MGM Resorts International (MGM) — Q1 2015 Earnings Call Transcript

Good morning, and welcome to MGM Resorts International’s first quarter earnings call. This call is being broadcast live on the Internet at mgmresorts.com. A replay of the call will be available on our website. We furnished our press release on Form 8-K to the SEC this morning. On this call, we will make forward-looking statements under the Safe Harbor provisions of the federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in these forward-looking statements is contained in today’s press release and in our periodic filings with the SEC, including our most recent Form 10-K. During the call, we will also discuss non-GAAP financial measures in talking about the company’s performance. You can find a reconciliation of these measures to GAAP financial measures in our press release, which is available on our website. Finally, please note that this presentation is being recorded. With that, I’ll turn it over to Jim.

Thank you, Sarah, and good morning, everyone. It was quite a weekend here in Las Vegas. The first weekend of May is always busy here; we have a bunch of events typically, of course, Derby and NBA Playoffs, but this weekend was unlike any other any of us have ever seen, even Bill Hornbuckle, the old guy over there. We had, of course, the fight, and because of the fight, we achieved one of our highest REVPAR weekends ever in the history of the company. Since we had sole rights to the closed-circuit parties, we hosted dozens of parties around our properties and sold over 46,000 tickets to our guests to watch the fight and then enjoy the rest of what a casino hotel has to offer. From a gaming perspective, I can tell you that we had record front money coming in, tremendous drop in our properties from a very diverse and global group of players. A lot of those players are still here. We look forward to talking about this on our next call, and we’ll provide you with many of the details and some fun facts. As of right now, we are still counting all the money. This fantastic weekend gives us great confidence in the power of MGM Resorts and Las Vegas, the entertainment capital of the world. I’m pleased to report that the net income attributable to MGM Resorts grew 65%, EPS of $0.33 was an increase of $0.13 year-over-year. We achieved Las Vegas REVPAR growth of 1%, which is not bad compared to the prior year which was up 14%. Our REVPAR growth was also better than the market as a whole. The LVCVA reported Strip REVPAR that was down 1.5% for the quarter. Obviously, the story there is the big Con/Agg effect which we will get into a little while. Our regional properties achieved record EBITDA growth of 10%, very strong year-over-year, and MGM China maintained its market share. CityCenter resort operations profit decreased year-over-year due to lower volumes and hold at ARIA; however, Vdara and Crystals actually had record EBITDA quarters. We’re executing on our plan to improve the free cash flow of our company and the balance sheet companywide. Our convertible notes converted into equity, which took a full turn of leverage off our balance sheet as we continue to improve this through free cash flow and dividends as well. I am happy to report that CityCenter paid its first dividend, a $400 million dividend on Friday. We have been working towards dividends from this project really since we began, but now that the pending litigation is behind us, we’re gratified that we’re now able to accomplish that goal. CityCenter is a rapidly appreciating asset and has demonstrated significant operating growth since it opened. Both partners believe that CityCenter’s strong financial position and the ability to drive future free cash flow positions it to begin returning capital to its shareholders as evidenced by the approval of an annual dividend policy of 35% of free cash flow. MGM China has been a tremendous investment for our company. While the market is currently going through its own challenges, we are confident that our investments in Macau will continue to benefit our employees, the citizens of Macau, and our company. MGM China’s strong balance sheet is prepared to develop and grow in Cotai and beyond. We recently announced that MGM China has reached an agreement in principle with its creditors to expand the credit facility by $1 billion to $3 billion and lengthened its maturity by a year and a half. This shows a tremendous level of support from our lenders. We believe that the expanded and extended credit facility will provide our company with the financial flexibility to continue to invest in the Macau marketplace, whether at MGM Macau, MGM Cotai, or future opportunities as they may arise. We’re very excited about the progress we’re making with strategic investments in Las Vegas. Our arena, which broke ground about a year ago, is advancing incredibly quickly and will open up in less than a year. This is a project that MGM owns 50% of and will invest around $87 million as part of our equity contribution. We expect that it will provide an excellent return on investment for both ourselves and AEG and will drive a tremendous amount of traffic throughout the neighborhood which we own. The lower suites have already been structurally completed and we will soon see exterior glass curtain walls being installed, and the roof will be complete in the next few months. During the first quarter, the arena secured three tremendous partners: Coca-Cola, Toshiba, and Schneider Electric. At this point, that represents about 53% of our pro forma sponsorship revenues already, and we’re still negotiating with eight other founders including a naming rights sponsor. We have signed contracts for over half of the suites and are in contact regarding another 30% of them. We believe that this is additional validation that this facility will be a game changer in the market and will be best in class seeking for entertainment, music, sports, and bringing new events to the city. As we saw this past weekend, events are key drivers of visitation and profitability. This facility is certainly going to help MGM and help Las Vegas. The plaza also received an official brand sponsor and a name: Toshiba Plaza. That two-acre outdoor public plaza will bridge the park and the entertainment