Q3 2019 Earnings Call
Good afternoon, and welcome to the MGM Resorts International third quarter 2019 earnings conference call joining the call from the company today, or Jim Murren, Chairman and Chief Executive Officer, Corey Sanders, Treasurer, and Chief Financial Officer.
Bill Hornbuckle, President and Chief operating Officer, Grant Bowie, CEO and executive director of MGM, China Holdings Limited.
Participants ARNA listen only mode.
After the company's remarks, there will be a question and answer session.
Fair enough to all participants please limit yourself to one question and one follow up.
Please note this conference is being recorded.
Now I would like to turn the call over to Errand Fisher. Please go ahead.
Thank you good afternoon, and welcome to the MGM Resorts International third quarter 2019 earnings call. This call is being broadcast live with the Internet at investors talk MGM resorts Dot com.
Also furnished a press release on form 8-K to the AC say Oh.
On this call will make forward looking statements under the safe Harbor provisions of the Federal Securities Law.
Actual results may differ materially from those contemplated in these statements.
Additional information concerning factors that could cause actual results to materially different from they these forward looking statements is contained in todays press release, and then up here in <unk> filings with the FCC.
Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.
During the cold we will also discuss non-GAAP financial measures in talking about outperformance.
You can find a reconciliation to GAAP financial measures in our press release and Investor presentation, which are available on our website.
Finally, this presentation is being recorded.
I'll now turn it over to Jim Mirror.
Well, thank you Aaron.
Good afternoon, everyone I'd like to give a thank you to grant Bowie for getting up early in Macau and now to Bill Hornbuckle for also getting up early built in Japan, and especially shout out to Kathy Park, who is on maternity right now with a beautiful sun, but I'm sure is listening in to see how we do today, so let's say.
Hi, Ben.
We had another busy and successful quarter with solid results that were in line with our expectations.
Looking forward, we feel good about the fourth quarter and for the 2020 financial year, given the continued execution of our MGM 2020 plan.
Healthy market conditions.
And the ongoing ramp of our newer properties.
Before I get into the results I want to start with the work of our real estate Committee.
If you recall the formation of that committee was in January and that was another step in a process. We began back in 2016.
When we formed M.G.P. to begin to maximize the value of our own real estate assets.
Since then.
We've continued to shed non core assets did do not aligned with our strategy, while investing in assets that actually complement our strengths.
The results of the committees work with management and advisors supports and in fact accelerates our transition to an asset light business model.
For MGM asset light means separating the ownership of capital intensive lower return assets and recycling that capital into high ROI opportunities.
The recently announced sales of the larger was real estate to Blackstone and Circus circus to Mr. rough and.
Are important milestones to that end.
I think it's important to spend a moment focusing on the Blasio agreement.
That transaction was the product of exhaustive analysis of our asset base and significant time spent on developing a structure that would maximize the value received for our shareholders, while minimizing friction costs.
The larger deal wasn't just the sale of a property we've done that many times book, but rather and represents one of the most sophisticated agreements. This company has ever entered into.
In a process that has led to a partnership with one of the world's leading real estate investors.
These transactions were key steps, but by no means the end of our journey.
The blogs your real estate transaction represents more to US then a smart financial deal.
It provides a likely brute blueprint for the future.
In fact, a process to monetize the real estate related to MGM Grand Las Vegas is now well underway.
We anticipate sharing more with you on that before the end of this year.
We're confident that de Blasio sale sets, a new benchmark for gaming net lease transactions and will help us deliver the best possible outcome for MGM Grand.
We're also of course will evaluate ways to maximize the value of MGM Springfield.
Our 67.7% stake in M., GP, and our 50% stake in City Center.
We're really excited about the phase that we're in now.
After a lot of work, we can see what our end state will be.
An anticipated future MGM resorts that does not need to own meaningful real estate assets.
Monetization of our real estate assets will allow us to achieve a fortress balance sheet with very low core leverage while investing in high return growth initiatives and simultaneously returning significant capital to shareholders.
This asset light transaction and transition should result in meaningfully higher free cash flow per share.
Lower leverage in a more flexible financial structure that allows MGM to better capitalize on its core competencies as a developer manager and operator of leading gaming and entertainment properties.
With our unmatched portfolio brands, leading customer database and expertise in managing hundreds of restaurants shows concerts and gaming concepts. We're confident that MGM is positioned to reward shareholders with continued growth.
Between the Blasio and Circus Circus, Las Vegas transactions, we expect to receive estimated net cash proceeds of about $4.3 billion.
Reflecting approximately $250 million to $270 million of cash taxes.
And about $250 million of expected debt breakage costs another transaction costs.
We expect to use the majority of the proceeds from these initial transactions for debt reduction with the remainder for capital returns.
And given current market conditions, we expect to promptly utilize the remaining $750 million of our outstanding buyback authorization this quarter.
So now let's talk about our results.
The third quarter came in as expected with consolidated net revenues up 9% and adjusted EBITDA up 14% year over year to 814 million.
