MGM Resorts International (MGM)

Transcription

1 Americas/United States Equity Research Casinos & Gaming Rating NEUTRAL Price (09-Aug-18, US$) Target price (US$) week price range (US$) Market cap(us$ m) 15,658 Enterprise value (US$ m) 1 27,834 Target price is for 12 months. Research Analysts Cameron McKnight cameron.mcknight@credit-suisse.com Share price performance Ben Combes, CFA ben.combes@credit-suisse.com O c t Ja n A p r Ju l M GM.N S& P IN D EX On 09-Aug-2018 the S&P 500 INDEX closed at Daily Aug10, Aug09, 2018, 08/10/17 = US$30.51 Quarterly EPS Q1 Q2 Q3 Q4 2017A E E MGM Resorts International (MGM) INITIATION Going Global Neutral Rating: We initiate coverage of MGM Resorts (MGM) with a Neutral rating and $31 TP, implying 6% upside potential. MGM is one of the largest global gaming operators, with 12 properties on the Las Vegas Strip, seven in Regional markets, and two in Macau. The US represents 63% of value and Macau 29%. MGM is exploring a potential Japanese investment. United States and Macau: We see Las Vegas as a cyclical but long-term growth market, given strong leverage to US and global travel. We see defensive, domestic growth in Regional markets, with some supply growth. We are positive on the long-term outlook for Macau but think the next months could be volatile, given macro, geopolitical, and licensing risks. The Debate: Bulls point to quality Las Vegas Strip exposure, undemanding valuation, deleverage and capital returns, an innovative financing partner with MGP, and genuine innovation with the Arena/Park developments. Bears argue that Las Vegas shadow supply is growing as others renovate assets and add convention space. Bears note top-of-cycle concerns, and they question aggressive M&A at this point. Growth Drivers: We expect a 7.1% EBITDA CAGR in , driven by modest growth in the US and Macau, recent acquisitions, ramp of its new Macau asset, and slight margin improvement from further efficiency gains. Valuation: MGM currently trades at 9.9x 2019 EBITDA. Our $31 target price is based on our sum-of-the-parts, with 11x EBITDA on the Las Vegas assets, 8.5x on Regionals, and 12x on Macau. Key Risks: Las Vegas Strip is highly cyclical and sensitive to the broader economy and supply growth in Las Vegas and regions. Macau gaming is historically volatile and is very sensitive to the Chinese economy and macro and micro policy decisions. MGM s Macau license expires in Financial and valuation metrics Year 12/17A 12/18E 12/19E 12/20E EPS (CS adj.) (US$) Prev. EPS (US$) P/E rel. (%) Revenue (US$ m) 10, , , ,693.9 EBITDA (US$ m) 2, , , ,554.0 OCFPS (US$) P/OCF (x) EV/EBITDA (current) Net debt (US$ m) 11,409 12,176 11,044 9,469 ROIC (%) Number of shares (m) IC (current, US$ m) 23, BV/share (Next Qtr., US$) 12.6 EV/IC (x) 1.2 Net debt (Next Qtr., US$ m) 12,219.8 Dividend (current, US$) 0.48 Net debt/tot eq (Next Qtr.,%) Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 MGM Resorts International (MGM) Price (09 Aug 2018): US$29.11; Rating: NEUTRAL; Target Price: 31.00; Analyst: Cameron McKnight Income Statement 12/17A 12/18E 12/19E 12/20E Revenue (US$ m) 10, , , ,693.9 EBITDA (US$ m) 2,837 2,844 3,378 3,554 Depr. & amort. (993) (1,163) (1,190) (1,185) EBIT (US$) 1,716 1,498 2,188 2,369 Net interest exp (669) (758) (739) (672) PBT (US$) ,410 1,656 Income taxes 1, (211) (248) Profit after tax 2, ,198 1,408 Other NPAT adjustments Cash Flow 12/17A 12/18E 12/19E 12/20E Cash flow from operations 2,206 2,096 2,582 2,778 CAPEX (1,864) (1,565) (780) (740) Free cashflow to the firm ,802 2,038 Cash flow from investments (1,581) (1,383) (921) (653) Net share issue(/repurchase) Dividends paid (252) (265) (263) (263) Changes in Net Cash/Debt 132 (766) 1,131 1,575 Balance Sheet (US$) 12/17A 12/18E 12/19E 12/20E Cash & cash equivalents 1,500 1,338 1,844 1,919 Account receivables Other current assets Total fixed assets 19,635 20,066 19,859 19,627 Investment securities Total assets 29,159 29,148 29,088 28,718 Total current liabilities 3,092 3,065 3,065 3,065 Shareholder equity 7,596 7,011 7,946 9,091 Total liabilities and equity 29,159 29,148 29,088 28,718 Net debt 11,409 12,176 11,044 9,469 Per share 12/17A 12/18E 12/19E 12/20E No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Free cash flow per share Earnings 12/17A 12/18E 12/19E 12/20E Sales growth (%) EBIT growth (%) (17.5) (12.7) Net profit growth (%) 79.0 (69.1) EPS growth (%) 78.2 (68.3) EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Valuation 12/17A 12/18E 12/19E 12/20E EV/EBITDA (x) P/E (x) Returns 12/17A 12/18E 12/19E 12/20E ROIC (%) Gearing 12/17A 12/18E 12/19E 12/20E Net debt/equity (%) Quarterly EPS 2017A Q Q Q Q E E Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background MGM Resorts International, through its subsidiaries, owns and operates casino resorts. The Company operates in two segments: domestic resorts and MGM China. Blue/Grey Sky Scenario Our Blue Sky Scenario (US$) Our Blue Sky scenario of $39/sh assumes 12.0x Las Vegas EBITDAR, 9.5x Regional EBITDAR,13.0x Macau EBITDA, Japan project value at 50% probability, Potential Macau license payment, at 25% probability. Our Grey Sky Scenario (US$) Our Grey Sky scenario of $25/sh assumes 10.0x Las Vegas EBITDAR, 7.5x Regional EBITDAR,11.0x Macau EBITDA, no value for Japany, Potential Macau license payment, at 25% probability Share price performance O c t Ja n A p r Ju l M GM.N S& P IN D EX On 09-Aug-2018 the S&P 500 INDEX closed at Daily Aug10, Aug09, 2018, 08/10/17 = US$30.51 MGM Resorts International (MGM) 2

