MGM Resorts International (MGM) — Q1 2020 Earnings Call Transcript

Good afternoon, and welcome to the MGM Resorts International first quarter 2020 earnings call. This call is being broadcast live on the Internet at investors.mgmresorts.com, and we’ve also furnished our press release on Form 8-K to the SEC. 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 contemplated in these statements. Additional information concerning factors that could cause actual results to materially differ from these forward-looking statements is contained in today’s press release in our filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures in talking about our performance. You can find the reconciliation to GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, this presentation is being recorded. I’ll now turn it over to Bill Hornbuckle.

Thank you, Aaron, and good afternoon everyone. This is my first earnings call as Acting CEO of MGM Resorts, but as most of you know, I’ve been with the company for over 22 years and the industry for over 40. I’ve seen many difficult periods in that time, including the original MGM fire, 9/11, the global financial crisis, One October, but the COVID-19 pandemic is truly unprecedented. I’m proud of the discipline and focus that has defined our response to the crisis, and I’m confident we are taking the necessary actions to position MGM Resorts for a sustainable recovery. We usually start these calls with the results, but since many of you have already seen our first quarter numbers we disclosed last week, I’d like to address the impacts of COVID-19 on our business, our employees, and our communities, and then I’ll walk you through the quarter and our longer-term outlook. Before I do, I would like to acknowledge the stewardship of our board of directors and the partnership of our Chairman, Paul Salem of Providence Equity Partners. I’m grateful for the counsel as we manage through the current environment. Paul’s background provides valuable expertise in capital allocations, and we work together to enhance the company’s overall return on investment. The COVID-19 pandemic represents a tremendous challenge to the global economy, to society as a whole, and of course, to a company like ours, which exists to offer guests world-class entertainment and hospitality experiences. On an individual level, the suffering imposed by COVID-19 has been enormous. Our hearts go to all of those who have lost family members, friends, and colleagues. We have also lost 11 of our own at MGM. We’re all extremely grateful to the medical personnel and first responders who are serving on the front lines of the pandemic and would also like to recognize the MGM employees who are reporting to work every day and are essential to keeping our properties safe and secure. As you all know, in mid-March, we closed all of our U.S. properties. At that time, we began to take decisive measures to protect our business by maximizing liquidity and minimizing our cash outflows. In the past few weeks, we have cut our dividend, reduced our deferred nonessential spending, amended our credit agreement, and raised $750 million in new bonds. The most difficult step, however, was to furlough nearly 63,000 employees. This was painful, and it’s a hard decision to make, but we are actively preparing for the day when we can welcome them back. As a result of these actions and our real estate transactions, MGM has $4.6 billion of cash on its balance sheet, excluding MGM China, and MGP, with an estimated domestic cash outflow of approximately $270 million per month while we are closed. During this international health crisis, we have focused on the safety of our employees and guests and in strengthening the communities in which we operate. This has been, and continues to be, our top priority. As such, we have committed to continue providing health benefits to our impacted employees, and while difficult, this experience has again confirmed the strength of our values and our culture. The company, our employees, and our partners collectively have raised $12.8 million for the employee emergency grant fund to provide relief for employees and immediate families in need. We’ve also given over $1 million in food and products to local communities, provided logistics for 250,000 COVID-19 tests in Nevada, and donated over 1 million units of PPE. MGM China has also made significant efforts to support the region during the crisis, including donating MOP 20 million or approximately $2.5 million to the Hubei Province and providing other means of support, PPE or otherwise, to its local community. Although COVID-19 presents unique challenges, we are extremely well-positioned culturally, financially, and operationally to handle this crisis. Because of the strength and the actions we are now taking, we are poised to regain momentum as soon as the danger to public health lifts and we can begin to restore normal operations. I’m going to briefly walk you through some of the key strategic questions that will play a major role in our performance going forward. Right now, we are intensely focused on a few key items: how and when do we reopen, and what does it mean to gather safely? While we have always put health and safety at the forefront of all that we do, they are new imperatives. Consumer confidence is key to economic recovery, and thoughtful reopening strategies are vital to building public trust. This is a responsibility that we take extremely seriously. So, let me briefly outline our thinking about the question of how we reopen. We are working through our safety plan right now and expect to make this public in the next two weeks. We know there are a number of key areas that are essential to protect the public and build confidence in our ability to put people back to work and safely welcome guests. We are collaborating with public health officials, experts in epidemiology and biosafety, and both state and federal governments to come up with a set of protocols that will help deliver a secure environment. These will include measures like physical distancing, stringent sanitation and cleanliness protocols, the provision of PPE, crowd management, and more. We’re also developing digital innovations for touchless interactions across the guest experience to improve protection and create greater overall confidence in the hospitality environment and their overall experience. We will continue to be driven by data, science, and public health guidelines as we evaluate and evolve our operating practices and guest interactions. This brings us to the second question, when will we be able to reopen our domestic properties? Ultimately, the precise reopening dates depend on decisions made by elected officials consulting with public health authorities. In MGM's case, that means the Governors of Nevada, New Jersey, Maryland, Michigan, Massachusetts, Mississippi, Ohio, and New York. Due to various public health conditions in these states, we are preparing to open properties in phases. Given the stabilization of cases in Asia and recent comments by Macau's Chief Executive, we