prev

MGM Q1 2014 REPORT CARD

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

 

 

OVERALL:

  • BETTER - Strong Q1 2014 results slightly exceeded our Consensus high projection slightly. We're less optimistic about the rest of the year but trends should remain positive on the Strip and especially in Macau. 

 

REVPAR/bookings:

  • BETTER:
    • Q1 RevPAR Strip RevPAR 14% based on +200 bps occupancy and +12% ADR, but expect Q2 RevPAR +5%.  Q2 Aria RevPAR +14%, Vdara RevPAR +21%.
    • January RevPAR +9%, February RevPAR +10% versus Q1 results.  
    • ITYFTY is a friend in 2014
  • PREVIOUSLY:  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.

Slot business:

  • SAME: U.S. business improving as seen in slot handle and slot win (non Bacc table revenues and market share both increasing)
  • PREVIOUSLY: 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:

  • BETTER:
    • The Park, AEG Arena, Delano targeted Sept completion, NYNY retail reconfiguration targeted for December completion, Mandalay Bay Convention Center expansion, "City of Rock" music venue.
    • More projects aimed at stimulating demand and improving the guest experience and thus driving incremental interest and demand by corporate groups, leisure and FIT sectors.
  • PREVIOUSLY: 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:

  • SAME: MGM Cotai - well underway, 2016 opening.
  • PREVIOUSLY: Increased project cost from $2.6b to $2.9b, open in early 2016

MGM National Harbor:

  • SAME: break ground in a few months, focused on design, development and programming, no change to the $1 billion budget, most profitable non Las Vegas casino development in the US and expect to open summer 2016
  • PREVIOUSLY: Ground break in the summer and opening in 2016

Springfield:

  • SAME: go before Commission in June 2014, monitoring referendum while also waiting for "appeal" referendum; Supreme Court must rule before July 9th to make November ballot; awaiting Commission license award.  However, gaming is polling favorable across MA with voters
  • PREVIOUSLY: 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:

  • SAME: CY 2014 total room nights will be 16% from convention mix
  • PREVIOUSLY: 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.
  • SAME: Up double digit pace in 2014 vs. 2013 and 2015 vs. 2014.
  • PREVIOUSLY: Convention pace for 2015, 2016, 2017, all look above where they were prior year for the previous years.

Strip flowthrough:

  • SAME: Flow through was 55% vs. 50-60% expectation
  • 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.

Crystals:

  • BETTER: EBITDA +30%
  • PREVIOUSLY: Added a few more tenants and look forward to bring on a few more in current calendar year

Luxury vs Core

  • SAME: Luxury is 18-20% below 2007 peak cash floor.   "Core" is down >30% off peak (other half of portfolio).
  • PREVIOUSLY:  Luxury properties continue to see a pretty good customer and continue to hope to see them improve their spending. By comparison core properties, they continue to be challenged on consumer spend.  The correlation between the ADR and spend is definitely there.

2014 non-operating guidance

  • SAME:
    • Domestic CapEx spend - $425 million, includes MGM contribution to AEG Arena
    • During Q1: 
      • US CapEx $72m
      • MGM China $121m with
      • $14m spend at MGM Macau and
      • $107m on Cotai development
  • PREVIOUSLY:
    • 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

GLPI Q1 2014 - EARNINGS PREP

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

 

 

1Q14 CONSENSUS ESTIMATES

  • Total revenues:  $159 million
  • Adjusted EBITDA:  $107 million
  • FFO:  $0.68/share
  • AFFO:  $0.71/share

MANAGEMENT GUIDANCE

Q1 2014:

  • Total Rental Income:  $477 million with ~$421 million from PENN, ~$13 million from Casino Queen, ~$46 million to account for property taxes paid by PENN, and reduced by ~$3 million to account for non-assigned land lease payments made by PENN
  • Net Revenue:  $158.1 million
  • Adjusted EBITDA:  $106.6 million
  • Net Income:  $44.1 million
  • Real Estate Depreciation:  ~$23 million
  • Non-real estate deprecation: ~$3.5 million
  • Funds From Operation:  $67.1 million
  • Adjusted Funds From Operation:  $74.2 million
  • Net Income, per diluted common share: $0.72
  • AFFO, per diluted common share:  $0.71

