美高梅國際酒店集團 (MGM) 2015 Q3 法說會逐字稿

Good morning, and welcome to the MGM Resorts International third-quarter 2015 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, Bill Hornbuckle, President, Corey Sanders, Chief Operating Officer, Grant Bowie, CEO and Executive Director of MGM China Holdings Limited.

(Operator Instructions)

Please note, this event is being recorded.

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

Please go ahead.

Thank you operator, and good morning and welcome everyone to our third-quarter earnings conference call.

This call is being broadcast live on the Internet at www.mgmresorts.com, and a replay of the call will be available on the Company's website.

We furnished our press release on form 8-K this morning to the SEC as well.

On this call, we will make forward-looking statements under the Safe Harbor Provisions of the Federal Securities Laws.

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

Additional information concerning factors that could cause actual results to materially differ from those in these forward-looking statements, is contained in today's press release.

And in our periodic filings with the SEC, including our most recent 10-K.

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

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

Finally, please note that this presentation is being recorded.

And with that I'll turn it over to Jim Murren.

Thank you Dan.

And good morning everyone.

We have a lot to get through today, and a lot of exciting news.

Before I dive into the quarterly results, I want to first briefly address the big news of the morning.

The Board of MGM and its executive team have come together to announce, as a result of an exhaustive strategic review, which we have outlined with you on many calls before, MGM resorts intends to create a real estate investment trust or a REIT.

This is a spinoff, but a the newly formed REIT, and it will be a public subsidiary of MGM Resorts.

We will call this company MGM Growth Properties.

We believe that this transaction is going to create significant long-term value to our shareholders.

And position MGM resorts as a leadership position, as well as set the framework for MGM Growth Properties to grow rapidly in the future.

Before we get into that transaction, I'm not sure we'll have a lot of time in Q&A for -- this is, as you know, an earnings call.

So we want to first start with our very-fine results in the third quarter.

As you can see, we outperformed in every market in which we operate in the third quarter.

Our wholly-owned domestic resorts -- we had the best EBITDA in the third quarter in seven years.

And in fact, it was the best EBITDA growth quarter since 2007.

I just want to reflect on that for a second, and thank the men and women of MGM, that have produced such an astonishing growth in our cash flows in the third quarter.

Our margins, of our wholly-owned domestic properties, increased over 400 basis points year-over-year.

And that was driven by both our Las Vegas and our regional resorts.

And in fact, it was also the best margin growth quarter we've had as a company, since 2004.

I think that speaks to the quality and the diversity of our resort offerings, which are awfully unrivaled in Las Vegas.

And we believe that competitive edge is only going to strengthen, when we continue to focus on our profit growth and bring on new amenities for our guests, our customers.

Notably the new 20,000 seat arena that opens up next year at the park.

Along with the 5000 seat theater that Monte Carlo will get by the end of next year.

Over at CityCenter, their resort operations increased EBITDA at an astounding 20% year-over-year.

That entire campus continues to thrive and grow.

Literally across all its segments.

And in Macau, Grant and his team have worked really hard to maximize profits.

And that was evidenced, you could see, in the sequential margin improvement that Grant was able to achieve.

As you know, back in August, we announced our profit growth plan.

If you recall, we said, that MGM would fully implement that plan by the end of 2016.

And in doing so, we would realize approximately $300 million of incremental EBITDA by the year 2017, for that year.

Ultimately driving our margins back to the 30% level.

The key to the plan was to challenge, literally reinvigorate and encourage the entire company to make change -- positive change.

To work smarter, be more innovative, and permanently enhance our business.

In other words, we weren't looking for the quick fixes, we were looking for meaning full long-term change.

I've got to tell you it was not initially, an easy task and certainly not one that everyone thought we could accomplish.

It requires a structured approach, and a very dedicated project management team.

And really a relentless focus on change management.

As well as communicating throughout the organizations, and being just absolutely dedicated on execution.

I say that because, I am incredibly impressed with the progress that we've made thus far in these few short months.

I'm proud of the management team, I'm proud of the Board for giving us the tools to do this.

And I'm especially proud of the employees, who are fully engaged and have been instrumental in the success of the plan so far.

I'm really proud to say, that we are implementing on all fronts.

Both in terms of the revenue-generating initiatives, as well as the cost-savings ideas, literally throughout the entire portfolio of resorts.

Some of the initiatives are in the early phases of being rolled out.

Some have already taken traction.

Preliminary results are very promising and in some areas, we are doing better than even we initially anticipated.

We are well on track to actualize 10% or 15% of that targeted $300 million of the criminal EBITDA, by this year end.

We are well on track of achieving that goal that we set out on our last earnings call of grabbing all of that money for 2017.

And more importantly, we are laying the groundwork for a stronger company that continues to drive value for everyone -- our shareholders, employees, guests, and of course the communities in which we operate.

You will get, as promised, a quarterly update on our PGP.

But the early report card is A+ for the management and employee team.

And we are on a roll here.

With that, I'll turn it over to Dan D'Arrigo to dig into the financials a little.

Thanks, Jim.

First, we will start in Las Vegas.

We saw improvement across all three of our important segments -- casino, hotel, and our food and beverage operation.

On the casino front in Las Vegas, we are up 5%, led by increases in both our slot and table games win.

Our domestic table games business continued to benefit from an improving domestic rated-play customer, as we continue to drive visitation into our resorts with our new and exciting entertainment offerings and our in-life program.

This was offset by lower China sourced-based business, on the high-end side of the equation.

But our casino marketing team have done a terrific job in diversifying across various regions of the world, including other Asian countries, to mitigate some of the softness we've seen in China.