3 Table of Contents Key Charts 4 Executive Summary 5 Our Thesis 7 Summary...7 Business Description...7 Industry View...10 Las Vegas 10 MGM Strong Regional Assets 15 Macau Gaming Overcast, With Possible Rain 20 Strong Secular Story But a Powerful Cyclical Element With a Geopolitical and Policy Overlay 23 The Debate...24 Our Thesis...25 Growth Prospects...26 Catalysts...28 Valuation and Target Price 29 Risks to Our Rating and Target Price 33 HOLT and PEERS Analysis...37 MGM Resorts International (MGM) 3

4 Key Charts Figure 1: MGM Financial Summary 2017A 2018E 2019E 2020E Las Vegas 5,696 5,597 5,757 5,924 Regionals 2,696 2,881 3,401 3,476 Macau 1,919 2,631 3,399 3,571 Other Net Revenue 10,793 11,703 13,226 13,694 Growth 8% 13% 4% Las Vegas 1,780 1,651 1,811 1,893 Regionals Macau ,054 Other Property EBITDAR 3,214 3,278 3,904 4,104 Corporate (376) (433) (526) (550) Adjusted EBITDAR 2,837 2,844 3,378 3,554 Growth 0% 19% 5% Margin 26% 24% 26% 26% Memo: Cash Rent Operating Income 1,716 1,498 2,188 2,369 Net Income 1, ,132 1,271 Shares Out EPS $3.43 $1.09 $2.04 $2.29 Net Debt/EBITDA (LTM) 2.9 x 4.5 x 3.6 x 3.0 x Figure 2: Las Vegas Key Drivers Vegas is highly correlated with Lodging industry MGM RevPAR Growth vs US Upper Upscale Lodging Industry (Quarterly, y/y) 15% Upper Upscale Con-Agg Expo, Vegas Lodging Other 5% -5% -10% MGM Post recession break out growth year -15% lodging led by -30% Corr = 80%, 12 Hotel months R 2 = 63% -25% -50% Source: STR, Company Data, Credit Suisse Household net worth leads by 9 mths: 2003-today Household Net Worth vs LV Room TTM Revenues (9M Lag) (y/y) 30% LV TTM room revenues (9M lag) 20% (y/y) 10% 0% 30% 10% -10% Household and -20% R 2 nonprofit Net Worth = 71% (Quarterly) (y/y) -30% Figure 3: Vegas Supply/Demand Back in Balance Las Vegas Strip Supply Number of Hotel Rooms per Visitor : 1.5 hotel rooms per visitor, 12% above prior peak: recession coincided with substantial development (City Center, Encore, Palazzo) 2007 trough: 1.24 hotel rooms per visitor 2017: close to peak supplydemand balance at 1.28 hotel rooms per visitor: only 3% above 2007 trough Figure 4: Household Wealth Is Key Las Vegas Driver Household Net Worth vs LV Room TTM Revenues (9M Lag) (y/y) 30% LV TTM room revenues (9M lag) 20% (y/y) 10% 0% -10% Household and -20% R 2 nonprofit Net Worth = 71% (Quarterly) (y/y) -30% Figure 5: MGM s Rates 16% Below Lodging Industry MGM ADR vs US Upper Upscale ($, Qtly) Vegas ADR vs US Upper Upscale ($, T12M) 80 No discount in last boom Averaging 22% Averaging 30% discount 16% discount Averaged 45% discount at 34% 40 at trough last 2 years discount early peak of discount 2000s last boom last few 0 years Figure 6: Corporate Profits a Key Driver of Visitation Corporate Profits vs Las Vegas Convention Attendance (12M Lag) (qtly, y/y) 40% 30% 20% 10% 0% LV convention attendance Strong association in growth rates around inflection points 30% 20% 10% -10% -10% -20% Corp profits Correl = 60%, R 2 = 33% -20% -30% % MGM Resorts International (MGM) 4

5 Executive Summary Going Global: We are initiating coverage of MGM Resorts (MGM) with a Neutral rating and $31 target price (6% potential upside). MGM is one of the largest global gaming operators, with 63% of its value in Las Vegas and 29% in Macau. We like MGM s mix of domestic gaming exposure, and we like the dynamics of its markets. We see a good long-term outlook for the Vegas Strip and like its diversified revenue drivers, and healthy meeting and convention business. While total supply and demand is back in balance, we think competitors newly renovated assets are driving shadow supply growth and pressuring mid-market pricing. Regional markets are growing modestly, but growth is very defensive and supply growth is well anticipated. We are positive on the long-term outlook for Macau but think the next months could be volatile, given macro, geopolitical, and licensing risks. In our view, expectations are undemanding. While MGM is a consensus long on the sell side, we think investor views are more varied. MGM is currently trading at 9.9x EBITDA. Its 9.2% free cash flow yield is attractive, and we expect deleverage and capital returns over the next few years. Our $31 target price is based on our sum-of-the-parts, with 11x EBITDA on the Las Vegas assets, 8.5x EBITDA on Regionals, and 12x on Macau. Welcome to the Show : MGM is extremely well known to investors, having been listed for many years and completing several high profile acquisitions in the mid-2000s and a high-profile IPO/spin of its REIT, MGM Growth Properties (MGP), in MGM was close to bankruptcy in 2009 but has since deleveraged significantly from a combination of recapitalization, refinancing as rates have dropped, and earnings growth in the United States and Macau. MGM is one of the largest global gaming operators, with 12 properties on the Las Vegas Strip, seven properties in Regional markets, and two properties in Macau. The US represents 63% of value and Macau 29%. MGM is exploring a potential Japanese investment. MGM is the largest employer in the state of Nevada, and the second largest global owner of hotel rooms. MGM completed a wide-ranging efficiency program (the Profit Growth Plan) two years ago. Las Vegas -- Overshadowed by Shadow Supply: While there has been no supply growth for many years, and supply-demand balance in Las Vegas is back near 2007 levels, we think Las Vegas operators are facing shadow supply growth at the middle of the market as some operators are renovating and repositioning assets. This is putting downward pressure on mid-market rates, especially given strong price increases over the past few years. Beyond this, we think supply growth is reasonably limited, and we like the industry dynamics: a good long-term outlook for the Las Vegas Strip; diversified revenue drivers; and healthy corporate and meeting business. Las Vegas market growth is associated with growth in household wealth, the US lodging industry, and corporate profits. Las Vegas is still very good value compared with other lodging and convention destinations. Regional Gaming Steady as she Goes: We see defensive, domestic growth in Regional markets, with reasonably known supply growth. Regional revenues are growing at low-single digits, and margins are expanding as operators wind back promotions. Macau Overcast With Rain Possible: We are very positive on the long-term outlook for Macau, given its nascent development compared with Las Vegas and significant leverage to the long-term growth of Chinese wealth, outbound travel, and consumption. However, the market is historically cyclical, and the next months could be volatile, given macro, geopolitical, and licensing risks. Neutral Rating: We think MGM will likely perform in-line with peers, as we see positives and offsets as relatively balanced here. There are many things to like about MGM and its quality exposure to Las Vegas and Macau and improving cash flow position. Las Vegas has proven itself a key leisure and conference destination, with continued longer-term growth from growth in consumer travel spend and corporate profits growth. In the near term, we see MGM ceding some share, and MGM may be forced to increase reinvestment. In Macau, there is a compelling case for long-term growth and many MGM Resorts International (MGM) 5

