美高梅國際酒店集團 (MGM) 2014 Q2 法說會逐字稿

Good morning and welcome to the MGM Resorts International Second Quarter 2014 Earnings Conference Call.

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

(Operator Instructions) Please note this event is being recorded.

Now I would like to turn the call over to Ms. Sarah Rogers.

Please go ahead.

Hi, good morning, and welcome to MGM Resorts International's second quarter earnings call.

This call is being broadcast live on the internet at mgmresorts.com.

A replay of the call will be available on our website and we furnished a press release on Form 8-K to the SEC this morning.

On this call, we will make forward-looking statements under the Safe Harbor provisions of the federal securities law.

Actual results may 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, included in 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.

With that, I'll turn it over to Jim.

Thank you, Sarah, and good morning, everyone.

We think this quarter is a really good example of the power of being the leading operator here in Las Vegas.

Our Strip properties drove the bulk of our EBITDA growth this quarter with wholly-owned Strip EBITDA up 12% and CityCenter resort operations EBITDA up 20%.

MGM China posted a real solid quarter and increased its margins and EBITDA and that was driven by an increase in mix from the high-end main floor business.

That high margin business continues to grow for us.

Our key markets are continuing to grow and we continue to invest and focus where we see opportunity.

In May, for example, MGM and AEG broke ground on our new arena here, targeted to open in mid-2016.

This is going to be a really spectacular arena and it will attract a lot of new events to the market and enable existing events that we host to grow in scale.

That is a very important component to our goal of ensuring that Las Vegas continues its leadership in entertainment and we, at MGM, continue to capture an outsized share of that business.

In June, New York-New York unveiled its Hershey's store to great success and it's adding two new restaurant venues: Tom's Urban and the ever popular Shake Shack, which will open up in December.

Mandalay Bay is winding down its remodel of THEhotel into the Delano.

At this point, over half of the rooms are complete and the name, I'm happy to say, is up on the building.

The official opening is scheduled for September 1 and we believe that the Delano brand, combined with a spectacularly remodeled property, will command far better rates and attract higher quality, higher-margin customers.

Ultimately, that's the business we're in of creating unique experiences for our customers and with that in mind, I'm pleased to announce the hiring of Lilian Tomovich.

She is our Chief Experience Officer and she is reporting to Bill Hornbuckle.

Lilian has joined us from MasterCard where she ran consumer marketing in the United States.

She's now responsible for developing and executing guest interactions across all marketing channels, with the goal of improving the guest experience Company-wide.

We're very excited for this.

On the development front, MGM National Harbor in Maryland has received all the necessary approvals and we've actually begun construction there.

We selected the Maryland-based Whiting-Turner as our general contractor for the project and we've hired HKS as the design architect and SmithGroup as the architect of record out of DC.

As you probably know, the mid-Atlantic market is thriving and in finalizing our plans for National Harbor, we have recently increased the scope of the project, expanding the footprint from 2.8 million square feet to 3.3 million square feet.

In addition, we have modified our plans to create structure and flexibility to build out yet more incremental space on the second floor if demand in the future warrants that and we think it will.

Based on these more detailed plans, our budget now is $1.2 billion, up from the $1 billion that we announced earlier and almost all of that is due to the increase in scope.

We think this will be one of the most successful US resorts outside of Las Vegas.

I just got home from a couple weeks in Japan and Macau.

I have to say we've been spending quite a bit of time in Japan and we remain quite optimistic for legislation this fall.

We're looking at all the markets there and we now have a full team deployed there with offices in both Tokyo and Osaka.

I think that MGM is really well-positioned in Japan, given our globally recognized brand, the market leadership we have in the convention and events business here in Las Vegas, and recognized award-winning builder of sustainable integrated resorts, which is a key core value of Japan.

We have also proven, which I think will help us there, in multiple jurisdictions around the globe, to be a successful partner with key local stakeholders and we've been meeting with several local companies over the past year.

From there, we were in Macau and we visited with the 1,200 construction workers that are actively working on MGM Cotai.

There is actually a tremendous amount of work being done there and has been, on a daily basis, since we began construction.

Remember we went down three floors and a substantial amount of superstructure work, basement work had to be completed and now we're moving up into the tower.

We'll talk about that a little bit later on.

With that, I'll turn it over to Dan D'Arrigo to talk about our operating results.

Thank you, Jim, and good morning, everyone.

We're continuing to deliver consistency in improved operations as this is MGM's seventh consecutive quarter of year-over-year Strip EBITDA growth and margin improvement.

All of our properties on the Strip showed year-over-year improvements in EBITDA.

We're seeing a more unified recovery, as luxury Strip properties grew EBITDA 13% and our combined mid-tier and value resorts increased by some 8%.