anticipate this market may show meaningful recovery early this summer. In the U.S., certain states such as Mississippi will likely open sooner than more heavily impacted states, and we anticipate that regional drive markets will rebound faster than fly-in destinations. Once Las Vegas casinos are permitted to open, we will have made decisions about property openings based on consumer demand and the economics of individual properties. We will balance those needs with the needs of our employees, our local regulators, and other key stakeholders. In all cases, we will open in a way that protects the health and safety of our guests and our employees, and again, I must stress that is our highest priority. Now, I’ll spend a few minutes looking back over our Q1 results. Our net income was $807 million versus $31 million in the prior period, due to a $1.7 billion pre-tax gain relating to the MGM Grand and Mandalay Bay transactions. As we previously announced, our first two months were even stronger than our internal projections. Las Vegas Strip adjusted property EBITDAR was up 27%, and our regional operations adjusted property EBITDAR was up 26% both on a same-store basis. These strong results were driven by robust organic growth and Phase 1 of MGM 2020 working in full force. As expected, performance deteriorated dramatically in March when we were required to close all of our domestic properties. As a result, our Q1 consolidated adjusted EBITDA was down 61% to $295 million, with Las Vegas down 34% and our regional down 28%, while MGM China recorded an EBITDA loss of $22 million. Looking ahead, our strategic planning is being driven by three overriding goals: to simplify our operating model, maintain a commitment to strict capital discipline, and bring intense focus on executing our current initiatives such as MGM 2020. Let me touch on a few of these areas. We are significantly reducing our operating expenses by cutting expenses across all properties and corporate departments. This is crucial to achieving long-term recovery. We moved quickly to reduce operating costs through furloughs and freezing positions, as well as eliminating nonessential expenditures. We also initiated a program to allow senior executives and directors to receive 2020 compensation in the form of restricted stock units. While operating efficiently and effectively with an eye towards improving margins has been a core philosophy, we are taking more aggressive actions to further adjust our operating model in response to the current environment. We believe this is a very opportunistic moment to operate and to take a look at everything that we’ve been doing historically. We’re carefully managing our cash to protect the company's financial position. We have deferred and reduced our expected 2020 domestic capital expenditures by at least 50%, or approximately $200 million. We have announced that the board reduced our dividend to $0.01 per share annually, resulting in quarterly savings of approximately $73 million. Importantly, we will continue to meet our rental obligations to MGP and Blackstone. We also have strengthened our liquidity position. In addition to the $4.6 billion of cash on our domestic balance sheet today, and adjusted for the bond offering, MGP has also agreed to redeem $1.4 billion of our OP units in cash should we elect to have them redeemed. We have additional liquidity levers including our remaining stake in MGP, our 50% stake in CityCenter, and the ROFO asset MGM China. We also have a 56% stake in MGM China, although to be clear, we want to continue to believe in the future of Macau and look forward to continuing to invest in our presence there. We have no debt maturing prior to 2022 and just yesterday we closed on our credit agreement, providing additional flexibility on our financial covenants. MGM China is also well-positioned with our $800 million of liquidity and, earlier this month, it further amended its credit agreement to provide additional financial covenant relief as well. MGP has also drawn down on its revolver for additional liquidity. We are also continuing to advance our long-term strategic initiatives. We will drive progress in MGM 2020 by continuing to reduce expenses and pursue capital projects that will allow for higher margins and returns once our business fully recovers. We will continue to execute on our real estate strategy over time, and we continue to invest in growth opportunities such as Japan, Macau, sports betting, and online gaming. In particular, I want to emphasize we remain fully committed to our partnership with Oryx to develop a world-class integrated resort in Osaka. Let me spend a moment on Macau. I was recently elected to be Chairman of MGM China alongside Pansy Ho as Co-Chair. I am personally just as excited today about Macau as I was 20 years ago when I first visited. We believe the market will rebound rapidly with the Visa scheme and other restrictions loosened. MGM China properties are currently incurring cash operating expenses of approximately $1.5 million per day, which is a significant amount given how those properties are currently operating. While we are currently focused on managing the current situation and driving efficiencies within our current footprint, we will continue to invest in our properties and expand our offerings, especially in non-gaming with more suites and improved room product. I look forward to working with the new Chief Executive in Macau and this administration to support the strategies for further development in Macau. In summary, we remain confident in the long-term outlook of our business with a strong start to the year, which was encouraging and points to the success of several initiatives such as MGM 2020 that we had recently implemented. In Las Vegas, our margins were back over 30%. We have leading assets in most of our markets, which will further support a healthy recovery for our business. We will continue to simplify the way we operate and focus resources into areas that create the most value for our shareholders. On a more personal note, to wrap up, as someone with four decades of experience in this industry, I’m honored for the opportunity to lead a great company like MGM Resorts. The efforts I’ve outlined today speak to my intent of being clear and focused by being disciplined in all things and to striving to be transparent in my leadership of this organization. Hopefully, they will become the hallmarks of what I want to stand for and what this company stands for going forward. While there is no proven playbook for the current challenges we face, I have faith in our deep operating experience, our expertise in safely managing public gatherings, the strength of our long-term plan, and our tenure in this business. More than that, I have a tremendous amount of confidence that the men and women of MGM Resorts and our partners around the world will rise to this challenge as they have on so many occasions before. I look forward to the day soon when we will say, once again, let’s entertain the world. Thank you, and with that, I’ll open it up for questions.

