美高梅國際酒店集團 (MGM) 2014 Q3 法說會逐字稿

Good morning and welcome to the MGM Resorts International third-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 Mrs.

Sarah Rogers.

Good morning, and welcome to MGM Resorts International's third-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.

We furnished our 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 laws.

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 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.

Now I will turn it over to Jim.

Thank you, Sarah, and good morning everyone.

In the third quarter, MGM grew its revenues by 1% and its adjusted EBITDA by 2%.

The reason for this is that we had a very robust mass market growth at MGM China and an increase in its EBITDA of 12%.

That was offset by lower margins here on the Strip due to investments we've made, particularly at the Delano, which we'll talk about doing well.

Lower tables hold.

We made some customers very happy in the quarter and increases in some expenses, which we will get into.

This was a very important and productive quarter for MGM Resorts as we invested in this framework, the people strategy, to grow our business and to prepare the Company to execute, not only here in Las Vegas, but on the new resorts that we are building.

We are encouraged by the outlook of our business and we are making many key investments and have many initiatives underway.

We believe that will drive future growth and profitability, not the least of which, of course, is at MGM China where our business continues to show strong margin and operational performance despite a challenging marketplace.

We are of course very proud of our team's ability to adapt in that dynamic market and we continue to believe in the long-term future of Macau.

Grant will speak to that in a moment.

Were making excellent progress on the development of MGM Cotai.

That remains on budget and is on schedule to open in the fall of 2016.

We continue to move rapidly up the tower and have completed three stories also below grade now compared with three above grade.

We've made also significant progress within the mansion structure.

The mansion itself, the 27 villa mansion, we believe will redefine the ultra high-end experience for our guests there in Macau just as it did here in Las Vegas when it opened up in 2000.

The mansion design has progressed.

It draws from Portuguese and Moroccan influences and it's going to be spectacular.

We're applying that same level of effort and expertise to our showroom, which we can talk about now.

It's focused on adapting to, and transforming, the entertainment landscape in Macau.

I think this will be an unprecedented opportunity to extend our industry-leading entertainment expertise, creating a versatile stage and venue capable of evolving with MGM Cotai as this destination's entertainment options grow and mature.

It's going to be one of the many unique entertainment experiences that MGM Cotai will offer when it opens.

In Las Vegas, we continue to make important investments where we see opportunity.

The remodeling of the hotel to the Delano is truly a transformation at Mandalay Bay.

That was completed at the end of September.

That launch has been very successful and it has garnered outstanding publicity and interest.

Delano has already exceeded our expectation, driving rates up significantly versus the hotel, bringing in luxury convention customers for the first time and we're already seeing positive signs from our casino clientele as well at that resort.

The Strip frontage at Monte Carlo and New York-New York has been an exhaustive and somewhat painful process as we have ripped up the entire front of both of those resorts and now it's really coming together as that broader strategy on the west side of the Strip.

You'll like this a lot later this year when Shake Shack and Tom's Urban opens up in December, and that really will conclude the disruption that we've had at Monte Carlo at New York-New York and really become, we believe, a magnet for pedestrian traffic.

We, along with our partners AEG, secured the $200 million bank facility to fund the development and construction of our new 20,000 seat arena.

This partnership from the beginning was committed to be privately funded and we are very proud we accomplished this goal.

The construction is progressing on site and both of our entertainment teams have been seeking out and developing new and expanded events that will help fill this venue as well as our other arenas.

The construction has been really rapid and very exciting.

If you have been out here lately you can see that.

In New Jersey, MGM was unanimously approved by the casino control commission for our casino license in that state and we welcome the opportunity to once again be an active member in the New Jersey marketplace through our 50% ownership of Borgata.

Borgata, of course, is the best-in-class resort there and we look forward to working with our partner Boyd on its continued success.

On the regional development front, the construction of MGM National Harbor in Maryland is progressing and remains on track for a fall 2016 opening.

We expect that MGM National Harbor will be one of the most successful US resorts outside of Las Vegas.

In Massachusetts there will be a vote next week which will determine whether MGM will have the opportunity to develop a resort and casino in Springfield.

While we are not going to take anything for granted, we believe and are confident that the public will continue to support the jobs and investment that is really already underway in that state and they will vote no on Proposition 3. Collectively these three properties will make a significant impact on us and create a presence for MGM resorts on the east coast.

