美高梅國際酒店集團 (MGM) 2018 Q3 法說會逐字稿

Good afternoon, and welcome to the MGM Resorts International Third Quarter 2018 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; 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.

Thank you, Phil, and good afternoon, and welcome, everyone, to the MGM Resorts International third quarter 2018 earnings call.

This call is being broadcast live on the Internet at investors.mgmresorts.com, and we have furnished our press release on Form 8-K to the SEC this afternoon.

On this call, we will make forward-looking statements under the safe harbor provisions of the federal security 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.

Except as required by law, we undertake no obligation to update these statements as a result of new information, updates or otherwise.

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 our press release, which is also available on our website.

Finally, this presentation is being recorded.

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

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

We're pleased to announce that our third quarter results came in ahead of expectations with solid overall performance despite, of course, the year-over-year challenging comparisons that we faced here in Las Vegas.

The company continues to generate strong cash flows, and we're focused on appropriately allocating the capital as it aligns with our overall strategic objectives.

In the third quarter, we distributed $64 million in quarterly dividends, and we've repurchased $176 million of stock, demonstrating our commitment to returning capital to the shareholders.

We remain focused on bringing our consolidated net leverage down to between 3 to 4x by 2020 as we grow our cash flows, including the benefit of all of our new properties and as well as we manage all of our debt levels.

We're all well aware that the third quarter was challenging in Las Vegas given the strong comparisons in the prior year, which, of course, benefited from 2 fights, strong table games volume, high hold and a favorable convention calendar mix.

In the third quarter this year, there were 120,000 fewer large scale convention attendees citywide.

This resulted in, of course, heavier reliance on leisure channels, and the summer months ended up acting more like the traditional summer months that we've seen historically.

While our Las Vegas Strip RevPAR was down year-over-year, it was ahead of our guidance, and we still achieved our second best third quarter RevPAR on record.

By the way, our convention mix in the third quarter was also our third best.

Our regional properties continued the strong growth we've seen over the last 3 years.

We delivered a 5% increase in EBITDA to $207 million.

And in fact, our Mississippi properties, MGM Detroit and MGM National Harbor, all had record third quarters.

Our regional strategy to operate the premier assets in key markets continues to prove successful, and we're maximizing the value of these assets.

We're also continuing to strengthen our position internationally.

Over in Macau, we experienced revenue growth of 37% to over $600 million.

Adjusted property EBITDA increased over 7% to $130 million.

MGM Cotai started out slowly, continues to ramp in the third quarter and the property though experienced a pretty low hold, which impacted its adjusted EBITDA by about $16 million in the quarter.

On August 24, we successfully opened MGM Springfield, and the property is already off to a good start.

We've received great feedback from our guests, who've enjoyed the unique environment and our fellow community members, who have welcomed the fresh wave of energy and the local opportunity to the town of Springfield and Western Mass more broadly.

While it's still in its early days, we're encouraged that the resort is performing in line with our expectations on both the gaming and non-gaming side.

Here at home in Las Vegas, we're reaching the final stages of the Park MGM transformation.

Earlier this month, in fact, on October 12, we officially opened the Nomad on the top 4 floors of the building.

MGM and the Sydell Group, headed by Andrew Zobler, has truly created something special here, and it is a unique destination in Las Vegas.

Looking ahead in the coming weeks, we'll open up a couple of new restaurants and a nightlife concept.

We opened Eataly at the end of the year and our front entrance, all of which will be done in December.

Looking ahead, the current quarter is shaping up nicely as we're already seeing the benefits from the expected increase of over 800,000 large scale convention citywide attendees.

We expect this proving convention base business to ease some of the competitive pressures that we've seen in the leisure channel and that we anticipate our Las Vegas Strip RevPAR will be up 1% to 2% and overall revenues will be up slightly.

We also expect our Las Vegas margins to be flat to up slightly as well.

We're maintaining our full year guidance of the Las Vegas Strip revenue and EBITDA declines in the low single digits, and adjusted property EBITDA margins of around 29% or 30%, excluding Park MGM.

As we look ahead to next year in the group business, we're pacing ahead of previous years and we expect MGM's Group room nights to be up again, and we expect to gain market share, driven by the expansion of MGM Grand's convention space and, of course, Park MGM.

We're also already having success placing groups in shoulder periods, which we believe will allow us to better yield the rest of our portfolio.

And by the way, Las Vegas was recently selected the #1 North American destination in 2019 by Carlson Wagonlit Travel, up from #10 a year ago.

The reason cited in that survey is the strength of the U.S. economy and the ability of Las Vegas as a market to provide high-value experiences for the larger meeting planners, specifically in the higher end corporate segment, which bodes well for us.

And before we turn it over to Q&A, I want to reiterate some of our financial and operational priorities and our strategy to creating shareholder value.

Number one, we're going to continue to maximize the performance of our businesses across our entire domestic resorts portfolio.