Our mid-tier and value resorts actually outperformed the luxury portfolio in terms of RevPAR growth for the second quarter in a row.

On the casino side, market was led by extremely strong background growth wholly-owned Baccarat winnings was up 64% in the quarter and non-bacc table games win was up 10%.

Clearly, the customer relationships we have developed in Asia are benefiting MGM Resorts in Las Vegas and we expect this trend to continue.

On our last call, we guided for 5% Strip RevPAR growth during the second quarter and we actually achieved 6%.

We were able to grow our convention mix by about 1 percentage point year-over-year during the quarter.

Beginning the year, for the year, convention business is filling in nicely and we now expect our full-year convention mix to be above 16% and actually above prior peak levels.

Looking at the third quarter, we expect to continue to grow our convention mix and anticipate RevPAR growth of approximately 5% in Q3.

At CityCenter, second quarter EBITDA from resort operations increased 20%, led by Aria's strong 23% increase in their EBITDA contribution, driven by increased table game volume and hold.

RevPAR at Aria increased 6% including record quarterly occupancy of some 94.4%.

Vdara had a record quarter driven by a 10% increase in RevPAR and occupancy just inside of 95%.

Crystals reported another strong quarter of $11 million EBITDA, up 12% compared to the prior-year quarter.

As you saw in the release this morning, MGM China announced its semi-annual dividend of approximately $136 million, of which $69 million will be distributed to MGM Resorts on or about September 1. Including this declared dividend, MGM China will have distributed approximately $762 million in dividends to its shareholders this year alone.

Moving over to the balance sheet, our cash balance at the end of the quarter was approximately $1.4 billion, of which approximately $658 million was cash at MGM China.

We currently have approximately $1.2 billion in available liquidity under our corporate revolver, while MGM China has approximately $1.4 billion in availability at the end of the quarter under their revolver.

CityCenter cash at the end of the quarter was $346 million, of which approximately $157 million was restricted cash.

During the second quarter, CityCenter prepaid approximately $150 million in outstanding debt, lowering its outstanding debt balance to approximately $1.5 billion.

Leverage at CityCenter at the end of the quarter was 4.7 times.

Just last week, we successfully repriced CityCenter's Term Loan B, reducing annual interest expense there by approximately $12 million going forward.

A little bit of an update on CapEx, during the second quarter, we spent approximately $114 million in capital at our domestic operations.

MGM China spent a total of approximately $64 million, of which $4 million was spent at MGM Macau and approximately $60 million on the continued development of MGM Cotai.

With that, I'll turn it over to Grant Bowie.

Thanks, Dan, and good evening and good morning.

MGM China property EBITDA was up 3% year-over-year at $225 million before branding fees of [$14.5 million] and that was on net revenues of $828 million; a decrease of about 1% year-over-year due to a lower VIP hold and lower turnover.

EBITDA margin increased by 90 basis points year-over-year due to the higher contribution, as Jim indicated, from the higher margin main floor business.

The VIP turnover decreased by 10% year-over-year.

Our overall hold rate was 2.7% compared with 2.9% last year, due, as we indicated, to lower in-house hold.

Hold negatively impacted our EBITDA by roughly $14 million year-over-year.

A number of lower performing [jacket] tables were relocated to the main floor since the beginning of the year, a strategy which we will continue as we balance our allocation to maximize our yield.

We had a record quarter on the main floor operations.

Main floor table games win increased by 41% year-over-year and this is the second consecutive quarter of outperforming the overall market growth.

This growth was being driven at MGM and on the Peninsula in general and is reflective of the sustainable appeal of the MGM another quality venues on the Peninsula.

The main floor table games and slots continued to grow as a percentage of our EBITDA and during the second quarter, represented 77% of EBITDA up from 70% last quarter.

This high contribution from the mass has certainly increased our stability and improved margins.

Slot handle increased 13%, but our slot revenues decreased by 11% year-over-year due to lower hold, but we continue to be one of top market share properties in the slot segment.

The Peninsula clearly continues to be an attractive and growing market.

To maintain this in the future, we will continue to reinvest in our MGM Macau property leading up to the opening of Cotai.

MGM Cotai construction is moving along at full steam, as Jim indicated, and we're nearing the completion of that extensive basement work and now we can move at pace onto the construction of the hotel tower.

The project is on budget and on schedule to open in 2016.

Meanwhile, the Peninsula, we're continuing to execute our yield focus optimization initiatives and we still see opportunities to further improve the efficiencies at MGM Macau.

We continue to identify additional table yield improvements in both VIP and in mass and with product updates, we're refining the management of the MGM experience for our customers.

We're also focused, as we've indicated in the past, on building our customer base to drive growth, which will help us to prepare for the opening of MGM Cotai.

MGM Cotai will greatly expand our operations in Macau, as the property will have nearly quadrupled our room base and tripled our gross floor area, which will allow us to expand our reach into the retail and entertainment.

