美高梅國際酒店集團 (MGM) 2005 Q3 法說會逐字稿

Good morning and welcome to the MGM Mirage third-quarter conference call.

Joining the call from the Company today are Jim Murren, President, Chief Financial Officer, and Treasurer of MGM Mirage;

Bobby Baldwin, President and Chief Executive Officer of Mirage Resorts;

John Redmond, President and Chief Executive Officer of MGM Grand Resorts; and also Gary Jacobs, Executive Vice President, General Counsel, and Secretary of MGM Mirage. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Jim Murren.

Well, thank you, operator, and good morning, everyone.

Terry Lanni is overseas right now, he's in the Far East, and I think it is about 11 p.m. right now, so I hope he's asleep by now, he's with our head -- our top marketing people.

Visiting with our International clients, will be back in about a week or so.

As you know, this webcast is being broadcast on our website, .mgmmirage.com and also on companyboardroom.com.

A replay of the call will be available on our website, we've also this morning filed a form 8-K with our press release.

We furnished that to the SEC as we typically do.

Additional information we also put on our website.

This gives you quite a bit of supplemental information on the third quarter, particularly on pro forma information which includes obviously the Mandalay merger for prior year periods.

I need to read the Safe Harbor disclosure.

As you know information we present on the call may contain forward-looking statements as defined by the SEC.

Such forward-looking statements are protected by the Safe Harbor amendments of the Private Securities Litigation Reform Act of 1995.

You can identify such statements by the use of the words we expect, we anticipate, and similar phrases.

These forward-looking statements may include information about future earnings, expected business developments, anticipated capital expenditures, future financing alternatives, or other statements made about future periods.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from estimates.

We would encourage listeners to refer to our disclosures about risks and uncertainties that we make in our Annual Report on form 10-K for the year ended December 31, 2004 which was, of course, filed with the SEC.

So with that, talk a little bit about the quarter overall and turn it over to my colleagues here.

As you know reported adjusted EPS from continuing operations of $0.38 in the third quarter.

This is a substantial increase over the third quarter of last year which was $0.28, and that was a quarter as you recall last year that benefited from a lower-than-normal bad debt expense and also included a full quarter's earnings contribution from Beau Rivage.

Obviously the current quarter was negatively impacted by the closure of that beautiful property.

We are on target in the quarter in terms of our earnings guidance and in terms of -- are actually above in terms of our REVPAR guidance.

We had actually said on a pro forma basis that REVPAR would be up around 8% it was actually up 10% in the third quarter.

Obviously, we didn't understand Beau Rivage would be closed for the quarter or most of it when we gave our previous guidance of earnings for the year, adjusting for that we were right on target.

As it relates to Beau Rivage, Bobby will talk obviously in greater detail.

We fully expect to quickly rebuild that property.

In fact that effort is underway.

We have been communicating with all of our employees, and we expect that a large majority of our costs and lost profits will be covered by insurance.

We are in the process of formulating all those claims, but we believe we are very adequately covered.

Bobby will give you a little bit more detail on the action items related to Beau Rivage, what we have been doing already, what we plan to do in the future in his report.

As it relates to Mandalay, the properties performed extremely well in the quarter.

The combined cash flow, EBITDA for the Mandalay Resorts was up 13% on the Las Vegas Strip.

Actually 175 million versus 155 a year ago.

And we are putting together our capital plans right now.

In fact we will bring them to the Board I think in December.

We will bring to the Board of our CapEx plans in '06.

Obviously that will include a significant capital spend at a variety of the Mandalay properties and we expect it would (ph) continue to drive earnings at -- increases at these properties in the coming years.

We have also been very active on the cost savings and revenue enhancement front.

We gave you a report card last quarter.

We said we have achieved -- booked 100 million of annual savings/costs of revenue enhancements.

We are pleased to say that number has moved up to 125 million right now on an annualized basis and as we've said earlier we expect as we continue to implement these programs you will see more of an impact on a going-forward basis.

So the annual cost savings revenue enhancements is about 125 million now and going higher.

Before I get into the specific results, I would like to make a reminder that you have quite a bit of detail on our website, so I would take a look at that for those of you who haven't.

It gives you a substantial amount of information on our company this year, what Mandalay presented last year, et cetera, and it really helps quite a bit.

We've also done a same-store analysis for you and a pro forma analysis.

The same-store analysis includes all the legacy MGM properties, excluding Beau Rivage.

We've pulled that out year-over-year so that you get a real apples-to-apples comparison.

The same store also excludes obviously the Mandalay properties and also Monte Carlo which we only owned half of last year.

From a financial perspective, as it relates to Hurricane Katrina, we put in our press release some commentary on that.

We've detailed the accounting.

Essentially the impact is neutral from an asset impairment standpoint and from an ongoing cost standpoint also.

We are comfortable that our insurance coverage is adequate, and, therefore, have recorded a recovery of costs incurred.