district, tying together New York-New York and Monte Carlo, and of course the entrance to the arena. At Mandalay Bay, the first phase of the 350,000 square foot expansion of our Convention Center will open in a few months in August of this year. The demand for meeting and convention space has been so high that the additional space is already booked and will essentially start returning value on day one. To ensure that our room offerings remain equally vibrant, we will begin renovating our Mandalay Bay rooms this June, which will be fully completed in March of next year. This momentum is developing companywide. The team has been continuously reviewing our development initiatives and have greenlit them based on the attractiveness from a return on invested capital potential. We’re confident that we will achieve attractive returns on investments in these new markets as we have had before. Projects underway now are in many ways similar to MGM Grand Detroit. If you recall, we built that project in 2007 for around $800 million, and that property has historically made around $150 million each year, creating tremendous equity value for MGM Resorts, which brings me to National Harbor. I was just there last week and as anyone who knows that area and has been in DC for a while knows, everyone’s asking when MGM National Harbor is going to open. We recently celebrated the hiring of our 1000th member of the construction force, and we are moving forward steadily toward a fourth quarter of next year opening. All the design is reaching completion, architecture is now being seen rising from the ground, and we have formally contracted almost 50% of that work. In Springfield, Mass, we broke ground a couple of months ago, and we’re targeting a late 2017 opening. That project is progressing very well, and we will start ramping up our efforts to secure a local contractor which will move forward with construction this summer. This development project feels to us a lot like MGM Detroit in many ways from a revenue perspective, and we’re very excited about it. In Cotai, we’re obviously well underway with our construction and we’re thrilled to see our distinctive architecture coming to life. Our towers have reached the 19th floor with a target to top it off by the end of November. We’ve also been making great progress on our spectacular roof which is now being raised and well underway; an amazing sight. We remain on target for a fourth quarter 2016 opening. With a clear priority for diversification in our minds, we’re taking steps there to complete our designs with a major focus on non-gaming amenities. Our atrium, for example, situated at the heart of the resort, is going to be enriched with unique elements that we think will mesmerize our guests. The theater will be one of a kind space, never constructed before, and will transform the entertainment experience for our guests. This will be a world’s first and we’re ecstatic to offer that to the Macau marketplace. Our joint venture with Diaoyutai of course is building hotels throughout China and has made great success, most recently developing the Bellagio in Shanghai, which will open next year. And of course, we cross-market our properties in Asia, Las Vegas, and beyond. Before I turn it over to Dan, I want to take a moment to discuss our friends at Land and Buildings. In January of this year, Land and Buildings requested a meeting with me. You all know me well, and you know I enjoy speaking with shareholders, large and small; analysts; investment banks; everyone; we’re always learning and open to ideas, and I communicated that at the time. The next step was that Land and Buildings filed to nominate four directors to our board, and then the deck was put out without anyone at our company reviewing it, including myself. It suggested that MGM Resorts pay a $2.6 billion special dividend out of MGM China, sell assets, create a REIT, and many other proposals. The pitch was filled with mistakes and very poor assumptions, and we said so at that time. But let me be very clear. The concept of a REIT is not a new one. Our board has evaluated REITs for years, and there have been many reasons for not pursuing them in those prior years. During the recession, those reasons included very depressed multiples; we weren’t even a taxpayer; we had unduly high leverage; and many others. That said, our business model is evolving and so has the market, and it is important to regularly view all opportunities. I believe our board has reflected that over many years. We remain persistent in looking for ways to unlock value. The company’s done so in the past, it will continue to do so in the future. We regularly engage with our financial, tax, and legal advisors to review opportunities in our company, and we’re doing that again. In fact, we’ve been doing that intensively for the past year. These outside advisors are exploring a REIT structure for our company. It’s complicated and will take some time to thoroughly evaluate, and we’re not sure of the current outcome of that. We’ve added another advisor to our already large team. We announced Evercore recently and they’re working with our other corporate finance and capital markets and legal advisors to review what our other advisors have been working on. So, in summary, I can tell you that the existing board and management team are taking all the necessary steps to create shareholder value for you. In fact, two of our largest shareholders have board representation and are supporting our board and our management team. We’re aligned with our shareholders in the desire for sustainable value. This proxy contest is truly unwarranted as the board and the management team are well-equipped to create value, have done so before, and we’re well-equipped to consider REITs and any other opportunities. The stock has done very well over the last five years, up 135%. I am proud that we were able to rebuild this company throughout this post-recession period. We’ve rebuilt it for our shareholders, our employees, and the communities in which we serve. I am sorry that we’re going through this; I am sorry that this has devolved into a tabloid-like campaign, and it shouldn’t happen. But with that, I’ll turn it over to Dan D’Arrigo, and he can talk about our operating resorts. Thank you, Dan.

