美高梅國際酒店集團 (MGM) 2016 Q4 法說會逐字稿

Good morning and welcome to the MGM Resorts International fourth-quarter and full-year 2016 earnings conference call.

Joining the call from the Company today are Jim Murren, Chairman and Chief Executive Officer; Dan D'Arrigo, Executive Vice President and Chief Financial Officer; Bill Hornbuckle, President; Corey Sanders, Chief Operating Officer; and Grant Bowie, CEO and Executive Director of MGM China Holdings Limited.

(Operator Instructions)

Please also note that today's conference is being recorded.

At this time, I would like to turn the call over to Mr. Dan D'Arrigo.

Thank you Jamie, and good morning and welcome to the MGM Resorts' fourth-quarter and full-year 2016 earnings call.

This call is being broadcast live on the internet at www.MGMResorts.com, and we have 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 contemplated in these 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.

During the call, we will also discuss non-GAAP financial measures in talking about our performance.

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

Please note that our supplemental earnings deck is posted on our website, which we hope you will continue to find helpful.

Finally, note that this presentation is being recorded.

With that, I will turn it over to Mr. Jim Murren.

Thank you, Dan, and good morning everyone.

I'd like to start by saying we had a tremendous year in 2016.

Our domestic resorts on a same-store basis grew its revenues and cash flows by 4% and 17% respectively, and that's the best performance since 2007.

With the addition of Borgata and National Harbor, our revenues and EBITDA increased 9% and 22% respectively.

The CityCenter campus had a really tremendous year, and ARIA produced record EBITDA and EBITDA margins as well.

Here at Bellagio, we had record revenues, revPAR, EBITDA, and margins.

In other words, the most profitable resort in Las Vegas in 2016.

The regional properties continued to lead their markets.

MGM Grand Detroit and Gold Strike had record cash flows for the year.

MGM China continued to outpace its fair market share in Macau, which is of course impressive, given the significant capacity increase that has entered into that marketplace.

I want to pause for a moment and looking at where our stock is, and clear up a little bit of confusion, and also apologize for that.

I think we should have been more clear in our third-quarter call.

We did discuss that the fourth quarter would be challenging as a result of the timing of the Jewish holidays.

Between the holiday shift and the timing of a big group, literally one big group, the impact in the fourth quarter was about $19 million, almost $20 million of EBITDA.

If you look at the second half of last year, because we obviously benefited from that in the third quarter, as a whole, we had a great second half.

Cash flow was up 19% in the second half last year.

RevPAR was up 6.8%, and our margins were up 320 basis points, with a 29.3% margin.

And for the employees on the phone too, I am sorry for that confusion.

We could have done a better job explaining that, and also telling you what a great job you have done.

And on that great job, I want to talk about the profit growth plan.

It was a great success last year.

We closed the year 15% ahead of our original 2016 target.

We have now delivered over $340 million of incremental cash flow since we began the plan.

We have improved our domestic same-store margins by 340 basis points year over year, and that is means from just over 26% to 30% EBITDA margins in just one year.

As of year-end, we implemented most of the ideas that were part of that original plan, and we are run rating now at our $400 million target.

We expect to actualize that target $400 million in incremental cash flow benefit in the first half of this year, which is also ahead of our original target of year-end 2017.

This is because we have transformed the culture at MGM Resorts and we have kick started this endeavor, really ushering in a new era here, a new way of life on how we operate our business, which we believe lays the groundwork for continuous improvement and continuous margin growth for the long-term, which is why the Board was confident yesterday to announce and declare our dividend.

We have come to that point, that we have been hoping for, that we have been able to reduce our leverage dramatically, throw off free cash flow, and it's time to return much of that free cash flow to our owners.

The Board and the management team spent a lot of time on this.

We looked at our options, in terms of returning capital to shareholders, and received a lot of advice, some solicited and some unsolicited, from our owners, bankers and et cetera after that deliberation, we decided that a quarterly dividend was the best path forward at this point.

It shows our commitment to a balanced approach, to allocate capital, grow our Company long-term, and return value to the shareholders and that is going to be the guiding principle forever more, returning capital, disciplined investments, on the path to investment grade, and growing the Company prudently and accretively.

I think that also underscores the Board's conviction that we are off to a good start in 2017, and we have a very clear path for continued free cash flow acceleration in the years to come.

On the fourth quarter, it must be noted that we had a very strong fourth quarter of 2015, and we were able still to drive growth and net revenues, revPAR and EBITDA.

As we did mention in the quarter, last year's call, we did have that tough comparison as a result of the holiday shift, but even with the shift, we were able to continue to drive off a strong convention base, and we actually had the second-best fourth-quarter convention mix in the Company's history, only the year before was better.

And we were able to replace some convention business by leveraging our database, which is significant, and that increased our contribution from our casino and our leisure mix.

We did see higher spend across those segments, casino and leisure, and that offset this calendar shift that I was referring to, to some degree.

For the year, we had a record convention mix at 19%, and that's over the year-before convention mix at 18.5%.

That is gratifying, it's gratifying to show and to celebrate the hard work of the yield management team and the properties that achieved that 6% revPAR growth that we had predicted at the beginning of last year, which of course is substantially above the national average for any other company in lodging or gaming.