We do not, of course, recapture the profit right now.

We are not booking that profit, lost profit of Beau Rivage.

We expect to recapture that profit in future periods, and we will report to you when we do have that lost profit recorded, but we are not recording it at this time.

From a detail perspective, our table games volume was up slightly on a same-store basis the whole percentage was right in the middle of the range, really effectively for both periods between that 18 and 22% we have talked about many times before.

We did particularly well in baccarat volume, our baccarat volume was up 10%.

I think that's consistent with the guidance that we gave last quarter on the call that we saw a resurgence in international and national high end even with the new emergence of a competitor in this marketplace.

Our baccarat volume was up 10% in the third quarter.

Slot revenues were up 4% on a same store basis on top of a pretty tough comparison, it was up 9% year-over-year in the third-quarter '04 versus '03.

Had particularly strong results here at Bellagio.

On the hotel side, very strong demand, really, throughout the quarter.

At really all of our properties, and on a same-store basis, REVPAR was up as I said 10%.

Strip REVPAR was up 9.

I have to make a note here.

We had almost 120,000 more room nights available in the current year quarter.

And that's, of course, because of the Bellagio expansion and also because of the new room remodel activity at the MGM Grand, which John, I am sure, will talk to you.

On a pro forma basis, as I said, REVPAR was up 10% and that's better than we had said.

We said up 8.

If you look at cash flow, on a same-store property basis, our EBITDA was 338 million, that's up 7% versus 317 -- 316, excuse me, a year ago.

But remember -- and we called this out specifically last year in the third quarter.

We had tremendous collection activity in the third quarter of '04, which resulted in lower-than-normal bad debt expense, and if you adjust for that, our cash flows would have been up 12% year-over-year on a same store basis.

That obviously had an impact on margins too.

Our margins were actually on a reported basis slightly lower year-over-year, 32 versus 33 last year.

But, again, if you adjust for that prior year bad debt expense, margins were actually higher.

They're at 32 versus 31 a year ago.

We are moving forward rapidly, obviously -- as you know in Macau.

The piling work is largely complete.

We are in the hunt still for Singapore, which, as you know we'll expect to hear more from the government next month.

Bobby will speak to CityCenter.

We had a really exciting series of meetings.

We call it the summit which I am sure Bobby will speak to but I was really pumped to be there.

We have made a lot of progress there.

And we've also announced that we are closing the Boardwalk casino hotel in early January and that, of course, will accelerate the preparation of the site for construction of CityCenter.

The parking garage is well underway for the Bellagio employees and it's going to open up next summer.

So with that I will turn it over to Bobby Baldwin and then John Redmond for the operating results.

Thank you, Jim.

Good morning, everyone.

My report will include highlights for Bellagio, The Mirage casino hotel, Beau Rivage, and as Jim mentioned an update on CityCenter.

Bellagio with Spa Tower continues to drive strong results.

Hotel revenue is up -- or was up 19 million or 33% for the third quarter.

All other volume indicators continued to experience very strong growth, mainly related to the Spa Tower.

Slot revenue exceeded 40 million for the third consecutive quarter which was never achieved prior to the opening of the Spa Tower.

Other highlights included table games drop increase of 20%, which includes a 36% increase in baccarat drop and a food and beverage revenue increase of 18% compared to the third quarter in 2004.

Bellagio 's EBITDA was 84 million versus 77 million in Q3 of '04.

EBITDA for the first nine months was 299 million, and we consider this to be excellent results opposite the additional competition in the Las Vegas market.

At the Mirage casino hotel, hotel revenues continue to be very, very strong.

For the third quarter hotel revenue increased 2.4 million or a little over 6%.

This was the best third-quarter hotel revenue in the Mirage casino hotel history.

Several large-scale construction projects began at the Mirage during the third quarter.

Three of the five dining outlets were -- fine dining outlets were closed for the majority of the quarter.

These restaurants are Renoir, Kokomos, and Moongate.

In addition the Mirage high limit slot room was also closed for the entire quarter leaving the casino with 200 less slot machines.

The new high limit room opened on October 14, and already has contributed considerably to the slot win in October as its initial results are recorded.

The business disruption associated with these projects, combined with the minor accounting adjustments in 2004 account for the EBITDA variance in the third quarter at the Mirage.

Third quarter EBITDA was 31 million versus 39 million last year.

For the first nine months, EBITDA was 131 million versus 130.

Mirage should have a very strong '06 as it will benefit from the new restaurants, the new Jet nightclub opening in December, and the opening of the Beatles Cirque Du Soleil show in May of next year.

Beau Rivage.

As you all know in Mississippi, Beau Rivage closed for business the morning of August 28, as a result of Hurricane Katrina.

The property sustained extensive damage to its main level, including all the restaurants, the casino, the retail promenade, and the parking garage.

The rebuilding process is well underway with an expected reconstruction period of 12 to 16 months.

