美高梅國際酒店集團 (MGM) 2012 Q2 法說會逐字稿

Good morning and welcome to the MGM Resorts International second-quarter 2012 earnings conference call.

Joining the call from the Company today are Jim Murren, Chairman and Chief Executive Officer; Bobby Baldwin, Chief Design and Construction Officer of MGM Resorts International, and President and CEO of CityCenter; Dan D'Arrigo, Executive Vice President, Chief Financial Officer and Treasurer; Grant Bowie, Chief Executive Officer of MGM China Holdings, Limited.

Participants are in a listen only mode.

After the Company's remarks there will be a question-and-answer session.

Now I would like to turn the call over to Mr. Dan D'Arrigo.

Thank you, McKenzie, and good morning everyone and welcome to our second-quarter earnings call.

This call is being broadcast live on the Internet at www.MGMResorts.com and a replay of the call will be available later on today on our website.

This morning we furnished our press release on Form 8-K with the SEC as well.

Before turning it over to Jim on this call we will make forward-looking statements under the Safe Harbor provisions of the federal securities laws.

Actual results might differ materially from those projected in the forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in these forward-looking statements is contained in today's press release and in our periodic filings with the SEC, including our most recent Form 10-K.

During the call we will also discuss non-GAAP financial measures in talking about the Company's performance.

You can find the reconciliation of these measures to GAAP financial measures in our press release, which is available on our website.

Finally, please note that the presentation is being recorded.

And with that I will now turn it over to Jim.

Well thanks, Dan, and good morning everyone.

This morning we reported solid second-quarter results led by wholly-owned domestic resorts' adjusted property EBITDA growth of 4% and record EBITDA for both CityCenter and Macau.

These results were achieved despite the economic headwinds all companies are facing in these volatile times.

Our operating teams remained quite focused on maximizing our revenue and keeping costs in check to drive cash flows throughout our portfolio of properties.

And at the same time we continued to reinvest in our properties for the future and constantly introduce new and exciting offerings for the guests.

During the second quarter we observed a pocket of softness in the US consumer beginning in mid-May.

This was reflected in spend, particularly in domestic table games, entertainment and in retail.

We also experienced slower than anticipated in the year/for the year convention bookings during that brief period.

And based on these current trends we expect RevPAR in the third quarter will be slightly down.

But despite these headwinds we were able to grow our EBITDA, our RevPAR and our market share during the second quarter.

The softness we experienced during the second quarter for convention bookings in the year/for the year has not impacted long-term bookings.

In fact, looking out into 2013 we're encouraged to see convention bookings, the pace being up year-over-year, and although it is still early 2014 pace is even stronger.

We have also, fortunately, recently seen a pickup in US consumer trends at our wholly-owned properties.

We remain focused on driving market share and profitability in a variety of non-capital-intensive opportunities, for example, M life.

Our success here overall is evident in the fact that we have grown our market share to date in table games and in slots, and we continue to outperform the market in terms of ADR and occupancy.

We also grew our EBITDA at our regional properties year-over-year despite an increasingly competitive environment there and some tough trends in the US regional gaming markets.

And we believe this is due to our M life customer loyalty program as being working.

We have been actively cross-marketing our Las Vegas resorts to our regional customers and this program has done very well with approximately 20,000 room nights booked through this campaign since its inception in April.

And our marketing alliances are successful in building loyalty.

Ameristar has been a great partner so far and we look forward to continuing to grow our network.

Yesterday we announced a partnership with the Morgans Hotel Group.

Through this partnership Morgans will transform what is now the hotel at Mandalay Bay into the Delano Las Vegas.

We will begin remodeling the rooms of the hotel in mid-2013.

And through the The Light Group, a subsidiary of Morgans, we will be introducing three new restaurants and a cutting-edge new nightclub, injecting some fresh energy into Mandalay Bay.

We continue to be very focused on customer acquisition and expanding our reach into social media.

And we have partnered with Play Studios to create and launch myVEGAS.

MyVEGAS is a social gaming app that re-creates the Las Vegas Strip experience and exclusively features our brands.

It represents our collective thinking about how to leverage our brands and social channels to further engage our customers.

It is a unique and fresh take on social gambling and it is a very cost effective vehicle to acquire customers.

And, of course, we're looking to expand our brands and operating expertise into some key strategic regions.

As I'm sure you have seen in the headlines, we are actively pursuing growth opportunities in some gateway cities, including Toronto, a region such as Western Mass., Maryland, and of course, Cotai through MGM China.

We believe we are well-positioned in these markets and believe that they are not only great opportunities on a standalone basis, but also offer an opportunity to expand our network into Las Vegas through M life.

