered process of bringing assets back online, with Las Vegas Strip assets coming on at a measured pace.”
Acting CEO Bill Hornbuckle, who served as president under Murren, has understandably been cautious in his guesstimates, saying only that the company will begin the process “when it is safe.”
“We won’t necessarily want to be the first to open,” he recently told CNBC. “We’ll open this intelligently and hopefully with some forethought.”
In the meantime, the company has put $1 million into an emergency relief fund to assist employees and their families with unexpected hardships. Singer Bruno Mars, who has a residency at Park MGM on the Strip, has donated $1 million to the fund. A foundation established by the late Kirk Kerkorian, the company’s founder, has donated $2 million. Hornbuckle, who has relinquished his 2020 salary in exchange for stock, has kicked in $100,000, as have other executives.
Santarelli said MGM has “more than adequate liquidity” to weather the crisis, “with levers to pull to extend the runway if needed.”
The company went a long way toward shoring up its balance sheet at the end of last year through the sale-leasebacks on the Strip of Bellagio and MGM Grand and the outright sale of Circus Circus. The company paid off nearly $3.9 billion in debt following those transactions and doesn’t have any obligations due for another two years. Cash on hand is estimated at around $3.9 billion, including $1.5 billion drawn under its revolving credit facility.
MGM also owns 60.6 percent of real estate investment trust MGM Growth Properties, which it could liquidate for up to $1.4 billion.
“We think the most likely path to the upside in MGM shares, from current levels, stems from a greater appreciation of the ownership interests in (MGM Growth) or (majority-owned Macau subsidiary) MGM China,” Santarelli said.
Meanwhile, board members have been encouraged to purchase shares on the open market as a sign of faith.
Director Keith Meister, through his hedge fund Corvex Management, has spent more than $18.6 million to acquire 1.6 million shares. New Chairman Paul Salem has spent $5.9 million to acquire 550,000 shares.