6 credible, secular drivers. What we re not sure about is the shorter-term outlook and some of the medium-term risks and questions. Bottom line, we see an increased chance the cyclical story will take over in the short term but are not sure when. With MGM down 12% (vs SPX +6%) since late March and the stock currently trading at 9.9x 2019E EBITDA, a somewhat bearish outlook is already reflected in valuation. Valuation and Target Price: MGM currently trades at 9.9x 2019 EBITDA, slightly above its closest peers. We estimate it is trading at a relatively inexpensive 9.2% equity free cash flow yield. Our $31 target price is based on our sum-of-the-parts valuation, which is comprised of 11.0x Las Vegas EBITDAR, 8.5x Regional EBITDAR, 12.0x Macau EBITDAR, and option value for Japan. Key Risks: The Las Vegas Strip is highly cyclical and sensitive to the broader economy, supply growth on the Las Vegas Strip and key regional markets, and long-term demographics of regional gaming markets. Macau gaming is historically volatile and is very sensitive to the Chinese economy and macro and micro policy decisions. MGM s Macau licenses expire in MGM Resorts International (MGM) 6

7 Our Thesis Summary Going Global: We are initiating coverage of MGM Resorts (MGM) with a Neutral rating and $31 target price (6% potential upside). MGM is one of the largest global gaming operators, with 63% of value its value in Las Vegas and 29% in Macau. We like MGM s mix of domestic gaming exposure, and we like the dynamics of its markets. We see a good long-term outlook for the Vegas Strip and like its diversified revenue drivers, and healthy meeting and convention business. While total supply and demand is back in balance, we think competitors newly renovated assets are driving shadow supply growth and pressuring mid-market pricing. Regional markets are growing modestly, but growth is very defensive and supply growth is well anticipated. We are positive on the long-term outlook for Macau but think the next months could be volatile, given macro, geopolitical, and licensing risks. In our view, expectations are undemanding. While MGM is a consensus long on the sell side, we think investor views are more varied. MGM is currently trading at 9.9x EBITDA, slightly above peers. Its 9.2% free cash flow yield is attractive, and we expect deleverage and capital returns over the next few years. Our $31 target price is based on our sum-of-the-parts valuation, with 11x EBITDA on the Las Vegas assets, 8.5x EBITDA on Regionals, and 12x on Macau. Business Description Welcome to the Show : MGM is extremely well known to investors, having been listed for many years and completing several high profile acquisitions in the mid-2000s and a high profile IPO/spin of its REIT, MGM Growth Properties (MGP), in MGM was close to bankruptcy in 2009 but has since deleveraged significantly from a combination of recapitalization, refinancing as rates have dropped, and earnings growth in the United States and Macau. MGM is one of the largest global gaming operators, with 12 properties on the Las Vegas Strip, seven properties in Regional markets, and two properties in Macau. The US represents 63% of value and Macau 29%. MGM is exploring a potential Japanese investment. MGM is the largest employer in the state of Nevada and the second-largest global owner of hotel rooms. MGM completed a wide-ranging efficiency program (the Profit Growth Plan) two years ago. Las Vegas (58% of EBITDA): MGM is the dominant operator on the Las Vegas Strip, with most of the assets on the western side of Las Vegas Boulevard. MGM is the product of several mergers in the 2000s with Mirage Resorts, which brought Bellagio and the Mirage, and with Mandalay Bay Group, which brought Mandalay, Luxor, and Circus Circus into the group. MGM owns 50% of the City Center joint venture with Dubai World, which opened in December More recently, MGM developed the T Mobile Arena and Park entertainment district between New York New York and the former Monte Carlo. Regionals (25% of EBITDA): MGM s regional portfolio has meaningfully grown in the past few years. Most of its assets are the #1 or #2 asset in each market and generally more a destination than pure regional casino, with hotel rooms and other amenities. MGM has sold noncore regional assets over the past three years. Key regional assets include the recently developed MGM National Harbor, just outside Washington, D.C.; The Borgata in Atlantic City; MGM Grand Detroit; and Beau Rivage in Biloxi, Mississippi. MGM recently acquired the 50% of Borgata owned by its former JV partner, the Empire City Racino in Yonkers, New York, and announced a joint venture with GVC to pursue sports betting opportunities in the US. Macau (16% of EBITDA, 29% of Valuation): MGM owns 56% of MGM China (2282.HK, OP, covered by Kenneth Fong), which developed its first property on the Macau Peninsula, MGM Macau, and recently opened its new, $3bn resort, MGM Cotai. MGM was originally a 50% joint venture partner in MGM China with Pansy Ho, the chairperson of Shun Tak Holdings (242.HK) and daughter of Dr Stanley Ho. MGM China is consolidated within MGM s accounts. MGM Resorts International (MGM) 7