We expect moderate revenue growth through our continuous improvement efforts and an ongoing disciplined approach to both top line and cost control that we believe will drive margin improvement and organic profit growth.

Secondly, we'll continue to invest in our business to maintain and grow our competitive advantages.

And by ramping up our newly opened properties like MGM Cotai, MGM Springfield, Park MGM, we expect to accelerate cash flow and free cash flow.

We're continuing down our path to a more asset-like model.

And with respect to MGP, we intend to work on our target of reducing our economic ownership stake to below 50% over the next 3 years.

We're singly focused on the goal of generating consolidated adjusted free cash flow of $3.50 per share in 2020 and ensuring a stringent and disciplined approach to capital allocation.

This will include being very targeted in growth opportunities; and in Japan in particular, our sports initiatives and our interactive business and in digital; achieving and maintaining a fortified balance sheet and, of course, returning capital to our shareholders.

And so with that, I'd like to turn it back over to the operator for Q&A.

(Operator Instructions) The first question comes from Joe Greff with JP Morgan.

Jim, hearing your comments and going through your earnings release and the slide deck tonight, I see and I hear the language on your capital allocation priorities and they're unchanged from a quarter ago.

I just want to make sure that's the case, particularly with regard to maybe opportunistic large-scale M&A.

Under what scenario or scenarios would larger scale M&A make sense for MGM, Jim?

Sure.

And Dan just told me, I said 800,000 instead of 80,000.

So 80,000 is pretty good, 800,000 would be off the rails.

So clarification there.

So in answer to your question, I would refer everyone back to our deck, I think it's slides, what Cathy, like 5, 6, 7. And that will guide, I think, the thinking that you should have around M&A.

Our focus here is to maximize profitability of our businesses and our cash flows.

And we are going to be very prudent now and in the future on how we allocate capital around all of our growth strategies.

The board feels this way and management does that it's incumbent upon us to consider any deployment of capital, whether it's new growth opportunities, M&A or otherwise through the lens of being acutely focused on weighing on whether or not we can return a very high return in excess of our cost to capital.

Absent any clear strategic or financial rationale that would be through that lens, we're going to continue to return capital to our shareholders.

In some, we like to hand that we're dealt right now.

We like our assets.

We like the condition of our assets.

We like the fact that we've moved out of a development phase into a harvesting of free cash phase.

We like our management teams here running these properties.

We like our opportunity of winning in Japan and doing well interactive and nationally here in sports and that is the focus of the board and the company.

Great.

Then my second question, and this is likely for Corey.

As it relates to the Las Vegas Strip and looking at next year and I'm guessing your visibility on group and events is stronger in the first half than the second half.

Some maybe you can answer it 1 Half and 2H.

Corey, can you share with us group room nights and revs on the books now versus you [growing] -- and Jim, I know you mentioned the pace is up.

And then, can you talk about the number of events that you have on the books versus what you had a year ago?

And then specifically, can you talk about Mandalay Bay's 2019 group room nights addition?

And maybe to get a sense of that recovery, how that compares relative to this time 2 years ago?

Sure.

On group room nights for 2019, I think you're right, Joe, I'm looking at -- in first half and second half.

But as we look at the entire year, and as we look at also what's out there from the citywide perspective, we expect to be up.

What we have on the books right now is pacing extremely well, and we believe that will gain some market share in the group room right area.

And in particular, LVCVA, I think came out and said that they're going to be up 1%, 1.25%.

We believe we will do much better than that on what we see on the books.

And the comfort there is we have about 80% of what we think is going to be on the books, already on the books.

And that's probably the highest we've been in the last -- ever since we've really started our budgeting process.

From an event perspective, its -- that's also really hard because we know when hockey is on the books and what other sporting events are on the books.

And there will be more events there, but that is also looking pretty positive.

With regards to Mandalay Bay, Mandalay Bay will up next year on convention book room nights.

It's still not quite where we'd like to see them, but they definitely will have a nice increase compared to this year.

The next question comes from Felicia Hendrix with Barclays.

Jim, just wanted to talk about your fourth quarter RevPAR guidance for a second, the up 1% to 2%.

I'm just wondering, there's a lot kind of going on still because you had calendar issues in October.

You still have Park MGM, and obviously, Mandalay, which is still ramping.

So if you adjust for all of that, what would RevPAR guidance have looked like?

Well, I think what we'll focused on, 2 things.

One, I would -- I reread my transcript from last quarter.

And I think everyone should reread it as well.

We have factored everything into this.

And we feel that this is appropriate guidance to give.

There are gives and takes in every quarter.

And we took all that into account.

We like how this is setting up, I will say that, given all the factors that you just mentioned, and given what we've seen early days at Park MGM and what we know about the Mandalay month to month to month calendar in the fourth quarter.

