美高梅國際酒店集團 (MGM) 2007 Q1 法說會逐字稿

Good morning, and welcome to the MGM MIRAGE first quarter conference call.

Joining the call from the Company today are Terry Lanni, Chairman and Chief Executive Officer, MGM MIRAGE, James Murren, President, CFO and Treasurer, MGM MIRAGE, Bobby Baldwin, President and Chief Executive Officer, MIRAGE Resorts, Gary Jacobs, EVP, General Counsel, and Secretary, MGM MIRAGE, Aldo Manzini, Executive Vice President and Chief Administrative Officer, MGM MIRAGE.

Participants are in a listen only mode.

After the Company's remarks, there will be a question-and-answer session.

[OPERATOR INSTRUCTIONS]

I would like to turn the call over to Mr.

Jim Murren.

Please go ahead sir.

Well thank you Latrisha and good morning, everyone.

As always we're broadcasting this call on the internet on our website mgm-mirage.com as well as on companyboardroom.com.

And a replay of the call will be available on our website.

We filed an 8K this morning with our press release.

And there's also additional supplemental information as we typically post.

It's on our website right now, it gives you some detail behind the numbers in this release.

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 amendment 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 involves risks and uncertainties that could cause actual results to differ materially from estimates.

Listeners should also refer to our disclosures about risks and uncertainties made in our filings with the SEC.

And with that I'll turn it over to Terry Lanni for a discussion of our results.

Thank you very much, Jim, and good morning ladies and gentlemen.

To start off I wanted to let you know that John Redmond could not be with us here today because of a previous commitment.

Also, and Latrisha introduced him, but I want to formally introduce and take the opportunity to welcome Aldo Manzini, our new Executive Vice President and Chief Administrative Officer, who is here in our offices today and in this room.

Earlier today we reported our diluted EPS from continuing operations of $0.55 for the first quarter, a 15% increase over 2006 first quarter.

Our net income per share on a diluted basis was $0.57 compared to $0.49 in the first quarter of 2006.

This represents our best first quarter ever in the Company's history from an EPS perspective.

I want to talk a little bit about operating results.

Net revenues increased 9% to $1.9 billion, an all time record for the Company.

Beau Rivage had an excellent quarter generating $102 million of net revenue and property EBITDA of $28 million, it's best quarter ever.

As mentioned in the release we also had an all time record property EBITDA at several Las Vegas strip resorts, which include Bellagio, MGM Grand Las Vegas, Mandalay Bay, Treasure Island and Monte Carlo.

Which we believe demonstrates a successful quarter across all market segments in the Las Vegas marketplace.

These impressive results were achieved despite a very tough comparison on the gaming side and once again validate our strategy of reinvesting in our resorts to provide a complete customer experience.

Over the past several years we have reinvested in our hotel food and beverage and entertainment amenities, and the returns from these investments we believe demonstrate the power of our brands across multiple customer segments.

We finalized in this last quarter finalized agreements with the Diaoyutai's State Guesthouse in Beijing for the People's Republic of China.

We entered into agreements to acquire land on the Las Vegas strip adjacent to our Circus Circus Resort.

Combined with the land that we already owned on the north side in the budding Circus Circus, this allows us to create a 78-acre site with a total of about 1600 frontage feet on the Las Vegas Boulevard, two of those separated by a time share project and a condominium.

But again a significant amount of frontage and a significant amount of acreage.

It's that combined acreage of available development is three acres larger than the CityCenter acreage of 75 acres.

We've received numerous inquiries on a daily basis from potential third parties who seek to partner with us to develop this very prime real estate on the strip.

Circus Circus Las Vegas will remain as the gateway to the site.

It will not be at all impaired as a result of this additional land, it's going to be a significant adjunct.

This acquisition brings our total land holdings on the Las Vegas strip to 865 acres.

And over 250 of those acres are undeveloped or under utilized.

That excludes our CityCenter site, which as you know is well in the development stages.

CityCenter we'll talk about that a little bit.

We recently announced an increase in the CityCenter construction budget to $7.4 billion from previously announced $7 billion.

And we also announced increased expected gross proceeds from the sale of residential units that we had originally thought we'd get about $2.5 billion.

But the early response and very positive response to the friends and family policies and the opening of our development, or sales offices in preview center, we expect that now to increase to $2.7 billion.

The current expected net cost of CityCenter is $4.7 billion that's net of that condo sale revenue figure.

Bobby's going to give you a lot more detail on that and then talk about the success related to our CityCenter in his report.

Some other development projects.

MGM Grand Detroit is progressing towards the fourth quarter opening.

Construction of MGM Macau is also on track for fourth quarter opening.