Thank you, Jim, and good morning everyone. Overall, net revenue for our wholly owned domestic resorts increased slightly, which was driven by our non-luxury Strip resorts and our regional properties while being offset by our luxury Strip resorts. In Las Vegas, we had a really strong January with REVPAR up double digits; February was in line with our expectations, low to mid single digits; but March was more challenging than we had anticipated. As you know, the entire city faced a tough comparison in March, given that the large citywide event, which Jim mentioned earlier, was in town last year, and this rotates every three years. Excluding that one week of Con/Agg on a year-over-year basis, our REVPAR would have been up 6% in the quarter. Our convention mix for the quarter improved year-over-year, resulting in a record at just over 23% of total room nights. However, with fewer citywide convention room nights year-over-year, we weren’t able to hold occupancy as we anticipated, impacting all of our business segments. Looking at the second quarter, our convention business continues to build and we expect a slight improvement year-over-year in convention room nights. We expect REVPAR growth of at least 5% in the second quarter driven by growth at corporate meetings and convention business, a strong event calendar, and the trends we are seeing thus far. Our regional properties, as Jim pointed out, had a great quarter as our best-in-class resorts continue to drive revenues via incremental expanded visitations supported by the strengthening domestic consumer. Our regional properties had their best first quarter EBITDA since 2007, and our wholly-owned U.S. regional property EBITDA grew 10% year-over-year. Geographic diversity has been a key strategy for MGM Resorts, and our success in the region supports our expectations for returns on investments in both Maryland and Massachusetts. CityCenter’s resort operations in terms of its EBITDA decreased by 14% year-over-year due to lower table games hold and volumes at Aria while Crystals and Vdara had record results. Aria’s reported EBITDA of $61 million was a decrease of $14 million year-over-year, primarily due to a 250-basis-point decrease in table games hold and lower volumes as we’re seeing impacts at a Mainland-sourced Chinese front-end business. Aria’s hotel business continues to improve with record REVPAR of $219. They achieved a 4% REVPAR increase year-over-year driven by a 9% increase in convention room nights and a 7% increase in ADR. Vdara had record EBITDA during the quarter, driven by a 5% increase in REVPAR, and Crystals also had its best EBITDA quarter ever with $12 million recorded during the quarter, a 6% increase year-over-year. As we announced on our last earnings call and as part of our global settlement related to the outstanding Perini and Harmon claims, CityCenter reported a $116 million gain in the first quarter. As Jim mentioned, CityCenter paid its first dividend of $400 million on Friday, and we received our 50% share or some $200 million. That dividend is one of many strengthening elements for our balance sheet as cash and cash equivalents at the end of the quarter were approximately $2.2 billion, of which roughly $469 million was in MGM China. We also had $1.1 billion in available liquidity under our corporate revolver and approximately $1.4 billion of excess cash on hand. On April 15th, we successfully converted our $1.5 billion convertible notes into a net 71.7 million shares of MGM common stock. This conversion was a significant event for our company as we improved our domestic leverage by approximately one turn and improved our free cash flow by eliminating almost $62 million in annual interest expense. The conversion reinforces our improving balance sheet story as we continue to position the company for future growth. At the end of March, MGM China had approximately $950 million of debt outstanding and $1.1 billion in availability under its revolver. CityCenter cash at the end of the quarter was approximately $524 million, total debt at the end of the quarter was approximately $1.5 billion, and we’d like to point out that this does not account for the $400 million special dividend that was paid out last week. During the first quarter, we invested approximately $92 million in capital related to our domestic operations. We also invested approximately $54 million in National Harbor and MGM Springfield during the quarter. Additionally, we invested approximately $19 million as part of our arena equity contributions. During the first quarter, MGM China spent approximately $14 million at MGM Macau and $132 million on our Cotai development. With that, I’ll turn it over to Grant for his MGM China report.