These will all create opportunities for earnings and margin improvement.

With that, I'd like to turn back to Jim for his closing remarks.

Thank you, Grant.

I've just got to also thank you for your efforts there.

It's quite clear to all of us, and I'm sure it is now to investors, that Grant and his team are the most seasoned operators in Macau.

Grant, himself, has been a pioneer in the marketplace.

He invented the Sky casino concept that others subsequently copied.

He invented the premium mass segmentations with our supreme and platinum lounges, which have been so successful for us and others have taken note and copied.

MGM has the best win per day the market in the mass segment and as Grant mentioned, we're consistently one of the highest market share companies in slots and we've always outperformed the market when we have seen periodic slowdowns in the VIP business in Macau.

We've never had a more integrated set of operations between MGM China and MGM Resorts as we do right now and that combination is yielding very strong cross marketing results.

We're seeing it also accrue to the benefit of our employees as they move back and forth between companies.

Certainly, it's helped us on customer acquisition going both ways.

It has helped us tremendously in employee retention in Macau and also here in Las Vegas.

A little more on MGM Cotai because we've made great progress there and it's such a dynamic market.

I know they'll be questions and updates.

We're happy to say that we've now awarded about 50% of all the contracts, which is why Grant has more clarity on the $2.9 billion budget.

We haven't missed a beat on construction and we have received our permitting, both for the superstructure and for the MEP.

We continue to be the kind of company there the government expects us to be, which is always highly compliant and doing all the right things.

We're three floors below grade.

That creates a lot of work for us but ultimately, when opened, creates great operating efficiencies for the employees and we think that will have a benefit on margin once we're open.

We're also pleased to announce a couple amenities that we haven't disclosed before.

We have engaged David Rockwell, a world-class designer, done a lot of work for us and others in our industry, and his team have been working on the Spectacle.

This is the large entertainment experience and retail experience that is at the heart of MGM Cotai that we believe will be over the top and drive significant interest on the mass side.

We've also designed in an brought in a great architect to provide a SkyLOFT product as part of our room inventory at MGM Cotai.

SkyLOFT's, for those that know us here in Las Vegas, have been a highly prized part of the MGM portfolio and these rooms and suites, with its own VIP lobby, again, we think will be quite attractive to the premium mass customer.

Because we're so far along on MGM Cotai, we're very happy to say that we have been focusing on the second phase of MGM Cotai, which will be all non-gaming, continuing to diversify, and add likely over 700 additional guest rooms.

This is really meaningful to us because, as you know, MGM has tied EBITDA upper room in the Macau market and MGM, as MGM China, will experience the most rapid growth in guest rooms over the next few years; even more so if we're able to build this Phase 2 adding on to the 1,500 odd rooms that we're building at MGM Cotai.

We have been building up our bench for growth.

That MGM China has benefited from MGM Resorts in that regard and people have moved over for the opportunities.

We'll continue to build on the integration of marketing between the two companies.

We continue to expand our Asian footprint with our Hospitality division at MGM resorts with two hotels open now in mainland China and more under construction.

We're excited about opening MGM Cotai because we know how meaningful it will be to the profitability of MGM China and the benefit that MGM Resorts will get as a result.

We're very pleased with the progress that we continue to see here in our home market of Las Vegas.

So with that, operator, I'd like to turn it over to you for our Q&A.

(Operator Instructions).

Felicia Hendrix, Barclays.

Hi, good morning, thank you.

Since you ended in Macau, I'll start with the Macau.

Grant, a question on your margins, they were definitely better year-over-year, just the flow-through was it a bit lower than what we were expecting.

Was that mainly driven to the low hold that you discussed or were you seeing also higher operating costs?

If it was higher operating costs, both Wynn and LVS called out bonus accruals in their releases as partially driving lower EBITDA and I believe that you guys also pay a 14-month bonus, but I didn't say any commentary in the release about that.

Thanks

Thanks, Felicia.

I can always know you to keep the pressure on.

In terms of the margins, they are pretty clean.

There's really nothing exceptional in there.

I think we indicated, we actually had fully accrued into last year's results the 14 months that we actually paid.

So we didn't have any adverse effect and by and large, the performance and the costs are pretty consistent.

You are correct that obviously, the low hold had an impact on margin, but the strength for that 41% increase in the mass table games certainly provided the bulk of that improvement.

So overall, the revenues were moving faster.

The mix change had impact so I think it's pretty clean margin number.

We really don't have any unusual costs that would have a one-off effect because we actually planned for and actually accrued it into the periods.

Perfect, that's really helpful, I appreciate that.

Jim and team, just moving over to Vegas, most of your retail properties performed better in the quarter than we expected, both in terms of RevPAR and flow-through.