We are weathering this economic environment well.

We're proud of our position here in Las Vegas and how we are doing, and in the hospitality industry in general, and we see many opportunities to grow our Company.

And with that I would like to turn it back over to Dan to talk about our operating results and financial position.

Thank you, Jim.

As Jim mentioned previously, our wholly-owned domestic resorts' adjusted property EBITDA grew by 4% in the second quarter despite the fact that our hold was down year-over-year.

Our hold percentage during the second quarter was 17.7% compared to 18.2% in the prior year.

Also you will recall that Tunica was closed due to flooding last year and reported a loss in the prior-year quarter of approximately $2 million, and this year reported EBITDA of approximately $11 million.

We grew our wholly-owned domestic hotel revenues by approximately 3% year-over-year despite the MGM Grand having approximately 67,000 rooms out of service for its ongoing room remodel program in the quarter.

Pretty impactful to the Grand, and a little bit more, I would say, of a disruption to the Grand than we had originally anticipated there.

Moving over to our balance sheet.

We currently have $855 million in available capacity under our revolver and over $700 million in excess cash, totaling just over $1.5 billion in liquidity, excluding MGM China.

We believe we will soon have the opportunity to refinance some of our secured debt at progressively lower rates, which will also enhance our free cash flow going forward.

Just last week we launched in the marketplace a refinancing in Macau.

The proposed $1.5 billion five-year credit facility will be a combination of term loan and revolver.

We have received strong initial support from our lenders and look forward to showing you all of the details of that transaction upon its completion.

As you are aware, we continue to be debt-free in Macau on a net basis, so this financing will provide MGM China the financial flexibility to carry out its development plans in Cotai.

Our second-quarter capital expenditures were $102 million -- 1, 0, 2 -- including $18 million at MGM China.

We continue to expect our CapEx for the full year to be approximately $350 million.

Our MGM Grand room remodel continues to progress with approximately 3,300 rooms completed.

The project is on schedule for a September completion date.

In the fall we will begin the remodel of the Bellagio Spa Tower rooms, which will cost us approximately $40 million, and is included in our full-year capital budget.

The room remodel will begin here in August and be completed right before the holidays later on this year.

Just to give you some guidance, in terms of the third quarter, our stock compensation expense is estimated to be approximately $9 million to $10 million.

Depreciation expense in the quarter is estimated to be approximately $230 million to $235 million.

Our interest expense in the second quarter was $277 million, including approximately $6 million from MGM China and $17 million in amortization expense.

We estimate that our gross interest expense for the third quarter will be roughly in-line with the second quarter.

With that I would like to turn it over to Bobby Baldwin to talk about CityCenter.

Thank you, Dan, and good morning everyone or good afternoon.

We are excited to report that ARIA, Vdara and Crystals each reported record EBITDA in the quarter, as well as overall CityCenter resort operations, achieving record EBITDA of $71 million in the second quarter of this year.

ARIA's second-quarter record EBITDA of $56 million was a 5.4% increase from the second quarter last year.

The year-over-year EBITDA growth is impressive given ARIA held 24% in the current year's quarter compared to 29.2% in the prior year in table games.

ARIA's growth, despite having held at a lower year-over-year rate, is indicative of the growing core customers at ARIA.

ARIA achieved a significant milestone in the quarter with occupancy of 92.7%, the highest level to date, and the first-time occupancy exceeded 90% for an entire quarter.

June occupancy in particular was the highest since opening and marked the fourth consecutive month above 90%.

ARIA also realized its highest quarterly RevPAR to date of $187.

It is noteworthy that the growth in the hotel is occurring in the more profitable cash businesses as we continue to perfect the market mix at ARIA.

In the casino we are pleased to report that second-quarter table game drop remained strong.

Slot revenue also increased significantly by 12% compared to the second quarter last year.

And poker revenues were a record level for the quarter.

Tickets have gone on sale for Zarkana, which is set to open on November 1; this is our new show.

Early ticket sales and interest in the show have been extremely encouraging and indicate that this will be a valuable addition to ARIA Resort.

In addition to Zarkana there are several other important changes occurring throughout ARIA.

On August 1, Tetsu, a teppanyaki grill, opened adjacent to BARMASA.

And next month Javier's, a high-end Mexican restaurant located off the casino floor will commence operations.

We are excited about these two new venues and feel that they will better align our offerings with the expectations of our guests and further enhance the experience at ARIA.

We have also broken ground on our Las Vegas Boulevard marquee sign for ARIA.

