Article Summary:

During the company’s latest earnings call, executives at MGM Resorts International shared performance results and offered some insight into their strategy heading into the year.

Primary Category: Earnings Recaps

Secondary Categories: Brands, Development, Management, News, Ownership

LAS VEGAS—The end of 2018 was a bit of a reprieve from a challenging year for MGM Resorts International. During the company’s fourth-quarter and full-year earnings call, executives spoke about stronger performance at the end of the year and expressed confidence in how 2019 is lining up.

On a consolidated basis, fourth-quarter revenue grew by 18% year over year, Chairman and CEO Jim Murren said, and adjusted earnings before interest, taxes, depreciation and amortization grew by 21% excluding certain one-time benefits. The company selectively leveraged its casino database and convention business to grow revenue by 6%, revenue per available room by 8% and EBITDA by 8% in Las Vegas, he said.

“This was the best fourth quarter in Las Vegas since 2007,” he said. “Many of the premier assets across United States and our regional properties performed well in the fourth quarter with revenues up 18% and EBITDA up by 32%.”

The company also set fourth-quarter revenue and EBITDA records at the MGM Grand Detroit, MGM National Harbor, Beau Rivage and Gold Strike Tunica, he said. In Macau, MGM China’s revenue grew by 33% and EBITDA increased by 11% as its properties gained market share, he said.

By press deadline, MGM Resorts’ stock was trading at $27.18 per share, up 14.5% year to date. The Baird/STR Hotel Stock Index was up 10% for the same time period.

Strong performance expected
Las Vegas is expected to have better citywide convention business, Murren said, and MGM Resorts has better reservations on the books for the year as well.

“Most of it is on the books already, but on a cadence by quarter, we’re seeing improvement in every quarter compared to last year,” COO Corey Sanders said. “Obviously the first quarter is going to be our strongest, as it always has, but all the other quarters look pretty good for us also.”

The company will have its Park MGM and NoMad properties fully open this year, with a normal ramp-up expected over the next few years, Murren said. The company is also investing in sports and entertainment that should reap future benefits, he said.

The regional properties also have had a solid start this year, he said, noting that the additions of Empire City in New York and the soon-to-be-acquired Hard Rock Rocksino Northfield Park in Ohio will further cement the company’s leadership in the Northeast.

Macau is the No. 1 gaming market in the world, he said, but it’s also volatile. The company will focus on increasing its market share as all of the amenities in Cotai become fully available, he said.

MGM 2020
A couple years ago, MGM Resorts implemented its profit growth plan, and underwent an organizational transformation that led to key centralized business functions that created best practices across the portfolio, Murren said. With that platform established, the company can now leverage those centralized functions, he said.

Announced in January, the MGM 2020 plan will be rolled out in phases. The first phase includes comprehensive organizational changes to operate more efficiently, which should realize $200 million in annualized EBITDA uplift by the end of 2020, Murren said. Half of that will come from labor savings, and the rest from sourcing and revenue optimization, he said.

Phase 2 focuses on reallocating a portion of MGM’s annual CapEx budget to technology investments. These tech investments should increase revenue through a customer-centric strategy driven by data, digital and loyalty capabilities, Murren said. This should yield an additional $100 million in EBITDA by the end of 2021, he said.

“Through MGM 2020, we are investing in our business to drive long-term growth,” he said. “As we saw with (the profit growth plan), we expect to see financial benefits building, and, in this case, into the back half of 2019. Accordingly, we expect to realize a third of the initial $200 million of EBITDA by the end of this year with approximately two-thirds of that coming from our Las Vegas properties.”

Both phases are net of the expenses that MGM Resorts will need to get the ball rolling, EVP and CFO Dan D’Arrigo said. About $75 million of incremental spend is allocated for the technology investment, but these overall expenses will come with a return.

Real estate
MGM Resorts expects MGM Growth Properties, the company’s real estate spinoff, to continue to grow to the point of outgrowing its peer group and the triple net broader sector, Murren said. MGP can transact with MGM, unlike many others, and can make third-party transactions, he said. Through the growth of MGP, he expects MGM Resorts’ interest will decline “not because we would like to sell (Operating Partnership) units, but because we expect MGP to grow,” he said.

The ad hoc committee’s design is to accelerate input with an even greater focus on the opportunities that the MGM Resorts board believes it has in assembling the kind of real estate it owns. It affords the company the opportunity to evaluate how to maximize value on a property-by-property basis, he said.

“As we evaluate the asset intensity of MGM Resorts—and understanding the fact that MGP is a triple net and MGM Resorts is and always will be responsible for the capital that we continue to invest into those properties, which has been very successful—we are going to make sure that MGM Resorts’ balance sheet meets the objectives that we’ve laid out and is as durable as possible.”

MGM Resorts will be more conservatively postured to ensure it doesn’t find itself in the same situation it was in on the eve of the recession, he said.

During the MGP earnings call on Thursday, MGP CEO James Stewart spoke positively about the role of MGM Resorts’ ad hoc committee.

“I think it demonstrates the seriousness with which they are looking at alternatives to maximize shareholder value with the real estate they own,” he said, adding that MGP is the natural home for MGM real estate.

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Headline: MGM Resorts foresees strong performance in 2019

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Article Time: 9:19:00 AM