FINAL TRANSCRIPT 2024-09-24

MGM Resorts International (MGM US Equity)

Deutsche Bank's 32nd Annual Leveraged Finance Conference

Company Participants
Jonathan Halkyard, Chief Financial Officer

Other Participants
Luis Chinchilla, Analyst, Deutsche Bank

Presentation

Luis Chinchilla {BIO 19427419 <GO>}

Good morning. I'm Ricardo Chinchilla. I'm DB's High Yield Gaming, Lodging and Leisure
analyst. Thank you, so much for joining us today. We have here today Jonathan Halkyard. He is
from -- the CFO from MGM Resorts. We are going to host them for a small fireside chat. And
hopefully, this adds value to you guys. Jonathan, thank you so much for coming.

Jonathan Halkyard {BIO 6045083 <GO>}

Thank you. Very good to be here. Good morning, everyone.

Questions And Answers

Before we start with MGM specific topics, I'd like to ask you if you have seen a difference in
casino patrons visitation and spending patterns over the last three months?

Also if you could provide some color on the performance of the different segments of the
database, more specifically, if you are seeing any material difference between the high end and
the low end, that would be very helpful.

A - Jonathan Halkyard {BIO 6045083 <GO>}

Sure. The visitation patterns are always changing in a place like Las Vegas, particularly when you
look at just a three-month time period.

We certainly started out the quarter Las Vegas did with a pretty difficult July. Everybody saw the
gaming revenue numbers that came out from the state with gaming revenues down about 15%
in July.

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MGM Resorts International (MGM US Equity)

Now there were a number of reasons for that including some calendar issues as well as some
hold issues. We certainly experienced that like others in the market.

I would say that visitation to the market has been stable. The -- of course the types of segments
that are coming to the market really depend in many ways of what the circumstances are in the
market in terms of special events and sporting events and the opportunity for businesses to
come to Las Vegas.

And over the past several months, those visitation habits have been pretty stable. Occupancy
remains strong in Las Vegas, and it's just one of the benefits of the market is that it appeals to so
many different segments and a company like MGM Resorts, we appeal to all those segments as
well. So if we have weakness in one, we can migrate demand to our other segments.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Got it.

A - Jonathan Halkyard {BIO 6045083 <GO>}

I'll -- Luis, I’m sorry I neglected to mention, you mentioned luxury versus others. We -- our
company's growth has certainly been driven in Las Vegas over the past couple of years, from
the luxury segment.

Now part of this is because that's where we devoted our resources. We've invested capital into
growth projects in our luxury properties. We've, of course acquired the Cosmopolitan of Las
Vegas.

But I would say over the past six months or so, there really hasn't been a huge differentiation
between the growth in luxury versus what we call legacy or more of the economy properties
that we have.

Q - Luis Chinchilla {BIO 19427419 <GO>}

I want to continue with a BetMGM before I take you on a tour to all daily jurisdiction thing which
you guys operate. The company has characterized 2024 as an additional investment year for
that entity and 2025 as the year to focus on profitability.

Can you please provide some color on the product improvements that BetMGM has introduced
this year and any potential additional investments from MGM to the JV, if it needs to be and
maybe the puts and takes to achieve profitability next year?

A - Jonathan Halkyard {BIO 6045083 <GO>}

Sure. That's quite a question. There's a lot going on with BetMGM. Now BetMGM in 2023 --
2022 and 2023 was really about building the business, expanding into new states as they
legalize online sports betting in particular, acquiring some new technologies, in this case, Entain
acquiring Angstrom.

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MGM Resorts International (MGM US Equity)

We demonstrated the company was able to deliver profitability late last year, but we also saw
some market share declines, which were a bit concerning to the management team at BetMGM.

So 2024, as you noted, is really a year of investment for BetMGM, investment in technology,
which I'll come back to in a second, and also investment in customer acquisition and retention.
We've made great progress this year at BetMGM on all of those fronts.

Just at the end of August, we launched what we call single account, single wallet. This is a really
important technology and basically it enables BetMGM customers to have one account with
their funds in that account and use it across multiple jurisdictions. The reason that's important
for BetMGM is because unlike most of our competitors, we have a meaningful presence in
Nevada.

