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Miss a little deeper than just low hold

 

CONF CALL NOTES

  • January and February were very strong months in LV.  March was very challenging - poor table hold coupled with a tough convention calendar comp.
  • Growth in RevPAR will be at least in the mid-single digits for the rest of the year with potential upside from in the year for the year bookings
  • They find the opportunities in Toronto very exciting.  They are also highly focused on Western MA.  Also looking in S. Korea, Taiwan, among other markets
  • YoY volume improvement in national and international table game play. $25MM of incremental EBITDA would have been generated at their wholly owned resorts and their share of Aria's EBITDA would have been $7MM higher had they held at the mid-point of their expected hold range
  • Convention mix was down slightly YoY.  Luxury resorts were able to fill in demand with in house bookings.  While lower end results had a harder time in-filling that demand
  • CityCenter facility was undrawn at March 31
  • Looking at redoing their MGM China facility as plans for MGM Cotai solidifies
  • The MGM Grand room remodel program continues to progress nicely with roughly 2,300 rooms completed and that project is on budget and on time to be completed by September of this year

  • 2Q12 ghuidance:
    • Stock comp:  $9-10MM
    • D&A:  $230-235MM
    • Interest expense:  $275-285MM ($6MM for MGM Chian and $23MM of Amoritization cost
  • City Center:
    • March occupancy at Aria was 92%
    • Record occupancy expected in 2Q at Aria
    • Convention booking are Robust for 2013 at Aria
    • Welcoming Zharkana to Aria and think that it will help revenues
    • 86% of Crytstals space is under lease
  • MGM China:
    • Continued efforts to better yeild their floor has been bearing fruit
    • Customer acceptance of Supreme and Platinum areas drove increases in their slot volume
    • Just opened a butterfly exhibit 
    • 40 gaming tables are going to come online when the 2nd floor renovations are complte
    • Believe that they will get government approval for their land grant imminently
  • Fundamentals of the business are getting stronger and that's good new for LV and MGM
  • Golden week in Macau is off to a great start
  • Opened their first hotel in China.  Expect their hospitality to grow
  • Seeing tangible benefits of capturing increased customers spend from M Life.  Very actively marketing in their regional properties to drive business to LV and their partnership with ASCA is helping
  • They are launching a social gaming site which will exclusively use MGM brands and will aim to recreate the Strip experience

Q&A

  • Think's that Wynn's announcement bodes well for them.  They are confident that they have the product that the government wants built in Cotai
  • Las Vegas: the absence of ConExpo had a big impact on their numbers for one week in Macau, especially on their lower end properties. Think that RevPAR would have been 3% higher in the quarter if not from the difficult comp of that one week. 
  • The imminent release that they are looking for from the Macau gov't is the draft release of the gazette concession. Then they want to parallel getting all the necessary permits to start construction
  • Seeing big strength in tech, HC, and automotive segments. Expect convention mix to be similar YoY
  • At CC they are have a 70k increase in convention nights on the books YoY
  • First 2 months of the year, when mix was good, flow through was over 50%.  March impact was mainly the shift of Conexpo leaving. Think that the week's comp was an anomoly
  • Will look to do a $2-2.5BN financing package at MGM China to help finance MGM Cotai. Hope to get that financing done by YE
  • Convention calendar for the rest of the year looks solid - there are no more abberations. In 2Q the convention mix will be 1% better. Their 4Q calendar is the strongest
  • More occupancy and improved mix and pricing are driving some of the cost increases. They were up 0.4% on FTE's even though they had 66,000 more room nights YoY in the Q. 
  • Bellagio, Mirage and Mandalay - had the negative hold impact. Margins would have been up 40-50bps if hold was better. - What they didn't say was that increase is based off of an even worse hold comparison.
  • Tax benefit was $4MM (at City Center?) 
  • Margins should be about 25% at Aria going forward.  Last year they had their big CNY party at Aria and this year it was at Bellagio. Hold was primarily due to bacarrat
  • 7% increase in table game drop and a [3%] increase in baraccat at their wholly owned Strip properties
  • In Macau they are seeing the hold % move up to 3%
    • Of course they want you to use 3% to adjust downward. The properties average hold rate has been 2.91% since opening
  • Think that they can accomodate 1 or 2 more junket operators at MGM China
  • 1.8MM convention room nights 2007 (ex Treasure Island) and had 1.6MM (ex Aria) convention room nights in 2011. There is a lot more room inventory on the Strip since 2008 - especially on the high end, so its harder to just raise rates
  • 2012 forecast including Aria they expect to exceed 2007 convention room nights. Excluding Aria they would be about flat to 2011. However, they have some rooms out of service for renovations so the mix is up
  • When you look at the first quarter - the high end hotels have an easier time backfilling citywide events that were missing. Their "value" properties had a harder time. 
  • At Aria they had the same length of play as they had last year. Even their craps hold was poor - not just bacarrat
  • The Penninsula still generated 60% of teh GGR for Macau

