美高梅國際酒店集團 (MGM) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the third quarter earnings conference call.

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

Afterwards we will conduct a question-and-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 today, December 3rd, 2003.

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

Please go ahead, sir.

Thank you, operator.

Good afternoon and welcome to Mandalay Resort Group's third quarter conference call for our period ended October 31st, 2003.

Accompanying me on this call today will be Les Martin, our Chief Accounting Officer and Treasurer, and Yvette Landau, our Corporate Counsel.

Les and Yvette are situated state side in Las Vegas while I'm calling this report from Melton, New Zealand.

I happened to suffer a ruptured appendix here last weekend, and I'm pretty [Inaudible] is my immediate return there are mixed views on these affairs, but I couldn't think of a better way to spend my first day out of the physical ward.

Number one good news.

Let me begin with the usual disclaimer.

Information that we provide during this call may include forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 of amended and Section 21-E of the Securities Exchange Act of 1934 as amended.

They can be identified by the fact that they do not relate strictly to historical or current facts.

Our forward-looking statements will be based on our current expectations about future events and may include statements related to: The Hotel, our new 1122-suite tower at Mandalay Bay scheduled to open December 17th and the expected impact;

Mandalay Place, our new retail center, which is the bridge that connects Mandalay Bay and Luxor and the expected impact;

The status of the development of our casino in Detroit; expectations regarding room rates, occupancy levels, or RevPAR; anticipated financing transactions; anticipated capital spending levels; the potential impact of additional competition; the potential impact of changes in gaming or other taxes; estimates with respect to our future income taxes, future share repurchase activity, and expected levels of depreciation, operating lease rent, interest expense, or capitalized interest.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements.

Information concerning factors that could affect our future financial results is included under the caption factors that may affect our future results in Form 10-K, which we filed for the year ended January 31, 2003.

We do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

However, any further disclosures made on related subjects in our subsequent filings with the SEC should be consulted.

Let me also note that in accordance with the new SEC regulation, Mandalay has provided in its press release a supplemental schedule that reconciles operating cash flow as we use it in the press release with GAAP-defined operating income and net income.

Our third quarter stands out as not only a record performance for any similar period in our company's history but as comprehensibly superior a three-month performance as we have ever recorded.

And I've been CFO here for nearly 20 years.

Our company's operational tactics of emphasizing RevPAR as a prime driver of earning power has run us away from the path of our competition.

This has been nothing less than a reinvention of our company over the past five years.

On the same basis that Mandalay generated a 50 cents per share on an operating basis a year ago, we achieved 66 cents in the third quarter, up 30%.

This is the same-store sales growth that is beyond the levering factor of our new convention center at Mandalay Bay alone, while that new project is matching the results we predicted when it opened and will do so again next year, accounting for 40% of our room nights at Mandalay Bay itself that does not explain, for example, the profit advances of Excalibur, Monte Carlo, or even Circus Circus.

More on these in a moment.

There is not another sizable hospitality company in the country that is growing its RevPAR in its core operations at a composite rate of almost 20%.

In the third quarter our RevPAR growth was double that of our next competitor in class on the Las Vegas strip as well.

We achieved our highest third quarter RevPAR ever in Las Vegas, and they are higher than they would have been if 9/11 had not occurred at all in the third quarter of 2001.

What's exceptional about RevPAR at this stage of our industry's lifecycle, is that it's the metric, when properly managed that is most profitably expressed.

That is, our profit leverage on additional dollar and RevPAR can amount to as high as 90%.

Mandalay owns twice as many rooms as it does slot machines, and that's a fortunate fact in that the latter product is destined to no better in our view over the long term than the inflation rate is slightly better in growth.

Everybody and an Indian has got a slot machine.

Rooms on the Las Vegas strip are another matter altogether.

There can only be a finite number of high quality rooms in the premier locations along the Las Vegas strip, it's only three miles long, itself an international brand for destination entertainment, impossible to be replicated and laden with pricing power.

Room prices on the strip are staunchly and upwardly biased historically and they are pretty immune to economic [Inaudible] they base network television [Inaudible] about the Las Vegas strip, not slot machines but indian reservations.

Mandalay's profit mix is now slanted 75% to the Las Vegas strip, which is to say that the product we own the most of is the most susceptible to the fastest pricing increases at the highest incremental profit margins in our industry.

This will be a repeatable performance.

There is no fluke involved.

If you believe there's much else like it in the American consumer sector where any pricing power at all is scarce, point it out to us.

