MGM 1Q CONFERENCE CALL NOTES

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

 

 

CONF CALL NOTES

  • 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

 

NOTES FROM RELEASE

  • 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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