And we see opportunities to cross market amongst these regional quarter properties, as well as bringing those folks back and forth to Las Vegas.

In Japan, the debate on an integrated resort remains active.

MGM has been very involved and we will continue to look at all markets and have a full team deployed there, with offices in both Tokyo and Osaka.

I believe MGM is as well positioned in Japan as any company and with a globally recognized brand name in our business, a market share leader here in the convention and events business and the award-winning builder of sustainable projects, we believe our positioning there is very high.

We have also proven our ability to grow in multiple jurisdictions around the world and to be a successful partner with key local stakeholders, and I think that also will serve us well in Japan, should this move forward.

And so with that I'd like to turn it over to Dan to talk about our operating results and our financial position.

Thank you, Dan.

Thank you, Jim, and good morning, everyone.

In the quarter we achieved top-line growth with our Strip revenues up 3% despite a lower year-over-year hold on our table games business.

On the hotel side, our REVPAR growth of 6% exceeded our guidance of 5%, and this was our eighth consecutive quarter of REVPAR growth.

We were able to grow our convention mix by 3 percentage points during the period and looking at the fourth quarter, we expect to increase convention mix by about 2 percentage points, which will bring our full-year convention mix to an all-time record of approximately 17%.

Based on these current trends, we expect fourth-quarter REVPAR to be approximately up 5%.

In Las Vegas, our EBITDA for the quarter was negatively impacted by approximately $40 million relating to lower table games hold, largely nonrecurring employee benefit expenses, and to a lesser extent, cost and near-term revenue impacts associated with the launch of the Delano and the new Strip-facing food and beverage venues at Monte Carlo.

CityCenter's third-quarter EBITDA from resort operations increased 2% to $64 million, driven by improved profitability at Vdara, Crystals and Mandarin.

Aria's EBITDA decreased 3% due to a decrease in table games hold percentage.

REVPAR at Aria increase by 10% and the resort also recorded its second-best quarterly occupancy of 94%.

Vdara's third-quarter EBITDA increased 30% compared to the prior year, primarily driven by a record occupancy of 96% and a 12% increase in REVPAR.

Crystals reported EBITDA of $11 million up 8% compared to the prior year quarter, another successful quarter for Crystals.

Moving over to the balance sheet, our consolidated MGM Resorts cash balance at the end of the quarter was approximately $1.3 billion, of which approximately $540 million was at MGM China.

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

CityCenter cash at the end of the quarter was approximately $404 million, which included about $157 million of restricted cash.

Total debt at CityCenter at the end of the quarter was roughly $1.5 billion.

During the quarter, we spent approximately $103 million in CapEx related to our wholly-owned domestic operations and an additional $46 million related to National Harbor and our Springfield efforts.

MGM China spent $98 million, of which $17 million was spent at MGM Macau and $81 million was related to our MGM Cotai development.

That concludes my report and I'll turn it over to Grant for his.

Thanks, Dan, and also good morning and good evening.

A nice quarter.

MGM China net revenues was $794 million.

This was a decrease of 2% year-over-year due to the decrease in our VIP games revenue.

However, EBITDA increased by 14% year-over-year to $226 million before our branding fee of $12 million.

Very pleasingly, EBITDA margin increased by 330 basis points year-over-year to 26.9%.

Our increased profit was driven primarily by our main floor table games.

MGM China's main floor table games win increased by 34% year-over-year.

This was a significant overperformance versus the market growth of 16%.

Our continued strength in this segment is driven by the appeal of the MGM brand, our property and our quality services.

Margins on our main floor business remain high as we continue to execute on our strategy.

VIP win turnover decreased by 19% year-over-year.

This is consistent with the market trend.

Our overall hold was 2.7% compared with 2.8% last year.

Slot handle increased by 5%, but our slot revenues decreased by 7% year-over-year due to lower hold.

We continue to improve and drive better overall yield on our table games productivity through enhanced analytics.

As of the quarter end, we have over half of our tables allocated to the main floor, which drove approximately 75% of our profit.

Through our yield efforts, we will continue to maximize our table profitability while allocating tables to the higher margin main floor.

MGM Cotai construction is moving along at full steam, as Jim mentioned, and the project is on budget and scheduled to open in the fall of 2016.

We believe that MGM China has the greatest potential for growth in the market with our second property in Cotai.

MGM Cotai will nearly quadruple our room base and triple our gross floor area, which will allow us to expand our reach into retail and entertainment.

