Melco China Resorts

Melco China Resorts

November 27, 2008 18:43 ET

Melco China Resorts Reports Third Quarter Financial and Operational Results

- Focuses resources on top two China resorts and confirmed major events - Downsizes operations and plans to divest remaining properties to reduce debt and capital expenditures - Melco International provides new US$12M loan and extends existing US$11M loan to March 2010

BEIJING, CHINA--(Marketwire - Nov. 27, 2008) -


Melco China Resorts (Holding) Limited (TSX VENTURE:MCG)(TSX VENTURE:MCG.WT)("Melco China Resorts" or the "Company"), China's single largest ski resort developer and operator, today reported its financial results for the third quarter ending September 30th of 2008. The Company also provided an update on operations including the announcement of new funding, debt and contract restructuring, and its plans to downsize operations and divest certain assets in order to streamline operations and reduce costs as it combats the effects of the ongoing global economic slowdown on its development plans in China.

"The current economic downturn has caused us to take some significant measures to ensure that Melco China Resorts can continue to develop world class resorts in China." said Graham Kwan, CEO of Melco China Resorts. "We continue to focus our efforts on creating best in class facilities, in order to create a five star experience for our clientele. Although we have had to slow the pace at which we are intending to develop our properties, our adherence to delivering unparalleled excellence and user experience remains. We are very pleased with the progress we have made with our two premier resorts: Yabuli, which is on schedule for its December opening, and Beidahu which opened for the winter season in November and have confirmed a number of major events."

Financial Results

Melco China Resorts was incorporated on February 6, 2008 (the "date of incorporation"). In March 2008, the Company undertook a private placement raising $72 million. On May 27, 2008 the Company acquired five operating ski resorts (Yabuli, Beijing, Lotus, Changchun, and Beidahu, collectively the "Resorts") in China from Melco China Resort Investment Limited ("Melco Cayman") for redevelopment into "four season" mountain resort destinations. Melco Cayman had been operating the Resorts and undertaking significant operational improvements since 2007. Melco China Resorts became a publicly traded company on May 28, 2008. The Company's third quarter results represent the period from July 1, 2008 to September 30, 2008 and its year-to-date results reflect operations during the period from the transaction date of May 27, 2008 to September 30, 2008. Melco China Resorts reports in Canadian Dollars.

Total revenue and the net results were from resort operations with no real estate sales activities being undertaken during the reporting period. For the third quarter and year to date, the Company reported a net loss of $12.5 million and $17.0 million respectively as the resorts were acquired by Melco China Resorts post ski season as noted above, and are currently undergoing renovation and redevelopment, and therefore generating minimal revenue. Loss per share for the third quarter was $0.14. Year to date, loss per share was $0.37.

Capital expenditures totaled $24 million in the third quarter of 2008, which was within the Company's budget for the period and included construction of the on-mountain resort center facilities at Yabuli. Additional detail on the construction activities is outlined in the "Development Update" section of this news release. Year to date, capital expenditures total $53.9 million.

Cash and cash equivalents totaled $17.3 million and working capital was negative $26.4 million as of September 30, 2008. The ability of the Company to meet its current obligations is dependent on its ability to source financing and/or investment from external sources due to its limited income generating capability while in a development stage. The ability of the Company to arrange such financing in the future will depend in part upon prevailing capital and financial market conditions, as well as upon the business success of the Company. Historically, the Company has been successful in obtaining funding and is actively seeking new financing sources, including via local and foreign banks, shareholder investment and/or loan and divestment of assets, to meet operational obligations.

Due to the significant global economic events that have occurred over the past months, the Company has undertaken several strategic actions, which are detailed below and are intended to enable the continued operation and development of selected assets in China.


Central to the Company's immediate plans is the conservation of capital through strict cash management, cost reductions, and the divestiture of three of the resort assets, the Beijing, Changchun, and Lotus Mountain (Panshi) resorts. These resorts, which collectively have RMB62 million ($9.7 million) in debt, which is currently subject to litigation, also would require significant initial capital expenditures over the next three years prior to real estate development. The Company expects that by eliminating these requirements and accessing additional funding through debt and alternative investments, it can continue the operation and development of its two major resort assets of Yabuli and Beidahu, and better position itself for a recovery in the economy. On November 12, 2008, the Company entered into a non-legally binding memorandum of understanding ("MOU") to dispose all shares of Beijing Resort and Jilin Resort.

Shareholder Loan Agreements

Subsequent to the end of the quarter, the Company entered into a new loan agreement dated November 27th, 2008 with Melco Leisure and Entertainment Group Limited ("MLE"), an indirect shareholder of the Company and a wholly owned subsidiary of Melco International Development Limited, for a new shareholder loan in the principal amount of US$12 million ($12.8 million). The Agreement provides that the unsecured new loan will bear interest charged at 3-month London Interbank Offered Rate ("LIBOR") plus 3% and will expire on March 31st, 2010.

