Las Vegas Sun

March 29, 2024

Room rates, occupancy drive Mandalay earnings

Mandalay Resort Group continued riding high on a wave of powerful Las Vegas performances in its fiscal fourth quarter, posting better than five times the net income than in the prior year's quarter, the Strip giant reported Thursday.

Mandalay reported net income of $22.8 million, or 35 cents per share, for the quarter ended Jan. 31, up from $4.2 million, or 6 cents per share, in the same quarter a year ago. Mandalay stock was up $2.25, or 4 percent, at $55.01 in afternoon trading.

Improved cash flow numbers at each of its Las Vegas resorts -- and a 19 percent increase overall -- drove Mandalay's earnings. Chief Financial Officer Glenn Schaeffer attributed the improved cash flow to the pricing power of the company's Strip hotel rooms as he discussed the performance on a Thursday afternoon conference call with analysts and investors.

About 75 percent of Mandalay's profit come from the resurgent Strip market, he said.

"We've broken away from our pack of competitors in Las Vegas," Schaeffer said, noting that the fourth quarter represented the company's strongest quarter versus year-ago quarter comparison since Mandalay's initial public offering.

Deutsche Banc casino equity analyst Marc Falcone said Mandalay's business model is different from its competitors, and is one of the best stories in the Las Vegas casino business.

"They're most focused on returning free cash flow to investors, and they've been the leaders in shifting focus to hotel operations from gaming operations," Falcone said.

Schaeffer said the company definitely won't begin building this year "Project Z," the long-awaited new megaresort planned for the northwestern corner of the intersection of Russell Road and Las Vegas Boulevard, and may not begin the project next year.

Instead, the company plans to plow its hundreds of millions in free cash flow into paying dividends to shareholders, buying back stock and retiring debt, Schaeffer said.

"The most successful purchase anyone's made has been our share repurchase of 51 million shares at $22," Schaeffer said in an interview today.

Mandalay's fourth-quarter revenue jumped 11 percent to $604.1 million from $544.2 million, while costs and expenses grew by 9.4 percent to $522.3 million from $477.3 million.

The company's 12-month numbers for the period ending Jan. 31 include a revenue increase to $2.49 billion from $2.35 billion and a cost and expense increase to $2.07 billion from $1.98 billion.

Mandalay Resort Group's Strip hotel rooms are its prime profit center, Schaeffer said.

"It's pretty much the power of REVPAR (revenue per available room) that's driving this company's earnings," Schaeffer said, noting that the metric, which measures the combination of two related variables, room prices and occupancy rates, was up 22 percent at Mandalay's Strip properties for the quarter.

And the free cash flow Mandalay Resort's hotel rooms and other revenue drivers will throw off will be amazing, Schaeffer said, anticipating $700 million in free cash flow by the end of January 2006.

Schaeffer defined free cash flow as "capital generated by the business that doesn't have to be reinvested in the business."

With its convention center open for more than a year and its new The Hotel all-suite tower already generating strong room rates, flagship property Mandalay Bay is poised to continue improving its performance, he said.

Mandalay Bay reported fourth-quarter cash flow of $36.7 million, up from $29.7 million, and fiscal-year-end cash flow of $175.7 million, up from $146.5 million.

Mandalay Bay's 12-month room occupancy was 86.3 percent compared with 80.1 percent, and its average daily room rate for the same period jumped to $160.79 from $137.13.

In its first full month of operation, The Hotel at Mandalay Bay reported an average daily rate of $250, occupancy of 80 percent and REVPAR of $200, Schaeffer said.

The company's other Las Vegas properties were also significant contributors to the positive quarter, he said.

"Luxor was a prime factor in our (year-over-year) performance," Schaeffer said, noting the pyramid-shaped resort's 12-month cash flow jump to $121.7 million from $105.4 million. Fourth-quarter Luxor cash flow increased to $28.1 million from $22.6 million.

Luxor's 12-month hotel occupancy rate was 85.2 percent, up from 83.5 percent, and its average daily room rate was $105, up from $95. REVPAR was $90, up from $79.

Excalibur -- "Still and always a castle," Schaeffer said -- also reported solid quarterly and 12-month increases in cash flow and hotel room rates and occupancy.

Excalibur fourth-quarter cash flow was $20.9 million, up from $15.5 million, while 12-month cash flow was $96.8 million, up from $83 million.

Excalibur rooms were 90.9 percent occupied during the 12 months ended Jan. 31, up from 89.5 percent in the prior year. Room rates improved to $76 from $69, while REVPAR increased to $69 from $61.

Even the company's former flagship, Circus Circus, reported increases in cash flow, room rates and REVPAR for both the quarter and year.

The company operates the Monte Carlo on behalf of its co-owner MGM MIRAGE, and the joint-venture reported increases in quarterly and fiscal-year-end cash flow, room rates and REVPAR.

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