These all will create opportunities for earnings and margin improvement.

With that, I would like to turn back over to Jim for his closing remarks.

Thank you, Grant, and really well done in the quarter.

Back here in Las Vegas, we are really encouraged by the trends that we are seeing, and as you know, October consumer confidence was at a seven-year high.

That's very important for us here in Las Vegas.

People in general are feeling better with not only job security, the low interest rate environment, declining gas prices and we're seeing that reflected in visitation and convention business.

From a broad market perspective, we believe Las Vegas is extremely well positioned.

It's hard to believe now after being in 2009 and 2010, but year to date our visitation is up 4% for Las Vegas and this pace will mean that we are approaching 41 million visitors by year end.

That of course would be a new record for Las Vegas.

Bacaran's airport passengers are growing and importantly the international passengers are up 12% year-over-year.

The convention business is strong and building, and we at MGM continue to invest where we see opportunity.

We're really excited about next year as well, when we welcome Rockin' Rio, which will debut in May of next year, and the 300,000 square feet of expansion space that we're building at the Mandalay Convention Center, which also will open up next year toward the end of the year.

And of course immediately following that in the following year is the new arena and the other Strip improvements.

Beyond Las Vegas, we are very excited about what we're building.

MGM Cotai, obviously, as Grant said, will have a profound impact on MGM China's footprint and MGM National Harbor will have a profound impact on our Company.

Both of those are set to open around the fall of 2016.

And with that, since we have plenty of time, I'd like to turn it over to the operator to move to the Q&A section of our call.

(Operator Instructions)

Joseph Greff, JPMorgan.

Good morning, guys.

Question for you, Dan or Jim, looking back at the 3Q and the Las Vegas result and the $40 million impact you highlighted related to a number of different things.

Can you delve a little bit deeper into the employee benefits expense and why that nonrecurring?

The Delano, obviously, that opened up at the end of September.

I'm presuming that expense in revenue impact has gone away and the Monte Carlo impact, has that gone away as well or is that something that is less now than it was last quarter and then ultimately gets better until it opens up next year?

In total, I guess what we are trying to figure out is, is that $40 million, how much of that is largely really one time and kind of goes away?

And then I have a follow-up for Grant.

Thank you.

Sure, Joe.

This is Dan.

When you look at the $40 million, you exclude the impact from hold.

Really, we are looking at that remaining piece.

It makes up about 70% of that remaining piece related to some of the changes in accruals on the employee benefit side and the other 30% really relates to the impacts from Delano and Monte Carlo.

You are correct in that obviously Delano is behind us now and ramping up nicely, as Jim pointed out, and as is Monte Carlo.

It is continuing to gain more and more traction as those amenities and offerings continue to settle in the market and the rest of the buildout with Shake Shack and Tom's Urban et cetera, over the upcoming months comes on line.

When you look at kind of the benefit expenses, as Jim mentioned earlier, as we prepared to kind of grow the Company and look at our benefit plan, certain accruals have been adjusted as we level set certain of our benefits.

That affected us in the quarter, particularly around things like paid time off and those types of issues and those are more nonrecurring going forward.

They are not only normalized, but with breakage and other pieces will come back the other way in future quarters as we move forward.

Another component, and really it was isolated to two or three employee benefit line items, so another component is yes, we are self-insured from a health benefit standpoint.

Occasionally, we have unforeseen items that come up and incident in our employee base and that affected us in the quarter as well, but that should more normalize as we move forward.

So when I look at the overall expense line items and look at big-ticket items, I'm comforted in the fact that our MTEs are in line.

Our actual wage line in terms of our salaries and payroll line is, it is where it should be and in line and the expense line items that affected us in the third quarter was really a few line items specific and we know exactly what though cause of those items were.

So absent swings in table hold percentage, we would expect flow-through for year to be in that 50% to 60% range?

I think as we go through, and obviously given our business, our flow-through percentages going to move around.

I think when you look at the impact of the $40 million, our margins would've been up in the quarter, I think a little over 23%, about 23.1% in terms of margins and adjusting for those items we're going to have had pretty flow-through.

But I think the flow-through story really needs to be looked at on a long-term perspective as opposed to a quarter-by-quarter perspective and obviously our goal is continuing to focus on margin and margin improvement from that standpoint.

Got it.

And then Grant, the EBITDA, the margin performance in the quarter a bit better than we all expected.

The margin performance, I guess, is the highest at the property, at least more recently.