Our hotel business was led by a robust convention segment, as well as healthy leisure bookings, as the market continues to show signs of strength.

Our wholly-owned Las Vegas strip properties achieved 8% RevPAR growth in the third quarter, exceeding our guidance of 6%.

These results were led by strong RevPAR gains at our non-luxury strip properties, which are up some 14%, while our luxury resorts were up 6%.

And looking ahead, we are continuing to see strength in our forward convention-booking trends, both in terms of volume and pricing.

We're also seeing the booking window slightly expand as well.

Based on these trends, we expect to reach a new record in terms of our convention room mix of 18% for the year.

As you recall, that is up from just over 17% last year.

And we anticipate our fourth-quarter, wholly-owned strip RevPAR growth to be at least 8%.

Our wholly-owned strip EBITDA margins increased 465 basis points to about 25% in the quarter.

This is as a result of not only the strong performance across the board, at all of our domestic properties.

But also, we're beginning to see the early benefits of our profit growth plan.

Our wholly-owned, non-luxury strip resorts continue to grow in the third quarter, producing EBITDA growth of 41%, with our luxury strip resorts growing by 24%.

Our regional properties continue to perform well, and operate the best-in-class resorts and demonstrate their leadership in each of their respective markets.

Their collective EBITDA grew by approximately 10% in the quarter and margins increased by 150 basis points collectively at those resorts.

Jim mentioned CityCenter earlier.

It was led by a strong performance at Aria, which reported EBITDA growth of 23% to $59 million in the quarter, driven by 7% RevPAR growth, and solid gaming volumes, as well as continued strength in their convention and catering business.

Vdara also achieved strong results with 30% and 7% EBITDA and RevPAR growth respectively in the quarter.

And Crystals continue to perform well, and continues to attract luxury premium brand into its facility.

Looking at the balance sheet at the end of the quarter, cash and equivalents was approximately $1.8 billion of which approximately $808 million was at MGM China.

We had $1.2 billion in available liquidity under our corporate revolver, and approximately $700 million of excess cash on hand at the Parent Company.

After giving effect to the pay-down of $875 million of senior notes during the quarter.

CityCenter excess cash on hand at the end of the quarter, was approximately $262 million.

And total debt at the end of the quarter was approximately $1.5 billion.

To help with your modeling in term of CapEx in the quarter, we invested approximately $252 million in capital related expenditures.

Here domestically, we spent $109 million in our existing properties.

$120 million on National Harbor, and $23 million for MGM Springfield in the quarter.

In addition, we completed the equity contribution -- our required equity contribution as part of our Arena Joint Venture of $16 million in the quarter.

And are now into the loan at the Arena for the rest of the funding, to complete the project in April of next year.

During the third quarter, MGM China spent approximately $155 million, of which $144 million was related to the development of MGM Cotai.

In the quarter, our corporate expense was higher than both our guidance and normal, as we had some expenses related to implementation of our profit growth plan as well as the expenses related to our strategic review process.

We anticipate that we'll continue to have both of those costs in the fourth quarter and our guidance for corporate expense in Q4 will be similar to what we experienced in the third quarter.

With that, I'll turn it over to Grant for his Macau update.

Thanks, Dan and very much appreciated for this early call time.

For those of us in Asia.

MGM China, like the other operators in the market continues to experience a challenging business environment in Macau.

We're encouraged to see some recent stabilization in the mass market.

However, we still believe the VIP (technical difficulties) just yet.

For the third quarter, we recorded net revenues of $529 million and an adjusted EBITDA of $137 million, a decrease of 4% sequentially, before the license fees.

It's worthy of noting, that despite current market conditions, our EBITDA margin has improve sequentially in the past two quarters.

Our property EBITDA margin before license fees was 26% for the quarter.

And this is a 49 basis point improvement over the second quarter.

We will always, and continue to maintain a disciplined approach to efficiency management.

And we continue to review our business prices and have been successful in eliminating costs to prevent deterioration in margin, without impacting on our customer service standards.

Our VIP table game win was flat quarter-on-quarter, while VIP was favorable, and Nassau was at the low end of the range.

In this changing market environment we are adapting our business to drive revenue across our business segment with more of a focus on our non-gaming operations.

Compared to a year ago, our hotel cash revenue was up 24% and are rental income from leasing was up 36%.

This of course, was on a lower base, but it reaffirms our commitment to diversifying our business.

As we execute our plans in anticipation of our Cotai opening, we are also realizing a cost base, which will be significantly leaner than if we were running these two properties as separate units.

At MGM Cotai, we've achieved a milestone by topping off our hotel towers and will be celebrating this event in the coming weeks.

We've also completed the structural steel installation on our spectacle roof structure and are on target to be completely enclosed by the end of December.

We remain on budget, and on target for a fourth quarter 2016 opening.

As we seek to support the wide-out Macau business community, earlier this month, MGM China announced our plans to expand with our local small and medium-sized enterprises.

These initiatives are focused on further increasing our engagement with the local business community.

Additionally, six of our most promising Macau team members have traveled to Las Vegas, where they will develop their management, gaming, and hospitality skills as part of the MGM Resorts highly acclaimed Management Associate Program.

This is our second year that we have participated in this program.

Our goal is to provide our local talent with the opportunity to be our future leaders, as we look to support Macau's development as an international tourism destination.

With that, I'd like to turn back to Jim.

Thank you.

Thank you, Grant.

Thank you for your great work over there.

I look forward to seeing you next week.

Reflecting on the quarter -- the third-quarter, I think the Management team would say here that it validates our positioning in hospitality and entertainment, not only in Las Vegas, but around the world.

We are clearly outperforming our peers in our key markets.

