MGM 2Q12 PREVIEW

Despite at least 4 sell-side downward revisions in July, we still have MGM missing the quarter by a wide margin

The Vegas recovery is very much hanging in the balance and that’s not good news for this Strip-centric company.  May on the Strip was a disaster and we think June will likely prove to be down YoY as well (see our 7/10 and 7/31 notes).  LVS and WYNN already punted in Q2 at their respective LV properties.  The only question will be how much of this has already been anticipated by the buy side.  Considering how much the stock is down - 34% since their last earnings report – the whisper may already be at our level.

We are more concerned about estimates going forward.  The Street looks too high for 2012 and 2013.  We are currently 13% below the Street in EBITDA for both Q3 and Q4 2012 and 14% below for 2013.  Our below Street numbers are predicated on our cautious macro outlook, way too aggressive Street growth estimates, inflationary cost pressures, and the unfavorable demographic picture we’ve highlighted over the past two months:

• 7/31: JUNE ON THE STRIP- COULD BE DOWN AGAIN
• 7/30: CHART DU JOUR: WYNN/LVS STRIP SHARE
• 7/12: SO THAT'S WHY I GOT A $24 EXCALIBUR OFFER
• 7/10: LV STRIP: MAY HEAT MAY NOT HAVE CARRIED TO THE FLOOR
• 6/20: PIC DU JOUR: VEGAS SLOTS
• 6/18: CHART DU JOUR: LAS VEGAS: MORE HAPPY HOUR, LESS CHA-CHING!
• 6/7: MGM: TRADE ALERT
• 6/6 CHART DU JOUR: LAS VEGAS DEMOGRAPHICS.

MGM will report Q2 earnings on August 7th.  We estimate $2.3BN of net revenue and $517MM of consolidated property level EBITDA.  We also look at wholly owned EBITDA plus MGM’s pro-rata share of MGM China and City Center, less corporate expense which produces EBITDA of $417MM.  Our net revenue estimate is 1% below while our comparable EBITDA is 8% below consensus.

2Q DETAIL

We project MGM’s Strip properties to produce net revenue of $1,236MM and EBITDA of $287MM, 2% and 3% below Street numbers, respectively.  We average RevPAR growth of 3%, low single digit casino and other growth and low single digit operating expense increases.

• Bellagio:  $285MM of net revenue and $76MM of EBITDA, 2% and 7% below consensus, respectively
  • 4% increase in RevPAR
  • 2% growth in casino & other
  • 4% expense growth
• MGM Grand:  $241MM of net revenue and $37MM of EBITDA, 2% and 12% below consensus, respectively
  • 5% increase in RevPAR
  • 4% growth in casino & other
  • Flat YoY expense
• Mandalay Bay:  $213MM of net revenue and $56MM of EBITDA, 1% below and 4% above consensus, respectively
  • 4% increase in RevPAR
  • 1% growth in casino & other
  • Flat YoY expense
• Mirage:  $150MM of net revenue and $29MM of EBITDA, in-line and 3% above consensus, respectively
  • 3% increase in RevPAR
  • 4% increase in casino & other
  • 1% increase in expenses

Other US

• MGM Grand net revenue of $142MM and EBITDA of $38MM, 3% and 12% below consensus, respectively
• Mississippi net revenue of $128MM and EBITDA of $27MM, 1% below and 4% above consensus, respectively

MGM Macau should report $690MM of net revenue and $164MM of EBITDA (the street is at $687MM and $166MM, respectively.)  Our assumptions in HK$MM’s are as follows:

• Net casino revenue of $5.3BN and total revenue of $5.4BN
  • Net VIP win of $3.4BN
    • VIP Turnover: 159,170 assuming 7% direct play
    • Hold of 3.29%
    • Rebate rate of 35% or 1.15%
• Mass table win of $1,375MM
• Slot win of $560MM
• Variable expenses of $3,253MM
  • $2,827MM of taxes and gaming premiums
  • $395MM of commissions to junkets
• Fixed expenses of $830MM
• $95MM of branding fees

We estimate that City Center will report $35MM of EBITDA on $256MM of net revenues

• Aria:  $204MM of net revenue and $24MM of EBITDA
• Mandarin Oriental:  $13MM of revenue and $1MM of EBITDA
• Crystals:  $13MM of revenue and $7MM of EBITDA
• Vdara:  $22MM  of revenue and $6MM of EBITDA
• $3MM of development and administrative expenses

Other stuff:

• D&A:  $235MM
• Corporate & other:  $38MM
• Stock comp:  $9MM
• Net interest expense:  $284MM
• Income from unconsolidated affiliates & non-operating items from unconsolidated affiliates of ($36MM)
• $33MM of tax credits
• Minority interest of $63MM