This is a significant event from a number of angles.

In addition to providing a foothold in the Macau market, we will have the opportunity to introduce our brands to the vast population of the People's Republic of China, in especially those four costal provinces.

We believe this will in turn lead to new customers for our Las Vegas Resorts.

As we have also announced that we have obtained a second site on COATI, for a second site for our joint venture, so we're very excited about that.

And we're in the preliminary planning for that particular development.

We're also making progress in the that development with our second site.

I'd now like to turn it back over to Jim for additional comments on our financial results.

Well thank you, Terry.

I'll first discuss some of the items that were unusual or that affected the comparability to last year.

One of course is Beau Rivage, we had a tremendous first quarter from Beau Rivage, very proud of that effort.

It was closed in the prior year, and this year in the first quarter it reported property EBITDA of $28 million.

Secondly as we have talked about before we recognized income for our share of profits from the remaining units of Tower 2 of the Signature at MGM Grand that was $0.02 a share positive for us, and that's consistent with our previous guidance.

We had about-- we had $0.04 a share impact from pre-opening and property transactions in the quarter just reported versus an impact of $0.07 a year ago.

And of course, the results of Primm and the La Femme properties are presented as discontinued operations.

We've closed Primm and we're soon--- we'll soon be closing the La Femme property transaction.

From a detail perspective on the hotel side.

First hotel revenue was up 8% in the quarter to $549 million.

It was up 5% excluding Beau Rivage, so on an apples-to-apples basis, up 5%.

That's particularly impressive given the fact that excluding Beau, we had 98,000 less available rooms in the current year quarter related to the remodeling project that we talked about.

And that's primarily at Mandalay Bay and at Excalibur.

That dynamic improves throughout the year.

We'll have about 35,000 less room nights available in the current quarter, about 12,000 less room nights in the third quarter, and we swing to the positive we'll have about 32,000 more room nights available to rent in the fourth quarter this year verses the fourth quarter of the year ago.

ADR of our Las Vegas trip resorts was up 8% to $169 compared to $157 in the prior year.

We had strong results in the convention segment really across our portfolio.

This led to REVPAR of an increase of 9%, that's our 15th consecutive quarter of year-over-year REVPAR increases.

On the gaming side, our gaming revenues were up 4%.

However if you exclude Beau Rivage, our gaming revenues are actually down 6% compared to a very strong year in the prior quarter.

That was mainly due to a decrease in table game volumes at our Las Vegas strip resorts.

Table game whole percentages were actually within the normal range for both periods, and we'll drill into that detail later on.

Slot revenues were up actually 10% and that includes Beau Rivage.

Excluding Beau Rivage, the slot revenues in our strip resorts were actually down a little bit down 3% versus the prior year .

It was a tough comp anyway, but we were down versus the prior year.

A couple of factors impacted these results on the gaming side.

We mentioned the room remodel activity at Mandalay Bay and at Excalibur, that certainly negatively impacted the customer volumes at those properties temporarily.

We had a much higher convention mix which is obviously a positive on the nongaming side.

But that sometimes leads to lower slot numbers.

We had players club implemented as a conversion into Excalibur in the first quarter.

That's always a little bit disruptive, but that's done right now.

There have some macro factors that impacted our Las Vegas strip and our outlying properties.

For example, the several closures of I-15 throughout the month of January.

Specifically back at Excalibur we had--because of the room night remodeling there, 10% of our rooms were out of service at Excalibur in the first quarter.

It's very much a rooms based business model at Excalibur, and that obviously impacted the results.

And also MIRAGE, as we mentioned last year, had a very strong first quarter.

So we were on a particularly tough comp there.

But otherwise those are some of the factors that we can determine.

And the good news is that the results improved nicely in April and our slot numbers for example were up solidly in the month of April.

Food and beverage, back to the nongaming side, and entertainment very, very strong in the quarter.

Food and beverage was up 13% in revenue.

Even without Beau Rivage it was up 7%.

And that's really due to the new restaurant lounges et cetera, that we have at our new resorts.

And really the MIRAGE and Mandalay Bay really led the way there.

Entertainment revenue was up dramatically up 36%, and that benefited primarily from the opening of the Love Show at the MIRAGE, that opened up mid-year last year.

From an EBITDA perspective, our property EBITDA of $655 million was up 7% versus $610 million in the prior year.

We talked about the profit from the Signature, that positively impacted profit EBITDA this year by about $8 million.

And I mentioned earlier Beau Rivage had EBITDA of $28 million.

Adjusting for those two items property EBITDA was still up, it was up 2% and the margin was very strong 34% in both periods.