Other than the mix changing between mass and VIP, and you don't really have the benefit like others of stronger higher-margin retail revenues, what's driving that margin component and how much of it is outside of mix?

And then if you can share with us what you are seeing broadly in October.

I don't know if you want to talk about it on a relative basis, but if you can share anything on October trends in Macau, that would be helpful for all of us.

Thank you.

Okay.

Thanks.

Mix is important, that's true, and we're starting to get to that point, that critical next point, tipping point where the revenue mix is starting to move pretty rapidly towards the mass, which is good.

So that's been significant.

The critical point was is that several months ago, even back into the, oh my, six months ago we started to see some indicators and so we started to make sure we were putting a lot of effort into managing cost and just controlling those expenditures and making sure that we knew where it was going.

And frankly, probably we have done an even more positive job in terms of managing those costs, because it's actually lifted the margin as well.

I think it just continues to be the same simple process we've been going through and that's really a fine sense of focus on execution, really working the analytics, getting a really good indicator of where we think the markets going to move and try to anticipate that and really keep it all together.

And I think that's really important.

To the second part of your question, in terms of October, I think it's important for us to now step back.

We, for many years, all looked at Chinese New Year and we look at, so a National Day holiday, of being the big spikes in our business.

And I think if we look back to the first quarter, we all started to see that in fact the Chinese New Year bubble had dissipated some and actually if we went back to National Day last year we saw a similar effect where the growth was not as pronounced month on month.

And I think that is consistent with actually the trend in China now where the government is now trying to flatten out these spikes.

I think we need to look at it in a trending position and we need to look at the traditional holiday period not in the same light as we did before and that's actually positive because I think were going to see the business going right through.

I question that the numbers you've seen come out from the government, the markets up a little bit.

Hold is obviously affecting a number of us.

It's obviously been a little touchy in that regard but in terms of the mass business given all the other challenges we are seeing, it still pretty stable, pretty consistent and we continue to be positive in moving forward.

Thank you.

Carlo Santarelli, Deutsche Bank

Hey, everyone.

Thanks.

Good morning.

Dan, just wanted to follow a little bit on some of your group commentary and convention business.

As we think about your performance on the Strip with respect to group and convention relative to broader lodging and start thinking about next year, do you guys feel you could be a share taker?

And maybe within that context, obviously the 1Q comparison is extremely difficult with the rotating show.

Could you comment a little bit about how you foresee the 1Q playing out?

Hey, Carlo, it's Sarah.

I'll answer a little bit and then Dan can add some color.

This year we're looking at pacing to about 17% convention mix, which is a record for our Company.

Our pace continues to be up next year and despite outperforming our target by at least 1 full percentage point this year we should meet, if not do better, than this 17% mix next year with kind of a low- to mid-single-digit rate increase in convention.

Obviously, we had a fantastic first quarter of this year with 14% REVPAR and we have a big convention that rotates out in the first quarter, but that being said, I'll reiterate our comments from the last call which is, it's our goal to increase REVPAR at least every quarter of next year.

And I would add, Sarah, we always plan on stealing market share.

We're very strong in this segment.

That's why we are adding the 300,000 square feet at Mandalay Bay.

Were pretty much maxed out in peak periods.

Were fully utilizing the space.

The way were going to get the market share in the addition of Mandalay base place but also utilizing the space that we currently have in much better ways and aggressively buying back from customers space that we see as an opportunity for us to increase the convention market.

Great, thank you.

That's very helpful.

Grant, if I could just to further up on Joe's question earlier, if we thought about your segments between mass and VIP and obviously acknowledging that a lot of the move is going to be from that advantaged margin mass business, could you kind of comment a little bit on maybe the margin integrity within the segments?

Are you seeing anyone being overly promotional?

Or asked differently, are your mass and VIP margins relatively steady?

I think maybe Jim can answer this one.

(multiple speakers)

Maybe I'll grab that and, Grant, maybe you can join in too.

We are really quite impressed with how Grant and the team have been doing on the mass side, and I know there's been a lot of chatter around mass and who has the competitive advantage around mass.

I spent enough time on Wall Street to know that the important thing is to look at the numbers.

That would be helpful.

And if you did look at the numbers, you would see that our mass GGR grew 34% in the quarter versus the market that grew but 16% and Cotai was only up 19%, so MGM China up 34% versus Cotai.