Good afternoon, everybody. Good afternoon Bill. I was going to start with you and ask specifically what you might be doing differently than say Jim did in his tenure, but I thought you laid it out pretty eloquently. So, I will not take that as one of my two questions. So, starting with question number one, and I know you talked about it, it’s premature to talk about the timing of when you can reopen your domestic properties. Just maybe can you speak to how you think about phasing in properties, particularly on the Las Vegas Strip? I think before, maybe on CNBC, you said that maybe you would start with properties that are not at the higher price point, like Excalibur, nor would it be those properties that have traditionally hosted a large percentage of international visitors. If the Las Vegas Strip opens for the summer, how many properties by the end of this year do you realistically anticipate could be opened? How many by the middle of next year? You know how much of your views will be in reaction to airline capacity coming back? And how much of it is dependent on the group business?

Thank you, Joe. I appreciate backing off the first question and focusing on a simple one. So, let me break this down into three buckets, and obviously Corey can and will chime in here. Macau speaks for itself, and Grant is on the phone to the extent that at the end of this you want to ask additional questions, but we are hopeful that early this summer, given all the indicators and things we see in China, that that market will begin to open up. The regional properties, obviously like I said in my prepared comments, are going to be predicated on what the government says. What Governors are saying is at least the baseline mandate and our regulators. We do see Mississippi first, obviously we see places like Empire potentially off later in the year, time to be determined. The good news about our regionals is their drive markets with the exception of BAW, which does have some fly capacity given the 800 keys there and the programs that we run, but we see those potentially in Mississippi, potentially in Maryland down the road of note, and then those begin to roll out. You’ve all seen what’s going on in Michigan, so obviously we’re in the midst of all of that in Detroit. So, we will take one step at a time. More specific to your question in Las Vegas, we don't know exactly when, but the Governor has been speaking almost daily about when to open. He, like most governors, is looking at a three-phased process trying to open up small businesses, things like golf courses, etc., and understand what happens with the community in that respect. Then moving to the next phase. In some areas, we are in that next bucket, Nevada of note, and in some areas potentially like Maryland, we may be in the third bucket of activity. But it's believed that gaming will open universally, meaning all of gaming in Southern Nevada will have a chance to open at the same time when it’s deemed safe. Again, we just don't know. We’re probably looking at two or three offerings initially. Obviously, something of a value set. We tend to lean into New York, because it’s one of our simpler places to run with 2,000 rooms. We’re probably looking at Bellagio at the other end. And I’m sure the competitors down the street are going to open because they only have one in the context of when Sands will. So, we want to be in the high-end business. From there we’ll talk about what other properties should open, if any, at that point in time, and we’ll go slow. We will be responsive and responsible, we will look to the economics in some of it. Most of these properties need to be between 30% and 50% to generate cash that is meaningful, meaning not going backwards from being closed. So, we're going to see how the market responds. You did mention airlines; we were in conversation last week with Southwest’s President and leadership team. They are still bullish on Las Vegas. The interesting point is the point-to-point carriers will come first. Obviously, the hub airlines, the United, American, and Delta have other challenges with hubs that may restrict some activity here, but Southwest feels relatively bullish. They won't start here first, but I think over time you’ll see them focus on this market, because as always in these circumstances, Las Vegas presents a great deal of value.