But I think we're going to stick with very specific, but without too much color RevPAR guidance.

Okay.

I mean you understand that I was asking kind of what impact those items had on your outlook, right?

Yes.

I think, Felicia, just to add to Jim's comment.

I mean, when you looked at last year and obviously the events of 1 October impacted a lot of things, but it mostly impacted occupancy.

And so when you look at rates, rates were pretty healthy.

Convention room nights in the fourth quarter last year, despite what happened in this city, were up 30-plus percent in the quarter.

So despite what happened, there's still some positive things that occurred in the fourth quarter and a little bit of what kind of transpired in the third quarter had to shake itself out and has done so here in October.

So that's all been to Jim's point kind of taken into consideration with respect to the guidance.

Okay.

And I think that probably gets to my next question, which is asking it in a bit of a different way.

Because if you look at the 2-year RevPAR stack in the third quarter, you were up slightly, right, like 30 basis points?

And then the fourth quarter, implied to your stack is negative.

So I think just looking at the fourth quarter last year, which was bad in terms of RevPAR, I think that deceleration might be surprising to folks?

Yes.

I think -- and I'm going from memory and you're testing me because I'm getting old.

But in the fourth quarter of '16, we had a few shows in there that actually rotated out and were very profitable shows for us, particularly at the MGM Grand, if I recall.

So again, I think we're looking at this on a micro level within our portfolio and taking all these factors into consideration.

But if we look at it on an absolute basis, I mean, given everything that you said, it does not sound like you're seeing kind of slowing trends.

It sounds like actually you guys are kind of on the move forward and up and recovering, correct?

Yes.

And I mean, I think we talked about this 3 months ago.

What we thought we would see in the fourth quarter and what we said 3 months ago, we're seeing.

And the pace in all channels look really good for the fourth quarter.

The next question comes from Harry Curtis with Nomura Instinet.

I wanted to start with CapEx on the wind down of your bigger projects.

It looks like there's roughly $300 million left to spend in China and about $80 million in Massachusetts.

How long do you expect that to wind -- take to wind down?

Typically, Harry, those sometimes take longer, but typically, it's about a 6 to 9 months process.

The pieces in Macau, a little bit on the close-out from the original construction, but also include the completion of the VIP rooms as well as the Mansion and the President's Club.

But I would say that typically it's a 6- to- 9-month process post-opening assuming everybody is working together.

All right.

And is Grant on the call?

Yes.

I was -- I wonder if you could give us your perspective on the growth that you're seeing in the Mass versus VIP.

There is clearly concerns that the VIP is slowing.

And do you get a sense that it's taking -- that the VIP is taking a breather?

Or do you think that it's more likely that, that there's some shrinkage in that business?

And what does that mean?

And if you would address the Mass as well for the kind of ramp of the property over the next 6 months?

Okay.

So market conditions, first.

I think it's been pretty consistent from all the people who have come out, and we're saying the same thing that, yes, it seems like after what has been a relatively good period of growth of junkets, they have slowed.

I think there is probably some impact from a whole series of condition, they've been opening a lot of rooms.

Clearly, market conditions in China are a little more volatile.

Critical point I would make on the junket, though, is that there still seems to be a lot of liquidity.

And what this seems to be is much more of a controlled pause rather than the effect of running out of liquidity, which, as I think you understand, is really critical in that segment.

So I think what we're all expecting is a little softness for a little while until we can get restabilized for us.

So we're still pretty confident because we're opening our other rooms and that's going to be a positive for us.

Clearly, we'd like more growth in the market because that will help us increase our share.

And that leads us to the Mass.

Mass business continues to be more robust and more resilient than the VIP simply because of the nature of the business and obviously it's a much broader base.

Like always, the Mass businesses, that's not one -- there's not one element, there's a series of components.

And while the mid- to- lower Mass is still very stronger is similar to the VIP a little bit of a slowdown in the growth in some sectors of the top end.

But again, talking specifically on the property and the ramp up, once we get the President’s Club done, the Mansion done and all of those construction things out of the way, we're very positive that, that will allow us to build our base, and we'll continue to see that.

As you will see in the quarter, Harry, we had a decent sort of luck effect, and some of that was actually a result of the ramping up because we tend to get a bit more volatility.

And that volatility is just part of that process.

If you didn't get it, then you probably weren't going to get the business.

So in summary, market growth, I think, we're all consistent around that high-single early double-digit probably flat for junket going through and obviously with a better performance for Mass, but it's going to be slightly different over the range of Mass customers.

For our property, positive signs, traffic improvement for Cotai.

But I also just want to lead the point that we're also very focused on driving business in Macau.

The cannibalization there has stabilized at about that 12%, 13%.

And so we've got a great opportunities to continue to grow and establish that.

So we're getting through the difficult phase of the ramp and now we want to see some momentum from that.

And just as a housekeeping, Mansion and President’s Club timing of completion, please?

