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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


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."

OIL: Back To Bearish

Brent crude oil remains in bearish formation despite catching a bounce to the upside this morning. Commodity prices remain under pressure with oil experiencing both a supply gut and the pain of a stronger US dollar. With Bernanke doing a whole lot of nothing, expect commodity prices to come down further from where they're at now.

 

OIL: Back To Bearish - OILETFperfYTD


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Draghi CUTS!

Draghi delivered on the market’s expectations for a rate cut today, the first since July 2012. At today’s “away” press conference in Bratislava, Slovakia the ECB cut the main refinancing rate by 25bps to 0.50%; cut the marginal lending facility rate 50bps to 1.00%; and kept the deposit facility rate unchanged at 0.00%. (Click here to read Draghi’s prepared remarks). The cuts had “prevailing consensus” from the council and a future cut to the deposit rate was not ruled out by Draghi.

 

Draghi CUTS! - rr. ECB rates

 

Draghi had little to say about the precipitous drop in inflation (to 1.2% in APR Y/Y from 1.7% in MAR) beyond the impact of lower energy prices and an earlier Easter shift – all of which doesn’t exactly add up. Beyond the cut Draghi extended non-standard measures into at least Q2 2014, but gave little context on how the Bank may improve the clogged credit conditions and support the region beyond the OMT. In large part equity markets and the EUR/USD were down on the announcement (as we predicted), as the market once again digested how little Draghi can do to turn around weak underlying fundamentals.

 

On what Draghi can’t directly influence, we'll highlight: Eurozone Unemployment remains at an all-time high of 12.1% (with youth unemployment across the periphery at 50%+); PMIs remain worrisome; and loans to households and corporations continue to fall (to name a few).

 

Draghi CUTS! - rr. ecb loans

 

That said, our call remains that it will still pay to play Draghi’s OMT put. The disconnect between the capital markets and underlying fundamentals remains disconcerting, however until more meaningful risks arrive, we will acknowledge the trend.

 

On the positive front:

  • Cyprus is clearly rear view
  • Slovakia is out of sights (for now at least)
  • Italy has formed a coalition government and is in discussion about its future budget
  • Domestic deposits in most countries are rising
  • Target 2 Balances continue to go down, and stabilize
  • The European Commission (alongside the key Eurocrats) remain dovish and positioned to extend deficit targets (in Spain and France in particular) and lessen the bite of austerity
  •  There’s an improved risk picture, with 10YR sovereign yields across the periphery at some of their lowest levels in years (Italy’s at 3.84% and the 2YR is at an all-time low of 1.07%!)
  • Bond issuance YTD has largely been priced at lower yields even for the region’s “troubled” countries. 

EUR/USD Implications


We expected the EUR/USD to slip on a rate cut from the ECB. Keith opportunistically covered our Real-Time short position in the EUR/USD via the etf FXE this morning. Our critical quantitative lines on the EUR/USD are outline in the chart below. Beyond immediate term TRADE support of $1.29 we do not see any meaningful support until around $1.22.

 

Draghi CUTS! - rr. eur usd

 

Draghi on Austerity


Diverting from his normal script, Draghi discussed the improvements in the fiscal landscape, noting that the average government deficit declined from 4.2% of GDP in 2011 to 3.7% in 2012 and the average government debt rose from 87.3% to 90.6% of GDP.  As usual he encouraged countries to keep up their structural reforms, but alongside the commentary showed the limitations of the Bank to have any influence over the fiscal states.  This supports our thinking that while Draghi may have influence over the capital markets, he has little influence over reforming the underlying economies of 17 distinct nations.

----------------

 

Click here for a video on the launch of the new €5 note.

 

Matthew Hedrick

Senior Analyst


EVEP Dial-in Info and Materials

We're hosting a conference call to discuss our presentation "EV Energy Partners (EVEP): Beyond the Yield" TODAY at 1pm EST.

 

Dial-in info:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 866296# 

MaterialsEVEP: Beyond the Yield

 

I hope you can listen in live, but if not, there will be a replay.

 

Kevin Kaiser

Senior Analyst

 



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