美高梅國際酒店集團 (MGM) 2002 Q2 法說會逐字稿

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question an answer session.

At that time, if you have a question, please press the 1 followed by the 4 on your telephone.

As a reminder, this conference is being recorded Tuesday, August 27, 2002.

I would now like to turn the conference over to Mr. Glenn Schaeffer, President and CFO of Mandalay Resort Group.

Please go ahead, sir.

Thank you, Operator.

Good afternoon.

We welcome to our second quarter conference call results for Mandalay Resort Group.

I have with me today Tony alamo Senior Vice President of operations who covers Mandalay Bay, Luxor and month car low and Les Martin, our chief accounting officer.

Before I begin with a review of the quarter, let me read the standard disclaimer that today we will make forward-looking statements within the meaning of the federal securities law including statements concerning new development projects and their anticipated opening dates and statements regarding the value of the company's shares.

These forward-looking statements involve risk and uncertainties which could cause actual results to differ materially from those expressed or implied in today's comments.

In this review, we will discuss our operating results for the second quarter and their components in line with expectations, Mandalay reported 51 cents on an operating basis in earnings per share, against 41 cents a year ago.

That's an increase of 24 percent.

Without the tax hike in Illinois, which affected our results at Grand Victoria in the quarter, our earnings would have been 53 cents a share.

Comparisons were aided in the quarter by fewer shares outstanding year-over-year and lower depreciation expense.

Our second topic today will be trends of business in the current quarter and, third, we will describe our program to vigorously repurchase shares under our current authorization of 7.7 million shares, or nearly 15 percent of our publicly traded float.

In the second quarter Mandalay continued to see a rebound on the Las Vegas trip and we are closing the gap in year over year rev par or revenue per available room.

We should be rev par positive in the third quarter on the Las Vegas trip.

Our cash flow and earnings are highly sensitive to rev par.

A star performer in the quarter was Mandalay bay, the resort generated 38.8 million in operating cash flow versus 33.3 in the same quarter last year.

And that's an increase of 23 percent.

This strong performance derived some real degree from a heightening of expense control in the wake of last year's events of 9/11.

At Luxor, we delivered 23.3 million in operating cash flow against $28.7 million.

I'll note that, you know, our second quarter compared to several of our competitors contains a July as opposed to an April -- July's a bit of a cover room rate month and they are in the segment which Luxor competes were some room rate war in the middle of the summer.

At Excalibur, we generated 22.4 million in operating cash flow against -- I'm sorry, 22.4 against last year's 23.3.

At Circus Circus, Las Vegas, we posted 18.1 million dollars in operating cash flow against 18.4 million in the second quarter last year.

And at Monte Carlo, which is 50 percent owned by Manhattan lay, we turned in -- Mandalay, we turned in 18 million against 21 million.

Overall for our five resorts on the Las Vegas strip, looking at operating cash flow, we were within 3 percent of the figure that we produced a year ago.

In August, we will be up in both the rev par and operating cash flow on our 5 properties on the Las Vegas strip.

And August last year was a strong month for this company.

The second quarter saw us again see some benefit of which I would say recuperation in our profits since 9/11 because where feasible we have protected rate integrity, given our sensitivity to rev par as a driver of earnings.

In the Midwest, the MotorCity casino in Detroit was another star in the quarter.

It's 53.5 percent owned by us.

Generated a substantial increase in operating cash flow against a year ago, $33.7 million versus 24.2 million.

That's an increase of 37 percent.

We continue to gain market share in slot machines and we're seeing double-digit increases year over year in that metric which is per unit per day.

The revenue line at Grand Vitoria in Elgin in the second quarter, it's 50 percent owned by us, remained as powerful as ever.

But as previously stated, there was a tax hike in the state to 50 percent of incremental casino revenue versus 35 percent over 200 million in casino revenue and that affected our results to the tune of 2 cents per share in the quarter.

The tax hike was effective July 1.

On an annual basis, we would estimate that the new tax rate in Illinois will amount to roundly 20 cents to our earnings as compared to the former tax rate.

Given our expectations for new projects, which is to say the convention center at Mandalay Bay and the new tower of suites next year, we don't believe that the Illinois tax rate will have any detectable effect on prevalent earnings per share estimates. for the quarter, our operating cash flow was $165.5 million.

This is total in the company, versus it's within 2 percent of what we produced a year ago.

