美高梅國際酒店集團 (MGM) 2013 Q2 法說會逐字稿

Good morning and welcome to the MGM Resorts International second-quarter 2013 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; and Grant Bowie, Chief Executive Officer of MGM China Holdings Limited.

Participants are in 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.

Well, thank you, Jennifer, and good morning 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 made available on our Company website.

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

And before turning over to Jim, I would like to read the safe harbor disclosures.

So 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 this presentation is being recorded.

And with that I will turn it over to Jim.

Well, thank you, Dan, and good morning, everyone.

I'm happy to say that today we reported a very solid second quarter.

Our EBITDA was up by 9% led by a broad based recovery here on the Las Vegas Strip where our cash flows were up 15%.

Grant will get into this in a moment, but MGM China we're very proud to say had yet another record quarter, tremendous growth there in that market.

And we've been busy on our strategic plans.

We've set out on these calls many of our goals, and I'm happy to say we're executing on them.

The targeted capital here in Las Vegas is yielding very strong results.

The room upgrades and food and beverage offerings at MGM and Bellagio are obviously yielding higher cash flows, and I think you'll see Mandalay Bay to be the next beneficiary of this.

We recently opened a new nightclub and a day club and debuted the Michael Jackson ONE show that is doing great.

The occupancies are as strong as O, and people love the show.

It's doing extraordinarily well for our food and beverage and gaming as well.

Down the road, as you know, at that compound we're going to have the Delano there which will replace the hotel at Mandalay Bay, which we think will continue to drive higher revenue and cash flows at Mandalay.

Next year we'll see quite a bit of growth, we think, at New York, New York and Monte Carlo, because they will both benefit from the capital we're spending this year to significantly upgrade their food and beverage offerings and retail offerings and their street frontage.

Our M life customer loyalty program is working.

We've seen significant growth in our database, and that has yielded higher bookings in our rooms, and our partnerships are also leading to room growth.

The recent ones with Southwest airlines and Hyatt have been particularly impactful.

On a development front, our second property in Macau is well underway.

A bunch of us were there just last week, and we came away very pleased with the progress.

Excavation is largely completed, and we are well over halfway done with our deep piles, and if anything we're nicely ahead of schedule.

We picked our architect quite awhile ago.

I don't know if we've disclosed that, but I can now.

It's KPF.

KPF is the designer of the Mandarin here in Las Vegas, which we're very proud of, and One Central in Macau.

They've been progressing with our other designers and architects on the exteriors and interiors, and again we're ahead of plan there as well.

I can tell you some of the features of MGM Cotai will include a tremendous atrium.

In fact, that will be about three times the size of the one we have here at Bellagio.

And it's already being programmed with pretty special retail, food and beverage, and we have some good surprises on the entertainment front, as well.

We are also going to be building a mansion in that property.

Many of you know the mansion that we have here in Las Vegas, if you don't know it, it's probably because you weren't invited.

It's within the MGM Grand here.

It's our most popular destination for our Asian customers.

It's really spectacular, and we developed one we think will set the bar even higher in Cotai.

The mansion in the MGM Cotai will be really over the top.

Grant has done a great job, I have to say, on the operating team and working with our development team which is led by Ken Rosevear and Hunter Clayton.

They have quite an operation going on the ground in Macau to rapidly get this beautiful property to its conclusion.

Back here in the US, as you know we submitted a proposal for a destination resort at National Harbor.

That's in Prince George's County, Maryland.

We did in that May.

The location commission is in the midst of its review process, and it is expected to announce a date for public presentations.

We think those presentations will happen in either late September or October.

They've indicated a final decision is still expected by year end.

We're extremely excited about this opportunity and feel like we have the winning proposal.

In Massachusetts, we had a big win with a special election in Springfield to approve the Coast City agreement.

Now the Company is finalizing the details of our RFP response which is due by the end of this year.

We think we can play a major role in the revitalization of that city in western Mass, and we look forward to delivering a very comprehensive proposal to the state.

The state has indicated that that final decision is expected around April of next year.

On the international front, we've been very active in Japan, just to remind people of that.

We've been meeting with a lot of stakeholders there over the last few years, and we are actively pursuing that.

There's a growing consensus there that gaming will be expanded, and we plan to participate in that process.

I think our operating and development expertise as well as our ability to be good partners I think are great advantages for us.

And in Korea you may know the government is considering legislation to permit integrated resorts.

We've been working with other gaming companies and engaged with the market there, and I think also there the view is becoming more favorable, so we'll have to see.

But that is potentially, again, a very large opportunity.

And I just to have say that we're proud of how we're doing, and we're off to a good start for this year.

And I think the best is yet to come.

I'll turn it over to Dan.

Thanks, Jim.

Our strong second-quarter results were led by increased margins at our wholly owned domestic resorts which increased by over 150 basis points year-over-year driven by a 250 basis point increase at our strip properties.

