GAMING INDUSTRY: PERFORMANCE REVIEW

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Another year is in the books, and some of the largest publicly traded gaming operators posted varying results during 2016. While the Macau market finished strong with five months of positive year-over-year gaming growth, total revenue for the year was down 1.9 percent from 2015 to $28.3 billion. Companies with operations in the area faced a contracting market, despite the opening of several new properties. However, U.S. gaming operations saw a general trend of expansion through 2016, helping to offset headwinds in the Chinese markets. A deeper dive into the official Nevada revenue figures is also included to shed more light on those operators with a presence in the Silver State.

MGM Unveils National Harbor

Top-line revenue growth continued for MGM Resorts International (MGM) through the end of 2016. The company also announced a quarterly dividend of $0.11 per share as MGM looks to maximize value for its shareholders. MGM’s domestic resorts generated revenues of $1.8 billion or an increase of 17 percent over the fourth quarter in the prior year. The increase in domestic revenue was partially attributable to the recent opening of MGM National Harbor and the consolidation of the Borgata. However, domestic revenue expanded by 2 percent on a same-store basis. On an annual basis, company-wide net revenue finished 2016 at $9.5 billion, which was up 2.9 percent from 2015. MGM’s wholly owned domestic resorts accounted for the majority of net revenues with just over $7 billion, which was up 8.6 percent from the prior year. MGM China finished the year with $1.9 billion in net revenue, which was down 13.3 percent from 2015. MGM reported stronger growth rates from a profitability standpoint. Adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $493 million for domestic properties during the quarter, a 14 percent increase over the previous year. Supplementing domestic EBITDA growth, MGM China reported a 5 percent increase in earnings to $146 million. Overall, MGM’s EBITDA closed the year at $2.8 billion, a 24.9 percent improvement over 2015. MGM’s wholly owned domestic resorts accounted for positive trend line with a annual EBITDA of $2.1 billion (+22.1 percent). By comparison, EBITDA for MGM China dropped 3.5 percent to $520.7 million. Other activity for the international operators included the grand opening of MGM National Harbor in Maryland in December 2016. The $1.4 billion property in the Washington, D.C. region features 308 rooms along with 3,241 slot machines and 126 table games. MGM also opened the Park Theatre at the Monte Carlo in December, beginning the rebranding and renovation of the Las Vegas casino. MGM is continuing to move forward with MGM Cotai, which is expected to open in the second half of 2017. MGM also continues to develop MGM Springfield in Massachusetts. Speculation about investments in Japan also continues should that market open up for commercial gaming activities.

Caesars Boosted by Domestic Growth

Caesars Entertainment Corporation (CZR) finished 2016 reporting strong growth in both net revenue and profitability, largely sourced to its Las Vegas-based operations. For the fourth quarter, company-wide net revenue rose 3.0 percent to $949 million on strong volume in the Las Vegas market. Revenue for the continuing Caesars Entertainment Corporation (Continuing CEC), which represents most of Caesars’ newly organized business structure, reported a 2.8 percent increase in revenue to $3.9 billion when compared to 2015. Company profitability closed the year in positive territory. Property adjusted EBITDA in the fourth quarter reached $250 million, up 10.6 percent. The quarterly results finished off an improving year for the company, which reported year-end EBITDA of $1.1 billion, an increase of 8.6 percent over 2015. The company cited an increase in yearover-year hold and improved hotel performance for much of the gains in both revenue and EBITDA.

The year-end results do not include the performance of Caesars Entertainment Operating Company (CEOC), which remains in bankruptcy proceedings. However, in January 2017, the U.S. Bankruptcy Court of the Northern District of Illinois approved a reorganization plan for the CEOC unit.