Thanks, Dan, good morning, good evening. Again, in the first quarter, MGM China performed relatively better than the challenged market with net revenue down by 33% year-over-year, while the market itself was down some 37%. Controlling cost and margin is a high priority for us, and we’ve strategically put in place numerous initiatives and restructuring our cost base, while managing costs specifically. But we still remain committed to offering the high-quality experience that our customers have come to associate with our property here in Macau. Despite these challenges, MGM China was able to maintain its outsized market share of 10% during the quarter, a situation that we’ve been able to maintain consistently over the last three years. MGM China is strong in our mass market sector, and we continue to outperform. However, our main floor table games revenue declined by 14%. This is in comparison to the broader market decrease of 19%. We continue to compete with targeted marketing efforts and high-quality offerings along with best-in-class services and standards. Our mix shift towards the higher-end margin main floor business continued in the quarter, with 50% now of our revenues and approximately 80% of MGM China’s EBITDA contribution coming from the mass market. We continue to shift tables from VIP to the mass with an additional 44 table units moved to the main floor this year versus last, representing now approximately 55% of that table allocation. On the VIP side, VIP table games revenue decreased by 45% year-over-year, driven primarily by lower turnover which declined 51%, while hold increased slightly to 3.3% from 3% in the prior quarter. To echo Jim’s earlier comments, we’re thrilled to see the progress we’re making in Cotai. When I visit the site these days, it’s tangible to see the changes that are taking place from visit to visit. We remain on schedule to open in the fourth quarter of 2016. This timing remains contingent on obtaining the necessary government approvals. Our objective to bring diversification to Macau is undeniable, taking into account the offerings we have planned for MGM Cotai, and it is clear that our current high standards of quality will carry through in the non-gaming amenities at our second resort in the market. We look forward to our future growth and, more importantly, we want to grow our business with our team members, particularly our local talent. In fact, 26 of our local managers at MGM Macau just returned from Las Vegas after an intensive 10-day operational cross-training and immersion program, preparing them for advancement in our organization as we mature and grow. Currently, more than 80% of the management team at MGM Macau are local employees, and we’re committed to working with our local young people as our business grows. With that, I’d like to turn back to Jim for his closing remarks. Thank you.