In fact, we were able to maintain our margins on a sequential basis as well on the strip, which is pretty impressive given the whole dynamic on our table games play.

Our regional properties remain best in class and market share leaders, but these markets remain highly competitive and increasingly crowded.

With that in mind, we continue to believe that the growth in Las Vegas will outperform our existing regional markets for the foreseeable future.

We truly have the best revenue yield management team, and, thanks to them, we were able to drive our ADR up over 2% in the quarter and increase our occupancy despite having roughly over 70,000 more room nights available this quarter than last year as the room remodel at the MGM grand was in full force in the second quarter last year and those rooms are fully back on line.

Convention trends for 2013 remain in line with our expectations that we had coming into the year.

Our second-quarter convention mix increased slightly, and our rate grew mid single digits.

We continue to see moderate growth in convention room nights going into the third quarter and based on that, along with some solid retail booking trends we're seeing we expect REVPAR in the third quarter to be up 3%.

From a productivity standpoint, the team is doing an outstanding job.

The second quarter was our highest strip convention room nights booking quarter for future dates.

Importantly, the composition of those future bookings is impressive with over 50% of those convention room nights booked in the second quarter coming from corporate business.

That's pretty important as you all know because that is the most profitable segment in the convention room nights, and 2014 and beyond are getting stronger by the day.

These strong sale trends are a solid indicator for our business in 2014 and going forward, and our '14 pace remains up double digits.

Recall in March of 2014 we have Con/Agg's big city wide convention back in Las Vegas, some 150,000 attendees usually show up for that show.

They come in every three years.

They're a great event for the entire town.

So that's one of the key drivers to the pace next year.

But looking beyond that, we're seeing significant pace increases in each of the second, third, and fourth quarter next year.

In fact, we're up at least high single digits each quarter next year when you're looking at the non- Con/Agg piece of the business.

So we're pretty excited about the pace of 2014, and the traction that we continue to make in an important segment of our room booking pace on the convention and meeting side.

Looking at the balance sheet and helping with some of your modeling, we currently have over a $1 billion of available liquidity on our corporate revolver and some excess cash as well.

Excluding MGM China, our current debt is approximately $12.6 billion.

At the end of the second quarter MGM China had cash of approximately $840 million and debt of $553 million.

And, as you saw in the release this morning, MGM China announced its first semi annual dividend as part of its regular dividend policy.

They declared a dividend of approximately $113 million, of which $57 million will be distributed to MGM Resorts and approximately $55 million to all other shareholders on or about September 2.

As we stated before, the MGM China board will also continue to consider special dividends from time to time as well as the annual dividend policy.

In total, MGM China has distributed $312 million in dividends to MGM Resorts this year alone.

CityCenter currently has approximately $1.85 billion in outstanding senior notes and excess cash of approximately $365 million, and they also have about $72 million remaining in the condo proceeds account.

Our second-quarter CapEx at our wholly owned resorts was approximately $65 million and our full-year CapEx for MGM Resorts wholly owned properties remains unchanged at roughly $350 million.

Our corporate expense in the quarter came in slightly above our guidance, primarily due to our ongoing development initiatives in Maryland and Massachusetts.

We expect corporate expense to be in a range of $45 million to $50 million per quarter for the remainder of the year.

Our stock compensation is estimated to be approximately $6 million to $7 million in the third quarter and depreciation expense is estimated to be consistent with the second quarter.

Following the repricing of our term loan this past May, we also had a step-down in pricing on our revolver and our term loan A along with a step-down in pricing at MGM China's credit facility.

We estimate that our gross interest expense for the third quarter will be approximately $210 million, including about $5 million from MGM China and about $9 million in non-cash amortization.

And with that I'll turn it over to Bobby to talk about CityCenter.

Thank you, Dan, and good morning, everyone.

Aria's EBITDA was $50 million, a decrease of $6 million or 11% year-over-year as it was negatively impact by approximately $10 million in hold when compared to the 24-month average hold percentage.

Our hotel business continues to improve due to greater brand awareness and increased convention room nights.

This was our best REVPAR quarter ever at $194.

Our best in class convention facility continues to drive bookings as we had our highest future convention bookings quarter since opening.

These future bookings are solidifying our convention base over the next several years.

Our food and beverage profit is growing driven by strength in catering for conventions and the increasing popularity of our fine dining restaurants.

We recently welcomed Five50, a pizza restaurant, by James Beard award winning chef Shawn McClain which opened July 4. Five50 is a great casual addition to the restaurant offerings at Aria, and the public's initial reaction has been extremely positive.

If you have been on the Las Vegas strip lately, you will notice our 250 foot LED marquee sign on Las Vegas Boulevard, which made its debut in mid-April and is the largest digital screen on the Las Vegas Strip.

