Q2 2021 MGM Resorts International Earnings Call
Good afternoon, and welcome to the MGM Resorts International second quarter 2021 earnings Conference call joining the call from the company today are Bill Hornbuckle, Chief Executive Officer, and President Corey Sanders, Chief Operating Officer, Jonathan <unk>, Chief Financial Officer, Hubert Wang President and Chief.
<unk> operating officer of MGM, China, and Cathy Park Executive Director of Investor Relations participants are in a listen only mode. After the company's remarks there'll be a question and answer session in fairness to all participants please limit yourself to 1 question and 1 follow up please.
Please note this conference is being recorded.
Now I would like to turn the call over to Cathy Park. Please go ahead.
Thanks, John.
This call is being broadcast live on the Internet at investors day at MGM resorts Dot Com and we have also furnished our press release on form 8-K to the SEC on this call. We will make forward looking statements under the safe Harbor provisions of the federal Securities laws actual results may differ materially from those contemplated in these statements additional information concerning.
Factors that could cause actual results to differ from these forward looking statements is contained in today's press release and in our periodic filings with the SEC, except as required by law. We undertake no obligation to update these statements as a result of new information or otherwise.
During the call. We'll also discuss non-GAAP financial measures in talking about our performance you can find the 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 will now turn it over to Bill Hornbuckle. Thank you Cathy and thank you all for joining us today.
Over the past few months, we've had the honor and a privilege of welcoming back guests back to our properties at a remarkable pace, both in Las Vegas, and our regional markets.
Been rewarding to see our guests taking in all the world class gaming and entertainment experiences that only MGM resorts can provide and it's been equally gratifying to witness the tremendous effort of our employees delivering these experiences we have an amazing team of people here at MGM resorts the best in the business and so I'd like to take this time to thank them today for their hard work and.
Dedication to our company and our guests, especially over the last 18 months I can't say enough how critically important they have been we will continue to be to our success as we carry out our vision to be the world's Premier gaming and entertainment company in.
In fact investing in our people and our planet is the foundation upon which we built our strategic plan for the company's long term vision and strategic plan consists of the following 4 priorities investing in our people and our planet providing unique experiences for our guests by leveraging data driven customer insights and digital capabilities delivering operational excellence at ever.
Pre level and allocating our capital responsibly to drive the highest returns for our shareholders.
And driving our vision, we have long discussed our goals of simplifying our corporate structure and monetizing our real estate at premium valuations to become asset light we've been busy on this front and over the past 90 days, we've been meaningfully advance the strategy.
In May we announced an agreement to sell and leaseback MGM Springfield underlying real estate to MGM growth properties.
We followed that news in July with an agreement to purchase and finish world's 50% interest in City Center, and then to subsequently sell and lease back the underlying real estate, the Blackstone and an unprecedented cap rate for gaming assets.
And we're very excited to become the full owners of Ari EBITDAR operations. Soon I'd also like to take this time to thank bill grounds from Infinity World, who has on the heels of this transaction stepped down from Mgm's Board after serving us since 2013, he's been a great partner for many years and we wish him the very best in the future.
And finally as you know we have spent significant time and effort working on the best solutions for our stated goal of deconsolidation M. G. P. And this morning, we're pleased to announce a comprehensive transaction with Vinci and M. G. P to monetize the majority of our operating partnership units for approximately 4.4 billion in cash and the multimode.
That's among the strongest in all gaming real estate transactions to date.
This is a great win for MGM and M. G. P. We're excited by our new long term partnership with Vinci again, I'm incredibly proud of our finance operations operating and legal teams, who have been accomplishing an astonishing amount in a short order to get these transactions across the finish line. Combining these transactions are grant us greater financial flexibility.
But that means a 11.6 billion in domestic liquidity and importantly, they allow us to intensify our focus on maximizing growth in our core business and pursuing opportunities that align to our long term vision in.
In terms of such opportunities, we remain committed to our sports betting and I gaming joint venture that MGM, which continues to impress having expanded its net revenues and its leadership position in the second quarter that MGM is the number 2 operator in our space nationwide and in the second quarter. It came in at 24% share of its life markets.
But MGM remains a clear leader in I gaming, having reached a 30% market share in the second quarter and we also continue to see the benefits of customer acquisition cross pollination between MGM and bet MGM in the second quarter, 15% up at M. James New players came from MGM and 31% of M M life sign ups.
Came from bet MGM.
We will strategically invest in our digital capabilities and customer growth strategies, driving innovation and a deeper customer loyalty throughout technology led customer centric experiences products and services. These efforts will be led by to Lockman Daddy, who we recently hired as our chief strategy innovation and Technology officer to lock is a visionary.
3 a results driven leader who has spent several decades of experience at both Disney and American Express where he led similar initiatives to lock will also be leading our relationship with bet MGM joining its board of directors. He's another Fantastic addition to our senior leadership team and complementary to the deep bench. We have now built with recent additions that Jonathan.
CFO and jewelry Choper as our chief people inclusion sustainability offer.
Officer excuse me I have no doubt to lock will be invaluable to the company's future.
We will also increase our diversification into Asia through the footprint expansion in Macau and the integrated resort opportunity in Japan as a matter of fact, we officially submitted get submitted our RFP is the sole bidder for the Osaka license a couple of weeks ago, which starts to clock on a 3 month review process when a local partners or it.
I remain excited by the opportunity, which we expect will yield very attractive returns and we look forward to a soccer we view our proposal and hopefully I'm confident we will ultimately be named Osaka as designee operator early this fall.
And lastly, we continue to study key regional markets of significance income, including commercial gaming license and Empire City in New York.
Before I turn it over to Jonathan to delve into our second quarter results I'd like to say a few words on our current business trends and our future outlook.
