MGM Resorts International's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Feb.22.12 | About: MGM Resorts (MGM)

MGM Resorts International (NYSE:MGM)

Q4 2011 Earnings Call

February 22, 2012 11:00 AM


Dan D’Arrigo – EVP and CFO

Jim Murren – Chairman and CEO

Bobby Baldwin – Chief Design and Construction Officer

Grant Bowie – CEO and Executive Director of MGM China Holdings Limited

Corey Sanders – COO


Felicia Hendrix

Harry Curtis

Steven Kent

Mark Strawn – Morgan Stanley

Shaun Kelley – Bank of America

Joe Greff – JPMorgan


Good morning, and welcome to the MGM Resorts International Fourth Quarter and Full Year 2011 Earnings Conference Call. Joining the call from the company today are Jim Murren, Chairman and Chief Executive Officer; Bobby Baldwin, Chief Design and Construction Officer of MGM Resorts International and President and CEO of CityCenter; Dan D’Arrigo, Executive Vice President, Chief Financial Officer and Treasurer; Grant Bowie, Chief Executive Officer and Executive Director of MGM China Holdings Limited.

Participants are in a listen-only mode. After the company’s remarks, there will be a question-and-answer session.

Now, I would like to turn the call over to Mr. Dan D’Arrigo. You may begin your conference.

Dan D’Arrigo

Thank you, Rasiya (ph), and good morning, and welcome to MGM Resorts International fourth quarter and full year earnings call. This call is being broadcast live on the Internet at, and a replay of the call will be made available on the company’s website. This morning, we furnished our press release on Form 8-K to the SEC. And before we get started, I’d like to read our quick Safe Harbor disclosures.

On this call, we will make forward-looking statements under the Safe Harbor provisions of the Federal Securities Law, actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in these forward-looking statements is contained in today’s press release and in our periodic filings with the SEC, including our most recent Form 10-K and subsequent Form 10-Q filings.

During the call, we will also discuss non-GAAP financial measures in talking about the company’s performance. You can find the reconciliation of these measures to GAAP financial measures in our press release, which is available on our website.

Finally, please note that this presentation is being recorded. And with that, I’d like to turn the call over to Jim.

Jim Murren

Well. Thank you, Dan, and good morning to everyone. 2011 was a rewarding year for MGM. Our net revenues and EBITDA were both up double digits and our margins were up over 100 basis points. MGM China and CityCenter had breakout years, both had significant growth and EBITDA year-over-year and we ended the year on a high note with fourth quarter RevPAR up 13% year-over-year. As a matter of fact, we beat our RevPAR guidance every quarter last year and that was driven by better than expected FIT and leisure bookings. EBITDA for the wholly owned MGM China and CityCenter enterprises were all up double digits in the fourth quarter.

Looking back on the year, I’d like to take a moment to highlight a few of the major accomplishments before we move forward. Over at CityCenter, we refinanced $2 billion of debt and we’ve already been in the market again this year partially refinancing it yet again at better rates. Of course at MGM China, we listed on the Hong Kong Stock Exchange at the same time MGM Resorts acquired 1% of the stock and consolidated therefore MGM China on to its balance sheet and financial statements that of course significantly improves our financial standing.

At the same time, we sold $300 million of convertible note to our partner Pansy Ho. Over on the online side, we partnered with Bwin.Party in what we believe to be a very important strategic franchise and this will jointly offer online poker in U.S. if it’s legalized and at M Life, we launched the addition of all of our non-gaming capabilities, both starting last year and with great progress here in 2012. And speaking of 2012, we’re off to a very, very solid start. I’m happy to say that we’re executing on many of the goals that we’ve set out to accomplish. We’ve been very busy even in the beginning of this year and improving our balance sheet and I know Dan is going to go into further detail on some of those steps in a moment. We have made that a priority, I’ve mentioned this before, but it’s my belief that as we improve the balance sheet of this company, and it’s a promise I made to the Board, we will be accruing great value to the owners of the company, the shareholders and that has been our goal and we’ve made much progress there.

Just last week, we officially launched M Life’s non-gaming program. We’re excited about this given the nature of our resorts because this will allow our customers to be rewarded for everything that they do with us, every dollar virtually they spend in our resorts, hotel, restaurants, entertainment attractions, spas, you name it. And in conjunction with that, we launched our new website, which is working out extraordinarily well and makes the booking experience for our resorts, not only more fun, but certainly more productive for us as people can literally crap their own vocations, bundling all their opportunities into one trip.

It’s a big step in driving casino play, in casino mix into particularly our Las Vegas properties, we know how valuable this can be to cash flows and to flow through and we think we’ll be able to report on a quarterly basis great strides in that area.

On the operations side, we announced only a week or two ago a strategic relationship with Meristar. We’re excited about this, I know they’re as well because it will not only create an opportunity to extend our reach into the regional markets, but will significantly expand we believe the benefits of their assets we have here in Las Vegas, increasing again casino mix, which we believe will lead to a greater profitability. We have a variety of these type of relationships underway probably more to report in the coming quarters and we believe that that’s a great way to leverage our assets, improve our cash flows in a very capital light fashion.