The marquee increases our brand visibility, promotes Aria's restaurant collection, our M life rewards programs, Crystal's retail outlets and features customized welcome messages for our large convention groups.

This marquee is a game changing symbol for marketing on the strip and is captivating pedestrians from both north and south ends of Las Vegas Boulevard.

I would like to also highlight that Crystal's had its best quarter ever, up 21% year-over-year.

And we continue to add tenants as our second Starbucks is now open, and we recently executed two additional leases.

As the real estate market in Las Vegas continues to improve, and we are seeing increased sales for our Las Vegas CityCenter condos.

During the quarter we sold 45 units at Mandarin Oriental and 7 units at Veer for a total of $54 million in proceeds.

In July we sold another 21 units at Mandarin Oriental.

And that concludes my report.

I will turn it over to you, Grant.

Thanks, Bobby.

For the second quarter, MGM China net revenues increased 18% to $835 million, and generated an all-time record EBITDA of $205 million, and that was up 10% year-over-year.

This number includes a branding fee of $15 million.

Our strong results were driven by record performance in both the VIP and our main floor gaming table segment where our growth outpaced the market.

VIP turnover reached another property record with approximately 34% growth year-over-year, and we continue to see success from the addition of our two second floor VIP area and the introduction of a new operator in mid April.

Our overall VIP win for the quarter was approximately 2.9%, and that was versus 3.3% for the prior year.

We also had a record main floor table -- table games quarter.

We were able to drive main floor table game volume up 11% and revenue up 29% year-over-year with our continued focus on the table yield management and strategically targeting the premium segment.

Slot handle increased by 11% during the quarter, and we remain the market leader for a single property in terms of slots gross gaming revenue.

During the second quarter our total CapEx was $80 million.

MGM Cotai expenditures were approximately $78 million during the second quarter.

We expect our full-year Cotai spend to be approximately $290 million.

Our overall budget remains unchanged at $2.6 billion for MGM Cotai, excluding land and capitalized interest.

And, based on our progress to date, we are now anticipating an early 2016 opening.

At MGM Macau, we expect to spend approximately $56 million in 2013.

We believe continuous upgrade of our product on offer is one of the keys to remain competitive in this market.

And, during the third quarter, both our high limit slot room and our Las Vegas table games room will be temporarily off-line for refurbishment.

And with that I would like to turn back to Jim for his closing remarks.

Thank you Grant.

Thanks for being up so late.

Well, before we get to the questions, just a couple of final points.

Clearly, we see here in Las Vegas a continuation of the recovery.

Housing in general in the US obviously is improving.

So is the case here in Las Vegas.

That's important to our business.

We've talked about that before, but we see a great correlation between housing and our core business.

Airline carriers are starting to add more seats to Las Vegas.

That's really important to the entire market, important to us.

Flight capacities are trending higher, and that means domestic and international carriers are adding planes.

We've been working with the LVCBA to increase international visitation in particular, and, as you know, the extreme growth in South America has benefited many US cities, beginning to benefit Las Vegas.

Copa Airlines is bringing in more flights from Brazil, as a matter of fact through Panama City to Las Vegas.

That's a big deal for us.

Las Vegas recovery I think will be felt more by us.

Our market share is growing in this market as we strategically add the capital to upgrade the rooms, add the F&B, add the entertainment.

By the way, on the entertainment front next month we're going to have one of the biggest fights in the history of Las Vegas.

The Mayweather-Canelo Alvarez fight is going to set all kinds of records in terms of at the gate and closed circuit.

And we're hosting many parties at our venues closed circuit.

So up and down the strip quite a bit of activity in September.

September ends with the I Heart Music Festival, another big event for the city and for ourselves, of course at The MGM Grand.

And for the first time we're also going to have an outdoor concert in the festival grounds we just literally finished across from Luxor.

I mention that because the way to drive more productivity in these buildings we believe is to continue to create excitement, relatively low cost ways.

Festival grounds don't cost a lot of money to build, but they generate a lot of traffic.

And, of course, a lot of traffic in the neighborhood, and we own most of the neighborhood.

I think that you will find as we move through the balance of this year and into next year continued targeted capital which we believe will continue to build our share of this market.

Revenues obviously growing for us, and we've been watching costs, as Dan mentioned, very aggressively.

Margin expansion is the result, and our free cash flow is growing, and we reduced debt by almost $0.5 billion.

Of course our objective is clear to drive cash flows, improve our balance sheet.

We think that's the surest way to work for our owners.

And so with that, we can turn it over to the operator, please, for our questions.

(Operator Instructions)

Joe Greff, JP Morgan.

Dan and Jim, the group trends that you talked about for 2014 are encouraging, particularly in relation to what all of us are hearing from some of the traditional hotel companies, look no further than [Ryman] this morning.

Why do you think the strip is experiencing positive pace where maybe the traditional hotel industry is not?