Thanks, Grant. Just a few things and then we’ll open it up to questions. Obviously, this weekend was tremendous, and it was a very profitable event for MGM and the Strip; the city as a whole tremendously benefited from this worldwide event. I have to commend all the stakeholders for their efforts, including the first responders, Metro, the Fire Department, and the County, who all collectively worked together to create an exciting and safe environment that only Las Vegas can deliver. I think it’s a testament to the collective energy of the town that we’re able to provide this type of entertainment uniquely in the world. The party continues, with Rock in Rio coming to the north end of the Strip on our new festival lot. Over the next couple of weekends, tens of thousands more people will be here, people that love to watch Taylor Swift and Bruno Mars and Metallica along with many other major performers in our arenas, including Bette Midler and the Eagles. It’s really a great lineup for the second quarter. Our convention business continues to show very strong demand. Our lead volumes were up 70% over the first quarter of last year, with corporates driving over 60% of the booked room nights. This is incredibly important from both an ADR and non-gaming spend perspective. The completed expansion in Mandalay’s convention center will clearly help us capitalize even further on this strong corporate demand, which bodes very well for all of next year. This company operates on a core set of principles and values that have guided our business and led to our success. Over the past five years, we have dramatically improved the balance sheet. Consolidated leverage is now approximately five times, and our cost of borrowing has been cut in half. Our EBITDA margins have increased by 320 basis points in our wholly owned properties from 2010 through 2014. We have also won very competitive bids for key gaming markets that will drive future growth, of course in Massachusetts and Maryland. Our board and management have worked hard together and we will continue to deliver sustainable long-term value to our shareholders. With that, I’d like to turn it over to Emily to move into the Q&A section of our call.

Question for you all with respect to your outlook for the Las Vegas Strip. Jim, some of this may be you answering in your closing comments. But when you are internally forecasting across all metrics for the Las Vegas Strip, is it getting easier; is it improving; is the visibility improving? And maybe I ask in the context of that mainly mainland Chinese player or resort guests, particularly non-Chinese international guests that might be impacted by FX. And then when you roll up the 5% REVPAR growth for the 2Q, must have added about 1% as you mentioned it Jim. How much of a benefit do you think you received from this past week, which obviously was tremendous? Thank you.

I’ll start and anyone jump in; I think Bill wants to talk about China, and Dan or Corey can jump in as well. Our REVPAR guidance, we’ve made it a point to get as specific as possible over these many years. We’re getting better and better at forecasting from a REVPAR perspective. Some of you might have thought we were sandbagging here because we’ve beaten our REVPAR guidance for two or three years in a row every single quarter. We were a bit short of it this first quarter, and the reason for that was some softness in March. But we knew it would be tough; everyone knew it was going to be tough, but we fell a little short in March. We had a tremendous January and February, and some weakness in March. In April, we were up 4%. So, REVPAR in the month of April snapped right back. We had a very great weekend, and the forecast for REVPAR we’ve given you for the quarter, we feel very good about it. We don’t understand the more negative views that we’ve heard regarding the current quarter. It’s perplexing to have any kind of constructive opinion regarding the summer, given the booking windows are so short. What we can say is we have a tremendous amount of business on the books for the third quarter as well on the convention side. So, we're feeling very comfortable with our guidance for REVPAR, even considering the negative impact of a stronger dollar and undoubtedly a negative impact on mainland Chinese customers coming to Las Vegas. But I’ll turn this over to Bill for a comment.

