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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:  While MGM missed our Street high estimates, the company beat consensus even before considering low hold.  We estimate low hold cost the wholly owned properties $20-25 million in EBITDA and Aria $10-15 million. Forward commentary was positive.



  • BETTER:  Nicely ahead of schedule with excavation largely completed. Target opening date of early 2016.
  • PREVIOUSLY:  "Remains on schedule for opening in the first half of 2016."


  • SAME:  Public presentation of the Prince George casino will be in late Sept/Oct.  The final decision for MD will be given by year end.  The final decision for Massachusetts will be April 2014.
    • "In Maryland, we have been preparing our RFP for Prince George's County, which we will submit by the end of next week." 
    • "In Massachusetts, we are honored by Mayor Sarno's confidence in selecting MGM to bring a world-class urban resort to Springfield. This is an important milestone in the process as the project now seeks City Council approval after which a referendum is possible as early as July, and then ultimately, we will compete at the state level for the Western Region license."
    • "In Toronto, we and our partner, Cadillac Fairview, believe in our vision for an integrated resort in Toronto and we continue to work towards that development opportunity."


  • BETTER:  Las Vegas recovery continues, led by the luxury properties.  Monte Carlo also had a good quarter. 
    • "Visitation to Las Vegas remained strong and macro trends are improving here helping to drive the recovery."
    • "It appears to us that Las Vegas, the market hit hardest by the recession, is nicely recovering and that its performance will likely outstrip the existing regional markets for the foreseeable future."
    • "Our luxury properties continue to lead the way in the market, driven by increased convention room nights and the continued success of the high-end casino business."
    • "Organizational changes were made to streamline international and national marketing teams to better service our customers and drive profitability."


  • BETTER:  2Q REVPAR came in at 2.5%.  3Q REVPAR guidance is 3%. Aria had the best REVPAR in its history at $194. 
    • "We expect a strong convention calendar, which will drive RevPAR to be up approximately 2% year over year."
    • "Room revenues and ADRs increased by about 2% in the quarter. While occupancy was down slightly, occupied room nights increased by 1% at our Strip properties as the remodeled rooms at the MGM Grand are now on line."
    • "We are seeing strong returns on our room remodel investments as evidenced by Bellagio and MGM Grand where we were able to maintain high occupancy levels and drive increased room rates."
    • "We always knew the second quarter would be a little bit easier comp."


  • BETTER:  2013 convention room nights ADR is up YoY.  ADR pace for 2014 is up mid single digits.  Mgmt mentioned that 51% of forward bookings have been in the corporate/incentive segment, which has higher margins - double the pace historically. 
    • "The convention business in Las Vegas this year will be okay. It won't be great citywide, but next year is a big year citywide. So, when you have the kind of citywides we're predicting in 2014, that will accrue to the benefit of, of course, Mandalay, but also to the properties that need Mandalay to have that business Luxor, Excalibur and also because of the LVCBA Circus Circus. So the cores this year are doing well, but I would expect next year with a better convention business citywide that they will do better."
    • "On the convention side, of course, our leisure properties with significant convention space mainly sold out in peak season have a much easier time at raising rates."


  • SAME:  Board will continue to consider a special dividend from time to time.
  • PREVIOUSLY:  "MGM China also put in place a regular dividend distribution policy for up to 35% of its annual profits to be paid semi-annually. The board will also consider, going forward, special dividends from time to time."


  • WORSE:  Low table hold (-$10MM EBITDA impact) hurt results.  2Q also had a difficult comp. 
  • PREVIOUSLY:  "We continue to see growth in the food and beverage with a very strong quarter in catering and banquets driven by growth in the convention segment and recent dining enhancements to the property such as Javier's Mexican restaurant."


  • BETTER:  Sold 45 units in June and 21 units in July. Currently, they have 89 units left in their inventory.
  • PREVIOUSLY:  "We've actually seen in the last few months some pickup particularly in the remaining Mandarin inventory in terms of sales."


  • SAME:  Mass segment performed well across all customer classes.
  • PREVIOUSLY:  "We're encouraged to see not only our premium area such as our supreme and platinum lounges continue to perform well but also our general main floor product produced record results."


  • SAME:  Flight capacities are trending higher. Mgmt hopes this will bring more international visitors.
  • PREVIOUSLY:  "The seat capacities and especially in the summer is going to be up a few percent, which is very positive for us. Anything looking beyond two to three months, it's really hard to look at since the airlines are constantly changing their programs."


