MGM 3Q13 CONFERENCE CALL NOTES

Quarter was disappointing given the stock run. Typically bullish conference call wasn't bullish enough.

 

 

"I am pleased to report another solid quarter with double digit EBITDA growth and increased margins, led by strength at MGM China and our Las Vegas Strip properties... These results are reflective of the continued market share gains from programs such as M life and our focus on international marketing strategies combined with our best in class collection of resorts and amenities."

 

- Jim Murren, MGM Resorts International Chairman and CEO

 

 

CONF CALL NOTES

  • Reported a very strong 3Q 
  • Improved operations at CityCenter
  • Grand/Bellagio room remodels have been successful and driving business
  • NY/NY and Monte Carlo remodeled sections will be open in Spring 2014
  • Mobile will enhance M-Life database
  • MGM Cotai construction is progressing really well; piling/sitework will be done by end of year; basement/tower construction next 
  • Maryland:  decision will be at the end of the year
  • Massachusetts:  final decision will be made in April 2014
  • Margins improving, property investment yielding good returns
  • LV Luxury business was up 18% EBITDA - high-end international customers were strong
  • LV:  baccarat grew 20% in 3Q; 16% in table games revenues at wholly-owned LV properties; non-bacc volume was flat
  • Better pricing due to increased convention room nights
  • 4Q REVPAR flat:  consistent with mgmt expectations; 14-15% mix consistent with last year's mix; tough comp at Mandalay.  Core properties do not have the pricing power as luxury properties.
  • Accelerating REVPAR track in 1Q 2014 (peak convention room mix: 21%)
    • 1Q 2014 convention nights approaching all-time highs
    • Optimistic for 2014; typically booked 80% of next year's bookings (currently at 88%, up mid-single digits in terms of rate)
  • Aria:  EBITDA negatively impacted by $17MM due to low hold; table drop increased by 12% YoY
  • Vdara EBITDA up 9%; hotel occu 89%, ADR: $197, REVPAR: $177; F&B increased by new Sean McClain restaurant and new buffet; entertainment increased by full quarter of Zarkana show
  • Crystals: +26% YoY, opened 3 new tenants in 3Q; opened another tenant in October.  
  • Sold 28 Mandarin Oriental units and 2 units at Veer - $27MM in condo revenue
  • CityCenter refi:  Cash interest expense reduced by $80MM
  • $1.1 BN revolver, $1.45 bn at MGM China
  • Cash: $1.4 balance ($925MM at MGM China)
  • $78MM capex at wholly owned properties
  • 300-325MM capex FY 2013 guidance (vs 350 previously due to timing)
    • $52MM at MGM Macau, $260MM at MGM Cotai
  • 4Q: Corporate expense: ~$50MM
  • 4Q: Stock comp: $7-8MM
  • 4Q:  D&A similar to 3Q
  • 4Q: $210 gross interest expense ($5MM at MGM China, $9MM of non-cash amortization)
  • MGM China:  $8MM branding fee; $12MM adverse low hold; $7.5MM additional tourism tax fee
    • Still see better VIP table yields
    • VIP win rate: 2.2% vs 3.0% in prior year
      • VIP Volumes up 10%
    • Slot handle up 10%
    • Upgrading mass floor; remodeling/expansion of Supreme Land (60-70 more premium slots) will be done in 2014
    • Very competitive market
  • MGM Cotai:  early 2016 opening; budget $2.6BN; cap interest (not material) and land concession costs ($75MM)

Q&A

  • Massachusetts: licensing by November 2013
  • 1Q 2014 REVPAR growth:  led by convention business and strong by each subsequent quarter
    • 2014 convention mix:  approaching 15.5-16%
  • Vegas:  convention will boost leisure rates as well
  • 2014 Vegas room flowthrough:  60% long-time target; up 94% YTD; flowthrough should be stronger in 2014 compared to 2013
  • Mandalay Bay and night clubs are doing well.  Core properties non-gaming spend slowly coming back, but luxury non-gaming doing much better.
  • Japan:  hope something will come forward in Spring 2014 
  • CityCenter - buy out partner?
    • Partner has not asked them to buy them out as the asset has increased in value
  • Had thoughts of selling Crystals as cap rates fell below 5%; had second thoughts about it; will not sell in 2013
  • Q4 slot business in Macau has seen improvements but growth has slowed due to harder comps
  • Bellagio hold was low last year, this year a touch better but still lower than what the property had done
  • Q4 LV hold:  Bellagio and MGM Grand had high hold
  • Cotai:  Govt has not staggered 2016 opening dates
  • LV:  upgrade program under way for all properties; last big convention attendance was 2011, which indicated revenue and EBITDA growth
  • Borgata:   may be relicensed by 1Q 2014; 
  • $110MM sitting in NJ trust account
  • Culinary agreement:  typically 5 years 
  • Vegas:  THE HOTEL conversion to Delano (1,200 room remodel) will start in April 2014 
  • Hainan-interesting opportunity

 

HIGHLIGHTS FROM THE RELEASE

  • Casino revenue related to wholly owned domestic resorts increased 3% compared to the prior year quarter.
    • Table games revenue increased 10% and the overall table games hold percentage in the third quarter of 2013 was 21.5% compared to 20.4% for the prior year quarter.  
    • Slots revenue increased 1% with a 3% increase at the Company's Las Vegas Strip resorts
  • Rooms revenue at wholly owned domestic resorts increased 5%, with a 3% increase in REVPAR at the Company's Las Vegas Strip resorts
  • The Company's wholly owned domestic resorts earned Adjusted Property EBITDA of $350 million, an 8% increase compared to the prior year quarter
  • The Company's wholly owned Las Vegas Strip resorts earned Adjusted Property EBITDA of $280 million, a 12% increase compared to the prior year quarter
  • MGM China's Adjusted EBITDA increased 25% to $191 million
  • CityCenter's Adjusted EBITDA related to resort operations was $62 million, a 6% increase compared to the prior year quarter
  • MGM Cotai: Groundbreaking took place in February 2013 and the project continues to remain on pace for an anticipated early 2016 opening.  In May 2013, MGM China signed a deal with China State Construction to serve as sole general contractor for the project. The total project budget, excluding capitalized interest and land, is $2.6 billion.
  • The current year third quarter results were affected by non-cash impairment charges of $26 million, primarily related to land holdings in Jean and Sloan, Nevada. The current year third quarter income tax provision was affected by $28 million of valuation allowance on U.S. deferred tax assets
  • We continue to be opportunistic in accessing the capital markets as indicated by our recent CityCenter refinancing, which will lower its annual cash interest expense by approximately $80 million.
  • The Company's cash balance at September 30, 2013 was $1.4 billion, which included $925 million at MGM China.  At September 30, 2013 the Company had $2.9 billion of borrowings outstanding under its $4.0 billion senior credit facility and $553 millionoutstanding under the $2.0 billion MGM China credit facility. The Company repaid net long-term debt of $77 million during the third quarter, bringing total net repayments during 2013 to $553 million.