MGM 2Q10 CONF CALL NOTES

Our notes from the Q2 earnings conference call.


 

“The Las Vegas operating environment remains difficult, but as we expected, we are seeing a gradual recovery.  Our Adjusted EBITDA improved compared to the first quarter, despite low hold percentages. CityCenter is seeing improved business activity. Aria is gaining brand awareness, which led to a 17 percentage point sequential occupancy increase in the quarter and higher non-casino revenues.”

- Jim Murren, MGM Resorts International Chairman and CEO

HIGHLIGHTS FROM THE RELEASE

  • "Net revenue for the second quarter of 2010 was $1.54 billion. Excluding reimbursed costs revenue mainly related to the Company’s management of CityCenter, the Company earned net revenue of $1.45 billion, a decrease of 2%"
  • Total casino revenue decreased 6% YoY:
    • Slots revenue -3% YoY
    • Table games volume, excluding baccarat, -7% YoY
    • Baccarat volume was +10% YoY
  • "The overall table games hold percentage was lower in the 2010 second quarter compared to the prior year quarter and near the low end of the Company’s normal 18% to 22% range.  Lower than normal table games hold percentage at the Company’s Las Vegas Strip resorts resulted in an impact to Adjusted EBITDA of approximately $20 million."
  • "Bellagio, The Mirage, and Mandalay Bay were affected by the lower table games hold, partially offset by MGM Grand which benefited from a higher than normal table games hold percentage. These factors led to an overall decrease in table games revenue of 11% for the quarter."
  • Room revenues decreased 1% YoY
  • City Center details:
    • Aria Adjusted EBITDA of $7MM
    • $162MM of condo proceeds excluding forfeitures
    • City Center net revenue excluding condo sales or forfeiture revenue of $183MM, so Crystals, Mandarin and rental fees from Vdara contributed $26MM

CONF CALL NOTES

  • Increased RevPAR for Bellagio and MGM Grand was driven by better convention mix
  • June was the first month where their company wide RevPAR was up YoY. In June ADR was up YoY as well
  • Convention room mix was 13%, up 2 points over last year and better than last quarter
  • Catering was up 27% YoY in 2Q
  • Pace of convention bookings has continued to be strong and expect 2H2010 to have better convention business than last year.  For 2011, bookings are 20% ahead of pace (compared to last year) and the rates are 15-20% better than what they are getting this year. So they still think that 2H2010 RevPAR will be positive.
  • Baccarat continues to be the main driver of growth for them. Baccarat grew 13% for April & May on the Strip and MGM properties saw a 20% increase in Baccarat business.
  • Domestic trends remain quite challenged and have not improved
  • Doing a good job cross promoting their properties and are continuing to improve their efforts there
  • City Center:
    • Aria's ADR is the second highest in their portfolio
    • Hold had a 24MM adverse effect on Aria's EBITDA
    • Attracting a lot of high end play
    • Total equity value: $2.65BN which resulted in the $1.2BN cash charge in the quarter. Charge also included a $29MM charge for inventory at Veer.
    • City Center has no financial covenants until June 2011
    • $8.8MM of Adjusted EBITDA
    • $34MM of adjusted EBITDA for CC residential
    • $48.7MM of casino revenue at Aria, $140.4MM of non-casino revenue
    • YTD through May, Aria achieved 14+% of the strip Bacc business
    • Maintaining hotel room rate integrity has been a priority
    • Aria booked 44,000 room nights this quarter for this year and future years
    • FTE's counts - 6,083 - decrease of 217 despite the increase in occupancy
    • Vdara occupancy reached 75%
    • Vdara also had staffing reductions
    • Mandarin- $8MM in 2Q vs. $6MM in 1Q.
    • 62% of Crystals was open in 2Q and over 70% of the space is currently leased. Crystals will be 72% occupied by 3Q end and over 80% occupied by year end.
    • Closed 18 units at Mandarin, 105 at Vdara
    • 142 unit / $86MM of revenues at Vdara
    • $57MM of revenues at Veer.
    • Closed 33 of the 232 sub contractor contracts outstanding.
  • MGM Macau:
    • Facility was oversubscribed and upsized from $850MM to $950MM.
    • July 2016 maturity date
    • Focusing on IPO later this year and expansion opportunities
  • Borgata sold 4 property leases for $73MM to Vornado, making up $11.3MM acres of land. Expect to finalize the sale of their share of Borgata within the 18 month time frame
  • Repurchased $211MM of principal notes : $136MM of 2010 notes, $75MM Feb 2011 notes.  Saved them $5MM of interest.
  • Looking at other non-core land - including some on the strip
  • 3Q 2010 Guidance:
    • $8-9MM stock comp
    • $165-$175MM of D&A
    • $291MM of gross interest; this quarter consisted of $267MM related to cash interest in the quarter, no capitalized interest
    • 285-295MM with no capitalized interest
    • 200MM of capex this year, 80MM of which has been spent