And maybe you can kind of talk about it in the context of in the year, for the year, how important or critical that is for you to get to these mix levels as a percentage of room nights.

I think I'll start.

I think the key is the Las Vegas market from a composition standpoint is much different.

Coming into any given year we have roughly 80% to 90% of our contracted room nights on the books and solid going into a given year.

So we don't rely on as much in the year for the year.

That really helps us fill up the rest of that, call it 15% to 20% level of the room nights, and allows us to kind of offset attrition throughout the year.

So I think when you look at this market vis-a-vis some of the other hotel markets, they rely a lot more on in the year for the year, and in this market, it is less reliant on it.

I think that's probably the biggest factor.

Dan, I would just add that the trade show component of Las Vegas has held up really well.

In fact, it has grown.

What Las Vegas got hurt by was the corporate business and the incentive business.

That's still down dramatically from where it was in '07.

And, of course, that business is the highest margin business in the group sales side.

And what's most encouraging about the number that Dan cited in terms of our bookings is that 51% of what we booked lately is in the corporate and incentive side.

Not only are the bookings improving, but the weakest part of the business, which is the highest margin part, we're starting to see significant growth.

And I was thinking of a couple of groups, I can't mention the names, but they -- big conventions in the incentive side and corporate side that left us in '07, started doing virtual conferences, and now they've just booked multi-year deals with a lot of revenue.

So I think it's not only the in the year, for the year, which is not as important to us, as Dan mentioned, but the composition of the rooms that we're booking now give us a lot more pricing flexibility going forward.

Great.

Next question, my final question, is there was a recent media report on efforts to market the sale of Crystal's.

I was hoping you could talk about that broadly.

I'll tackle that one.

I saw that in The Wall Street Journal.

We've gotten over the year, I don't know, three or four different inquiries about selling Crystal's as retail became hot again and cap rates had fallen.

And so we felt we needed to respond to that.

And we have been doing some exploratory work on that.

And all I could say is that the interest is high, but also the value of Crystal's is high to us.

I can't say what's going to happen there specifically, but for the fact that cap rates are still pretty low, which means multiples for assets like that are dramatically higher than what we're getting credit for in the marketplace.

We recognize that big valuation discrepancy, and we're taking a look at that, but I can't tell you how that's going to go.

Good stuff.

Thanks, guys.

Harry Curtis, Nomura Securities.

Had two questions.

The first is your margin continued to surprise on the up side.

Can you talk about what you're doing on the cost side both on the casino and non-casino side that is making a difference and its sustainability as we look into 2014?

Maybe I'll do two and then turn it over to you, Dan or Corey.

I think we mentioned a few calls ago we moved Anton Nikodemus over from Monte Carlo to head up casino marketing.

He's put together quite a program -- a great program with all our marketing folks.

We have found tremendous opportunities to be less wasteful in our -- some of our promotional activity.

And so on the casino side, it's been really a function of being smarter on our promotional activity, being more targeted to our best customers, being more thoughtful in how we are marketing broadly, and M life is certainly helping quite a bit on that front.

And I think on the non-gaming side, I would have to point to room remodels.

They don't sound sexy, but they sure generate a lot of cash flow, incremental.

When you upgrade rooms as we have done, here at the Bellagio and MGM and also some of these new food and beverage offerings which are very high ROI products, I think you are seeing a better mix of people in the rooms which generates more gaming and non-gaming revenue which improves margins.

On the cost side our FTEs are just flat year-over-year, continue to manage all of our costs.

And Rick Arpin and his team have done a great job on our financial shared services department and other ways of being more clever internally on how we manage this business more efficiently.

Anything else, Dan?

No.

Okay.

Then moving on, thanks, moving on to my second question, it's related to your reliance on the third-party travel providers, the vendors.

Have you begun to see any improved ability to actually control more of your room blocks?

And, if so, to what degree is it moving the needle?

And when you replace a customer that comes in through a third-party vendor with one of your own that has been sourced, what is the differential in the value per customer per room?

Harry, it's Corey.

With regards to the third party operators we have been able to move some of it.

We're focused on it with not only our M life, but our MyVegas game is actually been able to convert some people into the FIT channels.

That channel has grown and will continue to grow, because a lot of the international customers are booking through Expedia and Booking.com.

So our goal is how we maximize that channel and how we put it into our mix and yield our rooms up the best we can.

We will constantly have strategies to try to shift that channel as much as we can, but right now it's an excellent pace.

It's a good block for us to be able to yield our rates upwards.

From a comparison of customers and the value of those customers, the lines have blurred from an FIT and leisure customer over the years.

I would say the FIT customer does have a little bit more value, but we're seeing that value come to a little bit closer to the leisure customer.

Okay.

Do you get the sense as a follow-up, do you get the sense that the international customers that you're booking, do they come with bigger wallets?

