美高梅國際酒店集團 (MGM) 2017 Q4 法說會逐字稿

Good morning, and welcome to the MGM Resorts International Fourth Quarter 2017 and Full Year 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 note this conference is being recorded.

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

Please go ahead.

Well, thank you, Nicole, and good morning, everyone, and welcome to the MGM Resorts International Fourth Quarter and Full Year 2017 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 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 also note that our supplemental earnings deck is posted on our website.

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

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

I'd like to take a moment to put our strong fourth quarter and full year into a longer-term perspective.

In the last several years, MGM has undertaken a really remarkable transformation, aligning all of our brands into one global entertainment brand, driving a disciplined, unified view of strategy, creating and continuing to build one common approach to guest service and firmly establishing a clear and unwavering set of values that guide both our behaviors and our contributions to the communities in which we operate.

These decisions, thoughtfully planned and carefully executed, have resulted in a robust and resilient business model.

And that provides for defensive earnings streams, but also creates really strong tailwinds for the future.

And I would say 2017 proved that out.

Despite the clear challenges we had in the fourth quarter, our earnings were relatively well-protected, and we finished the year strong.

And we're excited about 2018 as well.

We had given guidance in the fourth quarter of EBITDA margins down 100 basis points.

They were actually down only 30.

We had given REVPAR guidance of, I think, down 5% to 7%, and the actual outcome was down 4.9%.

We think that 2018 is going to be a very strong year for our company based on what we see here in Las Vegas and in Macau and in our regional properties.

I'm going to start with Macau.

Of course, we all just got back from there, having just opened a beautiful new resort, MGM Cotai, on February 13, and literally was just before an important New Year, the Lunar New Year.

We think that this property is a game-changer in the market and really, in fact, for integrated resorts around the world.

It's so breathtakingly unique that everyone is going to want to go into the spectacle, in fact, thousands upon thousands already have and to experience a one-of-a-kind environment.

You remember that we set out here to design and develop an innovative integrated resort that would fulfill the requirements of the government to support global tourism.

And we delivered on that.

What's exciting is that the opening event is just the beginning because we have many catalysts to drive further traffic and profitability to Cotai in this year, including launching our first resident show, Destiny, which would drive even more mass customers and a lot of buzz around the property, but also, of course, when we open up our Mansion, along with 5 junket operators, to support the VIP business.

We opened only recently so the data is early, but I can say that the demand for both properties has been strong, both in terms of rooms and in terms of gaming activity.

We had -- not all our rooms available at Cotai for the opening.

I think that we had about, what Bill, 900, about 900.

And they'll continue to add on rooms.

And Grant will get into that in his comments.

But we'll have all the rooms open in the spring.

And on the Peninsula, we continue to see really gratifying loyalty of our customer base there.

We obviously finished the year strong, driven by both good mass business and VIP in the fourth quarter.

And we've seen traffic over there, and frankly, we haven't seen in quite some time.

And that's continued into the new year.

And so between the 2 properties, we're excited about the opportunities that they offer us.

And we think we're very well positioned for the market in terms of the type of product the customer is looking for.

And we're confident that we'll be able to build our market share and command more than our fair share of the market, as we have in the past, commensurate with the fact that we have a high-quality product and the best management and employees in the business.

And here in Las Vegas, this is the second time we've talked to you since we experienced the great shock to our community in October.

And yet our fourth quarter materialized as we expected, as we discussed on our last call.

In fact, it was a touch better.

And I think that speaks to the power of our brands and the resiliency of our strong and nimble operating model.

We have strong analytical horsepower here, allowing us to understand our business in a real-time basis and make more accurate forecasting.

The commitment of our people here is really the big story and our relationships.

And of course, the continued recognition that Las Vegas offers an unparalleled suite of experiences for the town that helps keep this market fresh, relevant, exciting.

All of that we could see in the fourth quarter and certainly into this year.

Now there's a lot of interest in Las Vegas today.

And others are investing in the market, which we welcome.

We know this drives incremental visitors and will better position the city for the future.

And that, I have to say, was the genius of our Founder, Kirk Kerkorian.

He taught us to invest in our community, to encourage others to do so and together, the destination would grow, and MGM will benefit.

That's what he always said to us, and that's still true today.

And we are very, very excited about the future because of the collective investments that we and others are making.

We continue to see and pursue attractive ROI opportunities in this market, reinvesting in our properties to maximize their full potential.

And when we do so, we create meaningful new offerings to the city, and that drives incremental demand.

And of course, we've achieved this recently with our expansion to the Mandalay Convention Center, our award-winning T-Mobile Arena.

More recently, the convention expansion at Aria, which literally just opened last week and is already getting great feedback and full.

And this year, we'll continue to invest further.

Obviously, more in convention space, the expansion to the MGM Grand, which will open up early next year.

