4Q Results: Vegas REVPARs Still Under Pressure
•4Q Results: Weak — MGM reported 4Q property EBITDA of $307m, down 8% YoY
excluding TI. This was lower than our estimate of $320m, primarily due to weaker
than expected results in Vegas related to weaker than expected occupancy and
weaker ‘gaming and other’ revenue. One of the only bright spots was MGM’s Vegas
control on costs; op-ex came in at about $900m, $30m below our expectation.
•CityCenter to Cannibalize — While management expects convention bookings to
rise meaningfully in 2010, we believe that increased supply from CC will pressure
LV room rates and cannibalize demand at their existing properties. We note that
Aria rates are now trending below Bellagio’s (vs. original plan of >$15 above).
• Strip Properties — We expect REVPAR to remain negative for 2010 due to the
negative impact from CC, with the only increase in 4Q’10.
•Condos Closing could be Negative catalyst — CityCenter’s condo closings are
scheduled as follows: Mandarin in late Jan, Vdara in mid-March, and Veer in mid-
April (pushed out from Feb). With LV property prices down about 65% since ‘07
(when most contracts were signed), despite management’s 30% price reduction,
we continue to believe that there will be customers who prefer to forfeit their 20%
deposits. We continue to model a 35% walk-away rate.
•Cutting EBITDA Estimates — While we are raising our EPS estimates on lower
depreciation charges going forward and lower interest expense, we are cutting
2010-11 property EBITDA estimates by 5-6% based on reduced revenue
expectations for both years. As a result we are trimming our target price to $7.70
(from $7.85) based on our 2010 SOTP estimate. In terms of sensitivity analysis if
we rolled to 2011E our SOTP would only rise to US$8.06, or 25% downside from
the current share price.
FULL REPORT--------------- HERE
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