Are they spending more on food and beverage and entertainment and in the casino?

Yes, and not only that.

The survey information from the LVCVA will back that up also.

They'll come up a few extra nights, probably a little bit less in the casino and more in the entertainment and food and beverage venues that they are spending.

But they are probably worth about 15% to 20% more than the domestic leisure customer.

Okay, that answers the question, very good.

Thank you very much.

David Bain, Sterne Agee.

Just following up on the Crystal's discussion, obviously a sale could lead to a potential dividend to MGM, but could you also look to use those proceeds to potentially consolidate CityCenter?

And then could we get an update on CityCenter refi just given the strong performance in Q2 in the credit markets?

Well, I don't know how much we'll answer on that one, but you want to start on the refi, Dan?

Clearly, David, there is an opportunity as CityCenter has been ramping up its cash flows and its operations.

It's net net in the $1.5 billion range, and its trailing 12 months EBITDA is just this side of $300 million in cash flows.

So the credit profile of CityCenter is improving.

The cost structure on the debt side today is pretty expensive.

The first call date through January of 2014 on the notes, and that will be an undertaking that the partners start looking at here in the back half of the year and early next year from a refi perspective.

And I guess the only thing I would add to that is, so many of the challenges we had at the end '09 and 2010, residential inventory that we could not sell, hotel condo that we couldn't sell as a hotel condo, Crystal's not being occupied well, Mandarin not having any sea legs underneath it.

Almost all those challenges we've met, and we've overcome.

Residential story is now a positive one.

Instead of having an anvil around our neck, it seemed like we had for many years, it's an asset, not a liability.

Crystals is doing better literally every month.

The hotel condo, which is Vdara, is actually making a decent amount of money for us.

So both partners feel -- I can speak for our side -- are very pleased with the progress of CityCenter, and that's all I would say about it at this point.

Okay.

And then just two more.

Not to get picky, just given the solid broad based margin performance in Vegas, but the one we were expecting to see a little bit more flow-through on was the Grand, given the non-gaming adds.

Can you speak to that one a little bit, how we should view it going forward?

I think it was up -- what was it up, 70%?

I think there were a few things -- I mean, I think it was pretty good.

But we expect more, because if you have been in it lately, obviously Hakkasan has been a tremendous revenue generator, but there is going to be quite a bit more work done in that area.

The space that used to occupy Sleeping Lions and the lion habitat is going to be redone into a food and beverage venue.

I don't think we've announced that yet.

But that will be a big deal there, and that whole corner is going to be significantly upgraded as we open that up to the strip.

I think that's going to have a big impact on the Grand.

And the other is, in next year in particular, the city wides, I don't think we talked too much about it, but the city wides are going to have a significant impact on properties like the Grand being more business in the city next year will benefit those big box properties like the MGM.

Okay.

Then just last -- I'm sorry.

And I think when you look at it, their performance year-over-year is up by 70% in terms of cash flow.

And when you look at the flow-through, I mean, that's about 80% in terms of flow-through when you look at the results.

I think it's pretty impressive by the Grand.

My bad.

I was looking sequentially.

Grant, I just had one question for you.

We've heard some chatter on the air quality test results, and that may be followed by a debate in the assembly surrounding smoking regs.

Can you give us any thoughts on how that plays out?

The process is just going forward.

We have our -- the government continues to test, and we continue to test ourselves.

And in reality the process is working itself through in terms of how the government perceives people's commitment to improving air quality.

Obviously we have invested significantly and will continue to do that to ensure that we provide the best environment that we possibly can.

So it's an evolving process.

I think all of these health and safety initiatives are an on-going and progressive thing, and we're obviously staying as close as we can, and working with the government, and with the other operators to try and make sure we have the best environment we can.

Great.

Nice results, guys.

Carlo Santarelli with Deutsche Bank.

This is Kelly filling in.

I was just wondering if could you give more color on the rates that you guys are seeing in your 2014 convention business that you have on the books right now.

It's pacing right now up about mid single digits right now in terms of its pace.

Okay, great.

Thanks a lot.

Grant Govertsen, Union Gaming Macau.

I've got a couple for Grant in Macau.

Grant, in your prepared remarks you were highlighting premium as one of the key drivers of the mass floor.

Wondering if you could give us a little bit more color on growth rates between premium and mass mass at the property.

It's a little bit difficult for us to do that, because we are such a strong performer in the premium side in terms of -- and the way that we allocate the capacity.

But from our perspective its pretty consistent across the breadth of the play through the category.

And, as I say, we really don't penetrate into the deep mass mass.

I think you and I have discussed together, we are really a mid to upper mass operator.

So from what I see coming through some of the other operators that are into that area it seems to be pretty strong right across the mass segments.

Okay, great.

And then just as a follow-up, and not to sound too nit picky, but on your slot floor there's a sequential decline of about 8% from the first quarter.