We’re making a name for ourselves in Massachusetts. We think that’s a great potential market for us. We certainly are trying to stake our position there, and we’re looking at variety of other regional markets, where we can invest small sums or partner with others to again increase the network that MGM Resorts can accomplish in across marketing basis to Las Vegas.

Part of that goal is on our Hospitality division run by Gamal Aziz, that’s a big part of how we believe we can leverage our brands around the world, Just yesterday we made an announcement that MGM Hospitality with our partner Diaoyutai will develop and manage a hotel right on the Bund in Shanghai. It’s a tremendous location. It’ll be called Bellagio and imagine to having a Bellagio on the Bund in Shanghai, that will join the MGM Grand that just opened in Hainan Island in the town of Sanya, and those two properties will be joined by two others that opened just this year, we have opening in Beijing and another in the large city of Chengdu and these are about four of about a dozen or so projects we have underway in China. This online poker initiative is important Bwin.Party is expert in this space. The relationship we formed means that MGM will own 25% of this joint venture that will hold rights, exclusive rights to Bwin.Party’s existing brands for online wagering here in the United States.

In addition and at the same time, we entered into an agreement with Bwin.Party to use their software and technical expertise to deliver any of our brands, the MGM brands to the public under which we would pay them a fee. We therefore believe we are as well positioned as any should the U.S. market come online on a legalized fashion for poker, which we expect it will, we’ll be out of the gate as soon as anybody.

And so with that, I’ll turn it over to Dan to get into our operating results.

Dan D’Arrigo

Thank you, Jim. First, I’d like to give few highlights from the quarter, help you with some guidance on some items for your models and then provide you an update on our balance sheet.

As far as the quarter on the EBITDA margin side, we’ve increased our wholly-owned domestic property EBITDA margins every quarter this year and in fact the fourth quarter that represented the largest year-over-year improvement in the year of some 200 basis points. We continue to remain focused on managing our expenses while maximizing revenue allowing us to achieve approximately 48% flow through to the EBITDA and profitability line in the quarter.

Our convention trends remained strong during the fourth quarter; in fact Mandalay Bay increased its EBITDA by 40% year-over-year and primarily to better convention mix in the quarter. We finished 2011 with our wholly-owned strip convention mix at about 14.7% which was higher than our expectations coming into the year driven by significant amount of the in the year, for the year bookings.

On the room trend side the operating teams continue to do a tremendous job here, our leisure and FIT rates have been the biggest driver of the upside to our RevPAR gains in the year, these segments in terms of our overall retail segments here are up 9% in the fourth quarter. Our casino trends continue to improve; our international volumes continue to be strong. Over the last couple of quarters we’ve seen a pickup in our domestic play. Fourth quarter domestic rated table games play increased again year-over-year and during the fourth quarter our wholly-owned property has experienced increases in both volume and win in both table games and slots something we haven’t seen since the fourth quarter of 2011.

Our regional resorts continue to do well. Our regional property showed continued strength with combined EBITDA up 12% year-over-year and we’re proud to report that MGM Detroit had its best fourth quarter ever and in fact that put an exclamation point on its best year ever in 2011 and a great job by George Corchis and Steve Zanella in that marketplace.

Our CapEx in the fourth quarter was $113 million excluding $12 million in MGM China and our full year 2011 was approximately $274 million excluding about $27 million at MGM China, since we began consolidating them.

In 2012, we expect to spend approximately $350 million in capital excluding MGM China and Grant will touch on his expectations there for 2012 and included in those capital plans for this year is the continuation of the room remodel project in MGM Grand. The room remodel at the Spa Tower; later on this year here at Bellagio. The conversion and investment in the Michael Jackson show with Cirque du Soleil at Mandalay coming online late 2012, early 2013 and the Blue Man Group show at Monte Carlo coming on this year.

In Q4 you all have noticed that our corporate expense is higher than usual in the quarter, we had some one-time items in the fourth quarter of 2011 related to some transition costs and outsourcing some of our IT functions, some marketing development expenses and we had some credits in the prior year 2010 quarter related to property taxes, so it made for an unfavorable comparison.

Going forward though we expect our corporate expense to moderate and be in the mid-30-ish million area in the first quarter before stock compensation expense. Our stock compensation expense in the first quarter is estimated to be approximately $10 million. Our depreciation expense in the quarter, we estimate to be approximately $235 million to $240 million and our interest expense in the fourth quarter was $274 million, including approximately $6 million from MGM China and about $24 million in amortization expense.

We estimate that our interest expense in the first quarter would be approximately $285 million, including at roughly about the same amount of $6 million from MGM China and about the same amount of $24 million in amortization expense. As Jim mentioned earlier, we’ve had a busy start to the year and have already achieved some major accomplishments in improving our balance sheet.

