MGM 1Q11 CONF CALL NOTES

Good quarter but with seasonally slower convention activity, is it sustainable?

 


“Our improved results are broadly based throughout our resort portfolio. Performance at our Las Vegas properties was driven by increased hotel occupancy and room rates.  MGM Grand Detroit had another impressive quarter and remains the market leader. Results from joint ventures reflected record quarters at both MGM Macau and CityCenter. Our belief that the Las Vegas recovery is underway is supported by our first quarter operating results and our positive early second quarter trends.”

 

- Jim Murren, MGM Resorts International Chairman and CEO

 

 

HIGHLIGHTS FROM THE RELEASE

  • Net revenue: $1.5BN; Adjusted property EBITDA: $364MM; Wholly owned adjusted property EBITDA: $301MM
  • "Rooms revenue grew by 13% led by a 16% increase in Las Vegas Strip REVPAR"
  • "Casino revenue decreased 5% mainly as a result of a lower than normal table games hold percentage"
    • "The overall table games hold percentage in the first quarter of 2011 was below the low end of the Company’s normal range of 19% to 23%, which affected Adjusted Property EBITDA attributable to wholly-owned operations by approximately $34 million. The overall table game hold percentage in the first quarter of 2010 was near the mid-point of the Company’s normal range.  Slot revenues increased 1% compared to the prior year quarter. "
  • CityCenter:
    • Adjusted property EBITDA $64MM and net revenue of $262MM
    • Aria net revenue: $225MM and EBITDA was $55MM
      • "Aria’s hold percentage was above the high end of its normal range in the current quarter which positively impacted Adjusted Property EBITDA by approximately $13 million"
      • ADR: $201; Occ: 86%; RevPAR: $172
    • Crystals: $6MM adjusted EBITDA
    • "Recorded a $24 million loss on debt retirement related to the write-off of debt issuance costs in connection with the refinancing of its credit facility in January 2011."
  • MGM Macau: $146MM Adjusted property EBITDA
  • "The Company received approximately $31 million in distributions from MGM Macau during the first quarter of 2011."
  • Corporate finance stuff:
    • Debt: $12.3BN; incl $2.6BN of R/C borrowings ($826MM of availability)
    • "Repaid the remaining $325 million of its 8.375% senior subordinated notes in February at maturity."
    • $1.1BN  of total liquidity

 

CONF CALL NOTES

  • Seeing some positive trends in the second quarter
  • Convention room nights represented 20% of their mix vs. 15% last year. It's the best convention Q they had since 2007, which allowed them to yield up rates.
  • Expect full year convention mix to be 2% better than last year or up 14% YoY
  • Consumer spending is strengthening and they will take advantage of this through a strong event calender.  Revenue per occupied room was up 3% in the quarter. They also saw an increase in their rated play.
  • Over the last 4 months, they have been outpacing last year's room nights on the books. 
  • Events calendar is favorable, and events drive more spending at their properties
  • Will invest in their properties to capitalize on the improvement in the economy. 
  • M Life - have enrolled 1MM new members since launching the program. Regional properties have seen an increase in number of trips and players. Especially at the higher end tiers. The program also helped them decrease the promotional spending at their lower tier properties. Signed a deal with Rank Gaming, Dover Downs, SBE and Avis
  • Began a room remodel at Bellagio and MGM Grand. Bellagio will also launch a new nightclub. Replacing & refreshing some of their F&B and entertainment outlets. Signed Blue Man Group to Monte Carlo.  Michael Jackson Cirque show starting in 2013 at Mandalay Bay
  • MGM Macau
    • Drop in VIP grew 94%
    • Drop in Mass grew 21%
    • Slot drop up 92%
    • Held within normal range in the quarter
    • Doing more with Pansy in China
  • Excluding resort fees, RevPAR was up 11%
  • Tunica property is temporarily closed as of Monday.
  • Received a $175MM refund from IRS last week
  • 2Q Guidance:
    • Corporate expense; 30-35MM ex stock comp
    • Stock comp: 9-10MM
    • D&A: 150-155
    • Gross interest expense: $265-270MM (220MM was cash interest - no capitalized interest)
    • 2Q RevPAR: + mid single digit
  • MGM will consolidate MGM China when the IPO goes through. They will recognize a material gain
    • Debt: 695MM Cash: 280MM
  • Capex of $34MM; FY spend of $275MM for all of 2011
  • City Center commentary:
    • Aria: EBITDA 55MM, net casino revenue $111MM, $72MM table game revenue; $147MM non-casino revenues.
      • Benefited from a favorable property tax adjustment of $6MM in the quarter
      • 2011 convention room nights have already surpassed estimates, had 72k room nights in 1Q
      • Aria REVPAR: $172 (86% occu, $201 ADR)
    • Cosmopolitan opening has had a positive impact on CC by increasing foot traffic
    • Vdara:
      • EBITDA: 3MM 
      • Net revenue of $15MM
      • 83% occupancy
      • Increased room inventory by 200 units
    • Crystals:
      • EBITDA: 6MM
      • Net revenue: 12MM
      • 82% occupied
    • Residential division: leased 212 units (72 in Mandarin and 14 in Veer towers)
      • Closed 8 units with $7.5MM in revs
        • 1 unit in Mandarin ($2.7MM)
        • 4 units in Vdara ($2.8MM)
        • closed 3 previously contracted units at Vdara ($1.9MM)
    • Took a $5.4MM writedown on notes related to lower value given by outside consultant


Q&A

  • The 20% convention mix is for their wholly owned, and higher than they predicted
  • Convention business is always seasonally stronger in the first quarter.  As you get into May and June, you have a lot more leisure and FIT business
  • Core properties did really well compared to last year and think that's the beginning of a trend. Convention business is allowing them to yield up and the leisure customer is also improving.
  • Does the change in the MGM Macau structure change anything for Borgata?
    • No, they have a settlement agreement that they are adhering to
  • How does rate look like for their convention business?
    • It's what they were achieving in 2005 and should be up double digits next year
  • Saw good traffic in LV in general. Mass table business is starting to pick, but most of the improvement has been on non-gaming.
  • October will be a good month on the convention side
  • Mandarin continues to be a drag, what can they do to reduce that drag?
    • Occupancy was up 20 points from 35% last year so they are working hard to improve operations
    • Think that they will slowly improve
  • Operating expense creep?
    • Not really. Payroll will go up a bit. But doesn't expect expenses as a % of revenues to increase
  • Baccarat business?
    • Had a tremendous quarter last year so the comps were tough this year
    • It's going to be harder for the international business in Vegas to show growth
    • They believe that they will gain share of the high end business this year
    • International business makes up most of the business
  • $120MM of gross receivables and were 50% reserved on those at MGM Macau
  • Rates on leased inventory at CC: $2/foot
  • Have 1,050 rooms at Vdara being rented currently
  • Mix of 3rd party or discount channel business and what is the delta? 
    • $50 delta between discount channels and convention business
  • Length of play hasn't been impacted, they just had a run of bad luck given the concentration of high end in 1Q & 4Q
  • $17MM benefit annually of tax adjustments for City Center, so the $6MM benefit in the quarter is not one time, although it is going to be less in subsequent quarters.

Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more