FY 2014:

  • Net Revenue:  $630.8 million
  • Adjusted EBITDA:  $432.6 million
  • Net Income:  $181.1 million
  • Real Estate Depreciation:  ~$92 million
  • Non-real estate deprecation: ~$14 million
  • Funds From Operation:  $272.8 million
  • Adjusted Funds From Operation:  $301.8 million
  • Net Income, per diluted common share:  $1.59
  • AFFO, per diluted common share:  $2.65

 

QUESTIONS FOR MANAGEMENT

  • Argosy Casino Sioux Falls
    • Given IRGC ruling the property is to closed by July 1, how should revenue and expense assumptions be revised? 
    • Why did GLPI guidance include a full year of operation for Argosy Sioux City when the GLPI S-1A indicated:  "GLPI also includes rental income of $5.2 million for the entire period related to Penn's Sioux City casino which, based on recent events, may be forced to close as early as July 2014"
  • If the acquisition pipeline is so vast ($10 billion by some reports) and the company has little competition for transactions, why have we not see press releases announcing acquisitions?  And, if the pipeline is so full, why the need to hire a SVP of Corporate Development, who has corporate finance/investment banking history?
  • Would the company consider a large portfolio/transformative acquisition that would require a concurrent issuance of equity either to the seller or into the open market? 
  • Discuss the current valuation gap between potential sellers and buyers of gaming assets?
  • Thoughts on diversifying tenants.  Would you consider sale/leasebacks with BYD, PNK, or even an MGM?
  • With weak regional trends, are you comfortable with maintaining the current levels of rental payments.

 

RECENT MANAGEMENT COMMENTARY

Development Pipeline

  • Mahoning Valley Race Track - Hollywood themed facility with up to 1,000 video lottery terminals as well as various restaurants and amenities. To be managed by Penn National Gaming, with expected opening in the fall of 2014.   Planned budget $100 million, $25.9 million expended as of 12/31/2013
  • Dayton Raceway - Hollywood themed facility with
    up to 1,500 video lottery terminals as well as various
    restaurants and amenities. To be managed by Penn
    National Gaming, with expected opening in the fall
    of 2014. Planned budget $89.5 million, $26.2 million expended as of 12/31/2012

Acquisition

  • During January, the Company completed the acquisition of Casino Queen in East St. Louis, Illinois for $140 million. GLPI also provided Casino Queen with a $43 million, five year term loan at 7% interest, pre-payable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen's outstanding long-term debt obligations. GLPI leased the property back to Casino Queen on a triple net basis for approximately $14 million in rent per year.

Balance Sheet

  • The Company had $285.2 million of unrestricted cash on hand
  • No balance outstanding under the $700 million unsecured credit facility revolver

Other

  • The Company owned the real estate associated with 21 casino facilities, including two facilities currently under development in Dayton and Youngstown, Ohio and leases, or expects to lease with respect to Dayton and Youngstown, 19 of these facilities to Penn. Two of the gaming facilities, located in Baton Rouge, Louisiana and Perryville, Maryland, are owned and operated by a subsidiary (GLP Holdings, LLC) of GLPI.

PNK 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:  $151 million
  • Revenues: $548 million
  • EPS: $0.41

QUESTIONS FOR MANAGEMENT

  • Q2 trends relative to weather adjusted Q1.
  • What are the important macro variables contributing to regional gaming weakness?
  • How much of an impact is demographics playing in the soft trends? 
  • Breakdown of weakness across casino segments.
  • Have you been able to quantify the impact of the rewards sharing program with MGM?
  • What is causing the recent weakness in Louisiana?
  • Competitive environment for Belterra Park
  • Additional comments on Orange Capital's REIT push
  • What can be done to revive the lower spending segments?
  • Progress on Ameristar synergies
  • Update on Vietnam - hidden asset?

 

RECENT MANAGEMENT COMMENTARY

Integration revenue synergies:

  • Have moved quickly to put the infrastructure in place so that we can begin to realize revenue synergies during the first half of 2014.