I was just wondering if you could talk for a moment about what's driving that?

Would you say it's more coming from Company initiatives or is it more of a general return to the market segment, is it both?

Also, just in answering the question, the one property that did stand out to us as having lower flow-through was Monte Carlo.

Just wondering if there was anything specific going on at the property?

Thank you.

Sure, Felicia, this is Dan.

When we looked at the second quarter, we were overall pleased with the results.

There's always things up and down in each and every quarter and you're pointing out one of them, which is Monte Carlo.

I think, overall, we're pleased with the performance, but we still continue to stay laser focused on the expense side and on the flow-through.

I think, for the quarter, we came in at about 37% flow-through in the quarter, which is a little bit below our previously stated range.

Monte Carlo did impact that as we continue to kind of position our property going forward.

In the second quarter, we had quite a few restaurants and retail outlets that opened up and really are repositioning that property in the second quarter to actually give it a front door and now we're working through the ramp-up of those facilities and the traffic patterns with the new configuration.

So that was impacted in the quarter and clearly, that's something that, over time, will rectify itself as those facilities ramp-up and take hold.

The other piece is probably something to kind of mention is also over at Mandalay, the Delano impacted our flow-through.

As we reposition and rebrand that property, you're incurring expenses given the hotel within a hotel concept that are just hitting expense and aren't pre-opening or aren't capitalized in any way, shape, or form.

So as we reposition that property through September and October here to its official launch and fully complete it, that, too, impacted the margins.

But longer term, as these properties continue to work through those issues, we think that guidance-wise flow-through still in that 50% to 60% range.

Felicia, this is Corey.

It is partially the economy is positive for us, but our Company initiatives really paid off, especially on our yielding fund and how we're attacking the convention market.

We've been very aggressive in buying back space and utilizing that space the best we can.

I think you've seen us gain even some market share in the convention business, as well as market share in growing our RevPAR.

That's super helpful.

Thank you very much.

Joe Greff, JPMorgan.

Good morning, everybody.

Thank you for the clarification on the 2Q Las Vegas flow-through.

If you back out Mandalay and Monte Carlo, I think flow-through is just about 50%.

When you look at the 3Q and the 4Q, obviously the Delano's going to open up September/October as you mentioned, do you expect some of these expenses or some of these challenges to continue in the near-term that we should be mindful of?

That would get you below 50% to 60% flow-through?

Hi, Joe, it's Jim.

That's entirely possible.

I think I would look at it in the following way.

The Japanese have a word called [kaizen], it means continuous improvement and we're doing that on these properties, which means periodically, one or two of them are going to fall below our target of 50% and in the case of Monte Carlo and Mandalay, they probably will in the third quarter, as well, those two.

We're not giving up, but they probably will as a result of the fact that the lobby of THEhotel, now Delano, is completely ripped up and we've had to be very generous to our customers to reward them for staying in a property that has been less than appealing going through that process.

In the case of Monte Carlo, a lot of start up expenses as we've been promoting some brand new restaurants that are new to the entire market, so there's some brand awareness spending that we've been doing.

But that target is, I think, a worthy one and I'd make a couple points on margin, because, really, I think that's what you're getting at in terms of the operating leverage in the business.

I look back on this, but you probably know, but our wholly-owned margins, they peaked at 34% back in the first quarter of 2006.

Those were good days back then.

We all loved those days.

Then they troughed in the fourth quarter of 2010 at 19.7%, so we went from 34% to under 20%.

In this quarter that Dan was just talking about, they increased 80 basis points year-over-year to 25.3%; in fact, that's the seventh quarter in a row that they've been increasing year-over-year.

But on a peak basis, if you look at annually, our peak margin annually on annualized basis was 2006 and now it's 33% and in 2010, it was only 21%.

I guess my point here is that our margins have been increasing every single year since the trough and why that is happened is that we drove revenues through the recession.

We just felt we had to do that and revenues have actually held up pretty well as a result of that.

But now, as Corey and Dan and others have talked about, we're continuing to improve the mix and that's why we've done better than we thought on ADR and on RevPAR and convention mix is better than we thought and we're really managing our costs.

Our FTEs, by the way, are up de minimusly versus last year and they're still down profoundly from 2007 and that is our biggest, obviously, cost.

So we're continuing to manage our costs.

We're continuing to improve the mix of our revenues and that's why we continue to expect margins will increase going forward.

And why this is so critical, as we know as well as you, is that every 100 basis point increase in margin, just using last year's revenue as an example, every 100 basis point increase is $60 million of EBITDA right down to the bottom line.

So I can assure you that is an intense focus of ours.

We're proud of the improvement in margins.

We cannot reasonably expect that every property will have good flow-through every quarter, but as a portfolio, we believe that they will and we certainly expect, as a Company, our margins will continue to improve.