We reported a great second quarter in our domestic properties driven by pent up consumer demand and high domestic casino spend as well as our ability to yield our business and maintain our cost discipline efforts. In fact, we delivered all time record margins in both Las Vegas, and regional segments as well as all time record EBITDA quarters at all.
Regional properties further 11 of our 17 domestic properties had all time record quarters and slot gross win and that momentum continued into July with another record month that exceeded June I can't tell you enough under these circumstances, how pleased and proud I am of our entire team we have righted the ship and we're going full steam ahead.
In Las Vegas.
Yes, our weekend volumes are back to normal driven by leisure and domestic casino customers with a D ours now surpassing 2019 levels.
The week day, while improving continue to lag.
The weekends in the second quarter due to lower level of group business that being said June kicked off a series of city wide events coming to town such as world of concrete and surfaces and we anticipate a return of groups here in the third and fourth quarter feedback from meeting participants had been very positive our lead volumes in the year for the year production is now close to <unk>.
Leverage levels, which we expect will help midweek occupancy uplift in the back half of the year. We continue to believe that full convention business recovery will be post 'twenty..1 event solidifying itself in the second half of 'twenty 'twenty, 2 and we remain pleased with how our 22 and 23 group calendar is shaping up as well as contra.
Rock commitments up for the future.
In July we relaunched entertainment with a great lineup of events that was met with overwhelming demand and now with the Allegiant Stadium hosting large scale entertainment, we can now drive more meaningful compression, especially at the mid the south end of the strip considered the entertainment programming a few weekends ago, we had Garth Brooks at Allegiant Stadium.
We had Mcgregor fight at T mobile and Bruno Mars at Park MGM selling over 98000 tickets within our properties distance situated to capture a significant amount of this foot traffic.
Well our conviction in the long term viability of our business remains stronger than ever. The recent rising number of Covid cases in the subsequent actions taken by the CDC and local regulators and our reinstituted masked mandates here in Las Vegas of note is a reminder, that the pandemic is not completely behind us and.
In Las Vegas, we continue to facilitate vaccinations, among our employee base and have partnered with the Governor's office to host multiple host multiple vaccination clinics, including wanted T Mobile arena. Another on the strip at the park and we are using the full weight of our business and resources as part of this effort, including significant incentive offers to both guests.
Unemployed she'll get vaccinated or bring friends and family to get vaccinated. We've also invested.
Ongoing educational employee campaigns as well as providing easy access to all 3 vaccines on pop up clinics and all of our properties in July we implemented a mandatory COVID-19 testing program for all of our Las Vegas employees, who have not proven proof of vaccination, we've taken the virus very seriously and as always the health and safety of our guests.
And employees is our top priority.
At this time, it's too early to speak to any meaningful impacts to our business, but we are monitoring the situation closely and we will continue to proactively worked safely to accommodate guests and our properties July as I mentioned before was the best month this year and by far in terms of operating performance and we ultimately feel great about our long term positioning in Las Vegas.
The last few months have inevitably proven that the city remains resilient to a top destination for both business and specifically for tourism.
Our regional properties that I mentioned earlier delivered their best quarter to date, yet in terms of EBITDAR. We are encouraged by the stability of demand we saw at our properties as restrictions further east into July and I'm also pleased that our focus on cost and productivity across labor play of reinvestment and other streamline initiatives remain a key priority for array.
<unk> teams and finally on Macau in the second quarter, we delivered sequential improvements over the first amid a choppy G. G. R environment that remains well below pre pandemic levels. Despite this MGM, China, given our strengths and premium mass continues to outperform.
Our former position in the marketplace.
We believe the rate of Macau as recovery will continue to hinge on broader sentiment as we pace the vaccinations rollout throughout the regions, which will ultimately lead to sustainable easing of travel restrictions.
The Guangdong outbreak quickly contained July was off to a better start than we saw visitation ambitious and volumes are striking a pick up again and while the region had felt some additional speed bumps in recent days with the governments expeditious efforts to contain the outbreak and border restrictions easing over time, we expect gradual growth demand for travel.
Macau throughout the end of the second half of the year.
We remain committed to elevating our footprint in Macau and will soon be increasing our upscale suite inventory, we have finalized the construction and fitting in the south tower suites at MGM Cotai and are pleased with the final product, which we believe will be well received by our premier mass clients.
We are now in soft opening in order to make final adjustments to our product and to achieve a level of service that meets our high quality standards. We expect to officially opening later this month and further we completed the gaming space refresh and MGM Macau and are now looking at remodeling our village.
At both properties were enhancing our F&B options focused on the gaming floors and over time, we have the ability to build out another hotel tower at MGM Cotai, along with meaningful entertainment assets to diversify our offerings I am confident in Macau is longer term growth prospects and firmly believe our investment in premium product positions us well.
For a broader recovery.
With that I'll turn this over to Jonathan to discuss our second quarter in more detail.
Thanks, a lot Bill, let's first discuss our second quarter results. Our consolidated second quarter net revenues were $2.3 billion significantly better sequentially over our first quarter results. Our net income attributable to MGM resorts was $105 million and our second quarter.
Adjusted EBITDA improved sequentially to $607 million 17 million once again heavily driven by our domestic operations.
Our Las Vegas strip net revenues in the second quarter were $1 billion, 31% below the second quarter of 2019, and 28% below excluding circus Circus, Las Vegas, which was sold at the end of 2019.
Despite the lower top line, we delivered far superior EBITDAR results, our second quarter adjusted property EBITDAR was $397 million, which is 5% below the second quarter of 2019, and just 1% lower excluding circus hold had a $6 million negative impact.
Our EBITDAR this quarter, so hold adjusted strip EBITDAR in Las Vegas was $403 million.
Our strip margins improved almost 1100 basis points to an all time record of 39.5% and this does not include the results of city center, which generated $120 million of EBITDAR at a 46% margin.