Business Trends:

  • Similar to 2013, trip frequencies continued to decline with people visiting less often, while spend patterns have remained relatively stable.  Trip declines are particularly pronounced in the less than $100 average daily theoretical segment and end markets with new competition.

Marketing Spend:

  • Continue to be very focused on driving profitable revenue and applying a rational approach to marketing spend. Reinvestment declined both in terms of dollars and as a percentage of gaming revenue, down 240 basis points year-over-year.

L'Auberge Baton Rouge:

  • Market share increased 420 basis points from prior year with healthy growth from both the local and regional play
  • Hotel also continues to be a very good story with this property achieving the second highest RevPAR in the company.

River City:

  • Continues to outperform the market with a 230 basis point improvement in market share during the fourth quarter.

Midwest:

  • Performed pretty well in the face of a challenging environment, as our margins in the Midwest also improved despite a 4% decrease in net revenues.

Synergies

  • Feel very confident in ability to meaningfully exceed the target of $40 million of annualized merger synergies.  In fact, PNK expects to exceed this $40 million number of implemented synergies by the end of 1Q 2014, with more to come. 
  • The loyalty program will launch in April, so haven't seen any impact at the Ameristar properties along those lines. VIP marketing, house coding our branch offices, all of those efforts are very early in the execution stage. Some are still in the planning stage, but we are beginning to execute most of our revenue synergies in the first and second quarter of this year.

New Orleans hotel:

  • The project remains on budget and is expected to open early summer.

<$100 segment:

  • Decline in the less than $100 segment was driven in part by the elimination of unprofitable programming that PNK had in place in Q4 2012.  And some was driven, as you've seen across our sector just by macroeconomic issues that are affecting the lower risk segments in our business.

Database integration spend:

  • Expect this year to have roughly about $10 million or so that will be spent on that in 2014. It'll be largely done by the end of this year.

Non-operating guidance:

  • Corp expense:  continue to trend down towards $20m
  • D&A:  The real operating number should end up being in the mid-50s or so, with this player list depreciation putting it in the call it $60 million to $65 million.
  • Cash taxes:  $10m

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

NCLH 1Q 2014 REPORT CARD

In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance

 

 

OVERALL:

  • MIXED:  A larger than expected share repurchase program and better fuel management offset weaker yield guidance. NCL may be out of the woods until competition heats up with RCL's Quantum in Q4. 

 

RECENT MANAGEMENT COMMENTARY 

Bookings outlook:

  • BETTER:  Bookings have picked up since Triumph lap in mid-Feb.  Here is the bookings outlook by geography:
    • Europe (Baltic/Canary Islands/Med): highly favorable
    • Hawaii:  on par 
    • Canada/New England:  heavily booked 
    • Caribbean:  low; still has opportunity
  • PREVIOUSLY:  Thinks they lost a little bit of ground but not anything to be concerned.  Is comfortable with each of the quarters.

Capital allocation:

  • BETTER:  While the repurchase program was not really a surprise, the magnitude was.  A $500m share repurchase program accounts for 7% of outstanding shares.  Will they buy Genting shares?
  • PREVIOUSLY:  Shorter-term solution or answer would be to do some stock acquisition.  If the selling shareholders are still in the puzzle,could marry with that at the appropriate discounts or whatever. And then, at some point, start a dividend (probably would be at least a year later than the first step with the share repurchase).

Caribbean/Bermuda:

  • WORSE:  Aggressive pricing is overpowering improved bookings.  Cautiously optimistic on the Caribbean in 2015 as capacity growth will be minimal.
  • PREVIOUSLY:  
    • There's a lot of capacity in Miami, but it's no different than anything else
    • More focused today on Bermuda and optimizing that opportunity in that premium itinerary.