This marquee will feature the largest digital stream on the Strip and increase our visibility and drive foot traffic to all of CityCenter.

Vdara also reported EBITDA of $7 million, up 22.6% from last year.

Vdara continues to show increases year-over-year with revenues up almost 17% and occupied rooms up 16.7%.

Crystals' second-quarter 2012 EBITDA, the highest ever recorded, was $8.3 million versus $5.7 million last year.

The increase is a result of higher rent revenue for percentage rent tenants and rent for new store openings.

Operating expenses also decreased slightly.

One new tenant opened at Crystals, Eres, a member of the Chanel brand featuring swimwear and lingerie opened April 18.

Pinkberry, a frozen yogurt concept, will open August 2012 on the Strip in front of the Mandarin Oriental.

As of June 30 Crystals was 87% leased, and we are working diligently to lease out the remaining spaces.

Now that concludes my report.

I will turn it over to you, Grant Bowie.

Thanks, Bobby.

MGM China had a solid second-quarter, and net revenues were $709 million.

This was up 6% year-on-year.

Adjusted property EBITDA reached $187 million, which is net of $12 million of branding fees.

Before the branding fees adjusted property EBITDA was $199 million, an increase of 14% year-over-year and a record high for the property.

The EBITDA margin before branding fees improved to 28.3% from 26.1% last year, due mainly to higher hold percentage on our VIP business, but also from continued improvement of our main floor contribution and the ongoing impact of our efficiency initiatives.

Across our key revenue segments we are seeing continued strong growth in the main floor table games, slots and our in-house VIP, while in the junket segment, as most know, we are seeing some slowing in its growth.

Overall win for the VIP segment was down 2% year-over-year, despite our new in-house VIP space improving at a steady pace throughout the quarter.

In fact, we had our best in-house VIP quarter ever during this period with rolling chip increasing 17% year-on-year.

On the main floor table win was 17% year-over-year, an increase of 220 basis point improvement in our margins due to our table yield, key performance indicator-based efficiency decisions and table spread efforts.

While the competition in this segment is heating up, particularly in Cotai, we are looking to enhance our product offerings by introducing some new games to our players in the near future.

Our slot win increased 48% year-on-year.

We credit this with our consistent and determined execution of our strategy, which has allowed us to attract and retain top tier customers.

These customers continue to respond strongly to our slot product and service offerings, particularly in the high limit gaming areas.

The key elements of our business strategies are working.

For example, we mentioned in our last call that we are working on driving visitation numbers by creating unique experiences for our guests.

We opened up our butterfly exhibition in April.

This exhibition has consistently attracted around 50,000 visitors a month.

On an incremental basis the exhibition increased our property visitation by 8%.

In the month of June in particular our property visitation increased 9% year-over-year, while in fact the Macau visitation actually declined by 3.4%.

Incremental traffic lifted our cash F&B sales during the quarter by 5% year-over-year and certainly had a positive spillover effect on our mass gaming.

To fully capitalize on the retail opportunities presented by the traffic increases we are contemplating expanding our retail presence at the property in the future.

On the gaming front we are working to complete our level two expansion.

This project will deliver a high-quality product to house over 40 VIP gaming tables.

The project is expected to be completed in early fourth quarter.

It is our goal to increase revenue and junket productivity by introducing new junkets and re-examining existing junket table allocation.

On the main floor we will introduce some new products to offer to our customers, and at the same time we will be focused on capital improvements next year to refresh our mass gaming experience.

On our Cotai project we have made a lot of progress on getting our construction team in place as well as just continuing to refine and enhance our designs.

We continue to make progress with respect to our land concession process.

Our dialogue with the Macau government has been positive and proceeding at an encouraging pace.

While that process continues we are making every effort to hit the ground running once the land process is complete.

We are preparing our general building plan for submission shortly.

And we have submitted an application for our land prep work and working to have our general contractor on board in the fourth quarter.

Our Cotai project, as previously advised, will have approximately 500 tables, 2,500 slots, 1,600 rooms, and a budget of approximately $2.5 billion.

And this would be spent over a timeframe of approximately 36 months.

At the end of the second quarter MGM China had approximately cash of $660 million, debt of $553 million, and an adjusted leverage ratio of less than 1, or 0.84 to be precise, based on trailing 12-month EBITDA.

With that I will turn it back to Jim for his closing remarks.

Thank you.

Thanks, Grant.

Well, as we said, the macroeconomic environment has been tough, but we're very proud of our team efforts here in operating very well in these challenges.

We had a solid second-quarter, and we believe 2012 will also be a solid year.