As it relates to Las Vegas, the China business, I’ll remind everybody that we use less than 5% of our total cash flows in Las Vegas. So, put that in perspective. We were down about 30% collectively; this was primarily obvious during the Chinese New Year. Overall, if you put this together, it’s maybe 15 to 20 million in net gaming revenues. To your point, Joe, one thing to understand is the value of the dollar going forward. We are watching markets in the Middle East, Europe, and Latin America closely as the value has gone up between 20% and 30%, depending on the market. If we make it through the balance of the year, that’s something we’ll watch. The balance of Asia: Japan, Korea, and Taiwan has responded exceptionally well as we’ve focused our energy and people toward those markets.

Joe, this is Corey. What I would add is that the March softness was really isolated to the first few weeks, particularly the Con/Agg week which was here last year. We could identify the weakness to those periods. Looking at the past five years, the first quarter is consistently in line without the Con/Agg expo. A few other points that give us some comfort: air capacity is growing at 3%. When you take the citywide convention out of the visitation, we were down 110,000, of which Con/Agg was 160,000 of that. We’re actually up in visitation when you exclude that week. Everything we see in our business, there hasn’t been much change from what we observe.

Joe, on your question about REVPAR at the Mayweather weekend, Mayweather benefits us by about 1% for the second quarter.

Corey, a question for you regarding the cost side. I know it’s hard to discuss flow-through this quarter. As we consider the 50% goal, I am wondering if that still stands for the year and where you are seeing most of the cost pressures, and what are you doing to offset those?

Felicia, I’ll jump in first and then turn it over to Corey. When we look at our overall cost structure, it’s pretty much in line with where we expected, our costs were up about 2% in the quarter, and our FTEs were flat year-over-year. We feel good about how we’re managing those costs. There is always room for improvement, and maybe Corey can touch on that as well, but that’s part of our normal process. As for flow-through, we continue to look at it from a longer perspective. We aim to assess flow-through over longer periods because quarter-to-quarter fluctuations are a normal part of the business.

Felicia, we’re very focused on margin; with that, flow-through will happen. Our 2014 was a very tough quarter because it drove occupancy and high rates, plus we had higher table game wins, all impacting margins. When I analyze it against a more typical quarter such as Q1 of 2013, we’re actually up almost 6 basis points on the Strip regarding margin.

On flow-through, we still feel like the annual 50% is a good number to consider. We expect margins will increase this year as a company, as they have been over the last four years.

Jim, considering your portfolio of properties on the Strip and despite all the ebbs and flows quarter-to-quarter— are we at the point in the lifecycle right now of the Strip, where we’re going to see better improvements and recovery in your lower tier areas? How should we assess that as we look forward?

For the quarter, Bellagio’s margins were 29.5%, better than their peer group and better than wins in Las Vegas for the first quarter. We believe properties at the luxury end have been more insulated and less vulnerable to fluctuations in citywide conventions. Our core properties benefit from a strong demand in citywide convention business, thus can drive margin and EBITDA greater than their current base. When we do have large conventions in town, we see huge revenue snaps. Our core properties are more dependent on citywides than luxury properties.

It’s been at least the last three quarters that the percentage increase in occupancy and REVPAR outperformed the luxury properties. I believe this trend will continue as they have more opportunity to grow.

Lastly, concerning the $8 million hold, what negative effect did it have on EBITDA in the quarter? Was that due to one particular property? Can you let us know?

It was somewhat spread around a few properties, including Bellagio, Mandalay, and, believe it or not, MGM Detroit as well.

If you look at the 2Q and the 1Q sequentially in years past when we examine periods including the Con/Agg expo, it seems that even if we ignore the 100 basis-point benefit from the Mayweather fight, the plus 5% growth seems conservative based on historical trends. Can you address how you’re interpreting the situation? Additionally, please speak to flow-through: with 2% kind of cost escalation and net revenue on the Strip north of 4%, is that a fair expectation in terms of achieving the 50% flow-through you’ve discussed?