8 MGP: MGM restructured in 2016 and IPOd a dedicated gaming REIT, MGM Growth Properties (MGP, N). MGP is the owner of the real estate underneath most of MGM s assets, except for Bellagio, MGM Grand, Circus Circus, and MGM China. MGM owns 76% of MGP, and MGP is consolidated within MGM s accounts. While MGP has a separate board, it is a controlled company and several of its board members are senior MGM executives. MGP is a Triple-Net REIT and, since the IPO, has purchased the real estate behind MGM s National Harbor development and co-acquired the Borgata and Empire City. MGP has a right-of-first offer on the MGM Springfield development. MGP has used debt and shares issued back to MGM to finance its last few acquisitions. Development: MGM is currently developing the $1.1bn MGM Springfield, in Springfield, Massachusetts, which is due to open in late August MGM redeveloped the former Monte Carlo into Park MGM, opening recently. MGM is expected to develop on the Empire City site in New York and still has excess land holdings in Las Vegas. MGM is pursuing a gaming license in Japan, following legalization of gaming and recent passing of enabling legislation in the Japanese Diet. Leases: MGM s lease with MGP is a master lease under a Triple-Net structure, with its obligations guaranteed by MGM. Rent is mostly fixed, with 2% annual escalators and minimal performance rent. The lease has another 28 years to run (with extensions). MGP has the right-of-first-offer over MGM s Springfield development. Lease terms are summarized in Figure 7. Structure/Cash Flow: MGM s cash flow and debt are structured as follows: Las Vegas and Regional wholly owned, leased assets fully consolidated stream cash flow after rent to the parent; rental payments go to MGP Las Vegas wholly owned, nonleased assets fully consolidated stream cash flow to the parent; no rental payments MGM Resorts International - most of MGM s corporate debt sits at this level; if Macau, MGP and City Center are stripped out, we estimate leverage of 5.4x, excluding dividends from Macau and City Center MGM China streams biannual dividends to MGM, tax free, as well as a management fee of approximately $44mm p.a. MGM China is levered at [1.7]x Net Debt/EBITDA (2019E), and its debt is nonrecourse to the rest of the group. City Center 50% joint venture, streams dividends to MGM, share of EBIT included in MGM s Adjusted EBITDA MGP is consolidated, as MGM owns 76% so MGM s accounts will reflect only the minority s share of net income and dividends. MGP is levered at 5.4x and has its own debt and capital structure, though its debt and cash is consolidated on MGM s balance sheet. MGM Resorts International (MGM) 8

9 Figure 7: MGM: Assets MGM - Assets Las Vegas - Wholly Owned Regional - Wholly Owned MGM China - 55% Owned (consolidated) Bellagio Las Vegas, NV Owned National Harbor Oxon Hill, MD Leased MGM Macau Macau Peninsula, Macau Owned MGM Grand Las Vegas, NV Owned Borgata Atlantic City, NJ Leased MGM Cotai Cotai Strip, Macau Owned Circus Circus Las Vegas, NV Owned MGM Grand Detroit, MI Leased Mandalay Las Vegas, NV Leased Beau Rivage Biloxi, MS Leased City Center - 50% Owned (not consolidated) Mirage Las Vegas, NV Leased Gold Strike Tunica, MS Leased Aria Las Vegas, NV Owned Luxor Las Vegas, NV Leased Vdara Las Vegas, NV Owned NY NY Las Vegas, NV Leased Regional - Recently Acquired / Development Mandarin Oriental Las Vegas, NV Owned Excalibur Las Vegas, NV Leased Empire City Yonkers, NY Leased Luxor Las Vegas, NV Leased MGM Springfield Springfield, MA Leased ** International Development Park MGM Las Vegas, NV Leased MGM Japan The Park Las Vegas, NV Leased Figure 8: MGM: Material Lease Terms with MGP Master Lease In effect Leases Single master lease with MGM Acquisitions all wrapped into same lease Escalators All assets on the same schedule 2% on Base Rent Potentially second lease if OH operations sold to an external party Subject to test in 2022 Adjusted Net Revenue to Rent of 6.25:1.00 Term 10-year initial term 4 x 5-year renewals, at tenant s option 30 years total Contingent Rent Fixed amount for first 6 years (until 2022), then adjusted every 5 years Average annual net revenues x 1.4% Structure Fixed rent (subject to escalation), 90% of total Performance rent, 10% of total Triple Net tenant responsible for capex, FF&E, maintenance, utilities Guarantee Master Lease payments guaranteed by MGM Resorts International (MGM) Guarantee effectively secured by Bellagio and MGM Grand cash flow, and MGM China dividends and management fees $690mm Base Rent, 2018E Annual Fixed Rent $512mm: properties at IPO $93mm: Borgata Rental Reset Percentage Rent (10% of total) resets in Year 6 Base Rent not subject to reset $86mm: National Harbor MGM Resorts International (MGM) 9

10 Industry View Industry Initiation Slide Deck: Please see our initiation of the Gaming Industry and Large Cap US-Global Gaming, titled, Welcome to the Show: Initiating Coverage of the Gaming Industry. Las Vegas Overshadowed by Shadow Supply: While there has been no supply growth for many years, and supply-demand balance in Las Vegas is back near 2007 levels, we think Las Vegas operators are facing shadow supply growth at the middle of the market as some operators are renovating and repositioning assets. This is putting downward pressure on mid-market rates, especially given strong price increases over the past few years. While the Las Vegas market has been mixed in 2018 following the tragic events of October 1, 2017, it is still growing, and sadly, comps are now easier in 4Q 18 and All that said, we see Las Vegas as a long-term grower, given its exposure to global and domestic travel and leisure, its status as a key convention destination, and its proven ability to innovate and move with leisure trends. Las Vegas market growth is associated with growth in household wealth, the US lodging industry, and corporate profits. Las Vegas is still very good value compared with other lodging and convention destinations. MGM Is Reinvesting in Assets: MGM is reinvesting in assets across its portfolio. MGM just completed the $500mm remodel of the Monte Carlo into Park MGM and has several other projects in the pipeline. With competitors reinvesting in assets and MGM s maintenance capex below its prior peak, we d expect MGM to contemplate more serious repositioning projects, similar to Park MGM. In addition, it is very much worth noting MGM s investment in the T-Mobile Arena and The Park, which has created a vibrant entertainment center and very new experience for Vegas visitors (and many locals) that didn t exist four years ago. Figure 9: MGM: LV EBITDA and Margin Growth Figure 10: MGM: EBITDA and Margin Growth CZR LV EBITDA Gth (y/y) CZR LV EBITDA Margin Chg y/y (bps) MGM LV EBITDA Gth (y/y) MGM LV EBITDA Margin Chg y/y (bps) 20.0% % % % % 5.0% 0.0% -5.0% 3Q17 4Q17 1Q (100) (200) 10% 5% 0% -5% 3Q17 4Q17 1Q % (300) -10% % (400) -15% -400 Las Vegas Is a Long-Term Growth Market, in Our View: In the longer term, while Las Vegas and its high nongaming revenue base is cyclical, Las Vegas revenues are diverse, with gaming less than a third of revenues. Las Vegas benefits from minimal supply growth (beyond this year s shadow supply ), room rates that are still 30%+ below other gateway cities, and a critical mass of hotel rooms and entertainment amenities. Long-Term Evolution: In our view, Las Vegas is one of the most unique travel markets, given its evolution, quick adoption of trends, and leverage to global and domestic leisure and corporate travel. We expect global travel to continue growing, from which Las Vegas should continue to benefit. Whereas regional properties are still heavily driven by gaming revenues, Las Vegas has evolved over the past 25 years and gone through several distinct periods of growth. Vegas is now investing heavily in nongaming attractions such as a major arena and football stadium. MGM Resorts International (MGM) 10