And we're looking for strategies all the time that will benefit us even further in the years to come, building up our brands, maintaining our advantages not only here in our home market, but around the United States and we see that we can continue to move the needle here and elsewhere through our entertainment, our branding, our marketing, and our repositioning of properties.

A good example of that is moving Monte Carlo into Park MGM, or the two major entertainment venues that we opened last year, that we'll have the full benefit of in 2017.

It wasn't long ago that we were hoping for a new arena.

We have it now, it's generating tremendous foot traffic and we're going to get the full-on benefit of that in 2017 and beyond.

It's really remarkable to think of, when you think of our arenas, last year for example, the MGM Grand Garden, Mandalay Bay Event Center and T-Mobile, they all ranked within the top five arenas in the United States in their categories.

T-Mobile itself, pretty impressive, it had only been open for three quarters, and it's already one of the top in the nation.

And of course, adding to the entertainment on December 17, we added the 5,300 seat Park Theater.

We have been selling out shows almost ever since with a variety of A-list entertainers.

That is going to have a big impact on Monte Carlo and the neighborhood, as Monte Carlo becomes Park MGM and NoMad.

On the East Coast, significant developments and accomplishment, really a milestone for the Company was to open MGM National Harbor on December 8. That really has exceeded, I think everyone, including our own's expectations, in terms of the type of resort, the type of product, and the immediate superiority of revenue and market share in that marketplace.

We are averaging over 22,000 people a day visiting National Harbor.

We have signed up over 150,000 new M life members in this short period of time, and thousands of new members every week.

We are very happy about how the property is performing, and we're just literally turning on some of the marketing spigots, as we have been working out the pre-opening and post-opening kinks to the property and I think it's safe to say that National Harbor is already outperforming, it's already growing the market, and it is going to be what we all hoped it would be, in terms of one of the most profitable resorts in commercial gaming outside of Las Vegas.

I am more confident than ever of that point.

We also, of course, had our first full quarter at Borgata, which is remarkable.

It gained share in Atlantic City, it had a tremendous quarter, it produced record slot win, and over $220 million of EBITDA for the year.

It is off to a great start this year.

In its 14 years of operation it had its best January slot win in its history this last month.

We have also been working with the state and Atlantic City to be part of the solution to that city's recovery and as part of that solution, we have settled with the state, and agreed to a property tax refund of the amount of $72 million.

We split that with Boyd, we think that's the right -- we agreed, Boyd and MGM, that this is the right statement to make for Atlantic City.

It provides cash to the owners of both companies, and it provides clarity and closure to a long outstanding item.

We think there are many other opportunities to grow Borgata into the future.

We are literally not even yet launching M life into that property, that's happening in a couple of months, and we have been plugging in many of our PGP initiatives there.

Over in Macau, MGM China continues not only to maintain share, but to grow it, and we have seen great stability in our mass business, and that is supported by the premium mass, you can see that in the key performance measures like player accounts and [theo] I can't say enough about Grant and his team, and how well they have outperformed that market, and how strongly they have remained focused on maximizing margins and cash flows.

Of course, Grant will be online to answer any of your questions.

On the development front there, we announced a few weeks ago that we pushed back the opening of MGM Cotai into the back half of this year, that is still an accurate and good statement.

The reason why we did so is we're working with our developer, our contractor, construction folks and the government to get to very precise timeline, and our whole team is over with Grant in about 1 1/2 weeks at a Board meeting and we will have a lot more to report once we get through all that.

But remember we are dealing with the construction of a building that is extremely intricate, complex, beautiful as you can see from the investor deck, and very innovative and we think it's going to be very additive to the market, and as we said earlier, we're not rushing the opening.

We want to make sure we make a very good impression when we do open and it will be as I said, in the second half, and we will have more clarity soon.

A final couple of thoughts before I turn it over to Q&A.

One is, obviously we had a big, aggressive agenda last year, we have set a lot of goals for ourselves, articulated them all to you in individual presentations during our investor day, and otherwise at conferences.

Frankly, we exceeded them all.

We have highlighted the value of our real estate, presented another platform for growth, created MGP which has been clearly very successful, proved out the MGP story through the acquisition of Borgata.

We were able to negotiate that transaction that made it accretive to both MGP and MGM.

We opened really important, enduring long-term assets like National Harbor and T-Mobile and Park Theater.

We created an organization internally here that lives far beyond the profit growth plan.

There is now built-in muscle memory on operational excellence, that gives us confidence for continued margin and profit growth, including in the current quarter and throughout this year and beyond.

We talked about this a bit on the investor day, and we have added to that ever since, in terms of the intellectual capital that makes us the most efficient, most professionally-run organization in our industry.

We have profoundly strengthened our balance sheet.

I don't know how many ratings upgrades we have had in the last few years, and we do believe that we are on the cusp of becoming an investment-grade company.

We see it now, it's well within our reach.

And we are throwing off free cash flow right now, free cash flow to a level that we feel that we can reward our shareholders for their confidence in us.

That obviously speaks to the institution of the quarterly dividend, which we expect will grow over time.