The Peninsula is where the premium mass has been outperforming and we continue to expect that to happen.

We've wish we had more hotel rooms at MGM.

We're proud of the fact that we have the highest EBITDA per room in the industry and we know that rooms drive revenues, which is exactly why we're excited about MGM Cotai.

We're also excited about phase two, to actually build more hotel rooms in Cotai.

We think with the market growing as it is in the mid-teens, there is room to grow without discounting.

And I know that some of the operators have tried to compete with discounting, but that's not a winning strategy and it doesn't really motivate the customers, which are motivated by the quality of the amenities and service, and in that case we perform very, very well because of Grant and the team.

And so we don't see any need for discounting and the fact that we're dramatically outperforming the market without doing speaks to why that's important.

Great, guys.

Thank you very much, Jim, that was helpful.

Felicia Hendrix, Barclays

Hi.

Good morning.

Thank you.

First I just wanted to get back to flow-through.

It sounded like from some of your prepared remarks, previously you've said that flow-through for the Company, your objective is to have 50% to 60% flow-through, and from your prepared remarks it seems like while this quarter had a bunch of puts and takes, you haven't really veered from that strategy.

I just was wondering if you could just touch on that and perhaps reiterate your goals there?

Well, sure, Felicia.

This is Dan.

That still, and continues to be, our goal and we're looking at not from a quarter-by-quarter basis but over a longer term period and we continue to kind of remain focused on that perspective.

I think when you look at even the third quarter and adjusting for the items we discussed earlier, we would be roughly at about 40% in the quarter and north of 40% for the year.

And so I feel with the investments we're making, with some of the positioning of the properties in the portfolio, I feel like we're right where we kind of need to be from that standpoint.

There's still more work to do but we continue to remain focused on maximizing the profitability of these buildings.

Great.

And then just a few property-specific questions.

On the Bellagio, the REVPAR growth was lower than we expected, especially given how some of your peers performed in the market.

I was just wondering if you could give us some thoughts on the REVPAR performance there and how we should think about that going forward.

I'll start that one and then I'll turn it over to Corey.

You're right.

I think there is room to push rate here at Bellagio.

Bellagio did well but the convention rates in particular were lower than what they could have been and one need only but to be here, as Bill Hornbuckle and I walked from year to Vdara and saw how crowded our conference and convention facilities were, I couldn't even get through the hallway.

The place is teeming with people.

We're having a monster month in terms of attendance here at Bellagio in terms of conventions and they are benefiting from better values than they should.

So yes, these are rates that were established a couple years ago in some cases, or last year.

There's opportunity which we will take advantage of, of driving rate here at Bellagio, both on the convention side and the FIT side, and we firmly expect to be able to be able to be much higher in terms of rates in the future.

You want --

I agree, Jim.

We been focused on this the last few quarters in particular.

We have started pushing rates.

We do have a lot of old business on the books that will clear its way out, which will help that rated achievement thing.

How long do you think it will take to clear out that old business?

Probably six months.

It's already starting to clear itself out.

We just hired a brand-new Vice President of Sales here at Bellagio who is extremely focused on this and driving the rate in that segment.

Okay.

Thanks.

And then on -- at MGM Grand, we all know you had $18 million low hold, effect from low hold in the quarter.

I'm assuming that was all at -- was most of that at Mirage?

Felicia, this is Dan.

It was a combination.

When you look at the individual properties, Mirage from a year over year in a normalized level was the largest decline.

They were actually well below normal and well below prior year.

The MGM Grand on a year-over-year basis held well last year, held more normal this year, so they were down from that perspective as well.

Those are probably the -- from a hold standpoint the two biggest change, slightly offset by the Bellagio being a little bit better year over year.

They held toward the low-end of their range and they were more normalized this year.

(Inaudible) at MGM was about almost 9%.

And then just finally on Grand, you guys historically have high hold, low hold, you have different events there that affect your results every quarter, so when you look historically backwards and you look at your EBITDA margins for that property, they are pretty volatile.

Is there any reason to think on a normalized basis that the property would not have the same kind of flow-through as your corporate goals are stated?

No.

I wouldn't think they would be that much different.

So long as measured on the long-term.

All right.

Okay.

Thanks so much.

Shaun Kelley, BOA Merrill Lynch

Great.

Good morning, everyone.

This question is probably either for Jim or for Corey, but I was just wondering if you could give us a little bit more color on what you are seeing at both the high-end and then the core or mid-tier portfolio in Vegas?