Our market share is growing, we've been building upon our strengths with the types of projects we have initiated in Las Vegas, but also are growth projects, for example in National Harbor and in Springfield, Mass, and of course in Cotai.

The profit growth plan is already bearing fruit and it is accelerating.

We believe it will lead to an acceleration of the annual earnings growth of the company that we call MGM Resorts.

We felt that we were in a perfect position, a perfect time, to announce such a type of transition that we announced this morning.

This announcement is the culmination of a tremendous amount of effort and literally many hours of meticulous brainstorming, not only by our Board and Management teams, but by a legion of very expert advisors in tax, legal, corporate finance.

And it was, I have to say, the most exhilarating effort that I have been through in my 20 odd years doing this.

We looked at every single iteration and idea.

We chased down every thought that might lead to an increase in shareholder value.

We recognized that the company was blessed with significant value, real estate value.

We also understood that we did not want to jeopardize near-term value for the sake of a one-time gain.

I know most of you have read the details in the release, but in short, let me lay out this project for you.

MGM Resorts will create a REIT called MGM Growth Properties.

We hope this REIT will go public in the first quarter, right around the corner here.

MGM Resorts will retain substantial majority interest in the REIT.

We will contribute 10 of our premier assets, and approximately $4 billion of debt will transfer over to MGP.

For a year now, we have export countless structures and really even more iterations and we've determined after that analysis that this transaction solves some great opportunities for us.

It will highlight the significant inherent value of our portfolio of destination resorts and it also creates a very healthy platform for future grown both at MGM Resorts and at MGM Growth Properties.

Really, it's all there overall goal of maximizing long-term value for all of our stakeholders.

We believe we found the answer and frankly, it's more exciting than we had imagined when we began this journey last year.

MGM will contribute some of the most widely-known iconic resorts in the world.

Specifically, Mandalay Bay, the Mirage, New York New York, Luxor, Monte Carlo, Excalibur, as well as the park that we are building right now which will open up in April.

All of those Las Vegas properties will be contributed into MGM Growth Properties.

In addition, we will contribute our existing regional resorts; MGM Grand Detroit, Beau Rivage, and Gold Stripe Tunica.

MGM Resorts will lease, and continue to operate the contributed properties under a long-term, triple net lease REIT.

We will also retain 100% ownership of Bellagio, MGM Grand Las Vegas, Circus Circus Las Vegas, our significant undeveloped landholdings, and the equity interests in CityCenter, MGM China, Borgata, amongst a few others.

With the cash flows generated by the businesses remaining within MGM Resorts, MGM Resorts will maintain a very strong asset base, to allow it to fund capital expenditures at these properties, as well as our new properties in the pipeline.

With that as a structure, I want to take a few moments to talk through the why we went down this path and how we got here.

First, I think it's obvious to everyone on the call, that we have long identified and understood that our assets were significantly undervalued in the marketplace.

And for years, really we were searching for ways to create really greater connectivity between the assets that we own, and the values that are presently ascribed to them.

Our main objective here was clear, we wanted to thoughtfully address the valuation disparity in our portfolio of assets and businesses in such a way, that MGM Resorts which was, number one, creating long-term sustainable value for our shareholders.

Number two, ensuring that we were deleveraging the balance sheet, as well as minimizing dilution and transaction costs.

In other words, not destroying shareholder value for the sake of the transaction.

And number three, enhancing our growth strategy both in terms of operations and in marketing and preserving the overall alignment of interests between what will now be two different companies.

We think that this transaction meets all of the criteria I just mentioned, and is the best for the following reasons.

One, our teams have worked for the last seven months incredibly hard to strike the right balance in alignment of interests between MGM Resorts on one hand, and MGM Growth Properties so that both companies will be strong, thriving, and have a sustainable future.

The structure was designed to minimize friction costs, and in fact, we are highly excited about how minimum they are relative to all of the alternative transactions that we had initially explored.

The value destructing ideas of spinoffs in massive asset sales that would have resulted in large debt-breakage costs or purging of earnings and profits.

None of that happens here, because we've found a way to create a new company, a new REIT, where we'll have a substantial equity interest.

So that we can benefit from the growth of that REIT and minimal, minimal cost.

That structure appealed to our Board, given also the expedient timetable.

There's no waiting for an IRS ruling, there is no hoping that a deal can close in a year or two.

We expect that this transaction will close within the next few months and in fact we will have an opportunity to offer shares in this exciting new REIT in the first quarter of next year.

Secondly, we wanted to create a large, publicly traded triple net lease REIT that has a tremendous portfolio of assets.

Obviously, the highest quality assets of any triple-net lease REIT, certainly in the gaming industry.

We wanted to create a vehicle, and a financing platform by which we could lower our costs to capital, and raise funds for future growth opportunities for this REIT.

MGM Resorts will maintain a substantial economic interest in MGP, so we are in it together.

We want to see MGP grow, grow rapidly, and MGM Resorts expects to receive dividends as any REIT holder would expect.

And benefit from the stable and growing cash flows of MGM Growth Properties.

MGM Growth Properties also will have a right of first offer of our development properties in Maryland, and in Massachusetts.

Thereby presenting a growth path and a trajectory that is superior to any in the space.

Large projects that can be acquired over time, to add to the portfolio of already high-quality, high-cash flowing assets.

And at MGM Resorts, it certainly fast tracks our dedication to deleveraging our company.

Because as part of this transaction, MGM resorts will transfer approximately $4 billion of debt over to MGP.

And that Company, MGP well subsequently refinance that indebtedness through its own debt and equity, as a result of an IPO we expect in the first quarter.

As a result of that, MGM Resorts will have the ability to accelerate its path of deleveraging and further improve the financial strength and flexibility that MGM Resorts has.

