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





BETTER:  While guidance for the balance of the year was effectively unchanged, the quarter did come in a little better than expected on the back of strong performance in NA (relative to easy guidance) and strength in fees as well as some other one time items.  Results would have been even better if not for some one-time SG&A items


MAR 1Q13 REPORT CARD - mar444



  • WORSE:  Group booking pace for the Marriott Hotels and Resorts Brand was up 4% for remainder of 2013, reflecting a more cautious short-term corporate demand environment
  • PREVIOUSLY:  "As of year-end, our Group pace was running about 6%, probably a little more rate than occupancy in that."


  • BETTER:  While management did not specifically comment on the booking window on this call, the fact that short term bookings for group are suffering warrants "caution."  Longer-term bookings are showing strength with 2014 booking pace "improving dramatically" to being up 5% vs. being down 4% just a year ago.  This commentary was consistent with what we've heard from MAR's peers.
  • PREVIOUSLY:  "You're seeing the window lengthen a little bit. It's not lengthening a lot, but it's lengthening a little bit which means those groups are saying, I need to book it now... or I'm not going to get those dates I want out there because the occupancy has strengthened."


  • SAME:  The hotel openings seem to be on schedule and Marriott still intends to market them for sale once they open
  • PREVIOUSLY:  "We'll invest probably in those three properties you mentioned about $900 million in total. About $250 million of that will be in 2013. They're in various stages of completion. London will be finished and opened probably by June of this year. Miami, which is on South Beach, probably first quarter of 2014. And then the Clock Tower in New York City will be probably early 2015, give you kind of timing.  We'll recycle those hotels, sell those hotels shortly after they open, anywhere from six months, three to six months maybe after that, and recycle that capital."


  • SAME:  Marriott reiterated their position of keeping leverage in the 3.00x-3.25x range
  • PREVIOUSLY:  "We're a BBB company, investment grade. That gets us into the commercial paper market. That's where we want to be. So we try to stay at a 3.00x-3.25x adjusted debt-to-adjusted EBITDA. So as EBITDA grows, that creates debt capacity for that."


  • BETTER:  Incentive fee growth was impressive this quarter.  What was even better was that some of the larger US hotels started paying fees. Marriott did not comment on 2014 or getting back to peak on this call but the takeaway was more positive on the margins.
  • PREVIOUSLY:  "What you'll see as we have those growth in rooms outside the U.S. in Asia-Pacific, Middle East, you're going to see an acceleration of incentive fees for those hotels. We're projecting by 2014, we'll be back at that $370 million level. But it'll be more international, less domestic."


  • WORSE:  Despite the transition in China being complete, the austerity measures in place on government spending are having a negative impact on RevPAR.  Thailand and Indonesia were strong but not good enough to offset China weakness.  MAR now expects RevPAR for Asia Pacific to increase in the low single-digit range, with the back half being better given the easier comps for China.
  • PREVIOUSLY:  "With the leadership transition complete, we think China travel should regain its footing later in the year.  We expect Thailand and Indonesia to remain strong throughout the year. In Asia, we expect first quarter REVPAR to increase at a mid single-digit rate, strengthening a few points as the year progresses."


  • LITTLE BETTER:  Given the strength in 1Q,  MAR raised the low end of their NA guidance by 50bps for FY13- essentially just carrying out the benefit of a stronger 1Q
  • PREVIOUSLY:  "Across North America, we anticipate systemwide RevPAR in 2013 will increase 4% to 7% in the first quarter and full-year. The high-end of that range reflects today's strong demand and limited supply. The low-end reflects our view that the federal government's inability to reach a comprehensive fiscal agreement will continue, and the automatic sequestration will go into effect on March 1."


  • WORSE:  While RevPAR was up 7% in 1Q13, Marriott guided to low single-digit increases for the balance of the year
  • PREVIOUSLY:  "In the Caribbean and Latin America region, we expect first quarter REVPAR will increase at a mid single-digit rate, improving to a mid-to-high single-digit rate for the full year. Here, we're more bullish than in October. While economic growth has slowed a bit in Brazil, we've seen lodging demand strengthen in Mexico and the Caribbean."


