PFCB is scheduled to report 4Q09 numbers before the market opens tomorrow.  The company continues to outperform its peers, up nearly 14% in the last month relative to the casual dining group’s average 7% move higher.  As I said on January 12, in a post titled “PFCB – 2010 NOT AS DIRE AS 2009,” I would not be surprised to see this name work on the long side, largely in response to the Co-CEO Bert Vivian’s more optimistic tone at the Cowen and Company Consumer Conference.  The company has a current short interest of 33%, the highest level among its peers.  Despite PFCB’s recent outperformance, this high short interest, combined with the fact that it has more sell-side analysts betting against it than any of its peers, only strengthens my conviction. 




My expectations for the quarter are in line with consensus from both a top-line and bottom line perspective.  My $0.40 4Q09 EPS estimate assumes a -5.0% comp at the Bistro and a +2.0% comp at Pei Wei, only slightly better than the street’s -5.3% and +1.8% comp estimates, respectively.  Operating margin should improve slightly YOY in the quarter, but management’s comments about current trends should matter more. 


The chart below shows how PFCB has traded one-day post earnings versus reported comp trends at the Bistro.  I think if we see the Bistro trends improve on a 1-year basis (as my -5.0% estimate would imply relative to -8.5% in 3Q09), the stock will likely move higher as well.  For reference, both -5.0% at the Bistro and +2.0% at Pei Wei would still imply some sequential deterioration on a 2-year average trend from 3Q09, which is in line with what we saw for the overall casual dining average as measured by Malcolm Knapp.  The -5.0% estimate assumes only a 25 bp quarterly sequential slowdown in 2-year average trends at the Bistro relative to the 125 bp sequential decline in 3Q09. 




Mr. Vivian stated at the Cowen conference in January that he expected to see a tick up in trends from business customers, which make up about 30% of tickets at the Bistro.  If trends start to get better on the margin, I think this name will continue to work.  Mr. Vivian guided to roughly flat revenues and margins in 2010.  Operating margin compares get more difficult in 1H10 as the company will be lapping its 100+ bps of improvement in 1H10, largely driven by cost saving initiatives.  Again, I think top-line trends will matter more to PFCB’s performance in the near-term.


PFCB will generate a lot of cash in 2009.  The company guided to $70 to $80 million in full-year free cash flow and I could see the company coming in slightly higher.  Mr. Vivian’s 2010 guidance assumes a “similar magnitude,” but I think free cash flow could come in better in 2010 as well.  The company has said it will continue to use this cash to pay down debt (expects to be completely paid down by mid-year 2010) and buy back shares.  On the 3Q09 earnings call, management said it expected its full-year share count to come down by 4% to 5% in 2009, which implies an increased level of share repurchase in the fourth quarter. 


2010 Outlook provided at the Cowen and Company Consumer Conference last month:

  • Development: 5 units each for Bistro and Pei Wei, modest growth.  There are currently 196 Bistros and the company thinks the concept has the potential for 250 units over time.  We could expect increased development in 2011 with closer to 8-10 new Bistro restaurants and 15-20 Pei Wei units.  And, we could see a few more in 2012. 
  • Same-Store Sales Growth: Even with the expected modest pick-up in sales trends out of its business customers, the company is not expecting positive comps for the full year in 2010 (maybe turning positive near the end of the year).  Specifically, modestly negative comps at the Bistro and positive comps at Pei Wei seem reasonable.  The company has no plans to raise prices in 2010, but Mr. Vivian stated that “If the world gets better, we might take advantage and take a little pricing.” 
  • Revenues:  Translates into roughly flat revenues in 2010. 
  • Restaurant level margins:  Roughly flat with 2009.  This assumption is based on the company’s current outlook for slightly favorable food costs offset by slightly unfavorable labor costs. Based on contracts in place, protein costs should be favorable over 2009. Produce is not contracted and has the same weight as chicken or beef, but assuming no plague, produce should be slightly favorable as well. 
  • Non-operating expenses: Preopening expense, interest expense and G&A are all expected to come down in 2010. 
  • Free cash flow: Free cash flow should be of similar magnitude to 2009.  Debt will be paid down by mid-year, which leaves about $40-$50 million available for share buybacks.  In general, he plans to clean up the balance sheet and take the share count down, which should put the company in good shape by year-end. 