I would like to thank the 77,000 men and women of MGM, because obviously, we couldn't have done all of this without you.

We are very optimistic about the future.

Our book of business here in 2017 continues to look great.

We expect to increase our convention business to new records this year, that is due not only to a dedicated focus of providing a really good experience for our convention guests, the value proposition that we and Las Vegas provides, and the best sales team in the business.

We had a good CES, strong in town last month.

We have Con/Agg just around the corner next month in March.

As we said this morning, we believe we will be able to grow our revPAR by approximately 7% in the first quarter.

Hard to find a hotel company that comes remotely close to us, keep in mind that 7% forecast is on top of 8% growth we delivered in the first quarter last year.

We feel confident that we will be able to grow our revPAR throughout the year, and to prove at that point, we just booked a huge multi-year piece of business with Microsoft which starts this year, and that business is very new to us, and most importantly, it's new to Las Vegas, as we were able to pry a huge piece of business out of another destination.

And we're continuing to find ways to drive more large groups to Las Vegas, both in terms of the Association groups, individual major companies like Microsoft, to the benefit of the destination, and to MGM.

We believe we will continue to outperform the lodging market this year.

We expect our revPAR growth to be up all year, probably around 4% or 5%, which is like 2X or 3X the US average and we expect that because of that, our margins will continue to grow, we think they will grow in the current quarter, and in 2017.

The fundamentals right now are very solid going into this year.

We have that convention base, that I referred to.

We have over 90% of the business already on the books, and we're going to have a record year in 2017.

We will continue to and have managed our expenses, and therefore we believe revenue per occupied room will increase throughout the year.

Which as I said earlier, will lead to, we believe, higher margins, and higher profitability and accelerating free cash flow to the benefit of all of our shareholders.

And with that, I think we are all set.

Dan?

Yes.

We can turn it over to Q&A.

(Operator Instructions)

Joe Greff, JPMorgan.

Jim, you touch on a bunch of things that obviously investors are focused and we're focused on today, including margin and flow through performance, particularly on the Las Vegas strip.

Can you talk about, maybe it would be helpful getting expectations in the right place at the present time, but can you talk about how you're thinking about the Las Vegas strip in terms of flow-through, in terms of margin improvement?

And then maybe touching on the Las Vegas strip as well, can you talk about what you're anticipating, how much group will be up in 2017 versus 2016, in both volume, room nights as well as pricing?

I will start and then I will maybe turn it over to Corey or to Dan, Joe.

Yes, there's a lot of operating leverage in our business and it obviously benefited us in the first three quarters last year, particularly in the third quarter, and it came back and hurt us in the fourth quarter.

That's what I was referring to.

We just have to be more specific with our investment community on what the operating leverage is, going both ways.

Here for example in the first quarter, I mentioned we had a good CES, and obviously the city is going to benefit from Con/Agg in March.

So the operating leverage swings back to our benefit.

If we are able to grow RevPAR this year, let's say 4% or 5%, that means we are able to grow on a hold-adjusted basis, because we are a gaming company also, but hold-adjusted basis we are able to grow revenues in the low to mid single digits.

That should be fair for us to be able to say.

If that is the case, the flow-through will be meaningful, because our expenses are not going to grow to that level.

And if we look at the base of where we are starting from for this year, our margin last year, EBITDA was what, 30%, Cathy?

Yes.

30%.

We would expect margin growth.

I am anticipating margin growth in 2017.

It's not likely going to be 300 or 400 basis points growth, like we had from 2015 to 2016, but it should be a nice improvement in margin, consistent with, in fact, we are ahead of the plan that we laid out to investors during our investor day.

So flow-through we believe is going to be achieved in the current quarter on a same-store basis.

And remember also, we have other properties that we will have for the year but I think if your question is specific to the Las Vegas strip, where we did confuse people and fall short of a published consensus, if we focus in on that, which I think is really the crux of the uncertainty today, we expect our margins on the Las Vegas strip to be up this year versus last.

We expect RevPAR to be up.

We expect flow-through therefore to be up.

And we expect to be able to grow on a same-store basis here on our existing properties profits in 2017.

Is that right, Corey?

That's correct.

Just on a flow-through.

Before the days of PGP, we thought flow-through would be 50% off of that low to mid single digit net revenue growth rate, assuming people hold as normalized.

Is that the right way to think about it, post PGP or is it a little bit better than the old 50% metric that you talked about?

Yes, Joe, for us the focus is on margins as Jim pointed out, is really to zero in on the overall margin, because the flow-through, depending on where that incremental dollar is coming from, and what source is going to shift.

And really our goal here is to take this 30% margin and kind of drive it to the next level, which is 31%, and hopefully over the next two years, we are in that 31% to 32% margin.

So really, that's the focus that we continued to keep the management team focused on, and driving a goal here, as an organization.

All right, and I'm sorry if I am being dense or being obnoxious here, but if we assume low to mid single digit net revenue growth on the strip, and you get to 31% margins this year, that implies something like 60% flow-through.

Is that a fair expectation to have?

I think that's fair.

It is.

It's the way the math just works.

