MGM 2Q 2014 CONFERENCE CALL

Constant hold at wholly owned properties yields flattish EBITDA YoY while MGM Macau missed. Did we detect a softening tone regarding Macau business levels?

CONF CALL

  • Wholly-owned Strip EBITDA up 12%
  • CityCenter EBITDA up 20%
  • Increase in mix from high-end main floor business.
  • May:  broke ground on Arena.  Will open in mid-2016. 
  • June:  CityCenter veiled Hershey store to great success.  Tom Urban/ Shake Shack will open in December.
  • Mandalay Bay:  half of rooms of Delano are complete.  Sept 1 grand opening.  Delano brand will attract higher rates and higher margin customers.
  • MGM Harbor Maryland:  have begun construction; mid-Atlantic market is thriving.  Expanding from 2.8m sq ft to 3.2m sq ft.  If demand warrants, can even expand 2nd floor.  Increased budget to US$1.2 bn, up from US$1bn previously, due to this new expansion plan.
  • Remain optimistic on Japan (Tokyo/Osaka); met with several local companies
  • MGM Cotai:  completed basement and now moving up to hotel tower.  On budget and on schedule to open in 2016 (no date or month offered).  
  • MGM:  7th consecutive YoY growth in EBITDA and margin improvement on LV Strip
  • Luxury Strip properties EBITDA grew 13% YoY
  • Core Strip properties EBITDA grew 8% YoY
  • Core Strip outperformed on REVPAR growth
  • Strip Bacc win: 64% YoY;  non-bacc win: +10% YoY
  • Grew convention mix by 1% in the quarter
  • FY convention mix to be up 16% - above prior peak levels
  • Expect REVPAR growth of 5% in 3Q
  • CityCenter:  
    • Aria:  increased table game volume and higher hold
    • Vdara:  +10% in REVPAR; occupancy just inside of 95%
    • Crystals:  +12% YoY in EBITDA
  • Cash:  $1.4 bn ($658m cash at MGM China);  
  • $1.2bn available under RC.  MGM China - $1.4bn available under RC 
  • CityCenter prepaid $150m outstanding debt, lowering debt to $1.5 bn; leverage at end of quarter was 4.5x.
  • 2Q capex:  $114m (domestic operations), $64m (MGM China) - $4m MGM Macau, $60m MGM Cotai
  • MGM China
    • Branding fees:  $4.5m
    • Lower VIP hold and turnover
    • EBITDA margins increased 90bps, due to higher mass revenues
    • Low VIP hold affected EBITDA by $14m YoY
    • Mass:  2nd consecutive quarter of outperformance, relative to market growth; 77% mass contribution to EBITDA (1Q contribution was 70%)
    • Slot revenue: +11%, lower hold but higher volumes
    • Continue to see more opportunities to improve table operations
    • Best mass win per day in the market
    • MGM Cotai:  $2.9bn budget; have 50% of contracts complete
      • 2nd phase:  all non-gaming; will add 700 guest rooms;  in 3Q, they will release preliminary budget
      • Govt process has changed in the past year
      • Wants to submit a perfect document on 2nd phase
      • Tremendously capacity constrained on hotel rooms in Macau
    • MGM Macau:  highest EBITDA per room in the Macau market
    • 2 hotels open in Mainland China; more under construction

Q & A

  • Macau:  Backlog of construction projects;  operators don't know exactly when they will open.  Labor will always be an inhibiting factor. Have received superstructure/ MEP permits. Will open in 2016 but don't know when.  Will not give a precise timeline.
  • MGM China 2Q EBITDA margins:  nothing exceptional there.  No adverse effect from 14th month payments.  Low hold did have some impact but was offset by strong mass revenues.  Clean comparison.
  • 37% flowthrough in 2Q; Monte Carlo had a bad quarter there
  • Delano also affected flowthrough due to construction disruptions
  • Still believe in 50-60% flowthrough going forward
  • Gained market share in convention business and REVPAR
  • Monte Carlo/Mandalay flowthrough will be below 50-60% in 3Q but once Delano opens in September, flowthrough will improve.
  • FTEs up slightly from 2013
  • Continue to maintain costs and expand margins
  • 2015 group convention pace:  pace up double digits (+16k rooms) and higher rate, despite tough comp with ConAgg.
  • 2015: Low single digit rate growth, suggesting low single digit REVPAR 
  • 2015 corporate business:  increasing from 55% to 60% of bookings
  • More high-end business in LV Vegas as a result of increased visibility in Macau - didn't say that LV is up because Macau is down
  • Mayweather fight in May increased baccarat volumes
  • Another Mayweather fight in Sept 2014
  • 2 hotels (Sanya, Chengdu); Sanya benefited from MGM Macau
  • MGM Macau:  Slot volumes - very strong in premium area but unlucky; however, have seen high hold in July 
  • Macau:  junket business still consolidating/stabilizing.  Mass business continues to be strong - Grant Bowie did caveat the commentary by talking about summer being slower now similar to other markets
  • Mass in Macau is competitive - this question was in response to a question about whether there is margin pressure on the mass business and Grant seemed to concede there is
  • Flowthrough color:  YTD, 45%.  Continue to expect 50-60% for the full year.
  • Convention business strong in 4Q 2014
  • 2015 renovation projects:  Standard room tower at Mandalay Bay
  • Adding 300k sq ft of convention space to Mandalay Bay; will break ground in 1-1.5 months; will open in 3Q 2015.
  • Crown transaction in LV:  $9m per acre; certainly a bullish sign for investors; will stimulate the start of the Genting project
  • CityCenter:  generating significant amount of free cash
  • Did explore Crystals sale in 2013 (sub 5 cap rate);  $45M NOI on TTM; thinks it can go to $50Ms.  
  • Want to own 100% CityCenter but Dubai World doesn't want to sell