MGM Resorts’ investors call cites return to normalcy on Las Vegas Strip, investment opportunities

MGM Resorts’ investors call cites return to normalcy on Las Vegas Strip, investment opportunities

  • Rege Behe, CDC Gaming Reports
May 3, 2022 12:07 AM
  • Rege Behe, CDC Gaming Reports
  • Other

By the time MGM Resorts International’s investors call started Monday at 5 p.m. ET, the gaming operator had already piqued the interest of Wall Street analysts beyond the usual quarterly report.

Early Monday, MRI announced a bid to acquire Swedish mobile-gaming company LeoVegas for a total tender value of approximately $607 million. Analysts were quick to respond, with Truist Securities titling its reaction “A Match Made in a Zoo,” a reference to the companies’ eerily similar use of lions in their branding.

“While the addition of LeoVegas will add geographical regulatory complexity to MGM, we think it helps address some of the shortcomings we’ve noted in the BetMGM structure,” wrote Truist analyst Barry Jonas in a statement. “Namely, BetMGM’s 50/50 ownership structure comprising the digital piece of MGM’s omni-channel strategy dependent on Entain technology.”

On the investors call, MGM Resorts CEO Bill Hornbuckle admitted the LeoVegas deal “isn’t the world’s largest acquisition. It’s bite-sized.”

“It does give us exposure to nine global markets that we don’t currently have,” Hornbuckle explained. “We love that team and what they’ve been able to accomplish over the last 11 years. Over the last five years, they’ve had 16 percent compounded growth year over year.

Hornbuckle added that one of the key differentiators about LeoVegas is the company’s cloud-based technology, making expansion, scalability, and “bifurcating from the back end” easier.

“So we’re not wandering around having to deal with a bunch of hardware,” Hornbuckle said. “We’re not running around having to deal with a code base that goes back a decade or so. It enables us to be quick and scale quickly. That’s probably the principal two differentiators.”

Hornbuckle noted that the April 29 closing of a previously announced transaction for the sale of its real estate division to VICI Properties gives MGM Resorts access to $4.4 billion in cash.

“We will use that (cash) to invest in our core business, which will also contain some meaningful growth opportunities,” Hornbuckle added.

MGM reported net revenue of $2.9 billion for the first quarter of 2022 compared to $1.6 billion in the same quarter in 2021, an increase of 73%. Notably, the current quarter benefited from the inclusion of the operating results from the Aria and Vdara resorts. In September 2021, MGM completed a sale-leaseback deal to sell the real estate for the Vegas Strip properties for approximately $3.9 billion. The properties are being leased back to MGM for an annual initial rent of $215 million.

Net loss for the quarter was $18 million compared to net loss of $332 million year over year, and net $31 million in the first quarter of 2019.

Revenue at MGM Resorts’ Las Vegas Strip properties reached $.1.7 billion in the quarter, compared to $545 million in the same quarter of 2021. Chief Financial Officer Jonathan Halkyard noted the occupancy rate for the quarter was 78%, with January bottoming out at a 65% occupancy rate due in part to the omicron variant of COVID-19.

“But we recovered to an occupancy rate of 78 percent in February and finished the quarter with an occupancy rate of 90 percent in March,” Halkyard said. “The strength continued into April where we saw an occupancy rate of 92 percent.”

Halkyard added that group business is expected to rebound this year, with bookings for the second quarter of 2022 “very strong. And that’s because our team was able to rebook many of the group customers that canceled back in January for the second quarter.”

Net revenue at MGM Resort regional properties reached $891 million in the quarter compared to $711″¯million in the prior year quarter, an increase of 25% and an increase of 11% compared to $804″¯million in the first quarter of 2019.

Hornbuckle noted that MRI expects to submit a competitive bid for a commercial gaming license in the state of New York. The state’s recently enacted 2023 budget includes provisions that will allow the issuance of up to three commercial gaming licenses. MGM Resorts would open a full casino at its Empire City Casino in Yonkers, which currently features video lottery terminals.

Hornbuckle commented on the opening bids for commercial gaming licenses starting at $500 million.

“It’s kind of interesting that we’re talking about a half-billion-dollar licensing fee as favorable,” he said. “It’s the highest in the (gaming) industry by five times. Having said that … we like the opportunity it creates. We hope to invest up to a couple of billion in phase one to put us in the table-games business, to expand some of the amenities and to put in a much-needed parking garage and entertainment facility and potentially some other things that we think will attract the kind of market that’s available to us.”

MGM Resorts stock closed Monday at $41.97 on the New York Stock Exchange, up $1.01, or 2.45%.

Rege Behe is lead contributor to CDC Gaming Reports. He can be reached at rbehe@cdcgaming.com. Please follow @RegeBehe_exPTR on Twitter.