At the second quarter call, we indicated that in the following 12 months Mandalay could, if the world stays right with us, produce in the vicinity of $5 per share in free cash flow.

In the world that stays right we predict today that Mandalay will exceed that figure.

We pay dividends from free cash flow, and our Board of Directors yesterday declared another 2-cent hike in the quarterly payout to 27 cents.

Our dividend policy is free form.

Other than to say that with free cash flow from the [Inaudible] and the large-scale capital projects out of the way for a couple of years, Mandalay intends to be a prominent figure in the dividend space as compared to other consumer companies.

Over a five-year period, looking out, it's fair to believe that this company's balance sheet or capital employment in the business will shrink as our dividend payouts rise and most importantly, as our profits steadily increase at above-normal rates.

That's typically been a formula deserving of multiple expansion, particularly from where our shares trade today.

Now for the results themselves.

We grew RevPAR 19% on the Las Vegas strip in the third quarter, and it was pretty evenly distributed across our five resorts.

Mandalay Bay, fueled by the instant acceptance of our new convention center led the pack at 22%.

That property reported almost $45 million in operating cash flow against $38 million a year ago, an increase of 18%.

At Luxor, we generated a RevPAR up-tick of 17% and a surge in operating cash flow to $31.5 million over $25.2 million last year.

When Luxor's average room rate gets to $115, it was $106 in the third quarter, that property will earn $135 million in operating cash flow, and that figure is coming into view.

Excalibur is 13 years old.

It's the same theme, no new initials, same plan as that plan, but it's in the right neighborhood as the entry point on our Mandalay Mile.

Here we posted a 17% up-tick in RevPAR third quarter and the highest third quarter room rates in that property's history.

There is not a comparable performance for a mid-level mature property elsewhere on the Las Vegas strip.

Excalibur posted a 36% increase in operating cash flow in the quarter to $26 million.

Going forward, Excalibur could well exceed $100 million in operating cash flow over the next 12 months, up from $83 million a year ago.

Monte Carlo, for its part, produced a 21% RevPAR increase and a 28% increase in operating cash flow, to $24 million, while Circus Circus-Las Vegas, not in the City's most inviting neighborhood, posted a 10% increase in RevPAR and an 18% climb in operating cash flow to approximately $16 million.

On other fronts, we declined in the aggregate as to operating cash flow in our ancillary Nevada markets to the extent of approximately $5 million.

Outside Nevada, we ran basically flat in casino revenues, the Grand Victoria in Elgin, Illinois, but the 70% marginal tax rate on those revenues instituted this year cut our operating cash flow to the tune of about 4 cents per share to our third quarter earnings at Mandalay Resort Group.

We staged a come-back in Tunica with the Gold Strike posting a 10% increase in operating cash flow to $7.8 million, on an up-tick in casino revenue of 9%.

And in Detroit, MotorCity Casino put up a 2% increase in operating cash flow posting $32.5 million against $31.8 million a year ago.

We concluded the quarter with $3 billion long-term debt.

That's a peak level.

While Mandalay has slashed more than 130 basis points off the blended cost of our corporate debt since last summer.

Our blended cost of debt today is about 6.4%, the lowest figure in the company's entire history.

It's a right expectation to think that debt levels will gradually fall as our cash-base profits again sustainably climb.

Within two years, other factors equal, our credit ratios, particularly interest coverage, will be superior to any other time during the last decade, part of which period we were investment grade.

The Hotel, our 1122-room all-suite product at Mandalay Bay will open in two weeks, and it will be full during its first full month of January 2004.

It was delivered on schedule and on budget.

And we opened Mandalay Place, the retail bridge that connects Mandalay Bay to Luxor in October, and its full compliment of boutique stores will be in operation during the course of this month.

One of Mandalay Place's premier attributes has been and will be the facilitation of cross-flow foot traffic between our two largest profit-making resorts.

So with that overview of results and prospects, Les and I would be happy to entertain questions.

And if I can interject for just a second, this is Les, I just wanted to clarify one thing Glenn said, our EPS, excluding nonrecurring items, is 66 cents.

I think, Glenn, you had indicated maybe 65 cents, but it actually comes in at 66 cents.

I've got it wrong again, Les.

Operator?

Yes.

Does anybody have a question?

We will go to questions now.

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

You will hear a 3-tone prompt to acknowledge your request.

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

If you are using a speakerphone, please lift your handset before entering your request.

One moment, please, for the first question.