We have 12 million room nights occupied a year in our resorts in Nevada. This is a really
important customer acquisition tool for BetMGM.

And now with single account, single wallet, it means that when you open an account and
deposit funds in our -- at our resorts in Nevada. You can then go back to your home in Denver
or in Indiana and continue to engage with BetMGM.

So it's really leveraging that customer acquisition outlet that we have in Nevada with single
account, single wallet.

The other technology advancement the company has made is integrating this Angstrom
technology, which is essentially pricing, the ability to price single-game parlays and other parlay
products for our customers.

It's something that they like. It's an important business for BetMGM. That is really -- it was really
introduced into our stream back in May and now with football season is a pretty important part
of the product offering.

So going through 2024, we do hope to stabilize market share, perhaps grow market share and
then in 2025 and into 2026, see BetMGM return to profitability.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Got it. Let's start a journey through the different jurisdictions in which you guys are operating, or
that you are -- did you want to operate.

In Macau, the company continues to deliver very good results, and you guys have a very solid
market share. Are you seeing an uptick on an already promotional market in terms of -- with
regards to your competitors seeking to regain share? Is the promotional activity impacting your
flow through? Or is it more related to concession-related OpEx that is -- that has hurt your flow-
through in the past?

A - Jonathan Halkyard {BIO 6045083 <GO>}

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MGM Resorts International (MGM US Equity)

Well I -- MGM China, our two Macau properties, I think have just had exceptional performance
in the last couple of years since we've come out of the pandemic. Maybe I shouldn't say
exceptional because it's certainly much better than before the pandemic, but it is the kind of
performance that we've come to expect from that business now despite the fact that we only
have about 12.5% of the tables in the market and under 10% of the suites in the market.

These businesses pretty consistently delivered market share in the mid-teens, and we expect to
see that continue and margins in the high 20s. That's without the benefit of some of the intense
high-end retail that some of our competitors have that operate at very high margins.

So actually, I -- first of all, I just consider that right now our businesses in Macau are performing
at a very high level.

We have not seen any real uptick in promotional activities nor have we engaged in that other
than what I consider to be some pretty smart moves by our local management team there to
introduce offers and products that our customers really like they are not particularly expensive,
but keep them visiting us and on property. So I think our market share in the mid-teens margins
in the high 20s will continue.

Your other question about retendering related OpEx. Really, what we're now experiencing and
investing is our capital investment commitments that we made in connection with the
retendering.

So these are nongaming generally, and we have over $200 million of CapEx approved for this
year in investments that are designed to meet the commitments that we made when we
secured the retendered license. So that will continue on into 2025, perhaps not quite at that
level, but that's probably been the most impactful consequence of the retendering is on the
CapEx side, not the OpEx side.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Perfect. Moving to Japan. You recently mentioned that the construction is still expected to start
in the summer of 2025. This part of the World Expo that the continue -- that the completing the
properties foundation will take three years and that the result will be completed by 2030. Given
the elongated construction timeline, can you please provide us with some color on the
company's financing strategy for the $2 billion equity contribution to the project? And perhaps
some color on when the funds will be contributed given this timeline.

A - Jonathan Halkyard {BIO 6045083 <GO>}

Sure. This is a really good question because I was in Japan last week, at our site. I hadn't been
there in almost two years. It was an important time to go.

We'll talk about the financing in a second, but we did complete our bank financing back in
March, and I wanted to make sure that I, along with our local team, remained in good touch with
our banking partners there.

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MGM Resorts International (MGM US Equity)

But I had been there two years ago. And at this time, the site where our property is being built,
there wasn't a lot going on there including preparation for the 2025 World Expo, which is in
Osaka and land adjacent to where our integrated resort would be.

Now I'm sure there was a lot of work going on that was not visible to the eye. But at that point,
there wasn't much visible to the eye.

Well I went last week and I can tell you that is not a concern anymore. The World Expo is a
massive, beautiful project that is going up right next to where our integrated resort will be.