That margin comparison is we believe very impressive given our mix of nongaming revenue.

Right now our nongaming revenue in the first quarter for example that was 58% of our total revenue, and that's up versus 56% in the prior year.

So obviously, we're driving good nongaming revenue and add comparable margins to our gaming business.

That's exactly what we had hoped for when we started this capital plan on nongaming.

And with that I think I'll turn it over to Bobby to talk about development projects in

Thank you, Jim.

Good morning, everyone.

2007 continues to be a key year in terms of design and construction for CityCenter.

From a design standpoint all project components have completed their design development phase.

The construction document phase will continue which is the final phase throughout early 2008 as the construction documents are completed.

Over 900,000 cubic yards of concrete will be required to build CityCenter.

To date we have put in place 176,000 cubic yards of concrete.

We have on the site 58,000 tons of steel and we've erected about 7,000 tons of that steel thus far.

The central plant structural steel is complete.

And the equipment is being installed in the central plant.

And it will be operational by the end of the year.

The concrete structure of the Pelli Hotel Casino Tower is up to the 15th level, we're going as high as 48 levels or a total of 592 feet.

The concrete structure for the [Padara] Tower is complete up to the 5th level.

Mandarin's up to the third level.

And we have just put in place the structural slab for the west tower of the Veer Towers.

The retail podium foundations are fully underway and almost complete.

And the foundation of the Harmon Hotel is currently underway.

CityCenter residential has had a successful first quarter and sales momentum remains very strong.

We now have three of the four residential products currently being offered.

The residents at Mandarin Oriental to date have sold 205 of the 227 available units generating $630 million in sales out of the estimated $717 million for the Mandarin Oriental.

Sales for the [Padara] Condo Hotel commenced on February 20th of this year.

To date we've sold 452 of the 1543 units generating $327 million in sales of the estimated $1.2 billion in sales from [Padara].

Sales for the Veer Towers commenced April 19th.

And to date we've sold 165 of the 670 units generating $167 million in sales out of it's estimated $606 million.

In total this represents $1.1 billion in total sales of the potential or ultimate $2.7 billion in residential sales at CityCenter.

The Harmon residences will go on sale to friends and family in mid-summer with a release to the public in early fall.

As you know, the CityCenter residential sales pavilion is located on the Las Vegas strip between Monte Carlo and New York-New York.

And thus far we've completed 8,000 tours in that pavilion.

In addition Bellagio has a gallery and so does MIRAGE that generate about-- have generated to date about 60,000 leads for residences at CityCenter.

As Terry mentioned the Company has announced an increase in the CityCenter's project cost budget from $7 billion to $7.4 billion.

This increase includes 670,000 additional square feet of buildings, 316,000 in the casino hotel, 126,000 additional square feet in the Mandarin and Harmon and 227,000 square feet of additional parking.

This square footage or additional square footage cost $210 million of the $400 million increase.

The Company also increased the quality of the residential offering by $86 million in terms of finishes, curtain walls and various other items.

All other costs were up $104 million.

As Terry mentioned, residential sales are now forecasted to increase from the original $2.5 billion forecast to $2.7 billion.

And that concludes my reports, Jim.

Well thank you, Bobby.

If I could give you some more financial information and then talk about the current quarter and open it up to questions.

Our net interest expense in the first quarter was $184 million that's a little bit lower than our guidance we gave guidance of $190 million.

Gross interest 229.

Cap interest 45 to the net number of 184.

Corporate expense was $34 million in the quarter that was lower than our guidance, we had given you guidance of $40 to $45 million.

And pre-opening and start up expenses were $14 million in the first quarter that's primarily related to CityCenter but also MGM Grand, Macau, and MGM Grand Detroit.

Property transactions net what-- that was-- net number was $5 million that's primarily related to the write off of the book value of the building assets over at Nevada Landing.

We closed that property in March.

And as you know those properties are being contributed into a joint venture to form a master plan community out in Jean.

Looking at capital expenditures for the quarter-- in the first quarter we spent $611 million at our existing resorts and on development initiatives.

$300 million of that was at CityCenter.

$66 million was spent at MGM Grand Detroit.

We had about $40 million of trailing payments related to the reopening of Beau Rivage.

We include-- that includes about $65 million on room and suite remodel projects primarily at Excalibur and Mandalay Bay.

We had expenditures of about $55 million on corporate aircraft, mainly on deposits for aircraft that will be delivered this year and in 2008.

And the remaining $85 million was related to the kind of routine capital expenditures on the kind of projects that we believe have consistently yielded very good returns for us at our existing resorts.

As of March 31, we had approximately $2.3 billion available on our senior credit facility.