In Jim Murren’s own words  MGM is “very determined to take Macau public.” The question is how much cash can MGM extract?  Unfortunately, it may be less than people think.



Unlike some of their peninsula peers, MGM Macau had a rough start when it opened in December 2007.  For the first seventeen months of operations, MGM struggled to generate a decent VIP book of business.  Its tables consistently and materially under earned almost all of their peers.  The rumors and reasons for underperformance were numerous:

  • Poor traffic access to the property and construction projects all around it
  • Over reliance on the “build it and they will come” belief
  • The property was mismanaged and MGM was too busy with its problems in Vegas and opening City Center… MGM did almost file for bankruptcy in 2009… according to our sources the papers were ready to file
  • Problems with Pansy Ho over who controls operations
  • There were rumors that Pansy was purposefully mismanaging the property so she can buyout MGM’s stake on the cheap (we think this rumor is false)
  • Not enough junkets at the property and poor marketing efforts


In May 2009 things began to change and the property seemingly hit its stride.  There were a host of management changes at the property level, new and additional junket operators where brought in, the market as a whole began to lap some easy y-o-y comps beginning in July.




In 3Q09, MGM Macau recorded Rolling Chip volumes that were 64% higher sequentially and 63% better than their 5 quarter average RC Volume.  The combination of explosive growth in VIP coupled with higher than normal hold, produced a blockbuster $73MM EBITDA quarter for the property compared to just $31MM of EBITDA in the 1H09 and $119MM of EBITDA for all of 2008.


The question is whether the results we saw in the 3rd quarter are sustainable?  We think so, to some extent.  There is the threat of more competition coming in the form of Wynn's Encore opening, a more aggressive SJM & ramp of Oceanus once the escalators open at the ferry terminal, and some potential pressure from Singapore.  Perhaps even greater than the competitive threats, are those of government tightening and general slowdown of growth in China and how that could impact the Macau market as a whole (see our note "MACAU VIP AND THE MACRO VARIABLES" published on 1/26/10). 


However, if we put market risks aside, the recent data coming from the property do suggest that the trends we saw in 3Q are continuing.  While MGM wasn’t as lucky (hold-wise) in 4Q09, junket RC for 4Q was flat sequentially.   We expect MGM Macau to report around $57MM of EBITDA for 4Q09.  Our proprietary January data for the property also supported that RC in the $3BN monthly range was sustainable, as January’s junket RC was $3.1BN - the best month for MGM Macau since opening.  If 3Q09 is the new normal for MGM Macau- at least in terms of RC volumes- then we think it’s reasonable to assume that MGM Macau can do $225-240MM of EBITDA in 2010 before MGM takes a royalty payment.


So what’s the right multiple to value MGM Macau? We would argue that MGM Macau should trade at a discount to where WYNN Macau and Sands China trade, since

  • MGM Macau is a JV – and hence prone to more control and operational issues,
  • Has less operating history, and the little it has has been inconsistent
  • Risk of market share shift to Cotai
  • No option on new property
  • Potential conflict with Pansy?


Using a range of 12-14x EBITDA on an Adjusted EBITDA number of $220MM (after 2% royalty fee), we estimate that MGM Macau equity value is worth $2.3-2.8BN.  In an IPO scenario with its 50% ownership, MGM would only generate maximum cash of $300MM assuming 25% is IPO’d.



R3: Sell It While You Can!


February 16, 2010


One of our key themes headed into 2010 was ‘sell it while you can,’ meaning that credit spreads, cash flow visibility, and the rebound in equities has created a brief window for bankers and P/E shops to get paid by bringing dogs to market. DG was first. Toys R Us is the poster child.