Here in Las Vegas results were solid driven by strong demand across all of our segments, where they expect exception of far east backdrop.
Our convention business remains exceptionally robust non gaming revenues increased by 6% with Revpar up 3.6%.
Gaming revenue declined by 3% with table games down 12% doing due to ongoing softness in Forest Park right volumes. This was somewhat offset by slot revenues, which increased 4%.
And our domestic table that table game business, which was also up.
Our strip EBITDA increased by 5% to 441 million.
I don't know hold adjusted basis strip EBITDA was up 6% year over year two for 38.
Our third quarter strip EBITDA margins were 29.3% up 40 basis points year over year [noise].
[noise], our regional properties continued to perform well in the third quarter with net revenues up 20% in EBITDA up 27%, where the majority of the growth from the inclusion of MGM Springfield Empire City, and Northfield Park.
National Harbor and Borgata, both delivered strong results during the quarter.
And once again, we're very proud of our regional portfolio with leading market positions in just about every market we're in.
MGM China's net revenues grew by 22% to 738 million and adjusted property EBITDA was up 40% to 182 million due to the continued ramping of MGM cotai.
This represents we believe excellent performance given the various disruptions in that marketplace.
By property.
MGM Macau achieved EBITDA of 102 million down 14% year over year, which reflects weakness in the market.
MGM Cotai continued its ramp with $80 million of EBITDA, a 48% increase compared to the 54 million in the second quarter.
Our mansion product is ramping up very nicely.
The VIP segment continues to have some challenges, but does not represent a significant portion of our cash loves there and we gained market share in mass market, which remains very resilient and of course is always grant will be on the line to answer your questions.
We continue to make excellent progress on our MGM 2020 plan during the quarter, achieving all of our targeted savings savings and revenue enhancements some of which were on an accelerated basis.
As a result of MGM 2020 initiatives, we were able to achieve revenue initiatives and cost savings of approximately $50 million during the quarter.
We continue to be on track to hit $100 million, an adjusted EBITDA uplift this year and increasingly confident that we will meet or beat our 200 million dollar adjusted EBITDA uplift goal by the end of next year and of course, Corey is here to provide any detail around that.
Looking out further the fundamental backdrop in Las Vegas remains encouraging and we see healthy demand in nearly all of our business segments.
Our convention bookings in Las Vegas continue to shape up nicely and we are on actually on track to hit a record mix the convention room nights.
Nights this year up 20% for the full year 2019, despite citywide convention nights being down in the fourth quarter.
In 2020 is expected to be a particularly strong year for the convention business in Las Vegas, given favorable citywide rotations, such as kind of AG and of course. We're also excited that this city will be hosting the NFL draft for the first time.
And while leisure booking windows are naturally always shorter we also see favorable trends there in 2020, which particularly support our legacy properties.
The Forest Park Rep business continues to remain a challenge here in Las Vegas.
Of course, we also faced a tough comparable from the prior years a quarter when volumes were strong.
But our live entertainment calendar in the fourth quarter remains extremely strong where the return of Lady Gaga and Aerosmith at Park Theater and of course, we're excited about the opening of our latest Cirque Du Soleil show run at Lux or.
We also have strong <unk> strong sports calendar with two boxing events. One this weekend the can have the Alvarez fight and it the onto Wilder Luis fight coming up plus the course Vegas Golden nights games, the PBR World finals, and U.S.C. to 45.
And where the current NFL season underway, we're getting closer to the opening or the Raiders Stadium next year, which will be a very positive catalyst for our south strip properties, notably Mandalay Bay and Lux or.
By the end of 2020.
Through continued execution of our asset light strategy, we intend to have domestic net financial leverage of approximately one times excluding MGP.
On a consolidated basis, we expect to be between three to four times and on a lease adjusted basis leverage four times.
We also remain on track to achieve our stated goals of 3.6 to 3.9 billion in consolidated adjusted EBITDA and adjusted free cash flow per share of $3.50 by the end of next year.
This will be driven by healthy market conditions in Las Vegas, and I think our regional properties. The ongoing ramp of newly opened properties the benefits of our MGM 2020 plan and our disciplined capital allocation strategy.
As we have been discussing.
Our major capital projects are complete.
And all of our resorts have never been in better condition.
And accordingly, our Capex is dramatically lower which will result in accelerating free cash flow.
We remain focused on opportunities that we believe will create long term shareholder value, including Japan sports betting and by continuing to evaluate and execute on transactions that unlock the value of our real estate.
Just yesterday.
We are excited too excited to announce a partnership with Yahoo sports.
Our goal is to have the most comprehensive and interactive sports betting platform in the industry.
By combining the retail in sports betting operations of MGM, and Roar, which is our joint venture with GBC with Yahoos fantasy sports in digital content network, we are creating a very dominant partnership.
We believe that when people watch you experience and consume sports content, they will be motivated to bet on sports.
And everyone I, just mentioned will benefit from that.
