Loss of demand drivers hurt leisure, group and convention business for MGM Resorts International, but a gradual easing of restrictions on gatherings in Las Vegas and elsewhere has company executives somewhat optimistic about the return of demand.
LAS VEGAS—With all of its domestic and international properties now open, MGM Resorts International executives are hopeful for the return of demand as restrictions ease at home and abroad.
Speaking during a third-quarter earnings call, MGM Resorts President and CEO Bill Hornbuckle said the company is doing everything it can to keep guests and employees safe during the coronavirus pandemic, and effectively manage costs while building back business.
The company’s Q3 occupancy for the Las Vegas Strip reached 44%, he said. While MGM continues to leverage its casino database as well as transient and leisure segments to help offset the lack of group business, midweek occupancies remain challenged at 38%. Stronger weekend demand bolstered results, reaching 60%, but occupancy caps remain to accommodate appropriate social distancing and quality of guest experience.
“While much has been beyond our control, we are focused on what is within our control,” he said. “As we’re reopening properties, we have aggressively monitored cost and managed variable labor to closely match demand.”
Hornbuckle said his team believes the Las Vegas market will continue to stabilize. While seasonal challenges remain near term, weekend booking demands remain solid in October. However, driving midweek demand continues to be a challenge without convention business, and less leisure travel is projected between the holiday periods in November and December.
“As we enter the winter months, we’re developing slow period plans for the weekdays to minimize (earnings before interest, taxes, depreciation, amortization and restructuring or rent) losses,” he said.
Nevada Gov. Steve Sisolak on 29 September expanded the state’s mass gathering limitations from 50 people to 250 people, opening the door to restarting meetings and live entertainment, Hornbuckle said. The guidelines will allow the company to host meetings of up to 1,000 people as long as attendees are separated into subgroups of no more than 250 people. Last week, the governor announced a plan to increase the restrictions to 50% capacity, potentially by 1 January 2021.
MGM Resorts has proactively developed a comprehensive health and safety plan called Convene with Confidence for meetings, events, entertainment and sporting events, Hornbuckle said. The plan is built on the company’s seven-point safety plan and is a layered approach based on guidelines from health experts. It addresses the entire guest experience, and includes new COVID-19 testing protocols offered as an amenity to meeting and events clients.
“We believe these efforts will help rebuild confidence and safely bringing meetings conventions and live entertainment back to Las Vegas,” Hornbuckle said.
The company recently announced the return of seven live shows and the reopening of entertainment venues in Las Vegas.
“We’re very optimistic that meetings and events, at scale, will eventually fully return,” Hornbuckle said. “That being said, we continue to believe that the material recovery in Las Vegas is dependent on the return of larger-scale conventions and entertainment platforms along, obviously, with significant air travel.”
Outside of Vegas
MGM Resorts’ regional properties exceeded expectations and gained market share, Hornbuckle said. Despite being down 40% year over year, revenue from regional operations grew by $468 million to $557 million from the second quarter to the third quarter. Regional property EBITDAR was $146 million compared to a loss of $112 million in the second quarter.
“Our drive-to regionals that were open for all or the majority of the greater quarter exhibit particular strength, with margin improvements ranging anywhere from 600 to 1,500 basis points,” he said.
These properties continue to benefit from the lack of local entertainment alternatives available to consumers, allowing them to capture an outsized share of wallet, Hornbuckle said.
“We are encouraged to see the demand carry into October, and we will maintain our intense operational focus as capacity limitations eventually ease and the broader business economy reopens over time.”
The 14-day quarantine measure between Macau and Mainland China was lifted and the government has resumed the issuance of tourism visas, Hornbuckle said. However, logistical hurdles and testing requirements continue to challenge the market, he said.
MGM China’s Q3 revenue was $47 million while adjusted property EBITDAR was a loss of $96 million, still a sequential improvement over the second quarter, he said. Market-wide daily visitations have improved steadily into October’s Golden Week, and since the second week of the month, the properties are seeing improved volumes across all segments sequentially week over week.
“Month to date, we are encouraged that our properties have crossed property EBITDAR breakeven levels, led by the recovery in the premium segments,” he said. “We expect the rate of recovery will continue to be gradual, driven by premium mass market, which both our Macau properties are ideally positioned to capture.”
The company will continue to invest in strengthening its market position in Macau, Hornbuckle said. It is adding suites to the south tower of MGM Cotai that should be ready in mid-2021. It’s also remodeling the MGM Macau villas and gaming space on level 35. Both properties will receive additional food and beverage options on the gaming floors. Looking ahead, the company plans to build another hotel tower at MGM Cotai and add meaningful entertainment assets to diversify its offerings.
By the numbers
In an unprecedented and uncertain operating environment, liquidity remains critical, Hornbuckle said. As of 30 September, MGM Resorts has more than $7.8 billion of consolidated liquidity, which includes $1.4 billion in MGM China, $1.9 billion with MGM Growth Properties and $4.5 billion at its domestic properties.
Earlier this month, MGM Resorts opportunistically raised an additional $750 million of eight-year senior notes at 4.75%, further solidifying its already strong liquidity position, he said. Adjusting for this issuance, it had $5.2 billion of liquidity at its domestic operations. The company also can force MGP to redeem $700 million of OP units for cash.
According to MGM Resorts’ earnings release, the company reported a year-over-year decline in consolidated net revenue of 66% to $1.1 billion.
Its properties on the Las Vegas Strip reported net revenue decreased by 68% year over year to $481 million due to operational restrictions and The Mirage and Park MGM opening during the quarter. Occupancy reached 44% during the quarter compared to 92% in Q3 2019 while average daily rate was $139 (down 15.2% year over year), resulting in revenue per available room of $61 (down 59.6% year over year).
At press time, MGM International was trading at $21.29 per share, down 25.2% year to date. The New York Stock Exchange was down 10.7% over the same period.
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