And of course, Monte Carlo's dramatic transformation to Park MGM and NoMad.

Certainly, it's been disruptive to us, but when we open venues like Bavette's, which is the best steakhouse in Las Vegas now, we're seeing immediate customer demand.

And as we've discussed, as a destination, Las Vegas has transformed itself, literally, into a sports lovers town, go Knights, though, Bill.

And that obviously also drives more opportunities for the destination and for MGM.

And if you add to that the fact that the Supreme Court will likely legalize sports betting this year, MGM is really poised to immediately take advantage of that opportunity.

Sports, as it relates to our performing events here and as it relates to our industry, we believe, is a significant avenue of growth for MGM Resorts in the future.

So let's talk about 2018 for a moment and why we're optimistic.

As we've said before, first, let's talk about the first quarter.

It's a challenge because of the lapping of CON/AGG and the fact that CES shifted a week.

That said, if you look at CES, it was another really successful show.

In fact, we reached, at MGM, record hotel revenue days during that time.

We also had a good Super Bowl, very strong, and so far, a really strong Chinese New Year.

And we remain very optimistic about the high end throughout the entire year.

So despite the concerns about some of that calendar shift and some corrections, more broadly, we feel good about the U.S. economy and very positive about our forecasting ability for the balance of this year.

And certainly, some of the benefits that accrue to a company like MGM, like the corporate tax cut change, that will also help, not only MGM, but the customers that visit us.

And the fundamentals of our business are very sound.

We continue to see very healthy levels of bookings.

We'll get into that more specifically.

But our corporate meetings and convention business is really terrific.

The event calendar is outstanding for 2018.

And we have some interesting ideas on how to continue to innovate our entertainment offerings, not only driving into '18, but into '19.

And so I think that will bode well for the marketplace, of which we are the greatest beneficiary.

We also see good opportunities to grow the destination in Macau, working with our fellow concessionaires and the fact that MGM Cotai has much more to offer as it continues to add its new offerings.

We remain committed to the investments that we've talked about, being very disciplined in our use of capital.

And we're focused on the projects that we have in the pipeline that we've already outlined to you, obviously, the transformation of Monte Carlo.

The continued expansion of our brand here with the convention expansion at MGM Grand.

The continued addition to our portfolio with MGM Springfield opening up later this year.

And of course, what we have going on in Cotai.

And if you add to that what James Stewart and the team is doing over at MGM Growth Properties, which is certainty the premier triple-net lease REIT in the space with a great cost of capital and quite a bit in their pipeline, of which MGM is the largest economic beneficiary, we feel good about the prospects for the MGM Resorts shareholders.

And so what are we going to do with our future?

Given our cash flow growth and the fact that we're nearly completed with our development cycle, we intend to continue to execute on a very disciplined four-pronged capital allocation strategy.

First, we will continue to reinvest in our business where we know it makes sense to maximize performance and increase our competitive advantages.

That's working very well here in Las Vegas.

We will make sure that we maintain a very strong credit profile and an outstanding balance sheet.

We will look for prudent growth opportunities where we believe MGM has a differentiating opportunity and where the returns can be outsized.

And we will continue to return capital to our shareholders.

And on that note, since we started this journey, we've returned about $580 million to our shareholders.

And as I'm sure you saw today, we also announced a 9% increase in our quarterly dividend.

I'm proud of what we accomplished in 2017.

I think that 2018 will be a great year for our company.

And with that, I'll turn it over to our operator for Q&A.

(Operator Instructions) Our first question comes from Joe Greff of JPMorgan.

Jim, your full year 2018 Las Vegas Strip outlook suggests that the 2Q through 4Q will grow about 8% on average in terms of EBITDA.

Can you just talk about how you see -- obviously, the 3Q has a very difficult comparison to what you delivered last year.

But can you talk about maybe how back-end loaded it is to the 4Q?

And then just maybe you can give us some specificity on the group pace.

You mentioned earlier that corporate meetings were terrific.

And then the event calendar you said is outstanding '18.

If you can give us some specific data points behind that, that would be great.

And then I have a follow-up.

Sure, Joe.

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

First, on REVPAR, I think the guidance we gave is up 2% to 4%.

Now obviously, with the hole that we have in the first quarter, that would imply pretty decent REVPAR growth in the balance of the year, which we expect.

Q2 and Q3 look about the same in terms of REVPAR, up in the mid-single digits.

And we should be up double digit in REVPAR in the fourth quarter, to give you a sense of how that plays out.

Obviously, the fourth quarter against the unusual comparison a year ago, Q2 and 3 really healthy REVPAR growth.

We did have a couple of major fights in the third quarter.

It certainly drove a lot of demand in the third quarter '17.

That's going to be the challenge to do as well as that.