Our fixed to floating ratio as of the end of the quarter was 65% fixed 35% floating.

During the quarter the Company received an additional $56 million of insurance recoveries related to Hurricane Katrina.

These amounts were not recognized as income and will be pending the final settlement of the Company's insurance claim.

To date we have received a total of $428 million in recoveries including $17 million received this past month in April.

$83 million of that money has been deferred and will be recognized upon the final settlement of our insurance claims along with any additional recoveries we may receive in future periods.

In the quarter as has been typically our case we repurchased shares.

In this quarter we bought back 2.5 million shares for $175 million in average costs of about $70 a share.

We have 5.5 million shares left in our existing authorization.

Let's turn to the outlook.

We will continue to provide certain targeted guidance that we believe helps you in terms of looking at our current and future business.

To summarize our outlook, we think that operating trends including here on the Las Vegas strip will continue to remain strong, REVPAR and operating margins in the current quarter.

We're very excited about our development pipeline and in the remodeling projects which have had in some cases a moderating impact on our growth, but long term will clearly produce very strong earnings for us.

As I said earlier, April was a pretty solid month for us.

Gaming volumes improved, slots were up nicely in the month of April.

And we have good hopes for the months of May with many activities including an extraordinarily publicized major fight this weekend.

On the nongaming side, our REVPAR confidence is driven by good forward bookings across the mix of rooms.

And our four convention room nights look like they'll be up nicely with higher pricing in this quarter.

So we're encouraged about that.

Specifically, on the income statement, guidance in the second quarter we expect profits for Tower 3 of the Signature at MGM Grand to be $18 million.

This is lower than our previous forecast for the second quarter and that is really totally due to the timing of expected closings.

We expect actually to book around $40 million of profit for the same tower in Q3.

Stock compensation expense will be about $13 million in the quarter.

Corporate expense in the $35 million to $40 million range.

Net interest expense will be approximately $190 million to $195 million in the quarter with a breakout of gross interest of around 145 to-- I'm sorry, $245 million to $250 million, Cap interest around 55.

Depreciation we're forecasting in the $165 million to $170 million range from continuing operations, and our tax rate we are forecasting at approximately 37% in the quarter.

And finally, in terms of capital expenditures.

Our guidance remains unchanged, we still expect that we'll spend about $3 billion this year which includes all the projects that we've talked about, both at our existing resorts as well as all the new projects that opened this year and beyond.

So, that's a pretty good job, Terry.

We're at exactly at 8:30.

And I'd like to turn it back over to Latrisha to see what kind of questions do we have from the audience.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Larry Klatzkin, Jefferies & Company.

Hi guys.

Hi, Larry

A couple of things.

One just a question you always get which is hold, table hold, better or worst than last year?

The table hold was right in the middle of our range in both years.

Okay.

The aircraft you're buying.

How big of an expense we're looking for 2008 and when should we book it?

We're buying, let's see now, Terry, we have two Gulfstreams coming this year.

Gulfstream 350.

And a Gulfstream next year.

And first quarter a Gulfstream 550.

And then a BBJ?

A BBJ in October of this year and a BBJ probably in-- Aldo would you say November or December of '08?

It will be completed and yes, and delivered to us.

And the reason I would say that they deliver them green.

Gulfstreams are delivered finished.

Bowing business jets are delivered green and you have to finish them out It's about a year of finishing them.

So how much do we add to 2008 for that?

The-- all the plane CapEx is in our guidance, Larry.

So the $3 billion we gave you is for-- the planes delivered this year is in that number.

So there's nothing added to this year.

And we haven't given guidance for '08 on CapEx in general, but it's not-- obviously not going to be a major component of our '08 CapEx.

Okay, as far as option expense.

Could you-- how much was in corporate in SG&A versus properties?

I think corporate was around $5 million, is that right, then?

For the current-- for the first quarter we had it in the release.

But for the second quarter I think it's going to be around $4 million or $5 million, Larry.

Okay perfect.

And then, I guess as far as anything on the 14 acres in Atlantic City.

Can you talk about any discussions going on there or anything looking good?

I don't know, Terry, what do you want to say about that?

One, there was some litigation.

We won the litigation.

But that's being appealed.

So it's probably best that we not discuss it.

Because it is under court appeal at this point, but there is obviously significant interest in the land in Atlantic City at Renaissance point in the marina.

All right then I guess the last question would be as far as (inaudible) being China and your things you signed up, which is pretty great.

When do you think we'll start seeing you start to take action to see income from that business?

Well I think it's a little early to predict the exact timing.

We had a group of senior officials from the foreign service department of the People's Republic of China, who visited last week.