In short, we believe we have found the mechanism to create two strong, rapidly growing, healthy companies with different investment profiles, and will attract different investors.

Yield investors, in the case of MGM Growth Properties, growth investors in the case of MGM Resorts and importantly, and this is very important, the daily operations will continue as usual.

We do not expect any impact on our employees, all of which will be MGM Resorts employees as they are today, our guests, and our business partners.

When I look back on this Company, MGM, over the past 18 years, I believe we've grown to be one of the best-managed and most innovative companies in our industry and one that is not afraid to make change.

This company has, and always will be an architect for thoughtful and transformative pursuits that create long-term value.

We believe this is the dawn of a new threshold for this company and we will lead this industry into an exciting decade to come.

And with that operator I would like to turn it back over to you so we can get into Q&A.

(Operator Instructions)

Joseph Greff, of JPMorgan.

With regard to MGP, can you give us a little bit more detail on the rental lease terms, dividend policy at the target leverage.

I know there's one other gaming REIT out there that we all look at as one version of it.

But, if you can provide those details?

Then my second question, obviously the 3Q much better than we were expecting.

On the EBITDA line, how much of it is just a better domestic market?

How much of it does relate to the profit growth plan?

Then where do you think you are in terms of the -- if you annualize what you achieved in the 3Q, where are you with respect to the benefits of the profit growth plan?

And that is all for me.

Thank you.

Maybe I will start Dan, and then turn it over to you so you can correct me.

(Laughter) First with study the GOPI lease, I think it's safe to say that we use that as an initial benchmark of looking at the current state that is out there.

We've also looked at leases that have been pro-offered by other companies, that have explored this concept.

And the overarching objectives were to create a strong REIT, and have good coverage in something that is pretty much market, I think is safe to say, Dan?

Yes that's correct.

Were not trying to reinvent the wheel in terms of lease structures here.

I think we would say that there are certain iterations to ours, which will be forthcoming.

That make it a little more contemporary, beyond that it's pretty much as expected.

I have to say about the quality of the assets, and the growth trajectory of the assets being contributed, Mandalay Bay as an example, just finished its convention expansion.

That's the fifth largest convention center in the United States.

We've invested a significant amount of capital in that property with the Delano, upgrading restaurants, the convention expansion.

And I would say, the same would be said for the amount of money we are currently investing around the arena, with significant dollars going into Monte Carlo with the theater, the upgrading of New York New York, the Park.

I would say that, because I believe there's going to be significant opportunities for all the contributed assets to grow.

And in fact, they are growing right now.

I looked at the third quarter.

If you were to look at the contributed properties in the third quarter, their cash flows, Kathy, I think were up 33%.

Right.

We are limited what we can talk about specifically on MGM growth properties.

But since they're ours, these properties, at MGM Resorts, I can tell you they had a great quarter.

And most of that was due to strong operating results in terms of RevPAR, food and beverage, and a great convention quarter, and a great outcome for this year.

The profit growth plan was minimal relative to the overall growth results that we had in the quarter.

And as I say, by the time we get to the end of the year, Chris, we might be 10% or 15% into the number.

But certainly the third quarter was not as big an impact.

It's going to accelerate rapidly as we progress over the next five quarters.

Can I just follow-up with regard to the REIT, and the leverage and the way about the leverage?

The REIT will initially have $4 billion of debt.

If I try to think about that leverage, that leverage will then the variable relative to the amount of equity to have a market-based leverage ratio, compared to other triple-net leases.

Is that how one should think about it?

Yes, Jeff.

That is pretty fair.

It will be very middle down the fairway, in terms of its leverage, compared to its peers in the market.

Got it.

Thanks guys.

Good job.

Felicia Hendrix, Barclays.

Good morning.

Nice exciting morning for everybody.

So, Jim, a large part of the value of this transaction in our view, how we are looking at it is the valuation multiple over-charge you're going to get by having the majority of your assets in the triple-net lease REIT?

And then, by having MGM own a significant majority of that.

We're trying to work that through now, everybody is.

And with the REIT not being a tax free, with the REIT being a taxable entity, it's probably going to trade a bit differently than the triple-net leased REIT peers out there.

So, as you thought about the value that would be created by this transaction, just wondering how you are thinking about the valuation relative to the peers in light of the tax status of the entity?

The REIT will be tax-free.

Okay, so it's going to be a true REIT.

Okay, because a lot of people had that question, and that would lead to the distribution.

That's great.

And then, when you say the significant majority.

Is there a way that you can help us through that?

Is it more than 60%, less than 70%?

(Laughter)

We are laughing here, because were trying to figure out what we are allowed to tell you.

We have a legion of lawyers, I will just tell you -- one, it's important.

We are establishing a REIT, tax-free.

That'll be we hope, launched in the first quarter when we do and IPO for -- and we'll offer shares to the public.

Initially, MGM Resorts will probably all around 70% odd of MGM Growth Properties.

With the balance being held -- in terms of the economic interests -- will own about 70% plus or minus of economic interests of MGM Growth Properties, with the balance being held by the public.

The reason why we were working through this, is that we believe there's -- clearly believe there's substantial upside in ownership of those -- that equity.

We wanted to create a company that had enough liquidity in the marketplace, a big enough REIT, that would trade really well from a liquidity perspective.

And we wanted to have an alignment of interests between this new REIT, which we will be managing, and MGM Resorts.

It also sets up a tremendous amount of optionality going forward.

The new REIT, of course will have his own Board of Directors.

It will be managed independently, and it will decide its own growth path.

That could mean anything in terms of MGM Growth Properties.