And had there not been a tax hike in the state of Illinois, we would essentially have been flat in company EBITDA versus a solid quarter company EBITDA a year ago.

To catch up on the other fronts, in Tunica, Mississippi, the Gold Strike produced 7.2 million in operating income in the quarter against 7.4 last year.

And back here in Nevada, we have positive Laughlin comparisons, 5.7 million against 4.8 a year ago.

And in Reno we compared 13.6 million in operating cash flow against 15.5 million.

It's fair to say as we see trends developing for the third quarter that Mandalay is on a record pace for its operating cash flow in any single year at a clip that rivals what we would have produced last year had 9/11 not intervened.

We do believe that the prevalent earnings estimates for the third quarter, we are entirely comfortable with those estimates at this point in the game.

The first half of September will be challenging because we're lapping the 9/11 tragedy.

But thereafter, comparisons should prove pretty strong.

In light of the present trends and our belief in the ramp-up of our convention center at Mandalay Bay, and it opens next January, we remain recommitted to near-term share repurchase as a proven technique to return value to our shareholders.

Our current buyback authorization is 7.7 million shares, and we expect to aggressively repurchase that amount in a reasonable range relative to current market prices, but that would include over $30 a share.

Our publicly traded float is about 52 million shares, which is say if you take management's portion away and 3.6 million that we have on a forward equity purchase contract due next year, that is what trades and this a share repurchase represents roundly 15 percent of our publicly traded float.

Our free cash flow yield today is approximately 15 percent.

Take the free cash flow per share.

And if you look ahead and compared to today's price, and if you look ahead to our expectation, when the new convention center is online, plus the new Tower of Suites in Mandley bay in October of 2003, we believe that figure is set to go higher.

That we can borrow on our credit revolver at a net cost of 2 percent and invest at these levels of free cash flow yields should indicate our sound and value-enhancing approach to Capital Management at Mandalay Resort Group.

Our rates of return on invested capital and -- the ROIC in the gaming industry and in this company declined in the late '90s.

They are on the upcourse today and ours faster than most.

In fact, rising rates of return on invested capital in this company stand in contradistinction to most of what's going on the rest of corporate America.

The multiple on our stock is too low for a company whose plan of growth is as visible and rehearsed as ours is.

And we plan to act in the market with that in mind.

Put another way, the bubble stock market in America was to some extent represented by companies who issued a lot of paper, debt and equity, on businesses of intangible or overstated assets with fewer paying customers over time and beset by falling prices.

Our company by clear contrast has been shrinking its paper systematically during the great bear market, adding ever more price buildings with decades upon decades of future life ahead of them, attracting more customers today than we ever have before who pay the highest prices in our history.

For the coming few years, when our room prices can climb 6 or 7 or 8%, and this time talking about per annum on the last vague strip, and the new convention center will be a pivot in this formula, our earnings per share, other factors equal, can grow at twice that rate.

This is the outcome of operating profit leverage and our financial policy.

And that's a rare growth rate in the current corporate environment and always was.

We believe that we can generate earnings growth, sound, strong earnings growth, at lower financial risk than in any previous point in our company's history.

These earnings are cash, CEO Mike Ensign and I will confirm this company's last six quarters of financial reports without qualification on or before September 16th, which is the same date of our 10-Q filing for the second quarter and in compliance with the recent SEC order.

We have transformed our business model in a mere five years.

Another relatively scarce event in the corporate economy.

With the Mandalay Mile shaping into the world's largest integrated resort complex.

We are no longer the shot machine fend end company of a decade ago.

Our earnings and free cash flow arise today from our branded positioning as a multi-segment Operator of destination resorts.

Room rate which is the very place where prices can rise the fastest on the Las Vegas strip is the metric that most drives our earnings growth.

We own the most hotel rooms on the Las Vegas strip and as we migrate toward higher price segments, particularly the convention segment midweek, where we are still underrepresented, this will serve as fuel for our future performance.

Two more things.

The so-called domino theory of rising tax rates hasn't crept beyond Illinois or Indiana.

Typically, and Illinois is a holdout on this one, there is a form of claw back relief that comes with revised tax rates so the taxes are progressive, not punitive.

We just signed a go-ahead permanent agreement or will sign a go-ahead permanent agreement for MotorCity casino in Detroit, that's a major jurisdiction, and the one or two percent tax hike on casino revenues four years away is fair and progressive and will produce higher net earnings, will produce higher net earnings at that project, uhm, than ever under the new agreement.

