MGM’s Cotai resort delayed; REIT courting more sellers
 
MGM’s Cotai resort delayed; REIT courting more sellers
17 FEBRUARY 2017 8:44 AM

MGM Resorts International executives confirmed the MGM Cotai won’t open until the second half of 2017 at the earliest, but MGM Growth Properties is considering multiple transactions to add to its portfolio.

LAS VEGAS—MGM Resorts International executives expect the strength of the company’s tailwinds to outweigh its biggest headwind.

Despite another delay in the opening of the $3-billion MGM Cotai hotel in Macau, MGM officials praised the direction of the company at the end of 2016 and the start of 2017. During earnings conference calls with analysts Thursday, executives cited the successful launch of real estate investment trust MGM Growth Properties and the performance of a few key properties as reasons for investor optimism.

“Obviously we had a big, aggressive agenda last year,” CEO Jim Murren said. “We set a lot of goals for ourselves … and frankly, we exceeded them all. We’ve highlighted the value of real estate, presented another platform for growth, created (MGM Growth Properties)—which has been clearly very successful—(and) proofed out the MGP story with the acquisition of Borgata. We were able to negotiate that transaction to make it accretive to both MGP and MGM.”

In the fourth quarter of 2016, MGM’s domestic resorts reported flat occupancy at 89%, while average daily rate increased 3.3% to $157 and revenue per available room rose 2.9% to $140. Year-over-year net revenue increased 17% to $1.8 billion and adjusted earnings before interest, taxes, depreciation and amortization increased 14% to $493 million.

For full-year 2016, MGM reported RevPAR at the company’s Las Vegas Strip resorts increased by 6% over 2015 and adjusted property EBITDA increased 22% in 2016 to $2.1 billion.

As of press time, MGM Resorts International’s stocks were down 6.8% year to date. The Baird/STR Hotel Stock Index was up 21.1% for the same period.

MGM Cotai’s opening postponed
Murren confirmed the development delay of the MGM Cotai, which is tentatively scheduled to open in the second half of 2017. The company’s second Macau resort was originally scheduled to open in March 2016, then in the second quarter of 2017 before its most recent delay.

Murren said MGM executives will have more information on the resort’s development timeline once they meet with MGM China Holdings Limited CEO Grant Bowie in the coming weeks.

“Remember we’re dealing with the construction of a building that is extremely intricate, complex, beautiful as you can see from the investor deck, and very innovative,” Murren said. “We think it’s going to be very additive to the market. As we said earlier, we’re not rushing the opening, we want to make sure we make a very good impression when we do open.”

Bowie said a marketing plan is firmly in place to boost MGM Cotai’s performance once it opens.

“I think it’s very clear that it’s not feasible to simply grow off the backs of taking share from others, and that’s where we’re building a plan of many components leading up to the opening of Cotai, but more importantly driving forward after Cotai opens,” Bowie said.

“We are very specific in certain targeted markets where we think we can be stronger, and we’re also very specific in terms of certain channels that we believe we can create opportunities for ourselves. The biggest challenge of all with dealing with China and the diversity and nongaming activities, it’s not about marketing to China, it’s about targeting certain population centers that have certain consumer characteristics.”

MGM Growth Properties
MGM Growth Properties’ portfolio is comprised of 10 U.S. properties acquired from MGM Resorts, including Borgata Hotel Casino and Spa in Atlantic City, New Jersey, and six Las Vegas properties. MGM Growth Properties also has the right to make a first offer to acquire the MGM Springfield—which is still under development—and MGM National Harbor, which opened in December.

On a separate conference call Thursday afternoon, James Stewart, CEO of MGM Growth Properties, told analysts the REIT is engaged in discussions to add to its portfolio, but he declined to confirm whether any non-MGM Resorts deals are being considered.

“We have a list of potential acquisitions that I think would all be well-received and are attractive,” Stewart said. “We are in conversations on many of them. Whether the conversations result in something occurring before National Harbor or not, we’ll have to see. In any transaction we’re looking at, there are gives and takes from buyers and sellers, and the way that things move along takes its own pace.”

Stewart said the transactions pulse is largely unchanged since the U.S. general election in November.

“There’s uncertainty around what might happen around taxes and other potential policy changes, but I would say the tone has remained basically consistent,” he said.

Stewart did agree that MGM Growth Properties has seen an increase in sellers coming to the transactions table.

“I think that people looking to monetize either part or all of their assets that fit our profile do feel comfortable because there are at least two real estate players looking at the assets …,” he said.

In the fourth quarter of 2016, MGM Growth Properties reported net income of $51 million, rental revenue of $163.2 million and adjusted EBITDA of $159 million. For full-year 2016 results, the REIT posted net income of $35.3 million, rental revenue of $419.2 million and adjusted EBITDA of $387.6 million.

As of press time, MGM Growth Properties’ stock price was up 1.2% year to date.

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