And when you combine two world class brands, such as MGM and Yahoo, who both share similar philosophies regarding sports related content, you have an opportunity to create the ultimate user experience.
And part of our sport strategy is driving increased visitation into our properties.
Yahoos 60 million users will now be able to experience with MGM resorts is all about.
We're bringing the best of our Las Vegas, and regional properties to them online.
And with that I'd like to turn it over to the operator for our QNX [noise].
Thank you.
We will now begin the question answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your hand said before pressing the keys to withdraw your question. Please press Star then too.
And as a reminder, in all fairness, please limit yourself to one question and one follow up.
And our first question comes from Joe Greff with JP Morgan. Please go ahead.
Good afternoon, everybody Oh, My first question of the question I wanted to touch on Jimmy you kind of touched on as well about the about looking at the monetizing the real estate of the MGM Grand.
Can you talk about I guess, why that maybe taking longer or was outside of the real estate Committee a recent a sizable activities and then can you didn't talk about maybe the timeline for.
Proactively monetizing and seeking additional value from some of the other real estate that you referenced on slide.
Slide six of the.
The presentation of the earnings deck.
Sure job.
First on MGM Grand.
Management and the board of MGM.
Felt very strongly that the best way.
Forward here was to create precise.
Execution on our most valuable asset.
We burn evaluating all of them.
Got all at the same time, but we felt rather than trying to accomplish everything at once.
The best way forward was to focus on blogs, you, particularly when we got into an exclusive phase with Blackstone and we were able to work together very constructive way without organization to achieve.
Frankly, a multiple on rent that was inconceivable.
Even earlier this year, let alone a year ago.
As you know Joe last trade of Las Vegas Real estate was at 14.25 times.
We changed achieved 17.3 that's.
Three turns at $750 million more a value to the MGM shareholders, because we focused on our prime assets.
With the best possible counterparty.
And so we felt strongly that that would set a benchmark and provide a blueprint for transactions for the MGM Grand which is equally valuable no doubt one of the premier assets here in Las Vegas, a top five profit performer for over a decade.
And now we've turned our sites to that.
And because of the work we've done over the last several months.
On blogs show it makes the timing and the work streams for MGM quicker and a lot easier.
And so we believe that this was the best form of execution.
To tackle a projects one at a time and with deliberate see which has led to these gross proceeds and more importantly, or equally importantly, net proceeds that we've achieved so that that's why we decided on blasio and now we're moving into MGM Grand and of course will be a value.
Awaiting ARIA, but Dora our old P units or our MGP stake MGM Springfield et cetera in due course, the second half. Your question was what it was on could you repeat that Joe.
Oh, then again.
About the timetable for iden beyond the MGM Grand Oh, So we expect to close the Blasio real estate transaction and Circus Circus Las Vegas this quarter.
By the end of this year, we expect that we'll be able to be able to talk to you all about how we're going to how we're going to transact the MGM Grand Las Vegas Real estate, we expect to be able to tell you that by the end of this year, which obviously would bring you into early 2000.
Isn't in 28 before most likely any transaction will be completed there and.
It's not mutually exclusive to the other real estate related work that the committees doing in management's doing so expect more to come over the coming months and early part of 2020.
Great and then my follow up Jim and decided to counter to a lot of things that you're talking about maybe just to kind of get that there maybe.
You can discuss your appetite in acquiring Opcos native in conjunction with other real estate activities going at the leverage neutral or particularly if it's in a market that you're currently in and geographically makes sense.
Sure we're not engaged in any M&A right now Joe we're not interested in acquiring anyone else's assets at this point in time or anyone else is operations. We're really focused on what's in front of US right now we think thats the best use of.
Our time and our board's time, but we are dynamic company, we'll look at things as they present themselves over time, but I would not want anyone to believe that we're looking at any of that <unk> over the near term.
Great. Thank you.
The next question will be from Stephen Grambling with Goldman Sachs. Please go ahead.
Hi, Thanks, I guess, one follow up on.
The asset sales are those changing.
How do you think about capital expenditures at the property level and or how you're prioritizing investment renovations.
Not at all no we as a triple net.
We and as the operator these assets that actually is makes these decisions very easy for us because the real estate transactions themselves are relatively once you get the leases worked out straightforward financial transactions the capital that will go into.
To the properties is within our control and will be consistent with the capital spend that we have deployed over the history of the properties.
That was something that.
Obviously, our counterparty with <unk> with Blasio got very comfortable with given the amount of investment we've put into blasio since I'm, Jim acquired biologic show in connection with Mirage resorts way back in May of 2000. So.
We've been the operator of Blasio for most of its life.
19 years of its over 19 years of its life and we are going to the operator of it based on the lease for about 50 years whoever's here at that time, and we'll continue to invest in the properties, whether they are wholly owned properties or whether there at least to a third party and as I said earlier there mostly.
Likely going to be leased to somebody else.
Helpful and and then maybe changing gears to Macau.
