5 Aug: Money burns a hole in MGM’s pocket

MGM Resorts International, VICI’s MGM Growth Properties acquisition, Wynn Resorts Q2, Everi Q2, Accel Entertainment Q2 +More

Aug 05, 2021

A scheduled busy day got busier yesterday with the news that VICI was buying fellow gaming REIT MGM Growth Properties for a headline $17.5bn. The deal is big news in REIT-world but it also has obvious implications for MGM which will receive $4.4bn as part of the deal. Reporting its own numbers yesterday, MGM stayed relatively tight-lipped over what it intended to do with its growing cash pile. Also on the earnings call starting line yesterday was Wynn Resorts where the numbers followed the trends in Vegas (good) and Macau (not so good) and Everi and Accel also reported yesterday (call later today). But we start with MGM’s blowout Vegas and regional numbers.

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MGM Resorts International Q2

The top line

The rise in net revenue to $2.27bn represented a near 700% bounceback on Q220. Consolidated Adjusted EBITDAR hit $617m, a record helped by record margins of just below 40%.

Regional lead the way up 859% to $856.3m while Las Vegas was up 566% to $1bn. MGM China reported revenue down 11.2% to $310.6m.

BetMGM incurred an EBITDAR loss of $49.6m.

All about liquidity: Events are moving at a pace with MGM. The news on MGM Growth Partners (see below) adds a further $4.4bn to the company’s cash at hand and following on from the deal for CityCenter with Blackstone which netted $1.9bn means that post-transaction, MGM will have $11.6bn of liquidity available. What it does with that cash is not yet clear.

Asked about this “sizeable, deployable cash position”, CEO Bill Hornbuckle name-checked all the options including share buybacks and the potential for large-scale M&A - “we have expressed our desires in digital” - but suggested “time is our friend.” “We won’t go too far afield,” he added.

This could yet include Japan where a decision on the Osaka bid is due in Q4. According to the RFP proposal with JV partner Orix, MGM would need to commit up to $2.25bn to that project.

Circus Maximus: The other big news this week was of course the launch of the Caesars Sportsbook and Hornbuckle paid them the compliment of suggesting they would be a “real competitor”, particularly given the close-up match-up between the two companies in terms of the omni-channel opportunity. Adding some color on its own metrics, MGM said 15% of new BetMGM players came from MGM and 31% of new MLife sign-ups came from BetMGM. Hornbuckle said BetMGM was now “heavily into our loyalty push” with another big product launch coming soon and the team “working around the clock” on preparing for the next football season.

Is that all you can eat? Asked about the sustainability of the near 40% EBITDA margins across the business, Hornbuckle stressed that this would not be long-term. He did say, though, that margins are likely to settle up on previous levels. Asked about how this should be explained to shareholders, Hornbuckle said “the message is (that) we have learned a lot and we are going to be appreciably better than what we were before.” Specific measures cited as being past their sell-by date? The buffet.

VICI-MGM Growth Properties acquisition

Rabbit meet hat: When it comes to holding something up your sleeve for a later reveal, then VICI are master magicians. Less than a week after reporting their Q2 numbers, it was announced VICI would be buying fellow gaming REIT MGM Growth Properties for $17.2bn. The deal, which also involves VICI taking on $5.7bn of debt, will see the company enter a master lease with MGM Resorts international for an annual rent of $860m. VICI’s Ed Pitoniak said the agreement provides “large scale, high quality real estate” and enables VICI to diversify its tenant base, reducing its largest tenant to c.41% from 68% currently and opens up the possibility of moving into non-gaming and international growth.

Take a load for free: As VICI collected 100% of its rents throughout the pandemic, Ed Pitoniak reiterated his belief in the durability of the gambling sector.

“Operators have proved the resilience of their business models unlike anyone else in global hospitality and leisure and that resourcefulness has shown the value of real estate as an investment asset class,” Pitoniak added.

With MGM (and other operators) going “asset light” and divesting of their real estate, Pitoniak said MGM’s “approach gives us great confidence and is reflected in capital spending and commitment to employee engagement and guest satisfaction rates.” Analysts at Truist were also positive on the asset light strategy as it reduces its stake in MGP and pockets c.$4.4bn from the process. For Deutsche Bank the “true driver of M&A in the sector was cost of capital, and with VICI having traded at a healthy equity premium to the group for some time, with access to inexpensive debt financing, the transaction makes both intuitive and financial sense.”