11 Figure 11: Las Vegas Several Distinct Periods of Growth Las Vegas Strip Annual Net Revenues (Total and Hotel) (US$ billions, annual) s Development Era Development of iconic casinos and major innovations on Strip: Bellagio: 1998 Treasure Island: 1993 Forum Shoppes at Caesars: 1992 Luxor: 1993 Mandalay Bay: 1999 Early 2000s Convention Significant increase in convention visitation after opening of Venetian in 1999 Early 2000s economic and travel recession Mid 2000s Housing Bubble Market firing on all cylinders Significant M&A Major development plans formed Wynn opens Recession Supply overhang, with several openings Longer recovery time Financial distress Growth Almost no supply growth, though plans formed and some M&A Deleverage / recaps New non-gaming amenities Non-gaming model developed 2006/7: Prerecession peak at $13bn 2010: $3bn, 25% below prior peak 2010: $11bn, 14% below prior peak 2017: $5bn, 63% above trough 2017: $15bn, 40% above trough and 20% above prior peak 4-2 Hotel Revenues Total LV Strip Net Revenues Drivers Leading Las Vegas: Las Vegas market growth is associated with growth in household wealth, the US lodging industry, and corporate profits. Household wealth is strongly connected to equity and housing markets. Convention visitation is strongly associated with corporate profits. Figure 12: Las Vegas High Correlation with US Lodging Industry MGM RevPAR Growth vs US Upper Upscale Lodging Industry (Quarterly, y/y) 15% Upper Upscale Con-Agg Expo, Vegas Lodging Gaming Other 5% 30% 10% Figure 13: Household Wealth Has Been a Good Leading Indicator for Vegas Household Net Worth vs LV Room TTM Revenues (9M Lag) (y/y) 30% LV TTM room revenues (9M lag) 20% (y/y) 10% -5% -10% MGM Post recession break out growth year -15% lodging led by -30% Corr = 80%, 12 Hotel months R 2 = 63% -25% -50% Source: Company data, STR, Credit Suisse estimates. 0% -10% Household and -20% R 2 nonprofit Net Worth = 71% (Quarterly) (y/y) -30% MGM Resorts International (MGM) 11

12 Figure 14: Vegas Revenues High Correlation with Lodging Las Vegas Strip Lodging Revenues vs Upper Upscale Lodging LTM % yr/yr 30% 20% 10% 0% -10% Upper Upscale Lodging Las Vegas Strip Las Vegas outperformance -20% Corr = 90%, R 2 = 81% -30% Figure 15: Las Vegas Has Followed Lodging Industry from the Trough Las Vegas Strip Lodging Revs vs Upper Upscale Lodging -- % change from trough 70% 60% 50% 40% 30% 20% 10% Vegas: 2011 break out year, post recession, and Con-Agg Expo Vegas 60% above trough Lodging 66% above trough Vegas underperformance vs industry 0% Highly Cyclical: With gaming now representing only 28% of revenues, Las Vegas Strip revenues are very cyclical. Operating leverage is high, given extremely low taxes and high fixed operating costs. While we re seven years into the current recovery, we think Vegas market revenues can continue to grow by low-single digits provided we don t enter a recession. Shadow Supply: The supply-demand balance is favorable, with the ratio of hotel rooms to visitors almost back at the 2005 peak after a glut of supply that came online shortly after the recession. However, newly renovated room product from competitors is creating pricing pressure at the middle of the market. Figure 16: MGM: Historical Adjusted Cash Flow EBITDAR Plus Dividends less Annual Rent (US$bn) $0.7bn drop (-51%) $1.16bn increase (+177%) Figure 17: MGP/MGM: Historical Rental Coverage MGP Historical Rental Coverage (old definition) 4.5 x Old definition = wholly owned EBITDAR plus divs/distribs; New definition = 4.0 x consolidated EBITDAR less Minority share EBITDAR plus % share of JV EBITDAR 3.5 x 3.0 x 2.5 x 2.0 x 1.5 x 1.0 x 3.3x 1.9x 2.2x Including dividends and distributions from JVs and associates to MGM.US Excluding dividends and distributions to MGM.US x 3.0x Figure 18: Gaming Is Only 28% of Vegas Strip Revenue Currently Las Vegas Strip Revenues by Source (Gaming vs Non-Gaming) US$bn : Gaming = 53% of total Strip revenues 2017: Gaming = 28% of total Strip revenues Non-Gaming Revenues (8.3% CAGR since 1990) Gaming Revenues (4.0% CAGR since 1990) Figure 19: Las Vegas Strip Hotel Supply and Demand Balance Is Back at Prior Peak Levels Las Vegas Strip Supply Number of Hotel Rooms per Visitor : 1.5 hotel rooms per visitor, 12% above prior peak: recession coincided with substantial development (City Center, Encore, Palazzo) 2007 trough: 1.24 hotel rooms per visitor 2017: close to peak supplydemand balance at 1.28 hotel rooms per visitor: only 3% above 2007 trough MGM Resorts International (MGM) 12