And Nevada is not going to unilaterally raise its gaming taxes.

These are our growth jurisdictions.

The second point is that forward-lookings are shaping up with respect to our new convention center at Mandalay.

We have six, seven major shows during the first two months of the coming calendar year, January and February, that can count in the thousands of delegates.

Our policy is to make rental rates of our convention floor space attractive with first year concessions so long as there are commitments to multi-year room bookings and catering business.

Our target, a cash on cash rate of return, roundly 20 percent on this $235 million project and virtually all of that return derives from higher room rates and additional food and beverage revenue.

Typically, a large-scale convention complex is full when its utilization rate is near 60 percent.

Big shows take time to load in and load out and they don't book during the holiday seasons or midsummer.

We should be close to our plan in the first year of 40 percent utilization around then rise to 55 percent by year 3.

As previously noted, the cost of construction for the new convention center and the Tower of Suites at Mandalay Bay will be covered by our free cash flow in the course of the next 12-plus months.

So with that overview of results, direction, and financial policy, I would be happy to entertain questions.

Thank you, sir.

Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone.

You'll hear a three-tone prompt to acknowledge your request.

If your question has been answered and would you like to withdraw your question, please press the 1 followed by 3.

If you are using a speaker phone please lift your handset before entering your request.

One moment, please, for the first question.

Larry Clapkin with S.G.

Cowen, please proceed with your question.

I don't think I switched firms.

This is Jefferies & Company.

Hi, Larry.

The Mandalay, couple questions.

One, housekeeping, Cap Ex, cash and debt?

Cap Ex in the quarter, uhm, was 86 million.

That compares to 44 a year ago.

We spent 141 year to day.

And cash on hand and debt?

Cash on hand, $119 million and debts, 2.5 billion.

Could you just give an oug of what you think you might spend in timing over the rest of this year and next year?

What, on the project?

Yes.

Well, I mean, the convention center is 235 million.

We're getting into the biggest payment cycle now.

Because it will open first of January.

And we'll begin construction of the $250 million tower, 1125 suites, hospitality rooms, et cetera, in October and we'll open October of '03 so that if you look at our free cash flow from here to there, uhm, those two projects speak for it.

Okay.

Any indication Illinois about additional positions or a sunset?

Have you seen anything --

Not at the, Larry.

They are really going to have to take a look at the next full session of the legislature there which starts next spring.

Okay.

The other analysts are throwing out rumors of a Nevada tax increase.

I don't see it but could you respond to that?

As I said in my comments, here we have taxation with representation.

And we would be highly unlikely to see unilateral increase in the gaming tax in Nevada.

It's number one creator of jobs in the state, this industry.

How about a corporate tax increase?

Look, to sit and say what could they possibly do?

The fact of the matter is, uhm, gaming is highly represented in decisions with respect to what happens in the business economy in the state of Nevada.

So people who are still holding the theory that there is a rolling series of tax hikes in America for gaming companies, I don't think have the facts on their side.

Okay.

Last two questions.

One, out of the 7.7 million the buyback, how much have you done since June 30th?

We haven't bought since June 30th because following the SEC's order of June 27th, we were deemed to be in possession of material insider non-disclosed information until we file our certification.

So we have been out of the share repurchase business thanks to that particular order and we'll get back in as soon as we file the certification.

And you're doing that in September?

On or before the 16th of September.

Okay.

And then the last thing, just go over the room rate war were you talking about and has it ended at this point?

We are -- yes, as I said, August we're seeing positive rev par comparison by and large.

I think August will be a stronger month than anybody anticipated.

And there were some room rate wars during the little soft spell during June and July.

So not every month is better than the month before.

But directionally, positive.

All right.

Thank you very much.

The next question comes from Brian Egger with Credit Swiss First Boston.

Please proceed with your question.

I just wanted to ask you about, as you look at the fall convention season, obviously before your new convention facilities open, any commentary about what you're seeing in terms of bookings or, you know, attrition rates as you get closer?

And just as a follow-up to that, for the Mandalay Bay hotel, the all-suite hotel, have you given any thought or discussed at all concepts regarding branding for that project?

We are not seeing attrition to convention bookings in the fall.

So people at least to Las Vegas are keeping their appointments.

With respect to the name of the tower, it's not going to have an outside brand on it.

We will put a name on it.

We will operate it.

It will act or be like a hotel within a hotel you'll certainly have the sense of being in your own place, so it's not dissimilar to what we do at Four Seasons but it will be an internal brand.

