Though mindful of a potential recession, executives at MGM Resorts International said they aren't seeing any signs of slowing demand.
“Looking ahead, we continue to be quite bullish on our domestic business outlook based on a number of tailwinds coming in the near year, including the rebound in our convention business, the return of international travel and the lineup of exciting events in Las Vegas,” MGM Resorts President and CEO Bill Hornbuckle said during the company's second-quarter earnings call.
In 2023, MGM Resorts expects to grow its convention mix and rate year over year, he said. The technology show CES will return to Las Vegas next year along with the ConExpo-Con/Agg trade show, which is one of the most well-attended events of the year with historical attendance of more than 130,000.
International visitation to Las Vegas represented 3% of visitors in 2021 compared to the 10% to 15% in pre-pandemic years, Hornbuckle said. The company anticipates international guests will return in force as international flight capacity is expected to reach over 80% of summer 2019 levels, and international customers have longer stay patterns than domestic guests.
The upcoming events calendar for Las Vegas is arguably the best the city has ever had, Hornbuckle said, adding that MGM Resorts’ scale and positioning will allow it to be the primary beneficiary. The city is home to the Golden Knights NHL team and Raiders NFL team. It will host the Sweet 16 and Elite Eight rounds of the NCAA men’s tournament next year as well as its first Formula One race. In February 2024, the city will host the Super Bowl.
“When you put it all together, the business case is incredibly compelling for continued growth and momentum in our business,” he said.
Preliminary results from July are an encouraging sign for the third quarter, Chief Financial Officer Jonathan Halkyard said. MGM Resorts' Las Vegas properties reported occupancy of 94% with average daily rate up 6% year over year.
The company is now in “our toughest comp versus 2021, given the strong reopening trend we experienced last year,” Halkyard said.
MGM Resorts bookings continue to be robust with occupancy growth in all months for the remainder of this year, he said. Rates are up double-digits compared to 2021 in each month.
“In fact, during June we booked the most rooms per day so far this year,” Halkyard said. “Yes, we really like the demand outlook for Las Vegas.”
Portfolio Management
MGM Resorts took meaningful steps to simplify its corporate structure and complete the monetization of its real estate assets during the quarter, Hornbuckle said. The company closed on the sale of its stake in its spinoff real estate investment trust MGM Growth Properties to gaming REIT Vici Properties for $4.4 billion in cash. The company intends to use the proceeds to invest in its core business and pursue growth opportunities.
The company also closed on its acquisition of the operations at The Cosmopolitan Las Vegas, a $1.625 billion deal.
“I cannot say enough about the strength of the team at The Cosmopolitan and the exceptional service culture that has been created there,” Hornbuckle said. “Our focus now is on integrating the operations of the property into MGM Resorts’ portfolio and working together to maximize the future success of this world-class resort.”
MGM Resorts also reached an agreement to sell the operations of the Gold Strike Casino Resort in Tunica, Mississippi, to the Cherokee Nation Entertainment Gaming Holdings for $450 million, he said. The deal is expected to close in the first part of 2023.
“As a company, we thought this was an opportunity to sharpen our focus on Mississippi, on Beau Rivage [Resort & Casino in Biloxi], and take advantage of an attractive valuation,” he said.
The company’s sale of the operations of The Mirage in Las Vegas for $1.075 billion to Hard Rock International is on track to close later this year.
MGM Resorts executives are hopeful over the application for three additional casino licenses in the state of New York and eager to expand the MGM Empire City in Yonkers, Hornbuckle said.
Internationally, the company submitted its area development plan with its partner Orix to the Japanese government in April for a gaming license to operate in the city of Osaka, he said. MGM Resorts also is making progress on bringing the MGM Grand to Dubai. It has a management agreement for a non-gaming integrated resort being developed in partnership with Wasl Hospitality and Leisure.
“The project has broken ground and work continues on the development progress,” Hornbuckle said. “We will watch with great interest what does or doesn't happen around gaming in the region, hopefully in the near future.”
By the Numbers
MGM Resort’s consolidated second-quarter net revenue reached $3.3 billion, an increase of 44% compared to 2021 despite the $168 million negative impact from MGM China because of China’s COVID-19 restrictions and shutting down of non-essential businesses in Macau, Halkyard said.
Net income attributable to MGM Resorts was $1.8 billion, a figure benefiting from a gain related to the sale of MGM Growth properties, according to the company's earnings release.
Second-quarter Las Vegas Strip net revenue was $2.1 billion, and adjusted property earnings before interest, taxes, depreciation, amortization and rent costs was $825 million, he said. Same-store net revenue in Las Vegas excluding Aria, Vdara and The Cosmopolitan grew by 60% compared to the second quarter of 2021.
Unlike what happened during the first quarter because of the omicron variant of COVID-19, second-quarter occupancy, average daily rate and profitability were consistent, Halkyard said. Occupancy was 92%, continuing performance seen at the end of March. Pricing remained strong with ADR at a record $225. On a same-store basis, its ADR of $201 was 34% higher than the second quarter of 2021.
“Our pricing power is driven by a number of factors: the attractiveness and sophistication of our marketing efforts, the relative value versus other destination markets, midweek conventions returning and the benefit of certain room renovations, including the Bellagio and the Aria Sky Suites, which we completed in 2021,” he said.
Net revenue for MGM Resorts’ regional properties was $960 million, a 12% year-over-year increase, Halkyard said. Adjusted property EBITDAR was $340 million, up 7% from the same quarter in 2021. Margins were 35%, down about 200 basis points, due to the company bringing back more of its non-gaming operations.
Net revenue in Macau was $143 million in the second quarter, a 54% year-over-year decrease, he said. Adjusted property EBITDAR was a loss of $52 million compared to a positive $9 million last year.
“Public health policies remain a headwind in the region, as entrance into Macau has been severely limited,” Halkyard said.
As of press time, MGM Resorts' stock was trading at $34.20, down 23.8% year to date. The NYSE Composite Index was down 11% for the same period.