President’s will be before the end of the year, December, and we're working really hard to get some of The Mansion that was available for Chinese New Year.

And we have good [grounds,] I think that's going to happen.

So that's a big positive for us.

The next question comes from Shaun Kelley with Bank of America, Merrill Lynch.

I was just wondering if we could go back to Las Vegas for a minute.

Last quarter, it felt like we were seeing some signs of promotional activity as it sort of acted over the summer and people were, as I think you guys mentioned, forced to kind of react to lighter convention business.

As we move into Q4, are you seeing any signs that some of that, I guess, deeply discounted package tour and promotional activity has abated?

And that was sort of just kind of a one-off necessary to bridge that weak period?

Or just how would you characterize the promotional environment in Vegas?

Shaun, it's Corey.

In general, I think whenever you have the base of convention in FIT, there is less promotional activity.

So there is peaks and valleys at almost every quarter.

I think, obviously, in the fourth quarter, there will be a lot less of that with the citywides coming in.

But in general, it's pretty similar to the way it's always been and probably got a little deeper in the third quarters probably coming back to some normalcy in some periods of the fourth quarter.

But there are still periods like right before the holidays where there is softness -- just general softness that usually occurs that people are going to get the rooms filled.

Great.

And then, just one sort of bigger picture strategic question.

Jim, in some of your earlier comments, I think you alluded to large-scale M&A and how that might fit into your -- kind of your strategic framework.

I was sort of wondering if you could address maybe some of the more smaller tactical regional strategies taken on?

I mean, as you basically now got the operations of both Empire City and Hard Rock Rocksino.

How do those, broadly speaking, kind of fit into the portfolio?

And is there appetite to do more tactical things that build out the original network even if maybe something larger scale didn't fit those guardrails?

And how are you kind of -- how are you considering those types of opportunities out there?

Sure.

Well, I think that MGP's going to be very opportunistic and aggressive.

And I'm sure James Stewart will speak to that on his call.

And I would -- just from our perspective at MGM Resorts, we see a lot of interesting M&A activity for the triple nets in general, in the space, which we're rooting on James there.

As it relates to MGM Resorts, we viewed the Yonkers and the Ohio opportunities as unique and distinctive and an exception to a rule.

We are very optimistic about the future of New York City as a broad-based gaming market in the future.

And we're incredibly impressed with the operational performance in the free cash flow generation of the Rocksino in Ohio.

There -- Those are very few and far between opportunities.

I would view them both very opportunistically.

Our market access deal with Boyd, really answers the question for us as to whether or not we need to own a physical asset to maximize the opportunity in sports betting.

And the answer is we do not.

We do not need to own or operate physical assets in order to maximize that opportunity.

And so M&A -- any M&A, whether it's large or small, would have to be scrutinized against those strategic objectives that I talked about earlier.

And they have a big hill decline because we really like what we got.

As I said, we really like our assets.

It's not lost on us that we have the most profitable assets in every regional market, in Mississippi, in Michigan, in New Jersey and, of course, the largest profit generator here in Nevada and, of course, in Maryland as well.

And so it would be inconsistent with our strategy to look at opportunities that are second tier relative to what we already operate at a premier fashion.

And it would have to fit the lens of those goals that I mentioned and the free cash flow of $3.50 a share in 2020, and the leverage target that I talked about of 3 to 4x during that same period of time.

And all of that would be measured against increasing the dividend in MGM Resorts and buying back stock at what we believed to be very attractive levels.

The next question comes from Thomas Allen with Morgan Stanley.

Just to clarify something on the Las Vegas Strip.

So you highlighted that third quarter performance exceeded your expectations.

And then, you reiterated your full year guidance.

Should we imply that you're more cautious about the fourth quarter?

Or is it you're giving broad-based comments?

Thomas, this is Dan.

I think -- I don't think there's anything to imply there.

I think when you look at the guidance that we had given for the third quarter, obviously, a pretty wide range.

We've narrowed the range in the fourth quarter to compensate for that as well as the fact that we came in and did a little bit better.

We said we're going to be up in the fourth quarter, and our guidance reflects that for Q4.

And I think other than that, I think we beat this horse pretty well earlier in call.

So I don't think there's anything to read into it other than it all ties together from how we're thinking about and looking at the guidance vis-à-vis our prior comments.

Perfect.

And then, just talking about Park MGM.

Can you talk little bit about the cadence of the ramp, if there's any changes to that?

I saw that you signed up Brittany for another residency there.

How should we think about the costs and then kind of the revenue ramp there?

Are you fishing for tickets there?

Is that the -- so a few things on the ramp.

And really, I hope you all get to see this soon.

It's really quite remarkable in our view.

And we've done a lot here.

As I mentioned, the NoMad opened on the 12th of this month.

The NoMad bar is open.

The high limit area is open.

