Packer’s Moving Chips Around

James Packer must think Crown Resorts shares are undervalued based on recent purchases by his holdco.  Although on a smaller scale, Steve Wynn has also bought a small number more of Wynn Resorts shares. I guess these billionaires figure Macau is due for a turn of fortune.  They will probably be right in the long run.

Billionaire Packer Said in Talks to Take Crown Assets Private

James Packer, Australia’s third-richest man, is in talks to return some of his casino assets to private ownership, people with knowledge of the matter said. Packer’s Consolidated Press Holdings Pty has been speaking with private equity firms and pension funds about a possible joint bid for some assets of his publicly traded Crown Resorts Ltd., which has a market value of A$7.9 billion ($5.7 billion), according to the people.

Reviewing MGM’s 2014 Financials

MGM Resorts International is based in Las Vegas with shares traded under the symbol “MGM”. The company has a market cap of just over $10 billion and also has a 51% stake in MGM China (which represents the MGM Grand Macau) with shares traded on the Hong Kong Stock Exchange under the symbol “2282”. MGM China has a market cap of 68 billion HKD, which is equivalent to almost $9 billion USD. MGM has an interest in both Las Vegas and Macau and a smaller interest in casinos in Detroit and the Gulf Coast of the US.

I recently reviewed the February 17th 8-k financial filing from MGM. This report provides the Las Vegas watcher with interesting information on MGM’s various hotel/casinos in Las Vegas. The regular report provides readers with a breakdown of top level financials from MGM consolidated and also provides top level metrics on MGM’s various properties.

The first thing to keep in mind when analysing MGM is to remember that it’s deeply indebted. MGM owns $14 billion worth of property/equipment and has $2.2 billion in cash, but it also has almost $13 billion in long term debt outstanding. Operating income was $1.3 billion last year, but interest expense is just over $800 million. After subtracting taxes and a loss at City Center (which isn’t consolidated), MGM lost $150 million in 2014 or 31 cents per share.

The difference between Las Vegas and Macau is striking. Las Vegas is currently experiencing a bullish environment. Tourist traffic is hitting all-time highs. Revenue from rooms and dining/entertainment have also been very strong. Macau in contrast is experiencing a large downturn. Gaming revenue is down sharply in 2014. But Macau will adjust to the loss in gaming revenue the same way Las Vegas has, by adding other forms of revenue unrelated to gaming such as dining, entertainment, and other tourist revenue. I expect Macau to eventually bounce back and grow to new highs.

In their financials, MGM breaks down revenue and expenses from each property. Nothing dramatic has changed over the past few years, but it’s worth noting that MGM Detroit is profitable. In fact, MGM Detroit brings in about as much revenue as The Mirage and has an EBITDA higher than The Mirage. So shareholders should not forget about MGM Detroit since it’s a valuable piece of MGM’s overall portfolio. However, shareholders should wonder how MGM Detroit fits in strategically to the entire MGM portfolio. Does MGM Detroit create any synergies with the rest of the company and portfolio? The same should be asked of the Gulf Coast properties of Gold Strike Tunica and Beau Rivage. They represent a small part of the MGM portfolio, and might it be more strategic to focus the business by selling off non-core properties?

One idea is to sell MGM Detroit and the Gulf Coast Properties and use the proceeds to re-develop the Circus Circus property. As Resorts World Las Vegas comes online in a couple of years, and the Riviera set to close, and with the festival lands on the corner of Sahara and the Strip, could there be a possible deal to trade Ichan for a share in Fountainebleau in order to complete this project and bring more traffic to the north end of the strip? More traffic at the north end of the Strip makes Circus Circus more valuable. This is a pretty wild speculation and I doubt anything this dramatic will happen.

Looking at the hotel data, Las Vegas is clearly experiencing a bullish hotel market. All of MGM’s properties have increased occupancy rates in 2014. ADR and RevPar rates also increased strongly. This is a particularly positive sign for MGM Resorts as they are the largest hotelier on the Strip and hotel room rental revenue represents a growing portion of total revenue for the Las Vegas hotel/casino.

Here is a link to the report,

MGM Resorts International 2014 Financial Update