I’ll start first over at CityCenter, where we added on to our first lien notes by some $240 million a few weeks back. This lowered our interest rate and extended our maturities by a year at CityCenter. There remains about $75 million outstanding under the current first lien term loan and we’ve received commitment to replace that term loan with a revolver for the same amount and we expect that to be finalized in the upcoming weeks.

On the MGM Resorts side, we completed a successful and very well subscribed bond offering, which is upsized from $500 million to $850 million that was something three times oversubscribed and we achieved a rate of the 8 and 5.8s which is the lowest unsecured rate we’ve achieved since before the economic downturn.

And as we pointed out in the release, we’ve received preliminary approval from roughly 62% of the lenders on our Amendment and Extension transaction of our credit facility. We expect the closing of that to be later this week, early next. And we expect to initially achieve roughly about 150 basis points in rate improvement on the extending portion of that facility.

As a remainder, our average barrowing cost is on an outstanding debt is approximately 8%, so for every 1% improvement in rate that we can achieve, that’s an incremental $125 million in interest rate and incremental free cash flow to our company. So, as we go forward we believe there will be more opportunities to further reduce these borrowing costs and improve our overall free cash flow.

And with that I’d turn it over to Bobby Baldwin to talk about CityCenter.

Bobby Baldwin

Thank you, Dan, and good morning, everyone. We had a great year at CityCenter with EBITDA from operations up to $236 million and we ended year on a strong note with EBITDA in the fourth quarter up 62%. Aria’s 2011, EBITDA improvement is attributable to significant growth in volume and revenue across all key operating divisions.

Casino revenues increased 27% year-over-year and hotel revenues increased 24%. Aria ended the year strong with fourth quarter EBITDA of $47 million. Our slot revenue for the quarter was the highest since opening that property, a 21% increase from last year and we continue to be one of the market leaders in table games as well.

Aria benefited by approximately 6 million due to slightly higher table games full whole percentage in the fourth quarter compared to previous year. Aria’s fourth quarter hotel revenue improvements were driven by a 10% growth in RevPAR, it is significant to know that this growth was achieved by improving our convention segment with a 20% growth in occupied convention room nights and a 9% higher ADR versus last year.

Aria continued to develop as one of the top convention destinations in the country. For 2012, we have over 100% of our planned convention room nights already booked. Aria’s leisure segment business is also improving; our production numbers in domestic leisure are on par with Bellagio’s as awareness in United States continues to build. We are making progress in the international leisure market as well and see an opportunity for further improvements in that market. We are currently in negotiation with Cirque du Soleil to have the Albert show replaced at the end of this year. We’re very excited about offering a new show to our guests and I expect the unveiling to be a significant boost to business volumes throughout the entire resort. We’re in the process of updating some of our dining options. The restaurant union has been closed and will be replaced with a high energy fun, casual Mexican restaurant Javier’s, which is extremely popular in the Southern California market.

We’re also evaluating our other dining options for opportunities to include additional recognizable brands to Aria. We look forward to hosting the annual Michael Jordan Celebrity Golf Invitational again this year at Aria in Shadow Creek and it’s in the last weekend of March. Vdara was able to grow both rate and occupancy in 2011, while also adding additional 131,000 available room nights to its inventory. Vdara had its best quarter yet, in the fourth quarter and continues to gain momentum as the best non-gaming, non-smoking resort in Las Vegas.

Crystal same store sales were up 24% year-over-year during the fourth quarter and we now are approximately 86% leased. Both Dolce & Gabbana’s women’s and men’s stores have opened this year and these are our two flagship locations for Dolce & Gabbana. Eres a store featuring Chanel’s swimwear and lingerie is scheduled to open during the second quarter of this year.

Finally our residential strategy of leasing unsold units continues to be successful. To-date, we’ve leased 405 units of CityCenter with totally monthly lease revenues of $751,000.

Well, that concludes my report and I’ll turn it over to Grant Bowie. Grant?

Grant Bowie

Thank you, Baldwin and good morning and with guys there in Asia a very early morning. We’re very happy here at MGM China, to be with you today and we’re very pleased also with the progress we’re making and developing our business. For the fourth quarter net revenues for MGM China were $719 million, that’s up 26% year-on-year. EBITDA reached to new record of $174 million, an increase of 23% year-on-year.

During the fourth quarter we are able to drive significant growth from each of our revenue segments. In our VIP business, rolling chip volume grew by 29% with growth coming from increased volumes from our existing operators as well as being able to add two additional and new operators. We’ve also had benefited from VIP hold at 3.2% during the quarter.

On the main floor table drop was up 13% and slot handle up 35%. The success on the main floor was a result of the launch of our Supreme Lounge in light December 2010 and the subsequent opening of our new Platinum Lounge at the end of the third quarter, 2011 both of which have catered into our premium main floor customers. The environment and enhanced services have being well received by the customers and had the effect of increasing both win per unit and overall platter traffic.

Continued development of our targeted customer communications and entertainment also resulted in our record daily visit account in December and allowed us to set a new record for our slot revenue in December.