And we want to make sure it is intentional that it has maximum flexibility today, to pursue anything it would want to do in the future.

What we believe and we'll see what you all figure this out, your going to value MGM Growth Properties as a REIT.

With an emphasis on the fact that it's got the quality of the assets that it has, and a fairly unique growth path, because of the [growth spurt] has with National Harbor and Springfield.

And you will view MGM Resorts, how you will view it.

Certainly as a company with a stronger balance sheet, less leverage pro-forma than it does today.

With a growth plan that it's already articulated in terms of developing these assets, and participating in what is really a very robust recovery in Las Vegas.

That is helpful.

And actually just to your last point, [is to make] last final question.

How are you thinking about now, the optimal leverage levels at MGM?

I promised our Board we'd get down under five times leverage.

I think I've mentioned that on a few conference calls.

I have gotten a some sideways looks from some of you.

But you can see we had a few ideas in mind.

That still is the goal, and certainly very achievable.

Given this transaction, what it means for MGM Resorts.

And frankly, many other options we have on the table, in terms of dividends, distributions, and any of our other joint venture enterprises.

Okay.

Great.

Thank you so much.

Harry Curtis, Nomura.

Good morning and very exciting.

A couple questions.

Jim, you touched on the management of the pieces.

Maybe you could begin with your thoughts on how that's going to evolve?

One, is that MGM Resorts Board, obviously I Chair.

And Roland Hernandez is our Lead Director.

MGM Resorts will populate the new co, MGM Growth Properties with its own Board of Directors.

I likely will also be the Chairman of that Company.

MGM Growth Properties will have its own independent set of directors.

Some of which we know today, and many others we're going to know.

We've already engaged a highly regarded search firm to reach out and find experts in REITS, both triple-net lease REITS and otherwise.

MGM Resorts will manage the properties under that triple-net REIT.

And so, therefore, the management team of MGM Resorts stays the same.

There will be management that will be brought onto MGM Growth Properties to manage its own affairs.

So, there will be a new CEO, a CFO and probably one or two other executives that work solely at the pleasure of the Board of MGM Growth Properties.

Because, we want to set that company up to independently forge its own path and grow as rapidly is it sees fit.

Initially, because MGM Resorts is managing these assets that we currently own, and MGM Resorts will own the majority of the economic interests in MGM Growth Properties, you will see some commonality of Board members.

But, you will also see new faces.

Particularly on an MGM Growth Properties, but likely also MGM Resorts as well.

As we ourselves want to continue to be more educated in real estate.

The follow-up question is the growth path for each of the separated companies, if you could touch on that?

And then the last question is, can you talk about your expectations in Vegas for 2016?

Thanks.

I will talk about the growth path of MGM Resorts, when MGM Growth Properties is in a quiet period.

I have three lawyers who are shooting daggers at me right now.

I will try to talk around that, and talk about MGM Resorts.

So, Las Vegas obviously surprised folks in terms of the strength of the business.

And I'm very happy to say, that has continued into the current quarter.

The real driver of this accelerated growth for us, is the convention business.

Dan alluded to the fact that the convention mix is improving.

It is remarkable to us that a convention expansion only just completed at Mandalay Bay, is already fully occupied for next year.

We're taking an inventory of all of our convention and conference space, and we have a very talented team, led by Mike Dominguez, that is out in the marketplace, moving business around, basically trying to find greater utility and efficiency.

Because we have so much demand, and as much space as we have, we don't have enough space.

That's why we talked about RevPAR growth of 8% in the fourth quarter, while we're really excited about Las Vegas in general, in 2016 on the convention side.

Should be our best year ever.

Added to that, I don't want to minimize the impact of the Arena that opens up in April.

Imagine a 20,000 seat arena opened, we've already programmed a couple dozen dates into that Arena of just eight acts.

That will accrue to the benefit of all of our properties, but particularly the ones that are nearby.

Monte Carlo and New York New York.

So if I were to ask our properties where should we see the biggest delta of growth in our portfolio?

It would be in the convention-oriented properties, as well as the ones that are hovering around this arena and theater.

On top of that, I would expect the profit growth plan to lead to an acceleration of our earnings.

Because the big initiatives are being deployed now, much of that is in Las Vegas.

And all of that will be completed by the end of next year.

So you'll see a liftoff, I think, of profitability as a result of the macros, and as a result of the internal plans that we have underway.

From a standpoint of our regionals, they're excellently managed.

I think they are pretty much on track to do the kind of business they have been doing.

They're profit and market leaders.

And they're going to outperform the markets.

The markets themselves are relatively stable I would say.

That leads, for MGM Resorts it's growth initiatives, which are the interactive business, which we don't talk about much.

But is growing for us in terms of cash flows, and in terms of customer acquisition.

It leads to National Harbor, which we believe will be the most profitable resort outside of Las Vegas in North America, when it is opened next year.

And it opens in the fourth quarter.

It leads up to Springfield, Mass, which opens up in 2018.

So MGM Resorts has many tools at its disposal right now, to accelerate its earnings growth.

And participate in a rapid deleveraging story.

Because of the dividends we expect to get in the future at MGM China, as well as at CityCenter.

CityCenter itself is accumulating cash as we speak.

Will likely dividend out money to its owners by the end of the year.

As a relates to MGM Growth Properties, I'm not allowed to give specific guidance on them as an entity.

But consider where they are.

And the fact that our core properties, much of which are in MGM Growth Properties construct.

The core properties are outperforming the luxury properties.

We'll do best in a rising convention market.

And have been the beneficiary of the substantial amount of capital, which is why they're outperforming their peers.

So the combination of solid, regional cash flows, and a Las Vegas presence which skews to the benefit of our core properties.

