MGM 3Q09 CONF CALL

As expected, MGM beats the quarter.  Outlook was bullish, too bad Bobby slipped on the call

MGM reported strong numbers this quarter.  Most of the beat was driven by better hold and therefore EBITDA at MGM Grand and the Mirage, with some offset from weak hold and EBITDA at the Bellagio.  

"We continue to show sequential improvement in our operating results over the course of 2009...We continue to earn occupancy through our superior assets and focus on the customer, resulting in increased market share.  We expect CityCenter to grow our business significantly and we are extremely excited to open this tremendous asset"

MGM 3Q09 CONF CALL

• It's not a stretch to say that in the 3rd quarter "our results were monumental" for the company
• Exceeded even their own expectations for profits in the quarter
• Continue to focus on efficiency without sacrificing guest service
• Outperformed their competitors in all markets where they operate
• Added market share in conventions, hotels, and gaming in Vegas and Macau
• Bellagio had it's best baccarat drop but held low on tables
• Don't "buy" occupancy
• Bellagio's RevPAR decreased less than other luxury properties in the market
• Confirmed 550k rooms in the 3rd quarter, putting them on a more "normal" pace
• Returned to normal booking levels and are confident that next year will be even better
• Believe that they are building market share coming out of a recession
• Think that CityCenter will add volume to their surrounding properties 
• "Have created an icon, a must-see property"
• They are laser focused on the market, while others may be distracted with other markets and corporate transactions
• Lead volume was up 9% vs last year. Meaning that corporations are trying to secure meeting space (Pharma, insurance and auto)
  • Oct was a big month for them
• Conversion rates on booking inquiries are also increasing
• Cancellations have slowed down dramatically and while they aren't back to normal yet, they are close.  90% of cancellations are for 2009, while 2010 & 2011 cancellations are minimal (isn't that obvious though)
• Room nights booked forward are back to levels of pre-recession
  • But they have more supply going forward too, no?
• Continue to produce sequential improvements
• FTE's are 12% lower y-o-y and 17% lower than 2007
  • compares to 14% in 1H09
• MGM Macau property level EBITDA of $73MM, $24MM was their share of operating results
• Capitalized interest was $76MM in the quarter
• Seeing a return to normalcy in their bank agreement
  • Provides them with their normal historical capital markets access
  • Have enough capacity on R/C to sustain them through 2010
• $1.4BN of TTM EBITDA vs a $900MM covenant
• Expect a lower y-o-y RevPAR decline in the 4Q
• 4Q09 guidance
  • $10MM stock comp expense
  • $34-35MM of corporate
  • Pre-opening higher
  • $170-180MM of D&A
  • $250-260MM of gross interest expense
  • $40MM of capitalized interest expense
• CityCenter details:
  • 12,000 employees, 3,100 came from other MGM properties
  • At Aria continue to see a steady pace of room bookings.  Pricing continues to be at a premium to Bellagio
  • Advertising and PR budget is $20MM for opening days
  • Expect to spend $27MM in TV media and print ad placements
  • 47% of retail SQFT open in Dec and over 80% by July 
  • Seen 50% increase in traffic at the retail site and 6 new units have entered into contract since the price reduction.  A number of buyers actually upgraded their unit
  • Closing at Mandarin in Jan and Vdara in March
  • $740MM left to fund, $7.5BN funded, $180 of sponsor funds left to be contributed

Q&A

• Think that visitation this year will be 35.4MM and 38.1MM in 2010
  • Project that there will be 54.4MM available room nights in the market, 5% increase over 2009
  • Think that their market share will increase next year and well as being able to maintain their occupancy
  • Think that occupancy will be 89% citywide and they will be north of 90%
  • Think table and slot win will be up double digits and that MGM will get more than their fair share
• How much did hold benefit profits in Macau
  • Hold was about 3%
  • Extended reach to more junket operators
  • New management introduced
  • Did a lousy job before so easy comps too
  • Also construction projects around their property (One Central, L'Arc, Encore) are wrapping up/ have been completed and will get a right turn lane
• CityCenter advertising dollars? How does that compare to Bellagio opening in '98?
  • $20MM upfront is about standard, $27MM is a little heavy - but thinks it's in the company's best interest
  • BOBBY SLIP UP "we are forecasted to have about 1.2 billion in revenues" 
    • I suppose Greff and most of the Street will need to lower their projections now
      
  • Want to take advantage of being the only new property opening up
• Amendment #7 is the "exclamation" to the end of the amendment process with their bank group. Gives them back some of the flexibility they had before
• Now that that facility has been paired back from $7BN to $5.5BN it's more manageable - facility doesn't go current until Oct 2010.  Expect they will start working on a new facility in 1H2010
• Income stream from MGM hospitality
  
  • Have nine properties in contract
  • Just signed a new project in Egypt 48 hours ago
  • Make 10-15MM a year though these development deals
  • Have 30 deals in various stages (many in LOI or negotiation stage)
  • Think that they will make 100-200MM of EBITDA in the next 5 years...
• Seeing similar banquet pickup a la - LVS
• Have $244MM whole in CityCenter expected to be funded with condo proceeds, and believe that they will get more proceeds than that
• Will be paying bills on CityCenter well into 2010, so from a condo closing timing standpoint should match up well
• A lot of the rooms being added to the market are at the high end ... so can they fill them and maintain rates at their other high end properties
  • Indications on pricing are good for next year
  • A lot of the conventions and conferences they are booking are at higher rates
  • Expect continued robust occupancy next year
• Rooms booked for next year - every quarter for 2010 improves, and lead times have expanded - seeing more rooms booked out 60 days +
• Hooks on the convention side: have the most "value attractive" markets, many dates/ spaces desired in the past as now available, have more amenities than other markets
• Taking share from other markets and competitors in Vegas
• Convention rates are as much as $60 better than leisure pricing so as they get more convention business their ADRs should increase
• Their hold % was just slightly higher than the top end of their range in Las Vegas
  
  • they down play the impact but the reality is 100bps above the high end could be several hundred bps better than last year
• Forward room nights aren't same store.  Convention room nights are most at MGM Grand, also Aria doesn't have that many rooms
• Murren says that he never said that RevPAR will be up 5-10% in 2010 - but visitation will be up 5-10%
• Very interested in doing a Macau listing - and are working on it - will hopefully occur in 1H2010. But won't have impact on the NJ issue
• Goal of $600MM of cost savings and how we can see what they have achieved, how much is permanent?  Jay Sugarman's addition to the board.  Normal run rate for other Capex?
  • Have taken out a little over $700MM of cost savings, 85% of those costs are reflected in the numbers already - they started some of this as early as '07 those programs are largely complete
  • FTE's was down 12% despite same occupancies
  • Believe that when things recover their margins will exceed those seen in the "early 2000's" (peak markets)
  • Jay Sugarman's addition was partly driven by growing HC costs, spend $400MM a year on healthcare
  • Have high capex this year as they prepare all their properties for CityCenter opening - $200MM (normal maintenance run rate) and should in that range next year
  • Will spend $10-15MM more on technology next year
• Residential $200MM write-down was MGM's 50% share of the pain resulting from the 30% price reduction and their portion was a little greater
• $2.44BN is still MGM's share of their investment in CityCenter
• MGM has fully funded through their commitment to CityCenter - to be funded by DW's LOC