Joe, Delano opened officially in September, so fourth quarter it should be fairly clean from those pre-opening expenses.

Great thank you all.

Corey, how does 2015 look and shape up in terms of group, if you can talk about group pace?

Another question, Jim, you mentioned the CapEx going up due to the scope changes in Maryland.

Have your EBITDA return assumptions or underwriting assumptions changed along with those scope changes?

That's all for me thank you.

I'll take the second one and then turn it over to Corey.

Yes, the great results that Maryland live has generated our market analysis that's been more precise.

We're doing quite a bit more work in the Virginia/DC market in terms of market potential, moving over some great personnel into that marketplace.

We mentioned earlier Anton Nikodemus has been involved in the regionals combined with Lorenzo Creighton and our team.

We put more marketing effort behind here and where highly bullish on this particular location, which is why we feel it's very prudent now to not only expand out the public space, which will accommodate more gaming and entertainment, but to create the support structure to build on to the second floor, build the second floor expansion that could include gaming and convention space for the future.

Almost 75%, 80% of that increase is all simply through increasing the square footage of the project.

On the convention side, Joe, for 2015, our pace is up double-digit with rate being up also and that's despite a tough comparison with CON/AGG.

Excellent.

Thank you all.

Harry Curtis, Nomura.

Hi, good morning.

Over to Macau, if you could talk about the competitiveness in the mass segment, there's some discussion about it becoming more promotional.

Grant, if you could give us your perspective on whether or not that's true?

I think it's quite true that, as things develop, it always becomes more competitive and I think we all are pretty sensible in this market and we need to be very focused on the reinvestment rate.

As you can see, we have not really seen any significant change and I think our focus will continue and I know a number of other venues are going to be about the quality of the experience and the quality of the property, rather than just simply hitting the prize button.

So at the moment, yes, it's competitive, but I think the focus tends to be on competitiveness through quality of delivery and different organizations have different constructs.

At the top end of the quality end of the market, I'm pretty comfortable and pretty confident that we can hold the position.

So you see the margins and mass bottom line staying pretty stable?

Yes.

I think if you look through the different groups, the different organizations, Harry, there's already different margin arrangements and so I think that the relationship between the organizations, I think, are pretty stable.

Okay.

Corey, just coming back your comment about next year, you mentioned group pace being up double-digits.

Can you give us a sense of what sort of pricing you're seeing on that?

Specifically, the first quarter is really tough.

Can you discuss how replacing CON/AGG is going from a pricing perspective?

Sure.

Rates for 2015 look to be up kind of low single-digit percentages, which is actually very good because you're comping against CON/AGG in the first quarter.

First quarter's filling in nicely, Harry.

We're actually up in rooms and looking at the first quarter, we're in the middle of our budget season right now and we'll have better information later on.

So if you're up at this point low single-digits, you would expect that to lift as we get closer to the beginning of 2015?

One would hope, but you're also against the challenge of that big week where you had major rate inflation last year.

Got you.

Thanks a lot.

(technical difficulty)

Could you talk about trends in regards to high end baccarat play at your Vegas properties?

Specifically, are you seeing any incremental VIP play migrate from Macau these days given the current Macau and China dynamics or is it simply the continued ramping of general demand from China and elsewhere including from your hospitality JV in China?

There's no doubt we're getting more high-end business here in Las Vegas as a result of our increased visibility in Macau.

The combined efforts of the US operators that are in Macau bringing customers to Las Vegas benefits all of us here and so we get a good share of that play regardless of who brings them over here and our competitors get a good share of our customers play when we bring them over.

It's the nature of this business.

That would be the primary impetus for seeing some good baccarat play.

Also, our events have been very compelling.

When we had the Mayweather fight in May, you saw tremendous baccarat number in the city and many of us benefited from that.

We have another Mayweather fight, by the way, next month in September, which is shaping up to be a highly sought after event, which is encouraging for that quarter.

On the hospitality side, I'd say less so.

It's still early days on hospitality.

Once we open a hotel in a major market like Beijing or Shanghai, two projects that are under development right now, that'll have a bigger impact.

But as we stand right now, our two hotels are in Sanya, which is in Hainan Island, which really more benefits the MGM Macau because of the cross-marketing and the proximity between those and a really small hotel in Chengdu, which is a very luxurious property but very small and not intended to send a lot of customers here.

Understood, thanks.

Just a quick one for Grant and Macau, you mentioned that slot volume was up notably but revenues were down.

Was that a function of a couple highrollers dinging you a little bit or was that a mix issue with more electronic table games and a correspondingly lower hold rate?

As you know, we are obviously very strong in the premium end of the market and you are correct, we did have some players who were very, very lucky.

I'm not sure people understand that those games that they play are reasonably volatile games with quite high returns on them.