Could you just remind us, was there some anomaly in the first quarter that caused a spike and then a little trail off in handle into the second quarter?

I think it's fair to say in that first period we had some exceptionally high performances.

At the very top end of the market and a couple of those visits -- we have lost a couple of visits as a result of that.

So I think that's something of an anomaly from the prior quarter and the strength of the prior quarter, but the strength of the growth across the range now is actually very pleasing.

It's not just limited to the very top end.

It's actually coming across the product range.

And we've also been doing some refurbishments and that means we have been moving some machines around.

So we actually lost some capacity -- we lost some units off the floor for a little period of time as we were moving that through.

So it's not really apples for apples in terms of absolute number of units and revenue per unit per day calculations, either.

Okay, great.

Thanks for the color and congrats on another great quarter.

Thanks.

Felicia Hendrix, Barclays.

Jim, on your luxury side you obviously did well this quarter with nice flow-through.

You have talked about that a lot.

Just wondering, we're also starting to see some improvement out of your retail or core properties.

I'm wondering if you can discuss what you're seeing there.

Sure.

We are -- we did have some growth in the second quarter.

It was minimal, but it was growth.

I think that it's a combination of two things.

One is as the luxuries are lifting off, not only ourselves, but our competitors, we're able to draft the core properties off the luxuries, and so you're seeing some of that occur, although I don't frankly think it is going to happen significantly until next year.

And I will get to that in a second.

The second is, a few of the properties have had nice shots of excitement.

Obviously Monte Carlo is doing significantly better.

It's got a new show, got some F&B.

Luxor, the same thing with a new show.

And so I think some of the core properties have benefited from that.

I really am not expecting a significant amount of growth.

I shouldn't say this because the property president is probably listening in, but I'm not expecting too much growth out of the core this year.

I do expect a significant increase in cash flows next year at those properties because of what we're doing at New York New York and Monte Carlo and because of the city wides which will most benefit those properties.

I hope they listened to that last part.

We haven't done the '14 budget yet, but I can tell you whatever they're coming back with, it's not high enough.

They all went home for the rest of the year.

And then if you just -- thank you for that.

And I know your overall hold on the strip is within the normal range, but were there any properties that either held well or poorly that you could discuss outside of Aria?

Mirage held poorly again.

Mirage, high single digits last year, and they beat that by just barely going into double digits this year.

Bellagio was actually down year-over-year, and the Grand was up a little bit.

Despite the strong performance at Bellagio, their hold was still outside of what would be their normal range.

Really on the only outlier was Mirage being 10%, basically.

Okay.

Thanks.

And then just last question, Grant, you mentioned that there's going to be some disruption in your high limit slot room and the Las Vegas table games room.

Just wondering how we should think about that disruption over the next period from that being off-line.

I guess I'm just telegraphing it, but frankly I don't expect it to have an overall negative impact over the whole half, because we obviously with the refurbishment we expect to see a pickup in the win rates coming out.

So I think it may have some impact, and we are just indicating that, but I don't think that it's going to have anything detrimental over the entire half.

It may move some business between the third quarter to the fourth quarter.

Okay.

Great.

Thanks so much.

Shaun Kelley, Bank of America.

I was just wondering if could you start by maybe talking about the gaming side maybe a little bit more big picture in Vegas, but it does look relative to the market that your volume numbers were pretty good on both tables and slots.

So it seems like you're picking up some share.

Could you talk about, is it M life, or what do you think is driving that?

Is it disruption from across the street?

Or just kind of what you think some of the drivers are behind that.

Well, slot side is definitely M life has helped quite a bit.

The international is still strong.

I think our competitors saw that as well.

We certainly did at the luxury properties.

The domestic side was the weak part in '11 and '12.

That's even getting a little better.

So I would say the higher end properties or the quality properties within different price points are seeing a little bit more than their fair share.

I know our fair share is growing.

But I think the market is lifting in general.

And so I would expect that our -- the other properties that don't break out specifically their cash flows like we do probably also have seen that kind of -- they should have seen that kind of improvement.

We're definitely seeing it.

What's most gratifying, I think, because the international business has been strong even during the recession it was the only bright spot.

What's most gratifying for us is continued growth in our slot business.

That was an area where we felt in self reflection we were weaker than we should have been.

And I don't think we were as smart as we could have been on slot marketing, on loyalty marketing.

That is definitely yielding higher revenues for us.

And then we can't take credit for US recovery.

But we can be a beneficiary of it.

And we're seeing in that our domestic table play.

Great.

And then maybe one for Dan, just on CapEx, but as we look at where you're at kind of through the first half and compare it to the $350 million budget, it looks like you're actually meaningfully below that, so we were kind of wondering, do you expect a pick up in spending?

Is that related more to some of the activity at New York, New York and Monte Carlo, or is the spending pickup for the arena project or is there something else?