Promotional:

  • WORSE:  Higher promotional environment led to a reduction in net yield guidance
  • PREVIOUSLY:  Environment has remained in a promotional state

Getaway:

  • BETTER:  Continued improvements in fuel efficiencies (saved $5-6m).  Premiums over core fleet remain in double digits, although at the expense of lower prices across the fleet.
  • PREVIOUSLY:  We've been having a consistent performance in the Miami market

Alaska: 

  • SAME:  Alaska pricing is growing in the low single digits
  • PREVIOUSLY:  Some softness in Alaska where the introduction of a third ship for the first time since 2009 was coupled with a unique itinerary
    • Feel pretty good about Alaska

Europe:

  • BETTER:  Pricing is up double digits and significantly higher loads in Europe.  But mgmt attribute it to very easy comps.
  • PREVIOUSLY:  Feel pretty good about Europe

Fuel efficiency: 

  • BETTER:  Fuel expenses and consumption beat in 1Q.  Fuel expenses were lowered by almost $20m for the year.
  • PREVIOUSLY:  
    • Expect consumption savings to increase as further energy saving initiatives are implemented and NCLH take delivery of newer more fuel-efficient ships.
    • Have received exemptions from the appropriate regulatory agencies to burn high-filter bunker fuel until installed. These scrubbers carry a very attractive return on investment and reduce our sulfur emissions to comply with the upcoming eco fuel Standards.

Cost cuts:

  • SAME:  Marketing G & A as a % of gross revenue fell 3.6% points to 12.6%.
  • PREVIOUSLY:  Leveraging SG&A, with bringing on these additional ships and their being roughly double the size of NCLH's existing fleet.

Organic pricing/ comp fleet:

  • WORSE:  Core fleet pricing in the Caribbean fell more than mgmt expected
  • PREVIOUSLY:  Very positive

Cartoon of the Day: 0% Credibility

Takeaway: "The more I travel and talk this through with investors, the less convinced most are that this ends well." - Hedgeye CEO Keith McCullough

Cartoon of the Day: 0% Credibility - Inflation 04.29.2014


MGM Q2 2014 CONF CALL NOTES

Rebuilding the Desert Oasis...


 

CONF CALL NOTES

Prepared Remarks:

  • In Las Vegas continue to make target investments in properties to differentiate properties and thus drive/increase visitation - viz., New Strip Frontage at Monte Carlo; NYNY Hershey's, Tom's Urban & Shake Shack - later two opening in Dec 2014; AEG Arena, 20,000 seat arena; about to break ground also The Park.
  • Mandalay:  The Hotel conversion into The Delano should complete in September and will drive significant RevPAR growth
  • Plans to expand Mandalay Bay Convention Center... increase Convention mix to increase rate and spend
  • CY 2014 total room nights will be 16% from convention mix
  • Convention & Trade Show business will solidify and drive high margin corporate business
  • Music Festivals:  Festival lot near Luxor, new plan for 33 acres near Circus Circus to host Rock in Rio. 
  • MGM National Harbor MD expect to open summer 2016
  • Springfield, MA: go before Commission in June 2014, monitoring referendum
  • Japan: been often, significant potential for tourism, if Japan pursues "integrated resort" option
  • M-Life: effective customer acquistion tool
  • "My Vegas" social gaming site provides >850,000 ADU, new partnership with PNK (was AmeriStar).
  • MGM Hospitality, joined forces with Hakkasan...growing to develop hotels around the World.
  • Sixth quarter of EBITDA growth and margin improvement
  • Flow through was 55% vs. 50-60% expectation
  • Luxury Properties: EBITDA +17%
  • Value/Mid Properties: EBITDA +15%
  • Casino: domestic rated play "improving" 
  • Strip RevPAR 14% based on +200 bps occupancy and +12% ADR
  • Convention room nights during Q1 reocrd
  • Q2:  Expect RevPAR +5% (not indicated if Strip or Portfolio)
  • City Center record results, resort operations +2%
  • Aria EBITDA down slightly due to -150 bps hold comp, RevPAR +14%
  • Vdara record quarter with 89.5% occ +400 bps, ADR +16% to $185, RevPAR +21%
  • Crystals EBITDA +30%
  • Balance Sheet: $1.2b of liquidity under revolver, while MGM China $1.5b available at the end of Q1
  • Cash:  $1.1b at MGM of which $555m at MGM China
  •  City Center cash balance $345m including $72m restricted cash
  • CapEx $72m in Q1 and MGM China $121m with $14m spend at MGM Macau and $107m on Cotai development
  •  MGM China:
    • Rev $941.
    • EBITDA +33% pre branding fee $16.5m
    • 130 bps margin improvement, due to mass and VIP Hold
    • Main floor table game
    • Focused on yield optimization looking at VIP / Mass table yields and product upgrades
    • Building customer base for Cotai opening in 2016
    • Cotai: 3x rooms and 2x gross gaming floor area
    • MGM Cotai: well underway
  • Marketing: Robust spend, social media
  • Las Vegas #1 trade show destination for past 20 years, key to growing market is growing corporate and trade show business