We have a strong event calendar coming up for the balance of 2012, a lot of good concerts over at the MGM and Mandalay event center.

And looking ahead into 2013, all of our room product at MGM Grand and Bellagio will be fully refreshed, and we know that that leads to higher ADR and better customer mix.

We are going to have new entertainment and dining options throughout the portfolio, including a massive new food and beverage and entertainment venue, [Hockason] over at MGM Grand, new Cirque du Soleil shows at ARIA and at Mandalay Bay.

And we are welcoming back Blue Man Group to Monte Carlo.

We remain positive about the future of Las Vegas as visitation continues to grow.

And we expect the new international terminal at McCarran, which just opened in late June, will help drive future growth.

And that builds on the momentum we are seeing from our European visitors.

And the good news is there is no new supply coming to Las Vegas anytime soon.

Macau remains an extremely exciting as a marketplace, and we expect the infrastructure additions over the coming years will continue to drive visitation and visitors to MGM Macau and our Cotai resort to come.

I believe MGM is in the strongest financial position than at any point over the past three years, and that our operating trends are improving.

We continue to drive profitability, both by managing our costs and FTEs, and also by growing our revenues through M life, regional and global expansion opportunities, and expanding our brand and customer reach via social media.

And with that, operator, I would like to move over to the Q&A section of our call.

(Operator Instructions).

Felicia Hendrix, Barclays Capital.

Jim, I just wanted to touch on the pocket of softness that you talked about.

Obviously, not a big surprise for everybody.

But just as we look towards the second half of the year, it sounds like we should all assume that persists.

Is that how you think we should look at that? .

Well, maybe I will take it and then we can turnover.

We have already seen an improvement in customer trends here in the third quarter, so we did see a pocket.

I think it was about a five-week period time, would you say?

Yes, that is correct.

We saw starting in mid-May and ended late in June, where we saw pace slow down, the market reacted.

And since that point in time we have seen -- on a forward-booking trend standpoint we have seen the pace pick back up, and we're starting to get that pricing power later on in the year.

So it has picked back up and that is why we look at it as a little bit of a blip on the radar screen right now.

But it did affect our bookings for the third quarter.

Correct.

And which is reflected in what we talked about it being RevPAR down slightly in the third quarter.

The in the year/for the year has been affected by that booking weakness that we saw in May and June.

We think also people are hanging out before the election and taking a breather on conventions a little bit before the national election.

But, as I said earlier, that has not had any impact on our longer-term bookings.

Okay.

Thank you for that answer, because it feeds into a follow-up there.

So if we think about maybe your RevPAR outlook for the second half, based on what you said prior, I was thinking maybe low-single-digits, but maybe that view is different based on what you said.

And then also I was wondering how the current in the year/for the year trend foreshadow your future convention bookings?

All right, let me take a little bit, and then anyone, Corey or Dan, jump in.

We gave RevPAR guidance as we typically do in the second quarter, and we beat that in the second quarter, the one we just reported.

Third-quarter being down slightly I am sure sounds a lot better than a lot of the room rate surveys.

The room rate surveys that we see from you and your brethren and are down really double-digits.

And the reason why we are not down that much is we have seen a good pickup in the retail business -- leisure business in particular.

So that is why RevPAR is probably a more moderate decline than you would have guessed.

Going into the fourth quarter we just don't have a view yet on what the fourth-quarter RevPAR is going to be, except for the fact that as I said earlier consumer trends are starting to pick up.

The convention business in the third quarter of last year in terms of mix, I think was an all-time record in terms of mix.

So we are going to be down in the convention business in the third quarter in terms of the mix relative to our total room count.

But, again, that is against an all-time record last year.

And as I said, our pace is up for 2013.

Anyone want to add anything to that or -- okay.

Okay, I think I got it.

Thank you.

Joe Greff, JPMorgan.

When you look at trends on the Strip in May, June and July is there a big difference between the consumer at the high-end versus the consumer at the core properties in terms of spend?

You want to take that, Corey?

Yes, I think at the high-end at our Bellagio and our higher-end properties we have seen spend actually increase pretty decently mid-single-digits.

And at the core properties is probably where we have seen a little bit of the reduction in spend from the core customer.

And just adding to that, Corey, RevPAR in the luxury properties was up more in the second quarter than at the non-luxury properties.

And what we -- that is RevPAR, but if you look at total revenue per occupied room, again doing better on the luxury side.

If you adjust for the hold that we had -- I mean, Mirage held single-digits in the quarter, so that didn't help much.

But if you take out that -- strip out some of the hold impact the revenue per occupied room looks pretty good.