The lobby is open now.

And it's been really positively received.

All the Park MGM rooms are done.

And the rest of the NoMad rooms because we opened up with 2 floors, will be completed and operational by November 10.

The NoMad restaurant, which is a stunner, it's in the Our Race & Sports book.

So you can imagine the volume of the space, that opens on the 14th of November.

We open up the entire Strip in early December.

We open a noodle shop that Corey named La La Noodles on December 12 for some reason.

Roy Choi opens a restaurant called Best Friend that opens on the 15th of December.

Eataly opens on the 27 of December.

The nightclub venue opens on the 28th of December.

That's the day Lady Gaga starts her extended shows at Park Theater, which you can imagine the response to that, particularly post her great movie.

Brittany starts in February, Aerosmith in April.

We've never had a lineup of performers that we've had ever, as it relates to Park MGM.

So the ramp should be nice going into the Western New Year's period.

Certainly, a hotspot during Knights home games.

And going into next year, literally everything will be done.

And so it's been painful.

It's been a long arduous process, but it's worth the effort.

And I think you'll see pretty rapid ramp-up of cash flows as all those elements come into place for '19.

And what I would add is, so the first half of '19 even with those events, I think it will be very positive.

We will still have some rooms that are coming in under the current trends.

But by the second half, we'll start seeing that priced to where we're closer to where we would like to be.

I would say 2020 is more focusing on even making that mix even more productive and focusing on our margins.

And then I think around 2021 is when we should see the full ramp of the property.

Yes.

I think that's fair, Corey.

This is a new property basically.

And so new brand, new property, it's going to -- we expect it to go through a ramp up like MGM National Harbor did to where it's doing extraordinarily well now and the way MGM Springfield is right now.

We expect that to ramp up from an absolute cash flow perspective in a determined fashion.

We expect the same kind of focus at Park MGM.

The next question comes from Carlo Santarelli with Deutsche Bank.

For starters.

Corey, you talked a little bit earlier about the 2019 pace.

And obviously, having the base on the books has been something that obviously over time has shown a nice ability -- you've shown a nice ability to kind of better yield manage or better price, I should say, some of the leisure rooms.

When you think about having that better base for '19 as well as some of the competitive pressures that you mentioned from peers on the leisure side, is part of the strategy there to maybe keep the group rate a little bit more enticing to get that business on the book so that you are able to flex on the leisure in transient side in '19?

So the way we've always approached the convention is, we really do price to market.

And there are times in softer periods, we'll adjust the rates.

Obviously, we'd much rather have a higher convention rate than a lower end leisure package rate.

So yes, we do that flexibility quite a bit.

Another thing we've learned, especially in this third quarter in particular, is flexing our database.

And we think there is a -- still an opportunity there.

We know our competitor outmuscles us, especially in Las Vegas and how they fill in particular some of their core rooms.

So we think there is an opportunity there also to help once again build that base to yield up to a higher level, where we don't necessarily have that dependency on the OTA that we experienced in the third quarter.

Great.

And then, just if I could touch quickly on the 4Q RevPAR guidance as well as kind of the moving parts.

You talked a little bit about Strip net revenue being flat to up slightly.

Is there anything in there on the gaming side that would kind of -- if you just think about the 3 components obviously with RevPAR up and you guys obviously surpassed your expectation for this quarter.

So if we assume the 1 to 2 in the fourth quarter.

On the gaming side, the comparison is fairly easy.

I think you guys last year had fairly normal hold, but obviously saw some of the impacts from the events of 10/1 on slot handle and some of the other gaming metrics.

Is there anything in there that maybe you're being particularly conservative about?

Or were there some one-off events later in the fourth quarter that might have been a little bit more additive?

I think -- Carlo, I think, we were relatively in a, I'd say, our current normal range last year on the casino side in terms of table games hold.

I think it was north of 25% last year.

So we typically forecast the kind of the midpoint and from that standpoint.

So there's a little bit on the casino side when you look at where the hold is coming into play there.

And then, it really comes down to -- December comes down to the last week of the month and who shows up particularly on the casino side on the high end for Western New Year's.

And so that's usually where fourth quarters are made or broken is really over that Western New Year's kind of last 4 or 5 days of the month kind of comes into play.

So we're using the data we have to kind of run that -- run those counts and those forecasts.

And I think that's kind of where we're landing out on those 2 fronts.

Great.

And then, just -- Dan, since you mentioned just on that fourth -- sorry, somebody...

Well, I was just going to say that I think you were mentioned about the event calendar, there's really no change this year versus last year.

We have some more hockey games.

Other than that...

Yes.

But I mean, in terms of 10-pole events, concerts, fights, et cetera, we're pro forma-ing a pretty similar quarter.

Okay.

Great.

And just around the holidays this year, is there anything with the way that, especially December the way New Year's will fall and stuff, it looks like it could be slightly beneficial.