One of our key themes headed into 2010 was ‘sell it while you can,’ meaning that credit spreads, cash flow visibility, and the rebound in equities has created a brief window for bankers and P/E shops to get paid by bringing dogs to market. DG was first. Toys R Us is the poster child. We still think Sports Authority will be this year. Consider the following flow from this weekend…


1. According to the NY Post (they have the ‘exclusive’ based on their super duper secret sources), Bain Capital, Vornado, and KKR are currently interviewing investment banks to prepare an IPO for none other than Toys R Us.  Recall that the company went private for $6.6 billion about five years ago.  Timing on the deal is rumored to be this Summer.


2. Sports Authority is hitting the PR wagon about store openings and remodels. This smells like validation of our call that it will come public in a Dollar General-esque way. Short/Intermediate term, it is good for the space. Channel fill due to an inevitable (and untimely) but necessary store growth program in a concept that should not grow (or exist) takes the burden off vendors to pressure retailers for margin. On the margin, a negative for DKS. Net neutral for FL.


3. At least we’re getting some balance, as New Look, the UK based fashion chain, scrapped its IPO which was slated to take place next month.  Management cited “considerable volatility in the equity markets” as the reason for cancelling.  New Look was taken private in 2004 by sponsors Apax and Permira.


Why is this window dangerous? Aside from bringing businesses that should not exist back into the public’s hands and perpetuating a supply/demand imbalance at retail, it increases risk of being short business that should (and ultimately will) go away. Once the window starts to close on the margin, however, fundamentals will take on increasing importance. You listening JNY? WRC?



MORNING NEWS  (and Hedgeye Retail’s 2 Cents)


Fast Retailing & H&M Looking to Acquire - Fast Retailing Co. Chairman and Chief Executive Tadashi Yanai said the operator of Japanese retailer Uniqlo is on the hunt for acquisitions and plans to spend as much as $11 billion to strengthen its global presence. Mr. Yanai, who founded the purveyor of cheap-and-chic clothes in 1984, has made no secret of his ambitions to transform Uniqlo into the world's leading global apparel retailer, leapfrogging the likes of Gap Inc. and H&M operator Hennes & Mauritz AB. He said in an interview Thursday that acquisitions would be necessary, particularly in the U.S. and Europe, to reach that goal. <>

Hedgeye’s 2 Cents: A Japanese retailer – with a cost of borrowing near zero – is on the hunt for up to $11bn worth of deals. If that is not supportive of the point noted above as it relates to M&A, then I don’t know what is.


Payless ShoeSource Democratizes Runway Style for the Fall Season With the Unveiling of Designer Collections at New York Fashion Week - Unique Shoe and Handbag Designs Inspired by 1960s Parisian Women and Lunar and Earth Landscapes Hit the Runway at Designers' Shows -- Christian Siriano and Lela Rose. Fashion fans will be keeping a sharp eye on the runways this New York Fashion Week as the hottest upcoming looks for fall '10 are unveiled under the tents at Bryant Park, including the latest footwear trends from Payless designer labels: Christian Siriano for Payless and Lela Rose for Payless. Payless designer collections are among the most widely distributed designer footwear labels in America today.  The Payless fall '10 designer footwear and handbag collections will be available in stores in September with average price points under $40 an item.  In the meantime, shoppers can refresh their spring wardrobes with the spring '10 Payless designer lines including Lela Rose for Payless, alice + olivia for Payless, and Christian Siriano for Payless all available now in select Payless stores nationwide and  <>

Hedgeye’s 2 Cents: Whether you’d buy PSS designer product or not, the fact is that they finally have the speed to market and consumer insight to actually TRY this. I like it.


According to Comscore's annual digital year in review, Ecommerce sales were down for the first time in history after posting a 2% decline in 2009.  Sales for the year totaled $209.6 billion, with pure retail sales (ex-travel) coming in flat at $129.8 billion.  Travel declined by about 5% for the year, which was the key driver of the overall decline.  Despite a slow start to the year, holiday sales increased by 3% in November and 5% in December.