13 Pricing Increased, But Hotel Rates Still Good Value: Certainly, Las Vegas resort fees have increased meaningfully since the recession, restaurant and drink prices have increased and are on par with other gateway cities in some cases (see our nonscientific NY-LA-Vegas restaurant price comparison in our initiation deck and in Figure 23), and supplemental charges (e.g., parking) are increasing. However, Vegas hotel rates are still good value compared with other gateway cities, with MGM s average daily rate (ADR) still 16% below the US industry average and Las Vegas s ADR still 2% below the 2007 peak, versus key gateway cities that are 26% above. Figure 20: Las Vegas Room Rates Discount to Major Cities Las Vegas ADR vs Key Gateway and Convention Cities (US$/night, 6MMA) $300 Vegas rates well below gateway cities $250 Vegas $200 $150 $100 $50 Vegas rates slightly ahead of Orlando and Atlanta $ Atlanta New York Orlando San Fran Figure 21: Las Vegas Rates Pacing Well Below Key Cities Lodging: ADR Today v 2007 Peak 35% 25% 15% 5% -5% Key US Lodging Markets 1 ADR RevPAR Supply 35% 25% 15% 5% -5% Las Vegas Vegas ADR is 2% below the 2007 peak, whereas major US cities are 26% above the 2007 peak ADR RevPAR Supply Source: STR, Company data, Credit Suisse estimates. Source: STR, Company data, Credit Suisse estimates. Figure 22: Resort Fees Have Increased Significantly Since 2015 Figure 23: Vegas Restaurants 4% More Expensive than New York and Los Angeles Daily Resort Fee ($) / % of 2017A ADR 40 30% 39 Gaming 25% 38 20% 37 15% % 34 5% 33 Hotel 0% MGM CZR LVS WYNN Avg Resort Fee Increase since 2015 ($) Other MGM CZR LVS WYNN Comparison of Restaurant Menu Prices for Restaurants with Las Vegas and New York and/or Los Angeles Locations (% difference Las Vegas / NY-LA) 1 10% 5% 0% On average, Vegas appetizer prices 9% higher than NYC or LA Overall Apps Salad Burger- Pizza On average, Vegas menu prices 4% higher than NYC or LA On average, Vegas burger and pizza prices 7% higher than NYC or LA Mains Seafood Note: (1) Comparison of the same menu items in both cities on each menu. Sample of casino operators, restaurants and dishes is broadly representative of dinner for two or three people. Sample of restaurants not exhaustive and excludes MGM as no menus with prices published. Seafood excludes raw seafood, as transportation costs for raw products much greater, in general. Strong Market Positioning: Las Vegas has a strong position with respect to both leisure and corporate travel. Las Vegas has the largest number of total hotel rooms of all major US convention and gateway cities. This is supported by strong infrastructure, a significant number and wide range of entertainment options, and plenty of airlift. We don t see AirBNB as a major issue for Las Vegas strip operators while we estimate AirBNB supply is growing at 85% y/y in Las Vegas, it represents less than 1.5% of total lodging supply. MGM Resorts International (MGM) 13

14 Figure 24: Vegas Room Rates Are Competitive vs Key Cities MGM ADR vs US Upper Upscale ($, Qtly) Vegas ADR vs US Upper Upscale ($, T12M) 80 No discount in last boom Averaging 22% Averaging 30% discount 16% discount Averaged 45% discount at 34% 40 at trough last 2 years discount early peak of discount 2000s last boom last few 0 years Figure 25: Las Vegas Has Critical Mass of Hotel Rooms Total Hotel Rooms in Major Convention and Gateway Cities ( 000) Las Vegas New York Orlando Los Angeles Atlanta Chicago San Francisco Boston Figure 26: AirBNB Supply Is Growing Strongly Off a Small Base in Las Vegas... Yr/Yr Growth in available room nights (entire place, normalized occupancy) 350% 300% 250% 200% 150% 100% 50% 0% Source: AirDNA, Credit Suisse Source: AirDNA, Company data, Credit Suisse estimates. AirBNB averaged 85% yr/yr supply growth in last year Figure 27:... But Is an Extremely Small Share of Lodging Supply Total AirBNB vs hotel rooms (in thousands, entire place, normalized occupancy, total = 151,000) Hotel Rooms AirBNB 2,000 (1.3%) 149,000 (98.7%) Economics of Las Vegas Properties: Gaming is now less than a third of Las Vegas Strip revenues, with Hotel rates being the largest contributor to revenues and gross profits. Gaming and Hotel rooms enjoy over 50% contribution margins, with 20% margins on food and about 40% on beverages. Slots represent the majority of gaming revenues. Labor represents over 40% of operating expenses. Figure 28: Gaming Is Only 28% of Vegas Revenue Currently Figure 29: Hotel Represents 40% of LV Strip Contribution 1 Revenues by Source (Gaming vs Non-Gaming) (2017A) US$bn Las Vegas Total = $15bn Gaming = 28% of total Gaming Other Macau Total = $33bn Gaming = 92% of total Hotel Food & Beverage MGM Resorts International (MGM) 14