To answer your question, Joe, yes.

We're trying to get away from, you can see Dan talking about it, he's trying to get away from flow-through every quarter, but the math works that way exactly, yes.

Okay and then my prior group convention question?

Joe, on the convention side, as Jim mentioned, we are expecting to have a record year again in 2017.

We are to that point where we're maximizing that space pretty high right now, so we will be up 2017 to 2016 about 3%.

But in general, now it's more about the quality of what we're putting in the space, and the total spend of that group, including catering and banquet, and less about how much are we ahead because we have such a solid base.

And I think from a mix standpoint, Joe, it's probably similar to what you saw from 2015 to 2016, and we went from 18.5% to 19% and the goal would be to get in to that low to mid 19% of convention mix in 2017.

Got it.

And my one final question, you referenced on slide 26 the strong RevPAR growth, 11% in Q3 of last year.

Obviously, that's a difficult growth comparison and you put it in there to highlight that, how do you think about the cadence of RevPAR growth by quarter, at least directionally?

Dan, do you have it?

Yes, I think as you look at it, Joe, obviously we gave 7% RevPAR guidance for Q1, and as Jim mentioned in his opening remarks, we think for the full year, it's in that 4% to 5% range for the full year.

That obviously would imply roughly on average, call it 3% to 4% growth per quarter at least, and that will depend on the tougher comps, like you said in the third quarter.

But it's the way that the math will run, in that 3% to 4% range per quarter.

Okay, thank you.

Harry Curtis, Nomura Instinet.

Just as a quick follow-up, not necessarily focusing on flow-through, because that could be defined differently, but in 2015 and 2016, you had wholly-owned RevPAR up call it 6% to 6.5% in Las Vegas and your actual change in EBITDA, the uplift in EBITDA was -- probably averaged 15%.

And so if you, if the RevPAR growth is closer, or the revenue growth is closer to 3% to 4% in 2017, is it reasonable to think that your EBITDA growth could be in the neighborhood of, call it 6%, 7%?

Harry, this is Dan.

That seems fair, overall.

Obviously, the last, the back half of 2015 and all of 2016 benefited from PGP, which is an important factor in driving a lot of that EBITDA growth as well, but I think that your analysis is pretty fair.

Okay.

And then Dan, while I've got you, do you have to pay down more debt to get to investment grade this year?

Yes, I think when you look at it, where the cash flows continuing to grow, that is obviously in the calculation the biggest driver.

I think from an overall debt perspective, goal is continuing to reduce debt with free cash flow but I think we can continue to drive down leverage as we bring National Harbor on, as we get the full free cash flow from Borgata this year, continue to grow our same-store cash flows.

I think that in and of itself will be the biggest driver of decreasing the leverage.

Right, but I mean, in your budget do you have your budget actually using cash to pay down debt this year?

Here in the US, yes.

Debt gets reduced here in the US obviously.

China still, from a consolidated standpoint, China is still finishing up Cotai.

So if you look at the US debt, that would come down.

Okay.

And one last question for Grant, because it's 11:30 there, and we don't want him to go to sleep.

How do you perform in such a competitive environment as Macau, as you open up this sparkling new building?

Give us your thoughts on, without tipping your hat, about how you are going to fill it up?

Thanks, Harry.

Actually it's 12:38.

My estimates are always wrong.

(laughter)

You said it.

I think the critical point is, and you and I have had conversations about this, we have been working for some time, as long as we have been building, building out our capabilities to drive acquisition.

I think it's very clear that it's not feasible to simply grow off the backs of taking share from others, and that's where we are building our plan of many components, leading up to the opening of Cotai, but more importantly driving forward after Cotai.

We are very specific in certain targeted markets where we think we can be stronger.

We're also very specific in terms of certain channels, that we believe that we can create opportunities for ourselves.

The biggest challenge of all with dealing with China and the diversity and the non-gaming activities is that it's not about marketing to China.

It's about targeting certain population centers, which have certain consumer characteristics.

And so that is really what we're focusing ourselves on, and it all comes together because you've got to have an attractive component of product within the facility, that we think will be attractive, and not just be considered as a new zoo, and those are the issues that we're really focusing our attention on to provide that attraction and appeal.

And last of all, the great strength is we're going to be moving nearly 40% of the team we have from this property into Cotai, because what's really important is that we can have equal levels of commitment to MGM's service excellence.

So in fact, when we are recruiting, we're probably recruiting as many people back into this property, so that can release talent that we have, to make sure that we can maintain the commitment.

Because at the end of the day, we really don't care which MGM they go to, as long as it's MGM, and as long as we can increase that share of wallet at our existing customers, and obviously attract and retain those new customers we're looking for.

I hope that helps.

Yes, it does.

Thanks.

Shaun Kelley, Bank of America.

Just to talk about the targets and the outlook for 2017 again, if we go back to the analyst day, you gave some pretty explicit growth numbers and targets that were -- I don't think they were guidance, but they were potentially achievable, and I think that number built up to about $3.1 billion of EBITDA in 2017.

So my question is, could you help us just think through what are some of the puts and takes to get to that $3.1 billion for this coming year?

And is that number still in play, as you think about your business today?