Hedgeye’s 2 Cents: I can’t bless the numbers, but directionally it is notable. Makes sense to me that travel dragged it down. Am I ready to throw in the towel and say that e-commerce is down w the big ramp. No. But it makes sense for the category/channel to revert to a growth rate of 2-3x total industry retail sales.


Report Finds E-Commerce an M&A Target - E-commerce proved the exception to the rule of contracting merger and acquisition activity in specialty retailing during the second half of 2009, according to a report from investment bank Tully & Holland. Improving economic conditions and continued tightness in the credit markets held off private equity-backed leveraged buyouts, leading to a temporary contraction in M&A activity, the report said. Nineteen transactions occurred in the second half of 2009, compared with 29 for the same period in 2008. “Retailers receiving funding generally operated in one of three segments — discount/value/off-price; health and wellness, or Internet retailing, all believed to have superior growth prospects,” the investment banking firm said. “Meanwhile, a still tepid mergers and acquisitions market saw multiple retailers, primarily in the multichannel and Internet segments, acquired by strategic buyers. <>

Hedgeye’s 2 Cents: Not new or surprising.


Wolverine World Wide, Inc. Announces $200 Million Share Repurchase Program - Wolverine World Wide, Inc. announced that its Board of Directors approved a new share repurchase program at its regularly scheduled meeting February 11, 2010, authorizing up to $200 million in share repurchases. The share repurchases are to be made over a four-year period at times and amounts deemed appropriate by the Company, based on a variety of factors including price and market conditions. Over the last 10 years, the Company has returned over $450 million to its shareholders through previously approved repurchase programs.  <>

Hedgeye’s 2 Cents: This is such a good little company. But not actionable today.


J. Crew to Open Fourth Men's Store - J. Crew is stepping on the accelerator to grow its men’s business. The retailer has signed a lease for its fourth men’s-only store in the New York area, WWD has learned, and is aggressively seeking locations for additional units outside Manhattan. “Someone needed to step in and give men clothes they could wear, love and collect,” said Millard “Mickey” Drexler, chief executive officer of J. Crew Group Inc. Saying the company is “becoming ambitious and opportunistic in our men’s business,” Drexler confirmed J. Crew will open a 3,400 square foot men’s store at 1040 Madison Avenue at 79th Street, across from a women’s store at 1035 Madison. The unit is expected to open in August or September. The store will join three others devoted exclusively to men’s product: a unit on West Broadway in TriBeCa, known as the Liquor Store because of its location in a former bar; one at 484 Broadway in SoHo, and the only mall location, at Garden State Plaza in Paramus, N.J.  <>

Hedgeye’s 2 Cents: Grow Mickey, grow! This could be a nice little tailwind, until he inevitably stuffs the channel again.


Eco-Summit to be Held at Nike Headquarters - Executives from Nike, Starbucks and other companies will join Oregon Representative Garett Brennan and labor leaders at Nike's headquarters on February 16 to advocate national climate and energy policies to create new jobs, restore America's competitiveness and provide for our economic and national security. Those attending included:

    * Sarah Severn, Director of Stakeholder Mobilization for NIKE, Inc.

    * Jim Hanna, Director, Environmental Impact, Starbucks Coffee Company

    * Mark Edlen, Managing Principal, Gerding Edlen

    * Chandra Brown, President, United Streetcar

    * Joe Esmonde, Renewable Energy Liaison, IBEW Local 48

    * Garett Brennan, Executive Director, Focus the Nation

    * Congressman Earl Blumenauer

The interactive panel discussion will be followed by a 20-minute tour of Nike's state-of-the-art green building, the C. Vivian Stringer Center, which embodies many of the carbon-cutting features on Nike's energy efficient campus. <>

Hedgeye’s 2 Cents: Think about how far this company has come. In the 90s it was the poster child for sweat shops (real or perceived). Now it is hosting eco summits, leading with Green footwear, and has consolidated largely into labor-friendly factories. Wall Street might not care, but this ultimately makes its way into the younger consumer’s mindset (and top line).