    Strong quarter even stronger considering low hold likely reduced wholly owned EBITDA by $20-25 million and Aria EBITDA by $10-15 million.



    "We continue to see broad-based Las Vegas improvement as our Strip EBITDA increased 15%, driven by a 7% increase in casino revenues and a 5% increase in hotel revenues. A strong performance at MGM China led to another quarter of record results, driven by higher volumes in both mass market and VIP."


    -Jim Murren, MGM Resorts International Chairman and CEO. 



    • Continuation of the LV recovery
    • MGM and Bellagio yielding high cash flows; Mandalay Bay will be the next beneficiary with new nightclubs and shows
    • Next year, New York New York and Monte Carlo will benefit from new retail offerings
    • Significant growth in database; higher bookings 
    • MGM Cotai - well underway; excavation largely completed; nicely ahead of schedule
    • Will develop an Asian Mansion at MGM Cotai
    • Prince George casino:  date for public presentation will be in late Sept/Oct; final decision by year end.
    • Massachusetts:  final decision in April 2014
    • Very active in Japan; growing consensus that gaming will be expanded there
    • Korea:  view is becoming more favorable
    • Regional:  highly competitive, increasingly crowded
    • Believes Vegas will outperform regional markets
    • Convention remain in-line; mix grew slightly rate grew mid single digits
    • 3Q LV REVPAR guidance:  +3%
    • 2Q Strip convention bookings:  2nd highest in history for future bookings
    • 2014 and beyond bookings are getting stronger; 2014 pace remains up double digits
    • Up at least high single digits each quarter next year when you're looking at the non-CON/AGG piece of the business.
    • MGM China Board will consider special dividend from time to time
    • CityCenter:  $1.85 BN in senior notes; $365MM cash; $72MM cash remaining from condo units
    • 2Q corp expense:  above guidance due to ongoing developments 
    • 3Q Corp expense guidance:  $45-50MM
    • 3Q stock comp:  $6-7MM
    • 3Q depreciation will be consistent with 2Q
    • 3Q gross interest expense:  $210MM ($5MM- MGM China, $9MM non-cash amortization)
    • Aria:  -$10MM EBITDA impact by low hold; best REVPAR ever at $194
    • Crystals:  up 21% YoY, best quarter ever
    • LV real estate market improving; 45 units at Mandarin Oriental, 7 units at Veer; sold another 21 units at Mandarin Oriental
    • MGM China:  New VIP operator in April and new 2nd floor benefiting results
      • Slot handle up 11%
      • Capex: $80MM ($78MM - MGM Cotai); 2013 forecast of $290MM for Cotai
        • Expect early 2016 opening
    • Airlines are adding more seats to Las Vegas 
    • Trying to increase international visitation
    • Growing Las Vegas market share
    • Mayweather/Alvarez fight in September
    • Watching costs very aggressively
    • Reduced debt by $500MM in Q2 


    Q & A

    • Vegas vs other markets for 2014 bookings:  Las Vegas (80-90% contracted room nights before coming into the year; in other words, do not rely much on in the year for the year room bookings)
    • 51% bookings booked have been in the corporate/incentive segment (higher margin segment) - historically, it was around 25%; had lost 30% of business from peak and starting to recover
    • Interest is high on potentially selling Crystals; cap rates are still pretty low
    • Margins:  smarter on promotions; M-Life helping with marketing strategy; room remodels have been generating cash flow; FTEs flat YoY
    • Lot of FIT/leisure international customers are bookings through Expedia and Bookings.com
    • International customers:  are spending more on F&B, entertainment venues; worth 15% more than domestic leisure customer
    • CityCenter:  trailing 12-month cash flow $300MM
    • MGM Grand:  expects better performance; Sleeping Lion exhibit will be redone; 
    • Vegas Smoking bill?  Govt process ongoing
    • 2013 convention room nights mix:  14.5%-15%, ADR up YoY
    • 2014 ADR pace:  mid single digits
    • MGM China:  strong across all mass segments; 
    • Strip core/retail properties:  minimal growth; few of the properties had nice shocks of excitement e.g. Monte Carlo (new show), Luxor (new show); not expecting too much growth in 2013
      • But a significant increase in cash flow in 2H 2014 (New York, New York, Monte Carlo, Citywides)
    • Hold
      • Mirage:  poor hold (10%)
      • Bellagio:  down YoY, below normal range
      • Grand:  up YoY
    • Disruptions at MGM China:  not signifcant but may move some business from 3Q to 4Q
    • M-Life helped MGM build slot share
    • Strong domestic table play hints signs of US recovery
    • Cotai budget:  $2.6BN - includes pre-opening, excludes land concession and cap interest
    • Baccarat margins are flat/ slightly up
    • Ex Aria, more table win on international side;  Aria was challenging because of difficult comps
    • LV baccarat volume was slightly down but win was up
    • Post-July:  Unsold condos - 4 units at Veer and 89 units at Mandarin
    • Detroit bankruptcy:  have not seen any impact
    • Relicensing in NJ:  9-12 month process
    • Macau EBITDA margins:  revenue mix impacted results; lower hold in direct play; branding fee up YoY
    • FTEs:  expect to remain flat 
    • Few million impact from union wage inflation
    • Healthcare costs:  flat YoY; expect little inflation on healthcare costs