Our focus on our customer relationship building across all segments continues to improve revenues and it’s the core strategy to drive our future revenue growth. We also have continued to make operational improvements and I’m confident that we’re still able to drive additional earnings growth from that business.

We opened our new MGM VIP in-house area in mid-December and while it’s still very early we have seen initially strong increases in volume. We continued to reinvest in Macau and at MGM Macau CapEx was $45 million in 2011 and will be approximately $80 million in 2012. Of this $45 million is allocated to build out the undeveloped space on our second floor with the balance being applied to rejuvenating capital works.

In Cotai, we’re well positioned and had plans for a truly unique MGM experience. Our plan is to have approximately 500 tables, two and a half thousand slots, 1,600 rooms and at the moment is budgeted to be approximately $2 billion to $2.5 billion to be spend over a timeframe of approximately 36 months. At the end of the fourth quarter MGM China had approximately $720 million in cash, debt of $552 million and an adjusted leverage ratio of less than one time based on the trailing 12 months EBITDA.

Earlier today the MGM China Board approved a special dividend in the amount of approximately $400 million to shareholders on record on March the 9th. We’re pleased that our improving cash flows has afforded us the ability to return cash to the shareholders. Our Board will continually review opportunities for the use of cash and going forward we will manage our growth and expansion prospects with our desire to return cash to our shareholders.

With that I’d like to turn it back to Jim for his closing remarks.

Jim Murren

Well, thank you, Grant and thanks for being up so late or early depending on your perspective. We feel extraordinarily proud of last year’s results, but I guess the real motion is how optimistic we are about the future and I think we have some reason to be. We’re off to a very good start here in 2012, both in Las Vegas and in Macau. The tone of the business here this year is quite positive.

Grant has done a tremendous job in Macau in general and specifically to expand our resort there, the MGM. And we are very excited about Cotai. We’re excited we have a company that has the ability to generate significant cash there to reinvest into Macau and at the same time return a great value to the shareholders. Both markets are growing, certainly Macau is, but now so is Las Vegas and I’m pleased to say that MGM is building its market share in those markets.

Grant mentioned what we’re doing in Macau and here in Las Vegas in addition to what we did last year. We’ll keep this momentum going. Just over the New Year’s eve weekend, we opened up two major night clubs, One Oak over at Mirage and Hide here at Bellagio and they’re doing tremendously well from the P&L perspective and adding a lot of energy, driving a lot revenue to the properties. And early this month, we opened up Lilly, another lounge here at Bellagio and we have plans to open a Hakkasan, Hakkasan is going to spend a tremendous amount of money at the MGM to replace Studio 54 that’s been there for over 10 years.

These major upgrades to the physical facilities have been matched by major upgrades to our rooms, so the room remodel program here has added tremendously to the ADR at Bellagio and we’re seeing great early returns on much higher ADR to MGM as we renovate those rooms as well.

And we’re driving people here to Las Vegas by being very strategic and aggressive on our event calendar. We mentioned last year how strong the event calendar looked the MGM Grand Garden Arena and the Mandalay Event Center and I’m happy to say it’s even better this year.

Just to mention a few coming up we have Floyd Mayweather fighting in May at the MGM and then Manny Pacquiao the next month in June. Madonna is coming back, she’s going to be here in October and we have several of these type of events throughout the year, which we know has a material impact on ADR and casino revenue.

On the ADR side we mentioned this a few times last year, we said the first quarter would be the toughest comp because there was a big, big convention here last year and we have to overcome that but even still because of recent bookings we believe our RevPAR will be up in the first quarter, up a couple of percent to 3% but growing, in fact the second quarter looks particularly strong.

We think our RevPAR is going to grow nicely throughout the year, even on top of the good growth that we had in 2011. This is based on the booking trends that we see. We’re seeing very strong pace throughout the year and our convention base is extremely solid and when you combine that to the growing FIT and leisure bookings, we’re seeing a broad based retail improvement in rooms revenue.

Las Vegas has clearly regained its position as the place to be and looking at this year just alone, to give a sense of it, we had records or near records in almost every event that we’ve had already this year. The Super Bowl was tremendously effective for the town and for us or half the town in terms of revenue in the Super Bowl.

Chinese New Year’s was outstanding. We just finished up President’s Weekend. It was up nicely versus last year and of course the March Madness coming in next month.

So the combination of an improving market here in Las Vegas and certainly in Macau, strategic investments into our properties to make our properties ever more exciting, the addition of M Life which is driving casino play and overall spend to our properties and a very robust event calendar bodes very, very well for Las Vegas and more particularly MGM, bodes well for Macau and particularly MGM China.

And with that I think I’ll turn it over to the operator and we can get to your questions.

Question-and-Answer Session


(Operator Instructions). And your first question comes from the line of Felicia Hendrix.

Felicia Hendrix

Jim, just to pack on to your final commentary on RevPAR, thank you for some of the quarterly color. Just wondering when you think about the RevPAR for full the year of 2012, do you think that you can achieve mid to high single digit growth there?