Carlo, you’re fairly accurate in your assessment; the overall net revenue growth would need to match the target for flow-through along with the cost increase. We recognized the first quarter would be our most challenging due to Com/Agg. April and May should guide our growth, particularly June looks promising with group business on the books. As we approach the 3Q, the city generally operates on a 60 to 70-day booking window, so you will start seeing the rotational patterns in bookings for August and September. There are promising trends in both leisure and domestic business, which will compensate for some softness in international leisure travel that we’re observing.

We booked a significant piece of business in August recently.

Was 1Q impacted by high rollers that delayed their trips for special events this month?

That is a fair and accurate statement; folks delayed some trips to come in for this weekend’s fight for sure.

One fun fact: I asked aviation to check this data. The most planes we ever had at Atlantic Aviation was 350 planes during Super Bowl weekend. This past weekend, there were over 500 planes. I cannot believe how they managed that. By 10 o'clock yesterday morning, they stopped receiving planes in Las Vegas and diverted planes to North Las Vegas due to overwhelming demand. There was a tremendous turnout for the fight.

As a follow-up, can you update us on potentially monetizing Crystals? Also, regarding the earlier discussion on considering a REIT option, do you see that being an option for the whole company, or just parts like the regionals or Strip?

We explored a potential sale of Crystals a couple of years ago. There was high interest; however, potential buyers were concerned about the growth story, and we couldn’t provide clarity on how the litigation would impact ownership or what we would do with the Harmon site. We didn’t have the answers at that time. Fast forward to today; we’ve settled with Perini and are now working on plans for development, including Crystals. We are interested in finding the right buyer for Crystals. Additionally, our NOI has been growing steadily at Crystals and the tenant mix is improving. The growth story is intact, so I anticipate discussions at the board level regarding Crystals soon. As for the REIT, I point to ’07 when we first began discussions. The recession hit, and we were developing CityCenter at the time, which limited options. Today, we’re in a much better place with more opportunities. We are a real estate-rich company. We’re actively working with investment bankers on unlocking value—REITs could play a key role in how to achieve this, whether at our regional properties, core properties, or the company as a whole. Our approach is asset sales are also attractive; we have sold assets in the past, and with rising cash flows and multiples, real estate values in Las Vegas have increased.

Harry, we’ll be a cash taxpayer this year; it’s less than 50 million for 2015 in cash taxes.

What’s your cash tax rate looking like for 2016?

From a cash tax standpoint, it will rise a little but nothing significant in 2016.

I wouldn’t call it a contingency plan because it’s part of our plan. The key focus is continuing to grow. We need to diversify into non-gaming, all while being strong in our premium mass and mass business. We’re implementing structures to ensure these strategies work. We’ve put those in place, and they’re coming together.

What does the government expect that fulfills their definition of non-gaming amenities?

We’re focused on entertainment and leisure tourism, enhancing our food and beverage offerings. Building out targeted mass business is critical, especially for incentives. We are ensuring we’re adding components complimentary to our strategy and targeting customer profiles. Our current progress is encouraging as Jim indicated, we are actively contributing to the consumption growth in China.

For Vegas, on the last call you talked about the remaining quarters being up over 2% to 3% in REVPAR; do you reiterate that for Q3 and Q4, or are we taking a wait-and-see approach?

I am comfortable stating that.

The labor pool requirements will change; we are prepared for that. Our contractor is very proactive and managing accordingly to meet our needs. We're mindful of progress and focusing on completion in a timely manner.

Could you provide an outlook for MGM China’s dividend, considering cash flows are experiencing some pressure and construction ramp-up in Cotai?

The board has approved up to a 35% annual income dividend paid semiannually. This will continue to be reviewed and assessed regularly. As for special dividends, the board will look at that based on market performance and individual performance, considering overall needs as we ramp up in Cotai. In the bank agreement, it’s a five times leverage for MGM China.

Thank you all for joining us today. As always, we’ll be available for any follow-up questions. We look forward to seeing you in Las Vegas, especially when our new arena opens. We will have a celebration and of course at National Harbor and throughout the year. Please feel free to reach out at any time. Take care.