Looks like you're seeing a nice ramping cotai, but can you talk to any.
Cadence over the quarter in any impact as you see it from the situation Hong Kong, maybe how that might dictate how that will ramp as the year progressive. Thanks.
Thanks actually the Hong Kong situation is somewhat.
Independent of us, but I think obviously it.
A little bit confusing, we haven't seen any direct impact I think visited the start into China and channel strategies.
So we just got to keep keep that keeps things.
Thanks.
Okay and make sure we promote Macau is.
Unfortunately, a separate destination and make sure that we can.
Now those customers to come in and get it an outage out of Macau effectively so nothing really there.
Thanks, I'll jump back in Q.
So.
And comes from Thomas Allen with Morgan Stanley . Please go ahead.
So just starting on on capital allocation. So obviously, you're bringing in a lot of proceeds through the asset sales over $4 billion, just say I would tell us like your strategy or your methodology about kind of balancing buybacks with wed taking down leverage. Thank you.
Sure.
First it's in I think it's important to reiterate what we believe our end state is and how.
So we are here that we actually can see the end state, which is going to happen over the next year or to.
The end state is that MGM resorts.
He is going to be asset light.
I will continued to invest in assets because it will continue to invest in the properties all the properties that we operate.
And it will make investments.
Into bricks and mortar and into technology, but in areas. We believe will be higher return on investment investments than simply owning static real estate.
And it will be done on a more of a global basis with an emphasis not only on our gaming properties that we operate but also a non gaming hotels on sports on technology on entertainment. So.
That's the end state in terms of why that's important is we believe there's a large experience economy out there that MGM resorts and certainly not our competitors are actually tackling properly.
In these areas of entertainment and sports in Japan et cetera.
We believe to best do that for shareholders, we should reduce significantly reduce our financial leverage and so it's an overarching priority to get that core leverage that financial leverage down to one times by the end of next year.
We believe we can do that while repurchasing shares and focusing now on our dividend and investing in Japan and investing in sport through joint ventures, and otherwise and we look at it all holistically, but it means being very disciplined on capital allocation focused on that show.
Option, returning capital shareholders as we have been doing in the form of dividends and share repurchase and making sure that we don't have less financial flexibility, but actually have more financial flexibility, particularly because we're in a later stages of this economic expansion and as we grow.
Our earnings base over or reduced number of shares.
It will have the impact of accelerating our free cash flow.
And so we look at it and Holistically.
And we believe that given the the assets we have both what we have announced but based on what we've announced the blueprint that we have achieved for future transactions, we're going to be able to very effectively achieve that over the next.
12 to 18 months.
Thanks, Jeremy helpful color and then just on City Center, you did 110 million Bucks. We've done an unrestricted that you had high hold I mean, that's a fourth quarter neuro that you've been generating pretty strong EBITDA. There can you can you just talked about update us on how you're thinking about where were you can grow that.
Properties EBITDA, two and kind of what's driving this is the success. Thanks.
Well well ARIA.
And with our all of City Center of course opened in the worst possible time and it's it's right now next month.
Celebrated its 10th anniversary so out of the great recession came a property that a lot of people were dismissive of in counted out 10 years ago is now one of the most profitable resorts in Las Vegas, and we believe will continued to be so and in fact accelerate its profitability because.
Yes, it's new we continue to reinvest in it and we have been investing in areas, where we had gaps before we did not have the right restaurant product. When we opened up we've been changing that vary dramatically with great success.
We did not have enough convention space, we just dramatically expanded the convention space, there and we have other ideas to increase its meetings capabilities, which will drive revenue.
We had a poor performing a show.
But now we have T mobile arena, and we have park theater, and we have a lot of entertainment that ARIA and vidara benefit from without having to have it on the campus and we've been driving consistently driving casino business through an improved loyalty program and frankly better brand awareness of the brand.
As we evolve into our digital work that will be talking to you lot more about in coming quarters investing more in loyalty, we think that will accrue to the benefit of all of our properties, particularly our strip properties in particularly ARIA because it's relatively new.
So and still does not gain.
Some of the gate, a casino business it could visa be say blasio or MGM on the high end and so yes, we're proud of what's happening there, but we believe that from a delta perspective.
There is probably more group room to grow cash flows at ARIA that most any of our properties.
Helpful. Thank you.
The next question will be from Shaun Kelley of Bank of America. Please go ahead.
Hi, good afternoon, everyone.
Jim maybe just to start maybe to stick with the.
Capital allocation component I believe in the prepared remarks, you said something about probably using your outstanding buyback authorization later on in this quarter.
Obviously, there were some pretty substantial share repurchase and the quarter could you. Just on you know maybe give us a little bit more color is this sort of the right run rate I think is around $359 this quarter or can it accelerate with some of the proceeds that come in.
When you actually close on velocity on Sarkis.
I think it will accelerate.
Okay great.
And then a second one is probably for a follow up but more for Cory.