The preopening team has been established and is working diligently with designers, architects, and contractors to get the Beau Rivage reopened as quickly as possible.

Damage assessments are currently being finalized.

Our insurance policies cover the majority of the storm-related damage.

In addition, our business interruption policy is expected to cover the loss to EBITDA at Beau Rivage during the rebuilding process.

Finally, on October 3, the Mississippi State Legislature passed House Bill 45 which allows casinos to be built 800 feet inland from the main high waterline.

This Bill was subsequently signed into law by Haley Barbour on October 17.

We are not sure what the final impact of this new law is going to be but it is currently being analyzed.

Jim mentioned CityCenter.

In the third quarter this year, we had the CityCenter summit, which was really the formal kickoff of the CityCenter project, and we hosted that here at Bellagio.

We had about 350 attendees, primarily made up of our contractors, our business partners, our architects, and other consultants.

As we'd stated earlier, there is a 60-month timeline for CityCenter, 20 months of development, and 40 months of construction.

We are in month 9.

So we have hired and identified almost all of our partners to design, develop, construct, and later operate CityCenter.

Project CityCenter is progressing on schedule, the most recent development is the selection of the Taubman Company as MGM Mirage's retail partner for CityCenter.

During the preopening phase, Taubman will be responsible for the design and development of approximately 500,000 square feet of retail space.

And once open, they will provide leasing services for ten years.

Taubman's properties are widely recognized as the most successful centers in the United States, consisting of the most upscale and luxurious retailers.

Taubman's properties include the Beverly Center in Los Angeles, Stony Point Fashion Park in New Jersey, and Cherry Creek Center in Colorado just to mention a few.

And that concludes my report.

I will turn it over to John Redmond.

Thanks, Bobby.

Good morning, everyone.

I will focus my comments on the MGM Grand, the three Mandalay properties to the South, the Mandalay, Luxor, and Excalibur and I will hit a little bit on MGM Grand Detroit as well.

The Q3 at the MGM Grand was the third highest EBITDA ever at the property.

The EBITDA came in at 83.5 million versus 69.5 million in Q3 prior year.

These impressive results were driven by continued strong record room revenue and the addition of Picasso.

REVPAR was up approximately 14% in Q3 as we continue to see strong acceptance of the West Wing room product.

Foot traffic continues to be very strong driven by costs and the increased utilization of the monorail.

The ancillary business impacts from the increased foot traffic, coupled with the higher quality West Wing customers helped produce record volumes in slots, entertainment, and food and beverage.

The recently completed Mansion casino expansion has also received strong acceptance leading to continued strong table game play.

A quick update on the residences.

Towers One and Two are sold out, under construction, and scheduled to open May and December respectively of next year.

Tower One was topped off last week, and Tower Two is up to the tenth residential floor.

Approximately 350 of the 575 units in Tower Three are sold out and construction has begun on this tower as well.

As discussed in the last call, the Q4 Grand Garden event calendar is worth touching on given how impressive it is and the strong customer response we have received.

It started off with the Eagles, followed up by Jimmy Buffett in October, and the quarter concludes with U2, The Rolling Stones, and Paul McCartney.

With regards to the convention market at the Grand, the room nights were up approximately 24% in Q3 with the rate up approximately 20%.

Looking to Q4, convention room nights at the Grand should be up approximately 62% and ADR should be up approximately 24% over Q4 prior year.

Booking trends for future quarters continued to be strong as well.

It wasn't that long ago that the benchmark for a solid quarter at the MGM was 50 million in EBITDA.

That new benchmark looks like 80 million given the current year performance.

Mandalay Bay Q3 was the highest third quarter in the history of the property with EBITDA of $62.8 million versus $47.8 million in Q3 prior year.

The catalyst for the impressive improvement was an increase in occupancy from 86% to just under 93% while increasing the ADR by $5 from 197 to 202.

The increase in occupancy of approximately 36,000 room nights led to record volumes in slots, table games, and room revenue.

With regard to the convention segment at Mandalay, the convention room nights were up approximately 39% over Q3 prior year and the rate was up approximately 3%.

Demand in this segment continues to be very strong as evidenced by the fact that in the third quarter, we've booked approximately 250,000 room nights toward future quarters.

For Q4, convention room nights should be up approximately 20%, with the rate up approximately 6% over Q4 prior year.

As I mentioned last quarter, our strategy for Mandalay Bay, Luxor, and Excalibur is to drive occupancy and focus on getting the proper product mix on the slots floor.

As with Mandalay Bay, we have improved occupancy at Luxor and Excalibur leading to record slot volume.

With regards to the slot floor, in the third quarter we replaced 800 slot machines on the floor at Mandalay Bay, Luxor, and Excalibur with new machines and are in the process of replacing 1200 more in the fourth quarter.

Currently, the properties are 95% TITO and we expect to be 100% by early Q1 of next year.