Jim Murren

I think that’s very reasonable.

Felicia Hendrix

And then just a little bit of housekeeping on Rev. Can you just give us what the change in cash ADR was in the quarter and then also your RevPAR increase. It's still kind of like the last quarter, it’s comping against not apples to apples with the Resorts fees. Do you know what your RevPAR increase would have been if you adjusted for the resort fee?

Jim Murren

Well, we’ll look at the cash number in a second. The Resorts fee helped us in the fourth quarter by couple of percent but we’ve largely anniversaried all of that. So, RevPAR guidance going forward will not have any or very little impact on Resort fee.

Corey Sanders

Felicia, it still would have been up little over 10% excluding resort fee.

Jim Murren

In the fourth quarter, right.

Corey Sanders

In the fourth quarter.

Jim Murren

Yes, it’s 8.6% in the fourth quarter, 11% for the year.

Felicia Hendrix

What was that?

Jim Murren

Go ahead, Corey.

Corey Sanders

8.6% for the fourth quarter, 11% for the year.

Felicia Hendrix

And then, you guys certainly had good results. Just a few properties I was wondering if I could get some clarification on. MGM Grand margins were flat year-over-year. Wondering if that had to do with some construction disruption yet the hotel statistics were a lot stronger. So I'm assuming that that’s just because you had rooms out of service. Mirage was lower year-over-year. Also anything specific going on there? And then Bellagio, did you guys just have a great quarter, Bellagio, was there some hold there?

Jim Murren

The Mirage hold was down year-over-year. We did have disruption at the MGM.

Bobby Baldwin

And Bellagio was up (inaudible) whole percentage, but really Bellagio across all its rooms, food, beverage, entertainment segments, it’s really been improving all year along but their hold was up year-over-year as well.

Jim Murren

Their hold was up, but their non-gaming revenues and profits were up significantly.

Felicia Hendrix

Thank you. And then on just moving to Grant, obviously you’ve continued to improve the properties. It certainly shows in your numbers. I’m just wondering if you could walk us through what your expectations for the property are when Sands Cotai Central opens and then also what do you expect to happen to the promotional environment in Macau when Sands Cotai opens. Thanks.

Jim Murren

So Grant, we’ll turn now it over to you.

Grant Bowie

I think the (inaudible) Sands Cotai Central is predictable. And I think that as we’ve seen before, we will be able to sustain and maintain our position and will continue to do it as we keep on executing on our strategies. I think the interesting observation is going to be, how the other Cotai properties handle that expansion.

So I think for us on the peninsula, we’re now used to Cotai properties opening. I think we all know what we have to do and I just reiterate the point that we’ve always stayed close to our customers. We want to build a strong relationship and that tends to allow us to hold. Clearly, we would expect that they’ll go and try the new place but as we’ve seen with COD, Galaxy, they’ve come back to us and that’s always what we want to focus on. And what was your second?

Felicia Hendrix

You answered both parts. Thanks.


Your next question comes from the line of Harry Curtis.

Harry Curtis

A quick question on your flow through. So it was a little bit softer in the fourth quarter than it had been in the second and third quarter. And if you could explain what segments really held it back, were there any onetime items that could explain that and as the year goes on, do you expect the flow through to improve?

Jim Murren

Yes, Harry, as it relates to the flow through, I think if you look the seasonality in the business, the fourth quarter flow through is never and never has been this great in the first quarter when you’re looking at the sequential improvement from that standpoint. 48% flow through in the quarter is one of the highest levels in any of our fourth quarters and even in fact higher than '06 levels.

So when you look at the factors that go into that, one of the big key factors is our occupied room nights which are always lower in the fourth quarter than say the third quarter. And as you know that’s a big driver of some of the incidental or other revenues, food, beverage, entertainment, some of the high profit margin areas as well.

So I think the fourth quarter is a great flow through in terms of comparison. I think the sequential piece is a little bit of an apple to an orange comparison, but the overall fourth quarter was pretty strong in terms of flow through, when you look at the seasonality aspects.

Harry Curtis

So you would expect it to be higher for the year.

Bobby Baldwin

For the year. Yes, I think for the year we have been higher. We’re up over a 50% for the overall year in 2011 and I think it’s a good way to kind of model the incremental flow through going forward.

Harry Curtis

That’s great. And then, Jim, a quick question on Internet poker. Nothing was attached to the tax bill. Can you give us your sense of where it goes at the federal level from here?

Jim Murren

Sure. I think that there are several options in front of Congress in terms of getting Internet poker passed at the federal level this year. Several pieces of legislation need to be passed and it could be associated with anyone of those on.

It’s hard to say exactly when or if. I do believe it will be passed at the federal level, and I do believe it will be passed this year, but that’s my opinion and one that’s shared by a lot of people that are close to this.

At a parallel though, as you know, states are fervently working on their own legislation and can do so and will do so if the federal government does not act. States can compact with one another, forming a intra-state network of internet poker and we would certainly be involved in that.