Just kind of digging into the 2020 plan I believe that dimension in them and their prepared remarks was around on you already being at about a run rate of approximately $50 million anywhere in the quarter for contribution there on could you help us a little bit more with sort of the timing our run rate or bridge on that because I think as we look at.
Kind of core operating expenses.
We would have thought they could have been maybe a little like lower year over year at least in Las Vegas on you did see a little bit of margin expansion, but but up against a fairly easy comp. So any color you could give us on that would be helpful. Thanks.
Sure Sean on on the margin expansion I keep in mind. It was definitely impacted by the far East play. If you exclude that that was about 60 basis points you up about a point on the strip. The core properties are really where you're seeing it because there's less noise in this straight away comparable business they're up on.
Most 300 basis points on margin I'm. So from that perspective, we're really happy with where the flow through as I keep in mind. This strips gonna have increased expense because of park MGM and the expansion of the food and beverage restaurants, and really the full opening of the hotel, which will distort that.
When we look at it in particular, excluding park MGM, we're down about 1000 fts on the strip.
And so we're pretty confident at least where staying on the late the labor savings on that.
As we mentioned on the as Jim mentioned in his prepared remarks, we had $50 million of recognizable savings in the second and third set third quarter, sorry, and we're seeing we're like what we see going into the fourth quarter, we have the fixed labor.
Nailed the variable labor components are in process.
Including the technology pieces, and we've found some other opportunities in scheduling and and forecasting.
The purchasing side is also going pretty strong that's that will come through monthly so you'll start seeing as we ramp up in some of those areas you'll start seeing some increases in there and I would expect the fourth quarter to be a better than the 50 million.
Thank you.
The next question comes from Felicia Hendrix with Barclays. Please go ahead.
Thanks, a lot and Jim can we go back to your asset light strategy and just on MGP, you've talked a lot over that time to that reducing the ownership there.
I'm just wondering mechanically like if you get a low majority ownership how would you treat capitalized ran or how would you think about that that you would have Evan remain on your books as you divest that.
Sure. So, let's let's first start with MGP and then maybe I'll turn it over the course, something we could talk about capitalized the lease a point or Aaron where me I can do too.
First MGP when we created a few years ago, we were very focused on.
Ensuring that.
We were disciplined around asset quality.
And.
Tenant quality.
And as you remember we brought that public I think it was $21 a share it's it's done pretty well.
But what were most proud of is it's it's stuck to its a core strategy I'm not going out and buying.
A bunch of broken down stuff someplace and degrading its tenant quality.
And that I believe MGP is going to continue to be very focused on James Stewart and Andy are very laser Dan on the not only the financial characteristics of MGP, but.
The quality of its portfolio.
Clearly MGM resorts is incented to encourage MTP to grow.
And you know if it came down to a transaction between a third party and MGP, we're always going to favor MGP and a close race and there's a lot. We can do that's mutually beneficial to MGM resorts and MGP.
As MGP continues to acquire assets, but only quality assets.
As it continues to do so it will access to capital markets and in doing so will reduce our stake.
In MGP, we would also look for other opportunities.
Over time to monetize some of our equity stake as long as it was done in a capital efficient manner MGM resorts.
Is not wedded to any particular ownership of MGP.
We've stated that at least in the near term our near term goal is to get under 50%.
But that won't be the end state.
We will very likely on far less of MVP than that on a going forward basis.
And so I think the way I would look at it is.
MGM resorts has a strategy.
The strategies become asset light.
It is executed on one stage of that at a multiple higher than anyone could have a predicted here at biological it sets us up very well.
To work on multiple other transactions, which include wholly owned real estate jointly owned real estate and MGP itself.
MGP owns more quality real estate on the Las Vegas strip than anybody else.
And it's certainly be in mis marked in the marketplace, given where the trade was just announced with Blasio. Even if you assume any kind of discount between Bosnia and the MGP portfolio. You would never you would never assume it would be as wide as it currently is.
And so we believe that there is a lot of future for MGP and MGM resorts has no.
Yeah, no pre disposed view under how much it owns or whether it owns any at all.
We also think the Blackstone deals very important because it proves out the point.
That MGM is more than happy to transact with a third party on the lease in highly negotiated lease terms with someone as sophisticated as a Blackstone where MGM has very little ownership in that new joint venture will have 5% of the join.
Venture equity ownership and I think that should be illustrative of how we view MGP and any other third party going forward is we do not have to control or even on a majority or even on anything at all of a the landlord as long as we can control the.
Capital expenditures the operations the marketing of the resorts that we believe our dominant.
No Felicia on the consolidation as long as a we still on the Golden share and we remain over 30% ownership, we continue to consolidate MGP on our financial statements. If it drops below there then we would end up with the EBITDAR type presentation.
Right and then but you also have yet you know, it's not financial leverage, but you'll have that leverage on your balance sheet. So I'm. Just wondering you know how you're right rectifying that was kind of going more.
Towards Delevering story.