As Bill mentioned in his remarks, our margin improvement was driven by a combination of strong leisure and casino demand continued cost control and the operating leverage inherent in our business.
Naturally with limited convention business and entertainment, we are driving more visitation from customers that we know and our second quarter Casino room mix was 9 points above pre COVID-19 levels. Furthermore, our second quarter casino revenues were 15% above 2019 levels.
And contributed to 35% of our overall net revenues in the second quarter. This compares to roughly 22% and all of 2019.
We're seeing particular strength in the slot customer our second quarter slot handle was 23% greater than that of the second quarter of 2019 on an apples to apples basis, excluding circus circus and for the first time since being impacted by Covid. We are now attracting the older 65, plus demographic to our step strip.
Properties at levels commensurate with what we were seeing pre pandemic.
Our second quarter occupancy was 77% an improvement from 46% in the first quarter with the weekends and weekdays at 94% and 70% respectively.
<unk> occupancy was 83% with the weekends and weekdays at 96, and 79% respectively July occupancy was 86%.
As pent up demand is pent up leisure demand stabilizes longer term. We believe this will be offset by ramping group business in Iowa Echo Bill's comments that we're very pleased with the current trajectory of that segment's rebound.
I'll close on Las Vegas, with some thoughts on margins.
Longer term, we believe that the 40% margins. We achieved this past quarter will stabilize a bit lower as casino spend in overall business mix normalizes and also as we ramp up staffing to more sustainable levels in order to serve our guests more fully.
Or I know that we have further upside in overall profit dollars as our topline continues to rebound with group business and entertainment I'm also confident that our focus on operational excellence and cost efficiency efforts will allow us to achieve strip margins well above 2019 levels long term now.
Onto our regional operations are.
Our second quarter regional net revenues of $860.856 million were aided by the continuing easing of statewide restrictions and we're just 6% below that of the second quarter. In 2019, we delivered adjusted property EBITDAR well over 2019 levels, 22% to be exact to 3 <unk>.
Under $18 million much like in Las Vegas, we're driving success in casino with second quarter Casino revenues outpacing 2019 levels by 8%, primarily due to slots and our higher end customer base. Our 50 to 64 age demographic of which I'm a proud member is now at 2000.
19 levels.
We're attracting more of the 65 plus age demographic.
Our second quarter regional margin of 37% was also an all time record growing 855 basis points over the second quarter of 2019 and sequentially by 316 basis points over the first quarter.
Our regional margin growth is a continued testament to all the great work that our teams have put into maximizing the effectiveness of our operating model and rethinking how we run our business. This ranges from marketing reinvestment to procurement from energy utilization to labor management.
And the breadth of our efforts gives me confidence that we will deliver on the $450 million of cost savings domestically, which we previously identified.
Our margins are the regions will likely normalize a bit lower from second quarter levels longer term as casino of spend spend adjusts overtime and as we reintroduce F&B and entertainment, especially in our destination markets. We also expect to rightsize labor in the near term, which has certainly had a favorable impact on our margins.
But it's also become a bottleneck in certain segments of our operations negatively impacting our EBITDAR.
Still similar to Las Vegas, I know that we can achieve regional margins well above 2019 levels longer term.
Our joint venture bet MGM is clearly the number 1 operator in the U S. I gaming and has solidified its number 2 position nationwide in U S sports betting and I gaming net revenues associated with bet MGM operations grew 19% sequentially from the first quarter to $194 million in the second.
Quarter. This was driven by growth in both I gaming and online sports betting verticals as a result of increased customer acquisition and strong retention that yielded more first time deposits enacted. These results are especially impressive during the quarter with arguably minimal exogenous catalysts no major state launches.
Our seasonally low sports calendar and a further reopening of brick and mortar casinos are sure bet MGM as losses in the second quarter amounted to $46 million, which is reported as a part of unconsolidated affiliates line of our adjusted EBITDA Catholic calculation.
We remain excited about bet MGM strong positioning in this fast growing marketplace and both partners remain committed to its long term success.
Finally in Macau market why G. G are sequentially improved 7% in the second quarter, but still remain depressed at only 35% of second quarter 2019 levels. Nevertheless, as Bill mentioned earlier MGM, China outperformed the market with its G. G are having recovered to 43% of pre pandemic levels.
MGM China's second quarter net revenues were $311 million up slightly from the first quarter adjusted property EBITDAR of $9 million also improved quarter over quarter from $5 million in the first quarter hold adjusted EBITDA was $13 million on $2.75 per cent VIP win in second.
Quarter compared to 3.29% in the first quarter mass hold was also lower sequentially.
Our second quarter corporate expense, excluding share based compensation was $90 million, which included $6.5 million and transaction costs, we expect that our quarterly net corporate expense will run a bit higher going forward as we ramp our investments in I T. Our digital offerings and our IR efforts in Japan.
Can.
In the near term, we also expect to incur incremental costs related to our recently announced transactions.
We were active share repurchases in the second quarter, having repurchased 5.6 million shares for $220 million. We believe our shares are attractively valued and we've purchased an additional $6.8 million shares for $263 million in the third quarter through today, bringing us.
$615 million of share repurchases year to date.
Bill talked about our recent milestones and simplifying our story and becoming asset light.
We sold MGM Springfield's underlying real estate to M. G P for $400 million and a 13.3 times rent multiple or a 7.5% cap rate. We also transacted on city center in fact, showing a high watermark on the sale of real estate assets at an 18.1 times rent multiple or a 5.
5.5% cap rate.
And acquiring ownership of 100% of the operations are you N V. Dara at an implied multiple of 8.9 times based on city centers 2019, adjusted EBITDA from resort operations of $425 million.
City Center second quarter results demonstrate the premium quality of the property the excellence of its management team and its cash flow generating potential with adjusted EBITDA of $120 million, 13% above the second quarter of 2019 and with margins of 46%.