 

Q & A

  • Expansion at Mandalay how will mix change:  mix always highest in Q1, good in Q2, but Q3 is weakest, and flat/up in Q4.   Fortune 100 Tech firm booked in Q3 for 17,000 attendees (ITYFTY is a friend in 2014)
  • Noise around Macau market and junkets - Grant Bowie "just that, noise...steady but quieter month.   Mass market is now anchoring EBITDA performance"
  • MGM China 70% EBITDA from Mass segment from 45% of mass table mix.
  • How drive Mass with current 70% at MGM China - solid team, customer flow and supply of customers are strong, lots of new mass players.  Redeploy tables and working with junkets to improve yields and casino box growth.  Need to expand market penetration prior to Cotai opening.
  • Domestic CapEx spend - $425 million, includes MGM contribution to AEG Arena
  • Corporate customer call volumes - 55% Corp Mix in 2013, and 2014 mix is higher
  • How solid are 2015, 2016 booking trends - great Citywide in Q1 2014, but January RevPAR +9%, February RevPAR +10% versus Q1 results.   Up double digit pace in 2014 vs. 2013 and 2015 vs. 2014.
  • Strip & RevPAR growth and gaming 40% of revenue, how view gaming outlook for 2014 and beyond - US business improving as seen in slot handle and slot win (non Bacc table revenues and market share both increasing), not predict gaming revenue but more people coming to LV.
  • Arena business very strong for remainder of 2014
  • Independent properties for sale along LV Strip, update on thoughts of buying/selling City Center or Strip properties - love owning on Strip, did not chose to sell a partial interest in Crystals in 2013 because NOI still increasing.   Not actively pursuing any acquisitions or divestitures on Strip.
  • Dispositions - large delta to high-end and value properties, how think about narrowing gap in valuations -- MGM looked to invest in luxury properties with 80% of capex in luxury since the crisis and today luxury is 18-20% below 2007 peak cash floor.   "Core" is down >30% off peak (other half of portfolio). 
  • Couple of properties on the market, given availability of capital, and interest expect more interest in asset purchases.
  • Bellagio margins - no singular event or item, power of building   
  • Mandalay: benefited from strong conventions
  • MGM Grand: despite difficult hold comp, improved due to non-casino component
  • FTEs flat YoY
  • Regional development:  
    • MD on track, break ground in a few months, working with County, focused on design, development and programming, no change to the $1 billion budget, most profitable non Las Vegas casino development in the US
    • Springfield - waiting for appeal referendum; Supreme Court must rule before July 9th to make November ballot; awaiting Commission license award. However, gaming is polling favorable across MA with voters
    • Anton will oversee Detroit, MD, and MA.
    • no change in budgets nor timetables
  • M-Life Tiering - movement up levels and thus better profitability?  Seeing double digit 11%-12% growth in Platinum level due to growth in non-gaming spend
  • Confidence in MD property and growth vs. MD tax rate - 3 airports within easy drive and Southwest Airlines is a big driver of traffic; strong Int'l visitation; confident in highly affluent, diverse, high gaming propensity of local population base.  Look at results of MarylandLive.  Vehicle circulation of I-95 Interstate traffic.
  • Looking to Q2 for RevPAR seeing strength in May and June and 3Q - any color... April was challenged with Easter, May looks good, very strong similar to first quarter months outside of ConExpo, June is usual month, some decent rates but between Father's Day and Graduations difficult.

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next