During MGM Resort International’s 2019 Q4 and full-year earnings call, Chairman and CEO Jim Murren spoke about his decision to step down, the impact of the coronavirus on its Chinese properties and performance expectations in 2020.
LAS VEGAS—It is because of MGM Resorts International’s strength, strategic plan forward and the leadership team developed over the years that Chairman and CEO Jim Murren said he feels comfortable stepping down from his leadership role.
During the company’s Q4 and full-year 2019 earnings call, Murren explained that after 22 years with the company—12 of which he spent as its chief executive—he would be leaving the company before the expiration of his contract.
Jim Murren, MGM
Murren said he didn’t make the decision lightly, but he felt comfortable leaving knowing the company is well-positioned with a strong balance sheet, an efficient operating model and a powerful strategic plan.
“The company is strong and growing,” he said. “In my 22 years with MGM Resorts, I’ve accomplished a lot, and I’m proud of the company it has become. Leading MGM Resorts as CEO for the past 12 years has been the most rewarding and fulfilling experience in my professional career.”
During his time as CEO, particularly within the last few years, Murren said the company’s dynamics have evolved and created an incredible team of leaders.
“When I thought through how I could best serve MGM going forward, I thought it was pretty clear that a leader should help a company into the next decade or two,” he said.
The board of directors has created a search committee that will hire a firm to find candidates for the next CEO, internally or externally, Murren said. Until the board chooses the new executive, he will remain as chairman and CEO of MGM Resorts and chairman of MGM Growth Properties.
Impact of the coronavirus
With MGM Resorts’ presence in Macau, China, analysts were interested to hear about how the coronavirus (COVID-19) has been affecting performance. Murren said it will have a near-term impact on MGM China, but the company remains confident it won’t have a long-term impact on business.
Due to safety concerns, the company’s casinos and gaming areas in Macau are currently closed, he said. MGM China is maintaining some of its non-gaming facilities to support its hotel guests. While the casinos are closed, they are managing their costs and incurring about $1.5 million in operating costs per day across both the MGM Macau and MGM Cotai, the majority of which comes from payroll, he said.
“While the current situation creates volatility in our business near-term, we are confident that does not reflect the medium- to long-term earnings potential of these assets or the marketplace,” he said. “In fact, while short-lived, we have been seeing signs of an improving marketplace during the first couple weeks in January with our business averaging just under $2.5 million of property (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) a day.”
Prior to the spread of COVID-19, the two Macau properties had strong performance, with the Mansion at MGM Cotai being overbooked, said Grant Bowie, CEO and executive director at MGM China.
“We were really in a very good place,” he said. “All of the things we were looking at doing were really coming together, but I guess that’s what being in business is about. It’s about how you handle the adversity, and now we just reset ourselves and we just want to move forward.”
The Macau government has taken effective and decisive action, and the focus is about containment of the virus, he said, although the timetable remains unclear. In the meantime, MGM China is working with the government to make sure that it takes care of its employees and guests and that it is ready.
“Macau was in a very fortuitous position because of that decisive action from the government,” he said. “We’ve had two infections, but we haven’t had any since the action taken by the chief executive and that we’re now up to eight to nearly 10 days without any further infection. So that’s the critical point. We need to make sure that Macau is safe and then we obviously continue to work and support the initiatives in China to make sure we can contain this within China.”
During 2019, MGM Resorts dedicated more of its focus on its asset-light strategy, Murren said, through a deal to monetize the underlying real estate of Bellagio, with a similar deal slated for the MGM Grand Las Vegas. The company sold Circus Circus Las Vegas as it was not part of its long-term strategy, he said.
The company paid down $3.1 billion of its debt during the fourth quarter, he said. It has also authorized a new $3-billion share-repurchase program, which it will use with a $1.25 billion modified Dutch auction tender, he said.
“We believe that this is an opportune time to repurchase shares despite the volatility in some segments of our business,” he said.
The company’s MGM 2020 plan is realizing material savings in labor, sourcing and revenue enhancement opportunities one year after its start, Murren said. He expects completion of numerous labor and yielding initiatives to drive more upside this year.
MGM Resorts expects healthy trends in Las Vegas to continue into 2020, Murren said, with first quarter performance driven by the convention and entertainment calendar. Consumer confidence remains high, and while leisure booking windows are naturally short, the company sees strength in that segment, he said.
Las Vegas will host the NFL Draft in the second quarter, he said. The Raiders will debut at the 65,000-seat Allegiant Stadium near the Mandalay Bay Resort & Casino. Convention business is shaping up as well, especially with the return of CONEXPO-CON/AGG in the first quarter, he said.
According to the company’s earnings release, MGM Resorts’ consolidated net revenue grew by 4% year over year to $3.2 billion during the fourth quarter. Its consolidated operating income grew to $3 billion from $336 million during the same time period. Its full-year consolidated net revenue grew by 10% year over year to $12.9 billion.
During the fourth-quarter, the company’s Las Vegas Strip properties reported occupancy remained flat year over year at 89%. Average daily rate grew by 5.8% to $168 while revenue per available room grew by 6.4% to $150.
In Q4, food and beverage revenue increased 9% year over year at its Las Vegas Strip properties mainly due to the ramp-up of newly opened outlets at Park MGM and NoMad Las Vegas and an increase in catering and banquets revenue.
As of press time, MGM Resort’s stock was trading at $33.66 per share, up 1.2% year to date. The Baird/STR Hotel Stock Index was down 1.6% during the same time period.