Shaun, this is Dan.

Overall, we still feel pretty confident about the pace that we are on.

I think the one thing that needs to be factored into that analysis is obviously with the announcement that Cotai is shifting to, and moving to later in this year in the back half, that assumed a second quarter opening of Cotai.

I think that is a key component, as you think through that investor day model, that would need to be adjusted for this year.

But to say it out loud then, not a ton else, if we think about both cadence and total dollars of PGP, and flow-through and revenue outlook, not a lot else has changed if you think about the organic components there?

Yes, to me, that's the major one when it comes to mind, and everything else is pretty minor, in terms of the puts and takes.

Okay.

Yes, and Shaun, I will just add to that.

This is Jim.

Yes.

The answer is yes.

We are frustrated with ourselves about the articulation of the quarter, the fourth quarter because we had a very strong year, exactly the kind of year in fact, a better year than we expected when we had, in fact, that investor day last summer.

So we are on track on all of the operating metrics that we had worked on for several weeks leading up to that investor day.

We are on track to achieve our goals, right now, in the current quarter, in 2017 and beyond.

Okay, great.

I appreciate that.

The other piece is another piece of that build-up that's pretty big for the year then is National Harbor, and obviously we have been able to dig through both revenues, and now a little bit on profits.

But could you just help us think about -- a little bit more about learnings and ramp up at the property?

What are you seeing sequentially so far, and specifically what are your thoughts on the cost structure there and margin structure as we move through 2017, and the property stabilizes?

Well, the margins are on track to what we had expected.

We expected low 20s in terms of EBITDAR, remember we are renting land there, EBITDAR margins.

I think that so we had in the fourth quarter as well.

So low 20s normalizing to the mid-20s, as we continue to stabilize the labor, that is always the issue that impacts margins early on.

The revenue numbers have been really wonderful, both on the gaming and non-gaming side.

And as I said earlier, we are only scratching the surface in terms of loyalty marketing, casino marketing.

It has been a remarkable success from a customer perspective, and the margins are improving.

We are very pleased, and in fact, we are capacity constrained, particularly on the weekends, particularly on Saturday night.

We have some tweaks on the profit margin side, on the expense side, that we're drilling through, but I can't say enough about how happy we are with the opening, with the customer feedback, with the revenue, with the current margin levels, and our projection for increased margins.

Great.

And maybe just one final one on that one, is the spread of what we are seeing between gaming, which we obviously get from big data, and then non-gaming, which we're able to look a little bit more at today, is that pretty accurate and reflective of what we should see going forward, in terms of what we're seeing at our business or any material changes you would expect as we see that progress?

I think gaming is actually going to go up.

I think as Jim mentioned, we're just turning on our marketing engines.

The table games numbers have been substantially out exceeding the market.

The slot numbers are also exceeding, but we think there's opportunities there to go up.

The food and beverage numbers are really solid right now.

What I would envision is probably more gaming revenue as a percentage.

We have some things to bring online longer term, more retail outlets, some more things but we feel pretty good directionally about where we're headed.

Thanks, everyone.

Really appreciate it.

Stephen Grambling, Goldman Sachs.

Two quick follow-ups to some of your other questions.

First on capital allocation, with the dividend announcement, what is the right leverage ratio for the consolidated company, and how would you think about dividend growth versus buyback longer term?

Want to do leverage first?

Sure, this is Dan.

On the leverage front, I think pro forma for National Harbor and Borgata, leverage at the end of the year is roughly around 4.4 times.

The goal is to continue to get that into a range of 3% to 4% -- 3 to 4 times, I'm sorry, and continue to get that number down.

We have made a lot of progress, but we're not where we want to be just yet.

And I would say the ultimate goal is to be at a steady run rate over the next couple of years in that 3 to 3.5 times.

Thank you, Dan.

In terms of capital allocation and returning value to shareholders, we did spend about two years on this, hoping that we would have the day we're having now, which is discussing returning capital to shareholders.

We looked at share repurchases and special dividends and quarterly dividends, and within the context of quarterly dividends, we did a very deep dive into what the precedent transactions were for companies that are initiating a quarterly dividend.

And the average yield coming out of the box for companies that are initiating a quarterly dividend is 1.3%, and we looked at that.

We looked at what the lodging peers were doing, and we looked at our free cash flow, and that's how we settled on the $0.11 in the first quarter, and the yield out of the box that we're referring to.

I think we also heard from our shareholders, and we believe at the Board that you want to be able to have an opportunity to grow that dividend over time.

We believe given our forecast internally on free cash flow, we will be able to do that.

On top of that, I think it's important to note that CityCenter, our 50% joint venture that didn't get a lot of press today, even though it had a record your last year, is sitting on a ton of cash right now.

We have dividend cash back to the owners, Infinity World and MGM before.

We will likely do it again, and so it is also the case, once we open up MGM Cotai, the opportunity of future expanded dividends at MGM China.

The expectation at this time is if these events occur, which we expect that they well, we will be able to move that cash back to the MGM Resort's owners, the owners of those assets, in the form of increased dividends, increased quarterly dividends.