Okay, thank you.

Next question comes from Harry Curtis with J.P. Morgan.

Please proceed with your question.

Hi, Harry.

Two quick questions.

Can you talk about the road construction in Detroit and whether or not it impacted your results?

And if it did, for how long do you expect that?

And the second question, more of a housekeeping nature, capitalized interest in the quarter versus last quarter and what you expect that to look like for the following two quarters?

We would not attribute our step-up in results in Detroit particularly in the slot machine realm as having anything to do with road construction.

This has been systemic.

You can see it month over month.

With respect to capitalized interest in the quarter, it was 3.2 million and last year, you know, essentially nothing and going forward, it's going to be a little higher in the next quarter.

Okay, thank you.

Our next question comes from Steven Kent with HRK capital.

Please proceed with your question.

It's Steve Kent with Goldman.

We are getting all kinds of allegations here today!

Go ahead, Steve.

Glenn, can you just review a little bit of how you are going to purchase all of these shares if your cash flow is going to cover your Cap Ex and you have to difficult into your -- dip into your credit facility, how far can you go on that and when will the banks and the credit agencies start to give you a harder time about it?

Well, the credit rating agencies have the rating on us for being the share repurchase business.

I don't want to disa-- I don't want to disappoint them.

The fact is that the incremental we'll call it somewhere, you know, in the 200s in terms of how much we'll -- we intend to spend on the share repurchase, we'll do that our revolving credit agreement when we have the room to do so.

Okay.

Thanks.

I mean, I will come back to that.

You know, if we can borrow as I said, our marginal borrowing rate on the revolver is about 3.5 percent.

By the time we pay -- government picks up 35 percent of the tax on the tax side.

It's about a 2 percent cost of capital for us and we think we're buying in at an asset that yields somewhere between 15 and 20 percent in cash.

That's pretty good in the real estate market.

Thanks.

Next question comes from David Liebowitz with Burnham.

Please proceed with your question.

Congratulations on a great quarter.

Thanks, David.

You indicated that Detroit and Nevada, specifically Las Vegas, are the growth engines going forward.

Yes.

Now, that, then, is saying that we would not go to a new venue were that to become available?

No, we didn't say that we don't know what those new jurisdictions will be so we'll be as aggressive as anybody if the economic model looked like it would work in a new jurisdiction, but we don't have any new jurisdictions at the moment.

What about internationally with your arrangement with Four Seasons?

We just haven't come across -- we have a right of first refusal and any -- on any casino opportunity, would utilize their brand anywhere in the world and just haven't found one that's big enough a prospect yet.

Okay.

And the last question, again, going back to the buyback, after you complete the current buyback, are there chances there might be a next round?

Yes, there is.

We're premature in announcing that but could there be a future repurchase authorization?

We'll see when we get there.

But that's been the history to date.

And you've always tried to reduce debt at a concomitant level with the shrinking of the equity base.

Is that going to continue to be the case based on the cash flow outlook you have given us?

Yes.

I think there will be some combination, clearly, because of the amount of free cash flow we'll be generating once the new tower of suites are open so our sense is that we'll continue as I said to shrink the paper and, uhm, if you look at, you know, 2, 3, 4 years out, I think our credit ratios would restore themselves to what's been typically great credit territory in this industry.

I apologize but one last thing , we look out three, four years that would probably be the time you would be announcing the last piece of construction on the Mandalay Mile, wouldn't it?

We have a great corner left on the Mandalay Mile so that is the final element but I can't tell what you date yet.

Okay.

Thank you again.

Sure, thanks, David.

The next question comes from David Anders with Merrill Lynch.

Please proceed with your question.

... from the increase in taxes, is that an accrual for the first half of the year with respect to Chicago?

Les Martin can answer the question.

Say it again?

Were you breaking in and out.

Les, could you just give us some color on the two cents add-back or hit you took basically associated with the taxes in Illinois?

Yeah.

I mean, basically, what we do is, you know, because the rate is graduated, we estimate what our total tax is going to be for the year and spread that over the course of the year and when the tax rate, the change hit effective July 1, we just simply redid it and adjusted the rate accordingly through the balance of the year.

Okay.

And with respect to the 10 cents disparity between kind of recurrent earnings per share and reported earnings, is it both the write-off in the an continuing I believe plus the preopening?

Is that correct?

Yes, and we have a non-cash mark-to-market from retirement investments.