    Morning Reads on Our Radar Screen

    Takeaway: A quick look at stories on Hedgeye's radar screen.

    Keith McCullough – CEO

    Americans With Best Credit in Decades Drive U.S. Economy (via Bloomberg)

    Investors Turn Hong Kong’s Red Taxis Into New Bubble Market (via Bloomberg)

    Study Links TV Viewership and Twitter Conversations (via New York Times)

    Amazon boss Jeff Bezos buys Washington Post for $250m (via BBC)


    Morning Reads on Our Radar Screen - earth2


    Daryl Jones – Macro

    Hidden Billionaire Cohen Hauls Fortune in Unmarked Trucks (via Bloomberg)


    Josh Steiner – Financials

    Nationstar Mortgage's 2nd-Quarter Net Surges on Fee Income, Gains (via WSJ)


    Jonathan Casteleyn – Financials

    Jefferson County Investors Seek Plan Vote as Exit Nears (via Bloomberg … JC note: This is why Munis have had outflows...this would be the first principal reduction of a Muni bond since the '30's)


    Todd Jordan – Gaming

    MGM Resorts Profit Beats Estimates as Strip Gambling Rises (via Bloomberg)


    Matt Hedrick – Macro

    HSBC may raise banker pay to overcome bonus cap (via the guardian)


    Jay Van Sciver – Industrials

    Deutsche Post (DHL) outlook improves as Asia strategy pays off (via Reuters)

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    August 6, 2013

    August 6, 2013 - dtr



    August 6, 2013 - 10yr

    August 6, 2013 - spx

    August 6, 2013 - nik

    August 6, 2013 - ftse

    August 6, 2013 - dxy

    August 6, 2013 - euro

    August 6, 2013 - oil


    August 6, 2013 - VIX

    August 6, 2013 - yen

    August 6, 2013 - natgas
    August 6, 2013 - gold

    August 6, 2013 - copper

    Stick With Winners, Avoid Losers

    Client Talking Points


    No, India is definitely not the USA. India’s stock market got tagged for another -1.8% loss overnight. It is moving back to down -2.3% year-to-date as the other side of #StrongDollar this year is Red Rupee. A weak currency imports inflation to local economies. We have a name for this. We are calling this the #AsianContagion (one of Hedgeye's three Q3 Macro Themes). Our advice? Buy US stocks instead.

    UST 10YR

    Well, there you have it. Another week, another up move in Treasury yields following a bullish ISM non-manufacturing print for July. Economic growth ostriches beware. The 10-year is yielding 2.65% and continues to make a series of higher-lows and higher-highs. Yield Spread (10s minus 2s) is +235 basis points this morning. That’s now +84 basis points year-to-date. That is very good signal for the Financials. 


    The precious metal does not like this whole #RatesRising thing. Yes, Gold is breaking down yet again this morning. It's down -0.9% to $1291 and is still crashing year-to-date at -22.9%. Boom. Stop for a moment and imagine what Gold would do if people actually believed the Fed was objective and data dependent. Stay out of the way of this total train wreck.

    Asset Allocation

    CASH 35% US EQUITIES 24%

    Top Long Ideas

    Company Ticker Sector Duration

    WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


    Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 


    Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

    Three for the Road


    In the last two days, Washington Post and Boston Globe have been sold. Both at 1/10th of their value of two decades ago. #OldMedia



    "I think gold is a great thing to sew in to your garments if you're a Jewish family in Vienna in 1939, but I think civilized people don't buy gold. - Berkshire's Charlie Munger


    $148,587: The amount of money Yankees slugger Alex Rodriguez will forfeit per game of his MLB suspension for violating league rules prohibiting performance-enhancing drugs. (Wall Street Journal)


    This note was originally published at 8am on July 23, 2013 for Hedgeye subscribers.