Well, we're still focus as we look at leverage and.
On the core are finding operational stuff, we talked about one times in general consolidated we're still focused between the three to four times as long as we continue to consolidate MGP that's still in our targets yeah and of course, we've been in constant contact Doug Korey has and Jim Friedman with the rating agencies and and.
And we'll continue to focus on.
Both consolidated leverage a lease adjusted leverage that either meets or exceeds improves our pre existing financial targets. So everything we're doing this for that to as we model out in kind of figure at scenarios in a feature and how variety things could look like if it.
We were thinking about you know significantly reduced financial leverage, but having lease adjusted leverage we should still use that kind of three to four times total that's correct. Okay. And then just with that with the debt pay down you know some of your longer dated bonds have pretty pricey make whole provisions. So I'm just wondering if you're.
Looking at that as that forgone cost any transaction.
Well, we have anticipated what we're going to do into debt markets with the.
That and also friction cost that we gave you just now and obviously, we'd be focusing on the near term maturities were the premiums or lower.
Okay. So you would like with so because I think some people might assume that if there was another transaction that you would just kind of used all that to pay down debt, but again, you're getting into some other longer dated steps. So maybe you might wait is that fair to assume.
We're going to look at everything and I don't think it's prudent for us to lay out our strategy on the call. Okay. Thank you I appreciate that and then just finally on Japan, I'm, assuming that would not be I mean, it would be JV, but that would not be asking like.
Not initially no.
Okay.
Thank you.
The next question comes from Carlos Center really with Deutsche Bank. Please go ahead.
Hey, guys. Thank you.
I know you talked about it a little bit just in terms of the of the 50 million.
Is it fair to assume I think on the last call you guys talked about 60% in Vegas 30 in the regionals and Ken at corporate.
Is that kind of fair representation of the 50 in the in the Threeq.
I I think I would say regionals are probably about around 25% you're going to end up getting about 5% that ends up at city center. So it's about 65 that actually impacts the biggest market in total.
Okay got it and then.
Jim on the last call you talked a little bit about kind of this year and obviously I think at the time you were talking about a consensus number for the strip that was around 1 billion seven.
Oh, you, obviously called out some some tailwinds some things that are beneficial in the fourth quarter as well as kind of a continued well articulated VIP or high end far east play that that's kind of been out a little bit of a headwind.
As we think about the near term for Q and into one key or are you still pretty comfortable with the overall outlook.
We are we are comfortable with the Las Vegas consensus.
We have up in the only thing to think about as hold beyond our control year to date, we've had I think about less than a $15 million negative hold impact.
But yes, we're comfortable where the street is a I think the streets around 1.7 billion Aaron opens up.
Yeah.
Great and then.
And the reason just you know why we're comfortable that obviously with three quarters into it we're in the fourth quarter, we see what our business looks like in the fourth quarter.
The convention and entertainment business is very solid this quarter.
As just mentioned by Corey we're ramping up the M., Jim 2020 plan. So that all that's within our control and that makes us comfortable that that will offset any ongoing weakness borrowings to play.
Great. That's helpful. And then just just I noticed.
In your in your presentation or I think in in the release actually there seems to be a change in the methodology of how you guys are our our chief are adjusting for your hold levels. It seems like backed rise is an additional element and it looks like maybe that methodology was changed in the one Q into Twoq, just holistically could you kind of.
Talk through what went into the thinking.
Sure.
As we look at our business and and the mix of business between Baccarat non baccarat and also looked at our competitors. We felt that there was a better way to look at it and then we think our competitors probably look at it this way so starting in Q3, what we've done as we've broken out between baccarat non baccarat the normal Iran.
Engine, backrest, 25% to 35%, which a normalized in the mid point there would be 30, non box, where about 19 to 23 with them normalized range being around 21.
And so in the past, we've just used a blended rate and compared to <unk> hold that way, we think to more consistent with our biggest competitors on the strip great. Thank you very much yeah. There's some good feedback we actually have gotten from from a lot of you. So that's why we've made a move yes for sure. Thank you Jim Thanks Corey.
Our next question is from Harry Curtis with Instinet. Please go ahead.
Hi, good afternoon.
I wanted to start in a in Vegas, I'm going back to 2015.
Your Vegas margin was around 26% and after the implementation of PGP, you've got you got pretty close to 500 basis point lift.
And the question is what's a reasonable expectation.
For MGM 2020, I'm sure you're starting from a high a higher level and so is it a is it is it reasonable to think that that you can at least get half of what you got it from from PGP and is it sustainable.
Yeah, Harry you know I I think to your point, we are at a higher level. So that again in that first 500 basis points was a lot easier comparison, but what we do believe is that as I as I mentioned.
We were seen in about 31% at the core properties.
Our goal and we believe based on our program that we should be able to team to get to that 32% and that's even with costs increase with union and labor increases so we feel pretty comfortable at that number.
Yes, I think very good I think maybe Harry I'll just add the core is which is a lot of the investments we're making now.