It's stabilized and we've seen, coming into this month, that we've actually won quite a bit of that back.

Great.

Thank you.

Robin Farley, UBS.

Thanks.

One Macau question and one Vegas.

In Macau, some in the market had thought that July was showing some signs of improvement during the month and then it didn't look like the month ended that way.

I wonder if you could just give us your perspective on how you see things shaping up in Macau as you sort of look out over the next few weeks?

Just to get a sense of whether things have, in fact, stabilized or still seeing more June and July trends?

I think there's been some continued observation that the premium business, the junket business is still consolidating, still stabilizing.

We're seeing volumes begin to increase again.

But I think there's a whole series of issues going on that we are well aware of in China that has taken some of the energy out of the sector and I think we just see that continued consolidation.

In the mass business, it just continue to be very strong and I also would see that we'd likely ramp-up.

We're obviously in the summer season and in some ways, we're seeing a couple of years of summer season, we seeing some of the business slow down somewhat.

We're almost getting some of the trends we've seen in other marketplaces that during the summer, the business is not as strong.

But overall, still continue to be very positive on the mass market, looking very strongly at it, confident in the junket business, see this as a period of consolidation and a comparative realignment.

As we work through this, as we saw back in 2008, 2009, there is a general confidence still within those operators that as we get into the end of the year into 2015, they are particularly positive themselves about the growth opportunities going forward.

Okay, great, that's helpful thank you.

On Vegas, just to circle back you talked about rate being up in Q1 against convention rate on the books for Q1 being up year-over-year.

Can you give us any color on convention room nights in Q1 on the books versus prior year?

Because I would think that would be a difficult comp as well.

Right now, just based on pace, we're up 16,000 rooms in Q1.

So the general commentary is just, across the board in 2015, pace is looking up year-over-year with a slight increase in rate and that applies to the first quarter as well.

Okay.

Great.

Thank you.

Shaun Kelley Bank of America/Merrill Lynch.

Hey, good morning, everyone.

Just wanted to try and close the loop on Las Vegas and the flow-through commentary.

Just to go back to that for a moment, it sounded like you're a little bit less confident in the third quarter flow-throughs you guys might see just given some of the same issues with Delano renovation and Monte Carlo.

Do you think 50% to 60% is achievable for the year or with Q2 and Q3 disruption, that's probably not going to happen this year?

But then, do you think it's possible next year to hit that rate?

First we're just talking about two properties.

I think year-to-date we're 45% right now, even with the disruption we've had in two of our 10 properties here.

We certainly don't, at this point in time, expect us not to achieve our goal for the year.

We were just highlighting in the second quarter a little bit into the third, but not the full third.

In the case of the Delano, you most likely will have a very strong September as a result of that swinging into very incremental, very additive operations for us and for Mandalay in general.

No, I think we're just trying to highlight the fact that the question was asked why were you a little bit lower than your goal?

It was because of those two properties.

We know what our expenses are going to be.

We have a very good handle on that.

We know that room mix is improving.

We know that our RevPAR is going to be up this quarter.

We know that we're getting out of the summer months soon and getting into the fall with convention business looking quite strong in the fourth quarter.

There's no reason why we shouldn't expect to be able to achieve our long-term goals and in fact, with the focus being on margin, continue to show the consecutive growth in operating margin.

Okay.

I think that's a helpful clarification for people.

The second question that I have would just be, obviously, the Delano is a pretty extensive renovation.

You guys have done a lot of work at the Grand and the Bellagio.

As you look into next year, are there properties that you kind of know or have slated for possible renovation activity where you would expect to be more focused with some of your maintenance capital dollars?

I think, Shaun, as you look out into next year and what we'll be presenting to our Board later on this year, kind of the game plan for capital, the one that kind of comes to mind is the standard room tower at Mandalay for next year.

As you think about the Four Seasons has already been done, the Delano is obviously being done right now and with the expansion at convention facilities and the new restaurant product, the logical next step would be the standard room tower at Mandalay for next year and that's probably the one that would be the priority right now.

I know we didn't talk about on this call, we talked about it on prior calls but remember that we're adding 300,000 square feet of convention space to Mandalay Bay, which is already very well occupied and large.

That breaks grounded in about a month and a half and that opens up in the third quarter of next year.

We want to make sure when that opens up that the entire campus is in great shape.

We have received a tremendous amount of feedback and support for all of our major exhibition companies that we partner with and so we think Mandalay's going to have a great year next year anyway, but there will be some disruption because of some room remodeling going on there at the main tower.

But that expansion to the convention center, combined with the room product, as we progress into 2015 will, we think, accelerate the momentum at Mandalay and have really quite a monster year in 2016.

Great.

That's helpful.