On the other hand, we have a couple of big fights and a huge concert in the second quarter of this year, bracketed around, I think, an Investor Day Cathy's having to -- trying to entice investors to come on out because we have a big Canelo-GGG fight, right, happening in that quarter.

We also have a U2 concert happening in that quarter.

And both of which bodes well.

And there's another fight in the second quarter as well.

So the second quarter looks pretty strong from an event perspective.

Third quarter, we're still working on how to compete against a great event calendar in the third quarter '17.

But that's how the event shakes out.

In terms of convention business, looks strong all year.

Look, I'll talk to these guys to hit it, but we have seen good in the year, for the year.

Their pace is strong.

Our convention mix looks like it will be about what it was last year for this year, really solid bookings.

And we get the benefit of Aria's convention expansion, which is really unique and already well received.

And so I think that looks pretty strong.

Dan, you want to add anything to that or?

No.

I think...

What I would add, Joe, is obviously the hole in the first quarter by CON/AGG is -- was the biggest hole.

There's some citywide shrinkage, a little bit in the third quarter that we hope to get some corporate business in.

But other than that, it looks pretty good on the convention side.

Great.

Excellent.

And then, Dan, with -- sort of how you're thinking about the next few years in terms of domestic CapEx?

We always kind of sort of penned you in the $500 million to $600 million range.

I know in '18 it's a little bit north of that.

How do you think about domestic CapEx beyond this year and kind of a steady run rate basis?

Yes.

I think the $500 million to $600 million, Joe, is a good placeholder as you look out multiple years.

We are a little bit higher in '18.

Part of that is timing and some of the bigger, chunkier kind of CapEx pieces that are coming to the finish line in '18.

So we're a little bit higher there in '18, but we're a little on the low end of the range in '17.

So I think the $500 million to $600 million on a long-term basis is still the right level.

'18 will just be a little bit higher due to some timing and some of the completion of, as Jim mentioned, the Park MGM, the convention center at MGM.

And so there's a few chunky things that just happen to fall into '18.

Our next question comes from Harry Curtis of Nomura.

Just a quick follow-up on Joe's question.

As far as the convention business in Vegas, Corey, are you seeing much in the way of overflow into lower price shoulder months?

And I don't think I got a sense of what the general pricing is on the business that you've got on the books.

Is up mid-single digit a reasonable guesstimate?

Harry, on the lower months, so this usually happen within the year and during the year.

And so we have some leads for that period right now that we are pretty optimistic about.

On the pricing, what we have on the books from a definite perspective, we are seeing low to mid-single-digit growth.

Got it.

And then, Jim, you mentioned that Grant is on the phone.

I wonder if he might give us some early impressions on traffic and volumes since the opening.

And maybe the reasonable question is, how many cylinders do you think it's operating on now versus what it can get to?

Sure.

I'd like to know, too, Grant so.

Thank you.

Harry, well, the great thing about opening at Chinese New Year is never a shortage of people.

The great challenge of opening at Chinese New Year, if you're not ready, it can be quite scary.

And what I would say on both counts is, we have really pushed the capacity of the property significantly over the last 4, 5 days.

So it came up well.

It's hitting.

And most importantly, the take-up rate has been very strong.

We've had traffic through here -- just in foot traffic exceeding Macau.

And as Jim said, the Macau numbers were very strong.

It is a ramp-up period, and we are working it through.

But if there's one number that really sticks out to me is that from the get-go, we've been able to get the mass win per unit per day on the gaming tables pretty close to the same number that we've got in Macau.

And we're one of the market leaders.

So the critical point is, I think that tells you that we're positioned well to the market that we're targeting, so that mid-premium mass market.

So I'm very pleased with the feel and the pace and the rhythm that we're getting into the property.

As you would expect, we had some -- [start up] challenges, but apart from that it's been -- touch wood -- very smooth.

And now we just need to dig in and really start executing on our other plans.

Sign-ups through our relationship program are running at about 9x the rate that we're getting in Macau.

And that is positive, extremely positive to us based on what we've heard throughout the market here.

And interestingly enough, even before we got going, we already had built up nearly 0.5 million participants in our WeChat account.

So we had 0.5 million people already following us before we even opened the door.

So all in all, I think it's very positive.

Yes, it's a challenging time to make any judgment, but there's some really, really good first indicators.

And the appeal is amazing.

The only challenge that I have is, how do I monetize people taking photographs, as Jim said.

It is phenomenal.

And therefore, we're going to get huge amounts of reach out into the market because all of those photos are going on social media.

If there's anything specific, Harry, other than what I've said, happy to try and fill in the gap.

Well, I guess, the one gap I'd be interested in is your expected opening of The Mansion rooms and where does that position you versus some of the higher-end offerings in Macau?