And finally, we announced today the transaction with a beachy, whereby we will receive $43 per unit or approximately $4.4 billion in cash for a majority of our M. G. P. O P units as part of the agreement will hold an approximately 1% stake in the newly combined company valued at nearly.
$400 million, we will enter into an amended and restated master lease with Vinci.
With initial year's rent at $860 million the transaction values M. G. P. At an implied 17.5 times pro rata EBITDA multiple or a 5.8% cap rate.
So it's been a busy and productive quarter.
We expect to close on city center by the end of the third quarter on Springfield by the end of the year and our transaction with BG will likely take us into the first half of next year to close and all of these transactions are subject to regulatory approvals.
The end result is a cleaner more focused company streamline reporting structure and a stronger deployable cash position to maximize shareholder value and advance our vision to be the world's Premier Gaming Entertainment company.
As of June 30th our liquidity position, excluding MGM, China and M. G. P was $6.5 billion and $11.6 billion adjusted for the aforementioned announcements.
On last quarter's call I highlighted our approach to capital allocation and it is certainly worth reiterating today.
First we'll maintain a strong balance sheet with adequate liquidity.
Second we will return cash to shareholders, which we have done convincingly. Thus far this year, we will continue to take a disciplined and programmatic approach to shareholder share repurchases for the balance of the year.
And third when assessing potential growth opportunities, we'll invest where we have clear advantages and we will exercise discipline and measuring prospective returns for our shareholders.
As we evaluate uses of our shareholders' capital over time. These priorities will act as a blueprint for our decision making process with that I'll turn it back to bill for his closing remarks. Thanks, Jonathan We're very pleased obviously with all we've accomplished thus far this year.
T J actions together with the improving domestic backdrop continued focus on operational excellence and strong conviction in Macau recovery position us very well for the future. There's a lot to be excited about when we think about our path on delivering our long term vision, we remained focus discipline and ultimately transparent with that.
We will open to your questions. Thank you.
Thank you we will now begin the question and answer session to ask a question you May Press Star then 1 on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2 and as a reminder, in all fairness. Please limit yourself to 1 quest.
And 1 follow up.
And our first question will come from Joe Greff with J P. Morgan. Please go ahead.
Good afternoon, guys and nice results.
I wanted to start off by talking about.
So your bill and Jonathan but what you just referred to is there Jim.
A sizable deployable cash position, obviously, you have Japan out there and that isn't that sort of a near term thing and that's uncertain.
<unk> been doing buy box, maybe you can talk a little bit about M&A and how much of a front burner priority for you and just in Jim discuss your M&A aspirations and how you look at M&A as achieving whatever goals. You you have the you have discussed maybe at the internal executive level at the board level. Thank you.
[laughter] lots.
That's a simple question Jill. Thank you [laughter] look Jonathan said it I've said it you've heard us say consistently.
We are committed to becoming the Premier gaming Entertainment company in the world, we'd like to think we hold that key position net already you know we have expressed desires and digital.
The obvious I must say our strategy doesn't refer and hinch simply on 1 other company.
We are very excited about our JV with MGM and we continue to grow that we have a great working relationship with that and it's productive.
You know Jonathan has already shared the company's position on share buybacks and we'll continue to look but I you know the good news is I mean, we've got 6 or 9 months before these transactions close.
And time is our friend.
And so you know we're gonna be disciplined about the approach.
It's a Joe it's Jonathan I would only add that it is it is it is such a dynamic environment right now where we are certainly all hands on deck as our as our operations continue to grow and recover here in the U S. A we do believe the shares are attractively value.
Right now, which is why we've been active in the market. We expect to continue to be so, but I really like our position.
In terms of our current liquidity and the expected liquidity with a with the transaction.
Actions in Springfield and.
And with V G.
To be in a good position just with the way that things continue to change and we expect them to evolve over the next several months and years.
Great. Thank you for the hard.
Maybe you can just talk and in some greater detail.
Both for the Las Vegas strip, and then the regional markets in general.
Yeah labor challenges.
Finding people and then you know wage pressure is going how much of the mismatch is there would be.
The new expense growth in the 2 key was the exit rate.
On the expenses and the margins are different than.
Then it was for the full quarter given me a lagging operating expense pressure.
I'll turn this to Corey in a second but just kick it off by saying look I think like the balance of the the whole hospitality industry. We are suffering universally our share of labor shortages and some supply chain issues, they're not critical but they are important we've done everything we can we've done incentives and other things to motivate people.
To work I think we all believe come the end of September we'll hopefully see some increase in terms of people's willingness between the negotiations here, particularly with the legislature in Nevada unemployment hopefully are weighing in some respects, but we've been managing through it and effectively I think the team has done a really good job with it.
You know it has hampered some midweek occupancies.
We've pushed up our business and therefore, our ADR thing we've yielded effectively and so I think it has helped our margin. So Corey I know if you want to pick up what I would add Joe is we've made a lot of headway over the last few weeks and finally, the labor that we needed as Bill mentioned, we have had some incentives it's not gonna be very material at all on the impact of our labor.
Cost.
What we're trying to do everything we can not to completely change the paradigm now until things settle in and so we continue to think about it in that context.
Great. Thank you guys.
The next question is from Chad Beynon with Macquarie. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
As you think about your timeline in Las Vegas in terms of getting back to 2019 levels given the strength on the hotel side on weak, particularly on week ends and your gaming market share right. Now can you help us think about how that's changed in terms of when you believe you can get back to pre pandemic levels on a revenue or EBITDA basis.
Thanks Corey.
Yeah, Chad I.
<unk> been asked in the last few quarters, when we think we'd get back to 90% and I think we're there and that has accelerated I think when we get back to exact on 19 levels will be when the convention business comes back in in a pretty solid level, we're seeing some pretty positive bookings in trends in it.