I think you hit all the key points, Bill. I mean, obviously safety is a key concern. We want to avoid any spikes in numbers and things like that. So, we will deal with it cautiously, and in general, a lot of it will be demand-driven. Just as a reminder, about 50% of the traffic coming into Las Vegas is from automobiles, and we do think there will be some pent-up demand. As opportunities arise, we’ll definitely open up properties to maximize our cash flow.

I think Bill, I just reiterate again. Thank you. I guess the challenge is that it's about opening up, as you've seen. The critical point for us is that we expect that the volumes of traffic will be significantly restricted. We see that as actually somewhat of a positive because, by and large, we think that the premium market will come back first. That's obviously where we have some strength, and that's what we're looking for. I think everybody probably also heard that Hong Kong has extended their quarantining requirements through June 7. We do hope that within that time, there might be some adjustments with China, and we're waiting to get that information. So, we're very positive. We're very comfortable that we're trying to manage as best we can, but most importantly, from our discussions with our customers, the demands are there. The opportunity for them to travel is the only thing they're looking for. Thank you.

Great. That was my question to you, Grant. You answered it. Thank you very much, guys.

Thanks, Joe.

Thank you.

Hi, Bill. Thank you for taking my question.

Hi, Carlo.

So, you guys have spent the last several quarters, years actually, putting together a top-down framework of how to run the business more efficiently and whatnot. One of the questions I had was, as you sit from that perspective now, having consolidated your expense rationale and thinking along those lines, how much does that help you in an environment like this where you're almost starting from a very low baseline for expenses and the ability to kind of bring those expenses back on in a more demand-driven way?

Yes. I'll kick it off and Corey can add in. I think it's been immensely valuable. If you recall, we actually started in 2016 with what we called PGP, obviously, MGM 2020. I became Chief Operating Officer last March or something along that lines. Our ability to understand, frankly, at most every level, whether it was corporate, centers of excellence, or the various properties and regions, how we were operating, what we're doing, why we were doing it, and what was really bringing value, we have a very clear view on. And so now, as we think about re-launching in a post-COVID environment and the ramp it's going to take, we have another lens into that in terms of how we're going to structure the organization. We have some work to do there, but we believe when all is said and done and we return to a normal state, we're going to be a much more efficient organization focused on those things that truly matter to driving the day-to-day customer experience in all the places that we serve.

What I would add, Carlo, is, MGM 2020 is still less than a year old. As we established the COEs and centralized components of it, we have evolved since then. This closing has allowed us to rethink that. We believe there are opportunities to become even more efficient. The other thing that MGM 2020 gave us discipline on is our variable labor and staffing to business volume. So, we've become very disciplined, which is helping tremendously in a time like this.

Great. Thank you, guys. And then if I could just have one follow-up. Bill, you mentioned earlier that the $1.4 billion is available to you there. Clearly, with the balance sheet structured as it is today and the nimble paradigm you guys are in, there’s plenty of runway with respect to liquidity. Is the decision to pull the string on that $1.4 billion more dependent on how this situation evolves six to nine months down the road? Or would you be advantageous in the event that you saw the valuation of that thought or fairly reflect what you and myself included think it’s worth?

Carlo, it’s Corey. I'll take that. Based on the agreement we have with MGP, we really do have a long-dated option. As you mentioned, I think we feel really good about our liquidity position, and it gives us the ability to not be in any big rush. We'll transact when we believe it's the right time in the most efficient manner for us. Just as a reminder, MGP is an important stock for us. We have over $5 billion of value in MGP.

Understood. Thank you, guys.

Thank you, Carlo.

Thanks. I think in the opening remarks you mentioned still being committed to Japan. Can you just provide an update on the milestones investors should be watching? How the investment timing and size may have evolved? Any color on unexpected returns?

Sure. Japan, like most places in the world, is being impacted by COVID-19. I think literally as early as today, you may see Abe stick additional restrictions up to another 30 days is what has been rumored to be discussed. I think the impact of that will slow down, although we are not definitively sure the RFP process as it currently sits in Osaka, and we are ready for this. We have an RFP submission that is due at the end of July. Our team has worked hard on this, as you know, we’re the only standing applicant there, and we would submit, but what may happen is that the whole process gets pushed closer to the end of the year, which I think is appropriate and fine by us. In terms of its scale, you see – in terms of other opportunities in Japan, Yokohama has expressed sincere interest and is now working its way through its own process and time will tell whether others actually joined. We still see Asia as a huge build and is a huge upside for the company and frankly for the industry. We're very bullish on Macau in the long run and absolutely bullish on Japan in the long run. You're still looking at a $10 billion investment. The returns on that are to be determined once we get through all the regulations, but they are significant and would be significant to the company in its overall portfolio and how we balance our earnings as we look at everything we have. We remain bullish. I think it will get delayed, and we're ready if it does not, I guess, is my final point.