Sands Expands

Las Vegas Sands (LVS) experienced increased revenue and EBITDA company-wide as new property openings helped boost its international unit. Company net revenue for the quarter rose 7.4 percent to $3.1 billion. Macao operations helped contribute to the expansion as the Sands’ China operating unit saw a 12 percent increase in revenues in the fourth quarter, partially driven by the addition of the Parisian Macao. Domestic properties also saw moderate expansions of 3 percent, as revenues rose from $400 million in 2015 to $412 million in the fourth quarter of 2016 in Las Vegas. Year-end results suffered from a soft beginning to 2016 in China as revenues for the company contracted 2.4 percent to $11.4 billion. The company’s Macao properties accounted for more than half of net revenue, but that total of $6.7 billion was down 2.4 percent from 2015 despite the opening of The Parisian Macao. Marina Bay Sands reported $2.8 billion (-5.2 percent) in net revenue. Properties in Las Vegas reported net revenue of $1.5 billion (+1.9 percent), and Sands Bethlehem net revenue finished up 4.0 percent at $571 million. In the fourth quarter, adjusted property EBITDA rose to $1.12 billion, an increase of 6.1 percent. The quarterly increase was consistent among the company’s overseas operations, which combined for $976 million (+6.1 percent) in EBITDA. Profitability at U.S. properties climbed 6.1 percent to $139 million on the strength of the Las Vegas resorts, where EBITDA rose 14.4 percent to $111.0 million. Company-wide annual adjusted property EBITDA finished at $4.1 billion, down a modest 1.0 percent from 2015. Domestic properties accounted for most of the positive growth, where profitability rose a combined 12.7 percent to $497 million. Las Vegas properties reported $356 million in EBITDA, a 16.7 percent increase. EBITDA at Sands’ international properties fell 2.6 percent to $3.6 billion as EBITDA at the Marina Bay Sands fell 7.8 percent from 2015.

Revenue, Profits Up for Wynn

Wynn Resorts (WYNN) posted $1.3 billion in net revenues in the fourth quarter of 2016, representing an increase of 37.3 percent over the prior year. The boost came primarily from the $418.7 million in revenues from the newly opened Wynn Palace in Macau. The company’s Macau properties reported fourth quarter net revenue of $917.1 million, which included the first full quarter of operations for Wynn Palace. Quarterly net revenue for Las Vegas operations finished down 2.0 percent to $383.3 million. Despite the dip in the fourth quarter, net revenue for the Las Vegas properties rose 0.4 percent to $1.6 billion for the year. Net revenue for Macau and the company also finished 2015 on a high note from the prior year. Company-wide net revenue was reported at $4.5 billion, a 9.6 percent increase. Macau operations accounted for most of revenue creation, rising 15.6 percent to $2.8 billion for the year. Wynn’s profitability tracked its revenue results. In the fourth quarter, adjusted property EBITDA was reported at $340.9 million, up 18.6 percent. EBITDA for Wynn’s Macau operations totaled $226.4 million while EBITDA for Wynn’s Las Vegas operations summed to $114.6 million in the fourth quarter. Those quarterly results were reflected in the company’s year-end EBITDA results. Overall, Wynn’s EBITDA rose 6.2 percent to $1.3 billion, with contributions from the opening of Wynn Palace. U.S. operations reported a year end EBITDA of $474.8 million, which was down 0.5 percent from 2015.

Nevada Gaming Abstract Summary

The Nevada gaming industry enjoyed another year of growth in the fiscal year ending June 30, 2016. According to data in the recently released Nevada Gaming Abstract, gaming operators reported total revenue growth of 2.6 percent to $25.2 billion, slightly outpacing the 2.5 percent growth reported in 2015. Room revenues expanded considerably in 2016. Despite clear growth trends in non-gaming revenue, gaming revenue grew by 1.3 percent for the year. Revenue generated by rooms saw the largest year over-year increase, rising 7.9 percent over the fiscal year to $5.8 billion. As visitation and convention attendance reached all-time high levels in 2016, average daily room rates and occupancy in the Las Vegas area have continued to climb. On the Strip, gaming revenue increased 0.2 percent to $5.9 billion while room revenue increased 7.6 percent to 4.8 billion in 2016. Non-gaming revenue rose 3.2 percent driven largely by the room component. Worth noting, gaming revenues on the Las Vegas Strip dipped to 34.2 percent of all activity. Downtown Las Vegas relies more heavily on gaming revenue, which made up 49.3 percent of revenue in 2016. While gaming revenue grew 3.9 percent in downtown Las Vegas, large increases in room revenue along with food and beverage also bolstered growth in the area. Room revenue grew 10 percent while food and beverage revenue grew 3.6 and 10.4 percent respectively. Brian Gordon is a principal with the Nevada-based advisory services firm, Applied Analysis. Gordon has extensive gaming and leisure experience from an accounting, finance and operational perspective.

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