In 2022.
So it could be as early as the first or second quarter of 2022 that were at 19 levels, especially on the non gaming revenues.
Mid week and really through the balance of this year, we're going to have about 1.2 million group room nights give or take obviously, we're all watching COVID-19 closely in the coming weeks here, but we've had very limited cancellations. We've actually had a couple of upticks interestingly and so that'll be paramount to really setting the stage going forward, but again.
Long term 'twenty, 2 and 'twenty 3 fundamentally are looking great and we've had no substantive cancellations given even what's happened in the last week. So.
You know I think Chris estimate is spot on.
Great. Thanks, and then on the digital side of the bet MGM Investor Day, you talked about market share goals, which you're already exceeding I think in the next couple of months, you'll see some additional competition, but then on your side I believe a lot of your retention tools will be in place can you just talk about what you'll have a in place over the next couple of months to help retail.
The customers that are that you're currently doing business with.
Well, obviously, you heard yesterday on Tom's call, they're going to step into the space in a substantive way now and chase it with about $1 billion. So there'll be a real competitor and if you think about what they do and what we do it's the most likely competitive to us in the context of same store loyalty presentation ability.
D to omni channel and monetize across a broader platform brick and mortar as well as digital.
We are heavily into our loyalty push we have appointed several senior executives both here and at bad M. G M who.
Who are marketing are focused on doing exactly that you heard me express earlier the amount of interchange between bet MGM and M M life and vice versa, and we also have a strong push in moving regional play through bet MGM and through just the regional properties backend Las Vegas will.
We will have a yet another product launch coming up here very soon if you look in the deck. We provided you can see some of those product enhancements the team at that MGM is working.
Around the clock on this to get it prepared for football and I think it'll speak to a lot of things of note loyalty retention and our ability to lower our ultimate C. P. A which is the goal here are will stick.
Thanks, Bill nice quarter. Thank you.
The next question.
<unk> will be from Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, guys. How are you. Thank you.
Jonathan you gave a lot of color as you kind of talk through the puts and takes of the Las Vegas strip margin profile going forward, but if you.
Talk a little bit about city center and.
Sorry, excuse me Circus Circus removal you guys did in the period about 400 million less of rabbits.
As you think about kind of being at.
A 40% margin level in that incremental $400 million of revenue that should come back over time.
Is it being overly conservative to say that the kind of margins to compress over the long term or is there some stuff here over the medium term that that might kind of bring margins in a little bit before they could rise again from kind of the natural operating leverage.
Robert you back.
Yeah. Thank you for the question Carlo and its its well posed because there are there are a few dynamics going on here..1 is certainly the just the higher levels of casino spend.
From our customers that we've been experiencing over the past 6 months and we're not simply just kind of taking this business. We are we are driving that demand through our through our marketing channels.
And so you know we've we've earned at those revenue levels for sure, but they are elevated.
Compared to what they've been in the past and that's what I referred to in our remarks is some expectation that that over time.
As as other.
Avenues for spending are available in our properties that perhaps that mix normalizes a bit but at the same time, our you know our at our hotel Revpar.
It's still below where it was back in 19 fairly materially both by occupancy as well as overall rates and that presents tremendous upside that's high margin revenue for us we fully expect to be able to get back to those those levels over the next year or so and that will lead to.
It will be very profitable revenue growth for us at the same time much of that of course going to come with a recovery of the group business. So there are the puts and takes as you put it.
We're just.
You know, where we're doing the best we can to account in the future for the impact that some of our labor additions are expected to have but there. There are clearly sources of upside in <unk> in revenue and even margin performance, mostly around the hotel mix.
And what I would add what I would add Carlo is a.
A few pieces of our business that are missing when you. We just opened up the restaurants, there's the opportunity to make some additional EBITDA. There Oh, yes, it will be a little bit less margin and then the entertainment side and we're seeing some great demand. There that also will put a little bit of pressure on our margins, but it will increase our pass laws.
Thanks, Corey that that's helpful. Thank you both for that and then if I could just 1 follow up in it.
It's kind of the small nitpicky, but could you guys kind of talk a little bit about the tax implications of the transaction for you guys. The $4.4 billion of cash overseas.
Perhaps the the.
The rationale behind kind of holding onto those those 12 million O. P units is that something tax related.
It is so in broad strokes, what will happen is beach Beachy and M. G P will emerge.
And M. G M O P units or the vast majority of them will be redeemed.
For cash and that cat $4.4 billion in cash and that will be tax deferred.
And.
In keeping the 1% interest in the combined company what will happen is on those remaining units those the the basis those units will be reduced by the amount of the gain that we will have on the $4.4 billion and this will be subject to a.
15 year tax protection agreement.
With B G.
Which protects us against that gain being triggered through any sales of the assets. So it's a 15 year tax deferred.
The receipt of $4.4 billion and the remaining interest is critical to that to that tax.
Analysis.
Alright, great that sounds like it was probably a very fun negotiation Chris.
We appreciate the color.
Thank you Tamara and thanks, all right.
And the next question will come from David Katz with Jefferies. Please go ahead.
Afternoon, everyone. Thanks for taking my question.
As we have listened to.
<unk> report and talk about the businesses and their outlooks and at the same time, you know I talk with investors.
About the sustainability of the margin gains that we're seeing you know primarily out of this quarter.
And you know.
Clearly, we made an amount of cynicism around you know everybody's ability to do that.
Can you just help us alleviate some of that cynicism and why we shouldn't be comfortable.
The margin gains will be reasonably permanent.
Well, David Let me, let me kick it off and maybe Corey can jump on here.
Well in the margin that we did this quarter is not sustainable I think we've said that in a couple of different ways, but I think it's really relevant is that where we are versus where we're going to end up is a substantial difference up and so as you know a high high value high revenue high cost things like a lady.