We continue to evaluate all other capital expenditure requirements for the three properties, and expect to announce capital plans for these properties at the end of Q4.

On a final note, regarding Luxor, September 15, was the final show of the Blue Man Group.

This will have somewhat of a negative impact on traffic flow and EBITDA until we open the new show "Hairspray" which we expect to open in February '07.

Q3 was stellar with EBITDA -- this is at Detroit, I'm sorry.

Q3 was very stellar in Detroit with EBITDA of 36.8 million versus 35.6 million in Q3 prior year.

But for the 600 basis-point increase in the gaming tax, the quarter would have been substantially better than prior years.

Detroit continues to be a strong market.

We expect to see increased business in June of next year when the Ontario Government implements its tobacco ban which we expect to see a pickup in play from casino Windsor as a result.

Regarding the Permanent casino, during Q3, we began clearing the site, relocating facilities and began excavation work.

To the extent weather cooperates, the Permanent could be open in late Q4 of '07 or early Q1 of '08.

On that note, I will turn it back over to Jim Murren.

Well, thank you, John.

A couple of general comments on the financial results, and then, of course, our guidance, as we typically try to give for the current quarter.

Just summing it all up on the cash flows, our property level EBITDA or cash low was 562.5 million, up obviously dramatically versus a year ago at 347.6 million, but even up nicely versus a pro forma cash flow of 523.3.

So up about 7.5% on property EBITDA or cash flow.

With everything that has been going on.

We are proud of that result, and, of course, that includes what happened to us at Beau Rivage, and, also, it should be noted the fact that Gold Strike and Tunica, of course, was impacted, negatively impacted in the quarter as well.

That property also is in Mississippi inland but affected.

From a balance sheet -- an income statement perspective, I typically give you quite a few numbers, and going to do so here.

Our corporate expense in the quarter was 32 million, that's in line with our guidance.

Interest expense also was in line.

Our net interest of about 192 or 3 million, that was net of capitalized interest of 9 million this year.

So the gross interest was 202, net interest of around 192, 193.

Our effective tax rate was 37%.

We had given guidance of 36 to 37.

The addition of Mandalay did not and will not materially affect our effective tax rate.

What goes into adjusted net income.

The items that are typically there are here again in the third quarter, preopening start-up expenses were 6.1 million.

That's almost all due to CityCenter and to a much lesser extent some of the new amenities that John talked about at MGM Grand.

The property transaction line was 22.6 million.

We had writedowns related to the renovation of a variety of projects here at Bellagio and other -- especially in other one of our Strip properties.

And then where we had new construction at TI and at Mirage as well.

We had some demo work related to the Cirque theatre at Mirage specifically and a little bit at CityCenter so the overall property transaction number was 22.6.

From a financial perspective, we -- as we have done many times in the past, we bought back stock in the third quarter.

We bought back 2 million shares for a total cost of about 85 million.

Recall that we had 20 million authorized. 20 million shares authorized.

Obviously we are down to 18 million that are authorized.

From a CapEx perspective, we spent in the third quarter 191 million, and that includes 50 million plus or minus for the Detroit land purchase that John talked about, that's for the Permanent casino.

We have been spending some incremental money and that's in that number as well, but for the Mandalay properties, specifically in the quarter, it was about $16 million of CapEx at the Mandalay properties, and we have approved some more capital that will be spent in the fourth quarter.

All in, we will spend around $50 million in the Mandalay properties in the fourth quarter on projects like John talked about, the ticket-in ticket-out, as well as some nice upgrades that will occur at Mandalay Bay.

Overall from a capital expenditure standpoint, give you a couple of items.

Since the merger with Mandalay, we have spent about $280 million on CapEx.

That includes the number I just gave in Detroit.

But, also, we have repaid over $500 million of net debt, and, of course, as I said, we have repurchased stock, and that really is, I think, typical of what you should expect from us as we balance our free cash flow between our CapEx, our debt reduction, and strategic share repurchase.

Before I turn it over to questions, and we will have plenty of time for that, I will give you some guidance on the fourth quarter consistent with what we typically give you.

We expect REVPAR in the fourth quarter company-wide to be up around 6%.

We expect that REVPAR trend to actually accelerate throughout the fourth quarter, but for the quarter itself, to be up around 6%.

And that's against pretty tough comps.

Last year our REVPAR was up 13% year-over-year in the fourth quarter.

We expect that corporate expense will be, again, in the low $30 million range.

We expect that gross interest in the fourth quarter will be around 205 million with cap interest around 10, giving net around 195, almost exactly what it was in the third quarter.

Depreciation will also be, we think, consistent with the third quarter around 165, 165 million for the fourth quarter, and, again, we expect the tax rate to be in the 36 to 37% range.

We gave guidance in our earnings release this morning in terms of adjusted earnings per share.

We gave a range of $0.30 to $0.35, and in looking at the analysts out there, they are about kind of halfway between people that have adjusted for the fact there was a hurricane in Mississippi and New Orleans and half the people that have not yet.

