Hedgeye - MGM 2Q11 CONF CALL NOTES

Decent hold adjusted quarter. Forward commentary was very bullish and better than we expected.

“We have shown growth in year over year cash flows throughout the first half and expect those trends will continue. We believe the foundation of the Las Vegas recovery is solid and our business is building”

- Jim Murren, MGM Resorts International Chairman and CEO

HIGHLIGHTS FROM THE RELEASE

Adjusted EBITDA: $366MM

Domestic wholly owned Adjusted Property EBITDA :$331MM

"Despite a lower table games hold percentage in the current quarter and an approximately $12 million impact related to the state mandated closure of Gold Strike Tunica in May 2011"
"Casino revenue ... increased 1%... . The overall table games hold percentage... was below the low end of the Company’s normal range of 19% to 23%. The overall table games hold percentage in the second quarter of 2010 was near the low end of the Company’s normal range which affected Adjusted Property EBITDA by approximately $27 million when compared to the mid point of the Company’s normal range."
"Slots revenue increased 4% compared to the prior year quarter, including an increase of 7% at the Company’s Las Vegas Strip resorts."
Las Vegas RevPAR +10%

City Center Adjusted EBITDA: $64MM

"Positively affected by a higher than normal table games hold percentage."
Net Revenue: $275MM
Aria:

Net revenue: $233MM
Adjusted Property EBITDA: $53MM (includes an $18MM benefit from high hold)
RevPAR: $181 (ADR: $202/ Occ: 90%)
Vdara Adjusted Property EBITDA: $5MM
Crystals Adjusted Property EBITDA: $6MM
Residential impairments: $53MM

MGM China Adjusted EBITDA: $170MM

Net Revenue: $668MM
"Primarily due to an increase in VIP table games turnover of 110% and a 21% increase in main floor table games drop. VIP table games hold percentage was slightly above our expected range of 2.7% to 3.0%"
EBITDA includes $3MM of branding fees
D&A: $75MM

Balance Sheet:

Cash & equivalents: $922MM ($417MM at MGM China)
Debt: $12.8BN

$2.3BN under the MGM resorts credit facility
MGM Macau Credit facility: $591MM
$1.2BN of borrowing capacity

CONF CALL NOTES

In Las Vegas, they expect to see continuous improvement in the back half of the year and into 2012
Net net adjusted for hold and the losses at CC residential, Adjusted EBITDA would have been $422MM
Increase in short term bookings and strong demand across the portfolio led to stronger than expected RevPAR at MGM. June was their strongest month - up mid teens %. FIT/Retail is their strongest segment in Vegas. National rated play was great, but international was weaker
In Detroit, they had the best quarter in slot play
Seeing a recovery in the domestic consumer and are benefiting from M Life. With the completion of the M Life roll-out they expect to see increases in non-gaming businesses as well.
Promotional spend is down as a result of more targeted marketing
Recovery in Vegas is broadbased - luxury saw 9% EBITDA improvement and core properties saw a 16% increase in EBITDA
Tunica is now back on track and performing well
D&A: $85-95MM per quarter going forward due to Macau consolidation
Leverage for June 30th is 8x - pro forma for MGM Macau consolidation
MGM CHINA:

$22.4BN VIP RC
Mass Drop: $544MM
Slot handle: $862MM

NJ approved the extended plan for MGM to divest their share in Borgata
Bellagio's room remodel program started this quarter and will be completed by YE. Expect a $30/night room premuim when the renovation is complete. MGM Grand will begin their room remodel later this year and it will last one year.
City Center

ARIA: Benefited from growth in the convention segment and from strong table and slot volume
Vdara: 1300 hotel rooms online
Crystals: SS sales up 24% YoY- 2nd highest sales per SQFT in Las Vegas
Residential sales pace is slow, but the leasing program is good - 346 units were leased to date with expected revenue of $8MM

Las Vegas:

booking pace for the summer is up nicely and for the fall as well
+10% in 3Q RevPAR
Sept & Oct months are exceptionally strong. Convention mix up 300bps YoY.
Event calendar is also strong in the back half of the year
Expect that these trends will continue into year end
Expect to be able to drive these revenue improvement to the bottom line

Hoping to secure land approval in Cotai in short order
Looking for other expansion opportunities in Asia and beyond

Q&A

They had a poor April - held very poorly. In May, June and July they've done well. They've been enjoying a high end resurgence recently.
Doesn't anticipate to cut material costs from here - payroll is pretty flat. Look to cut expenses in February every year. Their results are improving so there doesn't seem to be a reason to cut more costs
F&B, retail, entertainment were all up in the quarter and are seeing those trends continue into the summer
Slot business in Las Vegas:

General improvement in the customer coming to Vegas
General increase in RevPOR which drives slot play
M Life helping

MGM Macau: Adding a lounge next week in August. In-house VIP upgrade coming online later this year. There is an opportunity to add more leverage in Macau. They will look at a new facility to bring down the cost of debt.
Delta between group and leisure in Las Vegas. Convention is relatively flat YoY but they've seen a nice pickup in the retail channel.
Expect to be up again in 2012 for Convention rate; Leisure & Retail is driving confidence in 3Q. Seeing similar growth in convention and leisure block.
Macau VIP hold was 3.1%
This past weekend was packed in Vegas. They have had no changes in their call center, booking, or consumption activity over the last week or so.
July share decrease was hold related
Cash ADR - the entire increase was cash because the comp rate was flat YoY
Weakest component at Aria is the entertainment - primarily the Cirque show. Think that Aria should have done a little better in the quarter but are happy with the performance. The show is only 1/2 occupied. A good show should contribute $40-50MM of EBITDA. Their show doesn't contribute any EBITDA nor does it bring in the traffic benefit.
Aria win per slot per day: +9% from $188 to $206
General strength in the Macau market has continued. Liquidity has remained strong. Market is pretty stable regarding commissions.
Convention mix is the smallest % of business in the 3rd Q - 12.5-13% this year. Rate delta is $40-60 between leisure and convention.
12% increase in active players in their database since launching M Life and average spend per trip increased 4%. Up double digits in people moving up in tiers. Added 500k customers in 2Q. At 1.5MM enrollments YTD.
Mirage had its biggest booking month in July. Booking months in general are not falling but accelerating at some properties.
Highly unlikely that they will be tapping the debt or equity market from MGM this year. They will be in the bank market.
Already brought back $190MM of cash from the Macau JV
Goal is to deleverage the company
Booking pace in 2012 is a lot less informative on the retail business booked - which really only books out up to 4-5 months in advance. Mandalay Bay has been sold out pretty much for the next 4 months. Going into the fall they hope to be 80% booked on the convention side. Have 60% of their rooms book for 2012.
Are prepared to start moving dirt in Macau as soon as they get approval. Would take about 3 years to build once they have approval.
Haven't decided on a dividend payment strategy for MGM Macau - they will meet with the board and discuss. They do want to leave powder to grow.
Their revenues from mgmt hotel contracts won't be substantial until 2013/2014. They expect that they will generate $50MM in a few years and then hitting $100MM.
Have 65 units left at Mandarin, at Veer have 202 units remaining