Anything -- you guys see a broader cross-section of the market than anyone else.

Wondering if you've seen kind of any pickup pretty early on the core site for the consumer at this stage?

Yes.

Shaun, it's Corey.

REVPAR was pretty consistent across luxury and core.

They were both up pretty consistently.

We're seeing spend -- the revenue spend, we look at it revenue per occupied room.

We're seeing that up also, about 3% to 5% and luxury and core across.

I think the consumer is getting better and healthier here.

The core is picking up, definitely, from my guess is the consumer confidence and lower gas prices are helping those properties.

Maybe just to be clear on that, the REVPOR, the revenue per occupied room, was up.

And if you take the casino out -- right, Corey?

It was up 6% in the third quarter.

That's a strong quarter on revenue per occupied room and I think that signals again the strength of the consumer and we're seeing that both at the core properties as well as at the luxury properties, so if you -- we can't do this because we're in the casino business, but if you looked at the non-casino portion, that revenue per occupied room was up nicely in the quarter and that's encouraging.

I don't want to put words in your mouth but it does sound like the gap between those two, which has been pretty wide over the last 12 to 18 months, is that narrowing?

It sounds like it is, but like I said, just kind of wondering if you could comment?

We've had a good few quarters actually in core, and a lot of that is dependent on as long as the convention business in town is strong, but the confidence in the core properties, even when the convention business is not here, we're seeing some pricing ability which we haven't seen in the past.

And I would add, Corey, that we believe in 2015 the convention business will be stronger in the city than this year and that is the critical element to the success of the core properties.

Yes, we're going to build share in the convention business as we have this year, we will build share, we believe, in 2015.

Yes, the luxury properties can do well even if the convention business is not growing rapidly, but the core properties are dependent upon the citywides and even with that big convention that won't be here next year we believe that the convention business will be higher, which will benefit the core properties and we think and believe by expanding the Mandalay Convention Center, that will help at least two of our core properties that are right next door and perhaps others, because many of these new conventions are booking segmented rates.

So they will be in the Mandalay Convention Center but get room rates from us from a variety of our properties, including core properties to give their delegates options on pricing.

So we believe that the core properties next year will benefit from a better citywide.

The investments that we are making, like at Monte Carlo and New York-New York, the expansion to the convention center, the fact that Delano has become a big social media phenomena right now and is very popular, will help those properties.

And narrow, I think you are right, the gap between the success of our luxury portfolio and our core portfolio.

That's very helpful.

My last question, just to follow up on the Delano, since there is more non-gaming element to it, when this debuts and now you've passed some of the preopening the question is, is there much of a margin impact, positive or negative, as that ramps or can it ramp with decent enough margins you're not going to see, let's call it, negative mix from a low margin property ramping?

Shaun, I think with 1,000 rooms the impact will be positive on the margins.

How significant it will be metered a little, but we are seeing a pretty significant rate increase in there of about almost $40 from what we were experiencing before.

I think what else we are seeing is, we're seeing the convention segment actually being attracted to that product.

In the past it's been more of a flow over.

Now they're actually asking for that business.

The third component of that, the casino customer never stayed in the Delano, the hotel and we are seeing some demand for that.

So you take a hotel that was probably rated about at Mandalay Bay and you get that extra dollar amount, you push some more convention business in there, it can only help margins.

Thank you very much.

Thomas Allen, Morgan Stanley

Good morning.

On Vegas, on the renovation disruption, should some of it -- is some of it going to leak into 4Q?

And then, is there anything planned for 2015, just as we think about the comp there?

Thanks.

Tom, this is Sarah.

In the fourth quarter, ultimately, margins flow through.

They tend to be skewed towards the back half of the quarter as it is such a highly focused gaming quarter on Western New Years so we'll kind of have to wait and see from a hold perspective.

As Jim mentioned, we're having a great convention quarter.

I think the mix is up about 3 percentage points in the fourth quarter so that's fantastic.

I also would remind you that we did have a strong margin fourth quarter in last year and we highlighted those benefits on the fourth-quarter call last year.

It was certain accruals, PTO reversal and some in-life adjustments as well.

So just to be aware that comparison.

And on the fronts, the Shake Shack wall and Tom's Urban wall and comes down in mid-December so I think that you'll see the free flowing of people.

You'll still have a little impact the first few months and then it frees up near the end of the year.