Well, The Mansion will be totally unique.

I don't think that specific product actually exists here.

There's some beautiful other suites on other properties, but I think the whole private, personal nature of what The Mansion created in Las Vegas being injected into Macau I think is extremely unique.

And that's all part of the stream.

And we'll bring that on later in the year.

Critically for us, first, is we want to get moving on the junkets.

So they may come on a little earlier.

And then once the junkets are in, then The Mansion will bring up the rest of the -- will be the last piece of the puzzle for us to lock in.

So I think it's unique.

I think it's an amazing environment.

And I think it just picks up from what's already been achieved.

And the market knows what to expect because there are so many customers out here who have experienced The Mansion in Las Vegas.

Our next question comes from Shaun Kelley of Bank of America.

Grant, maybe to stick with just kind of where you're at on Cotai for a quick minute.

Could you just give us a little bit more, if it's possible, on sort of the specific timing?

Do you think The Mansion rooms are open by the end of the second quarter still or does that shift at all?

And when do you think you could have some of those junkets and the building up and running as well?

The junkets we are looking to try and get in sort of June, July.

And it looks like with The Mansion, just getting all the details finished, will be open in September.

Okay.

That's great.

And then maybe to switch back to Vegas.

You guys gave very good color on the corporate convention side.

But the Monte Carlo ramp is clearly having some impacts on both kind of what you guys delivered in '17 and how '18 plays out.

So could you just give a little bit more color on sort of overall when we net it out, how do you think that the kind of Monte Carlo, Park transition ends up impacting total dollars of EBITDA throughout '18?

And then what kind of lift or IRR should we be trying to think about for that investment as we blend into '19 and '20?

So on the -- Shaun, this is Dan.

On the IRR front, we're looking at -- the investment is just a little bit over $500 million for the conversion and transformation to Park MGM and NoMad.

On the capital side, it's about $525 million in total.

The return on that, we expect to be mid-teens cash-on-cash return.

As we ramp that property up, it will be completed, as we said in the release, by the end of this year.

So the last components come on in the fourth quarter, that being the NoMad.

And the completion by the end of the year, the front entry and the Eataly and some more food and beverage and entertainment products will be online by the end of the year.

We would expect the brand campaign to be launched and running in the back half of this year, 2018.

And so I almost look at this akin to a new property opening because the property will be so different, unique and a new brand.

We'll be pushing that brand campaign throughout '18 and into '19.

And that I expect '19 to be a ramp-up period with kind of '20 being -- achieving kind of that full kind of cash-on-cash return that we're looking for.

So it's going to be...

I'm sorry.

Yes, the other part of it, I think he's looking for what -- how it hit us in the quarter and going forward on the EBITDA perspective.

Yes.

I think when you look at the quarter, the fourth quarter in terms of its impact, about 2/3 of the decline was a result of the construction disruption.

Obviously, we're bringing things back online, but there's still a lot going on, a lot of disruption there.

So that was about 2/3 in the fourth quarter.

There's still going to be a level of disruption in Q1.

We're estimating that to be about $9 million, $10 million in terms of the EBITDA impact from a construction standpoint.

So there's still, again, some disruption throughout '18.

There's a lot still going on, a lot coming online.

We'll give you more color as we get through the year, but about $9 million, $10 million in the first quarter as it relates to that disruption.

And just to be clear on the mid-teens type number when we get to stabilization, is that inclusive of or after getting back some of just the pure disruption that you lost, Dan?

So it will be that on top of whatever the run rate was before the project began directionally?

Is that the right way to think about it?

That's correct.

I think if you look at prior to kind of putting shovels in the ground and I think the property was doing, call it, circa kind of $70 million, $80 million of cash flows.

So that's off of that base.

So you're thinking about it correctly, Shaun.

Our next question comes from Felicia Hendrix of Barclays.

So Jim, in your prepared remarks, when you were making comments about the use of capital, it seemed to me that maybe you were asking us to read between the lines regarding one of the uses of capital, which would be M&A.

So just wondering, are you actively looking for opportunities?

And if something would come up on the Strip, would you be interested in that?

I'm looking at -- first off, I don't prepare anything, Felicia.

These are unprepared remarks.

In your off-the-cuff remarks.

And I'm looking at my off-the-cuff remarks, I don't see anything between those lines about M&A.

But no, honestly, we're not focused on M&A at MGM Resorts.

We're focused on M&A at MGM Growth Properties.

And James will speak to that on his call.

But I think that what I would say about the strategy, we like where we are.

We see rapidly growing free cash generation in this company over the next several years.

We have articulated what we want to do with that cash to our board and to our investment community.

And we're going to stay the course.

Clearly, we're part of a dynamic industry.

And so we will always keep our feelers out there and figure out what's going on in our industry.