Great, thanks. And then my follow-up is related to Joe's earlier question. You mentioned occupancies needing to be around, I think, it was 30% to 50% and generate meaningful cash flow. Given the model has typically been run with very high occupancies on the Strip, what are the biggest bottlenecks that you can tackle to help alleviate crowds, increase distance, and maximize cash flow as you think about different parts of either the property or the segment in business? Thanks?

Yes, there are a couple of aspects to it. Obviously, getting air back and getting large group gatherings are critical to the ultimate recovery. We do believe because of drive-in traffic, which particularly spikes in the summer, that regionally we will see a substantial amount of drive-in. I mean, there's obviously pent-up demand. You saw what happened on the beaches of California when they opened for a weekend. I think they're going to close again, which is not what we want to do to be clear. But I think you'll see leisure demand, and drive traffic will push what happens from that perspective. The casino has always been active. Our offer set remains out there; people are still booking into the balance of the year and into next already. They're anxious. They have pent-up demand as well here and in Macau. They want to come back. Irrespective of large-scale events, I think championship fights hosted with 15,000 people, the casino segment is anxious to come back. Group, obviously, will be the last. I would tell you this on group as a way to think about it. We have lost a little less than half of our group business because of the pandemic. Half of that has already rebooked over the next 12 months. If you think about it in macro, we're down about 25%, but the really encouraging thing is that large group formats, particularly for our company tech business, has come back. So, there's not a change of mindset around how people will come and gather in the future from Microsofts of the world who want to come back to this market and do it in a meaningful way. We’re encouraged by that longer-term. And then ultimately, obviously, we have a partnership with AEG. We do a lot with Live Nation. Getting back major events is really going to get down to the protocols that are required to host an event of that scale and time. I think that’s probably going to be the last to cure and heal.

I think, in general, we're going to be following a lot of protocols like many of our competitors are. We’ll have the supplies and gear we'll need, and the distancing we'll need, we're sizing that up right now on what that would mean in all the jurisdictions. We should have a fairly good idea of that by the next time we talk. The other area, I think where we're going to see some decent play, especially in Las Vegas at a property like Bellagio, or any of our high-end properties is the high-end casino customer. As Bill mentioned, we have been in contact with them, and they were the last to leave when we closed down. I have a feeling some of them will be back the day we open. So, that's positive, but I think the key for us to get our margins back up will be as that group business returns. Interestingly, we still have quite a few rooms on the books for the back half of the year. As Bill mentioned, bookings for next year have been very strong, particularly when compared to where we were at the same time last year looking at 2019 and 2018, which was our best year, by the way, in convention room nights. We have more rooms on the books now for 2021 than we did for 2019 at the same time in 2018.

Great. Thank you so much.

Hi, Corey, respecting your last comments, you're still working through this. I'm just trying to figure out when you do reopen these properties and there are going to be clear social distancing measures, like having to keep a space between slot machines. Can you just give us a rough sense of what percentage of positions you can get back online versus history? Will it be 30%, 50%, 70%, any rough sense in the difference between Vegas and regional?

We're still working on those numbers. We'll be able to give you some good ideas. I can tell you the regionals might have more of an impact. The floors in Las Vegas were built 10 to 15 years ago. And this is our chance to probably right-size them with the proper distancing and positioning. The regionals will take a little more effort, and we'll be able to talk more about it in the next quarter.

At Park, MGM and at ARIA, we're actually putting down new casino carpet, particularly in those places. Now is a good time to do it. So, we're reconfiguring those floors with the space in mind for distancing. The environment will feel a little different when people walk in from day one.

The only other thing I would add is some of these jurisdictions might have limits to the number of people in the building. If that were to be the case, our floor format would be adjusted for that.

Helpful. Thank you. And then, look, this may be a long shot, but you're in a lot better liquidity position than some of your peers. Have you given any thought about going on the offensive?

Yes, we've considered it, of course. But look, we're going to stay very focused. We don't know how long this is going to take. We like the projects that ultimately, if we're fortunate to come out of this, we've defined sports betting hopefully, an extension of a license, and a continuation in Macau, in Japan, in principle. You never say never, but that's not going to be our focus. Again, not knowing how long all of this takes and what it does to our balance sheet, right now it's strong. We're up and operating and we're stronger than we've ever been, I think, in the history of the company and many, many decades, anyways. So, we are fortunate in that respect, but again, we just don't know.