Our first question comes from the line of Lawrence Klatzkin with Jefferies & Company.

Please proceed with your question.

Hey, Glenn.

Hello, Larry.

Couple of questions.

First of all, how is November treating you?

Sounds like it's treating you very well, but December, can you just talk a little bit more?

This is not fluke momentum.

This is the way it's going to be for a period of time.

There's a strong demand for Las Vegas strip, and what we've seen so far in the fourth quarter would not be any different than what we saw in the third.

Okay.

Could you do some housekeeping, capitalize interest, CAP expense, and CAP expense going forward, total debt, total cash?

Les?

Yeah, I'll try and get all those for you, Larry.

Capitalized interest in the quarter was $3.1 million.

D&A in the quarter was $49.8 million.

The cash balance at the end of the quarter was $170 million.

Corporate expense was $7.9 million.

The capital spending during the quarter was $108 million.

Most of that, of course, related to the all-suites tower.

And I think for the year we're still on course for $350 million in total CAP spending.

That's excluding the leases that we took back on our balance sheet.

And debt at the end of the quarter?

I'm sorry?

Total debt?

Total debt was a little over $3 billion.

$3.024 billion.

Okay.

And can you guys talk about CAPEX for the next year?

I would tell you, Larry, it would be in the range of $70 million.

Really.

Okay.

Can you talk about, they're talking about, I guess, a smoking ban in Ontario which would affect your competitor.

What could that mean to your property if it passes and what's the status of that?

I think anybody who is spending time in a casino sees some correlation between smoking and gambling, so it should only have a positive effect if you were taking that as your anecdotal evidence.

And as far as what you're doing for the poor man at this point with this and the details of the settlement with the Indian tribe.

Yvette, why don't you describe the settlement.

Each of Greektown and MotorCity has agreed to pay to the Lac Vieux tribe approximately $40 million in various stage payments over the next 27 years.

The settlement has been submitted to the Court for approval and the District Court judge has given us a notice of his intent to approve the settlement.

Within a short period of time we will be submitting that to the U.S.

Court of Appeals for the 6th Circuit for their approval.

The 6th Circuit can either act on that settlement immediately or it can wait until it hears the underlying case, because, as you know, MGM, the city, and Lac Vieux have not yet come to any agreement on settlement.

They could wait and hear the underlying case and give us a decision at that time, so we really don't have a good idea of when the Court will act.

We have asked the Court to lift the injunction that presently prevents us from beginning construction of our permanent casino, and we intend to go forward with that permanent casino as soon as that injunction is lifted.

Is it possible if that was lifted right away you guys could be open by the Super Bowl or is that going to be tough?

It will be tight, but it's possible.

That will be partnership level debt, it won't be our corporate debt.

Okay.

How about your room rate for the new tower?

What are you opening up at a room rate?

We believe that over, I don't know what the opening day will be, but if you look over the course of the first full year, we believe that we'll exceed $225 for room rates.

Last question, scientific games, your deal on the instant lottery and with Mandalay rooms, can you give it away?

How does that work, and what kind of benefit do you see?

You're asking me an awfully micro question, Larry.

I'll come back to you on that one.

All right.

That's it.

Thank you.

Our next question comes from the line of Joe Greff with Fulcrum.

Please proceed.

Hey, everyone.

Quick question for you.

Your casino revenues, and I don't mean to have this question sound negative, but the casino revenues weren't up nearly as much as sort of the net revenue number.

Was there a difference in the growth rate between the slot side and the table side?

Well, slots are going to do a little better.

I can see that in Excalibur's number, which has one of the stronger comparisons, but overall, the casino revenues probably go a little better than inflation.

The total revenue, whether it's getting the growth today, more The Hotel side of the business.

I mean, it's quite fortunate, because we've got a lot more rooms than we have slot machines.

Especially on the Las Vegas strip, where prices rise the most.

The right way to understand this company's profit growth going forward is the thing that produces the most profit in terms of the growth equation, from here on out, which is RevPAR.

Okay.

And did you actually say what RevPAR was up in November, in the first question?

Yeah, it was up double digits.

No, I didn't, but it was up double digits in the month of November.

Gotcha.

And my next question, this isn't really a big driver, but can you just talk about what kind of revenues and cash flows you would get next fiscal year from the convention space that you gave away for free for the guys in year one for the multiyear deals?

I think that that number, Joe, will be $5 or 6 million.

From a revenue or EBITDA perspective?

It's going to go pretty close to the bottom line.

Okay.