But we certainly like our positioning as the market leader in every market that we operate, with exception of Macau.

And now that we have Cotai, we're going to pick up a bunch of share there, we believe.

And I wouldn't read anything into a deviation of our articulated strategy.

Okay.

And then just switching gears, can we just talk about the environment on the south end of the Strip?

Can you talk about the promotional environment there?

And have you -- how has it been changing maybe kind of daily or weekly?

And I'm trying to get to that, but also just understand the demand for Mandalay Bay, where is that?

What are you doing to drive traffic?

How long can you take to improve that sort of thing?

Yes.

Well, there's no doubt we were more promotional in the fourth quarter than we would have been otherwise.

And we were more promotional in the fourth quarter than we are right now.

We've already started releasing quite a bit of that pressure.

But do you want to speak to that, Dan?

Yes.

I think when you look at it, obviously, given the incident of October 1, we really had to kind of go off script of what we were doing throughout the first 9 months of the year.

The team did, as Jim mentioned earlier, a great job in executing.

And I would say, there's a huge amount of recovery already within Mandalay that has taken place.

But there is still some residual impact at Mandalay.

As you recall, roughly about 80% of the cancellation volume that we saw in the fourth quarter was directly impacting the fourth quarter.

But there was some impacting the early part of this year.

So I think as time continues to progress here, that Mandalay continues to recover and continue to get back to its normal self.

But there is still a little bit of impact in the early part of this year.

Again, I would just say that the promotional activity is -- now, here we are in February, is the same as it was last year.

Yes.

I think it's pretty similar, Felicia.

The only hole you have is the CONEXPO hole that companies are probably maybe trying to fill.

But our -- the way we're yielding rooms is back to where we were before.

Mandalay Bay's impact was a little bit more because we also were a little bit slower on turning back the marketing on that property for a few more weeks.

So it will have some impact in the first quarter, minor in the rest of the quarters.

But everything else feels like it's pretty much back to normal.

Our next question comes from Stephen Grambling of Goldman Sachs.

Maybe looking longer term, I think at the 2016 Analyst Day, you had consolidated adjusted EBITDA and free cash flow projections through 2019.

Can you just talk to the biggest puts, takes versus that range?

And then I guess on a related note, I know you have a goal of hitting prior peak margins on the Strip, can you just remind us where that peak is?

And what might be different or similar about the operations now versus then that can make that target either achievable or not?

Sure, Steve.

This is Dan.

So as it relates to kind of prior peak levels in terms of our Strip EBITDA margin, they were roughly around 33% here in Las Vegas.

So I think when you kind of look at the trajectory we've been on, the guidance we've been giving, we continue to kind of be on that path to achieve those levels over the next year or so and get back there.

I think the -- if there's upside to that, it's going to come really from our stretched kind of top line growth.

We still think there's good upside to the economy.

We're still growing.

But that's really been kind of low single-digit growth.

If that turns to the upside and outpaces our expectation, then there could be some upside to that margin.

But based on what we're seeing right now, what we're doing in terms of cost containment and the programs that continue today from PGP, et cetera, we think the 50 to 100 basis point a year kind of guidance puts us on the trajectory to be back at those peak levels within the next 24 months.

So we finished up around just north of 31% last year.

Probably a little bit higher than we expected.

So I feel like we're a little ahead of the plan thus far, but continue to be on that pace.

As far as the puts and takes on Analyst Day, that's going back almost kind of 2 years now.

The biggest one is probably in just the timing around Cotai.

I think that model, if I remember correctly, had kind of Cotai opening in kind of March, April of 2017.

So that's probably the biggest in terms of the change to that model would be the timing around Cotai.

And obviously, now the growth of that market that was not kind of laid out in that model when we put it together back in '16.

And I'd add a couple of things to it, Dan.

One on the puts and takes on the model.

We underestimated the impact of Monte Carlo.

So certainly that -- we're below where we thought we would be in terms of cash flow there.

But every other Strip property is at or above what we are looking for, with Bellagio hitting an all-time record, as an example.

Our regional properties are spot on in terms of what we had projected.

And so I think the big put and take is the opening of Cotai.

That was the big difference.

Probably now that we know that the tax reform is obviously another one that will positively impact our free cash flow in '18 and '19 and beyond from that standpoint as well.

Yes.

And in terms of margins, the one point I'd make out -- I'd bring up right now is depending on your views on inflation, inflation has, obviously, impacts to the industry, both negatively in terms of labor, but also positively and -- in terms of pricing power.

So to the extent that we can improve our revenues through pricing power in a slightly inflationary environment versus our expenses, we should and could see margin improvement that we did not see prior to 2007.

So I would -- since the dawn of time, which I define as 1984 when I joined Wall Street, hotel companies and casino hotel companies typically do well from a margin perspective in inflationary environments because the ability to change prices instantly against the backdrop of expenses is a favorable dynamic for companies like ours.