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The Macau Metro Monitor, Februrary 16th, 2010



Wynn won a court action in Hong Kong against a high roller over a HK$30MM in gambling debt, this past Friday. The claim against high roller Henry Mong Hengli was for debts he ran up in Macau, although Wynn Las Vegas also filed a writ against Mong in Hong Kong for Nevada debts. Mong allegedly owes the company a total of US$6.75MM.

Mong’s lawyers argued that Macau law requires the Gaming Inspection and Co-ordination Bureau to individually approve credit agreements. Lawyers for Wynn said the Macau law in question doesn't apply to direct loans to players but rather credit agreements between casinos and VIP junkets, and that requiring casinos to seek gaming bureau approval every time they issue credit to players wasn't feasible.  This was the first case where a Macau casino operator attempted to recoup gambling debts through the courts in either Macau or Hong Kong. Macau passed its first legislation on gaming credit in 2004.


Lucid Intervals

“He is mad past recovery, but yet he has lucid intervals.”

-Miguel de Cervantes


Cervantes was one of the most famous novelists of the 16th century and he is often recognized as having tremendous impact on the Spanish language. He authored Don Quixote, the story of a man who, per our friends at Wikipedia, carried “his enthusiasm and self deception to unintentional and comic ends.” How appropriate a description for what we are watching unfold across global markets today.


In classic contrarian form, European stocks have been recovering their oversold losses for 6 out of the last trading 7 days. This short-term lift is largely a reflection of the manic media’s attempts to compartmentalize global macro risk reactively, rather than proactively. The timing of their fear remains the contra-indicator for global macro risk managers.


Debt laden governments are certainly “mad past recovery”, but they do have foreseeable “lucid intervals” of strength that you should capitalize on. As equally important as it was to have sold your international equity exposure into 2009’s hopeful year-end, is as important as it is to recognize that global markets don’t always crash in a straight line after they have incurred double digit losses.


Despite broad strength across Europe’s major stock market indices this morning, Greece’s Athex Index is losing another -2% of its value. Year-to-date, Greek equities are down -15.2% and they’ve crashed -35.7% since October 14th, 2009.


What does this mean? Shouldn’t all those who are pressing their Euro shorts be getting paid at the same time as they press the same bet? Doesn’t everything happen in the vacuum that our manic media and governments perpetuate? Hardly.


Greece’s deficit and debt issues are no different than America’s or Japan’s. Just because pundits are finally focused on them doesn’t make them new. These are going to be endemic issues that will not be resolved in the next 1 to 3 weeks. This madness of piling debt upon debt upon debt to solve for the economic incompetence of our politicians is chronic. Unfortunately, the long term pain will be with us for years to come.


So back to the grind of understanding opportunities in buying-low and selling-high this morning. For now, government’s are sponsoring volatility, and this is the best we can do to manage lucid intervals of the market’s hope.


Both China and Hong Kong were closed last night, but that certainly doesn’t change the fact that China is tightening monetary policy and that stocks across Asia remain broken across their intermediate term TREND lines. ‘Tis now the Year of The Tiger, but last year’s Chinese Ox remains in a Box. The 3 intermediate term TREND lines of resistance to focus your risk management on in Asian equities are as follows:


1.       China’s Shanghai Composite = 3155

2.       Hong Kong’s Hang Seng = 21,614

3.       Japan’s Nikkei = 10,466


In Europe, despite my being long Germany and the DAX trading up another +1.1% this morning, it doesn’t mean that the intermediate term TREND line is no longer broken. Stocks can rally to lower-highs and remain broken. As risk managers, we are tasked with selling into strength, not chasing it. Here are some major intermediate term TREND lines of resistance in European equities to consider:


1.       The UK’s FTSE = 5284

2.       Germany’s DAX = 5709

3.       Spain’s IBEX = 11,581


In Europe, despite most of the market’s attention being focused on Greece, Spain and Portugal again this morning, the inflation number in the UK is a critical one that will not cease to exist because it’s being ignored. For the month of January, UK consumer prices (CPI) hit a 14-month high, accelerating to +3.5% year-over-year. This inflation acceleration wasn’t in the area code of the Bank of England’s forecast, so please don’t ask them what they thought about it.


