Las Vegas Sun

September 17, 2019

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Circus Circus holders clear name change

Circus Circus Enterprises Inc. shareholders approved changing the company's name to Mandalay Resort Group Thursday and gave a warm response to an upbeat address about future growth prospects.

Beginning Monday shares of the Las Vegas-based company will begin trading on the New York Stock Exchange under the symbol MBG. On Thursday the stock closed at $22.1875, up $1.25 or 6 percent, in heavy trading.

Perhaps because of a 300 percent stock price increase since last summer, this year's annual meeting had none of the fireworks and tumult of past Circus meetings.

Several hundred Mandalay Resort shareholders filed calmly into a ballroom at the company's new Mandalay Bay hotel-casino and voted down two proxy proposals submitted by disgruntled stockholders.

One would have required a majority of the board be comprised of outside directors, the other would have required annual elections of the entire board.

Mandalay Resort Group President Glenn Schaeffer said that with the bulk of its major capital-spending on new facilities behind it, the company will shift its focus to capturing a bigger share of Baby Boomer recreational spending. "This is a marketing industry, and we will be a marketing company," he said.

For most of its history, the old Circus Circus was a construction/casino company, building properties in Las Vegas themed around circus acts, ancient Egypt, mythical castles and the like, filling them with traditional slot machines and table games, and counting on novel architecture and inexpensive food and entertainment to attract customers.

And for most of its history, Circus found that the concept worked. It spent little on marketing, lost money on food, offered cheap entertainment and drew hordes of low- and middle-income gamblers, most of them parents of its new target market.

But the company's strategic focus began shifting a few years ago as Schaeffer and other top executives studied the demographics of the post-World War II generation of Americans -- a populous group with bursting wallets and a thirst for new and exciting experiences.

Like its new name, Mandalay Resort Group's new focus reflects an awareness of the competition for those customers, not just from casino operators, but from theme parks, adventure-travel operators, entertainment companies and the like. And it set about to make its newest, most ambitious project ever an attraction able to compete at all levels.

With its $1 billion Mandalay Bay now open, renovations and expansions at other resorts completed and its temporary Detroit casino venture gearing up for a September opening, the company is now concentrating on building customer loyalty, using free cash flow to enhance shareholder value and positioning itself for the next wave of Las Vegas resort building.

Wall Street paid little heed when executives trumpeted the company's strategy over the past two years, and fears about hotel-room oversupply depressed the market for casino stocks. Circus was one of the hardest hit, falling to the $7 range at one point last year.

But, as Schaeffer told the shareholders Thursday, "Visitor counts to Las Vegas have gone up 50 of the past 52 years." And with 19,000 hotel rooms in the market, the company stands to gain from further visitor increases.

To make sure it does, Mandalay Resort Group looks upon total spending per occupied room as more important that casino win per occupied room, the old standard that made loss leaders of non-casino amenities. And it will begin a customer loyalty program that will award its most worthwhile customers.

So far, that program is working. Two years ago, the Luxor had a 15 percent repeat-customer rate, he said. "We'll go above 50 percent this year."

Generating repeat business is an important element of the overall strategy because of the targeted customer groups' spending patterns.

"About 55 percent of a customer's budget is spent where he or she sleeps," Schaeffer said. "Our goal is to increase that, to capture more of the customer's budget."

It's doing so by offering the upscale restaurants, retail shopping and entertainment amenities Baby Boomers demand and are willing to pay for, he said. This year, for example, the company's losses on food will drop to just $3 million to $4 million from $24 million a few years ago.

Mandalay Resort Group executives also want to make sure investors understand the power of free cash flow. Schaeffer said free cash flow represents about 50 percent to 55 percent of Mandalay Resort Group's earnings before interest, taxes, depreciation and amortization.

"Wall Street hasn't believed in free cash flow because we were doing so much building," Schaeffer said. The construction caused the company's debt to peak at $2.7 billion last January, and much of the cash flow has been used to pay that down.

"But we think we can produce about $4 per share of free cash flow annually over the next several years," Schaeffer said.

Properly valued, he said, the company's stock should trade at a multiple of 10 to 12 times free cash flow.

Some of that money will be used to buy back shares as the stock price dips, Schaeffer said. Some will be used to build a $65 million, 24-story, 320-unit time-share complex between Mandalay Bay and I-15.

And, when the time is right, some will be used on two construction projects -- a 3,000-room resort next to Mandalay Bay and a resort complex on 500 acres at Bay St. Louis in Southern Mississippi.