And it's certainly, we see, is the case here as we continue to increase pricing in a variety of channels, whether it be in room rates or fees or restaurant prices.

We believe that we have some room left to grow in all those areas.

And that should more than offset the inflationary impact of labor and other expenses.

That's all very helpful.

Maybe if I can sneak one follow-up in since you brought up the benefits of tax reform.

I guess how is tax reform and the incremental cash flow thought about differently in the sense of capital allocation?

I know you previously said 3.5x, I think, is what your target leverage ratio is.

Does that change with tax reform?

No.

We view this as a windfall, unexpected pickup for the company.

But our leverage targets remain the same.

And so the ability to have additional cash available will be allocated to the areas that I talked about in terms of return on capital to shareholders and if we find good ROI growth opportunities.

But we view that as part of the overall free cash flow story.

Our next question comes from Carlo Santarelli of Deutsche Bank.

Guys, if you could just -- as you talk about 2018 -- and obviously, you guys provided a lot of color on the top line.

When you think about the 50 to 100 basis points margin -- and obviously, you spoke to some of the challenges, putting you closer to the lower end this year, just in terms of cost pressures as it pertains to the Strip this year, is there anything outside of the onetimers and some of the hold headwinds from last year that you guys would point out?

Well, we have labor negotiations.

That's always -- that happens every 4, 5 years.

We discuss that.

So that's happening right now.

We're having good dialogue with the union as are the other companies on the Strip.

So we'll see how that plays out, but that's certainly an impact as it relates to Las Vegas.

Other labor issues, don't see.

Our FTEs are in good shape.

Other expenses, no.

As you know, we were early on adopting an independent strategy on energy that has worked to our benefit.

And so I don't see any expense changes at all for this year, do you guys?

No.

Outside of Las Vegas, we also have discussions with the union that we're working with at National Harbor.

And so that's a discussion that's ongoing right now.

We have the expenses that we're taking now as we're ramping up MGM Springfield, which is looking fantastic, Bill, by the way, and opening up soon before Labor Day.

And other than that, I see nothing, Steve.

Do you guys?

No.

Great.

And then, Dan, maybe this one's best for you.

Just in terms of the cash taxes for '18 and '19, that's very simplistically you're looking for something like a 1% effective rate from the cash side.

Is there anything, in particular, that could change that setup?

I noticed that the language around that in the GAAP taxes seem to be that the GAAP tax piece is obviously a lot easier to forecast.

No.

I don't -- we're not anticipating any material or significant changes from that the level.

I think when you look at 2017, I think in total, we had about $180 million of cash taxes in total.

We'll still have some state taxes in 2018 of roughly, plus or minus, call it, around $20 million of state taxes in 2018, but pretty minimal in terms of federal taxes in '18.

Our next question comes from John DeCree of Union Gaming.

Wanted to talk a little bit about the baccarat business in Las Vegas.

I think in the slide deck you guys mentioned a little bit about strength in the international business.

And I think a couple of years ago, we saw Macau as kind of the leading indicator relative to baccarat performance in Las Vegas.

So wanted to see if you could provide us a little bit more color as to what you guys are seeing in that business in Vegas?

And perhaps some anecdotal comments here in town on Chinese New Year so far.

Well, maybe I'll start that and anyone jump in that was at the party that I was at Sunday night.

Yes, the high end is very healthy right now.

And the baccarat business is very strong.

We hosted our major event for the Year of the Dog at Aria on Sunday night.

We had 2,900 people in our ballroom, and we had over 900 people on our waiting list to be able to go to the event.

The tone of the event, the tone of business in town is better than we've seen in a number of years.

And we're feeling very encouraged by the level of traffic that we're seeing in town, at our properties and our competitors' properties.

We also had an extraordinarily successful 2-day concert at MGM Grand.

A performer that's known around the world and sold-out and highly recognizable to that customer.

So the tone in town, I'm sure, is robust for everybody.

It certainly has been for us here at MGM Resorts, at Aria, Bellagio and MGM, where we cater to that type of play.

And that's encouraging going into this year, particularly because we have some events slated for the year that draw high-end customers.

And a big fight does that.

A major concert does that.

And we have a couple of both.

So I'd say that is encouraging for us.

Our market share in town is growing.

And I think that the fact that Cotai is open is going to help that as well.

We're getting incremental cross-country play, people coming back and forth, sampling Cotai, as Grant could speak to.

They haven't been to the property in a while, and they're coming here.

And so, Corey, you want to add to that?

What I would add is, if you look at the baccarat play, there's a huge correlation between what happens in Macau and what happens in Vegas.

And the fact that Macau is back up again, I think you're seeing a lot of that strength here also.