At some point in time, we may view other options in terms of returning value to shareholders, at this time, what we believe after the analysis that we did, given what we believe to be rapidly accelerating free cash over the next several years, we'll be able to achieve our ratings objectives, our leverage objectives that Dan referenced, while still growing our business, improving our business, increasing our margins and profits, and increasing the amount of capital that we can return to our shareholders in the form of quarterly dividends.

That's helpful color.

Jim, you also mentioned wanting to avoid any hiccups on a quarterly basis, just from a guidance perspective.

I'm sorry if this is in the slides, which we're having technical issues on our end, but aside from the tailwinds in the first quarter, what are some of the puts and takes to think about as the year progresses?

Thanks.

We got into that a little bit, in the slide deck.

Maybe we can get into little bit more.

Do you want to do it, Dan or Cathy?

Sure.

Stephen as you get to the slide deck, as we talked about earlier, later in the year, the third quarter is probably our toughest revPAR comp in 2017 versus 2016.

It was up about 11% in 2016 over 2015.

We will have the contribution from Borgata all year and National Harbor, as well, as that continues to ramp up.

There is the calendar shifts to be mindful of, through the course of the year, as well.

One of the other items that is a little bit unusual, but to just point out is this is the year that our golden ticket-in/ticket-out patent runs out, so we will have some impact at the MGM Grand who owns that patent for years.

They will have some impact by about $10 million or $11 million in cash flow this year from the royalties going away, with that patent expiring.

So I think those are the key 2017 issues.

One less day because of the leap year.

Yes, and February has the one less day, and the way the calendar actually works benefited the entire hospitality network in 2016, just the way the leap year and the calendar fell.

It actually increased revPAR here in the US overall, just based on that unique calendar from 2016.

That's helpful.

One last one if I could on the convention business.

You mentioned the need to optimize the spend of the attendees as you close in on capacity.

Was there anything unusual from the spend this year that you saw from the convention business on a per head basis from those visitors?

Or is anything unusual as we think about next year in terms of the types of folks coming and their amount of spend?

Thanks.

The spend is increasing.

As with Chuck Bowling, who I'm sure is listening in, hi, Chuck.

He had $100 million of catering revenue last year at Mandalay Bay.

$100 million in catering revenue, just at Mandalay Bay.

That's an all-time record.

So, it's a matter of -- and that's profitable revenue by the way, folks.

It's a matter of the convention mix which we talked about we will have a record, and the cadence of conventions, particularly going into what were historically in non-traditional convention months, which we don't have a non-traditional convention month anymore.

Every month is a convention month now in Las Vegas.

That is helping our revenue per occupied room, which is why I mentioned that we expect that will be the case throughout 2017.

It's partly due to that and in thinking about the first quarter here, think about Con/Agg, I mentioned that the first quarter of 2016, we had revPAR up 8%.

We just guided you to 7% for the first quarter of 2017, so in other words 15% over that two-year period of time.

That's the best we have ever had over a two year period of time.

2010 and 2011, the stack growth was 8%, 2013 to 2014, the stack growth was a little less than 15%, about 15%.

This is going to be, this two-year period of time is going to be the best we've had, in terms of revPAR.

And in terms of margins, Corey, on the expense side, you have something you wanted to say?

It's interesting as we look at every quarter, we constantly are looking at all of our expenses including our payroll.

And in particular, even in the fourth quarter when it felt a little tough, actually when we look at it compared to an expense per occupied room, we are only up like 0.004%, and we are actually down over a two-year period over 1.6%.

We are down over 1,100 FTEs from last year alone, so we are constantly managing that expense.

We're constantly watching it.

And that, with the additional revenue, will only mean that flow-through will continue to come through.

Great, best of luck this year.

Kenneth Fong, Credit Suisse.

I have a question on the Macau side.

In fourth quarter, MGM China seems to have lost some market share in the fourth quarter.

Just wanted to see, is there any reason behind it?

And also, before your Cotai new project opens, any strategy how you can defend your market share ahead of the new project?

And what do you see in 2017 so far, especially on mass market train?

On the mass market, it's pretty fair to say that we're in that construction period, as you know.

We have just opened the gaming areas, with the Lion's Bar and new restaurants.

That did have some disruption, because we had a restaurant that was a fairly important restaurant out, so we did have some headcount loss.

The bigger issue really was, we didn't hold as well.

I wouldn't say that our volume share was down, but we just didn't hold as well.

I can assure you that having opened those restaurants back up, we have seen that business pop back.

So that's been looking pretty good.

In terms of the Chinese new year, I think what we're now seeing in Macau is that we normally used to see that after the third or fourth day, that the business would strengthen up.

It really didn't come back this year until about the sixth day, and even up until yesterday, our mass market in particular continues to be strong right through that.

So I think we're hearing from a number of operators that it may have been a little slower to come on.

The city was very, very busy with headcount.

A lot of daytrippers.

I just think that is probably shifting some of the gaming patterns, pushing it further out.

I think that is actually better for us, because I think customers come in and they seem to be staying a lot longer.

What was the last question you put to me?

Just before you or new project opens, how do you defend your shares?

How do we defend the shares?