That's going to go to EBITDA.

Gotcha.

I know it's early on, but have you seen traffic flow increase meaningfully from the new Mandalay Place?

Yes.

In terms of the cross-traffic, it means that much more for Luxor, which is the next natural property for the destination customer at Mandalay Bay to go to, and now they have an easy avenue to use.

Okay.

So that's going to help Luxor's number on a percentage basis even more than Mandalay Bay's.

And then what's your sense of how the Las Vegas strip does on New Year's Eve?

We'll have strong New Year's in comparison to over the past several years.

Advance reservations are up and room prices are up.

Stronger than last year.

Okay.

Yes.

With respect to Luxor, you guys had incremental revenues of about $6 million and had incremental operating cash flow of about $6 million, pretty good flow-through.

Can you just talk about the cost structure there, and then kind of as you look forward.

We're pretty good on the cost management side, so there's some of that going on, both the reason the profits are growing at the clip they are, just the old fashion reason of top line growth.

Gotcha.

We manage well enough on the cost side that sometimes it looks like we've got more than 100%.

Gotcha.

Great.

Thanks guys.

Thank you.

Our next question comes from the line of Harry Curtis with J.P. Morgan.

Please proceed with your question.

Thank you.

Hi, guys.

Glenn, you mentioned that there wasn't going to be a whole lot of meaningful CAPEX for the next two years.

I guess I want to hear that again.

And secondly, can you give us some sense of what the cost is going to look like to build out the permanent casino in Detroit and a little more detail on the timing of that, please?

Well, let me start with the last first, which is, explain, assuming we have a court decision to lift the injunction for the permanent construction, we're going to go forward.

Okay.

And is there an estimated time on when the Court is supposed to respond?

That's up to the Court, not us, Harry.

And the estimated build, just the time frame on that?

Our schedule is just under 24 months, so assuming that we were able to start soon and the weather cooperates, we'd be done in time for the Super Bowl.

Okay.

And going back to the first question, Glenn, what I was after is, do you have any plans to build Project ZQ-14-5 in Vegas anytime soon?

I don't think we would be in a construction mode there any earlier than the middle or latter part of 2005.

That's great.

Thank you.

Thank you.

Our next question comes from the line of Joyce Minor with Lehman Brothers.

Please proceed with your question.

Hi, guys.

Glenn, when we compare kind of the RevPAR performance that you saw in third quarter to what we might expect for fourth quarter, should we expect that fourth quarter could be as robust, or do you expect that sort of the easy comparison September, or maybe sort of seasonally slower trends in fourth quarter might not equal that number?

It's hard to say at this point because we don't have that much in the bag yet.

If November isn't any different than we've been seeing, so it will be certainly in the teens.

Okay.

And then just a follow-up question on Detroit.

Should we expect any construction disruption there since you're expanding the existing property?

It would not have any material effect on the result by the way we're going into construction.

What time period would you expect sort of the greatest chunk of disruption, if there is any, to occur?

Typically most of your construction, in terms of what goes on, comes in the last third of the project time.

Okay.

And then as we start to kind of model out to '05 and think about the outlook for '05, when you think about the Mandalay property and you think about any impact that the Wynn property might have on table play would you expect that that's offset by the continuing ramp up of the convention center or any thoughts from your perspective on '05 and the impact of Wynn?

We can hardly wait for Wynn to open his resort.

There's never been an instance when Steve Wynn has opened a resort that room rates didn't pop on the Las Vegas strip.

So that will actually give us more pricing power than we have to date because he will be the top-priced major resort on the strip.

As to the high-budget customer, which is going to be so central to the results at the Wynn, we're about 10% of that market, I think we'll beat 10% of that market because we're Mandalay Bay, so we see it as a net positive when he opens that resort.

You don't expect any impact on table play?

I think we're going to have 10% of table game play either way.

We're not going to go after 15 or 20% of it.

It's a pretty good challenge.

Typically, I see where you're going with this.

Typically when you open the grand new resorts, new buildings don't automatically create more high-budget Chinese players, but we have our loyalists, and even in a market where there may be some market share swapping, we don't think we will be one of the victimized.

Okay.

So you would not expect to guide down '05 numbers versus '04 at the Mandalay property a year from now?

Mandalay Bay will have an outstanding year because of the RevPAR impact which will be positive.

Thank you.

Thank you.

Ladies and gentlemen, as a reminder, to register for a question, please press the 1 followed by the 4.

Our next question comes from the line of J. Cogan with Banc of America Securities.

