MGM Resorts International has made several deals over the past several months to monetize its real estate and expand its operations. Its latest move is selling off operations of The Mirage casino resort on the Las Vegas Strip.
MGM Resorts CEO and President Bill Hornbuckle announced during a third quarter earnings call that the company is in the early stages of the process to sell operations at The Mirage.
“Doing so will allow us to maintain our existing Las Vegas exposure while focusing on the complimentary and diverse nature of our offerings in our hometown,” he said.
Hornbuckle said he spent the early part of his career at the property and was part of the team that opened it in 1989. The campus sits on approximately 77 acres that provide attractive development opportunities to capture large amounts of foot traffic, he said.
“Mirage has served us well over the years, and we are certain it will remain a success with a new operator in the future,” he said.
The real estate of The Mirage belongs to MGM Growth Properties, the real estate investment trust MGM Resorts spun off several years ago to pursue an asset-light strategy. Gaming real estate investment trust Vici Properties is acquiring MGP in a $17.2 billion deal.
MGM Resorts currently operates 10 properties on the Las Vegas Strip and will add The Cosmopolitan once its deal closes next year.
Hornbuckle said there is no better context on the history of Las Vegas than MGM Resorts’ portfolio.
The Mirage is in the center of the Strip and was built to last, he said. Much of the property’s 77 acres are underdeveloped, he added.
“But as we looked at capital allocation, and we looked at the notion of diversification, we have enough of Las Vegas,” he said.
MGM Resorts executives understand the marketplace, and this is an opportune time to sell an asset in Las Vegas, he said.
“I’m excited for somebody to come in and make it their marquee property,” he said. “I think between the villas that are there, the access to the real estate, its general location ... the right owners could do a lot. But it just felt pretty far down in the spectrum of how much capital we’d allocate to it in any given period of time in the near future, and so we just took a strategic decision to sell it.”
Promising Trends
Anchored by the Fourth of July holiday, MGM Resorts' third quarter performance was "exceptionally strong," Hornbuckle said, noting casino spending was better than pre-pandemic levels.
While the COVID-19 delta variant affected group business during the quarter, the company was able to offset that through leisure and casino business.
“With [COVID] cases on the downswing, we have built momentum into October, and the level of demand in the marketplace, especially on the weekends, has simply been incredible,” he said. “October will be another all-time record month.”
Groups are still coming to Las Vegas, and MGM Resorts has a healthy amount of group reservations on the books for the rest of the year and for 2023 and 2024, he said.
The relaunch of large-scale entertainment in July has been driving visitation to Las Vegas, Hornbuckle said.
The Raiders, Las Vegas' National Football League franchise, estimates that roughly 60% of tickets for games at Allegiant Stadium are sold to out-of-state fans. With a majority of the 50,000 to 60,000 people walking to and from the stadium near Mandalay Bay Resort & Casino and Luxor Hotel & Casino, MGM Resorts has “significant, broad-based uplift” at both properties on event days and Raiders games, Hornbuckle said.
Regional and International Performance
The company’s regional operations delivered another all-time record earnings before interest, taxes, depreciation, amortization and rent costs margin, driven by strengthened gaming spend levels, Hornbuckle said. Easing state restrictions have allowed the company’s properties to strategically reintroduce entertainment and food and beverage offerings at all regional properties.
The Macau market continues to operate well below pre-pandemic levels as varying travel restrictions limit visitation in the region, Hornbuckle said.
“The obvious catalyst in Macau’s recovery is the sustained resumption of frictionless travel between Macau, Hong Kong and Mainland China, which heavily relies on higher vacation rates that will take some time,” he said.
When the market does rebound more meaningfully, MGM China is well positioned given its strength in premium mass, Hornbuckle said. The company will continue to work with the government, and is confident it will have its licensed renewed, he added.
MGM Resorts is keen to diversify its business and expand operations globally, Hornbuckle said. The company announced in September its MGM-Orix consortium was chosen to partner with the government in Osaka, Japan, to build and operate a world-class integrated resort there. MGM Resorts is working with Orix Corp., a major financial services company in Japan, and Osaka to submit an area development plan to the central government in the coming months in hopes of receiving a license next year.
By the Numbers
MGM Resorts reported consolidated net revenue of $2.7 billion, a 140% increase compared to the third quarter of 2020, according to the company’s earnings release. Its consolidated operating income was $1.9 billion, compared to a consolidated operating loss of $495 million in the same period of 2020.
The company’s Las Vegas Strip properties reported net revenue of $1.4 billion, a 187% increase compared to the third quarter of 2020 and an 8% decrease from 2019. It’s adjusted property EBITDAR was $535 million, up from $15 million in the third quarter of 2020 and a 21% increase over the same quarter in 2019.
The Las Vegas Strip properties reported occupancy of 82%, up from 44% in the same quarter of 2020. Average daily rate amounted to $181, up from $139 in 2020, while revenue per available room reached $146, up from $61 the year prior.
For its regional properties, the company reported net revenue of $925 million, a 66% year-over-year increase and a 1% decrease compared to the third quarter of 2019. Adjusted property EBITDAR was $348 million, a 139% year-over-year increase and a 29% increase over the third quarter of 2019.
MGM China reported net revenue of $289 million, a 517% year-over-year increase and a 61% decrease compared to the third quarter of 2019. It’s adjusted property EBITDAR was $7 million compared to a $96 million loss in 2020 and a decrease of 96% in the same quarter of 2019.
As of press time, MGM Resorts’ stock was trading at $48.75 a share, up 54.7% year to date. The New York Stock Exchange Composite Index was up 18.5% for the same period.