  • LITTLE WORSE:  European RevPAR was down almost 3% in 1Q, largely due to weak results coming out of the UK due to difficult comps from London Olympics.  Marriott still expects flat RevPAR growth for the balance of the year.
  • PREVIOUSLY:  "In Europe, we expect some modest improvement in GDP in 2013, but given the tough comparison to the Olympics and other events, we are still expecting flattish REVPAR growth for the quarter and the full-year, similar to our outlook in October."


  • LITTLE BETTER:  1Q RevPAR grew 11% and FY guidance was for high single-digit RevPAR increases
  • PREVIOUSLY:  "In the Middle East and Africa, we are modeling a mid single-digit increase in RevPAR, consistent with our October outlook, with double-digit REVPAR growth in the first quarter."


  • SAME:  Marriott didn't spend as much time on financing availability on this call. They did say that availability is getting better for high-quality limited service projects
  • PREVIOUSLY:  "We have seen on a limited service side financing getting a little better, but it's still under terms that are requiring the developer to guarantee the debt, provide credit enhancements. And the leverage isn't what it was way back when, so to speak. But that money is becoming available, especially from regional and local banks as the CMBS market has strengthened providing capacity for those. As to the full-service hotels, especially whether a suburban or even urban full-service hotels, we haven't seen new construction type financing. Now financing is starting to show up for asset sales, but not for new construction."

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating

Takeaway: Improvement in the Housing & Labor markets should support consumption as the slope of recovery in household income and net worth accelerates

Labor Market, Housing, and (now) Confidence Trends all continue to accelerate.   Ongoing improvement in the Housing and Labor markets should further support consumption as the slope of recovery in household income and net worth accelerates. Moreover, ongoing improvement in the domestic macro data is supportive of our bullish view on the U.S. Dollar on both an absolute basis and on a relative basis as US fiscal and monetary policy expectations get tighter, on the margin, while ECB and BOJ fiscal/monetary policy expectations get looser, on the margin.  


Positive consumer related data in combination with expectations for further $USD appreciation keeps our Strong Dollar – Strong Domestic Consumption (Down Commodities) theme the predominant strategic framework driving our equity and asset class exposure. 


Below we summarize this morning’s claims data along with the consumer confidence and housing data of the last week. 


Initial Claims:  How Low Can We Go?

The positive acceleration in labor market trends continued this week with both the seasonally adjusted and non-seasonally adjusted Initial Jobless Claims series showing sharp sequential improvement.   The headline number fell 15K to 324K w/w versus the prior week’s unrevised number while the 4-week rolling average in SA claims fell -16.5K w/w to 342K.


The 4-week rolling average in NSA claims, our preferred judge of trend with respect to underlying conditions in the labor market, improved 240bps w/w with the year-over-year change in 4-wk rolling claims improving to -8.6% Y/Y from -6.2% Y/Y the week prior, and -3.8% two weeks prior.


Given the ongoing and marked improvement in the claims series, how much additional upside could we seen from current levels?  Our head of financials, Josh Steiner, answered that question in the context of the historical cycles observed over the period 1967-present:


Thinking longer term about the setup, rolling claims (SA) are currently at 342k with the most recent week at 324k. The first chart below shows the claims history (rolling SA) back to 1967. Every economic cycle since the late 1970s has seen claims trough at around 300k. To be precise, in prior cycles, claims bottomed at: 


* 312k  November, 1978

* 287k  January, 1989

* 266k  April, 2000

* 286k  February, 2006


This works out to an average of 288k with a standard deviation of 19k (on a very small sample). In other words, we're still 54k above historical cycle troughs or roughly 2.8 standard deviations, a pretty healthy margin of error for the bull case.


In short, rolling NSA claims are 8.6% lower than last year and the positive improvement is accelerating.  Moreover, the current, positive trend is overwhelming both the negative seasonal distortion currently present in the data and any negative sequestration related drag. 


Source: Hedgeye Financials 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - JS 1


LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - JS 2


LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - JS 3


Consumer Confidence:  The Bloomberg Consumer Confidence Index made a new 5Y high two weeks ago with confidence measures across  age and income demographics showing broad improvement.  The index held those gains last week and made a new 5Y with this morning’s reading improving to -28.9 from -29.9 w/w.  The Conference Board Consumer Confidence as well as the University of Michigan Consumer Sentiment readings were confirmatory with the lastest, April readings accelerating sequentially to 68.1 and 76.4, respectively. 