Helpful. Thank you.

Hi, good afternoon. Hi, Bill.

Hi, Shaun.

Just wanted to – you have a unique position on some of these larger scale group events. Bill, I know you spent a lot of time in your prior roles and some of these bigger sports relationships and whatnot. Just kind of any insights there? I mean, obviously, you said the group piece, which isn't looking good anymore maybe convention takes time to come back, but what are your thoughts specifically on some of the event-like things? So, let's call it sports and some of the key entertainment pieces here. Just what are you hearing? What are some of those vendors and the Live Nation of the world saying at the moment? Could you give us a little more color there? Because I think this is important to so many people.

Yes. This is coming from our perspective, so I don't want to speak for Live Nation or AEG. But I would say, as it relates to entertainment here, we have a mindset that we will open some of our smaller showrooms. A simple example is Carrot Top, or something that's small and intimate can be opened and be relatively simple. We can provide the proper protections, etc. Obviously, that begins to scale a little bit differently when you get to Cirque and then when you get to the big events. On the convention side, it's not easy, but we're fortunate to have 3.5 million square feet of space in Las Vegas, and our ability to stretch things out more than most if not all is unique. So, we can host an event, and yes, it will be a bit of a space management challenge, but at least we can host the event. We have set up different protocols with various planners and organizations on how to do that. Until we get all the health and safety protocols, we're not going to be definitive, but we do have a unique capacity. As for sports, and obviously for us, you remember how we were talking about this before this started with the Raiders and what we've seen with hockey. Long-term, Las Vegas will recover. Long-term, the Raiders stadium is in our backyard, but we may see a few games this year that will include our people. An example is that we were creating a large pre-game environment outside of Mandalay and Luxor, which can be pretty special. You walk over to the bridge and go to the game to be able to come back tailgate party. We put that on hold, because it’s our general view that if we’re fortunate enough to see real fans, it won't be 65,000. We’ll probably see stuff like that spring back. We have had ongoing dialogue with leagues and other sports activities around televised-only events. I think boxing, MMA, NBA, NHL, etc., and we can host some of that. We're working diligently with those to do that, but I think the idea that we're going to get 15,000 people in T-Mobile for a concert anytime this year is probably a stretch.

That's helpful. And then as my follow-up, and this one is a little bit technical, so my apologies. I think in the covenant waiver that came through yesterday on some of the MGP shares were pledged as collateral for the credit facility. I was wondering if you could elaborate on what kind of restrictions that means for either the OP unit repurchase or specifically maybe the ability to sell down MGP shares in the future?

Yes, Shaun, it’s Corey. We agreed to pledge our OP units as collateral under our revolver credit facility. We did not agree to any restrictions on our ability to monetize the units. So, we are not limited in our ability to pursue the cash redemption of up to $1.4 billion or any other future sales. In the amendment, it does stipulate that if we sell units falling below 30%, then incremental proceeds would have to be used to reduce the commitments as long as we're in this waiver period.

Great. Thanks for that, Corey.

Hi, Bill. I wanted to ask a question about CapEx first. Now that you've been in the CEO chair for such a long period…

Thanks, Harry.

… as you look at CapEx not in the next six or 12 months, but how do you feel or maybe prioritize CapEx projects globally and their potential returns once your core business settles down? What are the best opportunities? Maybe Grant can chime in on this as well.

Maybe a general overview and then Corey and Grant can clean up. Look, we've seen that we've reduced our CapEx. I think I mentioned in my opening remarks that we cut it in half this year. There are essential things that are going to maintain our stores in the condition that we think they ought to be—simple things like room remodels, for Bellagio and others—which will be ongoing maintenance costs, and there are things that we want to do. We will become more disciplined on some projects. We're going to be more focused on what's to be accomplished and why with a real mindset for margin around it in terms of the day-to-day CapEx stuff. Domestically, with maybe the exception of New York, our primary focus is going to be in Asia. To the extent we can work our way through a license in Macau and a renewal, which we're very hopeful for. Frankly, all the activity around COVID-19, Grant and the team have done a magnificent job putting us in a good position with the government, but time will tell. That would be a large priority.

To Bill's point, everything we do—our main focus, especially on growth—is increasing our return on investment. Domestically, as Bill mentioned, outside of New York, the digital technology components have become big. As we open up in this environment, you'll start seeing benefits from that. We still think there's a future there. Grant, I don't know if you want to talk a little bit about Asia.

