Clearly, MGM Resorts International’s planned $2.5 billion development on Macau’s Cotai Strip has Wall Street excited.
Lately, analysts are giving the company credit for its fundamentals on the Strip.
J.P. Morgan gaming analyst Joe Greff recently conducted investor meetings with MGM Resorts representatives, including Chief Financial Officer Dan D’Arrigo. The mood was upbeat as management said booking levels and spending levels at the company’s Strip resorts have improved.
Greff, in a research note after the meetings, said the newly opened Hakkassan nightclub and restaurant inside MGM Grand is driving 18 percent to 20 percent visitation levels to the property.
The $100 million attraction, built at the front of MGM Grand with an outdoor balcony that overlooks the Strip, is also driving increased spending by customers throughout the resort, Greff said.
Some of the more surprising comments, however, surrounded CityCenter.
After opening at the heart of the recession in 2009, watching its value plummet and its reputation trashed, the 67-acre development, which MGM owns in a 50-50 partnership with Dubai World, is finally getting some love.
The complex has the 4,004-room Aria as its centerpiece attraction. Overall net revenue grew 32 percent in the first quarter. Aria’s revenue per available room, a nontraditional measure of profitability, grew 5 percent.
In February, MGM Resorts Chairman Jim Murren said the company would consider selling some of CityCenter’s nongaming assets, including the Vdara hotel and the Crystals retail and dining complex if the price were right.
Murren said the company had been approached about selling Crystals.
D’Arrigo told Greff and the JP Morgan clients Crystals could generate $800 million in proceeds if sold at prevailing market rates for retail complexes.
That money could be used to fund MGM Resorts growth opportunities in Springfield, Mass., and at the National Harbor complex in Prince George’s County, Md.
In addition, Greff expects CityCenter to refinance it relatively high cost of nearly $2 billion of debt in the next six months.
This year, Moody’s Investor Service upgraded its view of CityCenter because of increased visitation .
After the MGM Resorts and investor meetings, Greff said the company’s stock, which has been trading in the $15-per-share range this month, was “attractive” but he reaffirmed his “overweight” rating.
“(We) believe MGM can grind higher from here, given its exposure to Macau’s growth and its leverage in an admittedly modestly improving Las Vegas Strip market,” Greff said.
Modest revenue growth on the Strip, where MGM Resorts controls 10 resorts, “can translate into attractive (cash flow) growth given MGM’s tight cost controls and more efficient marketing.”
CityCenter was built at a cost of $8.5 billion and took more than five years to complete. Less than a year after opening, the development’s equity value was written down to $2.65 billion.
Now, with Dubai World — the investment arm of the Persian Gulf emirate — floating the possibility of selling its 5.3 percent stake in MGM Resorts and its half of CityCenter, the development has become even more attractive.
MGM Resorts plans to spend $300 million to $350 million this year to upgrade hotel rooms and other amenities at several Strip hotel-casinos.
Part of the budget includes an outdoor entertainment and retail district between New York-New York and Monte Carlo with a park area and plaza that leads into the company’s planned 20,000-seat arena that will be built behind the two resorts.
“Management was excited about the district,” Greff said.
But Wall Street is still excited about Macau, where MGM Resorts is building a 1,600-room hotel-casino that is expected to open in 2016. The property will be a sister resort to the 600-room MGM Grand Macau.
MGM Resorts restructured its Macau ownership, taking a controlling 51 percent stake when the company created a publicly traded subsidiary on the Hong Kong Stock Exchange.
“Management was confident that its (MGM Grand Macau) could exhibit 2013 growth in line with marketwide growth rates,” Greff said.
Analysts expect Macau gaming revenue , which hit a record $38 billion in 2012, to increase from 14 percent to 18 percent this year.