Please proceed with your question.

Hey, Glenn.

A few questions in regards to The Hotel.

Yes.

In regards to occupancy, Glenn, you said you were going to be full in your first full month in January.

That's generally a strong month on the Las Vegas for our company.

I'm sorry, didn't hear that.

We'll have a record January in January 2004 in the history of this corporation.

Gotcha.

And as we move, I guess what I'm wondering, as we move into February and March I'm just trying to get a sense, obviously January sounds like a very fast ramp in occupancies, I'm kind of curious where you think occupancies might trend in the first quarter for the full year relative to where the existing Mandalay rooms are trending right now.

We normally run between 90/92% occupancy as we move the rate up.

I don't think probably far away from that.

So you're saying basically --

So it's in the high 80's.

Gotcha.

So you expect occupancies to be at least flat or better for next year for the entire property?

Yeah.

This is an expansion project and there's a demand, and a pent-up demand, for the type of product that The Hotel is.

There aren't any rooms like this in Las Vegas.

This is an extra long room.

This is a 750-square-foot suite where you can close the door in the bedroom, and a lot of you on this call have seen these rooms.

This isn't the Mandalay Bay baked over.

This is our next version, which is sort of minimal, black and white, they are reminiscent of the most contemporary hotels being built anywhere in the world today, and our convention customers are going to be very desirous of this room because you have a working station in it.

You have ergonomically correct chairs, tap lighting, high-speed Internet access, wet bar, the ability to conference in your suite, and so mid-week, we believe that will be the most desirable product on the strip, and on the weekends it has all the extras for sort of the Angelino crowd.

In regards to what the tower is going to mean to the rest of the facility, I'm wondering roughly what this 20-some-percent increase in capacity is going to mean in the growth of gaming revenues do you think for the property and maybe for Luxor and for the other aspects of the facility.

I think, J., it's going to grow the casino revenue.

One thing we discovered this year, and we didn't predict this, is our slots are actually up from where they were a year ago, that's where we're going to finish, despite the fact that we have some more conventioneers not noted for the time they spend in the casino, which goes to the point that the higher the value of the customer room, the better it is for the whole property.

And so certainly where The Hotel is located, which, as you know, is by where the theatre is at Mandalay Bay, that is the underutilized portion of our casino.

Between the walk traffic we're now cross-flowing between Luxor and Mandalay to go through that part of the casino and the opening of The Hotel, we're going to put life into the one underperforming sector of that casino.

Finally, you sound as bullish as ever in regards to what this hotel is going to mean to your overall cash flow results.

I'm wondering if you can talk about where your expectations are right now in regards to return on this overall $500 million-plus capital project between that, the convention center, and the retail project.

Well, as you've heard me say before, in the old days, from the senior management team, we had come up with the idea of spending $500 million and not adding a single gaming device to the company, it would have been a very popular decision.

I think what we can see today, is that within the three-year maturing period, which is to say the opening of the convention center through, we'll call it the year 2005, calendar year, and where we will be with The Hotel by that year, and where room rates should be, that we're going to be -- I think it's fair to say we will be certainly through 15% on our way to a 20% cash-on-cash return.

Great.

Thanks a lot.

Thank you.

Our next question comes from the line of David Anders with Merrill Lynch.

Please proceed with your question.

Great.

Actually three questions.

First, Glenn, can you comment on, was there any difference between your midweek growth in RevPAR and your weekend growth in RevPAR?

Then, Les, if you can comment on, I have about $390 million in combined D&A and interest expense for next year.

Is that in the ballpark?

Lastly, if you talk about how the bookings at The Hotel were, if I call Mandalay Bay central res, can I book into The Hotel, or how is that being marketed?

From the standpoint of how the RevPAR increase is spread, it's pretty evenly across midweeks and weekends.

Les, can you take part two?

I'm sorry?

Yes.

Yeah, as far as the D&A and combined D&A and interest, you're in the ballpark there for sure.

Okay.

You can call for reservations to The Hotel.

Recognize that The Hotel, though, acts as if it's a hotel within a hotel, with its own check-in, check-out, valet services, the concierge services.

The fact is, for many of the conventioneers, the most difficult or awkward part of a trip is checking into, let's say a four or five thousand room hotel because the line is going to be long.

This is a quicker service, higher-quotient service product than our competitors generally have.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Kent Green with Boston American Asset Management.

Please proceed with your question.

Great quarter, Glenn, fellows.

My question pertains to the convention business looking forward.