I think the critical issue, I'll just repeat what I've said previously: we've got the south suites coming on, and that's really important. More accommodation for us is really important. In terms of the existing capital allocation, we're critically reviewing all items and actually pulling back on the ones because we want to be prepared; we want to have some money left in the kitty. We don't want to spend for the sake of spending. We're actually reallocating funds and identifying when we reopened. There may be some adjustments we need to make, maybe some food and beverage things. Rather than spending and then having to come back and do it again, we're pulling back. Reiterating what Bill said as well, the focus for all of us is all about the concession renewal. We have significant plans that we've discussed about opportunities to develop, but we also need to be mindful of the expectations of the Chief Executive. He does have different views. What we're excited about is we are putting aside funds so we will be in a position to respond to the diversification strategies that he is putting forward.

Harry, it’s not huge capital dollars compared to some of the other topics we're discussing, but sports betting and iGaming is a real opportunity. I was just reading this morning Morgan Stanley's piece, I think the market's $8.5 billion to $10 billion. It's becoming real. In New Jersey, this month alone, if we pace what we did the last couple of weeks in iGaming, it's a $100 million business for us. Pennsylvania is around the corner; Michigan is around the corner, and Colorado is around the corner. Given what's happening in states because of the stress of COVID, we think that will open sooner than later. Not extensive capital dollars—it runs in the hundreds of millions potentially before we turn the corner—but it is one of the things that hasn't been unlocked in our value and valuation, but it can and will be over time.

I appreciate that. And maybe one more for Grant, and this is a very broad leading question, but can you do enough to satisfy the Chief Executive? I'll leave it at that.

I think clearly, all concessionaires that are in Macau are well-positioned, and we will do what's necessary. Bill has made it very clear that this is the focus of the company. We’re very confident and positive. I think the simple thing, as I keep saying, is we just have to do—keep doing the things we're doing better. We need to do the right thing by the people. We need to do everything well. I believe during this difficult time, ourselves and all concessionaires have shown our true commitment to Macau, the people of Macau, and the future of Macau. That’s just how we need to always focus on. One day at a time; it's not a single person’s decision. It's all about a cumulative effort, and that’s what we're good at. We're building confidence; we're building respect. Hopefully, for us, the rewards will follow.

Thanks. Thanks, Grant and Bill.

Thanks, sir.

Hi, thanks so much. So Bill, there are buyers of assets out there; you have Las Vegas stands to talk about M&A. We've seen news with Blackstone, acknowledging you might not make decisions now. Would you be open to selling further assets?

It's not immediately on the horizon. You would always be open to selling assets, I suspect, but it's not something that we've got in our strategic plan. We have obviously the ROFO in Springfield, which is an opportunity. We're looking to acquire over time the other side of CityCenter; we're not going that way. Given where we are today, we’ve got a lot in front of us.

Look, I think we're in a really good position, and I don't think we could get the value for Bellagio or MGM right now.

Yes.

So we'll build that business back up. If there's an opportune time, we'll look at that.

Okay, thanks. And just Grant, you had talked about the quarantine in Guangdong and just kind of watching that as we all are, just adding Hong Kong into that picture, how are you thinking about Hong Kong and the ability to travel to and from there? How important is that to your thoughts about recovery in Macau?

Well, I think it's pretty clear that Hong Kong, Macau, and Guangdong, the Greater Bay Area, are all inextricably linked. We already know that the quarantining requirements in Hong Kong will not be lifted until June 7 at the earliest. Hong Kong is always an important feeder market. Even many of our customers coming in from China come via Hong Kong, as you know. But on the other side of it, there is a possibility, and we obviously sit here hoping that happens. The Chief Executive actually acknowledged that he is in dialogue with Guangdong to see if there cannot be some relaxation or progressive opening up of the Zhuhai China border. We know the Hong Kong date for review, we're still positive and somewhat expect that we may see some opportunities coming up in May for China, and it'll be multi-step. The first will be the removal of the return to China quarantining, and the ultimate objective that we see coming up in the next weeks and months is the releasing of the IDF system. That's the critical point for us once the obvious comes back. Felicia, I'm sorry, I don't have the specific timings. Those are the steps. As I've said earlier, talking to customers, they're positive, they're confident. All of us are just waiting to make sure that it's safe to travel. They're confident that we can take care of them. Our communication has been very strong in this regard. So we're ready to go. And frankly, after all this time, we’re eager to get started, as you can imagine.

Yes. Okay. Thank you.

Hi, everyone, thanks for taking my question and all the details so far. Just one for me maybe for Corey. Last slide in your deck you talked about the CARES Act and some of the possible benefits there related to payroll tax and carry back. I was wondering if you could give us some insight into what that might—the quantum might be if you've sized that up. Is it meaningful for you? It might be a little too early with some of those carry backs, but I just wanted to get your initial thoughts on what that means for your company.