It opens in the spring and it will be there for six months. It's important because that project
provides the World Expo that is some of the infrastructure that will be important for the -- for
our integrated resort, transportation and site improvements and the like. You're right, we are
going to officially break ground next May but the work has already begun on the site for various
site preparation. You'll -- if you were to go there, you'd see our general contractors on-site
beginning to do the work.

You asked about the financing. So we do have a JPY 530 billion credit facility with Japanese
banks, very attractive pricing, that we completed back in March.

Our equity commitments have -- our equity investments have already begun with almost $200
million this year. Over the course of the next 4.5 years, we'll be investing just over $2 billion into
the project together with our partners, Orix and minority investors.

At that point, we'll begin to draw on the credit facility and that will be in 2028, 2029 through the
completion of the project and opening in 2030. I'm trying to see if I got all of your questions. Is
that...

Q - Luis Chinchilla {BIO 19427419 <GO>}

That's perfect, yes. Let's move...

A - Jonathan Halkyard {BIO 6045083 <GO>}

I would just note, I -- this project, we think represents the single best development opportunity
in gaming globally right now.

It is a massive market with 30 million people within a three-hour rail trip to Osaka. There's
already a multibillion dollar pachinko racing gaming market in the Osaka area. It's also an area
that's closer to Northern China, Beijing and Shanghai than is Macau. Of course we have a very
strong database in all of those areas.

So -- and we have the right partners in Orix in a very supportive local regulatory structure. So
while it's a few years off, there's, I think no better opportunity. It's a generational opportunity, in
our opinion, for an integrated resort. There ends my commercial.

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MGM Resorts International (MGM US Equity)

Q - Luis Chinchilla {BIO 19427419 <GO>}

Going back to New York for just a bit. Can you please provide your updated thoughts on the
timing of the process of the litigating [ph] process? And remind us how much is the company
going to spend in the expansion?

A - Jonathan Halkyard {BIO 6045083 <GO>}

Sure. We -- I'm sure the folks here are probably familiar with our company, but we're already in
business in the state of New York with our Empire Casino up in Yonkers, was a very successful
property and we're enthusiastic about expanding that property for a number of reasons.

It has been frustrating how this process has unfolded and been extended. If you had seen my
capital -- my long-range capital plan back in mid-2021, you would have seen a license fee for
New York coming the following year, maybe early '23. It's gotten pushed and pushed.

And right now our -- for our planning purposes, we're expecting licenses to be granted toward
the end of 2025 and assuming we are -- we prevail in that process, then we'd be investing in
2026 and 2027. The magnitude of our investment would be approximately $1.5 billion, and plus
we presume about a $500 million license fee. Now that will -- that's a significant investment, no
doubt.

But one important thing to remember is we could expand our current facility quick -- will not
even expand, repurpose our current facility very quickly to accommodate table games, while
we're under construction to expand the facility, build a parking garage, expanded casino and
theater, et cetera, assuming that New York allowed us to do that.

But the fact that we already have a large facility that we're in business -- we have a large
database, great access.

We could be in table game business very quickly even while we're under construction. I think
the returns on this incremental investment of $2 billion will be in the mid-teens. In terms of
financing, I think we have a number of opportunities to do so including potentially -- maybe I
should speak to David Kieske's here, potentially VICI or other or other ways of financing this
expansion.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Perfect. MGM is advising whilst [ph] hospitality and leisure on the development of an
entertainment destination on the UAE and has recently filed its casino license application in Abu
Dhabi. Can you please comment on the opportunity that the UAE represents for MGM?

A - Jonathan Halkyard {BIO 6045083 <GO>}

Well we think it could be a very good opportunity for our companies. As you noted, we have a
project under construction with Wasl in Dubai right now. Now it's a non-gaming project, but it
features three MGM branded hotels in MGM Grand, Aria and Bellagio.

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MGM Resorts International (MGM US Equity)

It's under construction right now and is moving very swiftly. That development does have
roughly 200,000 square feet podium reserved for retail or convention or meetings or
conceivably gaming if gaming is legalized there. So it's a huge potential market. It's one where
our brands resonate.

