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After all the optimistic talk about a Vegas recovery, MGM reported a weak Q4. However, all eyes are on Q1 which is off to a good start.

We have to admit that MGM’s Q4 was pretty disappointing on the Strip.  MGM Macau produced a fantastic bottom line that even exceeded our Street high estimate.  However, we thought we would’ve seen a progressively better performance on the Strip.  Instead, RevPAR trends actually worsened a little from Q3.  MGM missed our EBITDA projections at most of their Strip properties.

Alas, the stock market is a forward looking entity and investors have collectively decided to judge MGM on Q1 trends.  That is why the stock was only down 3% yesterday.  We’ve also been focused on Q1 and management commentary was very positive about January trends.  1Q RevPAR is going to be up at least 10% and January was up double digits.  Management will also be meeting with investors this week and their ability to promote their stock should not be underestimated.  Apparently, as we heard on the call last night, MGM as an inflation hedge may be part of that pitch.

Observations

  • RevPAR trends look like they got sequentially worse from Q3 to Q4 at most Vegas properties. According to our weighted average calculation, RevPAR decreased 4.3% in 4Q vs. 2.3% in 3Q:
    • ADR was down 2% in 4Q vs. only .5% in 3Q
    • Occupancy was down 1.9% in 4Q vs 1.7% in 3Q
  • RevPAR decreased at most Strip properties aside from Mirage which saw a 2% lift
  • Casino and other revenues also declined YoY at most Strip properties aside from some lower tier properties, including:
    • Mandalay Bay: +3%
    • NYNY: +7%
    • Monte Carlo: +17%
  • Total Strip expenses declined 2.5%, compared to a 2% decline in 3Q10
  • Beau Rivage’s D&A expense went from $12MM in 3Q to $2MM in Q4 due to a one-time benefit.  This wasn’t discussed in the release or conference call.
  • City Center:
    • Aria: we assume that if hold was 21%, then table drop was flat with 3Q at around $340MM and that slot revenue was around $32MM. With total rebates of about 5% of gross gaming revenue
    • Aria had $40MM of promotional expense which amounts to 40% of casino revenue or 16% of gross property revenue
    • We think FTE’s are around 5,700 down from 6,300 in 1Q2010
    • Total operating expenses at Aria $168MM vs. $178MM last quarter and an average quarterly run rate $175MM in 2010
    • Total CC revenues – excluding residential, was $231MM compared to 3Q revenues of $247MM, 2Q revenues of $214MM and 1Q revenues of $179MM
    • Total CC expenses - excluding residential, were $215MM compared to $221MM in 3Q2010
  • MGM Macau results were truly impressive. While they don’t disclose a lot detail, here are some of our estimates
    • Slot win of $42MM
    • VIP Table drop of $19.5BN, hold of 3.1%
    • Mass win of $124MM
  • D&A declined for the 9th consecutive quarter as the company continues to under invest in its assets