MGM Resorts International — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless otherwise noted.
Business context and reporting period
MGM operates casino resorts in Las Vegas, regional U.S. markets, and Macau, with three reportable segments: Las Vegas Strip Resorts, Regional Operations, and MGM China. Results rebounded from pandemic-affected 2020 comparisons as domestic operating restrictions eased and travel increased. Macau travel and entry restrictions continued to constrain operations. All properties had reopened, but some amenities and operations remained limited.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,708 | $1,126 | $6,623 | $3,669 |
| Operating income (loss) | $1,893 | $(495) | $1,910 | $(279) |
| Net income (loss) | $1,338 | $(602) | $1,092 | $(864) |
| Net income (loss) attributable to MGM | $1,350 | $(535) | $1,123 | $(585) |
| Diluted earnings (loss) per share | $2.77 | $(1.08) | $2.17 | $(1.10) |
Q3 operating income included a $1,562 million gain on consolidation of CityCenter; the gain is a significant nonrecurring contributor to reported earnings. Q3 segment Adjusted Property EBITDAR was $535 million for Las Vegas Strip Resorts, $348 million for Regional Operations, and $7 million for MGM China. Reported segment margins were 38.7%, 37.6%, and approximately 2.4%, respectively. This segment measure is not a substitute for consolidated GAAP income or cash flow.
For the nine months, operating cash flow was $887 million, versus cash used of $1,250 million in 2020. Investing activities provided $1,677 million, including $3,888 million of Aria and Vdara real estate sale proceeds, partly offset by the $1,790 million CityCenter acquisition payment and $322 million of capital expenditures. Financing activities used $2,093 million, including $1,026 million of share repurchases and net debt repayments.
At September 30, cash and equivalents were $5,571 million. Principal debt was $12.7 billion ($12.6 billion carrying value), including $1.0 billion due within 12 months, which management expected to repay with cash on hand. Operating lease liabilities were $11.8 billion; the company reported aggregate annual rent payments of approximately $1.6 billion under triple-net leases. The $1.5 billion company revolver and $1.35 billion Operating Partnership revolver were undrawn; MGM China had $265 million drawn on its $1.25 billion facility. MGM reported compliance with applicable covenants and a minimum $1.0 billion liquidity test during the company’s covenant-relief period.
Material changes versus the prior comparable period
- Q3 revenue rose 140% year over year; nine-month revenue rose 81%. Comparisons reflect 2020 property closures and restrictions as well as 2021 reopenings and recovery, so growth rates are not like-for-like measures of normalized demand.
- Q3 revenue increased across all segments: Las Vegas Strip Resorts +187%, Regional Operations +66%, and MGM China +517%. Nine-month increases were 66%, 82%, and 155%, respectively.
- On September 27, MGM acquired the remaining 50% of CityCenter for $2.125 billion and began consolidating it. The resulting $1.562 billion gain materially lifted operating income. MGM then sold Aria and Vdara real estate for $3.888 billion and leased the properties back.
- Q3 Las Vegas Strip hotel occupancy was 82% versus 44% a year earlier; ADR was $181 versus $139 and REVPAR was $148 versus $61. Nine-month Las Vegas occupancy was 69% versus 64%, while ADR was $158 versus $168 and REVPAR was $109 versus $107.
- BetMGM, a 50%-owned unconsolidated affiliate, generated a $49 million share-of-operating-loss contribution in Q3 and a $154 million loss for the first nine months, compared with losses of $9 million and $25 million in the comparable 2020 periods.
Outlook, management commentary, and risks
- No consolidated earnings or revenue guidance was provided. Management cited recovery in some markets but said COVID-19 effects, variants, possible renewed restrictions, staffing constraints, and travel uncertainty could continue to materially affect results and cash flows.
- For the remainder of 2021, planned capital expenditures were approximately $180–190 million domestically and $20–30 million at MGM China. Expected cash interest over the next 12 months was approximately $710–720 million on a consolidated basis. Management also expected to repay the $1.0 billion debt maturity with cash.
- The VICI transaction, announced in August 2021, was expected to close in the first half of 2022, subject to conditions and regulatory approvals. MGM expected approximately $4.4 billion cash proceeds from redemption of most of its VICI OP units and planned to retain an approximately $370 million interest; a new master lease would have initial annual rent of $860 million. VICI stockholder approval was obtained October 29, 2021.
- The planned acquisition of The Cosmopolitan’s operations for $1.625 billion, with a 30-year real estate lease and initial annual rent of $200 million, was expected to close in the first half of 2022, subject to approvals and other conditions.
- MGM China’s gaming subconcession was scheduled to expire June 26, 2022. Macau’s gaming-law review and future concession process created uncertainty; management believed the license would be extended or replaced but gave no assurance.
- Other material exposures include substantial debt and fixed rent commitments, lease-related covenants and guarantees, interest-rate and foreign-exchange risk, and regulatory and transaction-closing risks. The company disclosed shortfall guarantees tied to $3.01 billion of Bellagio venture debt and $3.0 billion of MGP BREIT Venture debt; their recorded fair values were described as immaterial.
- Management said routine legal proceedings were not expected to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors apart from transaction-specific risks.
Important facts for investors to verify
- How much of reported earnings and operating-income growth reflects the one-time CityCenter consolidation gain, versus recurring resort operations?
- Whether Macau visitation and MGM China’s operating performance improve, and the outcome and timing of the subconcession extension or retendering.
- Completion timing, regulatory conditions, costs, and final economics of the VICI transaction and Cosmopolitan acquisition.
- Capacity to meet debt maturities, lease payments, capital spending, and transaction funding needs while maintaining liquidity; confirm the scale and terms of lease obligations.
- Whether BetMGM’s operating losses and required investment continue to grow, and whether management’s cost savings and domestic recovery are sustainable.