Yes. I'll go through each one, and I'm not sure I could quantify them all, because not knowing where our numbers are going to be will be dependent on that. But obviously, the refund of the federal income tax five-year carry back will play on our 2020 return, which we will file in 2021. That will be a pretty good number from based on where our projections are. We haven't quantified it yet, but hopefully over the next few months, we'll be able to. On the interest expense deduction limitation for income tax benefits, we also expect to see a little benefit from that in 2021, but more in 2022 since we’ll be carrying back most of our loss. There are actually two payroll provisions; one is on the payment of furlough and health benefits. We will receive a 50% deduction on that component; those regulations are getting written right now. We had a significant payment that we will receive that credit. Actually, right now, we're receiving it. Finally, there's the deferral of the FICA tax of the employer portion; any of those payments would be deferred to 2021 and 2022. So, we haven't quantified the amount yet, but in the next few months, we'll try to put some number around that and get that out there.

That's helpful. I appreciate the color, Corey. Thank you.

And we'll take the last question, please.

Last. Thank you for taking my question. I – seriously, I appreciate it and all of the detail. Look, I – there's a bit of dissonance that I was hoping you could talk a bit more about, because you have talked about the efforts to size the business appropriately where ongoing pre-crisis that are still ongoing and they change. At the same time, reopening may bear some incremental costs as well. Have you had a moment to sort of lay those side-by-side? And ultimately, I suppose the thrust of my question is, which one is bigger? Does it come out to be net positive at the end of the day? Is that what you're ultimately hoping to solve for?

Let me kick it off, and then Corey can clean it up. Yes, the answer is, of course, it wants to be net positive. There are going to be, given the protocols that we've talked about, whether they're cleaning or otherwise, some additional costs. But I would offset it with a simple idea and notion. Protocol to clean a room in this environment is going to be extensive. Therefore, you could argue that the efficiency around room credits will have to be altered. I would argue the other side of that, which would simply say if I'm a guest in Bellagio, I want to know that my room is pristine when I go in. During my stay, unless I want and need clean towels, I'm probably not going to let a guestroom attendant or any other service personnel in my room. So, I think you'll see a varying degree of offsets and things like restaurants. Even though we're talking about opening Bellagio potentially first, it won't be full service; there will be some, there will be pick up opportunities for food and beverage. We’re going to take the current state into mind until we get through all of the health protocols. It's a bit difficult, and that's why I said two weeks in my prepared comments, but we will be by then to then put in Corey and his team are working diligently around some of the costs. We definitely think they offset some of the moves we're talking about in terms of structure, but, Corey, maybe you could…

Yes. What I would say, David, is we do have a decent understanding of what those costs are going to be. We think we'll end up on the better side of that. As we open the properties and ramp them, we will be able to manage components of that. More, in particular, we should think we should be able to offset most of these costs at fairly low occupancies. So, as we open properties and determine that, the demand for the town will be a big component of that.

Yes, David, it’s Aaron. Just to clarify something. Obviously, we're not giving disclosures in terms of our break-even points, but naturally, we recognize that our occupancy and utilization rates are going to be lower as we ramp up. So, what we're aiming to do through the cost-cutting is lower our break-even points.

Okay. Maybe if I could just offer up a couple of closing thoughts and I appreciate everyone's time today. First and foremost, for me and the company, getting these properties up and operating and doing it in a safe manner for our employees and guests is priority one. I think we are ideally positioned to do that. We understand the environment. Well, we understand the organization well. And candidly, we feel the responsibility, particularly here in Southern Nevada. Our industry to this state is the most important industry in any state in the country—more than autos are to Michigan, more than tech is to California. We are the largest taxpayer and largest employer in the state. I can assure you we are keenly focused on wanting to reopen, but we will only do it safely. We will be a better, more efficient organization moving forward; you have my commitment on that. We know how to do this, and we will make this as effective as it can be. Obviously, as we roll out, there are going to be things that we've never experienced before. So, we will have some ups and downs, but I assure you collectively, we will end up with a more efficient organization when we fully come out on the other side of this. Despite all of it, we are not going to lose track of our long-term strategic initiatives. We are keenly focused, particularly on Sports and iGaming during this timeframe. There is real money, particularly in iGaming today, and Sports will begin to unfold this fall and hopefully sooner. Our real estate strategies in creating yet again a fortress balance sheet are critical. The notion of asset-light moving forward is critical. Ultimately, my goal, my desire, my push, and I know it’s shared by our Board, is to be ever present, larger, and more substantially involved in Asia—both in Macau and hopefully in Japan if we’re fortunate enough to win a license there. I thank you for your time. Everyone be safe and be well. I look forward to talking to you again next time. Thank you.