Will likely lead some to conclude that portfolio good outgrow the MGM Resorts existing portfolio.

Given the assets that are in MGM Resorts.

That does it for me.

Thanks.

Carlo Santarelli, Deutsche Bank.

Just from a very simplistic income statement perspective, could you guys talk through maybe how the MGM Resorts' income statement will change?

Obviously, in the case of pen you just add a line of rent et cetera.

How are you thinking about that, and obviously with the 70% I assume the accounting treatment will be similar to that of MGM China.

Then, as a follow-up, could you provide some color as it pertains to the lease payment?

Whether that will be fixed variable, and how we should be thinking about that?

Hey, Carlo this is Dan.

I'll take a shot at that.

The accounting you're spot on.

The accounting will be much like it is for MGM China.

When you looked at the MGM Resorts' financial statements on a go forward basis, it will be a fully consolidated entity.

And then we will record whatever that minority equity interest is, of the portion we don't own of the three companies.

So a lot of the REIT-type accounting, so to speak, will be eliminated in consolidation, and will come through as 100% owned entity, with a minority interest much like MGM China today.

As far as the lease structure itself, it will be a triple-net lease, as Jim mentioned earlier.

And not too dissimilar to what is out there was in the market in terms of coverage, from the lease perspective.

Great, thanks Dan.

So if we thought about that way, something around, or in the realm of a 1.8, 1.9 times coverage ratio?

It is in that realm.

Great, thank you.

Shaun Kelley, Bank of America Merrill Lynch.

Just a follow-up on a couple of questions.

On the OpCo side.

So, Dan, I think were starting to get a better picture of the structure.

But maybe you can help us understand, do you anticipate post-IPO that the transaction is going to be leverage neutral?

Well, it should be de-levering for the consolidated entity, but for the OpCo, specifically.

Do you see that leverage-neutral to where MGM Resorts sits today?

From an OpCo standpoint, it would continue be deleveraging, even at an OpCo perspective.

Remember, we will be doing an IPO.

So there will be new equity that will be raised in the first quarter.

Will those proceeds -- so a portion of those proceeds may be shared with OpCo in addition to simply paying some of the $4 million of that goes to PropCo?

No, remember the assets and the $4 billion of debt go down into PropCo.

So, then PropCo will go out and raise its debt and equity capital markets transactions at the PropCo level.

Given how GLPI has traded and been received by the rededicated community.

It's a little hard obviously, with these types of processes.

Do you have any feedback or have you had any conversations at a high level with your general views on how you think such an IPO would be received by a new investment audience?

Obviously, their transaction was different as you well know Sean.

In that it was a spin.

So the existing shareholders were given the new equity of the SpinCo.

In this case, GLPI.

So obviously if the investors were going to hold onto it, it's hard for new investors to come in.

In this dynamic it's different.

Whereas we will be IPOing directly out to potential new REIT investors, as well as existing gaining investors.

So it's a little bit different in terms of the comparison between the two approaches.

I think we'll have a real good audience as you look the asset quality, and the type of REIT we will have from day one out to all of those investor pools.

And Dan, I would just add, it's Jim.

That we've thought about this.

This is obviously going to be up to you all to decide how this is valued.

But, we were very thoughtful, we tried to be, in terms of putting together a portfolio of assets and brands that are scalable.

Mandalay Bay is a scalable enterprise.

One of the premier convention center hotel's in the United States.

Mirage and Luxor and Excalibur, these are powerful brands.

And so, we believe there will be an emphasis placed on not only the quality of the portfolio, but in the construct of hospitality broadly.

In the convergence of gaming and non-gaming hotels, and the ability for this Company, which is intentionally large and liquid, to be able to grow.

Not only by using its brands, but by land that it owns and by financial structure it could develop, we think that it is certainly highly unique.

It will set itself apart from, the comp that you mentioned and really anyone else that's attacked this issue.

Thanks for that Jim.

My last question would be, I'm familiar with one other one of these sort of internal REIT structures.

In that case, they have to maintain more than 50% ownership in the REIT to keep some of their tax features.

I'm curious if the same is true with this structure?

To keep the tax benefits that you guys have structured here, do you always have to own over more than 50%?

Or is there an ownership threshold that you have to keep in the REIT over time?

No Sean there is not a threshold.

That will just be in the future, up to the Board of the Property Company, and the facts and circumstances at that time.

Thank you very much.

Thomas Allen, Morgan Stanley

Good morning.

Congratulations for this announcement, I'm sure took a lot of work.

Two questions from me.

First, Grant you have been quiet this call.

(Laughter).

Obviously Studio City just opened.

Any initial thoughts on that?

And how the competitive is in general?

My second question, I feel a bit greedy asking this question.

You guys have talked about potentially selling Crystals in the past.

Is that off the table now?

You want me to go first Jim?

And then I will turn back to Crystals.

That sounds like a plan.

So, Studio City.

They did a good opening.

It's obviously a pretty impressive property.

I think anything new, any additions to the market is a good thing, about granting opportunities.

I think they would acknowledge themselves, they still have some work to do.

As we all do, in terms of performance.

But I think they did a nice job.

I think it demonstrates that when existing operators open into a market their used to they have a better talent pool.

Some of the service issues that you would have normally have experienced in properties you did not see on this occasion.

I think they did a very nice job.

I think it will certainly create noise, all of us.

And we're all optimistic that provides an inflection, that we are looking through to drive traffic and build quality people who want to come and spend.

I think [such longer] the important issues with as we diversify into a non-gaming area, that we actually are attracting customers that actually want to buy the non-gaming services.