We’re prepared. In fact our arrangement with Bwin.Party is designed to capitalize on Internet poker legalized in U.S. in either fashion, either statewide or federally.

We actually prefer the federal option for any number of reasons, uniformity of regulation, taxation, strengthening of client prevention, but we can't speak for the federal government. It seems sometimes they can’t speak for themselves.

So I think that it will happen at the federal level. It’s not easy, not because Internet poker is becoming a complicated issue. It’s becoming a more clear issue today. It’s because Washington has become more complicated. If it doesn’t happen at federal level, it will happen at the state level and either way it I think it happens this year in 2012 and I would have to say that we’ll be literally one of the first towards this out of the gate when it is approved.

Harry Curtis

Just a quick follow-up. Does Senator Kyl's influence in your view extend into the House or maybe a different question; do you have any champions for federal approval in the House?

Jim Murren

Well, the CEO doesn’t opine on politics like others. So I feel like I'm going to stick to the gaming industry that I am involved in but I do believe that there is broad based support in the Republican and Democratic side, in now both the Senate and in the House.

I think that the House, from what I’ve been let to believe, really views this as a very critical law enforcement issue, very critical. They recognize that the DOJ’s interpretation of the Wire Act leaves open the opportunity for state-by-state gaming where they will not have an influence on the regulatory compliance. That deeply concerns many people in the House and I think that is the big change between 2012 and 2011 and I think that’s the change that gets it over the finish line.


Your next question comes from the line of Steven Kent.

Steven Kent

Just a couple of questions. First Dan, could you just talk about broadly ways or additional levers you have to reduce leverage in '12 and into 2013. I realize that you guys have done an incredible job over the past couple of years but are there significant opportunities over the next two years that we should be looking for that might just actually get that leverage down completely or more substantially.

And then separately, just on the leisure consumer, can you just tell us a sense of what you are seeing from them? It sounds like your convention business is very good. On the non-convention nights, especially mid-week, are you able to fill the rooms? It looks like that from RevPAR perspective, but are you able to get them to spend money, are they spending more money in restaurants, in the casino? Just some color on that would be helpful.

Dan D’Arrigo

Sure, Steve. This is Dan. I’ll tackle the first and then I'm sure Jim and Corey will jump in on the second. As far as the additional lever, obviously as our properties continue to improve and recover, this becomes more and more a free cash flow story as we go forward and improve from an operation standpoint.

We still have roughly about $180 million sitting in a trust account in New Jersey and are continuing to work through that process and are working on the other sale of our interest in Borgata as well on top of that 180. So that’s clearly another lever that will go to reduce debt and provide that additional lever.

When we look out to the future, and I can’t speak for our joint venture Boards, particularly MGM China, but clearly the announcement today by the China Board is a productive one from a shareholder and MGM Resorts standpoint and I think that’s something that that Board will look at from time to time and explore returning capital to shareholders in addition to the growth initiatives that they have in Macau and perhaps Taiwan in the future.

So I think when you look at the levers, we’re going to continue to obviously be opportunistic in the markets as well. I think no one is as equipped. We’ve got some of the best accounting and finance and legal teams internally here to access the markets quickly and opportunistically and I think that gives us a lot of levers to push and pull on over the upcoming quarters.

Jim Murren

Let me just add to that Dan if I could. I’d focus on the cash flow because we know what our CapEx plans will be over the next several years and we believe that these capital expenditures will yield good ROIs. These are projects that are enhancing already existing buildings. There is no new build in here, there is not a lot of Greenfield construction. This is generating very healthy returns right away. Bellagio’s room remodel will be an easy example of that.

So limited and known fixed CapEx with high returns, driving revenues in a variety of ways. The big driver of debt reduction will be on the cash flow side and that’s going to be growing in our opinion yearly.

Dan mentioned Borgata. That’s certainly to not only the money we have trapped there, but our 50% interest and of course Macau, which Dan mentioned. I’d also throw CityCenter into that dialogue, CityCenter is a deleveraging enterprise and its goal is to return value to its shareholders, Infinity World and MGM Resorts and through the residential inventory that we own and through the rising cash flows we think that CityCenter will be deleveraging and be a source of cash to the partners.

So a variety of levers that we have, what’s not on the list is our asset sales. That’s opportunistic and happens occasionally. We’ve done it before but it’s unlikely that we would sell any of our operating assets. We feel like they can generate a lot of money for us as the markets improve, and they’re certainly already starting to improve. So that was on the table a few years ago, it’s not now.

On the second part of your question, I think it was on the leisure side, was it not, Corey? That’s a particularly bright story for us. I'm looking at something that happened last week. It’s the most retail bookings that we booked just last week for example, in the last five years. And the week before that, as I look at it was the third highest that we’ve had in the last five years.

And in fact if you look at all the bookings this year, this schedules yes, this is correct, it was good. We are having new records of top 20 booking weeks in every single week. So this momentum, why we're so confident that 2012 is improving is the leisure bookings that are occurring right now for this year are new records and certainly kinds of numbers we haven’t seen in half a decade.