Gogo show come into play it just it works on your margins given particularly at the higher end business returns, whether it be ultimately from Asia or other places it'll kick in and so I don't think I hope you haven't heard US say, we're going to sustain where we are this quarter that wasn't the message. The message is we have learned a lot we're going.
Be appreciably better than we've been in I can't remember in our history.
And and there are certain things, we will never do again, whether its buffet openings or how we think about labor or services or products.
Given what we've all gone through for the last 18 months, there's a massive amount of learnings of how to even think about our business I mean I just look at our corporate enterprise. We had 40.750 Ftes were under 3000 today, we will never go back to 4700.50 Ftes full stop.
So you know I hope the message is as you know from our perspective.
We're not going to sustain where we are but they won't be much better than they've ever been historically and I'm pretty excited about where I think they're going to end up ultimately.
Yeah.
I bet.
That was that was relatively clear I could have asked the question just a little bit better and if I can follow up quickly with respect to the loyalty program.
Jonathan I recall, you make some commentary.
In investor meetings about the opportunities to build M life out.
A lot of different directions and grow it.
An update there would be helpful. Thank you.
I'm sure I appreciate you, bringing it up because I do I do I know this is a huge.
A huge opportunity for MGM resorts I mean, we we have a fantastic loyalty program with 36 million.
Members, which is growing.
You know in in significant part by a bet MGM right now and so it's it's a it's a large and important loyalty program and where I think some of the sources of upside or particularly around cross property play.
Here in Las Vegas.
And kind of the transparent portability of those rewards across the network in Las Vegas, and then in driving regional are customers of ours are members of M life loyalty program to our properties when they visit Las Vegas, which we know that they already do.
Think that the and this effort of course is led by a seasoned Ala our chief commercial officer, but here is where to Lockman Daddy. This.
An old talent has just joined us.
From from Walt Disney is going to be hugely impactful as he helps us really build out the technology platform and the overall design of that of that program and its next instance, so so there's there's a lot of work going on around the the around that effort right now.
And I'm I'm really confident it's going to have a real impact for us in 2020.2 and day.
Go ahead, and just just a few data points to that you know we have just began some of these initiatives are cross regional for the quarter was actually up 25%. So we're pretty excited about that opportunity. There. We're just touching the surface and even when we talk about bet MGM and what it means to a property.
Our Detroit active M life customers in Q2 were actually up 40% from Q4.19. So we're seeing that actual sign up in that in that market actually translate to bricks and mortar customers and you actually would see that and then July results, which Detroit does publish their results.
A record market share in Detroit.
And David maybe a final comment there's 4 areas, where we're consistently after the high end and so we're looking at the program and modifying it and making sure digitally more things are accessible where after retail high end, meaning I mean retail stores I mean, we have a great deal of business. It roams around here that arent principally gaming customers that we think there's an opportunity.
City to recognize with loyalty.
Obviously, the regional play that Corey has mentioned and Jonathan and then bet MGM are really the 4 key drivers.
And then 1 interesting tidbit I stumbled on this morning, Corey just mentioned if somewhat in Michigan 1 of the questions. That's come up with better MGM is about cannibalization.
It's interesting.
Detroit, just got a 46, 5% market share in brick and mortar.
And we lead the market and I gaming at 38% and that's an increase from the mid thirties. We were 43% in June were 46, 5% in July and we're holding at 38% market share and I gaming and so the idea that omni channel can and will work and not be cannibalizing is something I'm very excited by moving forward.
I appreciate it thank you very much.
The next question comes from Thomas Allen with Morgan Stanley. Please go ahead.
Perfect. Thanks, So actually following up on this conversation if we look at slide 24 of your presentation.
You had 15% of new bet MGM players and QQ, we're active with them, Jim that's up from 10% last quarter.
And then you had 31% of new M life players in <unk> were from but I'm, Jim in the down from 44% last quarter can you kind of talk about what's driving the difference in trend between those 2 numbers and like how to think about it going forward.
Well I think the second 1 is the easier 1 we've just seen that many more car I mean, you know the volume between the first and second quarter, and how that Howard and Michigan by the way how it grew its just its overpowering and thankfully. So I think that explains that more than anything and I'm sorry, Tom the first the first 1 so the first 1 so in the first.
Quarter, 10% of your bet MGM players were legacy MGM players in second quarter went up to 15, Oh Oh, yes.
What drove that increase.
Well, Michigan a lot and then we continue to push on programming hosts et cetera.
In terms of incentives and otherwise to get them to sign up on our customers and we're just seeing a more active in the database in terms of making bet MGM known to them and available to them.
Helpful.
And then I see you reiterated your.
Your Bill and dollars of revenue next year for bet MGM I mean, you did $3.57 in the first half of this year.
Central upside there at all.
We do remember I gaming just got going a second really into the second quarter not even in the first quarter.
You've got you know football I think we'd better programming better database to pull upon we've got a couple of states that are on the horizon of our coming out you've got Maryland, you've got something we've just done in D. C. Arizona is around the corner. So I think between an increase the states are the full the full year, if you will of I gaming.
And some other potential things that we continue to market, hence the numbers, we just talked about.
We feel pretty comfortable about the G. P R.
NGL excuse me.
Alright, thank you.
The next question will be from Shaun Kelly with Bank of America. Please go ahead.
Hi, Good afternoon, everyone I just following up on the V T transaction in and congratulations on all the myriad of activity it.
I was wondering if we can just get a little guidance as we're trying to think about maybe cash flow bridges.
1 would be you know I'm sort of calculating pro forma rent expense for all of these different things.
Coming out in that kind of 1.6 to $1.7 billion range. So first question and then am I in the right ballpark for that and then second would be sort of Directionally, how should we think about cash taxes across the enterprise. After all these moving pieces settle.
Into 'twenty channel.
Yeah. The you are in the right ballpark there.