And I think that all of us, who are coming on stream in the future, and I know from our perspective we are very excited about the quality of the project we're going to deliver is [typically] designed to encourage people to actually spend money, in the non-gaming services to support the investment that we're making.

I think that's probably enough.

Jim, I will turn it back to you.

Thank you Grant.

And the answer is yes.

We have had a significant amount of interest in Crystals as an asset.

We have been fielding a variety of qualified inbound calls.

We have evolved this to a point where we have expert advisory help sorting through, principal investors that are interested in buying all or part of Crystals.

And that the Board of CityCenter has been evaluating what is thankfully becoming a rapidly appreciating and highly-coveted asset.

So I think we last checked in, I said that it was certainly on the table.

We think is with over $1 billion.

I am more confident of that then I've been in the past, given the amount of effort that has already taken place here.

And, absolutely at the right valuation, Crystals is an asset that would be sold to the benefit of its owners, Infinity World and MGM resorts.

Thank you.

Steven Kent, Goldman Sachs.

What specifically does the Park encompass?

I guess that's what I'm trying to understand.

And how much in earnings do you expect it'll make in the context of including it in the REIT?

And then why is the Arena not included in the REIT?

Then just one final thing.

I'm not sure if you've answer this yet.

Do you need a private letter ruling?

Or because of the new company is that not necessary?

I'm not that familiar with the legalities of this.

I will pick a few and then turn them over to Dan or to Sean.

None of our joint ventures are in the REIT.

The Arena is a 50-50 JV with Phil Anchutz' Company.

And so it does not qualify for what we're trying to accomplish in terms of the REIT.

Only wholly-owned companies are going into the newly formed REIT.

And no, we do not require a private letter ruling.

This is not a spinoff, and so therefore we do not require that.

In fact, we went down this path and zeroed in on this option long before the more recent guidance from the IRS.

And I think that was in relation to Ali Baba and Yahoo I think Dan.

And maybe a few others.

We were down this path of contributing assets and forming a new REIT long before that iteration.

Do you want to take the part two?

I think when you look at the Park, it does have some EBITDA contributing factors to it.

And some restaurant and entertainment venues.

But, the real rationale is its proximity to Monte Carlo, New York New York.

And how that real estate fits into the future of those two properties.

We view that as the connective tissue between two large-scale resorts.

And we believe that it will be a center of gravity for a lot of tourist traffic that will be going to those resorts and to the Arena itself.

So, we are felt it should all be part of the same asset package.

It will be a relatively modest contributor of EBITDA then?

Yes.

Thank you.

Robin Farley, UBS

Thanks.

Just trying to understand the structure a little bit better.

Because when you look at the EBITDA generated by the 10 properties whose real estate you are contributing, and what that would suggest they could pay in rent.

It doesn't seem like enough to support the $4 billion in debt.

I wonder if you could give a little more color around -- how much you hope to be paid down by funds raised during the IPO?

Just to think about how these ratios can work?

Robin, we cannot get into specifics around MGM Growth Properties.

But the combination of the debt going down from the parent to the property company, and the property company then going out and raising IPO proceeds.

In conjunction with their capital raising efforts, that combination will put the right amount of leverage on the property company going forward.

[Is about] that coverage ratio that you talked about earlier Dan.

Is there a debt to EBITDA ratio that you think of as being standard for REITS that we can keep in mind what we're looking at this?

I think there's enough market precedent out there when you look at triple-net REITS.

And where they trade from an overall leverage stand point.

That would be a good proxies to use.

Lastly, will there be kind of rent bumps in the agreement?

Or will it just be a fairly fixed rate going forward?

There will be fixed standard variable rate, but there will be escalators as normally found in triple-net REIT structures.

And as Jim said earlier, we're not looking to reinvent the wheel with respect to the master lease here.

It will have very similar characteristics, as what exists in the market.

And the modifications will, if any, will be more around our assets and our buildings that make them unique to the structure going forward.

Okay.

Thank you.

Maybe I would add, too Robin, I mean we worked -- a big part of this effort was to ensure that MGM Growth Properties was on very firm footing right out of the box.

Because we're going to own a substantial interest in this.

We wanted to make sure that it is strong, from a balance sheet perspective.

That it is transparent and easy to understand, from an investor's perspective.

That it has preceded efforts that make it very easy to analyze from a lease perspective.

And that it has a growth plan that can be articulated.

So when that Company's out in the market, raising money in its IPO, we'll have all this information.

We're just a little bit handcuffed by the bankers and lawyers, in terms of the quiet period that were in.

I think it's important for you at least to know the philosophy here.

The philosophy is to create a strong, stable, vibrant REIT.

That will trade well, because of its liquidity and the quality of assets.

Its management team, its sponsorship by MGM Resorts, the brands that it has, and the growth prospects that it uniquely has.

Because of the [wealth there] that I talked about.

Maybe one final clarification.

It sounds like the idea of MGM Growth Properties will be a single tenant.

I mean in other words, you're talking about the growth coming from Maryland to Massachusetts.

The idea is it for it to remain a single tenant REIT?

No not necessarily, I'm sorry if I let you to that conclusion.

It will go out, and will seek out acquisitions.

In not only in the gaming space, which is obviously it's comfort zone.

But it will have the mandate to look in hospitality broadly.

Clearly, there'll the be a lot of assets that will trade in the gaming space.

Either as individual properties, or as portfolios of properties over the next few years.

MGM Growth Properties intends to be in the dialog in all those discussions.

It could and should do that.

And it may or may not reach out to MGM Resorts to manage those assets.

It could easily be a situation where MGM Growth Properties acquires assets that others would manage.

This is set up to be a strong company, that will be able to opportunistically pickoff assets as they become available, in the gaming and broadly in hospitality space.

