Leisure demand helps MGM Resorts as it waits for groups
Leisure demand helps MGM Resorts as it waits for groups
31 JULY 2020 8:42 AM

With most of its properties now open and operating, MGM Resorts International is benefiting from summer leisure demand while it prepares for the return of group business.

LAS VEGAS—After having to close all of its domestic properties at the beginning of the pandemic, MGM Resorts International has reopened most of its U.S. portfolio and is taking advantage of the pent-up leisure demand for Las Vegas.

Speaking during his first company earnings call in his new role, President and CEO Bill Hornbuckle said the company is focused on maintaining its strong balance sheet and operating strategy designed to maximize cash flow. The company is working with local governments, regulators and public health experts while implementing new health and safety protocols at its properties.

MGM Resorts has 14 of its 18 properties operating, having reopened nine during the second quarter and another five since then, he said. The domestic properties that reopened in the second quarter generated positive earnings before interest, taxes, depreciation, amortization and restructuring or rent costs faster than expected, he said.

“We saw significant growth in our domestic margins driven by optimizing our business to serve higher-quality customers given the pent-up demand, primarily in our casino market side, leveraging our MGM 2020 plan and operating model work to manage costs and discipline,” he said. “We remained selective in keeping lower-margin amenities closed.”

Revenue from reopened Las Vegas properties declined 50% year over year and adjusted property EBITDAR dropped 44%, he said. Margins increased by about 450 basis points over the same period.

Transient and wholesale leisure business also performed better than expected during the summer pool season, he said. Drive-in traffic levels have recovered faster than fly-in.

For the company’s open regional operations, second-quarter revenue decreased by 31% and adjusted property EBITDAR declined by 14% while margins increased by about 880 basis points, Hornbuckle said. Regional operations include larger integrated resort properties like those in Las Vegas, which rely on fly-in travelers, and those in drive-to markets that are performing better. Open regional properties in drive-to markets grew EBITDAR by 18% with margin improvement by more than 1,400 basis points.

When the properties were closed, MGM Resorts reduced 85% of its operating expenses, Hornbuckle said. As the hotels reopen, they are managing variable labor to closely match demand. The company has identified expenses and amenities it can eliminate that are not essential to guest satisfaction or demand, he said.

The company expects to reduce its overall domestic operating and corporate costs by approximately $450 million compared to 2019 levels through initiatives put into place at the end of 2019 and adopted during the pandemic as part of the revised operating model.

The relative stability and demand seen thus far is encouraging, he said. However, the current situation is fluid. Further openings of Las Vegas resorts and amenities across the domestic properties will continue to be based on expectations for demand and maximizing cash flow while balancing the needs of guests, employees, local regulators and other significant stakeholders, he said.

Overseas properties
MGM China’s properties were open during the second quarter, but the Macau market continued to experience significant year-over-year declines, Hornbuckle said. Border and travel restrictions drove Q2 market-wide gross gaming revenue down by 96% and visitation down by nearly 100%.

The 14-day mandatory quarantine between Guandong and Macau was lifted to certain major cities within Guandong a few weeks ago, he said. The day before the earnings call, it was extended to the entire province. As of the call, the company learned Mainland China was resuming the issuance of visas, except for tourist visas, starting 12 August, he said.

While these initial steps are encouraging, the Hong Kong borders remain shut, he said. The Individual Visit Scheme and tour visa program haven’t restarted yet, which are necessary for a meaningful recovery, he said.

MGM China’s monthly cash outflows are currently at about $65 million a month, but with $1.5 billion of liquidity, the properties have a buffer of more than 22 months, he said.

“We continue to believe that this market can recover quickly once the current restrictions are lifted,” he said.

Business outlook
COVID-19-related headlines continue to have a meaningful impact on booking trends and cancellations at the Las Vegas properties, Hornbuckle said.

“Candidly, our visibility is limited to booking windows that are currently less than a week,” he said. “We’re seeing slower occupancies on the weekdays, and we’re offsetting this on the weekends when demand is far more robust.”

MGM Resorts has lost just over 2 million group roomnights, roughly 83% of which have been in 2020, Hornbuckle said. However, the company has only lost two groups of substance beyond the first quarter of 2021, he said.

“What groups are saying and what they’re doing is they’re hanging in as long as they possibly can,” he said. “Fundamentally, they want to come back. They understand this experience. They want it and need it.”

The company is ideally positioned given its scale, he said. Its hotels offer 3.7 million square feet of space to allow groups spread out, creating a meaningful opportunity.

The first half of 2021 is going to be hampered, Hornbuckle said. It will probably take a full year from now to get back “into real mode,” he said, adding that group business takes time to rebook, particularly if it isn’t pre-booked.

“We’re optimistic, but we want to be realistic,” he said.

As of press time, MGM Resort’s stock was trading at $16.64, down 49.9% year to date. The New York Stock Exchange was down 9.9% for the same time period. Click here for more news about public hotel company performance, including information about the Baird/STR Hotel Stock Index, which tracks 20 of the largest market capitalization hotel companies publicly traded on a U.S. exchange.

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