For most of the last 4 years, historical relationships with economic data have broken down with correlations moving towards zero as confidence readings have largely tracked sideways.  Over the longer-term, consumer confidence has served as a decent to very good lead indicator for economic activity.  For example, on a 10Y basis, lagged correlations to New Manufacturing Orders, PCE Services, and M2 velocity are all > 0.85.  With consumer confidence readings beginning to break out here alongside ongoing improvement in the housing and labor markets, we’re monitoring for any re-tightening in the relevant confidence-econ activity correlations a little more closely


LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - Bloomberg Consumer Comfort


LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - Confidence vs M2   New Orders


Housing:  We provided a summary recap of the most recent housing data last week (HERE).  Incremental data over the past week has reflected more of the same as Mortgage Purchase Applications remained at their YTD highs while the Pending Home Sales and Case-Shiller HPI data both accelerated sequentially.  The Purchase application data and Pending Home sales numbers both suggest forward housing demand should remain strong. 


Additionally, President Obama’s likely nomination of Congressman Mel Watt to replace Ed DeMarco as head of the FHFA should be taken as a positive catalyst for housing.  DeMarco has opposed underwater principal forgiveness for GSE borrowers – a stance that may be lightened should Watt be confirmed.  


LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - Case Shiller HPI


LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - MBA Purchase Apps


Christian B. Drake

Senior Analyst 



This note was originally published May 02, 2013 at 09:59 in Gaming

Yes, hold was a little high but Vegas beat our number and we were above the Street.  As we pointed out in our positive MGM preview note on 4/18/13, Macau held low in the quarter but should post around $200 million in hold adjusted EBITDA.  Since they hit our actual estimate of $180 million we are sticking to our hold adjusted estimate – a definite positive for the stock. City Center also likely had high hold, but high hold seems to be more of the norm for that property. 


Stock will be up obviously on the open but we think the momentum could persist through the quarter.  Management should be very bullish on the LV turnaround and second quarter trends to date.  They didn’t mention the hold impact in Macau in the release but they should be on the call.  MGM Macau is a legitimate $200 million per quarter property.  We know April finished up 13% for the market and our expectation is that growth will accelerate in May.


We also think there is incentive for MGM to do an equity deal at higher levels to de-lever.  Therefore, they probably won’t hold back on this call.  We remain concerned over the long-term with US gaming demographic and slot trends but MGM could go a lot higher over the near and intermediate term.



Early Look

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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




  • BETTER - With higher hold, MGM handily beat consensus and even us in Las Vegas and the Strip.  Volume metrics were solid.  In Macau, EBITDA was in-line with our estimate but above the Street. 


  • SAME:  MGM Cotai remains on track to open 1H 2016.
  • PREVIOUSLY: "We remain on track, as we've said before, for an early to mid 2016 opening." 


  • BETTER:  2Q Strip trends are better than that seen in 1Q.  MGM picked up some market share and remain committed to cost containment. 
  • PREVIOUSLY: "Our international casino business continues to be strong, as this was a record fourth quarter for our Strip properties when you include ARIA for both the international drop and win. And we're seeing some encouraging signs in our domestic casino play, as our non-baccarat table drop at our wholly-owned Strip properties increased 6% year-over-year."
    • "But we are starting to see domestic customers again, starting to see their activity pick up. And it's been a while since we've been able to say that, so we're pleased with the direction that's going."


  • SAME:  1Q REVPAR increased 1% with room revenues up 2%
  • PREVIOUSLY: "Looking at the room trends here in the first quarter, we anticipate the trends to be similar to what we saw in the fourth quarter, with room revenues up low single-digits and essentially flat REVPAR."


  • SAME:  Convention in the quarter for the year picked up in 1Q.  April will benefit from a stronger convention calendar.  
  • PREVIOUSLY: "We like the way our convention business is shaping up for the calendar year 2013, and obviously the leisure and transient business has been performing well for us. But that's a big part of our business, so I think it's too premature right now to go out with full-year guidance. But we like the way the calendar is shaping up, and we like the way the convention business is booked and the pace that we're on, and I think the best is to kind of leave it at that for now."


  • BETTER:  Hold was high as Aria EBITDA grew 300% YoY in 1Q.  1Q total gaming revenues were $130MM vs $71MM last year.  1Q table revenues were $90MM vs $33MM last year.
  • PREVIOUSLY: "While it is still early, ARIA is off to a good start in 2013, and we expect to continue to build traction throughout the year. Convention sales are pacing well, as room nights on the books for 2013 as of February 1 are 14% ahead of last year at this time....2014 is looking even stronger as we look forward. So there's still work to do in 2014, but its pace is actually even up higher than what we're experiencing here in 2013."