I don't think it's about us defending the share, it's about others wanting to retain share against us, right?

Obviously, as I said earlier to Harry, we are putting in play what we know needs to be a very long and extended acquisition strategy.

So building up to the opening, we want to consolidate our position in the peninsula here, looking very strongly to how we can build first time visit, but then put a marketing program in that really starts pushing out into the six to eight months after opening, recognizing that the property is coming into the market now, the ramp-up is just longer.

So we need to plan to make sure that we drive business, not just for the first 60 days.

We need to be in the market to drive business for at least the first six to eight months.

Putting in, building up our direct marketing teams, building up those channels that I was talking about.

Does that help?

Yes, this is very helpful.

Thank you very much.

Carlo Santarelli, Deutsche Bank.

Jim, you talked about quite a bit the margin impact and some of the delta relative to consensus in the period, and obviously flow-through on margins.

But one of the things that I don't think we have touched on that could be somewhat responsible, for the performance relative to consensus, is the PGP.

Could you maybe take a second and outline 2017 in terms of incremental year-over-year EBITDA coming from the PGP and maybe talk a little bit to the extent you can about what you expect from the program year-over-year in the first half of the year, as I assume that's when we will get the bulk of incremental PGP benefits?

We will turn it over to Chris Nordling who knows this one in and out, right Chris?

Yes, sir.

I think what you're going to see, you have in the deck what the first quarter was last year and the second quarter, we're going to be about, the remaining $55 million is going to be split about 50-50 in each of those two quarters, between the first and second quarter.

So by the end of the first half of the year, we will be ramped up at the $400 million level.

I think for your modeling, you would put it in 50-50, give or take between the two quarters.

Okay, and so just so I'm clear on that, you're saying the incremental year-over-year will be about $27 million or so per quarter?

Yes, in that ballpark.

Okay, great.

And then Grant, if you said it, I apologize if I missed it.

When you factor in obviously the lower mass hold, which is what I think that you alluded to, and obviously the higher VIP hold, do you have a normalized EBITDA number for the 4Q?

Did you hear the question, Grant?

No, I missed it, sorry.

Sorry, Grant.

I can repeat the question.

I was just asking around the normalized EBITDA for the property for the 4Q, given the mass hold and higher VIP hold.

How much was the overall effect?

Yes.

It was about the same as the third quarter, so it's in that $15 million to $17 million range.

$15 million to $17 million favorable, and is that just on the VIP side, or is that including the low mass hold netted against it?

That's netted out.

Netted out.

Okay.

Thank you.

Felicia Hendrix, Barclays.

Jim, or Corey, or Dan, can we return to something we were talking about a while ago?

That's on RevPAR.

I just want to make sure that we understand there is a tough comp in the third quarter, and Dan you laid out earlier, how we should think about the cadence, but can you grow RevPAR in the third quarter?

Yes.

Okay, so it will be positive?

Yes.

To be clear, yes every quarter will be up.

Okay, that's great.

And then can we just talk about National Harbor in the context of Borgata, and have you already being integrating your northeast marketing strategy?

I know it's probably early, but Borgata has been doing very well.

You called that out earlier.

I'm just trying to figure out what the potential of that property could be, now that it's under your ownership.

Sure.

We actually prior to National Harbor opening, Anton Nikodemus, who is in charge of our regional offices, has been coordinating and working with Tom Ballance quite a bit.

Actually, Tom is going to be in National Harbor in the next few days.

They do some really good things at Borgata that we think not only can help us at National Harbor, but also all of our regional operations.

It's a little early to get the benefit, mainly because they are not quite on M life yet, but once they are on that, then they will be able to cross market pretty significantly, we think.

We do think there's opportunities there.

What is the timing of that?

We're hoping sometime in the second quarter M life gets introduced to Borgata.

Okay, thanks.

That's helpful.

Grant, a quick one.

I know you all reiterated that there is no opening date officially announced yet, but when do you expect to have more clarity on the timing of the opening?

I think, as Jim said in his opening address, we have a Board meeting coming up in March, and that is obviously one of the big topics for us to go through at that time, and we will certainly have more clarity around that time.

And is there anything since your last update in terms of what has been holding that back?

Anything new or just the same?

It's all those challenges that you have in any complex property.

We are creating some very unique first-time installations here, and we're going to get them right and we need to get them right and we're just going to put the time and effort in to get it.

We are pretty comfortable that the market conditions are suiting us at the back of the year.

We think it is just the right thing to do.

Okay, great, thanks.

Robin Farley, UBS.

First on Cotai, it looks like since last quarter, the budget may have gone up by $250 million.

I wonder if you could give me some color around that?

And are you doing anything on just a preliminary basis?

Because right now your land concession requires you to be open by January.

Are you doing anything to maybe just get a little bit of room there, if there were to be a delay of a few more weeks or months, so that there wouldn't be any risk from that?

Bill, you want to take that first?

Yes, Bill Hornbuckle, Robin.

The budget increase is, we're going to give guidance from 3.1% to 3.3%, how we have been looking at it.

But there is some cushion in that.

It's the way we have to trend up on the $100 million increments.

That is new guidance.