Our entertainment, retail, on the luxury side it was up year-over-year.

Great.

And he would say that is consistent with what you have seen in July relative to what you have seen in the second quarter?

That is correct.

Okay.

And then you touched on this a little bit, the room renovation disruption at the MGM Grand.

Is there any way to quantify that on an EBITDA basis?

I am presuming there is also some low hold there as well.

If you can maybe help us understand how that property did between hold and the room renovation disruption on the EBITDA side that would be helpful.

And that is all for me.

Thanks.

Yes, Joey, the Grand was probably the largest culprit in terms of the hold impact for the quarter.

I think combined with the room disruption you're probably looking at low- to mid-teens kind of EBITDA impact overall between those two factors.

So you are in that $13 million, $15 million range between hold impact and disruption from the room remodel program.

And I have to caveat by saying I hate using room remodels as an excuse.

I hated it when I was an analyst; I hate it now.

But a couple of things about the Grand -- to defend the Grand, because it actually -- they did a great job over there, a couple of things we pulled out.

The second quarter was the second-highest RevPOR in the history of the property.

The property opened back in 1993.

It had the second-highest RevPAR since 2005.

The food and beverage revenue was in the top 10 for a quarter in the history of the property; again, open for quite a while.

(technical difficulty) had its best quarter ever.

The third-highest second-quarter in terms of entertainment.

And, I mean, there are a lot.

I don't know how many you want of these.

Convention room nights were up 34% in the quarter.

Slot handle was up.

National table game drop was up.

So there is no doubt it hurts, but it is not an excuse, it is just an explanation, I guess, for what is going on there.

And it is done next month.

And we know based on the rooms that have been brought back onto service we are getting nice increases in ADR, and the mix is starting to pick up.

And we will have all of that for the fourth quarter and certainly for all of next year.

And the convention groups love the product, so future bookings look really good on the convention side of the Grand.

Harry Curtis, Nomura.

Corey, just following up on that last comment of yours, when we look into the 2013 bookings it sounds -- can you give us a little bit more meat on that bone in terms of the convention bookings relative to the amount that you really want on the books at MGM and Mandalay Bay and ARIA and Bellagio, the ones that really drive the train?

Thanks.

Yes, the numbers actually look pretty good.

We are seeing double-digit increases in the rooms on the books there.

And everything is positive from that perspective both at Bellagio and MGM.

Mandalay Bay is always the tough one, because there are so many rooms always on the books, but they're getting up there and their pace should be where we would like to see them.

We're pretty comfortable where we are with rooms on the books at this time of year for what we are expecting for next year, which we expect growth in the convention market and convention mix for the Company.

So at this point in the year are you about 50%, 60%, 70% of where you want to be for next year?

We are north of that.

Okay.

So is CityCenter or ARIA.

We are in a really good position.

Now it is just filling holes in tough periods, but we're pretty comfortable where we are right now on the convention side for next year.

Okay.

Even more so for 2014.

And then another operating question for Jim.

In 2009, 2010 there were two years where you chopped several hundred million dollars of expenses out of your P&L.

How much fat is left to cut?

How much margin improvement can we see on the expense side over the next 12 months?

Well, I lost about eight pounds in the past year.

I found it.

And Bill Hornbuckle found it, he said.

(laughter) You know, we are prunning.

We always prune.

It is not going to be a significant amount of costs going forward, but we have a goal of trying to pull out about $50 million a year out of our wholly-owned and corporate departments just by technologies, efficiencies and we feel good about that.

The major effort was back in 2008, 2009, and fortunately those days are well behind us right now.

So I think you saw that we are getting decent flow through at some of our properties, especially if you figure out the hold on it.

We're going to -- or FTEs are flat.

We are managing our expense in other ways where we can.

And we are very, very focused on driving free cash.

So as we drive some revenue we are committed to bringing as much of that to the bottom line as possible.

And by building up some market share, as we are, and improving our customer mix, which does lead to higher margins, we think there's a good chance for that.

Okay, very good.

Thank you.

Mark Strawn, Morgan Stanley.

Just one quick question on the group side.

You gave some good detail there on the room counts, but can you give some color on rates and how they are trending going forward, and if you have seen any pushback recently on any rate increases that perhaps were built into forward contracts?

Forward contracts, we are getting price increases on all of them.

We see rates going up.

Our biggest challenge is having the leisure and FIT rates keep up with the convention rate, which is not a bad challenge to have.

But everything is looking positive on the rate increases.

Okay, is there any way you could give a range on that at all?

Is it more low- to single-mid-singles for the group side or is --?