Further, the Company has negotiated with MLE for the extension of an existing shareholder's loan of US$11 million ($11.7 million), which provides revised terms such that the unsecured, interest free loan will expire on March 31st, 2010, and will no longer be due on demand. Melco International indirectly holds approximately 43,109,134 common shares, 8,437,565 non-voting class B shares and 1,000,000 common share purchase warrants of the Company through its indirect wholly owned subsidiary, Melco Luxembourg S.a.r.l.

Amendment of Advisory Services Agreement

The Company entered into a supplemental advisory services agreement (the "Supplemental Agreement") with Melco Services Limited ("Melco Services"), to relax the existing terms of the advisory services agreement that the Company entered into with Melco Services on August 15th, 2008 for the provision of certain advisory services by Melco Services to the Company.

Pursuant to the Supplemental Agreement, the Company has agreed to pay Melco Services a fee on an actual costs basis subject to the caps of (i) a yearly cap of HK$120,000 (C$19,673) for internal audit and control services and (ii) a monthly cap HK$500,000 (C$81,972) in aggregate for all other services, being the original agreed flat fees.

Development Update

Yabuli Sun Mountain Resort

The Sun Mountain Yabuli resort remains the core focus of Melco China Resorts immediate development plan. Located approximately two and a half hours south east of the city of Harbin, Yabuli is China's most recognized destination ski resort and will host the World Winter University Games in early 2009. Through previously announced additions to its land bank, the Yabuli land holding totals some 260 hectares, with 219 hectares available for development.

Ongoing capital improvements begun in 2007 and currently being completed and operational in advance of the ski season include new ski trails, snowmaking system, eight person heated gondola, and six person heated high-speed chairlift. The Company is constructing a mountain top hotel that includes 20 luxury hotel suites above a ground floor dining area that will be a unique feature of the resort. The base area and village improvements currently under construction include two 5 star hotels (133 and 155 rooms respectively) featuring new skier services facilities (tickets, equipment rental, guest service, ski school); five new food and beverage outlets (casual dining, fine dining, family dining and bar / lounges, specialty retail (operated by Melco China Resorts); new underground parking and surface parking, and new skier plaza and landscaping.

The resort has experienced a number of major snowstorms that began in October. The expected construction completion of the two base area hotels remains at the end of 2008. The mountain top luxury hotel is expected to be completed in early January 2009, when the resort will be in full operation for Chinese New Year later that month.

This delay is not expected to substantially impact Yabuli's core winter season operation. The resort will continue to host a number of major events during the coming 2008/09 Winter season that will begin with the main Chinese New Year holiday (January 24th to February 1st), followed by the China Entrepreneurs Forum (February 8th to 10th), and then the World Winter University Games (February 18th to 28th).

Due to the worldwide economic crisis sales of resort vacation homes at Yabuli have not been forthcoming and to date no homes have been sold. The Company has suspended construction of its initial luxury homes at Yabuli in an effort to preserve capital. Foundations, footings and one floor of seventy-five homes have been constructed. These homes can be completed quickly if real estate demand recovers in 2009. However, the Company currently projects that there will be no home sales in fiscal 2009.

All other capital projects scheduled for 2009 have been put on hold with the exception of low capital summer attractions such as luxury camping, zip lines, golf range, hiking and biking trails, tennis, and horse riding facilities, in order to generate non-winter revenues.

The Company is moving ahead with plans to develop an international signature designed golf resort at Yabuli and has begun an initial site review, as well as begun the process for land approvals. Melco China Resorts expects that the approval process could take twelve months to complete.

Sky Mountain Beidahu Resort

Sky Mountain Beidahu hosted the 2007 Asian Winter Games and is the #2 ski resort in China (Yabuli is number one). The resort's ski and mountain facilities have already been initially upgraded including a new gondola, new lifts, trails and snowmaking equipment. As well, upgrades have been carried out on the existing 188 room four-star hotel, and guest service upgrades such as rental equipment and food service, etc. have been completed.

Like Yabuli, all 2009 capital programs have been suspended with the exception of summer activities and golf development, which are expected to track on the same timeline as Yabuli. For both Beidahu and Yabuli the capital costs for these summer attractions, maintenance and safety capital, planning and permitting fees has been re-budgeted to not exceed $3M reduced from an original plan prepared in January 2008 of $103M.