I know that's been a bright spot, and is that still picking up steam?

It will.

I mean, while the convention business across America was probably still slumpish this year, it was not in Las Vegas.

Las Vegas is winning the convention market in terms of gaining share.

In our instance, the overwhelming majority of conventions we book this year and next year, we're not trading places with someone else in Las Vegas, we are taking shows and are often in the first visit to Las Vegas, not always, but often in the first visit to Las Vegas from other convention cities where we have competitive advantage, and those cities would be Phoenix and Dallas and Houston and New Orleans.

They don't have all of the amenities and conveniences and the very important factor of centrality of location that we offer at the Mandalay Mile.

So no one else in the convention business is going to be able to build what we've done in the Mandalay Mile, so we think you can expect continuation of what you've seen.

Then a question on dividend policy going forward.

Do you really plan on, say, increasing the dividend just once a year?

Because I know you've been espousing dividends, and I can see it in the common stocks, it's been very beneficial to the performance.

Yes, I mean, we have a belief in this company, I don't think it would be denied, that some portion of our [Inaudible] expansion this year came from the inauguration of the dividend.

As I indicated earlier, I think it's too soon to say we have a hard and fast policy what we're going to do.

Certainly since the announcement or institution of our dividend back in June, we have been in the top quentile of different layers in the consumer space in America.

I think we intend to be and will certainly have the wherewithal to be a leader in the dividend space.

Historically, it's not been a lot of innovation in the dividend space because that isn't what you got paid for in the 1980s and 1990s, but the fact is if you look over 100 years of stock market history, if you separate dividend and dividend growth and shareholder returns generally [Inaudible], but if you looked although just as the assets, you're better off holding bonds.

We want to make sure our investors are better off owning the stock.

Thank you.

Thank you.

Our next question comes from the line of Jeff Logsdon with Harris Nesbitt.

Please proceed with your question.

Glenn, sorry to hear.

Hope your health returns quickly.

It's coming up fast.

Can you talk a little bit about Illinois, the settlement that appears to be just about done relative to Emerald and whether you really think the governor there is going to let you guys recapture some dollars that are being paid in taxes?

Wouldn't that be terrific.

If, in fact, there is suddenly a sunset clause to the fairly userous tax rate, entirely userous tax rate on casino revenues I think it's without question that there has been leakage of casino revenues from Illinois to Indiana since the rise in tax rate in the state of Illinois, so the lack of [Inaudible] to some degree alive and well, and we're hopeful but I can't predict.

Great.

Thanks.

Thank you.

Our next question comes from the line of Todd Scott with Morgan Stanley.

Please proceed with your question.

Afternoon, guys.

Two questions.

Looking at Mandalay Bay and just doing some quick math, it looks like other revenue, excluding room and casino, is up about 6 to 7%, and last quarter is up 35%.

Can you talk about that a little bit?

Is that just seasonality in the convention business?

Les?

ell, yeah, I think that's just an outgrowth of the convention business in terms of all the revenue centers are being benefited by it, and the retail area and entertainment clearly are participating in that.

Food and beverage, too.

One thing that happens with the convention business is you get so much catering, we have never been what you consider a host site for large-scale conventions.

That's very important in food and beverage because the highest margin in food and beverage, and it's a serious margin, comes from catering it comes with those shows, and we're getting that business this year and we didn't get it before.

Okay.

And then just kind of, can you give an approximate percentage break-out on the room nights occupied by wholesale, FIT and convention in 3Q last year?

Just trying to understand how much of the RevPAR growth is the mix shift continuing.

As I said earlier, it's not just one thing.

At Mandalay Bay, certainly the RevPAR numbers are being driven by the convention center.

To some degree they're being driven the same way at Luxor, but you're also getting a higher quality F IT customer and higher quality wholesale customer going to Luxor if they want to be in the Mandalay Mile because it is the best product available if the Mandalay Bay is otherwise occupied by conventioneers.

Most compellingly, Excalibur, which is not a convention-destination property, is going to get higher convention occupancy than it's had in the past, but that's not the reason that Excalibur is on the tear that it is.

It's because throughout the operation of the company across the board, we emphasize, and we manage for RevPAR.

I don't believe our competitors do that.

And our hotel managers are expected to yield-manage, and it takes some nerve.

You have to bite your lip.

The fact of the matter is, it's probably because of the Internet and the improvement in technology, even with a strong demand for the market, and in the old days I would have said, after two months, booking visibility, one-month booking visibility in a lot of your rooms, and sometimes the majority of the rooms we sell are inside a two-week period.

