MGM Q1 REVIEW

Quarter was definitely better than expected even with the low hold. Sustainability is the question with convention business seasonally dissipating.

 

 

The Street clearly liked what they saw in MGM’s release this morning.  If we take MGM’s word for it, and add back the $34MM low hold impact, then results would indeed have been 10% better than we estimated for their wholly owned properties.   Without any adjustments, reported revenue of $1,505MM was 1% above our estimate, consolidated property level EBITDA was in line with our estimate and total EBITDA plus MGM’s pro-rata share of JV property level EBITDA was $3MM below our projection.  

 

All in all, this was a good quarter for MGM.  The real question is whether moderating Vegas trends will be enough to keep investors excited for the balance of the year.

 

 

1Q Detail:

Strip revenue was $3MM above our estimate while EBITDA was $11MM better.  That’s before factoring MGM’s $40MM hold impact on revenues and $34MM EBITDA impact.  It seems to us that management’s calculation of the flow through on the hold impact is a little high since there are usually a decent amount of rebates on gross gaming revenue – especially on table play.  

  • Comparable RevPAR growth of 11% was about 3% better than we estimated.  As a reminder, some of MGM’s properties already introduced resort fees in 2010, like Bellagio, MGM Grand and Mandalay Bay.  For most of the lower end properties resorts fees skewed the comparison – looking at MGM’s adjusted 2010 numbers though, it appears that the resort fee ranged between $6-9/night at these properties
  • Casino revenues were lower than we expected.  As a reminder, we indicated in our preview that while RevPAR would be strong, that strength would not be reflected in casino revenues. Therefore, we modeled low single digit casino revenue growth for most Strip properties.  With low hold, the results were clearly worse.
  • On the bright side, cost controls were a lot tighter than we projected, attributing to the better EBITDA performance
  • While many properties had great results,  double digit RevPAR didn’t always translate into improved results:
    • Bellagio – RevPAR was up 13% but net revenue was flat;  EBITDA was down 13%
    • MGM Grand – RevPAR was up 14% but net revenue was only up 1%; EBITDA was down 4%
    • Excalibur – RevPAR was up 15.5% but net revenue was only up 3%; EBITDA was only up 3%
  • Some properties also had very easy comps which get much harder for the balance of the year:
    • Circus Circus – EBITDA grew 170% YoY, off of $1.7MM of EBITDA.  EBITDA for the next 2 quarters in 2010 was $5.5 and $6.1MM, respectively.  Therefore, growth going forward should be much more moderate
    • Monte Carlo EBITDA increased 113% YoY off of $6.4MM of EBITDA but produced EBITDA of $27MM for the last 9 months of 2010.
    • Luxor EBITDA increased 58% YoY, off of $13MM in 1Q2010. In the balance of 2010, Luxor produced EBITDA of $48MM.
    • Mandalay Bay posted a 44% EBITDA increase, off of the $25MM 1Q2010 EBITDA, which was down 40% YoY.  The balance of 2010 showed average EBITDA declines of 15%.
  • MGM Detroit results were a little better than we projected due to lower promotional expenditures. 
    • The 2H2011 faces a difficult comp here as EBITDA in 2H2010 increased 24% YoY
  • The Mississippi properties were a little weaker than we projected due to lower revenues at Beau Rivage
  • City Center EBITDA was $18MM above our estimate, largely due to high hold at Aria
    • Factoring out high hold, Aria’s EBITDA would have been $6MM better than our estimate due to lower operating expenses.  Operating expenses benefited by $6MM of a tax refund.
  • MGM Macau EBITDA beat our estimate by $10MM, despite being materially above the Street to begin with.
    • It looks like we overestimated direct play volumes, and therefore hold was better than we expected.  Fixed expenses were also a little lower than we projected.

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