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MGM 4Q09 CONF CALL: "NOTES"


"This has been a challenging but momentous year for MGM MIRAGE culminating with the opening of CityCenter in December. We generated significant cash flows and kept our buildings occupied at 90% even in a brutal economy because we are equipped with the highest quality resorts, the preeminent brands, and the finest employees in the industry. We have profoundly improved our cost structure and are actively building revenue to maximize operating leverage as the economy shifts into recovery mode. Our forward convention booking pace accelerated again in the fourth quarter with over 440,000 future room nights booked."

- Jim Murren, MGM MIRAGE Chairman and Chief Executive Officer

CONF CALL

  • There has been aggressive price discounting among our competitors, we haven't been doing it though ...
    • Well LVS wasn't either ... so who was?
  • Claims that airlines have added seats to flights, and auto traffic has grown as well.. expect visitation to be up this year... still feel very comfortable that 38MM people will visit Vegas in 2010
  • MGM is the biggest Baccarat player - especially in the high end
  • The 440k room nights they booked in 4Q09 excludes Aria but isn't all for 2010, and its double what they booked in the 4Q07, and half of the bookings are from new customers
  • Group bookings in 2010 - mix was 11.3% (convention mix as a % of total portfolio) was 16% in 2007.  Expect that they will be back in the mid teens by 2011... that mix shift allows them to occupy rooms with more profitable customers
    • They aren't aggressively pricing this business - rather at rates competitive with leisure rates
    • Prices that they are getting are close to 04/05' and what they are booking for 2011 is close to 2007
  • Down to 16% attrition compared to 12-13% historically
  • International marketing was very successful - driven by their Asian visitation
  • Synergy between Aria and other properties has been very profitable so far, since they are now getting customers that were going elsewhere... that's their plan for growth too
  • How is Aria doing?
    • Reviews have been "outrageously great"
    • Volumes are ramping up
    • Opportunity going forward is almost "unlimited"
  • Bellagio is up in almost every metric and luxury portfolio is doing well.. no cannibalization from Aria. All properties had Baccarat increase ex- Aria
  • YTD occupancy is up y-o-y and room rates have been improving (I assume that means less negative?) They are up y-o-y right now.. because of CNY
  • We know we've gained market share 
  • The environment remains challenging and likely will remain so for sometime, but we see light at the end of the tunnel
    • Fundamentals improving and so is the balance sheet
  • 4Q results were impacted by impairment charges resulting from their decision to write off the AC "City Center East" development. They also adjusted thier accrual for the CityCenter guarantee to $150MM from $68MM previously
    • I assume this means that condo sales may be worse or capex to complete is higher?
  • Why do they say that things improved when the declines got less bad due to easier comps? It's not the same thing.. Improve means increase... not slowing declines
  • MGM Detroit continues to garner almost 40% market share
  • MGM Macau was impact by lower hold (EBITDA was only $46MM... I'd like to see them continue to argue that they can do $300MM of EBITDA in 2010 when they only did $161MM this year)
  • Aria benefited from high hold
  • New R/C would have a 20-25% paydown to extending lenders, LIBOR +500bps with 2% LIBOR floor still in place
  • Have $1.1BN of availability under the R/C which reflects the payoff of $293MM of bonds this past week that just matured
  • 2010 1Q Guidance
    • Total Stock comp: 10MM
    • Corporate expense: 30-35MM including 4MM of stock comp (this q included some severance and bonus accrual and hence came in 10MM above guidance)
    • Pre-opening should be minimal compared to 4Q2009
    • D&A: 160-170MM
    • Gross Interest expense: 265-275MM with no capitalized interest
    • Capex for 2010 will be a little higher than 200MM
    • RevPAR is expected to be decline less than what they saw in 4Q09
  • City Center update
    • About 1,000 contracts need to be closed out now that everything is open
    • Dec occupancy was 62% with an ADR of $236 for Aria
    • Booking trends in transient and leisure improving each week
    • Elvis set to have it's official opening next week
    • On residential - 30% price adjustment and mortgage finance assistance. Received 400 applications to date as a result.  Mandarin closings began and will take about 6 months
    • Crystals is continued to build out - opened with 41% tenants, will be 56% occupied by 1Q2010 end and 85% by 2010 YE (looks like they had some slippage in occupancy since last call)

Q&A

  • Relaunching their marketing program next quarter- and expect it to be more effective than before and should help core properties and help them yield rooms more appropriately
  • Convention group used to be over 40% of its room mix historically, claim that the mix there is starting to improve
  • AC strategy
    • Already announced that they are looking to sell their 50% interest
  • Macau strategy 
    • Well we made "a lot of money" in January, and 4Q09 wasn't as good because of hold but volumes are improving (if they're so good why don't they disclose them?)
    • Luck was also on their side in January for more details see our January Macau note and the MGM IPO note. We estimate table win was $145MM in January
  • Contribution from Borgata was up slightly y-o-y but won't disclose the numbers
  • 100% of the rooms are open at Aria since about 5 weeks ago
  • $150-200MM reserve for City Center - what does that mean?
    • Yes there are roughly $150MM of cost over-runs
    • Entitled to use first $244MM towards construction - may have to put that out in 1Q2010
  • Gross casino receivables  - $261MM vs. $244MM in 4Q08 (predominantly LV)
  • Think that RevPAR will turn positive in the 3rd quarter, and should be no worse than flat if not up for the year.
    • I assume this includes Aria rooms which skews the number? Either way, with all the comps RevPAR is kind of meaningless since they can assign any rate they want to those rooms.  So bottom line will tell the story more so than "RevPAR"
    • Rates turn positive in April, and the rates they have on the books for 2011 are similar to 2008
  • What % of 2010 and 2011 books are net new to Las Vegas vs. stealing share from competitors or just rebooked cancelled conferences?
    • About 50% is new business to MGM Mirage in terms of convention business, of that maybe 50% of that is new to Las Vegas
    • Think that convention business will be low teens of their total business this year
  • How much secured debt basket they can issue?  $800-850MM range
  • Margins in MS & Detroit are better than competitors because these are market leading assets
    • One of the Detroit competitors has been aggressively buying business and they won't do that
    • Tunica is just doing great
    • They are cross marketing Detroit, Biloxi & Tunica more successfully than they have been able to do in the past
  • 2010 EBITDA expectations?
    • They don't give guidance but they expect cash flows to improve if RevPAR improves
  • Have 845 rooms at Vdara turned over to the hotel and the remaining are under contract.  In May, once the closing process is complete they can turn the remainder over to the hotel
  • Sources of liquidity over the next few years:
    • Cash flow from operations
    • Disposition of AC
    • IPO in Macau
    • Ramp up of CityCenter and as is underleveraged and as it matures they can recapitalize it
    • Opportunistic access to capital markets, right now more focused on secured because it's cheapest now
  • Who is City Center cannabilizing if its not them?
    • Won't know for a few months
    • Not Bellagio, it's benefited them, foot traffic at Bellagio has improved significantly and occupancy and ADR are up at Bellagio
  • Difference between transient and group rate?
    • Leisure and group differential is about $60