The easiest thing for a company to do is to give up somewhere, say we're scared, and hand off their inventory to wholesalers.

We don't do that and it's very telling in our profit story right now.

Thanks, guys.

Thank you.

Ladies and gentlemen, as a reminder, to register a question please press the 1 followed by the 4.

Our next question comes from the line of Tak Chung with Searchlight Capital.

Please proceed with your question.

Hey, guys, great quarter.

Couple of things.

In terms of Detroit, can you tell us what you expect the CAPEX to be?

Les, you want to go through that?

Sorry?

I think what we said before, Tak, is $275 million is the budget.

We haven't waivered from that.

Okay.

So just in terms of the CAPEX plans for next year, potentially, it could be the $70 million plus.

It's not our money.

That's going to come off the partnership level, and that will most likely be done with an expanded revolver and free cash flow there.

If you're analyzing for our free cash flow number, the correct CAPEX number to use next year is $70 million.

And let me just clarify, this is Les, I mean, you're right, Tak, if you are pulling the numbers off of our cash flow statement, because Detroit is consolidated, that's going to be part of that number there, but Glenn is absolutely right, it's not coming off our balance sheet.

Okay.

Right.

And a question regarding your free cash.

I'm just looking at your net-debt number.

It looks like that's down about $20 million, and I guess if I add, perhaps, $14 million or so for dividends, would that put your free cash at about $30 million or so for the quarter?

Am I doing my math right?

No.

Our free cash flow -- well, we had some capital projects with finishing The Hotel, which is a big part of that, but on the going-forward basis, if you looked over the next 12 months and you're estimating free cash flow, to go through $5 a share you have to have $325 million of free cash flow.

So, I mean, free cash flow on a quarterly basis, as we step forward, is going to be closer to the $75 to $100 million per quarter range.

Right.

But in the current quarter, it's only about $30 million or so.

Is that right?

I'm just trying to get a handle on that.

Tak, you're pretty close there, because, you're right, if you take the $167 million that we announce and you back off the cap spending for the quarter and the dividend, you're pretty close to that number.

Okay.

And just one last question, regarding RevPAR.

The comparison is a little bit more difficult in the January quarter.

I guess I'm just trying to understand in terms of the RevPAR growth, should we expect a number that's closer to the low teens?

[Inaudible] when you have a booking window that's often two or three weeks, you should expect that it's going to be in the teens in the fourth quarter.

I can't tell you within a digit where it's going to be.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from the line of Bradley Kane with Seneca Capital Management.

Please proceed with your question.

Thank you.

Glenn, can you talk a little bit about the other Nevada properties and whether at some point it makes sense to exit those markets?

If you'd like to make us a bid that's high enough.

Those are free cash flow producers to us.

When you look at the amount of our corporate cash flow that they represent, it's about 8%.

Whatever happens in the State of California is not going to be a linear process of the Indians becoming ever and ever larger.

So I think that, from where we stand today, while we don't have any expectations for growth there, that we're in a pretty good position, there will be some preservation [ph] from here.

Okay.

Thanks.

Thank you.

Our next question comes from the line of Robin Farley with UBS.

Please proceed with your question.

Great.

Thanks.

I've got two questions.

One is, the big increase in RevPAR here, mostly driven by recovery, I guess, versus 9/11, since last year's third quarter RevPAR was relatively flat with the prior year, would you expect the same rate of year-over-year increase next year or are you expecting the comparisons to plateau next year?

Well, Robin, these are, we are the first company to do this probably in America in hospitality.

If you went back to 9/11/01 and the rate of growth we were experiencing then and we would have had our record RevPAR for any third quarter in that quarter, these numbers are better than we would have gotten if 9/11 had never happened.

But I don't think there's a right expectation going forward, I think we're going to get 20% RevPAR growth in our core operation on the strip infinitely, but typically you see RevPAR go up on the Las Vegas strip 5% a year, almost no matter what.

I think over a long period of time, we will beat whatever that average is by two or three hundred basis points.

And when you say that you returned to the growth rate that you had before 9/11, the rate that you would have had, is that counting --

Like 9/11 never happened.

But what about the convention center spending and the new hotel tower?

Are you factoring that into what your --.

The numbers we just reported.

These are better third quarter RevPARs than we would have gotten in 2001 if 9/11 had never happened.

But with the spending factored in, per se.

What spending?

For the convention center.

