MGM 3Q09 PREVIEW

Q3 should be a beat but that is expected. Management will be bullish on the call but big risk remains.


MGM is reporting this Thursday and we, along with everyone else, expect them to beat the quarter.  Given the pre-announced charges, we know the quarter will be messy but "adjustable".  As usual, we expect the management to be "exceptionally" bullish, but they have to be given that the opening of CityCenter "could be the most defining moment in the history of Las Vegas" and a make-or-break moment in MGM history.

We are above the Street in projecting $340MM of EBITDA (including pro-JV share) and margins just shy of 22.7%.  In any event, right now and for the next few quarters, it's really all about CityCenter and cannabalization.  In the meantime, all management can do is cut every possible expense and pray.  If CityCenter is a flop the stock is worthless, it's that simple. Given what's riding on the opening and management's fortunes it's expected that Murren and the gang will be characteristically bullish.

Below are some of our numbers:

  • Las Vegas: Revenues of $1.1BN and EBITDA of $260MM
  • MGM Grand Detriot: Revenues of $127MM and EBITDA of $33MM
  • Mississippi: Revenues of $121MM and EBITDA of $22MM
  • Macau: pro-rata EBITDA of $19MM

3Q09 "YOUTUBE"

General market commentary & Outlook

  • The operating environment...clearly stabilized in the second quarter, but we're not out of the woods. The operating environment, we think, will remain choppy in the near-term however, we see extremely positive signs especially as we go into 2010 or even starting in the fourth quarter but into 2010 and '11
  • The operating environment remains challenging, but we have been pleased with continued signs of stabilization in this market here in Las Vegas and ongoing improvements in our revenues and our margins
  • Our high end business continues to hold up very well, and in fact Baccarat volume was up 17% in the second quarter
    with extremely strongly international play.  We expect our Gaming business will also continue to improve
    particularly as we go into 2010
  • Our FTEs decreased 14% year-over-year in the second quarter and on an absolute basis, FTEs were flat with the first quarter even with company wide revenues up 4%
  • We've achieved well over 600 million of cost savings on an annualized basis.  We still have some of that traction out in front of us, maybe about 20%, 25% of that is still in front of us from a cost saving standpoint, and we're going to continue to look at other ways, but I think we've accomplished quite a bit on that front already
  • EBITDA margins should remain relatively consistent. We believe we continue in the 25% area in Q3

Hotel & RevPAR commentary

  • "Nonetheless, second quarter was better than the first quarter and the first quarter was better than the fourth. We think we'll see that trend continue here in the third quarter and beyond where our RevPAR declines will be minimized as we move forward into next year"
    • It's called easier comps....
  • "We are very encouraged that the meeting planners who seemed invisible for the first part of the year are now being
    much more active and we're seeing signs of recovery in their business, which therefore translates into business into Las Vegas.  And that means we're booking more business in 2010, 2011 and beyond"
  • "As it relates to our room strategy, we do have a clear plan to maximize our occupancy.  But we also are trying to generate rate premiums compared to the market and we have been able to accomplish that.  In the near term, our goal is to occupy our resorts in the mid-90s and we are succeeding on that front"
    • They are maximizing occupancy by chopping rate, and since there are no other public companies that report room rates for anything but the "luxury" end of the market there is no way to really verify the "premium" comment.  In any event, given that so many of the rooms are "comped" the reported rate is "adjustable"
  • "For the remainder of this year, pressure obviously remains on room rates so once again, we'll be down year-over-year but we expect the year-over-year percentage decline to be lower in the third and fourth quarter than we saw in Q2."
  • For every $5 increase in our average daily room rate, we will generate over 50 million in annual cash flows.  And for every 100 basis points improvement in occupancy, we generate nearly 40 million in annualized cash flows.

CityCenter Quotes

  • "The introduction of CityCenter with its unprecedented scale and amenities ... could be the most defining moment in the history of Las Vegas"
  • "As the most highly anticipated development in the Las Vegas history, CityCenter is poised and positioned to secure a disproportionate share of the market from our competitors and drive overall growth in the Las Vegas market"
  • "I want to reiterate our belief that CityCenter, in our minds, would drive growth not only at our surrounding properties, but in the Las Vegas market as a whole"
  • "It's sophisticated and will draw customers from other premium properties, as well as draw new high-end national and international customers into the market from other parts of the world. It will profoundly increase foot traffic to the south side of the strip, which of course benefits MGM Mirage"
  • "At ARIA, we continue to see a steady pace of room bookings with over 132,000 room nights on the books.  We also have over 61,000 room nights on the books for Vdara"
  • "We anticipate 48% of the square footage to be opened in December, and have 84% of the square footage available opened at least by April of 2010"
  • "6.9 billion has been funded to date and we have about 1.6 billion left to complete CityCenter, based on the budget of 8.5 billion.  We have approximately 950 million remaining withdrawn on our CityCenter credit facility, an additional 400 million from prefunded sponsor equity and the remaining funds will come from closing proceeds from condo sales of about $250 million"