MGM Q1 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

1Q14 CONSENSUS

  • EBITDA:  $582 million
  • Revenues: $2.566 billion
  • EPS: $0.08

QUESTIONS FOR MANAGEMENT

  • Outlook for LV REVPAR beyond Q1
  • Explain the under performance of slots over the past few years. Do you see a recovery in LV slot volumes for the rest of the year?
  • Will there be any slot machine upgrades to try to stem a secular decline from an aging demographic?
  • MGM China:  Any new initiatives on the VIP/Mass front at MGM Macau to drive same store growth beyond just overall market growth? Competitive environment?
  • Credit outlook for VIP players and thoughts on VIP future given China issues
  • What's the latest on Japan?  How much is the Company willing to invest for a Tokyo Integrated Resort?  What sort of partnership arrangements would MGM consider?
  • Thoughts on potential new owner of Cosmopolitan.  Would you be interested?
  • Quantitative performance of co-marketing deals with regional operators.
  • What is the next step in Springfield and when does the company expect to break ground?
  • Update on New Jersey Re-licensing and what is the next event?  When does MGM expect to receive the $100+ million cash distribution from the Trust?  What is the use of proceeds?
  • Does MGM Resorts International (MGM) or MGM China (2282) have any intent at repurchasing shares in 2282?

 

RECENT MANAGEMENT COMMENTARY

REVPAR/bookings:

  • 1Q REVPAR expected to be up ~10% YoY
  • Feel good about the remainder of the year.
  • Most of the REVPAR growth will come from rate.
  • Still feel comfortable with the pace of bookings in the remaining three quarters of the year. And there's still some more work to do, say, in the fourth quarter in and around the holiday period. Overall, feel very confident in ability to meet or exceed the prior-year levels.

Slot business:

  • Slot business here in Las Vegas is actually up when the market has been actually down.
  • Overall slot numbers are down because of the regional properties

Strip development:

  • Strip frontage at New York-New York and Monte Carlo will be completed in the first half of this year.  New park will be completed in 2016.  Remodel of THEhotel into the Delano will begin in April and expected to be completed by September.

MGM Cotai:

  • Increased project cost from $2.6 b to $2.9b
    • There has been some market increases, so there has been escalation in labor and some materials as well.
  • Will open in early 2016

MGM National Harbor:

  • Groundbreak in the summer and opening in 2016

Springfield:

  • Remain very excited about the opportunity for a downtown revitalization project in Springfield.  Await a decision and awarding of that license this year.

Convention market:

  • Strong convention market in Las Vegas in 2014 with improving corporate business.
  • Expect 1Q convention mix to be ~22%, near peak levels for any 1Q prior
  • FY 2014:  expect convention mix to increase to 15.5-16%, which is beginning to approach prior peak levels.
  • The quality of the convention mix is continuing to improve with industries and corporates coming back into the fold, not only is it a better customer this year, but will pick up higher banquet spending, catering spending and restaurant, food and beverage spending throughout.
  • Room attrition's coming in lower now
  • Convention pace for 2015, 2016, 2017, all look above where they were prior year for the previous years.

Strip flowthrough:

  • Flow through was a bit better than expectations due to strong collection efforts which have been consistent throughout the year, continued refinements to our M life program, and a change to the employee vacation policy and accrual.  As a result, Strip flow through was approximately 70% in 4Q, above 50% to 60% target.

Operating costs:

  • It'll be relatively in check in 2014.

Crystals:

  • Added a few more tenants and look forward to bring on a few more in current calendar year

Mandarin Oriental:

  •  In 2014, sales are up to a strong start with 18 units closed in January alone.

Receivables:

  • Pretty good shape in terms of overall receivables and reserves against that receivable.  Don't expect a creep up.

Use of MGM China dividend:

  • Will use in this interim period to pay down debt and anticipate to do that throughout 2014.  More reinvestment opporunities in 2015/2016.
  • MGM China semiannual dividend policy of 35% of profit

Luxury vs Core

  • Luxury properties continue to see a pretty good customer and continue to hope to see them improve their spending.
  • Core properties, when that convention base isn't there, they continue to be challenged on consumer spend.  But when it is in here, they're able to get a higher quality customer in their hotel. The correlation between the ADR and spend is definitely there.

Borgata trust

  • Would look to sometime here in the first half be back and front of the New Jersey Casino Commission and the DGE on that opportunity.
  • Trust balance: $102m

2014 non-operating guidance:

  • Capex at wholly owned domestic resorts:  $350m
  • JV LV arena: $75m on MGM's share of investment
  • National Harbor: $170m on development costs
  • MGM Macau: $70m
  • MGM Cotai: $500m

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