Or investments that we think are much higher margin.
Investments than what we were able to achieve back.
Five to 10 years ago, particularly around loyalty digital marketing.
Technology, so as we move into this.
The end state of asset light, it's not just reducing our bricks and mortar intensity, it's actually increasing our human capital, our human bricks and mortar to drive or what we believed to be accelerating revenue and higher margin. So it's not so much a PGP.
Mike plan, which was a cost cutting plan at its core. This is an operating model change and a focus on investing where we believe we can increase the utility of the buildings that we operate and drive revenue and higher margins that way.
Very good I wanted to ask a granted a question.
AH you you you you gained a reasonable amount of share a revenue share sequentially and.
And.
I guess my question is particularly with the premium customer what are the challenges of getting mass trial, Matt premium mass trial, you know your run rate this year in EBITDA somewhere around 750 million between the two properties, which is about 25% below your your target so.
Walk me through how you overcome the challenges.
To get to that billion dollar target. Thanks.
Thanks, Eric well I think the first thing is we need to get everything up and running the mentioned now online.
And all that all available now available.
Getting really positive responses for that and as we've mentioned before that's now allowed us to move into another segment that we've really not been able to penetrate.
And the program the progress of adding value and not to that segment is actually guy.
Well, we're getting new trial.
An excessive.
20% of the business for the quarter directly attributed to mention is new business not things like pool. So thats really the critical point for us on that one Harry that you've got to basically pitch. It to every component in terms of.
The other areas I, we're also trying to balance it up about not getting App reinvestment right ahead of ourselves and that's something we're also very careful about.
In terms of run right.
Just a follow on from the comment once you start getting momentum it starts to build and we're starting to see continued strength in that premium mass business coming into the fourth quarter. There's still some on the business transitioning out of some VIP business to mass, but that's really what we're focused on is making sure that the products right we target to ourselves.
But at the same time balancing up.
The reinvestment cost.
Clearly the one thing that would give us all a big lift would be.
Market price and that's what all of us to looking for of alignments side.
The critical point to getting to that that that <unk> billion dollar number is tied back and ultimately testing the market drives and I think we're all looking to see I. Once we get through these challenging few months now that the sometime during the course of 2020, we're going to say some real growth back in the market.
Just a quick follow up on that last and do you think that or do you think theres going to be or how much of a positive impact would you expect from.
The operation of the light rail and then the the beginning of the high speed rail expansion down to a down to the hedge and stuff.
I think all of those things are incremental that Harry I don't think there's anyone.
Instead to a number of people that Macau is starting to become more of a mature market, yes, we're still well underpenetrated and John or in the market is still strong but the characteristics about.
Single event having.
Significant.
Impact is just now bear and it's it's it's just a question of applying a pressure to all of the leave as all of the time, keeping our cost in control and making sure that we just take advantage of all the opportunities that arise.
Thanks, everyone appreciate it.
The next question will be from John to create with Union gaming. Please go ahead.
Good afternoon, everyone. Thanks for taking my question.
Jim I wanted to go back to the real estate discussion a little bit.
At this most popular today and a potentially a number of strip assets potentially coming on the market for Sal and Youve just gone through two processes.
Potentially another one is curious if you could talk a little bit about the type of demands for Las Vegas strip assets that you are seeing inbound Im sure. There was no lack of interest in the Blasio and.
Just wanted to get your thoughts on the number of interested parties.
And then.
Follow up would be Blackstone, obviously paying a a full multiple for bill Lodge, Joe, but long term partner, if you could talk a little bit about somebody other deciding factors other than valuation that that may be put you in Blackstone together.
Sure.
The two transactions, we announced a really had a two different objectives, but.
But accomplish.
The same thing in terms of moving toward an asset light strategy out I'll take the smaller one first.
Circus Circus as you know was part of the Mandalay Resort group acquisition.
We're back in 2005.
The property was performing extremely well and then the great recession hit.
And circus struggled mightily and were immensely proud of the men and women. There are many of them are there today that brought that property back to a very high level of performance.
But circus was never going to be.
Really strategic to MGM resorts, because it doesn't add a customer segment that we don't already adequately.
Account for and so.
The focus on that.
Was defined.
Very good home for Circus Circus and of course, we have high degree respect for Mr. Often we transacted with them before he lives here in town he's invested in Las Vegas, and he has some really exciting plans for circus circus that was important to us because we were intending and we'll sell the entire.
Enterprise, including the land.
And we do believe that the northern strip, it's got great future with the convention expansion with resorts World hopefully the drew and of course ideas that Mr. Often has done circus.
The Blackstone transaction was very different in the sense that we had never contemplated would never contemplating selling blasio outright, we didn't want to transact with real estate.
And by bringing the real estate committee together and spending the time to really understand not only what our tax basis was at this property, but what our legal options were and what a lease could look like and how we could minimize the friction costs.
While still retaining some key decision rights we landed on this joint venture concept, which of course is innovative.