The convention center didn't have much to do with Excalibur, Monte Carlo, or Circus Circus.

Including displacing guests from Luxor?

They don't go down to Circus Circus from Luxor.

This is across the mix of our properties, and the reason, it's basically change, and a fairly inventive one, in operational tactics.

It is not one time, it's not based on what went wrong when.

This is really a better look at what the future is going to bring.

And we're not going to get 20% growth [Inaudible], we didn't get the growth, and you had to step back after 9/11, but we are on a higher quotient track today than we've ever been at this period.

So you're saying Excalibur doesn't benefit from Luxor being full?

Okay.

And then the other question is regarding special dividend, at one point, I think two or three months ago you talked about the possibility of a special dividend.

I was asked about whether we would ever consider a special dividend, and it's too soon to say, given the amount of free cash flow we have.

We really have three uses for free cash flow.

Dividend, share repurchase, and debt reduction.

I think it's fair to presume that all three would be in the mix, but for the moment, certainly the market responds well to dividend, so we're figuring that pretty hard.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from the line of Daniel Davila with Stern E. Agie [ph].

Please proceed with your question.

[Laughter] That's okay.

[Inaudible].

Oh, man.

I hope you feel better.

Right.

Actually, you just answered my question.

But if you could, rank for us how you feel about paying a dividend, of buying back stock or paying down debt, if you could rank those for us.

Let me say right now you've probably ranked them, Danny.

Certainly we're not in a huge hurry.

The debt we can pay down would be on the bank revolver, which today is, I guess around the 3% money, and the government takes 35% of it, so paying down 2% money just doesn't seem like the most profitable action in the interest of our shareholders.

Okay.

Thanks, Glenn.

Thank you.

Our next question comes from the line of Joe Greff with Fulcrum.

I think my follow-up was answered, but, Glenn, are you seeing any widening of FIT booking windows?

I think I said earlier, Joe, but I think as we see our business, that probably because of the improvement in technology, meaning mostly Internet, that people are going to book a shorter window than they did in the past, and it takes a little more nerve on the part of our people in the hotel side in managing their inventory but they're exhibiting that nerve and getting the results.

Great.

Thanks.

Thank you.

Our next question comes from the line of David Anders with Merrill Lynch.

Please proceed with your question.

Hey, Les.

Housekeeping item.

Tax rate for next year, should we be using 35% or 36% for GAAP, and for cash taxes what are we looking at?

Next year is probably, 36% is probably a decent run rate for next year.

The cash tax, it's hard to project, because as you read in the release, we're going to get some benefit that will carry over actually into next year as well, so give me a call on that.

I haven't really worked up anything in terms of the cash impact for next year.

Got it.

Thanks.

Thank you.

Our next question comes from the line of Robin Farley with UBS.

Please proceed with your question.

Just to follow up, I think someone earlier had asked about the break-down of FIT versus convention and other segments versus last year and I don't know if you gave that.

Robin, you'd have to do it property by property.

I mean, at Mandalay next year, 40% of our room nights are going to be sold to the convention market, so we're going to book 30% or 40%.

Probably at full gait in the calendar year 2005 will be 45% of our room nights at Mandalay Bay alone sold to the convention market, which means it's pretty much sold out to conventioneers at midweek.

What happens at Luxor is you'll go from 8 to probably 12 or 13, 14 or 15% of room nights sold to the convention market but you're getting a higher quality, and that's what you're going to get at that property, a higher paying customer both FIT as well as wholesale.

You've upgraded your wholesale customers because there's no rooms for the wholesalers they fit Mandalay.

Next year if we have more than 3% of our rooms at Mandalay Bay sold to wholesalers that would surprise me.

And so you get sort of an improvement in the quality of the customer occupying your rooms across Mandalay Bay, and certainly the convention center gave us that ability by positioning Mandalay Bay so strongly in the convention market itself.

But again, if you're looking at Monte Carlo or Circus Circus, they are not on Mandalay Mile, and they're achieving these results doing what they've been doing, but they are managing that room inventory with a little bit more nerve than I think a number of our competitors are.

Would you care to give the Excalibur the third quarter actual mix versus last year?

Not off the top of my head, but Les could find that number for you.

Okay.

Great.

Thank you.

Mr. Schaeffer, there are no further questions at this time.

I will now turn the call back to you.

Please continue with your presentation or closing remarks.

Well, thank you very much for tuning in.

I will be hard to find over here, but Les will be in the office and available for any follow-up questions.

Thank you very much.