Beidahu officially opened for the Winter 2008/2009 Season on November 12th, 2008 with the arrival of the National Ski Teams of Japan, Korea and China for pre race season training. The Company confirmed several major sporting and leisure events that will operate throughout the Winter of 2008 / 2009. The intention of these events is to position Beidahu as a significant destination for superior ski and snow sports experiences. These events, created to drive destination visitation, include:

- the 1st Annual Russian Festival from December 29th to January 12th;

- the inclusion of two World Cup FIS events (Federation International de Ski "FIS" Giant Slalom and Slalom on November 27th to 29th and December 6th to 9th;

- the Junior National Alpine Championships from January 13th to 16th;

- the 2nd Annual Asian Mountaineering Championships from February 4th to 6th;

- the Chinese National Amateur Alpine Championships on February 21st to 22nd; and the Chinese National Alpine Championships from March 5th to 8th.

"The economic downturn has had a profound impact on businesses world-wide and China and Melco China Resorts has not been spared. The impact to our business is also directly affected by the world-wide real estate industry downturn," commented Graham Kwan, CEO of Melco China Resorts. "Our ambitions have always been to be the premier operator of destination ski resorts in the country. However, this requires us to maintain ongoing access to capital to redevelop the resorts to an international standard. With the massive erosion of the capital markets we must unfortunately make prudent, but difficult decisions, which include the divestment of three of our properties. The preservation of our two marquee properties of Yabuli and Beidahu are our priority for our shareholders since these two properties already have abundant land holdings, improved facilities, and therefore can unlock returns that build from the existing capital investment when the economy recovers. In the interim our focus given the real estate downturn will be to refine our service levels and marketing in these two properties, obtain additional financing to support the company, and pay strict attention to cost management."

Financial Highlights
Summary Financial Results

Three months Period from
(in thousands of Canadian dollars ended Sept. 30, February 6, 2008
except for per share data) 2008 to Sept. 30, 2008
Revenue $ 342 $ 400
Operating Expenses (660) (820)

Other Income 2,391 3,486
General and Administrative Expenses (3,732) (8,732)
Depreciation and Amortization (1,052) (1,421)
Interest Expense (463) (656)
Impairment of property and
equipment (7,979) (7,979)
Provision for Future Income Taxes (1,311) (1,315)

Net Loss $ (12,464) $ (17,037)
Net Loss per share $ (0.14) $ (0.37)

Weighted average number of shares
outstanding (basic and fully diluted) 87,439,344 46,653,824

Balance Sheet Highlights

(in thousands of Canadian dollars except for ratios) September 30, 2008
Current Ratio 0.57:1
Cash 17,266
Working Capital (26,377)
Total Assets 382,170
Total Debt 118,678
Total Equity 263,492
Debt to Equity Ratio 0.45:1

Current ratio equals Current Assets / Current Liabilities
Debt to Equity equals Total Debt / Total Equity

Melco China Resorts will host a conference call to discuss its third quarter operational and financial results. Graham Kwan, CEO and Paul Zhang, CFO of Melco China Resorts will host the call.

Management invites analysts and investors to participate on the conference call:

Date: Friday, November 28, 2008

Time: 10:00 am Eastern Standard Time

Dial In Number: 416-641-6141 or 1-866-300-7687

Taped Replay: 416-695-5800 or 1-800-408-3053
(available for 7 days)

Taped Replay Pass code: 35832#

About Melco China Resorts

Melco China Resorts operates China's two largest premier destination mountain resort properties, the Sun Mountain Yabuli resort, host for the 2009 World University Games and the Sky Mountain Beidahu resort. Melco China Resorts is transforming these properties into world-class, four seasons luxury mountain resorts with excellent real estate investment opportunities for discerning buyers. Melco China Resorts' leadership team boasts a proven record of resort development success both internationally and in China.


Information in this press release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws, and actual results may vary from the forward-looking information. Implicit in this information are assumptions regarding future operations, plans, expectations, anticipations, estimates and intentions, such as the plans to develop the ski resorts in China. These assumptions, although considered reasonable by Melco China Resorts at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of Melco China Resorts are subject to a number of risks and uncertainties, including general economic, market and business conditions, uncertainty relating to land use rights, adverse industry events for the ski and real estate industries, Melco China Resorts' ability to make and integrate acquisitions, the requirements of recent Chinese regulations relating to cross-border mergers and acquisitions, the inability to obtain required approvals or approvals may be subject to conditions that are unacceptable to the parties, changing industry and government regulation, as well as Melco China Resorts' ability to implement its business strategies, dispose of assets or raise sufficient capital, seasonality, weather conditions, competition, currency fluctuations and other risks, and could differ materially from what is currently expected as set out above.

Forward-looking information contained in this press release is based on current estimates, expectations and projections, which MCR believes are reasonable as of the date of this press release. Melco China Resorts uses forward-looking statements because it believes such statements provide useful information with respect to the operation and financial performance of Melco China Resorts, and cautions readers that the information may not be appropriate for other purposes. Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While Melco China Resorts may elect to, it does not undertake to update this information at any particular time.

The TSX Venture Exchange has neither approved nor disapproved the contents of this press release. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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