  • SAME:  Margins increased 80bps to 26.2% in 1Q from 25.4% last year.  Top-tier junket volume was strong and MGM saw benefits from its level 2 expansion. 
  • PREVIOUSLY: "We're seeing early signs of success from our level 2 VIP gaming floor expansion, which opened in late September. We're also expecting to add another junket operator in the second quarter of 2013. The fourth quarter was our strongest volume quarter for the year for our own in-house VIP business. We expect to see continued growth in this business with the support from the MGM International marketing team."
    • "This transition of mix has also driven an increase in our pre-branding-fee EBITDA margins by 60 basis points. We expect this positive trend of increasing main floor mix to continue, driven by upgrades to our main gaming floor product, marketing efforts, and of course the strong growth in the Macau mass market revenues."

S&P 500: Full Speed Ahead

The S&P 500 has been on a tear over the last year, putting up gains of +13.8% since May 2, 2012. With Federal Reserve Chairman Ben Bernanke essentially announcing yesterday that nothing will change in the near-term, stocks are likely to continue their bull run and commodities will head lower. The index is testing its all-time high of 1596 today and if it can break through, the next line of resistance is at 1603 - plenty of room for upside for an index that remains in bullish formation.


S&P 500: Full Speed Ahead - SPX 1year


Strong quarter surprises the Street. Macau on its way to $200m per quarter. 



"Our first quarter 2013 results are the best we have reported since the beginning of the downturn five years ago, led by improved results at our Las Vegas Strip resorts, a record first quarter at MGM China and an all-time record at CityCenter," said . "MGM Resorts International returned to profitability in the quarter and we are excited about our future."


-Jim Murren, MGM Resorts International Chairman and CEO




  • Marketing efforts paying off, building loyalty
  • Record results at MGM China and City Center
  • Las Vegas
    • Visitation remain strong, macro trends help drive the recovery
    • Performance will outstrip that of the regional markets
    • 20,000 seat arena planned to open 2016
  • Regional properties faced difficult comps and tougher macro environment
  • MGM Cotai:  continue on track for 1H 2016 opening
  • Maryland:  RFP Prince George County will be submitted next week
  • Springfield approval:  city council referendum as early as July
  • Wholly owned resorts:  +250bps margin improvment, driven by +335bps increase at LV properties 
  • EBITDA at luxury Strip:  +27% YoY
  • EBITDA at non-luxury Strip:  -1% YoY
  • Luxury properties continue to led the way in conventions and high-end casino business
  • LV Strip including Aria:  Non-baccarat table revenues up 24%; slot revenues grew 4%
  • Remodeld MGM Grand rooms are now on-line
  • Convention mix increased slightly despite smaller visitation
  • 2Q LV REVPAR is expected +2%
  • $1.2 billion available liquidity
  • MGM China leverage ratio <1%
    • 35% profits will be paid as a dividend semi-annually
  • City Center: $1.85 senior notes; excess cash of $240MM
    • $200MM in cash from condo proceeds; recently received $40MM from monetization of mortgage loan notes   
    • Remaining inventory at Mandarin and ~10 Penthouse suites; have seen Mandarin market strengthen- sold 5 units in 1Q and 15 units in April.
    • Leverage: just above 5x
  • 1Q capex: $53MM ($16MM MGM Macau, $28MM MGM Cotai)
  • Wholly-owned capex guidance remains $350MM for 2013
  • Corporate expense guidance: $40-45/quarter
  • 2Q Stock/D&A expense consistent with 1Q
  • 2Q Gross interest expense $220MM ($7MM MGM China, $8MM non-cash amortization expense)
  • Aria:  
    • Led by international play associated with Chinese New Year
    • Hold positively impacted results by $9MM
    • REVPAR increased by 5% (+2% ADR)
    • Convention room nights as a % of mix increased 3% YoY
    • F&B increased 20% YoY, driven by recent dining changes
  • Vdara:
    • 86% occupancy
    • Convert Silk Road restaurant into addtional 5,000 sq ft convention space; completion by 4Q
  • Crystals:
    • EBITDA up 20% YoY driven by high rents and new store openings
  • MGM China
    • Lower junket hold offset by higher direct play hold
    • Seeing success from level 2 VIP gaming floor expansion
    • Direct play volume increased 13% YoY
    • EBITDA margin improved from 25.4% last year to 26.2% 
    • Mass business represent 65% of EBITDA
    • Top-tier junket volume was strong
    • Slot handle grew 28% in 1Q
  • Hakkasan opened to big crowds
  • Mandalay Bay will open a couple of shows e.g. Michael Jackson and the new nightclub, Daylight, by Memorial weekend