The previous amount was from the write-off in casual costs in Detroit.

Right.

Okay.

Thank you.

The next question comes from Jeffery Longsden with Society General.

Please proceed with your question.

Great quarter, Glenn.

Thanks, Jeff.

Gee, I can just -- (indiscernible).

Well, maybe we should all just make these changes and, you know, sales forces wouldn't know the difference.

Sorry, friends.

Colleagues.

Competitors.

Uhm, I just want to make sure on the forwards contracts that I have kind of got the right concept.

You know, at the end of the quarter or during the quarter you had an average of 71.2 million shares outstanding.

Correct.

And the forwards contracts of between 5, 5.5 million right in that neighborhood of what you --

It's about 3.7 million shares.

3.7.

So that would be a reduction.

Yes.

-- from that 71.

And then also, then, your share repurchase of 7.7 million shares on top of that?

Right.

So that, uhm, you would end up with something when that's completed about 56, 57 million shares.

And is the forwards contract continuing to be rolled over into next year or is that it it?

The contract itself has a due date of March 29th next year.

I think our expectation is we'll just pay it off.

Okay.

Great.

Thanks.

The next question comes from Larry Haverty with State Street.

Please proceed with your question.

I'm a little confused on the timing of the share repurchase and the prices.

I thought I heard that you really can't do it until you file the certification.

That's true.

The certification is filed no later than --

No more than two weeks away.

Pardon? (indiscernible).

Next week and the week after.

Oh, okay.

And then, uhm, you know, I'm just a little curious.

Obviously, it would be nice do this at a lower price.

Why you're advertising --

... the earnings growth rate, probably not shared by the rest of the market.

We're not afraid to buy stock at $30.

With what we see with the convention center -- (overlapping speakers).

What if the market sends it up to 35?

We'll make a decision then.

We'll have some judgment reserved for market prices but we think that our companies distinctly under valued by comparisons in our own industry as well as across the American industry.

Obviously, you're not concerned about the credit agencies.

Do you have a stepup or a constraint on your credit agreement where you're limited to, you know, some kind of cash flow coverage of interest or other ratio --

Everybody has covenants and we have enough room, uhm, to execute the transaction we're talking about on our current covenants.

Without a step-up in LIBOR --

Believe me, Larry, 2 percent or 3 percent --

Oh, I know what the math is.

LIBOR has little to do with the destiny of the company.

We pay $175 over LIBOR.

But that wouldn't have -- go to 3 if you --

No.

No.

So it's 175 from now until the cows come home with this 7.7 at $30. [ Pause ]

Yeah.

That's good.

Okay, because I don't like pretend share repurchases.

And who has had less pretense about share repurchase than Mandalay Resort Group which on the pest of percentage basis -- (overlapping speakers).

On the New York Stock Exchange, during the years of the great bear market.

The whole Enterprise value of this company is, what, well, $4 billion or something or other?

I don't know.

Yeah.

It's kind of silly.

What the expectations are, what our customers are doing and where the multiple is, we think it's a mismatch.

Okay.

Great.

Thanks a lot, Glenn.

Thanks, Larry

The next question cops from John Loop with Credit Suisse First Boston.

Please proceed with your question.

Hey, Glen.

Hello, John.

Just a couple of quick ones.

You know, you talked about free cash flow yield of the company.

In that free cash flow, that's after maintenance Cap Ex, is that right?

Yes, it is.

And what's your --

You can figure for the next three years, somewhere between 60 to $80 million a year as maintenance Cap Ex.

60 to 80.

Okay.

And is that free cash flow figured too after cash taxes or before?

Taxes, debt service and maintenance service and Cap Ex.

After -- I have my own assumptions about that.

That's helpful.

You already mentioned that it sounds like you are going to just take out the forward equity contract in March of next year.

That's a good expectation.

And then, you know, Mandalay's numbers were up pretty significantly.

Did you play lucky at that resort in the quarter?

No.

I mean, we were within 100 basis points of the normive whole percentage.

Okay.

No problem.

And then, you know, you talked about rev par.

You know, you kind of -- I thought that the comments about rev par expectations were the -- for the third quarter coming up were kind of mild from you, just in light of obviously, you know, half of your quarter last year was post-9/11.

I think what I said was we had strong comparisons coming our way after the September 11 lull [ comparisons ] And this may be the month in August -- which was a strong month for us last year, we were seeing decided increases of upticks in rev par in our third quarter last year until September 11.

