MGM Resorts International quarterly report, Q3 FY2019

MGM Resorts International — Q3 2019 Form 10-Q

Reporting period: Three and nine months ended September 30, 2019; comparative periods ended September 30, 2018. Figures are in U.S. dollars. MGM operates casino resorts in Las Vegas, regional U.S. markets, and Macau.

Financial performance

Metric	Q3 2019	Q3 2018	Nine months 2019	Nine months 2018
Revenue	$3.314 billion	$3.029 billion	$9.715 billion	$8.710 billion
Operating income	$238 million	$411 million	$980 million	$1.134 billion
Net income	$6 million	$171 million	$148 million	$578 million
Net income attributable to MGM	$(37) million	$143 million	$38 million	$490 million
Adjusted EBITDA	$814 million	$716 million	$2.309 billion	$2.113 billion

Q3 revenue rose 9%; operating income fell 42%. The decline chiefly reflects a $219 million non-cash Circus Circus impairment, while the prior-year quarter included a $45 million gain on the Grand Victoria sale.
Nine-month revenue rose 12%, while operating income fell 14%. The period included the impairment and $87 million of MGM 2020 restructuring costs; 2018 included the $45 million Grand Victoria gain.
Q3 Adjusted EBITDA increased about 14%; nine-month Adjusted EBITDA increased about 9%. Q3 segment results benefited from Regional Operations and MGM China, while Las Vegas Strip Resorts improved modestly. Adjusted EBITDA is a non-GAAP measure and excludes significant costs.
Q3 net loss attributable to MGM was $37 million, or $0.08 per diluted share, versus net income of $143 million, or $0.26 per diluted share. Nine-month diluted EPS was $0.06 versus $0.86.

Operations and material changes

Growth reflected MGM Cotai’s continuing ramp-up, a full quarter of MGM Springfield, the Empire City acquisition, MGM Northfield Park operations, and stronger non-casino revenue in Las Vegas.
Las Vegas Strip casino revenue declined 3% in Q3; table-games win fell 11%, partly offset by higher slots win. Rooms revenue rose 6%, with REVPAR up 4% and occupancy at 92%.
Regional Operations revenue rose 20% in Q3, with casino revenue up 26%, reflecting acquisitions and new properties. MGM China revenue increased 22% to $738 million, driven by MGM Cotai’s ramp-up and stronger main-floor table-games win.
Q3 Adjusted Property EBITDA margins were 29.3% for Las Vegas Strip Resorts, 28.2% for Regional Operations, and 24.7% for MGM China. Las Vegas nine-month margin was 28.7%, down 137 basis points year over year.

Cash flow, debt and liquidity

Nine-month operating cash flow was $1.356 billion, versus $1.395 billion. Investing cash outflow was $1.029 billion, compared with $1.799 billion; financing cash outflow was $620 million, versus $207 million of inflow.
Capital expenditures were $483 million, down from $1.224 billion, mainly as major development projects neared completion. Cash and equivalents were $1.234 billion at September 30, down from $1.527 billion at year-end 2018.
Long-term debt, net of discounts and issuance costs, was $14.944 billion; principal indebtedness was approximately $15.1 billion. Total debt fair value was estimated at $16 billion. MGM reported compliance with applicable credit-facility covenants.
MGM had $510 million drawn on its $1.5 billion revolving facility; the Operating Partnership had no borrowings on its $1.35 billion revolver; MGM China had $776 million drawn on its $1.25 billion revolver. The filing cites cash, future operating cash flow, and available facilities as expected sources for debt maturities and planned investment.
Interest expense, net, increased to $647 million for the nine months from $555 million. Debt issuance and refinancing included new MGM, Operating Partnership, and MGM China notes, alongside repayments of older debt.

Outlook, commitments and risks

MGM’s MGM 2020 Plan targets $300 million of annualized Adjusted EBITDA uplift by the end of 2021: $200 million from the first phase by the end of 2020 and $100 million from digital transformation by the end of 2021. Management said it currently anticipates achieving the first-phase target.
Expected remaining capital investment: $175–$225 million at domestic resorts and corporate entities, and $105–$110 million at MGM China. These estimates include project closeout costs.
After quarter-end, MGM agreed to sell Circus Circus and adjacent land for $825 million, including $662.5 million cash and a secured note with $162.5 million face value. The company had recorded a $219 million non-cash impairment; closing was expected in Q4, subject to customary conditions and regulatory approvals.
After quarter-end, MGM also agreed to sell Bellagio real estate to a joint venture with Blackstone Real Estate Income Trust for $4.25 billion, receive approximately $4.2 billion cash and a 5% equity interest, and lease the property back. Initial annual rent is $245 million. MGM expects to use proceeds from both property transactions to repay debt and repurchase shares. The Bellagio transaction is conditional, and MGM expects to guarantee approximately $3.0 billion of venture debt, including potential exposure to collateral shortfall.
Annual rent under the MGP master lease was approximately $946 million as of the filing; leases include escalators and significant fixed obligations. MGM identifies leverage, rent commitments, refinancing and market conditions, gaming regulation, Macau concession and tax matters, competition, and transaction execution as risks.
For the October 1, 2017 Las Vegas shooting litigation, MGM accrued a $735 million liability and an equal insurance receivable. The proposed settlement fund is expected to be $735–$800 million, with $751 million of insurance coverage available. Settlement participation and other conditions remain uncertain; additional claims may not be covered.
The company’s board approved a $0.13-per-share quarterly dividend payable in December 2019. MGM repurchased $639 million of shares during the first nine months, with approximately $750 million remaining under the $2.0 billion authorization at quarter-end.

Key facts for investors to verify

Whether the Circus Circus sale and Bellagio sale-leaseback closed on the expected terms, and how proceeds, rent, and the debt guarantee affect leverage and cash flow.
Progress toward MGM 2020 savings targets and whether operating gains offset lease, restructuring, and corporate costs.
Performance trends in Las Vegas table games, MGM Cotai, and newer regional properties, including the effect of gaming win volatility.
Settlement participation and final cost of the October 1 litigation, including whether insurance fully covers the settlement and any excluded claims.
Debt maturities, available borrowing capacity, interest costs, and the sustainability of dividends and repurchases given substantial debt and fixed rent obligations.