My last question would just be on Cotai, and it's pretty specific, but I think as I look through the circular for MGM China and then versus the annual report, it looked like in the annual report, you referred to early 2016 and now you're just referring to 2016 as the target opening.

Am I reading too much into that or is the timing getting pushed out a little bit there?

First I commend you for reading.

That's a skill so often missed in today's analytical community.

But yes, the issue with the timing and the problem with clarity is that, and we're all faced with this, is that the permitting process is so uncertain as to future permits.

There's such a backlog because there are so many towers, so many cranes, so many projects underway right now in Macau that I don't think anyone with any kind of precision can tell you exactly when they're going to open.

They may say so, but they really don't know.

I can tell you that because, after spending a couple weeks there, they just don't know.

We have not missed a day.

We have China State Construction building our project.

They're highly experienced in that part of the world.

Labor is always going to be one of the inhibiting factors.

We feel that we have the right contractor to get the right kind of labor for the project and we have received very critical permits like the superstructure, like the MEP, which is a differentiator for us and very important.

We feel like we're going to be able to continue to plow through and build this at a very rapid pace.

But no one knows for sure exactly to the month or certainly not the day when you can open.

We know we're opening in 2016.

We know that it's going to be, in some respect, outside of our control.

We just feel like rather than to pin down a number or a date, we just have to be more general this point in time.

What we will say is that it will be perfect when we open.

We're not going to rush an opening and have coming soon signs everywhere.

I wish we could be precise.

I don't think any operator can.

We like our chances in the marketplace but you're right.

We've broadened our language on the opening date because we just -- it's beyond our control, it's beyond any operator's control in that market and we just feel like that was the better course of action.

Great, appreciate the candor.

Thank you.

Joel Simkins, Credit Suisse.

Hi, guys.

This is actually Michael on for Joel.

Thanks for taking my question.

I just want to get your thoughts on the recent Crown transaction.

First, what do you think this signals for Las Vegas Strip land values?

Second, perhaps what you think it means for the epicenter of the Strip and how you guys are positioned longer-term?

Thanks.

We don't have all the information yet on the exact numbers.

We saw what was going on.

We've talked to some of our buddies, including a couple of the principles there, but clearly, the valuation is north of $9 million an acre.

We're not quite sure exactly what the number will end up being, but for a Company that owns 800 acres on the strip we kind of like that a lot and we have a lot of undeveloped acreage; some of which we bought at even higher prices back before the recession.

It's certainly a bullish sign for investors that want to come into the market.

We have to believe that, number one.

Number two, my guess, it's only a guess, it will stimulate the beginning of the Genting Project.

Someone that lives here, we haven't seen any activity there, but we know it's coming and that's also, we believe, compelling.

Genting and Crown bring tremendous diversity to the customers that we receive in Las Vegas and we have high hopes for them to grow the market in both cases.

In the case of Crown, they're partnered with Andrew Pascal, who is literally my neighbor and our friend and a great operator and a great guy, and we know that they'll do something compelling and different.

What it means is really not much for today right in 2014.

We're talking about what Las Vegas might look like in 2017 or 2018 or 2019.

But it does mean there will be thousands of jobs created, construction jobs.

It does mean that it'll help the local economy here.

It does mean that they'll be thousands of permanent jobs when these projects are opened and a lot of marketing dollars spent to bring people to Las Vegas and more likely, more airline lift, particularly internationally, given the Genting and Crown relationships in Malaysia and in Australia.

After three years of people running away from Las Vegas to see Cosmopolitan trade at a good valuation, to see SLS, which I've been through several times looking really cool and great opening up this month, to see new investors that are savvy and experienced in gaming and have their eyes wide open, in the case of James Packer and Andrew Pascal, and willing to invest significant dollars into Las Vegas and with one of the most powerful gaming companies on the globe, Genting also doing the same, I have to like this.

As someone who has 42,000 hotel rooms here and better than our fair share of the market in most every customer segment, we think that's a very big positive, particularly for the portfolio projects that we have.

Not only where we are, which we are the epicenter not there, not only where we are but what Mirage is all about and further to the north, the benefits to Circus Circus which has been a lonely soldier up there in the North for quite a while and now getting some much-needed company.

We think that's good for our portfolio.

Great thanks.

Steven Kent Goldman Sachs

Hey, Jim, and company.

After that comment, Jim, maybe you could just talk about your thoughts about Crystals and CityCenter performing so well?

Any thoughts on either monetizing that asset or buying back the other 50%, especially I couch that with the great job that Dan's done with the balance sheet where it's not as necessary as maybe we thought as necessary a few years ago.

Values are going higher, seems like things are going well, why not do something with CityCenter or Crystals at this point?

Thank you and I'm looking at Bobby and we've done a great job.

Bobby's done a great job over there.

Obviously, the place is generating a significant amount of free cash.