First of its kind, where we will retain a 5% equity ownership and the real estate obliged show selling 95% of it.
To a subsidiary of Blackstone Blackstone certainly was not the only a counterparty we talk to a the net was pretty wide and it zeroed in to a half a dozen or so extremely well known very sophisticated deep pocketed real estate owned.
Ours.
Well we concluded.
That's the best course of action was to focus on Blackstone to try to get that most precise execution I think we've done that.
We took the time also.
To create a blueprint for other transactions and that is having the predicted outcome which is.
Companies like Blackstone and Blackstone themselves continued to be interested in Las Vegas real estate, but really only on quality Las Vegas real estate and of course, we own most of the quality Las Vegas real estate, including MGM Grand Las Vegas.
So one the blueprint we're proud of it and we think it can be adapted.
Secondly, there are a number of of Counterparties that would be interested.
We've done a lot of work already and by taking our time. We've also benefited from increasingly low interest rates, which has a and and high access to capital markets, which also increased creases valuation so.
We're not interested at this point in time and acquiring assets were not looking to acquire any other with anyone else's assets were looking to monetize the assets that we own either jointly or in whole and I think that the blueprint is now.
Bush and you're gonna see us use that blueprint and a relatively a deliberate prompt fashion on MGM and perhaps other assets.
Thanks, Jim I think that answers all my questions appreciate it.
Next question will be from David Katz with Jefferies. Please go ahead.
Hi, good evening and thanks for taking my question.
<unk>.
Just thinking about the MGP stake.
You know my my question follow up is.
Is there a path to lowering.
M. gyms stake in that other than.
MGP going on buying something and using the capital markets.
To raise equity.
And then if that were to occur.
You know what does it obviously that triggers a number of different.
Things within the MGM model and I think fully she was getting at this earlier you know.
Paints a picture of what that looks like.
You know should you get below I think core you said, 30%, where it would be a de consolidated entity and what does the balance sheet look like Ben.
Well I'll tackle the first part in and kind of the second answer is.
To be determined I don't think we have enough inputs that we are prepared to share to give you a kind of satisfying answer to that unless Corey has a better answer than what I just gave.
I think the important.
Point to make there is that.
We will own less of MGP because.
We see what's on the horizon for MGP and the pipeline of transactions that we know they're looking at that could be done a productively in a creatively for MGP, which would we believe in only would be done. If we believe this would be well received by the markets and there.
For a bit Abbott able to access the capital markets. So we will reduce our stake that's that's a very clear.
Scenario, we foresee in terms of other ways of reducing our stake in MGP there are other ways.
But our focus right now is on what we've talked about a monetization of the real estate of MGM.
Monetization of our other jointly owned real estate.
Executing on the Blackstone transaction, which who knows could lead to other transactions with that entity or other entities like Blackstone executing on the circus circus transaction and MGP.
Whether or not they participate in MGM Grand which is entirely possible.
In fact, a more than likely.
Would therefore be a part of our a reduction of our equity ownership of MGP, but.
But I don't think we're prepared to give an end state to what our balance sheet or there's would look like a on a post a de consolidated basis would have what I would say obviously is if they're not consolidated with us they're there they have the highest rate leverage ratio right now and obviously given our onetimes U.S.
Operation and where we are in China, we would expect our balance sheet leverage to go down even further.
Well that even with Im sorry, sorry go ahead.
No that's a good point.
Even though I.
I mean, I think part of what were Felicia was headed was you would deconsolidate the MGP.
Debt, but you would then be replacing it in some sense with.
Oh lease obligation now that MGP is de consolidated.
And in all likelihood potentially right.
Yes, yes, and think about it got a simply were reduced we're eliminating nearer term maturities.
Bank debt bonds, and replacing it with long term low cost capital in the form a leases just if we did nothing else, but that that seems to be a very smart financial strategy given the stage of the economy that we're in right now, but by reducing our financial leverage and focusing.
On consolidated leverage and lease adjusted leverage, which we've talked about all three we believe we're strengthening the company's balance sheet and a actually redeploying capital in a better return fashion.
Got it thank you very much I appreciate it.
Okay, I think that seeing the the time as a bit passed I want to just some up by saying Thank you for being on the call.
We had a satisfying third quarter.
As I said, it's in line with our expectations our convention business a key driver the health of Las Vegas was strong in the third quarter will be strong for us in the fourth quarter and into next year.
We've made great progress on MGM 2020.
We're proud of granite teams stronger ramp in Cotai.
And we're delivering on our operating targets.
We have a positive outlook for the current quarter.
We're on track to hit the 2020 targets that we've mentioned for EBITDA free cash flow per share.
And leverage.
We're also delivering on our financial targets, we continue to make excellent progress in our real estate.
We know the positive impact they will have on our balance sheet, our free cash flow per share and our ability to execute on our targeted growth initiatives and with that I want to thank you for dialing in and as always we'll be around for questions. Thank you.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Oh I'm sorry.
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