More and more connectivity we get between New York-New York, the park, which will have a, I'll call it a phase one in early 2015 connecting to Monte Carlo, the more and more connectivity between those buildings and attractions we create that west side of the Strip should, over time, continue to drive more foot traffic to the west side and ultimately into those buildings.

And then, as you build out the convention center at Mandalay and you build the arena, will those impact numbers at all?

Well there's really no disruption to expanding the convention center.

It's a surface parking lot that people don't walk by or through so there's no disruption there and there's very minimal disruption on the arena.

The biggest disruption there was traffic going into Monte Carlo.

The vehicular traffic has been challenged because we're building the park and then the arena.

We've got a lot of construction traffic around that.

That has an impact, not on pedestrians, but it's more challenging from a vehicular perspective.

The answer is no on the convention expansion, yes to some degree on the arena, although it's accessed primarily from the back of the arena and those are the two big elements for 2015.

Thank you, helpful.

And then just quickly, Grant, on the smoking ban.

I don't think I heard you mention anything about that.

Can you just give us some color on how it's impacting or not impacting?

Thank you.

Well, it's been implemented and obviously was a little bit confusing when it was implemented but we've worked through it and we're still refining it and we continue to refine it.

It has had some impact on some player behaviors but it's way too early to say what that's going to mean going forward.

It's a day-to-day exercise.

We need to keep trying to address the issues.

We are discussing with the government to further clarify and understand exactly how we should appropriately implement it in accordance with their guidelines.

Thank you.

Harry Curtis, Nomura.

Good morning.

Quick question on Vegas.

No one has touched on food and beverage.

When you think about how much money you made in food and beverage back in 2007 and then what you are making now, how big a gap is that, an EBITDA gap is that?

Do you see it closing, or how quickly is a closing?

I'm sorry, Harry, can you repeat that?

All right.

I was --

(Multiple speakers) a little bit, Harry.

Food beverage revenues were up 9% in the quarter and a lot of that was driven by catering business due to strong convention calendar.

So we should continue to see that grow, especially as corporate customers as a percentage of our convention customers grows, and they now represent over 60% of our future bookings.

Right but how much of an EBITDA impact might it have as it rebuilds over the next year or two, is my question?

I think we'd have to go back and look at what the spread opportunity could be and the margin opportunity.

We can come back to you off-line with a number.

Okay, fair enough.

And then Grant, as it pertains to VIP, it's kind of a dangerous question.

Is your sense that there's any stability in this in your customer base yet?

Well, it's transitioning.

I don't think it's an issue will of customer base.

I think were going through a realignment more than anything else and that's been going on for some time and it's being well discussed and well reported.

The operators are still seeing customer flows.

Yes, it's down on previous experience but they are starting to reconsolidate and the feedback we're getting is they are starting to be a little more positive as they readjust to the new conditions.

And as it pertains to promotional environment in the premium mass segment, a lot has been made about how there's risk to your margins.

How much risk do you think that there is to your margins in the premium mass business over the next year?

I guess, Harry, that the obvious proposition as we knew the market is starting to be challenged and so the actions we took several months ago, you are starting to see the effects today and that is about making sure we offer the services and, more importantly, we direct the sorts of returns to the customers they are looking for.

There's a lot of wasted money goes into marketing programs of activities and costs that actually the customers don't value and that's really where we've spent time.

So that's you manage pricing as much as anything else and I think we are really focused on that.

We are going to stick to our (inaudible).

We know what we are good at and we know what were capable of doing.

I think some on the market may feel the need to take a pricing initiative, but I guess I've been in the business too long.

I know that's not a good course.

It's a very short-term response and it really doesn't help anybody so we want to stay out of that and we've just got to focus on making sure that we deliver value to the customers and they want to keep using our facility.

It's good to see it working.

Thanks, Grant.

That's it for me.

Steven Kent, Goldman Sachs.

Hi, good morning.

Maybe just one of the -- a longer dated question.

From the capacity that this appeared and now seems to be coming on over the next few years for Vegas, can you just give us a sense for that, what you are seeing there?

Genting looks like they are moving along.

Do you think that as the economy improves you will see some of the other projects jumpstarted over the next couple of quarters?

Well, Steve, it's Jim.

I'll try to tackle that although it's not clear.

But we are excited about Genting in particular because we believe, given the source of capital, the location of the company, it will drive incremental and new customers to Las Vegas.

And we're rooting them on.