Obviously the complexity, time does cost some funding.

We still think we will be better off in the long run.

We have every assurance, we're not going to give a specific date yet because we do ultimately want to continue detail with our contracts and would like to meet with the government around the process of licensing and approvals, before we can peg a date specific.

That being said, we will be definitely be open in our mind in the fourth quarter.

The idea of contingency into 2018, while always something we will consider, is something we're not contemplating right now.

Yes, just to help on that, there is no chance we're going to need to have any discussion with the government about the land concession, because we are opening at this year.

Sometime in the middle of the second half.

Secondly, the delta increase is far less than, Robin, what you had mentioned.

So $130 million in total.

If you recall, that's about 11% of total cost increase over the last -- what, Dan?

Three years?

The cost has only gone up about 11% in the three-year period, which most of the guys over there would have loved to have had.

So yes, we're comfortable with this budget.

There is a little bit of increase because of the time of when we are opening this, but we're willing to take that increase, because of the time, because we want to make sure it's a good product when it does open this year.

Okay, that's very helpful.

Thank you.

And then just two quick questions on Vegas.

One is, just how much -- I don't know if you can quantify how much of the 7% RevPAR growth in Q1 is the benefit from the holiday shift from Easter moving into Q2, that is helping Q1?

Is there a way to help us think about that?

Do you know?

No.

It carries a little bit of a benefit obviously with the shift but let us get you the right number there.

Okay.

The big driver obviously is Con/Agg in March.

The revPAR number in March is going to be enormous.

There is also a shift in some of our in-house conventions.

One or two that moved from February to March this year from a scheduling standpoint, so not only Con/Agg, but a couple of our own internal shifts in timing is making March look exceptionally strong, and a little bit weaker in February because of that one or two convention move from February to March this year versus last year.

Okay, great.

Thanks.

The last thing is, in the slides, it talked about one of the issues in terms of year-over-year in Vegas was, it looks like we talked about $30 million, some of that was hold related, but the $10 million and it talked about G&A and media spend.

I don't know if you gave color on that in your introductory remarks.

I don't think I heard you mention what that $10 million shift was.

We didn't.

We should have.

They want to hit it, Corey or Dan?

Or do you want me to?

Yes, I'm happy to.

It's really a timing issue, Robin in terms of what we did was, we took a step back as we initiated some of our marketing efforts from a consolidation standpoint.

We did in late 2015, early 2016, we took a step back.

We wanted to play out and look at where we're spending our advertising and marketing dollars.

We also had a new campaign rolling out that we're working on from a branding standpoint, not only at corporate but the property level and really wanted to make sure we're spending the right amount of money in the right channels, and so from the year-over-year standpoint, we're pretty consistent in terms of our spend.

It's really a timing issue that hits the fourth quarter as we start to look at our branding and marketing campaigns, heading into 2017.

What I would add also, Robin is there were a few projects that were capital in nature but expense type projects cleaning up like the Marina at Beau Rivage that had to get done in the fourth quarter.

Even with those increases, as I've mentioned, our total expense per occupied room is only up 0.004%.

Great, thank you.

Thanks very much.

Maybe one last very quick question.

Thomas Allen, Morgan Stanley.

I have one last really quick question.

On a same-store basis, your US casino revenues were up 3%.

Your RevPAR in Vegas was up 3%, but your EBITDA was only up 1% and you have PGP and there.

Can you just give us the delta there?

Did you just lose some very high margin business?

Yes, we did.

That convention business obviously is very high margin business.

We were actually able to replace a lot of those rooms by leveraging our database, and with the goal of driving profitability and less worried about margin, I think from that exercise, what we've learned is that database is golden.

We have learned a lot of things that were positive, and we learned some things that we could do better in future quarters.

But what we replaced those rooms with were definitely a lower-margin profitable business, though.

Okay, thank you.

And just a couple of things to clean up some things that were asked.

Easter will be less than 1% the calendar shift.

So the 7% RevPAR guidance Easter shift will be less than 1% of that.

Flow-through was asked a couple of times, and to be clear, we're comfortable with the concept.

We do believe margins are going to grow including in the current quarter, we expect flow-through to be up I think it was Joe asked, about 50%.

We feel comfortable about that.

In terms of PGP, Shaun talked about that.

I don't want to leave anyone with the impression that once we are done with that $400 million program, we are done, because we haven't implemented all the plans that we had identified even in the initial program.

And as I said earlier, we have laid down the architecture for further initiatives, further ideas, which is we are confident for margins to continue to grow, even when we cycle through that program.

And the cadence of RevPAR, we look like we're going to be up all year, even with the tough comp in the third quarter, we will be up, and certainly up nicely here in the first quarter.

Up nicely in the second quarter, and in the fourth quarter, will be the strongest of the four quarters, and first quarter being the strongest probably of all.

Third quarter being the toughest, but still up.

Cathy, do you want to add anything to this?

Okay, well I know you have some other questions.

Thank you all for joining us today.

We have taken more than your allotted time, and we look forward to chatting with you soon.

Take care.

Ladies and gentlemen, that does conclude today's conference.

We do thank you for attending.

You may now disconnect your telephone lines.