For the people that have adjusted their fourth quarter, which, of course, for Beau Rivage is about $0.03 of earnings impact that we won't have this quarter that we had last year, we get an estimate or average around $0.32 for those analysts, and, again, we are very comfortable with that.

We have given a range of $0.30 to $0.35.

There will be about $0.01 or $0.02 in there for preopening expenses, restructuring and other property transactions.

So that is our EPS guidance.

Looks like we are consistent with the Street.

From a CapEx perspective we expect to spend around $200 million in the fourth quarter.

That excludes some spending in Detroit that will be a little bit -- maybe 10 million or so in Detroit for a total of around 560 million for the year if you add that all up before Detroit, again, we had always broken out Detroit specifically because we weren't sure of the timing.

So if you add that all up, the 560, then maybe let's say overall of 60 million in Detroit, and obviously we spent some money in Macau too which we've already talked to you about several quarters in a row.

That fourth-quarter estimate includes -- the big items there would be the theatre at the Mirage that Bobby talked about for the new Beatles Cirque Du Soleil show, the ticket-in, ticket-out installations which, if history is any guide will have a very strong impact on our earnings.

We are going to be putting them as John said into the Mandalay properties and at CityCenter.

So with that, we have about 26 minutes for questions, and I will turn it back over to the operator.

Thank you.

[OPERATOR INSTRUCTIONS] Your first question comes from Larry Klatzkin with Jefferies & Company.

Hey, Jim.

Hey, Larry.

A couple of things.

One AC development.

Terry had said something in the last week about you guys have been looking at the land there.

Could you talk about that?

Oh, that Terry, he is not here and he can't defend himself.

I don't know what he said.

But where we are in Atlantic City, I'll turn it over to John is of course we are very pleased.

Another tremendous result out of Borgata, by the way.

We should have said that.

Boyd's doing a great job.

We get half the credit for that.

We are expanding that right now.

Outside of that acreage we have not announced anything.

Of course we have prime acreage next to Borgata, right next to Borgata and then we have another 14 acres right across the street.

So there is nothing really new to report outside of the expansion of Borgata at this time.

All right.

As far as Macau goes, is there any thought of a second project?

We are taking Macau one project at a time.

Obviously we are focused on this project, which is underway as you know and it's expected to open in the -- in late 2007.

Should the market demand another property, we certainly would like to have another one, and, of course, we would pursue the proper channels, find a site if appropriate, and talk to the government about that.

And if it is acceptable to the government, we certainly would move forward on the second property.

The market appears to be very vibrant, and accepting of more properties that are currently been announced and we certainly believe that MGM Grand as a brand there will be very successful and that the partnership which would build any casino in that marketplace outside of this one even would be successful with other properties if we go -- move forward.

All right.

And then Singapore.

Any idea of timing of when they may announce?

I guess the last I heard, Larry, was in November.

We are going to get the final, final, final.

That's what we hear.

Late November is when the RFP is supposed to emerge.

So then you -- probably March then?

In terms of when we respond to it?

Yes, when you think you might actually hear the results.

Oh, I don't know.

It will be next year sometime.

All right.

And then last question.

As far as convention bookings, business from New Orleans and other stuff with Mandalay Convention Center.

Can you talk about that?

Well, I will give you some comment on that.

I think the one thing -- there's been some minor pickup at both the Grand and at Mandalay Bay.

I think what we are seeing, though, is because of the impact there in New Orleans, there is entities that are racing to lock up dates because of the lost capacity, if you will, in the marketplace.

So we are seeing those entities more quickly, if you will, locking up space at both the Grand and Mandalay Bay in light of the reduced capacity with the problems in New Orleans.

All right, thanks.

And you don't have a CapEx number for next year.

I guess it is way too early for talking about that?

It will be career-limiting to give you one before we presented it to the Board.

Thanks, Jim.

Your next question comes from Robin Farley with UBS.

Thanks.

Yes, Jim, I just wanted to clarify the $0.30 to $0.35 in Q4, that's assuming no business interruption recovery, correct?

So you are kind of saying -- assuming no contribution from the Beau Rivage business interruption, any of that would be additive; is that correct?

That's correct, Robin.

We don't expect to book that profit until we get the claim, and we don't know the timing of that.

Okay.

And then your release talks about spot revenue being up 4%, and Bellagio being a big driver of that with the 13% increase.

If you took out Bellagio and looking at the other properties, were there other -- I guess the Mirage sounds like it -- there was some slot play issues because the construction disruption.

Any other properties where we would not have seen an increase in slot play?

We are taking a peek at that right now, Robin.

Obviously Mirage was down with the reduction in number of slot machines there.

Anyone else?

Any other property that was down?

Everything else was pretty much flattish, Robin.

Up a little bit.

So kind of flat, to up slightly, with the Mirage down, Bellagio up?

That's right.

Okay.