Later on this week, in the US we will get a continuation of the same. Year-over-year inflation reports in the United States will be running up +3-4%, and since the Federal Reserve doesn’t have this in its forecasts as being sustainable, please don’t ask them what they think about those numbers either.


Ask the US Dollar and the long-end of the US bond market’s yield curve what they think. Both continue to trade very bullishly, making a series of higher-highs on rallies and higher-lows on selloffs. Markets don’t lie; politicians do.


At the end of the day, despite the madness of all that has become this market circus of “enthusiasm and self-deception”, higher-cost of capital and tightening access to it will continue to manifest into a long term global affair. An addiction to debt has a long term price that needs to be paid.


My immediate term downside target for the SP500 remains 1046. I have intermediate term resistance up at the TREND line, which remains 1099. As a reminder, we’ll be hosting our Q1 Macro Theme update call at 11AM EST. Please email if you’d like to participate.


Best of luck out there today,





XLK – SPDR Technology — We bought back Tech after a healthy 2-day pullback on 1/7/10.


UUP – PowerShares US Dollar Index Fund — We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).


EWG - iShares Germany — We added to our position in Germany on 2/4/10 on the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.  

CYB - WisdomTree Dreyfus Chinese Yuan — The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP - iShares TIPS — The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.


GLD – SPDR Gold We re-shorted Gold on this dead cat bounce on 2/11/10. We remain bullish on a Buck Breakout and bearish on Gold for Q1 of 2010, as a result.


CAF – Morgan Stanley ChinaThe Chinese Ox Remains In A Box. We shorted CAF on 2/10/10 ahead of another inflationary report that registered China’s CPI at +1.5% in January Y/Y, and PPI at +4.3% Y/Y.


RSX – Market Vectors RussiaWe shorted Russia on 2/9/10 and maintain our intermediate term TREND bearish view on the price of oil.


XLP – SPDR Consumer Staples The Consumer Staples sector finally broke both our TRADE and TREND lines on 2/8/10. Given how many investors own these stocks because it was a "way to play the weak US Dollar" last year, we have ourselves another way to profit from a Buck Breakout with this short position.


EWJ – iShares Japan We re-shorted Japan on 2/2/10 after the Nikkei’s up move of +1.6%. Japan's sovereign debt problems make Greece's look benign.


IEF – iShares 7-10 Year TreasuryOne of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.


No real conviction either way heading into the Q. LV may disappoint in 2010 but mgmt is unlikely to give a realistic outlook. Here is the “YouTube” of forward looking statements from Q3’s release and conference call.



As we wrote about, Aria at CityCenter had a great start, especially on the Baccarat tables in its first 15 days of operations.  Some of it was good luck, some of it was volume related.  Either way, there appeared to be a significant degree of cannibalization on existing Strip properties, including MGM’s portfolio.  At the end of the day, however, 15 days hardly makes a trend.  That makes management’s forward looking commentary especially important.


Unfortunately, MGM’s management’s outlook has been unreliable.  We first wrote about this way back on August 6th, 2008 in our post “MGM MANAGEMENT: SOOTHSAYERS OR HOPEFUL AGNOSTICS?” and with the exception of “the bankruptcy months” in 1H 2009, management has put an overly optimistic spin on the outlook.  They will probably do the same this week and we have no idea how investors will react.  Short interest is high. Q4 was arguably better than people thought, and Macau is booming – at least for now.  The investment community may not put the appropriate “deflation factor” on management’s comments.  We’ll stay on the sidelines for now.