Is that the way you guys are interpreting it?

It could be just the way the holidays are falling kind of early on a Monday, Tuesday kind of combo.

So you could see kind of a double weekend effect so to speak with folks coming in Friday, Saturday, leaving on Sunday and a new group coming in for the New Year's.

But that's the traffic pattern that we've got to kind of wait and see how that starts to fill in, in November and December.

The next question comes from David Katz with Jefferies.

I wanted to ask 2 questions.

One is, I know you indicated previously that MGP is a stake that you would sell down over the next 3 years.

I wonder if you could shed some light or provide some color around why 3 years?

Why not 1, 2 or 5?

Or how did we arrive at that pace?

Sure.

Maybe I'll tackle that and Dan, you could go ahead.

My expectation is that MGM Resorts' economic interest in MGP will decline.

I don't know whether we'll sell any shares.

I expect that MGP is going to grow I think as rapidly as it has grown since its gone public and grow with other operators.

And in doing so, our economic interest will go down.

It's a target of ours that we think is a reasonable target when we articulated last quarter.

We have expectations that MGP is going to continue to grow rapidly and in the meantime, we're rooting them on.

Understood.

And if I can ask a second question.

Just -- I know you've given some data points and some insight around 2019.

But given that we've spent -- we've talked quite a bit about guidance and the structure of guidance this year.

Are there any thoughts that you can share about what the structure of next year's guidance might look like?

Yes, sure, David, this is Dan.

I'll take that one.

We've been obviously talking to a lot of you all on this call, both from sell side and buy side, and we've been working through this quite a bit.

So as we get into 2019, our approach is, we're not going to eliminate guidance.

We're going to modify it and speak to kind of one quarter out both in terms of our overall net revenues here in Las Vegas as well as a subset of that being continue to give you one quarter out guidance around RevPAR and EBITDA margins from that standpoint, and help you model out both on the sell side and the buy side each one quarter out from that perspective.

We think that's more prudent and more useful to the investment community.

The next question comes from Robin Farley with UBS.

I actually originally had a different question, but then just a follow-up on a comment you made in answer to kind of talking about getting -- making sure that you get your fair share or more of group nights next year.

Can you give us a little bit of color around if group rate is down slightly, and I understand that's probably still a significant percentage higher than those rooms going to the tour and travel distribution.

So maybe if you could just kind of talk a little bit about what the sort of the rate -- group rate down still gives you what advantage over the leisure package mix?

Yes, I'll answer that, Robin.

If group rates are down a little, it's going to have not much of an impact at all.

It's a lower percent of our room mix than any other segment we have.

What it allows us to do is yield up the other segments and pick and choose some of the okay segments that we want to focus on and center on.

So more importantly than the rate, it's the base that it provides us to be able to drive the additional yield out of our rooms.

And Robin, if I could add to that a little bit.

Sometimes there's a little more nuance to that as well.

It's not just a mix, it's a placement within the calendar throughout the year, so sometimes if we can place groups in typically shoulder periods after Labor Day, things like that, after holiday periods, that certainly helps the overall portfolio and helps us yield up the portfolio as a whole.

Okay, great.

And on your 2020 goals, maybe if you could just -- you mentioned that you were happy with her assets and things like that, didn't necessarily need to do a large scale transaction.

Does your 2020 goal include potentially those from M&A activity?

Or is that a 2020 goal without any additional M&A smaller or large?

Yes.

Robin, that's just what we've known at the time, which was essentially MGP's acquisition of Rocksino and nothing more than that.

We didn't bake in any future deals on the acquisition front into that goal.

Status quo new development projects that obviously come online, and MGP's purchase of Rocksino.

Okay, great.

And I don't know if you would take one last one which is actually just switching back to Macau.

Just given the concession exploration in 2020.

And I guess, the language of the contract says that a new concession would have to be in place 6 months ahead of time, which would be September of next year.

So now kind of less than 12 months away.

I wonder if you could tell us about how you're thinking about approaching -- kind of what your approach is over these next 10 months?

And whether you're expecting to be asked to make a commitment to -- a financial commitment to infrastructure build?

Or what types of things you are kind of doing in preparation for these next few months?

Grant, could we give you that one?

Or do you want me to tackle it?

I can.

Well, maybe we'll both do it.

I think, Robin, what we've always said is we continue to be in dialogue with the government, and we are obviously specifically working through.

And we're quietly confident, probably more than that, that we'll be in a position to do that.

We obviously do expect that there may be some expectations that we need to work through but those discussions are still ongoing with government and it's really going to be up to the government to make that final decision.

Anything more to add, Jim, no?

No.

The only thing I'd add, Grant, is that, I don't think the government has any expectations.

They're going to go right up into the last moment here.

The discussions are ongoing and prompt and timely.

And just -- so that free cash flow goal for 2020 includes anything over and above what you would have to do as part of that process, is that fair to assume?