Great, thank you.

You are welcome.

Your next question comes from Marc Falcone of Deutsche Bank.

Hello.

Marc, are you there?

Yes, actually this is Steven.

I am a customer and investor.

And last week my friends and I went -- visited your Treasure Island hotel in Las Vegas and had a real nice time there.

A few days before I called to make a reservation at your Steakhouse restaurant, a very good restaurant over at the Treasure Island to make a reservation for a party of--.

This is not an appropriate time to discuss this.

Could you call my office please?

Next question, operator.

Your next question comes from J. Cogan with Bank of America.

Jim, how are you doing.

Great.

A few questions for you here.

You mentioned how the Borgata did.

I was just wondering was there anything beyond just very solid results in that affiliated line or was all of that upside really just purely from Borgata.

Well, it's mostly Borgata.

We gave you the supplemental information too to make sure it's apples to apples because there's stuff that goes through.

Like last year for example you had Monte Carlo in that line item, obviously it is not there now.

This year Borgata was up nicely year-over-year.

But also this year you have Grand Victoria and Silver Legacy in the unconsolidated number.

So there are a couple of moving parts.

I think we'd mentioned that last quarter as well, so last year the number included Monte Carlo.

This year it did not obviously, but includes Grand Victoria and Silver Legacy and Borgata was up nicely year-over-year.

Okay.

And then with respect to a couple of questions.

On Detroit, I think in the past, it was kind of a high 500 -- like 575 and CapEx for the permit was a working number from a few years ago.

Is there any way you can give us some kind of a broad range of expectation for CapEx in the permit as you see it now?

Well, Jake, it's a little bit preliminary.

At this point in time, one thing we do know is that that figure is over two years old.

We are in the process of updating what it is we want to do there, and we hope to have more clarity on that by the end of Q4.

Yes, that will be part of the CapEx budget we'll bring to the Board, of course.

And also, obviously the market has done better and resisted the tax increases reasonably well and obviously our profitability has been improved.

We believe, by the way, in that marketplace that we are in a good competitive position given the two other casino operations and their outlook for the future in Detroit and obviously the issues that are faced at Windsor, Ontario as well.

The market outlook we believe is positive, and obviously we believe we can get a decent incremental return on investment from the Permanent.

Okay, then two last quickies for you.

One, is there any way you could provide any sense of '06 guidance.

I know some of the lodging companies have with respect to REVPAR in Las Vegas and then finally on the synergies.

As I think you mentioned some of the Mandalay stuff will be kind of on the come as you roll out some of the CapEx programs, et cetera.

Is it fair to say that there wasn't much in terms of synergies in the quarter despite how you are very constructive still in regards to where those will come in in total eventually.

Well, one on the REVPAR on Las Vegas Strip.

Keeping in mind we are having a heck of a good year this year, but even still, I think we could conservatively say that a REVPAR will be up next year, maybe in the mid single digits or we'll see, might even be better.

We have some very good forward indicators that would say the convention and conference business will be vibrant in '06 starting right away in the first quarter.

The FIT business looks strong.

We've been building the casino block business nicely, especially at the Mandalay properties.

We have a variety of programs in place the leisure tour and travel business, pricing has been improving.

So -- and, of course, we have all of the properties in pretty darn good shape, especially by midyear with the Mirage Theatre which will have a nice impact.

So we'll see.

I would say mid single digits is a good number to use on a going-forward basis.

As it relates to cost savings and synergies, is that the second part?

Yes, just in terms of Mandalay.

When we look at the properties and how they did and just the pace of synergies that you are anticipating.

It doesn't seem like there was too much in the current quarter and it sounded like you alluded to that.

I was wondering if you can -- was there anything you can quantify for this quarter or for next or is really more going to be '06?

Well, it will be more in '06.

The first savings we accomplished obviously would be on the corporate side.

We booked that right away.

Obviously that's in the property numbers, but certainly has had an impact overall.

And then the other big items become really in the purchasing areas, where we book pricing that is improved, but obviously implemented over periods of time, and the full impact rolls as you build those programs.

So -- and, again, I think that's why we talk about the Mirage merger, five, six years ago, where we started with a number, that number grew as we started drilling into the cost savings.

The number that we have as projected annual cost savings revenue enhancement is a much larger number than 125 million, but we haven't achieved that yet, and we will report on a quarterly basis.

But I would say it is safe to assume that that number will grow in '06.

The other issue is that we are very cautious about giving you numbers is that there are expenses, too, and we are trying to give you a net positive impact.

There are expenses in putting companies together, providing new technology of changing systems over, and those -- that's money we will be continuing to spend.

So the number we are trying to give you is a net positive impact, and as I said, it so far on an annualized basis looks like 125 million and growing.

Great, thanks a lot.

Your next question comes from Harry Curtis with JP Morgan.

Hi, guys.

Quick question going back to your comments about 2006.