We like it be opened sooner rather than later because we don't believe it will just necessarily cannibalize existing capacity.

We do believe it will drive new customers and we think we'd be a beneficiary of that.

So we're cheerleading that one.

The other one that we are aware of that is tangible is James Packer and our partner and friend Andy Paschal.

That's going to be a much smaller, more boutique-like property, at least by Las Vegas standards boutique and focused, we believe, on the higher end and higher-end non-gaming, which I think is a good strategy and we're encouraged for that.

But for those two, we really don't see anything.

The Fountain Blue remains a haven for wild animals.

It doesn't seem like there's any activity going on there whatsoever.

We don't hear of any other properties that are on the horizon.

So if you were to add those two to the mix and include only those two, that's a pretty small amount of capacity adding to the market and its many years away.

So we think that if Las Vegas visitation continues to grow even in a low-single-digit rate and that the citywide convention business steadily recovers to its post-recession level, which we believe will occur in the next couple of years, the existing properties, all of which will do well, ours and our competitors, and our hope is in that rising market we just continue to take more and more share through the investments that we're making to try to make these properties more adaptable to the current consumer, which as you know is more spontaneous, more experimental and more fickle.

So by creating these outdoor spaces like Caesar's has with the link and we are doing at our properties, we think that is going to drive incremental visitation to our properties within that rising market.

Okay, thanks.

Robin Farley, UBS.

Great, thanks.

I have two questions.

The first one on Cotai.

In your release you slipped in the word fall into talking about the opening day.

I think last quarter you talked about it just being 2016, which kind of suggest better visibility.

But also in the last couple days your partner was quoted saying there may be delays and so I wonder if you could tell us about how you feel about the visibility and the opening date there.

And then I have a Vegas question as well.

Grant, you want to take that one?

Sure.

Thanks, Robin.

As you well know, and you heard we're pouring an awful lot of concrete and steel and you are correct, we are just refining the plans.

We are very comfortable working with the contractor that we are got a lot more accuracy and a lot more sense.

Still some challenges as to licensing but even that process we're starting to get more comfort and understanding how that process is going to work.

So that's really what it is.

We're just trying to provide a little more guidance.

Okay.

And to the comment recently about potential delays, would you say that you feel better now than you did a few days ago in terms of that?

I'm just trying to understand how --

I think the fact of the matter is our program is pretty accurate.

Were not seeing any delays.

Our contractor is pretty comfortable and confident in terms of labor.

In fact, they got lots of more bodies coming onto the site as the work gears up.

Material sourcing is right on track and we're working through the process now so we're pretty confident.

I think the comment was a general observation for the market, but we're pretty comfortable we're pretty well honed in on what we need to do to get the job done.

Okay, great.

Thanks.

And then my Vegas question is when you look at the quarter REVPAR up nicely but the gaming revenues even it's -- kind of looking at slots as a measure of broad market since I know there are pieces moving with hold on the table games business, but does it seem like when you look at the trends overall for the year that -- are convention visitors maybe crowding out?

Is there a trade-off here where if you want the 5% higher REVPAR you give up the gaming revenue growth, maybe?

And that may be the best decision.

I'm just wondering if that's what you feel is happening when you look at the trade-off in the REVPAR versus gaming revenues?

Hi, Robin.

This is Corey.

With regards to convention customers, depending on the conventions, some play, some don't play.

The REVPAR -- our slots were up on the Strip in a very tough market and even with an increase in convention mix and it's been that way all year long, actually.

There used to be an old theory that it was a one-for-one trade-off, but I don't believe that's necessarily the case anymore.

I don't even mean for MGM.

I guess I just mean the market in general.

The market slot and revenue growth on the gaming side hasn't been as good, has been fairly flat first as the REVPAR increases.

So it wasn't -- it's not even sort of something different for MGM but just kind of a market dynamic.

I think given the dynamics in the United States on gaming revenue to have positive growth in slots is really a positive sign for the city.

And I think it shows the power of our MI program that we're able to have games and slot revenue with increases in the convention market.

Thank you.

Thank you.

And this concludes our question-and-answer session.

At this time I would like to turn the call back over to Management for any closing comments.

Thank you all for joining us and thank you, Grant, for being on the call as well.

As always, if you have any questions please feel free to reach out to any of us for follow up.

We look forward to seeing and talking to you soon.

Bye-bye.

Thank you.

The conference has now concluded.

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