In terms of what?

In terms of additional capital expenditures?

Or...

Exactly.

Like in other words, your free cash flow over and above any additional capital commitments that you would be making for that process?

That's right, yes.

No, we would measure it in terms of us achieving that and looking at whatever investment we would consider, it would have to significantly enhance that otherwise it's just, as Jim said earlier, sticking to our strategy and what we have on our plate right now and staying focused on that and returning capital to shareholders if that's the best use of that capital.

And I think what Robin is asking is, did we -- are we anticipating whatever it is we might have to do, is it within that free cash flow per share?

And we are comfortable with that free cash flow per share target of $3.50.

Given everything that we know including our hope and expectation, our license is extended in Macau.

And the next question comes from John DeCree with Union Gaming.

We've gotten a few questions over the last couple of weeks for investors about outbound Chinese visitation to the U.S. and any potential impact that we might see in Las Vegas?

I think I remember some prior estimates that, that business is kind of a low single-digit composition of your Las Vegas business.

So I was wondering if you could kind of put some parameters on that.

And if you had any comments about what you're seeing in your business perhaps from Chinese visitors to your properties in the U.S.?

Or maybe just more broadly international trends that you're seeing in Las Vegas?

Sure.

John, it's Corey.

On the high end side, it's actually the business has been pretty good and pretty strong still.

We've seen very little impact at all on the ultra high-end customers and in that level of play.

On the low end or the -- just a normal consumer, it is a very small percentage and many of them come in tour buses and tour groups and are mainly at the lower rates.

So there has been maybe a slight impact, but not enough material to impact our business, it's just not a big enough piece of our business.

That's fair enough.

And I had one separate question, follow-up perhaps, Jim, not sure we got through an hour here without talking about sports betting in much detail, recent partnership with the NHL, I think there was a new CEO appointed to your JV with GVC.

And I was wondering if you can spend a minute or 2 on kind of high-level updating us on the progress of the JV at GVC?

And I guess, your thoughts on some of the early days of sports betting we've seen in New Jersey and Mississippi so far?

Sure.

Yes, I was with Commissioner Bettman yesterday inking the NHL deal, which we're very proud of.

And you add to that one, the NBA deal we did about 3 months ago, and, of course, the JV with GVC.

But first, let me start with the JV.

Board has met several times.

We have hired a terrific CEO that has deep experience, came from GVC.

The infrastructure has been put into place in terms of the governance, hiring is underway, office sites are being scouted as we speak.

Partnerships for the JV and other forms of technology, sports content et cetera is underway.

We have a -- we know we picked the right company in GVC.

They are relentless.

They're aggressive, they're smart, they feel the way we do about the opportunity in the United States, not only in sports betting but in the whole interactive platform.

We -- they're rooting us on as it relates to our league relationships that we're forming, and between the 2 of us, we've been reaching out in a targeted way to a variety of sports teams not only within the 4 major sports, but more broadly globally in other sports as well.

As it relates to early days, we're already doing as much business in Borgata as any of our luxury properties do out here from almost a standing start.

And we're doing equally well in Mississippi.

I think our playMGM app is finally now in the Apple Store.

In New Jersey.

In New Jersey, which is a big positive development.

And we're working literally on a state-by-state basis with the appropriate state agencies to help those states craft the best legislation for those respective states.

I can't overemphasize how exciting we think this is going to be over time for the bricks and mortar business of MGM Resorts as we develop global partnerships, global relationships with customers in cross market to our existing resorts.

And I can say that the early days are -- given us great confidence of that, both in terms of New Jersey of course, but here in Las Vegas.

And we expect the states to roll-out in kind of a predictable fashion over the next few years.

And we expect to have a very large percentage of the total interactive market here.

And what I would add also is we've heard comments like it's going to ruin Las Vegas business.

Our Las Vegas business is actually up tremendously both in -- mainly looking at the major sport of football, pro and college, it's up over 50%; our mobile is up over 60%.

So I think the whole thing is beginning to take off with the legalization of it.

I think also, the last point I'd make on it, that the approach that -- I have to -- I very much admire the approach that the leagues are taking, which is an evolving philosophy as it relates to sports betting here in The United States.

And the aligned values that we have with the leagues and the teams in terms of the integrity of the product, the importance of data getting the greatest in-game betting experiences.

It's going to be a very competitive marketplace.

There are a lot of fine companies globally that are already participating in sports betting and interactive in general and we just intend to be the leader in it, that's all.

The next question comes from Stephen Grambling with Goldman Sachs.

Two quick questions.

I guess, first, as you execute along a path to asset-light, how does your thinking about leverage levels change?

And then second, it looks like MGM Grand was a bit of an outlier in the quarter with solid growth year-over-year and I think even outperforming Bellagio for really the first time in, it looks like almost a decade.