And then of course on the international side, which is particularly important to us, I think for Las Vegas it’s about 18% of visitations. Is that right?

So it's higher for us given the nature of our resorts and that traffic is improving and of course Mccarran Airport is expanding, international carriers are adding flights to Las Vegas and that really plays right to our strength.

So I would say on the retail side, in general if you look at our FIT business, our international business, leisure picking up substantially, convention business, we'll have another very good year in 2012. That all conspires to have a very strong year on the room side.

Corey Sanders

And I would add the international customer stays longer time and they spend money. So although they fall in that leisure bucket, they are very much like an FIT customer. So we’ve seen uplift in our slot play and our prime dining. Our ADR in that segment is up over 10%. So it’s been a great segment for us this year.

Jim Murren

That’s a good point Corey.


And your next question comes from the line of Mark Strawn from Morgan Stanley.

Mark Strawn – Morgan Stanley

Can you give us a sense or some color on how you expect your group rates to trend in Las Vegas in 2012 within the context of a rough guidance you gave and not to get too far ahead of ourselves, but would you expect those rates to step up meaningfully in 2013 as maybe some of the lower rated group business you booked during the downturn starts to almost completely burn off as we turn the calendar into '13?

Jim Murren

You are talking about convention business right, not leisure business?

Mark Strawn – Morgan Stanley

Yes, that’s correct.

Corey Sanders

I think Mark, as Jim pointed out earlier, I mean obviously the first quarter has a tough comp. We see the second quarter improving and the back half of the year is also holding up well. There is still more work to do obviously this year. I think we were projecting for '12 kind of the same convention room mix as we kind of finished up 2011 with.

And I think what it will come down to is in the year for the year bookings which in '11 were exceptionally strong and if we can come anywhere close to that, we think we can drive better rates in '12 than '11. '13 and '14 pace right now looks exceptionally strong, both in terms of rate and room nights booked and we still have more work to do there as well but we're gratified by what we see this early on and '13 and '14 looks very strong.

And I think the same bodes for Aria as well there. Their convention bookings as Bobby mentioned, our goal coming into any given year is about having 80% of what we want in convention room nights contracted on the books and as Bobby mentioned earlier for 2012, Aria is already at a 100% of that goal in terms of contracted room nights in '12 and '13. It's getting even stronger every day.

Mark Strawn – Morgan Stanley

Is it fair to characterize that in the group business you’re bookings stay more, let’s say in the last year or so in booking orders. You would say it is easier to push rate gains and have stronger contracts in place than may be a couple of years back?

Jim Murren

Yes, there is no doubt about that, Mark. Our mix ended up higher in 2011 than we thought and even still, it looks like our mix would be flat to up a little bit, but at higher rates, is the important thing and better still in 2013 because many of these conventions are two to three year conventions.

We were booking conventions in 2008, 2009 with modest annual escalators. They’re burning off right now. So the conventions that we’re booking today and the ones that we booked last year are at much higher rates.

So not only is our mix improving, but the ADR rate we’re getting for those conventions is improving and the overall spend is going up because the portfolio spend is higher. They have more fun they’re here, they’re booking out restaurants, they’re booking out the beach at Mandalay, they’re having more special events and the delegations have gone up. So attrition levels have gone down, attendance has gone up. CES is a good example. It just happened this year, all time record for the town, all-time record for us. Want to add anything to that Corey?

Corey Sanders

No, I think the other positive side we’re seeing, as Jim said we are seeing multiple year bookings and we’re actually happy to turn away certain bookings because of space limitations, which we haven’t seen in a few years. So all in all it’s a positive story on the convention sides.

And Aria being the only gold, lead gold, it's a good fit, I know Bobby wishes we had a couple of hundred thousand square feet more and we’re already sold out for Aria and that creates a lot of rate opportunity. We've obviously being driving right at Aria.

Bobby Baldwin

And 2013 rate is strong and 2014 will be strong or so.


And your next question comes from the line of Shaun Kelley from Bank of America.

Shaun Kelley – Bank of America

Most of my questions have been answered, but I did want to follow up on, one, I think Jim you had mentioned a little bit strategically about some of the management fees and some of the hotel deals you're signing. That line item actually was around breakeven or so this year, at least according to my model. So kind of wondering how do you see that ramping as some of these new properties open up and when can you start to get some meaningful earnings contribution from that line.

Jim Murren

Well, it is. We started first in China. Shaun we started that company way back in 2007. It takes a while to do these things. I know that some of our competitors dipping their toe in the water right now, but they're years behind us. And just in that one enterprise alone, we have in China, about 12 different deals under various forms of development. Some of them take quite a while.

So we’re already starting to make money in China now. The joint venture is, because we opened in Sanya over Chinese New Year's as an example. That hotel, the MGM Grand was getting over a $1,000 a night in ADR and that’s an hour flight by the way to Hong Kong and to Macau. So the cross marketing of having an MGM Grand in the Huawei of China touching our customers is very, very valuable.

