MGM 4Q REPORT CARD

Takeaway: We're still cautious on Las Vegas and see little near term growth.

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance.

OVERALL

  • IN-LINE:  Property level EBITDA was a little better than expected, but that was driven by higher than normal hold in Las Vegas and offset somewhat by lower hold in Macau which was known by the Street and should've been factored into Consensus. 

US CONSUMER

  • LITTLE BETTER:  International casino play was strong in 4Q but MGM was encouraged by the 6% increase in non-bacarrat play that they saw in the 4Q, which implies improvement in the domestic player base. Convention business was flat YoY and midweek continued to be a challenge at their "core" properties. Leisure/weekend business was a little better YoY. 
  • PREVIOUSLY: "You still have a fragile consumer out there and they're continuing to kind of pick their spots. We are seeing, particularly in the third quarter, we saw more reliance on leisure customers, which is a lower spend overall type of customer that we needed to dip into a little heavier than we did last third quarter and that is a lower spending customer. Going forward, we think we'll see an increase in international travelers."

MACAU 

  • SAME: Mass and slot volumes continued to outpace growth in VIP during the 4Q, which helped margins. 
  • PREVIOUSLY: "The mass market continues to grow strongly. We are confident there. VIP market is consistent, but it certainly slowed up and what we're looking at is probably numbers of growth going forward more consistent with the GDP growth of China rather than some of these accelerated growth rates that we've seen over the last two or three years.... We're looking at moderating the growth rates around that 8% to 10% while that the mass market we would expect to grow somewhat faster than that."

COTAI PROGRESS 

  • SAME:  MGM has received its general building permit and are planning on breaking ground on Feb 27. MGM remains on track for an early to mid 2016 opening, but the budget did increase due partly to increases in project scope to allow for future GSA expansion
  • PREVIOUSLY: Cotai project gazetted on January 9.

4Q CORPORATE EXPENSE

  • WORSE:  4Q corporate expense came in at $87MM, $34MM of which was associated with MD/MA development efforts.
  • PREVIOUSLY: "We do expect our corporate expense to be higher here in the fourth quarter driven by the referendum expenses we're incurring and that'll be up in the fourth quarter in a range in kind of the mid $60 million level for corporate expense before our stock comp expense."

4Q NON-OPERATING ITEMS 

  • BETTER:  4Q stock compensation, D&A, and interest expense came in at $8MM, $227MM, and $280MM, respectively.
  • PREVIOUSLY: "We expect our stock compensation in the fourth quarter to be approximately $10 million to $11 million. Depreciation expense in the fourth quarter is estimated to be about $230 million to $235 million. Our interest expense in the third quarter was $276 million, including about $6 million from MGM China and about $17 million in non-cash amortization. And we estimate that our gross interest expense in the fourth quarter will be approximately $285 million."

ZARKANA

  • SAME:  Zarkana's occupancy was 88% through year end and showroom revenues at Aria grew 38% YoY. The show's success also helped drive restaurant business and other spending at Aria.
  • PREVIOUSLY: "Viva ELVIS officially ends its run on August 31 and we're looking forward to the opening of Zarkana in November. The theater has been modified for the new show and the artists are completing their final rehearsals in anticipation of the opening November 9. We expect this new show will turn what was a loss to our business into significant profits, while also driving up ancillary business."

ROOM REMODEL/REVPAR

  • SAME:  4Q REVPAR came in at 1%.  1Q 2013 REVPAR is expected to be flat.  The rooms at MGM Grand and Bellagio have been fully remodeled.  MGM will begin the remodel of The Hotel this year.
  • PREVIOUSLY: "We will now have all of our rooms back at the MGM Grand and they're all online as that remodel program was completed in late September. We're still in the progress of remodeling the Bellagio Spa tower, which will be completed in mid-December, and we'll have more rooms in service in the fourth quarter. Despite having more rooms available, we are seeing a somewhat better rate environment, and expect that RevPAR in the fourth quarter will be flat to slightly up for the year. Of course, we are watching closely the impact of storm Sandy on these numbers, but we are optimistic with that forecast for the quarter."

CONVENTION BOOKINGS

  • SAME:   MGM kept the commentary general for overall company convention bookings, just saying that they were pacing ahead for 2013 and looked even better for 2014
  • PREVIOUSLY: "Looking out into 2013, we're very encouraged to see that convention bookings, our pace is up over 10% year-over-year with rate up. Although it's early, 2014 pace is even stronger.