It is hard to say because of comparing apples-to-apples and what is based at what time.

I would suspect we're going to see mid-single-digit increases.

Great, thank you very much.

(Operator Instructions).

Cameron McKnight, Wells Fargo.

Jim, a question about -- for Corey as well.

It looks like visitation growth for the strip was basically flat in April and May.

How are you guys thinking about that as we look forward?

You are right.

We don't have the June numbers out yet to my knowledge, right.

What is that?

Terminal 3 opened (multiple speakers).

So Sarah is mentioning what will be a little shot of adrenaline for Las Vegas with Terminal 3 opening up in June.

That certainly helps us, because we cater to a international customer.

Particularly our European business does really well in the summer, and continues to do well this summer.

So I think that will have a positive impact on visitation.

We don't have the numbers out yet, but that is our guess.

We do believe, which is remarkable given where we were a few years ago, but we believe we are going to have an all-time record in terms of visitors to Las Vegas this year in 2012, north of 40 million people.

And we are capturing more than our fair share of those visitors.

And so I guess that you will see a pickup because of Terminal 3, and we have a lot of events coming up into the fourth quarter citywide, not just for our Company.

So we think the trends will be moderately up year-over-year for the balance of the year on visitors.

Okay, great.

Thanks.

And then a follow-up for Grant.

Grant, when you speak to your customers in China what are you hearing from them at the moment?

Well, I think we are in an interesting time at this part of the world with obviously the transition about to take place.

People actually are still -- certainly have money.

There is no question about it.

But there is no question that people are just being a little more careful, which we think is just a short-term phenomenon.

Great, thanks very much.

Robin Farley, UBS.

I wonder if you could give a little bit of color on the dividend tax agreement with Macau in the quarter, and just what it now would allow you to do with dividends going forward in terms of tax-wise that didn't before?

And then I have another question on the quarter.

That agreement is pretty consistent with what the other operators in the market.

It is basically an annual fee in lieu of the dividend tax.

That agreement covers us through the year ended 2011, and any dividends payable through the year ended 2011.

And we have submitted an extension request to that agreement that is pending with the government currently.

So it is roughly about -- Grant, correct me if I'm wrong, but about a $3 million, $4 million payment in the quarter that covered all the previous years.

And the extension right now is pending approval with the Macau authority.

Okay, great.

And then I think in your introductory comments you mentioned that during the second quarter, I think you said there were more rooms out of service than maybe you expected just with the renovations at the Grand.

I wonder if you can quantify, just given what percent of rooms were out of service for the quarter, how much that helps the reported RevPAR, the year-over-year percent change, if you could give a rough quantification?

So the rooms out of order were what we were expecting.

I don't think it has much of an impact at all -- when you're running mid-90s occupied it doesn't change a lot on your denominator.

And a traditional hotel company you take 10% out it will have an impact, but for our high occupancies it is hard to say.

We have lost a lot of money on the weekends and when we are selling out.

So we have looked at it many different times, but I don't think it has had an impact at all on it.

Okay, is it -- can you quantify what percent of rooms out of service in the quarter?

It is only one -- it is a small number, because it is --.

You mean relative to our whole portfolio or relative to MGM Grand?

Oh, no, just -- like in other words, if it was 1% of your whole portfolio out of service, just since we are putting that in relationship to the percent change in RevPAR year-over-year.

I know it is going to be a small number, but I'm just wondering how much of that (multiple speakers).

(multiple speakers).

We are taking our higher-end rooms out of service and replacing -- and filling more rooms at our lower-end, which is going to have a negative impact on the Company RevPAR.

Overall, we had about -- in the quarter for Q2 we had about 63,000 rooms out of service, which was a little over 2% of rooms out of service year-over-year.

Okay, great.

Thank you.

I don't know if I could ask one more about your Cotai approval.

I know you have talked about some of the things you're doing in preparation with your team on the ground.

Do you still -- are you still expecting imminently to get the terms of the land agreement from the government?

I don't know if you have a more clear timeframe on that.

After the -- I will turn it over to Grant -- but after our last call we did -- shortly after, I think it was within a week, we passed a very important hurdle.

And it is a multistep.

Grant, how many stages are there, like 16, 17, 18 stages?

I lose track of it.

A lot.

It is like a steeplechase.

But we did have a good milestone after that.

We have had a few since.

But it is moving apace.

And I don't know, Grant, if you want to add anything to it?

I think the key issue is that I think we have pretty well provided the government everything we need.

And I just want to reiterate that the timeframe of actually execution, yes, the land concession is critical, but the next phase, which is getting the building built, is just as time-consuming.

