Executives at MGM Resorts International have much to celebrate as the first quarter of 2018 turned out better than expected, and they’re sure the company will perform well in the long term as it navigates through some shorter-term challenges.
LAS VEGAS—MGM Resorts International’s properties performed better than expected during the first quarter, Chairman and CEO Jim Murren said during the company’s latest earnings call, but the rest of the year might prove more challenging than previously thought.
One of the highlights of the first quarter was the opening of the MGM Cotai in Macau, China, in February, he said, and the company intends to open the MGM Springfield in Massachusetts on 24 August. The opening of these two projects will mark the end of MGM Resorts’ current development cycle, he said, allowing the company to focus on accelerating its free cash flow generation.
The sale of the Grand Victoria Casino in Elgin, Illinois, for $327.5 million and the pending sale of the Mandarin Oriental Las Vegas for $214 million will add to that, he said, and they will help create higher return opportunities and more returns for shareholders.
“Since early 2017, we have returned over $1 billion to our shareholders,” he said.
MGM Resorts also benefited from a later-than-usual Chinese New Year, Murren said, which put the holiday and the Super Bowl in the same quarter. The combination of those two meant revenue per available room only declined 2% year over year instead of the 3% to 5% that was previously forecasted, he said.
Net revenue decreased 1% year over year to $2.1 billion, according to the company’s first-quarter earnings release. Operating income at domestic resorts came to $451 million, a 5% year-over-year decrease. Similarly, adjusted property earnings before interest, taxes, depreciation and amortization decreased 5% year over year to $616 million. MGM China’s operating income came to $55 million as compared to $75 million the year before; however, adjusted property EBITDA grew 5% year over year to $152 million.
As of press time, MGM Resorts’ stock was trading at $32.29, a 3% decrease year to date. The Baird/STR Hotel Stock Index was down 1.7% for the same time period.
The conversion of the Monte Carlo Hotel & Casino into Park MGM continues to progress, Murren said, and it’s looking more and more like the final intendent product.
“It’s worth noting we never undertook anything like this before,” he said. “When all is said and done, we will change every square inch of the property while keeping it open.”
One of the main issues of the construction work at the Monte Carlo is that the property has not had a porte cochere for several months, he said, and it’s difficult to have a resort where guests can’t drive right up to it.
“We completely underestimated the negativity to that,” he said.
The company also underestimated the negative effects of closing off walk-in traffic from the Strip, he said.
The company expects there to be some confusion when the property’s name changes to Park MGM, he said. An advertising campaign is scheduled for the fall, he said, and for the first time the property will be marketed in the way that it should.
The good news is 90% of the guestrooms are done, Murren said, and the restaurants that are open are performing well. What has been reopened to the public has seen high returns, he said, but the project “has been brutal in this process.”
The Mandalay Bay Resort & Casino is still in recovery mode following the shooting there in October 2017, he said, and the property has not turned around as quickly as executives hoped. Calling it an unprecedented and tremendous challenge, he said the company is still getting its arms around what it means for the property.
The property saw one large cancelation in February, COO Corey Sanders said, and another one moved to a sister property. There have also been a few smaller cancelations as well, he said.
“What we’re seeing in particular as we get later in the year when the property would book in the year for the year, it’s a little bit challenged as we get near the anniversary date,” he said.
The meeting base for 2018 so far is shaping up well, he said.
Some transient and leisure travelers are electing to stay elsewhere as well, he said. Because the property needs more than 90% occupancy to make money, he said the property is filling in with lower package business, which acting as a drain on RevPAR also.
In an unexpected development, the highly anticipated fight between Saul “Canelo” Alvarez and Gennady Golovkin scheduled for 5 May was canceled after Alvarez withdrew from the fight as he is facing a one-year suspension from the Nevada Athletic Commission for an anti-doping violation.
Those were the three main factors that brought down MGM Resorts’ guidance for the remainder of 2018, Murren said.
“We just did not anticipate not getting the fight. I did not know about tainted meat in Mexico,” he said, referring to the fighter’s explanation as to why he tested positive for a banned substance. “This is on us. We didn’t know how impactful Monte Carlo disruption would be. We felt we could manage around it and we haven’t been able to. We didn’t know exactly what it would take to basically relaunch Mandalay Bay. Those are on us, and that’s on me—I should know better.”
While citywide conventions are likely down in the third quarter from previous years, they are projected to be up again in the fourth quarter and will go up against easy comparisons, Murren said. Aside from Monte Carlo and Mandalay Bay, the rest of the portfolio is performing well, he said.
Lead volumes and the booking base for 2019 are looking strong, he said, and citywide conventions in 2019 are looking better than they have in 2018.