We have very good relationships and partners in the UAE. So we're watching it closely. If there's
an opportunity there, I think you can count on MGM Resorts being involved in some way or at
least attempting to.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Perfect. MGM and Grupo Globo recently announced the formation of a new venture that seeks
sports betting and iGaming license in Brazil.

Can you please provide some commentary on whether you expect the license to be awarded
and the potential -- the potential investment into the JV and perhaps even quantify the size of
the opportunity for MGM to be in Brazil?

A - Jonathan Halkyard {BIO 6045083 <GO>}

Sure. I just -- as you were reading the questions, sorry, I did want to clarify that this project I
described in Dubai for MGM Resorts, that's a management deal. So there's no capital required
by MGM for that multi-hotel brand development I described.

So Grupo Globo is a very important media company in Brazil. We have partnered with them to
enter the Brazilian iGaming market. We think they're perfect partners.

It's interesting. This partnership is in a way a bit the opposite of the partnership we have with
Entain for BetMGM in that -- in the JV with Grupo Globo, it is -- it's MGM that's providing the
technology and Grupo Globo, who is providing the customer acquisition of the -- basically the
funnel and the brands and so on. This is a -- it's already a multibillion dollar market. We expect --
we filed our license applications. We expect those to be awarded in January.

It will be a competitive market, no doubt, but it will be a huge market. We think that with Grupo
Globo, they're the perfect partners to introduce our product to customers down there. The
investment will actually be very modest as compared to really any of the other deals that we've
done in the -- in the digital space, our investment in BetMGM, our acquisition of LeoVegas and
Push Gaming and Tipico. Those will all be much greater than I expect our commitment will be to
the Globo JV.

So it's already formed. We're recruiting the management team. We filed our licenses. We expect
to be granted those in early 2025, and then with our technology and their customer
relationships will be off to the races, so to speak.

Q - Luis Chinchilla {BIO 19427419 <GO>}

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MGM Resorts International (MGM US Equity)

Perfect. You know that regulators will remove my gaming analyst’s license, if I don't ask you
about M&A.

So apologies for that. That said, can you please comment if there has been any change in the
M&A environment and if the company has changed its view on a potential large-scale M&A in
the digital space given the strength of the company's balance sheet?

A - Jonathan Halkyard {BIO 6045083 <GO>}

Well I hope you wouldn't lose your gaming license if you -- or your research license, I guess if
you ask that. I -- not too much has changed except really just developments with the company.

So for example, on the digital front, we set out two years ago to build our own wholly owned
digital business in addition to our U.S. joint venture with Entain. We knew that, that would
require distribution, product and technology, creative game design basically.

And through the acquisitions of LeoVegas and subsequent investment in LeoVegas to enter
other markets with the acquisition of Push Gaming, which is a content studio. Then finally, the
Tipico technology platform for sports betting we think we've really done that now.

We've built the important component parts for a wholly-owned digital business. I'm recognizing
that will all be for operation outside the United States, augmented by things like the Global JV,
et cetera.

So I don't think to your question, there is going to be a large-scale digital M&A action for the
company for a while because right now we're very busy with LeoVegas, doing the -- their
market expansions eventually integrating the Tipico technology.

It's LeoVegas, that's actually kind of doing the global JV. So we're using that company as kind of
a vehicle for our growth in this area. So -- and then on the domestic front, we acquired the
Cosmopolitan. We sold the Mirage. We had a really attractive opportunity to sell the Gold Strike
in Tunica.

There's really I don't think much additional supply that we -- or product that we need in Las
Vegas. And as it relates to the regional markets, there are not many regional assets that would
meet important criteria for M&A for us, meaning they would have to be in a new market, they
would have to be a sufficient level of quality of brands just have to be big enough to make a
difference. There's just not that many U.S. businesses that meet those three criteria.

So I doubt there's going to be much acquisition activity by MGM Resorts in the U.S. Our capital
allocation really going into the future will be oriented towards digital and, of course our
international IRs.

Q - Luis Chinchilla {BIO 19427419 <GO>}

You just mentioned that the company has done the acquisition of the Cosmopolitan, but also
they have sold the Mirage and the Gold Strike.

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Is there anything else that you're looking at across the board in your regional portfolio that you
would consider noncore? Any regions where you potentially would like to perhaps get the
portfolio a little bit more tailored?