Q&A

  • Hold at Aria
    • Related to baccarat hold in particular.  100% luck related. Had 11% hold at the property. Not a function of short play times. Have had 30% hold on the other side of that. Aria's market share is already at 14% for high end play.
  • Timing in IPO at MGM Macau?
    • $250MM of EBITDA on an LTM business. Think that they will continue to grow the business. Have added several operators there.
    • Are waiting for land on Cotai to get approved - officially- that's part of the hold up. It needs to get printed in the gazettte and then there is a comment period... let's move on.
  • Convention and group related business
    • Will end the year around 13% of total, and should be closer to 14% in 2011
    • In Mandalay Bay they had 40% in 2007, and is 34.9% to date this year
    • Bellagio: In 2007, it was 15.7% and in 2009, it was only 12% and it's 14.2% YTD in 2010
    • MGM Grand: 11.5% in 2009 and is 18.5% YTD
    • Doesn't look like they are that far off peak and the 1% mix improvement guidance next year is a rounding error
    • Aria - it's 11-12% this year and targeting 15% for 2011
  • There wasn't much of an increase in spend per occupied room in June, despite RevPAR growth in June.  Think that spend per room will be a lag - but will eventually follow RevPAR growth.
  • Macau Strategy:
    • Brought in new operator
    • Changing mix of tables to more VIP/Junket
    • Team has been adding hosts and marketing representitives in the region
    • Hired significant people in the marketing role
    • Junket incentives haven't changed though
  • Convention bookings at City Center into 2H2010 vs. 1H2010
    • They accelerated in 2Q vs. 1Q.  Got off to a slow start since they didn't have a lot on the books when they opened.  Mid week (57.4% in 1Q to 74.3% in 2Q) vs. weekend business (75.7% in 1Q to 95.8% in 2Q)
  • Forward bookings for 2011 (+20%)--same as the guidance on the last call. So what's changed?
    • Quality of the bookings has increased, so they are booking more fill in business now. So while the booking pace remains constant, pricing is better and spread across more properties (Mirage/Luxor/ Excalibur).
  • City Center - FTE's represent 60% of the cost base, but think that they can lower costs a bit more
  • City Center interest - cash? 50% is cash to 3rd parties and 50% is non cash to JV partners.
  • Hospitality division:
    • 2 openings in China next year, one opening in the 3Q one in the 4Q. Great from a marketing and brand awareness opportunities.  First of half a dozen in China
    • Signed one in India and Eygpt this year
    • Mgmt fee income will start coming in next year
    • Have about a dozen or so in the pipeline
    • Will eventually spin it off - ala Four Seasons (good luck with that - don't think that they will get the same multiple)
  • July - they are occupying the building at or above what they would be and rates are where they thought they would be. As advertised.
  • Have a $190MM receivable for taxes - should get some of that in April 2011
  • FTE's won't improve until the banquet business comes back in the convention space. But overall expect their FTE's to be down to flat going forward. Down 14% from peak to trough on FTE's
  • Attrition rates are improving a lot - under 10% in the month of June.  Conventions are booked with less excess room nights than in prior years, allowing them to plan better.
  • Pricing into 2H?
    • Already in mid-90s. Casino rates are down YoY (ie comp rooms). Casino mix is about 14% of total, but intercompany ADR is down. They track with the cash business. The RevPAR growth is driven by convention and transient; leisure is up a little bit too.
  • Baccarat business? How much of their total volume?
    • Company wide- 25% of table volume historically, but last 2 years it's more like 35%. In the longer term, it should help table hold since Bacc is higher hold.
    • Aria - 44% of the table drop YTD and it should come down over time as they build the other segments