And that is why we have been taking this opportunity to get ourselves ahead of that curve, and we're pretty excited and the team is doing a great job on that.

So I think we always need to keep remembering, because I think we have all become somewhat obsessed about it is only about the land, that is really only the beginning of the process.

And we're trying to parallel some of this work and I think we're doing a pretty good job of that.

Okay, thank you.

Carlo Santarelli, Deutsche Bank.

Could you guys talk a little bit about during that soft period that you experienced in 2Q if there was an aggressive competitive response, maybe from anyone on the strip, or could you quantify how you're seeing the competitive environment going into the back-half of this year?

This is Corey.

During that period there was a competitive environment.

We tried to maintain our practices and what we would do, and so we don't really participate in a lot of that.

I would say now what we are seeing is it has probably lightened up and it is probably back to a normal level.

There are some people out there that are probably a little more competitive than others, but from our perspective we are back to a normal yielding process.

Great.

And when you guys talk about down slightly on the RevPAR metric in the third quarter, should we expect to see most of that on the occupancy side and maybe be able to hold some rates or would you look at that the other way?

Thanks.

It will probably be a combination.

I think when you look at last year's third quarter with the higher mix in convention we ran at pretty high occupancies in the third quarter.

So I think it will be a little bit of a combination of both in the quarter.

Great, thanks guys.

And from our perspective we can make our RevPAR go up by just having our rates higher.

We maximize EBITDA.

And we're going to maximize occupancy at the highest rate we could get, and therefore that is the result we are going to see in the third quarter.

We prefer to have as much cash flow in our buildings as possible.

Understood, thank you.

(Operator Instructions).

Jon Oh, CLSA.

I have two questions.

I will start off with -- if you could give us some trends or any color on the high-end Chinese baccarat segment in Vegas?

Well, it has been consistently up.

I would say the second quarter for the MGM Resorts companies, including ARIA, we had the largest drop.

And we didn't hold as well, but we had the largest drop that we have seen in the history of the Company in the second quarter on the international side.

And just to follow up for -- maybe for Dan.

Could you give us some insights into your receivables exposure in Macau, as in what is the outstanding amount of receivables that you have right now, how much have you provided for?

And also some sense on the aging of the account that will be useful to us.

Thank you.

Well, maybe I will turn that over to Grant, but we feel pretty comfortable with where we're at in terms of our allowances and where the receivables are.

Grant, do you have the details in front of you?

I do.

So as of the June 30 balance, the balance was in Hong Kong dollars this is, because I'm looking at the Hong Kong dollar account, so forgive me.

So it is HKD809 million.

That is about less than $100 million.

And we have reserved about 200 million against that.

We are actually pretty conservative with our reserving strategy, and so I think we are in a net position in pretty good shape.

We're slightly ahead of where we were last year, but really nothing significant.

It is less than 10% ahead of where we were in terms of total receivables outstanding.

Grant, if I could just ask you a little more details on that.

Based on the HKD809 million receivables, could you give us some indication as to how much of that is advanced commissions to junkets versus your direct VIP program?

The advance to the junkets is about -- let me just check that.

It represents about 60% of that -- 70%.

Okay, thank you.

Okay.

And on that basis just when you talk about junkets, we liquidate that amount every month, so that gets cleared every month, so that rolls.

Dennis Forst, KeyBanc.

I wanted to ask Grant a question about the table games in China.

I think your first comments were how there is strength in the mass tables, and your direct roll was up.

Then you talked about level two expansion actually adding more VIP tables, which contradicts where the strength has been and where everybody is going towards the mass.

Can you just flesh that out for me, Grant?

Well, I think it is important that we actually build on the portfolio.

So when I say we are building up level two, that is not at the exclusion of the mass market.

We continue in the main floor to actually upgrade all the time.

What we are doing on level two, and I think we have discussed it for some time, is that we really need to maximize our productivity and our availability to bring in multiple operators into the environment.

And so what we are now starting to see is that we have the larger junket operators.

What we are now wanting to position ourselves for is to be able to add a greater number of high-quality -- what euphemistically might be called a Tier 2 operator, which is slightly smaller.

And so what we're really doing is reorganizing the real estate and making sure we have the right tables in the right configurations in the right places such that we can have the maximum number of independent operators providing us the greatest depth, and as we all know, generating the maximum volume we can to get that -- to get as much of the volatility out as we can.

So the --.

So even though the market -- even though that the growth rates are slowing, and what we still have to do is make sure that in this competitive marketplace we provide the most attractive, the best facilities we can to get more than our share of that pie.