It is a little back half of the year loaded, because you do have the ongoing projects at Monte Carlo and New York, New York that are in the back half of the year, just getting started there in June and July.

So those will pick up through the course of the year, and we aim to complete those early next year as those start coming on line.

And you do have the Delano room remodel project that will start late this year, probably looking at November/December time frame for completion by April of next year.

So there are some big ticket items in the back half of the year that throw off kind of the spending trend.

That's helpful.

Maybe one more maintenance, still on CapEx for Cotai.

But do you guys have a sense of the budget including the $2.6 billion excludes land concession, cap interest and I imagine the pre opening cost.

Do you have a sense of like all-in what the $2.6 billion will be?

The $2.6 billion includes pre opening but does it exclude the land concession and cap interest that will get squirrelly between corporate and the project itself going forward.

I will have to -- Grant, do recall what the total land concession payments were?

I don't have in that front of me.

Neither do I, because obviously that came in over an extended five-year period as well.

So that's why we pulled those out because it's not all paid.

We can get back to you on that.

That's fine.

We can follow up.

Thanks, guys.

Thomas Allen, Morgan Stanley.

You mentioned earlier your new loyalty partnerships with Hyatt and Southwest Airlines.

As we think about your Vegas operations improving going forward, can you give us examples of how such partnerships like these drive heads and beds, pricing power, and other revenue?

Thanks.

And then I have a follow-up.

Thank you.

Yes, I could take it.

The Hyatt and Southwest partnerships what they allow us to do is take some of that base that may have been leisure or going to our competitors and fill them into our FIT channels.

Those additional rooms just allow us to yield up our rooms a lot higher.

The Hyatt partnership is a perfect partnership for us, because their convention business model is very conducive for our business here.

So I think we're seeing some benefit there, especially in our luxury properties.

It fits nicely there.

The Southwest partnership, to be able to get the points you have to become an M life member.

So it allows us to convert and improve our database for M life with these customers that are loyal not only to Southwest but they will become loyal to us.

So we've seen some very good lift from both of those partnerships and in times especially when it's competitive in the summer, it only helps us gain market share, especially in the core properties on the Southwest side.

And then you mentioned earlier that 51% of your recent convention bookings were corporate and incentive.

Seems like that's much higher than the past few years.

Can you give us a sense of where it was over the past few years?

Thanks.

About twice what it was.

In the last few years it never got over like 25%.

That's by far the biggest incremental growth in our bookings has been on the corporate side, and now, as I said, it's a little over half of it.

We've lost about 30% of our corporate room nights from peak and we're seeing that beginning to recover.

All very helpful.

Thank you.

Robin Farley, UBS.

I wonder if you could talk a little bit about baccarat volume in Vegas in the quarter.

The city had it declining which hasn't happened in a little while.

And I wonder if you can talk about that?

Is that maybe -- was that intentional in terms of cutting back on some baccarat events, and is that part of what helped in terms of your margins and cost saves in Vegas?

We'll take a look at that, Robin.

Do you have that?

I'm guessing it was an event driven difference.

Because I know we had a big fight in the quarter a year ago.

But we're looking at that.

And just wondering if that also was maybe part of the margin, if there were some high end events that weren't as profitable or weren't as high margin.

The result was lower volumes in baccarat but higher margin and profitability overall.

No, I don't think that would have been the case.

The margin would have been higher if we had more baccarat business, but the events I was talking about were slot events and some of the lower end table events in some of the mailings and some of the other promotional activity we do.

The baccarat margins haven't declined.

They're actually flat or up a little bit, but I know we had a -- we had a Mayweather fight last year, didn't we?

Yes.

We did this year, too.

But it wasn't as good.

No, if you look at -- without Aria, we actually had more win on the international side in table games play.

And for the year -- year-to-date we have had record international win.

Aria had a little bit of a challenge for the quarter, partially because they held really well last year, and they had some pretty strong play.

But I would say the play is still there.

Maybe one or two customers that may came in last year, didn't come in this year for the quarter.

But the solid base is still there.

We're seeing a good volume of people coming in.

I think we're pretty happy with the international number.

And the drop at Aria is up for the six months, and so is the win at baccarat.

It sounds like for the wholly owned, Q2, volume was down, win was up but volume was up, it sounds like?

it was slightly down, yes.

It was down.

And -- But win was up.

And then for convention room nights, I know you made a couple of comments about 2014.

I don't know if you mentioned what room nights -- both number of room nights and rate for '13 will end up year-over-year, how you're tracking.

Convention room nights as a percentage of mix, Robin, we're pacing right now for '13 about 14.5% to 15% is kind of the range that we're pacing with rate being up over last year.

All right, great, thank you.

Kevin Coyne, Goldman Sachs.

First I was just wondering how many unsold condos there are at Veer and Mandarin after the July sale.