And I think the one point I'd add to Corey is, what we're also seeing is more domestic players as a percentage of the baccarat mix than we ever had before, which is encouraging, both from the standpoint of the mix of play, but also the strength that we're seeing here domestically in our customers.

So there's more domestic play as a percentage of the overall baccarat mix than we've ever seen before.

Yes.

So I would think that January -- Chinese New Year ran into Super Bowl last year near the end of January, beginning of February.

The separation of the 2 events actually helped us and allowed us to fill our villas and mansions, both times with domestic customers for Super Bowl and the Asian customers for Chinese New Year.

So that was also a positive for us.

That's helpful.

I appreciate the color, everyone.

I wanted to, as a follow-up, just kind of extend that question to the domestic gaming business in Las Vegas.

We've talked a little bit about inflationary pressures with tax reform and Jim, I think your comment about raising prices.

Hence, with the tax reform bill and the potential impact on the consumer, has the outlook for the domestic gaming business changed at all?

Are you still kind of thinking kind of a low single-digit growth business on the kind of domestic casino floor?

I think it's early to tell.

It's certainly a positive in terms of what we might see.

It's early to tell though.

And where we would pick up business would not only be here, but I would think a property like Detroit, National Harbor, those would be properties that should see incremental benefit to this, but I think it's early but encouraging.

Our next question comes from Thomas Allen of Morgan Stanley.

When we think about your 2018 REVPAR guidance of 2% to 4%, can you help us think about the relative performance by property or types of property?

Who wants to tackle that?

I mean, I think the high end is going to do well, our luxury properties in general.

And if they do, then that drives the core properties as well.

But do you have any more specifically?

Yes, I'm just looking at numbers, too.

I mean, Easter falls, a little bit of Easter noise here, but...

Yes, I mean, as Monte Carlo continues to kind of change, obviously, from core classification that we've historically had of that property, as that has been predominantly a drag in '17, that should become more of a positive in -- throughout '18 for us.

So that would help the core properties from that perspective.

Keep in mind in the first quarter, the biggest impact of CON/AGG when you think about luxury versus core is more on the core side than the luxury because they just don't have the ability to backfill convention business and really are just rate takers during those big, citywide events.

So the properties that don't have a lot of convention space are the ones that will feel it during that week in March.

So luxury still looks strong throughout the year based on convention.

I'd say as we kind of classify our core properties separately, they still have growth, but are probably more affected by the first quarter.

And Monte Carlo will kind of help that group of properties throughout the year drive a better REVPAR story.

And I'd add a couple of things just to think about for this year.

One is a big fight and a big concert in the second quarter.

That will benefit the properties around where that's being held.

It's being held, in both cases, at T-Mobile.

We have the Summer League coming in.

Obviously, this will be the second year of really -- of MGM being the sponsor of the NBA Summer League.

It's going to be bigger than ever.

That's going to have a big impact on visitation at a time we would typically struggle.

That's going to help.

I think our team will be in the playoffs, I think.

Getting there.

So the Vegas Golden Knights.

Will it be impactful?

It started the season at a 200:1 odds of getting into the Stanley Cup is now 9:2.

And a playoff series at T-Mobile would obviously have a big impact on New York-New York and Park MGM and the neighborhood.

And then we get into the fourth quarter where we, again, are going to have some events.

I think it's going to be fairly broad-based, but clearly where we have the most pricing power typically are in our luxury properties.

And Bellagio and Aria, they set the tone.

And our properties are able to draft off of our luxury properties.

And I think that will help this year.

Thomas, from a percentage increase, the cores will also have the benefit of the resort fee increase this year, which will help the percentage increase in cores a little bit more.

Right.

That's a good point, Corey.

I mean, the core -- some of the core properties are actually -- were lagging the market.

The Caesars portfolio had the higher resort fees, which is a great change since they started with no resort fees not long ago, but welcome to the party.

It certainly benefits looking at what our competitors are doing in the marketplace, and it's helping overall pricing.

Helpful.

And then can we just confirm, what was convention mix for 2017?

Was it 19.5%?

And then with this new convention space, should that -- can that increase?

And will that take a few years or how should we think about it?

So right around 19% is where we finished up, which was where our target was for '17.

'18 is shaping up to be very similar to that '19% as well.

From a mix standpoint, that does not include Aria.

So they are looking at a slight increase in their mix at Aria for 2018 with their new convention space.

The MGM Grand expansion comes on in early '19.

So they'll start to see that benefit more in '19 than in '18.

Our next question comes from Chad Beynon of Macquarie.

Just wanted to go back to the 1Q guidance that you issued with negative 250 basis points of margin decline.

So promos are declining and the Monte Carlo impact is lower, is the 250 simply a product of, Dan, kind of what you just talked about with the tough comp from the core properties, mainly in March?