And if you used every table you had available what number would it be?

I think you are at 426 right now.

Is that the most you can use?

We have got 427.

The 426 simply identifies that 426 units have operated at some time during the period.

We still, in terms of yield and managing and spreading the tables, have the capacity to reconfigure.

And that is what I mean about building different space configurations, so making sure that we don't waste any tables that are not performing at their floor average.

And so taking tables out of say a six table configuration, moving it into say combinations of double-table private rooms, single-table private rooms.

So we still got some room to go in terms of getting more value out of the 427 tables that we have.

Okay, terrific.

Thanks a lot.

Shaun Kelley, Bank of America.

I just wanted to go back to the group business in Vegas real quickly.

So I think in the past you have talked about for last year roughly 15% of your business was group and convention mix.

And then I think this year the target was to probably be more like 15.5%.

The question is with some of the more kind of in the quarter/for the quarter softness is that 15.5% still the target for this year or do you think that number is a little lower?

And then what do you think that number is for next year?

I think -- Shaun, this is Dan.

We did just about -- just inside a 15% mix last year.

I think exactly we were at like 14.7%.

And we were hoping to do a little bit better than that this year, around the 15% on level, 1, 5 level.

I think right now based on the in the year/for the year we are pacing around 14% to 15%.

By no means are we giving up.

The team is working hard to continue to build in that in the year/for the year.

So I think right now we are continuing to pace at about a 14% to 15% level.

(multiple speakers).

And we are replacing that with leisure business, so we are able to fill the rooms, but with other channels.

Okay, that is helpful.

And then I guess the second question was just going back to the softness that you saw.

As we dig down there did you see a little bit more on -- you know, just trying to understand -- did you see it a little bit more on the gaming side or on some of the non-gaming spend?

Because I think, Jim, you mentioned that the outside the room spend, the entertainment and some of that stuff was actually still up.

So was it actually that you saw that core mid-Tier customer just gambling a little less?

I am just trying to understand the customer behavior a little bit.

Gambling was a little bit not -- very little impact.

Entertainment was impacted.

Retail was impacted.

At the core properties.

At the core properties.

And really what wasn't impacted were the nightclubs and day clubs which had record revenue numbers.

Okay.

Then my last question would just be for Grant.

Grant, the EBITDA margins in Macau were exceptional this quarter.

And I'm just trying to think through as we -- the hold normalization will be a piece of it, but I am trying to understand -- you guys probably benefited from mass market mix shift, so just your thoughts on the sustainability of that margin going forward as you ramp up the direct -- your direct business and the mass business would be helpful.

I don't think we are going to change our proposition, that we are still seeing mid- to upper-20s.

I think this period was probably a pretty good indicator of the upper quartile.

But I would still say that it is in that mid- to upper-20s, so I think I'm still very comfortable.

The more -- you correctly say, the more we can get the main floor mass market mix working for us certainly the bigger advantage it has for us.

Okay, thank you very much.

And, McKenzie, we are coming on the top of the hour, so we'll take one more question from the group.

Susan Berliner, JPMorgan.

I had two questions.

One was I was wondering if you could talk about the managed and other, because it showed a nice pick up there, and I was wondering how we should think about that going forward?

I think when you look at it there, Sue, on the cash flow side, it obviously benefited from a full quarter of our share of the IPC out of Macau.

And that was offset a little bit by some expenses there.

So most of the increase was a result of the full-quarter of our share of the IPC out of Macau.

Okay, great.

And then just going forward with regards to -- I know you're looking to refinance some expensive debt, use the free cash flow to pay down debt.

How should we think about, I guess, for modeling purposes going forward the Macau dividends as well as what is remaining in the Borgata account?

I think as it relates to the Borgata account, we did -- and do have the ability to use some of those funds for debt repayment and debt service, and we have done that.

I think that accounts -- it is around $160 million-ish today in that trust account, and that will run its course over the agreement we have there.

As far as dividends out of Macau, that will be something the Board will sit down and contemplate from time to time, much like it did earlier this year.

It will obviously factor in not only the performance, where the balance sheet is and the cash position of Macau, but also going forward where we're at in our Cotai development and other growth opportunities.

And I think as you look out and look at the facility we are putting together, the cash flow potential of MGM Macau, I think there will be a variety of opportunities for that Board to consider going forward.

And that will include the opportunity to continue to return cash to shareholders.

So that will be something that Board will consider from time to time, but the opportunity will be there.

Great, thank you.

Thank you, everyone, for joining and we will be around all day for any follow-up questions.

This does conclude today's conference call.

You may now disconnect.