So I think that that company is growing and will grow in terms of cash flows, not only in China, but around the world. Remember also that in that line item we have Branco (ph) which is MGM China’s Branco (ph) and that steps up from, remember it was only half year last year, it was $15 million. This year it will be a $30 million number here in 2012.

So Branco (ph) which is the company that has for a fee lent the name to MGM China goes in cash flow from $15 million last year to $30 million this year. That helps an awful lot.

So a combination of these hotel management deals, development fees, Branco (ph) has had a big impact on improving the cash flows and I think it’s going to grow into quite a large company over the next several years. Dan, did you want to add something.

Dan D’Arrigo

Yes. And I think the other thing to point out is with these brands and these flags, particularly in Asia, we’re going to get to know a lot of customers that we don’t even know exist. So the cross marketing opportunities into Las Vegas and Macau, we’re not going to quantify or even attempt to do that at this stage of the game but that is an opportunity and we think it could pay some significant dividends to both Macau and Las Vegas.

Shaun Kelley – Bank of America

And then just one more on Las Vegas to follow up on some of the prior questions, I was wondering if you guys think about the mid-single digit to high-single digit kind of RevPAR expectation for '12, some of your competitors have been, I’d say a little bit more cautious, particularly around maybe in the third quarter and just kind of wondering, obviously your portfolio stands a much broader set of customers but do you see kind of low-end outperforming high-end or where are you having the most success in kind of pushing rates and building occupancies at this point in the recovery?

Jim Murren

Well, you’re right. We do have a vast portfolio in every price point and the core properties are doing particularly well, there is no doubt about that. But I wouldn’t ignore the luxury properties. I am not sure what the competitors are saying but we’re going to do well, we believe in RevPAR at the luxury properties. The room remodel program only finished at the end of last year at Bellagio, so we get a full year benefit of that. That’s going to have material impact on RevPAR at Bellagio.

The MGM Grand remodel program improves that RevPAR throughout the year, that major remodel is done in September I think of this year. It started last September. And we’re seeing the convention business, and the events calendar so robust at Mandalay Bay, we saw Mandalay Bay did well in the fourth quarter. There is a tremendous amount of opportunity at Mandalay Bay and Mirage as well.

So my guess is that you’ll see strong RevPAR throughout the portfolio. We certainly are able to drive great RevPAR growth at our core properties as the luxury portfolio in general in town, ours and our competitors improves and they fell the most. So there is an opportunity there.

I think the combination of M Life, our events, the capital that we spent last year and spending this year and being pretty aggressive in the marketplace, we’ve added a lot of people on the convention sales side, the leisure sales side, yielding more affectively. All will combine to get very good and growing RevPAR this year.

Bobby Baldwin

And of course, Jim, there is no added first class room inventory on the horizon in Las Vegas for quite some time.

Jim Murren

Good point. Operator, I think we’ll take one more question.


And your next question comes from line of Joe Greff from JPMorgan.

Joe Greff – JPMorgan

Looking back at last year in Las Vegas, your hotel revenue growth led the enterprise revenue growth. As you look into 2012 and given your comments about the goods things that you’re going with M Life, the event calendar was on the books for group and the comparison, do you think the non-room revenue growth exceeds the room revenue growth in 2012?

Jim Murren

The revenue growth particularly on the convention side led this recovery, Joe. And the other aspects of our business are catching up. And so I think we’re going to have a good year on the convention side but if the early numbers here in 2012 are any indicator, gaming is coming back in Las Vegas.

Our table play is improving nationally and internationally. Our slot business has been really very strong and that bodes well for the nationally oriented events like March Madness or the concerts fights that we have.

I think that if you look at our portfolio, you’re going to see even without M Life adding to the mix, but certainly that would be additive, a more broad based recovery and a more broad based strength in our business, not just on the room side, but on the non-gaming revenue side and on the gaming side.

And that’s the opportunity, which is a good way to end because why we’re so excited here is that we knew and I think we all collectively agreed that for Las Vegas to come back, the convention business had to lead the way. That has happened.

We also knew that we needed to restore Las Vegas' visitations. We could hit a record, an all time record in visitation in Las Vegas this year. Then we knew that, well people have to start spending a little bit more money when they get here and I think you’ve heard from us in the last couple of calls is that RevCore, the total revenue per occupied room is starting to go higher and that certainly is the case here in 2012 and I think that all points to the fact that Las Vegas will have in general, not just ourselves, but the market will have a much better year in '12 because the recovery of revenue is more broad based than it was last year and everyone including ourselves are managing our costs.

And so the flow through we talked about earlier should be felt strip wide. We certainly are going to try to maximize that here as a company. I think it’s going to grow throughout the year.

So with that, of course we’re always around. Please give any of us a call if you have any follow up questions. I want to thank you all for joining us on the call and thank you for your support of the company, and thank you Grant for staying up so late.


And this concludes today’s conference call. You may now disconnect.

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