HIGHLIGHTS FROM THE RELEASE

  • "The positive trends we experienced throughout 2011 continued into the first quarter. However, our financial results were negatively impacted by our table games hold percentage.  Had we held at the midpoint of our normal range at our wholly owned resorts and at Aria our total Adjusted Property EBITDA would have increased by approximately $32 million"
    • We would point out that hold was actually 1% better than 1Q11 across their consolidated portfolio and really only 30bps below the low end of their "normal" range
    • Of course MGM makes no mention that MGM' China's higher than historical hold helped EBITDA by roughly $25-27MM.  MGM China's historical hold rate since opening has been 2.91% 
    • Consolidated Adj Property EBITDA of $321MM missed expectations, largely due to a miss at MGM's Strip 
      • "Total table games volume increased 5% compared to the prior year period."
        • "The overall table games hold percentage in the first quarter of 2012 was 18.7% compared to 17.7% for the first quarter of 2011, in each case below the low end of the Company's normal range of 19% to 23%."
      • "Slots revenue increased 7% compared to the prior year quarter."
    • Consolidated Las Vegas:
      • RevPAR: +4% and room revenues were up 3%
      • Adj Property EBITDA of $251MM missed our estimate and the Street's by 3% and 7%, respectively
      • Net revenues were in line with our numbers, but operating expenses were higher
    • MGM China reported net revenue of $702MM and  Adjusted EBITDA of $165MM which included $12MM of branding fees
      • "The increase was driven by year-over-year increases in volume measures for VIP table games, main floor table games, and slots of 6%, 13% and 27%, respectively. VIP table games hold percentage was 3.2% in the current year quarter and 2.9% in the prior year quarter"
    • CityCenter Adjusted Property EBITDA of "$32 million and was negatively affected by a significantly lower than normal current quarter table games hold percentage."
      • Net revenues declined to $234MM from $263MM in the prior year Q
      • "Table games hold percentage for the first quarter of 2012 was 16.0% compared to 27.4% for the prior year quarter.  The effect of the change in hold percentage compared to the prior year quarter to net revenue and Adjusted Property EBITDA was approximately $33 million and $26 million, respectively"
    • Financial Position notes:
      • Cash: $1.6BN (including $575MM at MGM China)
      • Debt: $13.4BN (including $552MM at MGM China)
        • $1.3BN under Sr Credit Facility (approx $360MM of which was not extended and matures 2/2014)
        • $820MM of T/L
      • In Feb MGM amended and extended $1.8BN of its Sr. Credit facility to Feb 2015.  The interest on the extended piece had a LIBOR floor of 1% and carried total interest of 6% at March 31rst which has subsequently dropped to 5%.  The non-extended piece of the R/C carries an interest rate of 7%
      • MGM China paid a $400MM dividend in March 2012, of which $204MM remained at MGM and $196MM was distributed to non-controlling interests
  • "The Company recognized a loss on retirement of debt of $59 million in the current year first quarter related to the amendment and restatement of the Company's senior credit facility and the repayment of non-extending term loans"