The following is the “YouTube” from the Q3 earnings release and conference call:





Forward looking & current trends 

  •  “On the Convention side, we confirmed approximately 550,000 convention room nights in the third quarter, which puts us at a booking level very similar to those before the downturn.”
  • “We have, in fact, returned to booking levels that are better than what we are seeing earlier this year and back to more normal levels. And we are confident that next year will be even better in this regard.”
  • “A recovery in convention business travel is key to increasing rates. And based on early bookings, it looks like that is achievable in the second half of 2010 and throughout 2011.”
  • “Our lead volume was up dramatically in the third quarter, up 9% versus last quarter, the second quarter or in the first quarter… We're also seeing that they're trying to secure their meetings before dates or space fills up again. We're seeing industries, like the farming industry, insurance and even auto industry, showing signs that they need to get back to Las Vegas. And the other good news, our conversion rates are also rising, as people are serious when they talked to us and we're booking a higher rate of those calls.”
  • “Cancellations have slowed down dramatically since the beginning of the year. We're not quite at our normal levels but we're getting close. And I think this is significant. 90% of the cancellations we had were for business occurring this year in 2009. We're getting very few cancellations for '10 or beyond.”
  • “FTEs are 12% lower in 2009 and 2008, and down 17% when compared to 2007 despite occupancy levels consistent with the prior year and our service standard's second to none.”
  • “We look for a meaningful margin improvement as room rates improve, given the significant operating leverage in our business model. As we've outlined before, for every $5 increase in ADR, we generate over $50 million in annual EBITDA. For every 100 basis points improvement in occupancy, we would generate nearly $40 million of annual EBITDA.”
  • “Our revenue and market outlook. Our room rates, we believe, will remain soft in the fourth quarter as we continue to occupy our buildings at higher levels. But we expect a lower year-over-year percentage decline than what we saw in the third quarter.”
  • “We think the visitation next year will be closer to 38 million, probably about 38.1 million. I think it's going to be up around 7%, is our guess. We project the room capacity next year in 2010 to be around 54.4 million available room nights. That's adding the capacity that we're adding and everything we know about the market, and that's about a 5% increase over 2009. So we think visitation is going to be up about 7%. We've been saying 5% to 10%, but we think it's going to be up about 7%.... We think that our market share will increase next year... We think CityCenter will be additive. We're projecting that citywide occupancy next year will be around 80. And we'll be north of 90% for 2010.”
    • For MGM’s sake we hope Jim is right, because December showed no signs of higher occupancy, and table win (ex Baccarat) as well as slot win were all down 
    • Same store volume metrics–slot and table– were both down double digits in December
  • “We believe that the visitation that we're going to see next year will lead to higher table win and higher slot win. We think both will be up double digits in the market, in fact. And that we believe that MGM MIRAGE is going to get more than its fair share of table win and slot win.”
  • “We see the Convention business starting to improve in April and accelerating throughout 2010 and into next year. And that will accrue to the benefit of primarily the higher-end properties.”
  • “So when we're talking about the rooms we've booked for next year, every quarter in 2010 improves…The lead times have also been expanded. So in other words, we've talked about booking windows being very tight, within 60 days, within 30 days. We're starting to see more rooms being booked 60 days plus out, which is also an encouraging sign where we're able to capture some of those rooms, and therefore, help us yield our rooms better on a going forward basis. And obviously, in 2011, it improves further.”
    • Seasonality alone explains this, since Q1 is the strongest group and convention quarter.
  • Q: “When you're giving numbers like that, is it same-store of existing inventory or is it with the addition of the rooms of CityCenter and the capacity at CityCenter?” 
    • A: “It's not same-store because ARIA is included but ARIA is so small relative to the overall rooms because of the vast space that we have at Mandalay Bay. So we can break it out separately on a same-store basis. We didn't do it here. But everything I'm looking at, the booking trends, for example, the convention bookings, that's all Mandalay for the most part. And the room nights we have in the pipeline for '10 and '11 are for the most part, all of the MGM MIRAGE wholly-owned properties. ARIA has a conference facility similar in size to Bellagio and really very small as a percentage of the overall portfolio we have at MGM MIRAGE. ….It can't be 5% of the increase in the room nights booked that we have for '10 and '11.”