15 Figure 30: Sources of Gaming and Comped Revenue Gaming Revenue by Type (US$bn) Slots Tables Poker Sports less: Comps Cash & Comp Revenues (US$bn) Hotel Food Beverage Other 16% of hotel revenue is comped Figure 31: Casino and Hotel Earn >50% Margins Contribution Margin by Department LV Strip Casinos (2017A) 80% 60% 40% 20% 0% -20% -40% Gaming Rooms Food Beverage Other SG&A EBITDA Figure 32: Combined Income Statement for Top 24 Properties on Las Vegas Strip (2017A, US$mm) INCOME STATEMENT SEGMENTS Revenue Gaming Food Other Gaming 4,171 28% Tables - Gross Rev 3,084 46% Cash Food Sales 2,192 Cash Sales 2,397 Rooms 4,647 31% Rebates (523) Comped Rooms 351 Comps 91 Food 2,544 17% Slots - Gross Rev 2,888 50% Net Revenues 2,544 Net Revenues 2,488 Beverage 1,177 8% Rebates (81) Other 2,315 16% Net Table & Slot Revenu 5,368 97% Cost of Sales 622 Cost of Sales 153 Total Net Revenue 14, % Poker 101 2% Payroll 1,171 Payroll 397 Sports 90 2% Other 238 Other 518 Contribution Net Casino Revenues 5, % Total Expenses 2,031 Total Expenses 1,067 Gaming 2,160 28% Comps (1,388) -25% Rooms 3,026 40% Net Revenues 4,171 Contribution - Food 513 Contribution - Other 1,421 Food 513 7% Margin 20% Margin 57% Beverage 476 6% Payroll 975 Other 1,421 19% Gaming Taxes 418 Beverages Total Contribution 7, % Preferred Guests 110 Cash Drink Sales 824 Contribution Margins Margin 51% Bad Debts 66 Comped Rooms 353 Gaming 52% Other 443 Net Revenues 1,177 Rooms 65% General & Admin Total Expenses 2,011 Food 20% Payroll 1,003 Cost of Sales 173 Beverage 40% Music & Entertainment 295 Contribution - Gaming 2,160 Payroll 263 Other 57% Energy & Utilities 229 Margin 52% Other 266 Total Contribution 51% Taxes (R/E & Other) 209 Total Expenses 701 Advertising & Promo 140 Hotel Other 1,890 Cash Room Sales 3,881 84% Contribution - Drinks 476 Total General & Admin 3,765 Comped Rooms % Margin 40% Net Revenues 4, % EBITDA 3,831 EXPENSES Margin 26% Payroll 1,002 Other 619 Departments 3,807 Music & Entertainment 295 3% Total Expenses 1,621 Corporate 1,003 Energy & Utilities 229 2% Payroll 4,810 43% Taxes (R/E & Other) 209 2% Contribution - Hotel 3,026 Cost of Food/Drink/Other 948 8% Advertising & Promo 140 1% Margin 65% Gaming Tax 418 4% Other 4,147 37% Total Opex 11, % MGM Strong Regional Assets Regionals Steady as She Goes: In general, regional casino revenues are quite defensive, given their local nature and heavy skew toward gaming revenues. In our view, regional casinos are much less cyclical than the Street believes. We estimate that true same-store, like-for-like regional casino revenues dropped 4% from peak to trough and have increased 6% from trough to current levels. In our view, the investor perception that regionals are cyclical stems from the unique circumstances of 2008 very significant industry supply growth, in particular. End Markets Are Defensive: In our view, regional gaming revenues are quite defensive, and we think the next recession will be nowhere near as severe as the last. There is a common misperception that the regional gaming industry is highly cyclical and therefore should be volatile through the next recession. We disagree, as we think this view unfairly extrapolates the experience of the 2008 recession but also confuses some industryspecific factors that were at work in the last recession such as extremely specific supply growth, leverage, and the subprime boom. MGM Resorts International (MGM) 15

16 Figure 33: True Same-Store Regional Gaming Revenues Are Very Defensive Core Same Store Commercial Gaming Revenues (US$bn, annual) peak: $18.0bn 2017: $18.3bn Figure 34: The Mid-2000s Heat Has Come Out of Gaming Revenues Total US Casino Gross Gaming Revenue as % of Nominal US GDP % 0.40% 2007 peak: 0.44% / GDP trough: $17.3bn Change in: Revenues: +$1.0bn Investment: +$1.7bn Peak to Trough: -3.9% 2017 vs Peak: +1.9% 2017 vs Trough: +6.0% CAGR: +0.7% % 0.20% Housing bubble: penetration increased from 0.38% to 0.44% of GDP 2017: 0.38% / GDP back at 2001/02 levels Secular growth of 0.10% gaming in 1990s with significant supply growth 0.00% Figure 35: Regional Gaming: 2008 vs Today Substantial supply growth Impact on listed companies Considerable leverage Vegas vs Regionals 2000s housing bubble Significant supply growth in regional markets over A lot of supply growth in high ROIC border and mono/oligo-poly markets = much higher impact Supply growth disproportionately and heavily impacted listed gaming companies Therefore, its negative impact received more attention than otherwise Significant financial leverage in listed companies (especially CZR and MGM) in 2008/9 Impaired reinvestment and potentially delayed market recovery Vegas much bigger skew to non-gaming than Regionals (70% of revenues vs 10%) Non-gaming revenues (especially hotel) much more volatile through recession Consumer excess and the housing bubble fueled industry revenues in Drove gaming revenues to 0.44% of GDP: have now settled back to 0.38% at levels Regionals Are Defensive but Not Bullet Proof: For some of the reasons set out in Figure 36, we note that while Regional gaming markets are relatively defensive and somewhat sticky through the cycle, they are not immune from other influences. Revenues dropped for many different reasons during the 2008 recession. It is entirely possible another recession, or the conditions leading up to it, undermine revenues. For example, during a recession, Regional casinos have fewer options to attract guests than Las Vegas in the past, this has led to irrational promotional activity. Supply growth could pick up in a recession, as governments may be more inclined to consider additional gaming proposals and/or more local, route gaming. Native American casinos may compete more aggressively in a recession, given their tax advantages. MGM Resorts International (MGM) 16

17 Figure 36: Regionals Are Defensive but Not Bullet Proof Gaming focused Mature industry Supply growth Native American Demographics Very high percentage of regional casino revenues from gaming Regional properties can t pull nearly as many levers as Vegas, without committing capital Industry is highly penetrated 90% of the US population lives within 1 hour of a casino Gaming legal in all but 7 states Casino supply growth really only an issue in the north-east Though, more states considering Route Gaming and could seriously consider in a recession Lower tax rates in some jurisdictions means a greater ability to promote during recession In a recession, some operators could switch more units to Class 2 devices with no taxes Casino customers average 55 years of age If a recession is associated with a major stock market and/or housing sell-off, could disproportionately hit customers near retirement Figure 37: Regional Gaming Revenues Are Heavily Skewed to Gaming Figure 38: US Gaming Industry Is Quite Mature PENN A Revenues (US$bn) % ERI A Revenues (US$bn) % 1.2 Adult US population (total = 252mm) Within 1 Hr of Casino 227mm (90%) US States (total = 50) With Legal Gaming Gaming Non Gaming Other Gaming Non Gaming Other Outside 1 Hr of Casino 25mm (10%) Without Legal Gaming Regional Markets Are Growing Modestly: Total domestic gaming revenues are growing above 3%, up from 2% a year earlier. Industry EBITDA is growing above this at around 7-8% as the industry is consolidating, operators are extracting efficiencies and finding better ways of managing their businesses, and a healthier consumer is enabling casinos to wind back promotional incentives. MGM Has Premier Assets in Many Regional Markets: MGM s Regional assets are the top properties in many of their submarkets. For example, Atlantic City has a mixed reputation, but the Borgata is by far the top property in the market, with a very strong local brand and physical asset and location in the Marina District, away from the Boardwalk. The Borgata has grown revenues and EBITDA as supply has contracted in Atlantic City, given its strong positioning. Likewise, MGM National Harbor is a top-tier asset, drawing from very affluent Washington, D.C. and northern Virginia and nearby Maryland counties. National MGM Resorts International (MGM) 17