Q & A

  • Inflection point for LV Strip? 
    • Convention in the quarter for the year did better
    • 2Q comp is easier and 2Q looks better than 1Q
    • Cost containment is clear
    • Picked up some market share
    • Maintained FTEs
    • Feel good about Las Vegas and op leverage is significant in LV
  • Normal EBITDA if considering total company results
  • LV REVPAR:  divergence between luxury and non-luxury; April benefits from stronger convention calendar; will help the non-luxury properties.  2013 convention year will be ok, the big growth will happen in 2014.
  • There will be an opportunity for City Center to recapitalize in Jan 2014
  • LV leisure business is strong
  • Middle of the Strip properties are driving rate gains
  • Is level of cost reduction in Strip sustainable?
    • Yes, particularly with FTEs, technology, and scheduling
    • Lower promotional expenses on table games due to new marketing programs-eliminated promotions on duplicative events and some promotional chips (expenses should be lower for each quarter in 2013)
  • NOL tax shield:  neutral (US tax shield offset by strength from China)
  • LV (including Aria):  Total table volumes were up 3% 
  • Seat capacity projected to be higher in the forward looking months.  Summer will be up a few %, particularly on the international side.  Domestic airlines may add capacity in 2014 if economy improves.
  • MGM Grand benefited from higher hold (the biggest beneficiary); ex Grand, LV Strip margins would still be higher 80bps YoY (was unlucky last year)
  • Hope to forge an agreement with culinary union; still in early innings of negotiations
  • Aria:  table revenues $90MM (vs $33MM last year); 1Q total gaming revenues: $130MM vs $71MM last year
  • Appropriate capital structure in place for MGM China
  • MGM China:  strong growth in premium mass; continue to build out mid-mass segment
  • Borgata:  process underway in NJ 
  • Online gaming: prefer federal solution since it would have comprehensive law enforcement controls; but will participate in the state-by-state legalization.
  • Deserve premium rate in LV market.
  • Vietnam JV: no intentions of reconsidering its termination with ACDL



  • Wholly-owned domestic resorts
    • Casino revs increased 3% YoY.  
    • Table games revenue increased 16% 
    • Table hold: 21.9% vs 18.7% last year 
    • Slot revs decreased 2% primarily as a result of a decrease in slots revenues at the Company's regional resorts, while the Company's Las Vegas Strip resorts slots revenues increased 4%.
    • Rooms revenue increased 2% with a 1% increase in Las Vegas Strip REVPAR.
  • MGM China
    • Adjusted EBITDA: $180MM, up 10% YoY
    • Table win: +26% YoY
    • Slot win: +19% YoY
    • VIP turnover: +15% YoY
    • VIP hold: 2.8% 
    • MGM China paid a $500 million dividend in March 2013, of which $255 million was retained by MGM Resorts and $245 million was distributed to noncontrolling interests.
  • CityCenter
    • Adjusted EBITDA: $93MM
    • Aria's table hold was 28.3% compared with 16% last year
    • Aria's occupancy was 89% and its ADR was $209, resulting in REVPAR of $186, a 5% increase compared to the prior year quarter.
  • Cash: $1.5 billion, which included $565 million at MGM China.  
  • Debt:  $13.7 billion of indebtedness, including $2.9 billion of borrowings outstanding under its $4.0 billion senior credit facility and $553 million outstanding under the $2.0 billion MGM China credit facility. 
    • On April 1, 2013, the Company used a portion of the cash balance to repay its $462 million 6.75% senior notes at maturity.
  • "The current quarter tax provision was affected by $65 million of tax expense resulting from the re-measurement of MGM China deferred tax liabilities in connection with the gazetting of our Cotai land concession, a $38 million tax benefit resulting from the settlement of the Company's 2003 and 2004 IRS audits, and $9 million of valuation allowance on U.S. deferred tax assets."

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