MGM hails ‘epic’ profits with Cotai on the way

MGM hails ‘epic’ profits with Cotai on the way

Tuesday, November 8, 2016 Posted by Andy McCarron
Atlantic City's Borgata makes debut contribution

MGM Resorts International enjoyed its sixth consecutive quarter of operating profit growth as the company benefitted from a debut contribution from the now wholly-owned Borgata property in New Jersey.

MGM bought out Boyd Gaming’s 50% share of the Borgata in June for $900m then immediately sold the property to MGM Growth Partners, the real estate investment trust (REIT) spun off earlier this year, for $1.18bn in exchange for a long-term lease arrangement.

In the three months to September, the Borgata contributed $36m in EBITDA, helping to push total property EBITDA for MGM to $721m. Same-store adjusted property EBITDA rose circa $100m to $685m, still substantially ahead of consensus expectations.

Chief executive Jim Murren hailed the “really epic results”. “We delivered incredible growth from not only the top line, but as you can see, from an EBITDA perspective,” he told analysts on a conference call.

In particular he highlighted how the company’s own internal profit growth plan was bearing fruit. “We knew then it was not a simple quick fix, and it certainly was not just another cost-cutting effort,” he said. “The plan required many months of careful planning across all 14 properties, each with thousands of employees as well as thoughtful coordination and messaging to guarantee its success and sustainability across our platforms.”

The company’s Las Vegas properties, excluding the contribution from the City Center joint venture, performed well with a 34% year-on-year increase in adjusted property EBITDA to $452m. The Macau operation also saw an increase in EBITDA, up 16% to $150m. Analysts at Union Gaming said the results in Macau were “all about the mass” and that mass-market gaming revenue seemed to be at an inflection point, up 22% in the third quarter.

MGM’s new Cotai property is currently under construction and fears have been expressed that the new raft of openings in Cotai will take business away from the Peninsular properties.

But Jim Murren dismissed the talk, suggesting it was “just not going to happen”. “The peninsula will always be a very large gaming market. In and of itself, it’s larger than all of Las Vegas. And MGM and Wynn are the dominant players on the peninsula. And we like being next to one another. And they both do well and MGM did particularly well this quarter.”

During the recent Wynn Resorts earnings call, chief executive Steve Wynn complained about the company’s new Cotai property, the Wynn Palace, being surrounded still by construction work, partly at the new MGM property next door but also with the light-train network. Murren said MGM was empathetic to the Wynn Palace’s issues.

“But it's not long from now where MGM Cotai will be opened next to Wynn, next to City of Dreams, and I would suggest that that’s going to be the new epicentre of Cotai, just as the MGM and Wynn is the epicentre of the peninsula,” he added.

Much commentary with regards to the casino sector in recent weeks has focused on the possibility of Japan legalising casinos for the first time. With a bill due to be heard in the lower house of the Japanese parliament, the Diet, this week, Murren said the company was hopeful it would be among the runners and riders should one or two integrated resort projects get the go ahead. But he cautioned that no one as yet had any solid information on which city would be chosen or indeed which developers would get the eventual nod.

“If an operator tells you they have an inside track on a particular market, let’s say Osaka, for example, they’re wrong,” he said. “No one has an inside track and no one has been more involved in Japan than we have, although we do see Las Vegas Sands there often, Wynn and many others.”

MGM said at the end of October the company would be willing to plough more than £10bn into a project should it get the go-ahead. Murren noted on this week’s call the prospective size of the Japanese market. “The potential is absolutely enormous,” he said. “It would dwarf the Singapore market in size and could be extraordinarily lucrative for all the investors, real estate and operators alike.”

Totally Gaming says: Things are certainly coming together for MGM, helped by its own profit growth plan which is evidently driving the better-than-expected results. Murren was brimful of confidence on the earnings call, saying at one point the company was “pumped” about the prospects for the new casino opening at National Harbor in Maryland in early December, for instance. As these results show, the company has earned the right to be positive over its prospects for 2017. Now all eyes turn to Japan.

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