And when appropriate, reach out to MGM Resorts for management.

I cannot emphasize that enough.

This company is set up, designed given the scale of the company, the management team that will be in place, the balance sheet that we will ensure it has, it is designed to grow.

Not only by virtue of its relationship with MGM Resorts, but by virtue of the fact that in and of itself, it will be one of the premier gaming owners in the world.

Great.

Thank you.

Chris Jones, Union Gaming

As a relates to, as the name suggests, MGM Growth.

Is it safe to assume in the early days really the growth is going to be focused on the redevelopment of some the assets that are going into the portfolio?

I think about the Monte Carlo, some of you guys have talked about.

As well some of those other assets?

Secondly, going back to the operations for the Bellagio versus MGM Grand.

I see the Bellagio really came alive this quarter.

Should we expect to see that continue?

For the performance out of the Bellagio?

I know its had a challenging couple quarters here as well.

If you could talk about that would be great?

I will take the first part and turn it over to any number of the other folks.

That's Corey Sanders to my right and Bill Hornbuckle to my left.

Yes.

I think the word growth was intentional in a few respects.

One is, we think it can grow beyond its current asset base.

But within its asset base, we see growth.

There's no surprise to you that we are viewing Monte Carlo with a very optimistic lens.

The fact that it has 3000 rooms, next to CityCenter, embracing a $400 million arena, $100 million Park, right on the center strip.

Means a clearly can be something more than it is today.

We believe that it will be.

And it will be called something else, and it will be positioned differently.

And it will grow its cash flows by virtue of putting in strategic capital into that property.

I would have to say, there are other great opportunities that we're looking at as well.

Corey Sanders has a team looking at Excalibur, and recognizing the fact that we have a very underperforming corner of Tropicana and the Las Vegas Blvd.

And why would we do at others have done so successfully, and draw mid-scale retail into that corner, and therefore drawing traffic into Excalibur.

We know from our convention dialogues, I've had a meeting as recently last week.

Bill and Corey, with convention people this week, that if we had more convention space for the association business, and if we had more concrete space, which is relatively inexpensive to build, we could dramatically increase the cash flows of Luxor, as an example.

The list goes on and on.

We don't view our portfolio properties that we are contributing in as a mature properties.

We view them as properties with stable and strong cash flows, that were up 33% year-on-year in the current quarter.

But that each and individual one have their own growth trajectory.

So, what this allows us to do, is over the next few months, evaluate our portfolio in a very specific way.

Looking at return on investment, as the criteria.

And where do we deploy capital in the highest ROI way.

As it relates to Bellagio versus MGM do you want to take that?

And maybe one thing just to point out as well, that capital decision and capital requirements under the Master lease were born by the operating company going forward.

So MGM Growth Properties could be a source of capital to fund maybe cheaper financing to the operating company.

But those decisions will continue to be made by MGM Resorts, and the capital be born by MGM Resorts under this new structure going forward.

On Bellagio, they actually had their best third quarter since 2006.

So, that even goes way -- during the peak.

They had a tough few quarters on the RevPAR growth.

And we're starting to see the changes we made there in the strategic focus on the convention business there.

I would foresee them continuing to perform at the level they performed in the third quarter.

Thank you very much.

Last question today.

Joel Simkins, Credit Suisse.

First Jim, on Circus Circus.

I wanted to understand the rationale of not including that in MGP?

Would this imply that this is also on that list of potential, major re-developments?

Second question, I will ask you a non-REIT question while we have you.

Love to get your take on DFS, and what this ultimately means in terms of having more of a real conversation around sports betting?

Circus Circus is a really exciting and intriguing longer-term, but intriguing opportunity we believe for MGM Resorts.

It sits on 100 acres.

Can you imagine that?

100 acres.

We have a young management team there that is just crushing it right now.

You can see it in the results.

They're enthused, they're having fun, they're innovating.

They're a big part of our profit growth plan.

Eric Fitzgerald, who runs that property has been a leader on some corporate initiatives.

And we feel like, it's a smaller property in term of cash flows, but it's punching above its weight.

And it has a lot of potential.

And yes, clearly, there's an awful lot of opportunity that could go around there.

When we did the Rockin' Music Festival, we saw a nice bump.

That's the future of Las Vegas as you know.

We're a leader in that area bringing music festivals, whether it's EDC or live music.

We will be doing more of that.

So, yes it's not an major contributor of cash flows to MGM Resorts, but it is a major contributor of ideas and innovation.

And it is certainly is out there as it relates to growth potential.

On daily fantasy sports, Bill Hornbuckle nudged me about three or four times in my ribs here.

I will turn it over to Bill.

Because you don't want to know what I think.(laughter)

Obviously, with a lot of people it's something we've all followed with great interest.

We will continue to do so, we absolutely want to see if the states rights issue to be clear, its a program that we, because we do other things in social gaming.

At some point we would like to participate.

But the states need to apply non-direct consumer protections, in setting it up so a company like ours can participate.

Right now is obviously, it's in a gray area.

And over time, and we hope relatively quickly, because there has been a lot of attention on the space.

There will be some clarity around with states like Massachusetts, Illinois and others that we're in want to do with it.

We're actively engaged in the story, AGA is engaged in the story and following it.

And we'd like to participative and helpful, because we think it's meaningful in the long run.

Thank you.

And I like sports too Bill.

This includes the question and answer session for today like to turn it back or to management for any closing remarks.

Thank you everyone for joining for any follow-up questions, please reach out to my office.

And we will get back to any and all of you as quickly as we can today.

Thank you.

The conference has now concluded.

Thank you all for attending today's presentation.

You may now disconnect.