There are four unsold Veer penthouses and 89 units at Mandarin.

Great.

Just turning to Detroit, obviously it's been in the headlines with the bankruptcy, and I don't know if anyone really knows how it is going to unfold, but has your business been impacted since the headlines, and what do you think could happen going forward?

At this point in time, Kevin, we haven't seen any impact.

The planners in Detroit from a convention and meeting standpoint are not forecasting any impact at this point to the future business.

So right now, in Detroit, other than what we talked about from a competitive nature, it's business as usual in Detroit.

Actually we saw it get a little better.

And one final one on Internet gaming.

Just general update on the roll-out in Nevada and I guess as it relates to that, how is maybe the progress on the re-licensing in New Jersey?

I'll take the re-licensing in New Jersey.

From that standpoint, Kevin, that process is underway.

We continue to make the application for the follow-ups.

It's usually about a nine to 12-month process from that standpoint.

Obviously the folks in New Jersey are busy on their Internet gaming and licensing requirements there.

So there's a bandwidth issue I'm sure back there with everything they're trying to get accomplished on a parallel path.

But our re-licensing process is underway, and we're moving forward on that front.

And on the Internet side, we have a number of initiatives that are kind of on a parallel path.

One, of course, still federally.

We haven't given up hope, although it's becoming very challenging there.

And on the state by state basis.

Nevada is moving quite rapidly.

Longs has already won -- launched -- I think Caesars is going to be the next.

They're coming up soon.

We're going to be following them.

But we've really been focusing on Nevada's ability to compact with other states, to create more liquidity.

We've been focusing on those other states.

So we have a big team that is preparing ourselves on a state-by-state basis in the states that we believe will be the most productive for us, and we've been working with the state of Nevada on their efforts to compact with other states.

So I think from our standpoint, the opportunity becomes interesting once Nevada has the ability to compact with another state.

As a stand-alone opportunity there's just not a lot of people that live in our state here.

So the market size is relatively small compared to what we think it ultimately will be as more states come on-line.

Great.

Thank you.

I think we're all set.

Operator, maybe one last question.

One last question since we're at the top of the hour.

Rich Hightower, ISI Group.

One quick question on Macau for Grant.

Obviously revenues were up nicely in terms of the mass segment especially but overall EBITDA margins dropped a couple hundred basis points.

I'm just curious, was this a function of lower VIP hold year-over-year?

Or is there something else going on in terms of promotions and give-backs and so forth in the mass segment or some of those other areas?

The principal reason was actually the mix of revenues.

This quarter we had lower holds, particularly in our in-house play so it's really just the revenue mix that affected the margins.

And the other point I would make, Grant is that the branding fee is actually up year-over-year, so that impacts the margin.

So you should look at it pre that branding fee.

Okay.

I appreciate it.

One more question if I may, quickly on Las Vegas.

It does look like FTEs have been flat for the past couple of quarters, but I'm just wondering when we should expect that to round trip and then show some natural cost inflation going forward again.

And then maybe if you could fold in your expectations, your updated expectations on the Affordable Care Act, when that kicks in.

I'd appreciate it.

Okay.

I think people are making a political statement out here, I don't know.

Rick, you don't have to be laughing.

Stop laughing over there, Rick.

FTE obviously is the full-time equivalent.

That's the hours worked, so there's no component of wages in that.

It's just what our headcount is.

And that's been basically flat for three years, and I expect to the remain that way.

We might have some increase in FTE counts as in the banqueting area and the convention area, particularly the as we get into higher city wide in '14, but don't expect -- I don't expect that to grow demonstrably at all.

As it relates to our costs, we're in the negotiations right now with our largest union, the culinary.

Those negotiations are going well as they typically have constructive dialogue.

We expect that we'll be able to have a mutually acceptable agreement on a going forward basis, and, of course that would encapsulate the current thinking on healthcare as well it is a relates to the culinary.

On nonunion members we do know there will be a cost to us.

We haven't quantified internally exactly what it is.

A few million dollars.

It could be $5 million.

But it is not more.

It's in that kind of range.

And it's just something we'll have to absorb.

So our costs are pretty low in terms of their inflation growth.

Managing expenses outside of labor is also a big factor here which we didn't get into, but we're finding great efficiencies in procurement and consolidations, and we've been able to mitigate some wage growth by cost savings in other expense areas, and that's why we believe that in general, any revenue growth that we get should flow to the bottom line because our costs are pretty flat.

I would we've been able to manage our health costs to where they're flat this year.

We think we have ways to offset any of that cost increase.

So we would expect little to normal inflation in our health costs going forward.

Okay.

I appreciate the color, guys, thanks.

Thanks, Rich.

Jennifer, I think with that, that will conclude today's call.

Thank you very much.

This does conclude today's conference call and you may now disconnect.

Thank you.