It looks like we're on track to probably nudge positive in rev par on a combined basis on our five resorts on the strip in August.

Okay.

And then kind of as a final just future development plans, do you guys plan to be one of the applicants for the remaining Illinois license?

What we know how to apply for it, the answer think it's a fair expectation.

Okay.

Thanks a lot.

Next question comes from Jake Hogan with Bank of America.

Please proceed with your question.

Hey, Glenn.

Hi, Jay.

Most of my questions have been answered.

I'm a little bit out of pocket today but to follow up on John's question on the whole percent with the rest of the Las Vegas strip pretty much in line with normal ranges, as well?

Yes.

Going to have -- in any material swing would you have, it would not affect the numbers to any extent at all it's going to happen at Mandalay bay.

The number in the quarters, guys, was 19.

And when we try reconcile July versus August, July actuals versus August expectations what were you down in terms of the rev par for the slip in July?

Why don't you call by after the call?

That's a lot of math to do in my head to separate one month out of the quarter.

All right.

I don't want to put you there you're obviously pretty upbeat about what you guys are doing, continuing to be -- your end of the strip.

Can you talk a little bit about your thoughts on what your competitors are doing and plan to capacity coming in the strip over the next couple of years and how that may or may not affect you?

I think we're in the best supply-to-demand relationship I have seen in a long time on the last vague strip.

You are not going to get a repeat of the last ten years [ Las Vegas strip ] The number of places you can build in Las Vegas strip are few.

We possess more than anybody else.

So some incremental new supply will be positive but you're not going to see -- remember, in a 4 1/2-year span in Las Vegas strip from '96 to 2000, you had a -- 50 percent increase of rooms on the strip.

You'll see single-digit low increase in new supply over the next five years whereas the demographic saying the traveling consumer of entertainment whose average age is 50 is the biggest bulge we have ever had.

So in terms of a pricing environment, I think it's a very positive outlook.

Which explains some of our, you know, project development that's going on and let me say for the prior question on July rev par, down 7 percent in the month of July on the strip.

Most of that at Luxor.

Okay.

All right.

Well, thanks again.

Yes.

Next question comes from Dennis with McDonald and company.

Please proceed with your question.

Good afternoon, guys.

Hi, Dennis.

I had a couple of jess -- just numerical question.

One, bee appreciation and amortization in the quarter.

In the quarter, Dennis, that number was approximately 42 million.

Okay.

So that it really hasn't changed.

Then I latest noticed, Glenn, that the other income was a charge of $2.1 million.

Yeah, that's the mark-to-market we took on portfolio of securities for retirement funding.

Was there a profit in the first quarter on that same --

A little bit, yeah.

It's going to be mark-to-market every quarter and the fluctuation shouldn't be very big even in tough market like this one.

Corporate expense in the quarter.

Corporate expense in the quarter was 5.8 million.

So that's 2.5 million below the first quarter.

Why the big difference?

I'll put Les Martin on.

We just had some miscellaneous adjustments you may recall from the first quarter call, catch up some accruals and that on the corporate level in the first quarter.

The 5.86 million is the more normal --

Yeah.

Normal run rate would probably be about 24 a year.

Yeah, it's around 6.

Very good.

Thanks a lot.

Once again, ladies and gentlemen, to register a question please press the 1 followed by the 4 on your telephone.

David Anders, please proceed with your follow-up question.

Hey, Glenn, conceptually, I know the convention center was going to drive rates at Mandalay and Luxor.

Yes.

As you bring the tower on, though, do you start soaking up some of that excess demand and those rates return to more normalized levels while you fill up the tower, or you're convinced you have excess demand for both tower --

The to your is 1125 all suites.

So that was sort of the piece of the product portfolio we didn't have.

And so town [INAUDIBLE] a competitor, most like what the venetian sells.

Though we'll have bigger room with sort of club concept we have there, we think it will be the best value going on the Las Vegas strip.

Remember, that as we put more conventioneers in the tower of suites as well as at Mandalay, and you are replacing largely wholesale business, then you are able to yield up on your free and independent travel segment.

So you -- that combination of things is what drives your average rate up.

Okay.

Thank you.

Once again, ladies and gentlemen, to register a question, please press the 1 followed by the 4 on your telephone.

There are no further questions at this time.

Please proceed with your presentation or any closing remarks.

Thank you very much.

Both Les Martin and I would be available for any further questions after we hang up.

We appreciate it.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.