Were there any specific benefits in the quarter that we should think about as we model that going forward?

Sure, Steven, I'll try to tackle those.

Corey will probably chime in on the Grand.

The Grand had its best third quarter ever and it benefited on the casino side and that's the great thing about the portfolio we have.

They benefit on the casino side, which obviously positively impacted their results to the detriment of some of our other properties that didn't hold as well, but that's the power of the portfolio.

As far as the leverage and on the asset-light model, we still have our goal of 3 to 4x leverage by 2020.

And I don't see us changing from that perspective whether it be current state or whether it be more asset-light going forward, it's probably just not a good use of, I believe, not a good use of our capital to be anywhere lower in terms of that leverage.

Right.

And not a good use of my sleeping hours to be any higher.

So we like the zone.

It's a fortress balance sheet.

We have -- certainly, we have a lot of opportunities within our control to become asset-lighter over time.

And we intend to evaluate all those.

But the board and management talks a lot about that leverage zone, that's been a goal of ours since 2009.

And we're approaching that, and we intend to stay in that zone and return anything to shareholders in excess of our free cash as long as we're staying in that zone.

Corey, did you have something on the Grand versus Bellagio?

Yes, it did hold extremely really well year-on-year.

Yes.

Just maybe one quick follow-up to John's last question on sports betting.

How do you generally evaluate the value of partnering with national leagues versus the individual teams?

We felt -- they're not mutually exclusive and I think you'll find us being strategic on individual teams as well.

It starts, I think, with a shared philosophy, which we have, and a shared trust and familiarity and a common purpose of -- we just can't afford to have anything go awry here in sports betting.

And I think what has attracted the leagues that we transacted with to MGM is our single-minded focus on the propriety of the product.

And so I think we felt it was important to establish a couple tent poles, which we expect to continue to evolve over time.

As it relates to individual teams, we're in a vast number of discussions with teams across the country, and in fact, around the world.

And I think it comes down to the same core principles I just mentioned with the leagues, do you have shared vision of what sports betting and the interactive experience could mean to the players of those teams?

The teams' values themselves, the fan experience and engagement within the venue, the broader fan engagement outside of the venue.

And some teams have a more constructive view on this than others.

And I think it's just going to be a matter of going through all that.

The key to all of this, why GVC is so important but why the league relationships are so important is the technology, the product and the data that we can utilize.

And I think that's why we looked at the interactive business in a holistic way.

We know we have great brands but so do our competitors, some of them.

Not many, but some of them.

We needed to have great technology.

We have found that in a great partner.

We have very strong government relationships, which are our strength here.

We're noted as a company in problem gaming and responsible gaming and from an integrity perspective, which bodes well, in talking to teams and to leagues.

And of course, we've established a vast advantage in sports by our history of whether it's the MGM Resorts summer league here with the NBA or the Las Vegas Aces or helping house the Vegas Golden Knights, of course, helping bring the soon to be Las Vegas Raiders to Las Vegas.

It's a matter of making sure that we utilize these in a holistic way and using the leagues and their content to help our properties, which is why we are hosting multiple events, let's say, Mandalay Bay, multiple events here at Bellagio, ARIA et cetera.

The next question comes from Cameron McKnight with Crédit Suisse.

A question for Corey or Jim, what percentage of room nights in the quarter were allocated to your casino block?

And how does that compare to the ordinary mix of casino room nights?

Yes, it's something we usually don't share, but we were definitely up in that area and we use that as a strategic component.

But in general, it's usually bigger than the convention block but smaller than our FIT block.

And we think there's opportunities to even move that up a few percent.

Okay, got it.

And then, a question for Jim.

I mean, there's been a lot that's been spoken and written about resort fees, paid parking and other initiatives that have been taken over the last couple of years.

Are you seeing any pushback from customers on the Strip?

We -- I think one of the data points I just pointed to in that large scale convention booker is the value proposition that Last Vegas represents.

The U.S. economy, as it has grown, has made Las Vegas on a relative basis even more attractive destination from a price perspective.

And we monitor this against all of our major competitive cities around the country, and in fact, around the world.

So it has been something that we always are focused on.

We don't think it has been an issue.

We always evaluate these market conditions.

And we look at not only the data we have, but the data that the LVCVA puts out.

And we know that from an ADR perspective, we're still much lower than cities like Orlando or Chicago or Hawaii and -- but we continue to tweak it and we always will.

And I just want to thank, everyone, for joining.

I know we ran a couple minutes over, but I appreciate your interest today.

Obviously, we had a challenging quarter but did a little bit better than we expected.

We're setting up nicely here in the fourth quarter next year.

And we are absolutely, utterly focused on delivering on our strategic objectives, which we reiterated in the investor deck, including that $3.50 a share of free cash flow in 2020.

And with that, thank you very much.

The conference has now concluded.

Thank you for attending today's presentation.

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