If someone would sit down and figure out what the cash flow is of CityCenter against its cash interest, you'd see what the gift that has arrived for us for both owners both for Dubai world and ourselves.

As a major free cash flow generator, we view it as a source of great capital to deleverage the parent, much like we look at MGM China to help to the same.

I think both partners have never been more pleased, particularly given the journey that we've been on, to envision a scenario where free cash flow is generated not only to reduce the leverage at CityCenter, which is already quite low, but the dividend money back to the parents, which would accrue to both parties.

Crystals, we did explore potentially selling last year when the window of opportunity was briefly there at sub-five cap rates for Crystals.

By the time we got our documentation in order, cap rates had moved higher and we missed that opportunity and we're glad we did because the NOI at Crystals has gone up dramatically since that time and cap rates have come back down.

We believe that Crystals is a very valuable asset.

I think its NOI is like $45 million on a trailing basis.

We think it's going into the $50 million in short order and so the question for us will become, do you sell Crystals for $1 billion, say, today or do you wait and grow it and see how you can expand it further which has potential?

We'll evaluate that.

It was always intended to be separate from CityCenter and could always be sold and so it's certainly an opportunity for us.

As it relates to buying out our partners, I think we both like owning half of it so much I'd like to own 100% of it, but you have to have somebody that wants to sell when you want to buy and our partners don't want to sell.

They like what's going on there.

They like the free cash flow.

They like the growth potential.

They see Aria becoming even more profitable than it is today.

They like the fact that Mandarin and Vdara are making money and Crystal's having a big growth path.

So never say never, but these are discussions that we've informally had in the past and you have to have a willing partner in a transaction and both of us liked being owners at CityCenter at this point.

Okay.

Thank you.

Thomas Allen, Morgan Stanley.

Hey, guys.

Just some clarification on your 2015 RevPAR trends in Las Vegas.

You guys have talked in the past about how you saw 2014 as kind of a stepping stone and CON/AGG did create a tough comp, but you really helped to build on that.

Just given your commentary around driving kind of a low single-digit rate growth and obviously, you're already at the high occupancy, what kind of low single-digit RevPAR do you view it as a disappointment?

Can you do something better than that?

Thanks.

Yes.

I want to make sure that it's clear that the convention rate and mix isn't necessarily the only driver of RevPAR growth.

So next year is a tough comp.

We're coming up against CON/AGG which is a great driver for convention business.

Mike Dominguez and his team are very focused on driving the mix within convention, so corporate continues to be an increase in terms of the percentage of mix and is up from about 55% of bookings to 60% of bookings and these are corporates that have greater FNB budgets, greater entertainment budgets, et cetera.

But absolutely, RevPAR growth can be beyond what we're seeing in terms of convention rate growth.

It takes time to push out some of the Association business that is in, therefore, multi-year contracts, but we continuously are increasing our pricing in conventions regularly.

Tom, I would just add and remind you that last time that CON/AGG was in, we were able to grow RevPAR by some 13%.

The following year quarter in that first quarter we were able to grow RevPAR by 4% on top of that in terms of year-over-year growth.

The ability's there and we're going to continue to push on rate as you see occupancies in these buildings are approaching and in some cases, are at all-time peak levels again.

Okay, thanks.

Just on Macau, you guys talked about Cotai Phase 2, I think this is the first time you really gave us any detail around it.

What you expecting to spend there?

Any timing around it?

Any incremental color would be helpful.

Thanks.

We're going through the planning process of that now and you're right this is the first time that we have talked about it.

We've designed it to be able to accommodate the additional tower with several hundred hotel rooms and more entertainment.

Probably in the next quarter, we'll be able to give you a budget on that.

We have preliminary numbers, but I kind of like to show it to my Board first.

So I think that what the important point is on that comment is that we have been preparing our submission.

We wanted to make sure that we had our permits in place, superstructure MEP permits in place.

We have those.

We're now prepared to put together the document that we'll submit to the government.

The government processes very specific and has changed actually over the past year.

So we want to make sure we submit a perfect document that will be the key to speed for approvals and for construction and that'll be the focus over the next month or two and then next quarter, we'll be able to give you a budget on that.

I would say that we're very excited about this.

We have been tremendously capacity constrained on hotel rooms in Macau.

We have the smallest number of rooms.

It's a problem.

We continually rent rooms out at the Mandarin Oriental next-door and in the city itself.

We know that we can drive more mass business, which we've been the innovator on and leader, when we open up Cotai with the triple the number of rooms that we have in our current facility.

If we can expanded even further, than we think the ROI there is pre-spectacular.

So we'll give you the budget on that, but the point is that we're now so far along on Cotai with 50% of the project let out really rapidly at pace that we could get to the position where we can petition the government for the Phase 2.

Great.

Thank you.

Take care.

Have a great day.

Thank you for participating.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.