MGM Resorts International — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are U.S. dollars; financial statement figures are rounded to millions unless stated otherwise. The filing is unaudited.
Business context
MGM owns, operates, or invests in casino resorts and related hospitality and entertainment businesses. Its reportable segments are Las Vegas Strip Resorts, Regional Operations, and MGM China. Comparisons with Q2 2020 are heavily affected by pandemic-related property closures and restrictions in the prior-year quarter; year-over-year growth rates therefore have a low-base effect.
Financial highlights
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2,268 | $290 | $3,916 | $2,543 |
| Operating income (loss) | $264 | $(1,035) | $17 | $216 |
| Consolidated net income (loss) | $90 | $(936) | $(246) | $(262) |
| Net income (loss) attributable to MGM Resorts | $105 | $(857) | $(227) | $(50) |
| Diluted EPS | $0.14 | $(1.67) | $(0.56) | $(0.02) |
| Operating cash flow | Not presented by quarter | Not presented by quarter | $368 | $(1,086) |
Q2 revenue increased 683% year over year as properties reopened and restrictions eased. H1 revenue rose 54%, but operating income fell 92%, primarily because H1 2020 included a $1.5 billion gain from the Mandalay Bay and MGM Grand Las Vegas real-estate transaction. The difference between consolidated net income and income attributable to MGM reflects noncontrolling interests.
H1 2021 Adjusted Property EBITDAR was $505 million for Las Vegas Strip Resorts, $560 million for Regional Operations, and $13 million for MGM China, versus $163 million, $40 million, and a loss of $138 million, respectively, in H1 2020. Reported H1 segment margins were 32.6% for Las Vegas and 35.7% for Regional Operations. Adjusted EBITDAR is a non-GAAP measure and excludes items including rent; it should not be treated as cash flow or a substitute for GAAP earnings.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $5.63 billion at June 30, 2021, up from $5.10 billion at December 31, 2020. MGM China held $331 million and the Operating Partnership held $298 million of the quarter-end cash balance.
- Long-term debt had a $12.7 billion principal balance and a $12.57 billion carrying value. The company reported no debt maturities before 2022. Its $1.5 billion revolving facility and the Operating Partnership’s $1.35 billion facility were undrawn; MGM China had $227 million drawn on its $1.25 billion first revolver.
- Operating lease liabilities totaled $8.44 billion. MGM also reported annual rent of $843 million under the MGP master lease, $250 million for Bellagio, and $298 million for Mandalay Bay and MGM Grand Las Vegas, before applicable escalators.
- The company reported $368 million of operating cash flow, $274 million of cash used in investing, and $430 million of cash provided by financing for H1 2021. Capital expenditures were $183 million.
- The company was in compliance with applicable credit-facility covenants at quarter-end. Covenant relief for the company’s financial maintenance tests runs through the specified 2022 trigger; MGM China’s leverage and interest-coverage covenant waivers extend through Q4 2022. The company’s borrower group must maintain at least $1.0 billion in liquidity during its relief period.
Material changes and unusual items
- Q2 results benefited from reopening and easing restrictions. CityCenter’s Harmon land sale contributed a $50 million gain recorded by MGM, and a reduction in estimated Empire City contingent consideration contributed a $29 million gain. Other income included an $86 million investment gain.
- H1 2021 included $340 million of share repurchases; the remaining authorization under the February 2020 program was $2.7 billion at June 30. After quarter-end, MGM repurchased a further $275 million of shares.
- In June, MGM agreed to buy the remaining 50% of CityCenter for $2.125 billion, expected to close in Q3 2021, and to sell the Aria and Vdara real estate for $3.89 billion with a leaseback. These transactions are interdependent and subject to closing conditions and approvals.
- MGM agreed to sell MGM Springfield real estate to MGP for $400 million, with closing expected in Q4 2021, subject to approvals. In August, after quarter-end, MGM agreed to the VICI acquisition of MGP; MGM expects approximately $4.4 billion in cash consideration while retaining an approximately $370 million VICI OP interest. The proposed VICI transaction is expected to close in H1 2022, subject to conditions and approvals.
Outlook, management commentary and risks
Management reported a recovery in some markets as vaccines became more widely available and domestic operating restrictions eased, while noting that staffing and midweek visitation constrained some operations. No full-year revenue or earnings guidance is provided in the filing. Planned remaining-2021 capital expenditures were approximately $285–$295 million domestically, $30–$40 million for CityCenter assuming the transaction closes, and $50–$60 million at MGM China. Expected cash interest over the next 12 months was approximately $735–$745 million consolidated.
COVID-19 remains a material uncertainty, including possible renewed restrictions, closures, staffing constraints, and travel disruption. Macau visitation continued to be affected by travel and entry restrictions; after new cases were reported in early August 2021, Macau imposed mass testing and suspended or cancelled certain events and leisure activities, while gaming and hotel operations remained open at the time described. Other key risks include substantial debt and fixed lease commitments, regulatory approvals and possible litigation affecting proposed transactions, Macau gaming-concession risk, competition, and foreign-exchange exposure. MGM estimated that a 1% weakening of the Hong Kong dollar against the U.S. dollar would produce a $28 million foreign-currency transaction loss.
The board approved a quarterly dividend of $0.0025 per share for payment in September 2021. Future dividends remain at the board’s discretion.
Important facts for investors to verify
- Whether demand, hotel occupancy, gaming volumes, and margins sustain the recovery after the unusually weak Q2 2020 comparison; Q2 Las Vegas occupancy was 77%, while H1 occupancy was 62%.
- How much reported earnings depended on the Harmon land, investment, and contingent-consideration gains, and how segment EBITDAR reconciles to GAAP results and rent obligations.
- Current liquidity and debt maturities, covenant-relief terms, refinancing needs, and the capacity to fund rent, interest, capital spending, and repurchases.
- Whether the CityCenter purchase and Aria/Vdara sale-leaseback, MGM Springfield sale, and VICI-MGP transaction close on the expected terms and timing, including the resulting lease economics and cash proceeds.
- Developments in COVID-19 restrictions and Macau travel access, as well as MGM China’s concession, regulatory, and currency exposures.