Wynn Resorts Q2

The top line

Revenues hit $904.4m up from $85.7m in Q220. Net losses trimmed substantially from $637.6m to $131.4m. Adjusted EBITDA was back in positive territory at $206.9m from a loss of $322.9m in Q220.

Las Vegas revenues hit $355.1m, Boston Encore generated $165.2m and Macau contributed $184m.

Short and sweet: Perhaps conscious of the MGM call timed for an hour later, Wynn Resorts kept its own earnings call to a minimum and added little to what we know. As with other recent calls, notably Las Vegas Sands, it was clear that timings on the post-Covid return in Macau remain uncertain.

“We don't think we heard anything from management tonight that will meaningfully change the view on the resumption of normalized operations in Macau, with management acknowledging an uncertain timeline, while noting encouraging trends that resemble pent-up demand at certain times,” said Deutsche Bank.

Make permanent: In Vegas the company enjoyed record group bookings in August while the prospects for 2022 and 2023 were above 2019 levels. As for WynnBet, CEO Matt Maddox said timings on the Austerlitz transaction were SEC dependent. In Vegas, Wynn also said that an element of recent cost savings - between $75-95m - was “permanent.”

Everi Holdings Q2

The top line

Revenues rose 33% to $172.6m on Q219, net income was up 560% to a record $36.2m. Adjusted EBITDA increased 44% to a record $92.5m and free cash-flow rose 462% to $39.2m.

Gaming operations generated $99.3m in revenue (a quarterly record) while the fintech segment generated $73.2m.

Broad horizons: CFO Mark Labay said that with leverage at around 3x, the company would be looking to grow both organically and through M&A. “There’ll be opportunities and keep the growth profile rather than returning capital or dividends, but all options are on the table.” CEO Michael Rumbolz said the group was “not bound by the casino industry and has broad horizons” when it comes to further growth. On gaming he added “we’re just kicking off on the igaming side, we’ve just finished building the RGS, are integrating it and getting it working across digital and physical space.”

Accel Entertainment Q2

The top line

Revenues of $202m represented an all-time quarterly record; similarly, adjusted EBITDA was another record at $43m.

Conservative FY21 guidance now for between 2590-2,615 locations and between 13,555-13,680 machines. Revenue to be between $700-725m, adjusted EBITDA between $133-138m.

It’s a record: The asset-light, hyper-local model is in full swing at Accel according to management which hailed an all-time record quarter. “We feel confident that the revenue we saw at the end of the second quarter should be sustainable, driven by the various initiatives we put in place over the past several quarters,” said CEO Andy Rubenstein. Accel will conduct an earnings call later today.

Share Wagers.com Earnings+More

Newslines

Rockies start: Sporttrade has bought its way into the Colorado market via the acquisition of Momentum Sports & Entertainment which itself has a market access deal in the state via CF Gaming and Easy Street casino. Sporttrade hopes to launch its exchange product app in the state in the first half of next year. Sportrtrade recently raised $36m from a funding round that included Jump Capital, Impression Ventures, Hudson River Trading, Tower Research Ventures, and Jim Murren, former CEO of MGM Resorts International.

Say it like you meme it: The irony might be lost on some that one of the main facilitators of the meme stock frenzy earlier this year has itself now become subject to its own trading frenzy. Robinhood initially suffered a disappointing debut when it floated late last week, but this week the shares are flying, up over 50% yesterday as retail investors rallied to its flag. Robinhood traders were central to the Reddit-driven trading around cinema chain AMC and games retailer Gamestop in the first few months of the year.

Final countdown: Playtech has countered claims made by Gopher Investments in relation to its decision not to recommend the Gopher bid for its financial trading platform Finalto. Gopher said it had not been given a full and fair representation of the interaction between Gopher and Playtech since the company’s last general meeting and as the second largest shareholder in Playtech its interests are “aligned with those of its fellow shareholders”. In a statement issued yesterday, Playtech said it didn’t recognize Gopher’s version of events and its bid raised issues “in terms of its deliverability, principally because it remains not binding in nature and subject to a number of conditions.” It also denied Gopher’s claim that it has received offers from other parties for Finalto.