Mohegan finances strong, with big racino outlay
UNCASVILLE, Conn. -- According to financial reports, the Mohegan Tribe
rules an aggressively expanding business empire, fueled by a strong
performance from its cash cow, Mohegan Sun casino.
In the third quarter financial report, released July 28, the Mohegan Tribal
Gaming Authority reported a 10.4 percent increase in gaming revenues over
the prior year, for $309.3 million. It projected a $67.5 million
distribution to the tribe for the entire fiscal year.
In a teleconference with Wall Street analysts, Mohegan Sun CEO Mitchell
Etess also noted that the number of visitors had increased 11.6 percent to
a daily average of 33,445. He credited a range of entertainment, which
among other groups appealed to its large Asian clientele. "Our ability to
offer the big Asian shows in the arena has really helped us do well with
that," he said.
Etess also noted an impressive 96 percent third quarter occupancy rate at
the luxury Mohegan Sun hotel, up from 86 percent in the previous year. He
said rooms were increasingly targeted toward casino customers, "driving a
lot of our gaming revenue growth."
Even food and beverage revenues were up during the quarter -- by 2.6
percent over last year, he said -- although two of the highest producing
restaurants had been closed. The renovation made way for a new Uncas
American Indian Grill featuring Native-inspired cuisine, which opened the
morning of the teleconference.
Capital expansion outlay for the year is budgeted at $52 million. Leo
Chupaska, CFO of the authority, said $35 million had been spent at
Uncasville and another $10 million was allocated for a start-up facility
and design work at Pocono Downs, the recently acquired harness racetrack in
north-central Pennsylvania.
Just a week earlier, the authority released details of its Pocono Downs
expansion.
Although the Mohegans finalized the track's purchase in January, they had
been marking time until the Pennsylvania Supreme Court decided a lawsuit
challenging the constitutionality of the state law allowing slot machines.
The court upheld most of the law in late June, removing a major barrier to
the largest legalization of slot gaming in the East. The state law passed
last year authorized a potential total of 61,000 slots at 14 locations,
including seven racetracks.
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The renamed Mohegan Sun at Pocono Downs plans to start work on an interim
facility with 1,000 slots by September, if all necessary approvals are in
hand. The $47 million first phase would renovate the track grandstand and
build a two-story addition of 20,000 square feet. Robert J. Soper,
president, said the facility could be open in six months, as soon as it
received the Conditional Slot License from the new Pennsylvania Gaming
Board.
Bolstered by the cash flow, work would then start on a permanent
entertainment center. Designed by the architect firm of Jeter, Cook &
Jepson, it would house 2,000 slot machines, three full-service restaurants
plus a buffet and food court, a nightlife center featuring an
18,000-square-foot nightclub, a Kid's Quest Center and 20,000 square feet
of retail space. Construction, under the direction of the Keating Building
Corp., would cost up to $160 million. The circular casino area would take
design elements from Mohegan Sun's two casinos, extending "the Mohegan Sun
brand." Soper said it could be open in 2007, approximately 14 months after
breaking ground.
He said initial plans were to transfer the 1,000 slot machines from the
grandstand to the new facility. But if demand warranted, he said, the track
might leave the interim slots in place for a total of 3,000, the maximum
allowed by the law.
Soper said the authority hadn't planned on an interim slot parlor at first,
but decided to move things up in spite of the extra cost because of the
earlier cash flow. Soper said the slot revenue would increase purses for
the harness racing, improving quality of the races, and would provide a
better physical environment for patrons. "Also," he said, "these
improvements will more quickly generate jobs for the community and
potentially provide residents of this area and of Pennsylvania property tax
relief sooner rather than later."
He said the finished complex would provide around 800 jobs.
Although the Mohegans are carrying a high debt load, totaling approximately
$1.27 billion, the authority also has high liquidity, through a $450
million bank credit facility. Chupaska said that as of the end of the
quarter, it could draw on $448 million.
Although interest expense had increased to $23.5 million for the quarter,
over last year's $20.4 million, said Chupaska, the weighted average
interest rate had dropped to 7.3 percent from last year's 7.6 percent.
On July 29, the authority took a further step into Wall Street, exchanging
two note issues for new notes similar in most respects but also registered
under the federal Securities Act and freely tradable.