If you can generate rev or revenue -- same-store revenue guidance or revenue growth in the mid single digits.

In the last quarter sort of apples-to-apples, backing out the reserve, you were able to generate 10% same-store revenue growth and 12% EBITDA growth at a mid single digit same-store revenue growth.

What sort of EBITDA growth do you think that that can translate into?

Well, tell me what our whole percentage will be next year.

Let's use normal.

Okay.

Then we expect -- we would expect to be able to produce better EBITDA growth than the REVPAR growth.

As evidenced by what you just said about the third quarter.

So no worse than a couple hundred basis points premium to the revenue growth then.

The cost items are pretty well understood for '06.

Labor we understand what labor costs will be which is a very big item for us.

A lot of our costs are flat or going down as it relates to some of the purchase items that we have talked about, because of scale.

We have other costs, utilities and otherwise which we forecast as best we can, but if we are able to drive more people into our buildings, able to drive more casino revenue amongst the family of properties, that should have a positive impact on our margins.

The second question that I had.

Since the win opening, has the promotional environment accelerated at all.

There may be a point of view out there that suggests that the reason your margins were somewhat disappointing in the third quarter was because you had to compete more for that business.

Do you think that is a correct conclusion to come to?

Harry, this is Bobby.

I think that is a correct conclusion to come to.

Our advertising expense was up for the quarter, and it has been very competitive here in Las Vegas, particularly for Bellagio.

So our cost base was higher in the third quarter than would be normal.

So when we think about the Bellagio's margins having declined, what are you -- what part of that do you think is related to your higher expenses versus to whatever degree the reversal positively impacted the third quarter last year?

Well, maybe I will take that and jump it over to Bobby.

The advertising expenses obviously were up.

That's a counterpunch, obviously that we would typically do.

I don't think -- and these guys can correct me if I'm wrong, that the promotional expenses as it relates to the customers, the type of economics we deal with customers has changed really much at all, has it, Bobby or John?

They are saying no, it hasn't.

As it relates to the other expenses, as it relates to the delta, I would say that we are expecting the margins to improve in general into '06, but is your question on the balance of '05 here?

Really in more related to '06.

Yes.

Well, I mean, we've -- as I think we said in the last call the key was to populate these buildings.

We certainly have done that.

We are getting great overall rooms, food and beverage, and gaming volumes.

The second was to respond to a new entrant into the market.

We certainly have done that.

I think we have answered that.

And the third is to increase revenue and profitability of all of these properties, including Bellagio, which we expect will be up nicely next year in earnings.

It doesn't look like any new capacity, I guess, in '06, right?

Yes, there's really no -- well, there's no new casino and there's rooms added to the marketplace, but not to the extent capacity-wise we've had recently.

Okay.

That's great.

Thank you very much.

Your next question comes from Celeste Brown with Morgan Stanley.

Good morning.

Good morning.

Just coming back to CityCenter.

You gave -- you spoke at your investor meeting about sort of a benchmark for what you need to get in sales in terms of condo sales, but what are you thinking about the rising construction costs and are you hedging that?

We've heard anecdotally that around the country people are cancelling projects.

Not that we are saying you are cancelling yours, but because of rising construction costs how are you handling that?

I will start and then I will turn it over to Bobby.

That is true that -- first off, construction costs have been going up nationwide, and we expect they will continue to rise, maybe not quite at the delta they have been going up recently, but they are continuing to go up.

And a lot of projects have been cancelled.

And some even out here.

There have been many that have been already announced and have been shelved.

One of the pickles that these guys get into is they sell a building out very quickly before they have all their construction numbers actually nailed down, and they get upside down pretty quickly.

It is tough to make money when it costs $500-a-foot to build a building and you only got 450 a foot to sell it.

That doesn't seem to work well.

What we have been doing is working hard on the costing of CityCenter and taking our time.

We are in really no hurry to -- we are not selling anything right now and we are not going to start selling anything until we have a very good handle on costs.

And in fact, if anything, we believe that the residential product of CityCenter will be more important.

I think we probably will add a few units because of what we see in terms of the overall demand for the Strip.

So costs have gone up.

We haven't -- we are not prepared to start selling units at CityCenter yet.

We won't do that until we have nailed down the costs and have a very good fix on the costs, and we will adjust the pricing accordingly.

Bobby, do you have anything to add on?

Well, I think that is pretty good, Jim.

Everybody is dealing with high costs for concrete.

High costs for petroleum-based products.

And the high cost of steel, but -- and not everybody understands exactly what the Katrina effect will be on even higher prices on materials, but we are scheduling CityCenter to take full advantage of the timing for buying materials and contracting for labor.

And the costs may be somewhat higher than some people may have expected but that's all part of the program, and we are very careful in terms of pricing our materials and contracting our labor.

In fact Tishman out of New York is our main construction management company and of course Perini is doing the general contracting and the two of them together have our pricing programs to buy materials from around the world at the proper time.