And then also what looks like kind of a tough table hold?

Just wanted a little bit more color on that guide.

Yes.

Those are -- Chad, those are really the 3 drivers.

When you look at it, obviously, it's the comparison to CON/AGG last year.

It is the disruption at Monte Carlo.

And I think hold last year in the first quarter was north of 25%.

So those are the 3 factors that are in our guidance of that down 250 basis points year-over-year.

So you're thinking about it correctly.

And probably a little bit of the impact of Monte Carlo.

I mean, of Mandalay Bay in the first quarter.

Right.

Okay.

And then can we get an update just on Japan.

That's been in the news clippings a little bit more lately.

Just any milestones or any specific dates that we need to look forward to in 2018 from a catalyst perspective?

Well, what you probably have been reading is that the Diet is moving forward and that there's discussion and debate around the gambling addiction countermeasure bill.

I think is what it's called, which would be the first issue that the Diet would consider.

That would be to provide funding for and identification of problem gaming.

And then the second measure would be the implementation act, which is probably what you've been reading about.

And the current dialogue there from what we see is still shooting for a midyear discussion in the Diet.

And hopefully, a passage of that by, say, June or July.

MGM has been very active there.

We spent a lot of time, both in local jurisdictions and in Tokyo.

And I think we're as well positioned as any company in the world as it relates to developing our reputation there, reaching out to potential consortium partners, taking time to understand the market.

And we're very encouraged about that.

And it's certainly -- if the implementation bill passes, it will set off a hotly competitive RFP process.

And MGM is, I think, well positioned to possibly participate in that.

Our next question comes from Robin Farley of UBS.

Most of my questions have been asked already.

Maybe just one with the -- what your expectation or sort of initial conversation have been around concession renewal talks maybe starting this year in advance of the 2020 expiration.

Well, thank you, Robin.

We had the honor of hosting the Chief Executive and most of the cabinet at our opening at MGM Cotai on the 13th.

And I could say that I'm very proud of the event.

And I think that the feedback that we've consistently received from the government leading up to the event has been very favorable in terms of what they think of the property and all the pre-tours and certainly that night.

We have not had discussions about the concession renewal with the government.

We have taken the view that if we continue to deliver on what we expect is the expectations of operators like ourselves, that we will be treated fairly.

And I'm very confident of that.

I think that sometime later this year or next year, there'll be a discussion around the concession renewal process or as the government says, the rebid of concessions.

But they've not reached out to us to discuss that, and we have not reached out to them.

Okay.

Well, before we end, I'd just like to, first, thank you all for joining us today and just reiterate a couple of points here.

One is, I'm incredibly proud of the people here at MGM, particularly after the events of 1 October.

We quickly scaled our business, put our analytical and operational horsepower to work and made strong guidance about what we thought we would do in an uncertain time.

And we delivered on that guidance and delivered on the company for the employees and the people.

That just shows how different a company that we are today than maybe 5 or 10 years ago and really the strength of our business model.

We have strong tools to understand our business, both in terms of '18 and beyond.

That's why you will sense more confidence from us in terms of our predictive abilities.

And we see a good year for this year on balance here in Las Vegas and in our regional properties.

And the outlook for Las Vegas, we didn't touch about it much in terms of new entrants coming into the market today, but we view positively in terms of driving investment in the town, creating jobs, construction and operating jobs.

That accrues to the benefit of the whole community.

We love the tax law change and the fact that people are pouring out of California to move to Nevada.

And that has an impact on housing and on incomes and on spend throughout the valley.

We're very excited about the expansion and renovation of the convention center.

And undoubtedly, that will help the northern end of the Strip, which has encouraged investment up there, with the Fontainebleau, Resorts World.

And the single-greatest beneficiary as an incumbent to that is, of course, Circus Circus, which enjoyed a tremendous year in '17.

Those of you out here would see the dirt being moved all around Mandalay Bay for the Raiders stadium.

Bill Hornbuckle sits on that board.

They're on track.

They're spending money.

They're working hard.

And that's certainly encouraging for us because we own that neighborhood.

And having the stadium there will have a big benefit to Mandalay, Luxor, Excalibur, et cetera.

And so I feel like Las Vegas is well positioned and MGM is capitalizing on what we see happening in this market.

And we're throwing off free cash.

And we expect that free cash to grow demonstrably.

And that provides us many opportunities to benefit our shareholders in terms of dividend growth, in terms of share repurchase, in terms of investing in our businesses to get outsized returns.

And yes, if a unique opportunity like Japan or anything else presents itself, we want to make sure we're able to capitalize on those, in some cases, one-of-a-kind opportunities.

And with that, I will say, thank you.

Thank you for joining us and your support in MGM.

And as always, we're around to take any follow-up questions.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.