    “The greatest barrier to success is the fear of failure.”

    -Sven Goran Eriksson


    I was in Kansas City, Missouri then Denver, Colorado yesterday before flying into Aspen last night for the 2013 Fortune Brainstorm Tech Conference (ping me if you are here!). Cabs, planes, and bad coffee - just another busy day in the life of building a business.  


    But what is it that gives us the confidence in building our own businesses? With all of the politics, fear-mongering, and central planning, why do we care to carry on? In moments of weakness, I admit to asking myself these questions every once in a while. Then something inspires me to rise above all of that. It’s either in your gut, or it is not.


    There’s a great passage in a novel I just finished (Out Stealing Horses, by Per Peterson) that reminded me of who taught me to be this way (my Dad): “he had so much self-confidence he could take on almost anything and believe he would succeed” (pg 51). But don’t kid yourself; having role models in your life isn’t enough – you have to be the change, and break confidence barriers yourself.


    Back to the Global Macro Grind


    How many people have been confident enough to be invested in US growth stocks in 2013? Of the non-consensus bulls you know, how many of them are bullish because of #RatesRising?


    I won’t hear it at this innovator’s conference in Colorado today, but I hear it a ton in institutional investor meetings - lots of doubt, fear, and concern. The lack of self-confidence out there is born out of a lot of 2008 baggage. I don’t get bogged down by that.


    Both the SP500 and Russell2000 clocked fresh all-time highs again yesterday of +18.9% and +24%, respectively for 2013 YTD. #StrongDollar and #RatesRising isn’t something to be feared; it’s a pro-growth signal that needs to be understood.


    By our risk management process scorecard, this morning is almost perfect for US stocks. Here’s the big 3 things to have confidence in:


    1.   #StrongDollar – after correcting -0.5% last week (Bernanke wasn’t giving anyone anything but things to fear, which is just a shame at this point) and falling again yesterday, today the US Dollar Index holds both our immediate-term TRADE ($82.07) and intermediate-term TREND ($81.53) lines of support


    2.   #RatesRising – after falling 10 basis points last week to 2.48% (Bernanke policy to have you fear failure), the 10yr yield held our immediate-term TRADE line of 2.45% support yesterday (TREND support underpins that at 2.21%) and is backing up again this morning to 2.51%; higher-lows and higher-highs for bond yields is a bullish growth signal supported by employment gains


    3.   #CommodityDeflation – with the USD -0.5% last week, Commodities were +1.5% (CRB Index) – that’s not new; the intermediate-term correlation between USD and Commodities = -0.71. Why? That’s simple – the entire base of futures/options buyers in Gold, Oil, Food, etc. is still trying to front-run Bernanke’s “tone” on tapering


    Like they were in the summer of 2008 (when Bernanke was whispering to the #OldWall that he was going to cut to 0%, too early), Oil prices are once again the biggest threat to US Consumption.  


    If you want fear, I’ll give you something to fear – it’s called Dollar Devaluation. Just reverse all of the aforementioned 3 things and the USD will weaken, interest rates will fall, and commodity reflation will slow growth.


    Who wants that? And, moreover, if 95-99% of Americans don’t want that, who stands in the way of tapping Bernanke on the shoulder and telling him to taper?


    If Reagan or Clinton were in office, they’d be perfectly fine with that. Bush and Obama have been so scared of their own economic shadow that it’s their fears that have manifested into the conflicted power of Bernanke’s Bubbles (Commodities, Gold, Treasuries, etc.).


    I don’t fear the politicized not liking my advice. I fear that a lot of Americans are going to get blown up by this bond bubble. I also fear that the only fear left, is a fear-mongering anti-growth government policy itself.


    The greatest barrier to #StrongDollar and #RatesRising is self-evident. It’s time to get this old-boy, crony-whispering, and un-elected policy out of our way. It’s time to let free-market prices clear. The inability to evolve is as very credible threat. Confidence is the answer.


    Our immediate-term Risk Ranges are now:


    UST 10yr 2.45-2.70%

    SPX 1681-1705

    VIX 11.57-14.16

    USD 82.07-83.46

    Brent Oil 107.11-109.08

    Gold 1239-1347


    Best of luck out there today,



    Keith R. McCullough
    Chief Executive Officer


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