18 Harbor is a mile from the 2,000 room Gaylord National, one of the country s top convention destinations. MGM Detroit is the clear #1 in a market that has proven to be relatively strong, with meaningful EBITDAR growth and an extremely high return on MGM s original investment. Beau Rivage is one of the premier assets on the Gulf Coast, having been developed by Steve Wynn in the 1990s. Gold Strike is a very nice asset in the relatively mature Tunica market. Figure 39: Gaming Revenues Have Grown at 2.5% CAGR Since 2009 Regional and Vegas gaming revenues ($bn) Regional gaming: 13.2% CAGR Gaming Regional Gaming $ Vegas Gaming $ Vegas Gaming % / Total 20% 20 Vegas Strip gaming revenues down 11% from 2007 peak Hotel - 0% % revenue CAGR Only 4.4% drop from peak 60% 40% Figure 40: Commercial v Native American Revenue Growth Commercial and Native Am Gaming Revenue Growth (% yr/yr) 8% 6% 4% 2% 0% -2% -4% -6% Native American Native Am gaming dropped only 1% in 09 and was flat in 10 Commercial Gaming Potential Supply Growth Is an Issue: There is potential supply growth in some of MGM s important markets. Generally, this supply is well known and flagged, and in several cases, we don t expect a major impact. Supply considerations include: Two new properties recently opened on the Atlantic City Boardwalk. While these properties are likely targeting younger and more affluent customers, it remains to be seen whether they and the Boardwalk will recover market share that was lost when the predecessors closed. Likewise, Showboat remains dormant and could potentially reopen at some point. Additional expansion in Philadelphia and Pennsylvania is unlikely to have a material impact on the Borgata. The expansion of route gaming in Pennsylvania doesn t target Borgata s core customer, but the opening of Philadelphia Live could have a marginal impact. Gaming expansion in Northern New Jersey has long been debated and failed in a 2016 ballot. In our view, and according to our contacts, it remains a meaningful medium-term risk and is relevant for both Borgata and the recent Empire City acquisition. In our view, if it ever happens, it could sap some demand from Borgata and Empire City from affluent mid- and northern New Jersey counties and Westchester County in New York. Moreover, if a Northern New Jersey casino were to happen, it is possible New York State awards the remaining, resort casino gaming license. The supply environment surrounding MGM Springfield remains extremely fluid. Mohegan and Foxwoods have attempted to develop a competing casino across the MA-CT border in nearby Windsor, Connecticut. The matter is being litigated and remains open for debate, in our view. Several of our key industry contacts have long maintained that gaming competition in central Connecticut/Hartford, Connecticut, was inevitable, and we understand several bidders for the Western Massachusetts gaming license built it into their bids. Foxwoods is opening a major new property in Biloxi, Mississippi, in mid With 1,560 gaming positions, this could affect Beau Rivage. MGM Resorts International (MGM) 18

19 A Native American tribe is exploring a potential casino in Richmond, Virginia, a minute drive south of National Harbor. This theoretically could have marginal impact on National Harbor, but the timeline for Native American approvals and projects is extensive. Virginia is in the process of approving video gaming machines, or VLTs, based on historical racing results. Machines will be located in off-track betting parlors, and towns with >120k people can apply for up to 700 machines. This could mean historical racing machines in Virginia are closer to Washington, D.C., and Maryland, than first expected, though we d probably expect fewer machines in affluent, northern counties. A video gaming facility is opening in New Kent, Virginia, in mid-2019, and could have a marginal impact on National Harbor (two hours drive-time away). Figure 41: Supply Growth Is Increasing in Figure 42: Continued proliferation of gaming US Casinos: Total Gaming Positions (MM) Growth in Total Positions (Y/Y) % 0.5% supply CAGR % forecast CAGR % supply growth % supply growth % of supply growth in next 3 years could impact major markets E 2020E 2.0% 1.0% 0.0% -1.0% Regional Gaming Revenues (US$ billions, annual) Las Vegas Gaming Revenues as % of Total Revenues 80 Regional Gaming $ Pennsylvania New York 2012 Massachusetts Ohio Louisiana Florida Maryland Indiana 30 Delaware 1999 Michigan New Mexico 2005 Maine Oklahoma Kansas Missouri West Virginia Source: Eilers & Krejcik, Company data, Credit Suisse estimates. Figure 43: Potential Supply Growth in the Northeast Rollout of Satellite Casinos Pennsylvania Potential expansion of Route Gaming VGTs 1 Historical horse racing machines (3,000 in state) 2 Virginia Potential tribal casino near Richmond, VA Figure 44: Major Project Openings Date Property City State Main Impact Positions 1Q 18 Four Winds S. Bend S. Bend IN BYD - Blue Chip 1,860 2Q 18 Hard Rock AC Atlantic City NJ 2,900 2Q 18 Ocean Resort Atlantic City NJ 1,600 3Q 18 MGM Springfield Springfield MA 3,600 3Q 18 Derby City Gaming Louisville KY 600 NJ / NY Massachusetts Northern New Jersey (failed on 2016 ballot) Final New York gaming license (Orange County) Mashpee Wampanoag Tribe - pending Fourth commercial license not awarded 2Q 19 Foxwoods Biloxi Biloxi MS BYD - Imperial Palace 1,560 MGM - Beau Rivage 2Q 19 Colonial Downs New Kent VA MGM - National Harbor 500 3Q 19 Encore Boston Everett MA PENN - Plainridge 4,100 4Q 19 Live Philadelphia Philadelphia PA 3,100 1Q 20 Little River Band Fruitport MI 1,910 4Q 20 Fox/Mohegan ** East Windsor CT MGM - Springfield 2,300 Note: (1) VGT = Video Gaming Terminal. Source: Press Reports, Eilers & Krejcik, Credit Suisse. ** Project not approved at this stage. Adoption of Route Gaming Remains Another Supply Risk: The state of Illinois rolled out route gaming in 2012, allowing local venues like bars and restaurants to host up to five gaming machines operated by a licensed distributor. Bottom line While the gaming expansion grew the total pie and government tax receipts, existing casinos were cannibalized as route gaming expanded. In our view, there are two catalysts for states to explore route gaming: fiscal and pension problems across a wide number of states and US gaming penetration being low by global standards. Pennsylvania, Indiana, and Missouri have examined the issue of route gaming. MGM Resorts International (MGM) 19