Okay.

Thank you.

Thank you.

Your next question comes from David Anders with Merrill Lynch.

Great, two quick questions.

First, Jim, so is the bad debt -- is that a normalized level now?

It just was abnormally low last year, right?

That's correct, David.

Last year we actually had a credit.

I think it was around 12 million.

Okay.

This year it was about a $4 million expense.

So the delta year-over-year from a EBITDA earnings standpoint was about 16 million.

Right.

But looking at the profitability of the properties and whatnot now, we should be kind of using the current run rate?

Because this is a real bad debt level.

That's correct.

Okay.

Second question is, what percent of your business -- maybe this is for John or Bobby.

But what percent of your business do you already have on the books for Q1 and Q2 next year?

How good is the visibility?

The first part of your question, David, the visibility on the books.

Was that for John?

Yes, for John.

Like what percentage of your rooms are already booked for the first and second quarters.

I've always thought it was a pretty short booking window.

You are talking about, David, for the convention side?

Total, like if I looked at your portfolio.

Would it be 15% or 35% of the rooms that are booked already with conventions and whatnot?

Well, when you look at Q1 and Q2 next year, that is not a real short booking window.

That's pretty far out.

I think as we mentioned before, we are very bullish on Q1 and Q2 given what we are seeing and given the pace of our bookings at this time versus the same time last year or in previous years.

We are pacing ahead.

Really in all segments, but in particular, I think on that conference side, but we are very bullish about Q1 and Q2 in terms of where we are pacing in comparison to previous years.

Okay.

Thank you.

Your next question comes from Dennis Forst with KeyBanc.

Good morning, Jim.

I wanted to get a clarification on depreciation.

There -- in the third quarter it was $161 million including over $6 million from Beau Rivage.

So are you going to continue to depreciate Beau Rivage going forward?

Yes.

Let me get it from Bob here.

I will give you a specific number.

Yes, exactly.

I just wanted to confirm that.

All the nondamaged assets, like the room tower, for example, will continue to be depreciated.

So that number goes down, it's like 3 million, Chris or?

Like 3 million or so.

That would make more sense.

Then the third quarter run rate, if you back out about 3 million or 3.5 million, it is 158.

You gave guidance in the fourth quarter of 165.

I would understand that, I guess Bellagio and MGM Grand probably are going to go up somewhat, but I have trouble getting to 165 million.

We had -- well, there were a couple of things there, Dennis.

One is we had a big slot machine purchase which went into service.

Second is the Mirage Theatre and then the general CapEx we'd have at the other properties which would be really at the Grand, the new restaurants we just opened up which are phenomenal.

I ate at one of them.

Did you eat at both of them?

The more phenomenal, the higher the depreciation?

Yes, you didn't have to write the check.

Pretty darned expensive.

They better be phenomenal.

Okay.

And then the other simple question is, you mentioned that preopening in the fourth quarter could be $0.01 to $0.02.

I assume that is excluded from your $0.30 to $0.35 guidance?

That's correct.

Okay, great.

And the business interruption insurance, when you get those checks for Beau Rivage will that flow through the property income statement or will that be a credit to G&A.

That will be a credit to G&A.

Okay.

So we are going to have a zero in Beau Rivage's EBITDA until that property is reopened?

Yes.

Good.

Thank you.

Your next question comes from Joseph Greff with Bear Stearns.

Good morning, everyone.

Jim, other than TI and the Mandalay properties, any there any big amenities that are opening up next year at the core legacy MGM properties?

Restaurants, nightclubs?

At the pre Mandalay properties.

Let's see.

We know Treasure Island you are opening up a bunch of different things there.

Treasure Island, Mirage.

The only thing we opened was, of course, the Girard Robischon (ph) restaurant at MGM.

But in '06 there is nothing of any significance at the legacy properties.

Okay.

And I know you are not going to talk about specific '06 capital spending, Jim, but would it be safe to assume for what you are going to continue to spend at the Mandalay properties that that would be first quarter, second-quarter spend?

Well, you couldn't spend it that quickly.

So I would say it wouldn't be -- I think it would be spread throughout the year wold be -- and into '07.

There are projects that we are going to take our time on, depending on volumes, trying to minimize the disruption of some of these projects.

Some we have already started.

As I said earlier at Mandalay Bay, as an example, where we see tremendous upside at that property, Luxor, Monte Carlo, tremendous upside at those three buildings in particular and really across the portfolio of properties, and we will be able to give you a good outline of those projects after we get through this quarter, because we will be through the Board review.

Great, thank you.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers.

I would now like to turn the conference back over to Mr. Murren.

Well, thank you.

And, of course, as always, we are available for any follow-up questions or ones we didn't have a chance to get to and I appreciate you being on the call and look forward to chatting with you again soon.

Thank you very much.

Ladies and gentlemen, this concludes today's MGM Mirage third-quarter conference call.

You may now disconnect.