MGM Resorts International — 2019 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2019; quarterly figures below are for the fourth quarter. MGM Resorts operates casino, hotel, entertainment, and related resorts in the United States and Macau through Las Vegas Strip Resorts, Regional Operations, and MGM China. MGM owned approximately 56% of MGM China.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | $12.90 billion | $11.76 billion |
| Operating income | $3.94 billion | $1.47 billion |
| Net income | $2.21 billion | $584 million |
| Net income attributable to MGM Resorts | $2.05 billion | $467 million |
| Diluted EPS | $3.88 | $0.81 |
| Operating cash flow | $1.81 billion | $1.72 billion |
| Capital expenditures | $739 million | $1.49 billion |
| Cash and cash equivalents at year-end | $2.33 billion | $1.53 billion |
| Principal debt outstanding at year-end | $11.27 billion | $15.25 billion |
Revenue rose approximately 10%. Operating income and earnings were substantially affected by the $2.68 billion gain on the Bellagio real-estate sale-leaseback. 2019 also included a $220 million loss on the Circus Circus disposition, including a $219 million noncash impairment, and a $198 million loss on early debt retirement. Interest expense, net, was $848 million, up from $770 million.
Fourth-quarter revenue was $3.19 billion, operating income $2.96 billion, net income $2.07 billion, and net income attributable to MGM Resorts $2.01 billion. Fourth-quarter results included the Bellagio gain; reported operating income and EPS therefore are not representative of recurring operating performance.
Adjusted EBITDAR, a non-GAAP measure that excludes rent and other items, was $3.02 billion versus $2.84 billion. Segment Adjusted Property EBITDAR was $1.64 billion for Las Vegas Strip Resorts (down 4%; 28.2% margin), $970 million for Regional Operations (up 24%; 27.3% margin), and $735 million for MGM China (up 28%; 25.3% margin). These measures exclude significant costs, including rent, interest, taxes, and capital spending, and should not be treated as cash flow or GAAP profit.
Material changes versus 2018
- Las Vegas Strip Resorts revenue increased modestly, but casino revenue fell 8%, principally due to a 17% decline in table-games win and weaker Far East baccarat. Table-games drop fell 9%. Rooms revenue increased 5%, with REVPAR up 4%.
- Regional Operations revenue increased 21%, supported by Empire City, MGM Northfield Park operations, and a full year of MGM Springfield operations.
- MGM China revenue increased 19%, driven by MGM Cotai’s ramp-up and stronger main-floor table-games results. VIP turnover declined 6%; main-floor table-games win increased 37%.
- Cash from investing activities was $3.52 billion, versus $2.08 billion used in 2018, mainly reflecting $4.15 billion of Bellagio proceeds and $652 million cash proceeds from Circus Circus. Financing activities used $4.53 billion, including substantial debt repayments and $1.03 billion of share repurchases.
- Debt principal declined by approximately $4.0 billion. The company paid $271 million in common dividends and declared $0.52 per share for 2019, versus $0.48 in 2018.
Outlook, risks, contingencies, and unusual items
- Management reported more than $130 million of 2019 Adjusted EBITDAR uplift from the MGM 2020 Plan and expected to exceed $200 million by the end of 2020 versus 2018. This is a target, not a guarantee; digital transformation investment is part of the plan.
- The filing describes significant disruption in Macau from the coronavirus outbreak: casino operations were suspended for 15 days beginning February 5, 2020 and resumed February 20 subject to operating limits. Management expected a material effect on MGM China’s first-quarter 2020 results and potentially later periods, but could not reasonably estimate the impact. U.S. operations could also be affected.
- At December 31, 2019, annual rent was $946 million under the MGP master lease and $245 million under the Bellagio lease. The February 2020 MGM Grand/Mandalay Bay transaction added a $292 million initial annual rent obligation and reduced MGP master-lease rent by $133 million. The company also provided shortfall guarantees for approximately $3.01 billion of Bellagio venture debt and $3.0 billion of MGM Grand/Mandalay Bay venture debt.
- The February 2020 MGM Grand and Mandalay Bay real-estate transaction generated $2.5 billion cash plus assumed debt and venture interests. The company planned to use transaction proceeds and potential cash redemption of up to $1.4 billion of Operating Partnership units for debt and equity repurchases. These are post-year-end transactions.
- October 1, 2017 shooting litigation: the company accrued a $735 million liability and an equal insurance receivable. The proposed settlement funding range was $735 million to $800 million, with $751 million of insurance coverage available; settlement conditions and claimant participation remained unresolved.
- MGM China’s gaming subconcession was extended to June 26, 2022; extension beyond that date was uncertain. Its Macau gaming-profit tax exemption was stated to run through March 31, 2020, with an extension sought. The filing also highlights dependence on gaming promoters, competition, regulatory and licensing risks, high leverage, lease commitments, labor negotiations, and casino receivable collection risk.
- CEO James J. Murren announced in February 2020 that he would step down before his contract expired; he was to remain in his role until a successor was appointed. The filing also identifies a $1.5 billion unsecured revolving facility established in connection with the February 2020 transaction.
Most important facts for investors to verify
- Underlying operating trends excluding the $2.68 billion Bellagio gain and other transaction, impairment, restructuring, and debt-retirement items.
- Cash generation after rent, interest, taxes, maintenance and development capital expenditures, and debt service—not just Adjusted EBITDAR.
- Debt, liquidity, covenant headroom, lease obligations, and the terms and exposure of the venture-debt guarantees after the February 2020 transactions.
- The duration and financial impact of Macau travel and operating restrictions, and the status of MGM China’s subconcession and tax-exemption extensions.
- Final settlement terms, insurance recoveries, claimant participation, and any exposure beyond the accrued October 1 litigation amount.