FCF outlook for Mohegan Resort expected to “turn positive”

A recent study by CBRE Capital Advisors Inc. projects that Mohegan Inspire Entertainment Resort, the recently built casino complex in South Korea owned by the Mohegan Tribal Gaming Authority, will “turn positive” in terms of free cash flow (FCF) projection by the end of the third year of operation.

This suggests that company will expand faster than that of Incheon competitor Paradise City.

Mohegan Gaming & Entertainment, better known by his stage name Mohegan, is developing its first project outside of North America, a project near Incheon in South Korea. Non-gaming attractions at the US$1.6 billion Mohegan Inspire, including the 15,000-seat Inspire Arena, debuted on November 30. The casino that was only dedicated to foreigners began on February 3 and had a formal inauguration on March 5.

With mature EBITDA of around US$150 million yearly and margins in the mid-30s percent range, CBRE analysts Colin Mansfield and Connor Parks anticipate Mohegan Inspire to maintain debt repayment throughout ramp-up. This equates to about a 10% return on investment at maturity because of a less phased rollout, great non-gaming attractions, and the possibility of a speedier ramp-up than Paradise City.

Mohegan Inspire is anticipated to triumph over Paradise City because to its larger room base and increased emphasis on slots. A mature slot and table win-per-unit-per-day of US$275 and US$3,000, respectively, is projected by CBRE, with the exception of Macau and Singapore, in line with the averages of its Asian rivals.

According to the analysis, Mohegan Inspire will have enough cash on hand to pay off debt and capital costs associated with upkeep until it enters its third year of operation, at which point its free cash flow (FCF) profile should be positive. The 17% PIK mezzanine term loan, however, would violate the total net leverage covenant and present issues for the capital structure.

The maturity wall, the upcoming change in the CFO, and the lack of clarity on Mohegan Inspire’s development in Korea are among the reasons why CBRE has evaluated Mohegan Gaming’s 8% secured notes due in 2026 as “market perform.”

Original story by: GGRAsia