City Center

  • “During this final phase of pre-opening, we expect to deliver approximately 340,000 hours of training, spinning 90 different courses. Of the 12,000 employees at CityCenter, 3,100 were hired from existing MGM properties.”
  • “At ARIA, we continue to see a steady pace of room bookings. We've already contracted 38% more room nights with convention groups over what Bellagio had done two months prior to its opening.” 
  • As for the room rate pricing in the Transient and Leisure Market segment, ARIA continue to be priced at a premium to Bellagio. From opening through August 31, 2010, which is a 258-day period, ARIA's price is greater than or equal to Bellagio 80% of the time in the Transient Market and 90% of the time in the Leisure Market.” 
  • Crystals: “We anticipate 47% of the square footage to open in December and have 82% of the square footage in terms of leases opened by July of 2010.”
  • “As it relates to the budget for CityCenter, with regards to this budget, $7.75 billion has been funded to date and we have approximately $740 million left to fund the completion of CityCenter based on our $8.5 billion budget. We have about $350 million remaining to be drawn on our CityCenter credit facility and $140 million in remaining sponsor equity to be contributed. And the remaining funds will come from closing proceeds from condo sales.” 
  • Unofficial guidance from Baldwin: “The $27 million in the first operating year is a little heavy. Usually advertising runs 1% to 2% of revenues and we forecast to have about $1.2 billion in revenues.”
    • And the $1.2BN is just for Aria…


  • Q: “Macau. How much did hold benefit the property-level EBITDA performance?”  
    • A:”Okay, so it's up a little bit. So that helped a little.”
      • Hold was 3.1% and helped revenues to the tune of $24MM in the 3Q.  While VIP RC looks like it’s down a little in 4Q, hold is a little low. So we expect a $40MM sequential decline in VIP revenues  
  • “As it relates to the Macau listing, we're clearly very interested in doing that and we've been moving very determinedly towards that goal. And we believe that, that will occur and could likely occur even as early as the first half of next year… We're very determined to take Macau public.”

Other commentary

  • “As of today, we have availability of $1.6 billion under our credit facility. This is enough capacity to take us through 2010, as we have approximately just inside $1.1 billion of senior debt maturing between now and the end of 2010.  We're in good shape as far as our bank covenant. We have a minimum bank EBITDA covenant of approximately $900 million.”
  • “Our total stock compensation expense, we estimate to be approximately $10 million in the fourth quarter. Corporate expense is estimated to be approximately $30 million to $35 million, including $4 million of stock compensation expense. Pre-opening expenses will be higher in Q4, primarily resulting from our share of pre-opening expenses with CityCenter's opening on December 16. Depreciation is estimated to be $170 million to $180 million in the quarter. Gross interest expense is estimated to be approximately $250 million to $260 million, with capitalized interest of $40 million in the fourth quarter. Our previous capital expenditure guidance was $200 million for the year. We're tracking to come in inside of that number. And so that guidance will be slightly lower as we finish up the fourth quarter.”
  • MGM management contracts: “They won't be largely profitable over the next couple of years and won't be significantly meaningful to our cash flows. This is an enterprise that will generate, we think, $100 million to $200 million of EBITDA annually, within next five years.”
  • “We don't give hold percentages quarter-to-quarter, but it was just slightly higher than our range. It wasn't materially so. So like maybe 100 basis points higher than our top end of our range, for example, something like that.”
    • 100 bps above the high end of their range is pretty material especially when it’s across that large of a base of volume
  • “On an annual basis, we've taken out over $700 million of cost savings out of the system… And we eliminated thousands of positions within this company. And so when you look at, for example, this past quarter, and you see that our FTEs were down about 12% year-over-year but our occupancy was equal with last year's, I think that's a very telling correlation”
  • “We'll be able to maintain that CapEx for the next few years.”

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