LAS VEGAS—With increased cash flows, a successful initial public offering of a spinoff real estate investment trust and increased revenue per available room along the Las Vegas strip, it’s of little surprise the CEO of MGM Resorts International told analysts he was looking forward to his company’s first quarter earnings call.
Chairman and CEO Jim Murren said MGM Resorts saw “outstanding results” in the first three months of the year and he’s pleased with the initiatives the company previously launched. Cash flows are up 24%, he said, and margins are the best the company has achieved since 2007. He also spoke of the successful $1.05 billion initial public offering for the company’s new spinoff REIT—MGM Growth Properties—although the IPO concluded in the second quarter, the announcement of the IPO came in March.
The company’s profit growth plan announced nine months ago is ahead of schedule, Murren said. The company provided guidance of $200 million in annual adjusted earnings before interest, depreciation, taxes and amortization by the end of the year and a 30% EBITDA margin by the end of 2017, he said, but the company reached $59 million incremental EBITDA in the first quarter.
“We set ourselves some very ambitious goals,” he said. “We’re incredibly proud of the fact the results have far exceeded our initial expectations and have really been astounding. We challenged ourselves to really redefine literally how we operate every aspect of our business.”
Murren said the company’s culture has improved and MGM executives have focused their attention on continuous improvement and have been unwilling to accept status quo performance.
“This has permanent, long-term accelerating implications for our revenues, our profits and the culture and the enthusiasm we’re working for at MGM Resorts,” he said.
As of press time, MGM Resorts’ stock price was down 3.7% year to date. The Baird/STR Hotel Stock Index was up 2.73% since the beginning of the year.
A record IPO
Murren touted the success of MGM Growth Properties joining the New York Stock Exchange.
“It was the largest IPO to date this year, and by the way, it’s the third largest REIT IPO ever,” he said.
The combination of the IPO and MGM Resorts’ sale of the CityCenter resulted in $540 million in dividends for the company and means $1.6 billion in cash will go fully into debt repayment, he said.
Despite the recent news regarding MGM Resorts’ REIT, analysts covering the earnings call did not ask any questions about the REIT or its IPO.
Convention business
Convention business leads the robust demand in Las Vegas, Murren said. For the first quarter, MGM’s wholly owned Las Vegas strip resorts achieved 8% RevPAR growth, beating the previous guidance of 6%.
“We continue to see great growth and strength in the convention and corporate business,” he said. “In fact, no deceleration at all in sight. We’re really proud of the fact, grateful, that we expanded the Mandalay (Bay) convention center when we did, because it has allowed us to maximize the corporate business, high-margin corporate business, while still maintaining a very solid and important trade show business. And because of that, we have a lot more flexibility to manage the largest portfolio of convention space by a mile.”
The company is seeing an all-time record for the amount of conventions booked for the year and the amount of bookings on a quarterly basis, Murren said.
“Our convention mix, which was a record year last year, is going to be higher this year,” he said. “Yeah, it’s a tough comp, because we did so well in the fourth quarter of last year, but we’re off to a tremendous start.”
MGM has more conventions booked in 2017 than in 2016, Murren said. The Aria is adding 200,000 square feet of convention space, he said, which frees up the company to repurpose other spaces. The new T-Mobile Arena frees up the Mandalay Bay’s event center and sometimes the MGM for more conference space.
“We have over 3 million square feet of convention space here in Las Vegas,” he said. “We obviously vastly exceed our competitors. We have more on the way. We have the ability with a great sales team to move stuff around. So we fully expect to have a better year in 2017 on the convention business than we do this year.”
The company has spent the past five months performing an inventory review of its portfolio, Murren said. MGM is trying to be thoughtful of current trends while predicting future trends, he said, so it doesn’t want to build and expand too rapidly. The one property that stands out as a candidate for growth of convention business is the MGM Grand, he said. The original plan for the MGM Conference Center was to build a development between the hotel and the conference center, but the company stopped the construction.
“That's an area where there's no doubt given the 5,000-plus rooms, given its location proximity to the airport, its brand, it could fill off a lot more convention space,” Murren said. “And the good news, as you know about convention space, it's the least expensive space to build.”
Evaluating China’s performance
MGM China Holdings performed well in the first quarter despite the tough market, Murren said. Cash flows were affected by the market by approximately $9 million from a low hold percentage, he said, but the company sees encouraging signs in the mass business.
“We believe in this story, the long-term prospects of Macau,” he said. “We're highly confident that the quality of what we produce in terms of our great employees, our great offerings, our great service not only at MGM Macau, but what we are going to deliver at MGM Cotai positions that company, MGM China, for renewed and solid growth.”
Grant Bowie, CEO and executive director of MGM China Holdings, said the critical points for the Chinese projects are timing of the ramp-up periods and that the Macau government is sensitive to bringing on projects at a certain price.
“I think everyone is talking about stabilization and if you look at our numbers, our mass numbers are generating 86% of that EBITDA now,” he said. “So, they're pretty strong.”