The changes are.
Really the city center, which we expect to close at the end of the third quarter and that will introduce increased rent of 215 million.
$1 million.
So you'll be you'll be close on that and then regarding the cash taxes, that's something that's still.
We're still working on right now as it relates to.
'twenty 'twenty 2 so I think what I'd prefer to defer that question until we get a little bit later in the year I was employee tax credits et cetera.
Understandable, maybe just as a follow up you talked a lot about the the gaming behavior and the increase in your casino block just kind of curious if you could give us a sense across your either your different channels E. What's O T. A doing right now how important is that is that an area where you can.
Maybe change the mix more permanently or just how are you thinking about some of that you know I'm pretty.
Pretty good at hotel revenue mix going forward in more of a steady state.
Sure Sean this Corey Yeah, that's 1 of our big strategies that we're definitely working on we're working on pre Covid is the mix and maximizing that mix and we've had a lot of success in this period, we've been able to increase our transient mix, obviously as Jonathan mentioned in his opening comments the casino mixes up but more.
More importantly, we're shifting the mix from the Lake I O T. A package business, which is our least profitable business.
<unk> seen increases in the land business, which is very similar to our transient business. So we're very optimistic on what we're seeing there and when that convention business comes back. We think there is additional opportunities to maximize our mix.
Great. Thank you everyone.
And the next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.
Alright. Thanks.
Maybe you touched on this a little bit, but turning to Japan and keeps you remind us what the capital contributions you'd be anticipating over the next couple of years as you become.
More asset light what is the potential to bring in reach or other sources of capital into that market to reduce your asset intensity there.
On its surface remember the the program with Orix is 40, 40.20, meaning a consortium of other Japanese companies will make up to 20% if not we both felt the 50. The project itself is call. It $10 billion, we think it's a little lower but call. It 10 billion for simple math.
Call it 55% debt to equity so you know for us it's a 2 to 2 and a quarter billion dollar check probably over 24, 5 and 6 give or take if you want to think about how that might flow itself through the through the system I think longer term look theres a commitment we are making to Japan into OS.
Soccer that we would be a true partner and this is actual requirement for 30% equity in it.
To be you know to be clear.
<unk> are a.
Or qualify if you will.
But rates are something that are in Japan, and so you know I think longer term, we'll see but in the short term it's about a 2 to 2 and a half billion dollar cash commitment over 3 years.
And depending on again on licensing 'twenty 4 'twenty 5 'twenty 6 is probably the best way to think about that.
Great and then sticking with maybe capital allocation.
How are you thinking about the allocation of proceeds from the Chi is similar or different than cash from operations and then has your thought process around the right leverage ratio for an asset light business evolve. Thank you.
Yeah. Thank you for the question Steven you know that that transaction is expected to close in the first half of 'twenty 'twenty..2 so the plans for you know for the allocation of that capital.
You know will begin soon they've already begun actually end up but the actual casual and come to the company for probably 9 months or so and like I said in the in the prepared remarks really are our first.
Order of business at these at these levels. We think our shares are attractively valued so we will be aggressive purchasers of those shares.
Beyond that we'll look for opportunities to inorganic opportunities to to really further the company's vision as a premier gaming Entertainment company globally.
In terms of our leverage targets you know the company's capital structure is changing from a traditional.
Senior debt structure to to the to the leases that we have and that'll certainly that certainly impacts our thinking about leverage because the lease payments due.
You know do represent our financial leverage on the business.
And our lease adjusted leverage level of 4 to 5 times, we think is.
Is reasonable for a business of hard of our geographic diversification.
And so that's the way, we'll be thinking about it going forward on a lease adjusted basis.
Paul Paul Thank you so much.
Thanks.
The next question is from John decree with the C. B R. E. Please go ahead.
Hi, everyone. Thank you for taking my questions, maybe to build on that Jonathan or Bill.
I think theres still some interest in potentially U S markets for a casino in New York is 1 that gets talked about a lot I'm not sure. If if you guys have any comments or thoughts or any of those prospective opportunities something you see coming to fruition in the near to medium term or are they all kind of longer dated opportunities that that might.
It might unfold in the future.
I look at it.
In New York It was disappointing we weren't able to get out to the legislature.
It was close we're gonna take another run at it but the reality of that is you know, we're probably looking at 'twenty 3 before there's a real decision to be made there we still have a keen interest in taking it was seen a window casino and you know time to tell what ultimately gets invested there and how we partner that up but we remain excited by that obviously given.
Okay, Shin and scale, it's kind of hard not to be we'll watch, Georgia, and Texas over time with interest, but again those are long term deals.
They both require I believe a referendum I know, Texas does and so that's not going to happen overnight.
And so I think domestically you know, we're going to try to push for Ohio in the context of a casino, but that'll be time again, so there's nothing immediate on the horizon in terms of real development I think the only way to think about development for them.
The near term is the Japan discussion, we just had.
Thanks, Bill and then treat.
Subjects, a little bit with city center coming entirely into the fold.
Is there anything that that you would do or could do differently.
From an operational perspective, now that you'll have a 100% ownership any advantages that are that we should be thinking about.
This is Corey John.
We brand it like we own 100% of it but we do think there are opportunities how we synergize with Bellagio for example, the doors like right is as close to that.
The last day of Convention center as it is to our yet and we think there are some other additional operational efficiencies that can be gained.
Owning 100% of it but we're pretty excited about finally getting our hands on it.
Also just add 1 comment that you know I'm excited about consolidating this fantastic here Dan.
Our our Las Vegas, EBITDAR would have been 30% higher this quarter, how do we consolidated our city center.
Which which you know is it's a phenomenal business, which outperforms our city wide averages on virtually every dimension. So I'm enthusiastic about having it be consolidated into our financial results and what it gave us a 41% margin for the quarter right yeah.