A - Jonathan Halkyard {BIO 6045083 <GO>}

It's possible, but our regional properties are virtually all market leaders, they are large
businesses that represent our brand well. While not really the hub-and-spoke system that I was
that I worked with years ago, when I was at Caesars, where the regional properties really fed the
Las Vegas properties, these businesses in the regional markets are all really important
contributors in their own right.

That being said, if we had an opportunity like we did at Tunica to sell a property at a very
accretive multiples compared to our trading multiple and redeploy that capital into digital
investment or for share repurchases or debt retirement, we would certainly look at doing that.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Perfect. Management recently mentioned that the company's financial policy comprises a
minimum liquidity threshold and lease adjusted leverage to be below 4.5x. How much
incremental leverage would you guys consider in case the companies handle an opportunity to
do some transformative M&A or you guys get a new development opportunity, maybe Thailand
for instance?

A - Jonathan Halkyard {BIO 6045083 <GO>}

You're right. We do have a financial policy that we presented to our board, and we revisit from
time to time with them for ratification. It has a number of elements, but two important ones are
our minimum liquidity threshold of $3 billion including our revolving credit facility and a
maximum lease-adjusted leverage of 4.5x.

So right now we're well within both of those constraints. The reason for the liquidity cushion is
because our company does have a significant lease structure, having sold the vast majority of
the company's real estate to Blackstone and VICI and others.

I think it's important for us to have a bit more liquidity on hand than we might otherwise since
some of the tools are not available to us that might be available to other issuers. In terms of
your question about how much additional leverage we would take on, it really has -- that really
depends upon the use.

If it's more immediate cash-generating M&A deal, for example, where we thought there was
synergy or ability to grow, we would take on additional leverage for that. I don't think we need
to go above 4.5x or certainly not for long because a full turn of leverage by that definition for us
is almost $4 billion of debt.

So we -- but if it were, on the other hand, for a development project that would require
investment with cash flows to come well into the future, I think we'd be more cautious in that

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regard. And as it relates to Thailand, specifically, our current thinking now is that we'll actually --
we would -- if we do a Thailand development, that would actually be done on the MGM China
balance sheet, MGM China, some of you may be familiar and even invested in those bonds.

But that's a business that because of its performance is rapidly delevering and has -- will have, I
think additional debt capacity in the next few years. So that's our current thinking as to how we
might approach a Thailand development.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Perfect. Does MGM Aspire to achieve IG rating at some point?

A - Jonathan Halkyard {BIO 6045083 <GO>}

I doubt it. Well Aspire, sure, but I don't think that that's in the cards for MGM Resorts. We speak
to the rating agencies frequently. That's the way I learned 20 years ago and that those are
relationships that are very important and we maintain those.

But I also think that due to the lease liability that we have on our balance sheet, that it's unlikely
that even in what I think is a pristine situation right now with net debt of only $1.2 billion, and the
liquidity that we have, I just think with that lease liability, it's unlikely that we would meet their
criteria for investment grade.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Got it. Turning to the company's capital structure, do you see the mix between fixed and
variable debt changing in the medium or long term for the company?

A - Jonathan Halkyard {BIO 6045083 <GO>}

In a way but not much. I mean as we -- we have only fixed rate debt. We have an undrawn
revolving credit facility, which is floating rate debt.

So it could. To the extent we draw down on our revolving credit, also as we begin eventually as
we take down the facility on the Japan project, that will be floating rate we'll fix some of that.

But no, I think this is a business with a pretty straightforward capital structure and that it's -- it is -
- the vast majority of the debt is fixed rate and the rest of our financial obligations are lease
payments, which have escalators capped at 2%. So it's a pretty predictable capital structure, I
guess is what I'd say.

Q - Luis Chinchilla {BIO 19427419 <GO>}

Perfect. I think that we are running out of time. I really appreciate you coming to the conference
and speaking with us. It has been great. I'm pretty sure that the investors are as grateful as I am.

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A - Jonathan Halkyard {BIO 6045083 <GO>}

Thank you, Luis. I appreciate it. Thank you for everybody's attention.

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