MGM Resorts’ CEO reports the company saw solid results in the third quarter while the company gears up for a strong demand mix in the fourth quarter and throughout 2020.
LAS VEGAS—While much of the U.S. hotel industry has been reporting weaker-than-expected third-quarter performance and revising down outlooks for the remainder of the year, executives at MGM Resorts International touted strong Q3 results and favorable conditions continuing into 2020.
MGM Resorts Chairman and CEO Jim Murren said third-quarter performance results were as expected, with consolidated net revenue up 9% and adjusted earnings before interest, taxes, depreciation and amortization up 14% year over year to $814 million. On the Las Vegas Strip, EBITDA was up 5% to $441 million and non-gaming revenue grew by 6% due in part to revenue per available room growth of 3.6%, he said.
Regional operations net revenue grew by 20%, with EBITDA up 27%, driven mostly by performance at MGM Springfield, Empire City and Northfield Park. MGM China’s net revenue grew by 22% to $738 million and adjusted EBITDA grew by 40% to $282 million due in part to continued ramping of MGM Cotai, Murren said.
“This represents, we believe, excellent performance given the various disruptions in that marketplace,” he said.
The fundamental backdrop for Las Vegas remains encouraging, and there is healthy demand in almost all of MGM’s business segments, Murren said. Convention bookings in Las Vegas continue to shape up nicely, and MGM Resorts is on track to hit a record mix of convention room nights, with 20% growth for full-year 2019 despite citywide convention nights being down during the fourth quarter, he said.
Convention business in 2020 is expected to be stronger with citywide event rotations, including ConAg and the NFL Draft, which will be hosted in Las Vegas for the first time, he said. Leisure booking windows are naturally shorter, but trends are favorable for next year, particularly at the company’s legacy properties, he said.
While there are tough year-over-year comparisons, the Vegas live entertainment calendar in the fourth-quarter remains strong with the return of Lady Gaga and Aerosmith, he said. The city has a strong sports calendar with two boxing events, the Las Vegas Golden Knights, the PBR World Finals and UFC 245, he said.
“With the current NFL season underway, we’re getting closer to the opening of the Raiders stadium next year, which will be a very positive catalyst for south strip properties, notably Mandalay Bay and Luxor,” he said.
As of press time, MGM Resorts’ stock price was trading at $29.19 per share, up 20.4% year to date. The Baird/STR Hotel Stock Index was up 9.6% for the same time period.
MGM Resorts is continuing with its asset-light strategy, which began in 2016 when the company’s real estate committee spun off MGP Growth Properties to maximize the value of its own real estate assets, Murren said.
“Since then, we’ve continued to shed non-core assets that do not align with our strategy while investing in assets that actually complement our strengths,” he said. “The results of the committee’s work with management and advisers supports and, in fact, accelerates our transition to an asset-light business model.”
The company recently announced the creation of a joint-venture sale-and-leaseback agreement that involved selling 95% the Bellagio’s real estate to Blackstone Real Estate Investment Trust for $4.25 billion. MGM Resorts also sold the real estate and operations of Circus Circus Las Vegas to an affiliate of Treasure Island Hotel & Casino owner Phil Ruffin for $825 million.
The Bellagio deal was the product of an exhaustive analysis of MGM Resorts’ asset base, Murren said. It required significant time to develop a structure that would maximize the value received by shareholders while minimizing friction costs, he said.
“The Bellagio deal wasn't just the sale of a property—we've done that many times—but rather it represents one of the most sophisticated agreements this company has ever entered into, and a process that has led to a partnership with one of the world’s leading real estate investors,” he said.
The deal provides a likely blueprint for the company’s future, he said. The company is now in the process of monetizing the real estate for MGM Grand Las Vegas, and there should be news to share about that before the end of the year, he said.
“We’re confident the Bellagio sale sets a new benchmark for gaming net lease transactions and will help us deliver the best possible outcome for MGM Grand,” he said. “We also, of course, will evaluate ways to maximize the value of MGM Springfield, our 67.7% stake in MGP, and our 50% stake in CityCenter.”
Monetizing MGM Resorts’ real estate assets will allow the company to achieve a fortress balance sheet with low core leverage while investing in high return growth initiatives and also returning significant capital to shareholders, Murren said.