Great. It's been a long time coming congratulations on that and everything else.
That was it not easy 1.
[laughter].
And the next question will be from Barry Jonas with Truest Securities. Please go ahead.
Oh. Thank you I think it's clear the goal is to be more efficient on the cost side.
Versus 2019 or pre COVID-19 levels, but do you think the revenue mix of gaming and Vegas could be structurally higher as well or I guess are there are there any more recent topline trends you would expect to sustain going forward.
Look I'd love to think that the movement, we've made pushing regional customers we've watched for.
For too long frankly with great interest with our colleagues next door had been doing.
Our market mix is a half of theirs. We know we can increase that so we think that's sustaining obviously you know what we have done best historically is high end international business, we're well positioned we have a plant in Macau, obviously, we have regional offices, all over Asia, we'd like to see us get back into that business.
There's some real growth there.
And I think interestingly the demographic has changed to a younger audience and they've gotten more acclimated to gaming.
We've seen it throughout this past year, you know a lot of these numbers remember that the older folks like myself have generally stayed away.
For health concerns and I think we've seen the emergence if you will have another marketplace. It's called millennial that we haven't seen for a while so we're all pretty excited about driving that in some of the platform technology things, we've talked about earlier with M. Life, we think will be meaningful in that regard.
And what I would say is you know I think we have our cost pretty locked in obviously theres always opportunities now now it is a revenue discussion and how we continue to maximize that and how we can grow organically higher than what we're seeing in cost of living I think some of the digital initiatives. We're working on that the mix will help that as bill mentioned.
And that that customer base were up over 50% M life customers and in that in that group and if we can figure out how to capture them and we believe we have ways to do that and keep them in the properties, we think there's opportunity for rapidly lift.
Got it and then just just curious.
There was strong commentary on slot play levels, which is interesting given the commentary on the younger player base, but how are you thinking about slot capex investment going forward.
Yeah.
We're looking at it right now and are you know we're looking at our floors, we actually what we did during COVID-19 and since we've opened we've right sized our floors and we've actually re laid them out youll see pods, you'll see better vision better excitement.
There's also opportunities in pockets to increase our capital spend with some decent rois and we're looking at that right now.
Great. Thanks, so much.
Last question please.
Sure and that question will come from Robin Farley with UBS. Please go ahead.
Great. Thank you for fitting it in I just wanted to circle back to you know the tremendous proceeds that youre getting because I know you've talked about your balance sheet.
All of that but it doesn't seem like you would need it for any liquidity. It doesn't seem like you would need it for any projects near term so.
I'm just wondering is there any sort of tax reason that you couldn't do a special dividend or is there a consideration there.
And you used the phrase kind of I think if I heard it right it looks for inorganic opportunity. So is.
That's a pretty sizeable budget in terms of I'm.
Looking for I assume that means potential M&A and so I.
I don't know if you can characterize kind of where you see the portfolio, having gaps to fill or what kind of thing might be of interest to you. Thanks.
Thanks, Robin I'll offer a following a few thoughts and then and then turn it over to Bill There's really no tax reason why we could not deploy that capital.
As a as a dividend to our shareholders or for returning capital to shareholders through other means and in fact that that remains a priority for US is there capital that represents you know in a broad terms I think about it as releasing capital from the real estate in this business freeing it up for other uses include.
Returning to shareholders.
My comment about the inorganic opportunities I'm sure that can be development can be M&A and it's really in recognition that it's a very dynamic environment and market with some interesting things going on and so we we really like our position having this kind of liquidity available to seize on those but I'll turn it over to bill.
Yeah, but I mean, I I want to remember remind I should say look we talk about focus we talk about discipline and we've talked about in our vision and being a gaming company yet it foremost and so look we're gaming and entertainment might intersect themselves will be there where digital will be there we have some reinvestments back in our properties. We think that's important.
The next couple of years in terms of room, Remodels and some other things.
I don't know, we'll go too far afield I don't think you know that.
That's probably in our best interest or our shareholders. So I think you'll see us disciplined and very focused on the idea of driving this whole omni channel into a different and better places we think about the next decade or so.
And maybe just 1 clarifying question just since you know a large.
Degas asset.
You know it came up for sale earlier this year.
Is it fair to conclude that maybe and Jim doesn't necessarily see.
A benefit in my growing it's Vegas presence or I mean, it seems it seems like any property you acquired there would be a tremendous amount of synergy just just given the scale you have there but is it fair to assume some sort of how you know how things have played out this year that that wouldn't necessarily be an area that you want to grow your presence.
Robert I don't think we're going to comment right now I. Appreciate the question, but I don't think it's we're not going to comment right now.
Okay alright, thank you.
Thanks.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Bill Hornbuckle for any closing remarks.
Thank you Chad and I'll be quick since this has gone a little bit over it again I just want to call out and thank our team both universally in specific the deal teams that got us to this quarter with just tremendous pace.
We're coming off an amazing quarter July is even more so so I know what we have put in play.
<unk> is doable and sustainable.
So we're very excited by that labor and supply chain remain an issue for our company as it does the industry, but we've also learned a lot from that by not having some things that easily accessible to us we figured out different and potentially better ways to do things and so those learnings aren't going to go away.
We're going to remain village and keep the pressure on with Covid.
As it relates to our employees and making sure we get them vaccinated, we're making good headway over the last 30 days and continue to push on that aggressively.
We look forward to our group business returning in the back half of the year and have no reason to believe as of this date, they don't won't with some velocity.
That MGM continues to shine and Theres No reason to believe the second half of this year, it's not going to do the same and as we've all talked about we have this tremendous liquidity position. We're now looking at and so the future is bright and the opportunities I think extensive but again, where we're gonna be patient and disciplined about what we do and when we do it so having said that I appreciate it.
1 is attendance and thank you all.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Okay.
Okay.
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Yes.
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Okay.