LAS VEGAS—Executives at MGM Resorts International will turn their focus from renovations to rate next year.
During a conference call with analysts Thursday, company officials said renovations, including investment at its Delano property that opened 1 September, took a toll on Las Vegas strip margins during the third quarter. MGM was also busy with renovations at its Monte Carlo and New York New York resorts.
During the quarter, MGM spent approximately $103 million in capital expenditures on its domestic operations, and an additional $46 million related to development in National Harbor, Maryland, and Springfield, Massachusetts.
“The Strip has been an exhaustive and sometimes painful process,” said Jim Murren, the company’s chairman and CEO.
Also impacting MGM during the quarter was low-rated convention business at its Bellagio property.
“They’re benefitting from better rates than they should,” Murren said of convention attendees.
The conference rates being paid now by guests were put in place back when the industry was still struggling for a foothold. Murren said the rates should burn off during the next six months.
“We can win without discounting,” he said. “We don’t believe (discounting) is a winning strategy.”
The company reported its average daily rate on the Las Vegas Strip increased by 3.1% to $131 during the quarter, while revenue per available room was up 6% to $124. Occupancy ticked up to 95% from 93%.
Year-to-date, MGM’s stock price is down 2.3%, closing Thursday at $22.98 per share. By comparison, the R.W. Baird/STR Hotel Stock Index is up 17.5% during the same period.
Going forward, Murren said he is optimistic about the company’s performance because of the positive trends on the Strip. He said year-to-date visitation to Las Vegas is up 4%. The city is pacing for 41 million visitors by year end, which would be a record. And further, the city’s convention business is continuing to gather momentum.
“People in general are feeling more confident,” he said. “From a broad, market perspective, we believe Las Vegas is really well-positioned.”
Sarah Rogers, VP of investor relations, said MGM expects a low- to mid-single-digit increase for convention business in 2015.
The Delano should be a beneficiary of improved convention business in the city, Murren said. The property for the first time will bring in luxury convention guests.
“Delano has already exceeded our expectation,” he said.
Global development
The company is casting its development net well beyond Las Vegas, officials said. “We’re pouring an awful lot of concrete and steel,” Murren said.
For one, MGM’s development in Macao, the MGM Cotai, is on budget after having its opening pushed back to the fall of 2016, said Grant Bowie, CEO of MGM Resorts China. The development will double the company’s room base in the region and triple its floor space, which should provide for additional retail revenue streams.
“It is going to be spectacular,” Murren said.
The company also is continuing to pursue the potential of an integrated resort in Japan, officials said.
Stateside, voters in Massachusetts next week will decide on a measure that will determine whether MGM will be able to develop in Springfield. The proposed $800-million MGM Springfield would comprise a 250-room hotel and 225,000 square feet of gaming, retail, residential and restaurant space.
“We’re not taking anything for granted, but we believe the public will support the jobs and investment we have made in that state,” he said.
Also on the East Coast, MGM’s National Harbor property is on track for a fall 2016 opening, Murren said.
“We’re invested in the strategy to grow our business and prepare the company to execute in Las Vegas and worldwide,” he said.