We're encouraged by their interest in moving ahead quickly on this.

And we have a team of people led by a couple of our Senior Executives, including Gary Jacobs, who are heading off the first, next week isn't it?

It's about a week.

About a week heading off to Beijing for further discussions.

And we're looking at bringing personnel on board for the joint venture to help develop these.

But I think it'll move along.

But to predict a specific date, it's a little too early.

All right thank you, guys.

Thank you Larry.

Your next question comes from Robin Farley, UBS.

Thanks, I wanted to clarify, I'm assuming your comments when you're giving guidance you said you expected the strong Las Vegas trends to continue.

And then you said something about REVPAR and operating margins.

I just wanted to-- does that mean the REVPAR increase is on the quarter and the operating margins we saw in the quarter, that you expect those rates to continue?

I just wanted to clarify with the REVPAR increase?

Sure, Robin.

We expect REVPAR to be up again this quarter.

Obviously it was up nicely in the first quarter.

We expect good REVPAR growth again in the second quarter.

And in fact looking at the forward bookings, we feel pretty good about it for most of this year so far.

As it relates to operating margins, I think my comment was that we expect strong operating margins again.

We were flat in terms of EBITDA margins year-over-year in the first quarter.

We expect that margins will be equally good in the second quarter.

Okay great.

And then on-- at the MIRAGE property specifically, was that-- was there kind of a hold issue there?

I know Company wide you mentioned it was in the normal range and didn't change year-over-year.

But was that-- was the shift among properties at the MIRAGE, EBITDA was maybe a little lower than we would have thought?

Yes, the MIRAGE had a nice hold in the first quarter of '06 and a little bit below average this year.

We don't--- we're so big now we don't really drill into the particular properties.

But that did negatively impact the comparison this year.

Okay great.

And then the last question is, for the condo sales for CityCenter, when do you kind of roughly anticipate that you'll be 100% complete?

Is that something that would be sort of in the next 12 months or can you give us a time frame?

Robin, this is Bobby, the sales program for all the residences as CityCenter is 30 months in duration beginning in January of this year and concluding in the summer of '09.

So, we're just four months into the 30 month sales program.

Okay so in other words you expect to be selling them up until the summer of '09?

Yes, the buildings come on line before the rest of CityCenter obviously in the summer time so that we can get the owners into their residences.

But that's the full sale cycle.

Obviously if it's shorter then that, then we probably didn't charge enough money for the product.

So we intend to sell through out the period in order to generate the greatest yield.

Bobby as I buyer I think you charged plenty.

We have early birds we got (inaudible).

And then just one last question.

Actually the stock decrease that you mentioned maybe some of it was mixed because of having more convention business.

It sounded like the second quarter convention calendar was also pretty heavy.

Do you kind of anticipate slot revenues maybe seeing a similar trend in the second quarter?

No, we don't, Robin.

We think slot revenues will be up in the second quarter.

Okay, great.

Thank you.

Your next question comes from the line of Harry Curtis, JPMorgan.

Hi, a couple of quick questions.

The first is, what do you plan on doing with the existing Detroit facility?

And then the second question is, if you could give us a sense overall of the high end demand coming from Asia to Las Vegas, and then specifically what's been happening to your share and how does that change when you open in Macau in the fourth quarter?

Well as the first one, as far as the existing Interim casino in Detroit, as you know we opened that in July, I think it was, of '99 expected to be on a temporary basis and it's been going for quite awhile.

We obviously would love to be able to have two casinos in Detroit.

But the law doesn't allow that.

We will, in a transition period, utilize that for training facilities and some administrative functions.

Eventually it probably it will be sold.

I don't think we'll be keeping it.

And I think, Harry, your question was as it relates to the high end on a going forward basis?

Yes.

I missed the second question, sorry.

So I think the question, Harry, had was how do we project the high end on a going forward basis, is that visa via the first quarter, Harry?

Well actually what I'm trying to get overall is your sense of demand coming from Macau, there seems to be some advantage that [Wynn] and Las Vegas [sand] have had.

Because they've open in Macau, and so what are your expectations for your business in Las Vegas once you open in the fourth quarter?

Well, Harry, if you're leading up to it, and there's no doubt about it.

And if you look at the first quarter we were disadvantaged as compared to Venetian and to [Wynn] on the basis of new business coming out of the People's Republic of China.

We have a good portion of business coming out of People's Republic of China into the Las Vegas marketplace.

But it's pretty clear to us that [Wynn] and the Venetian are getting a bigger share of that market place because they have the familiarity in the Macau operations as they have them in.

Obviously, when we open the fourth quarter of this year that's going to be very much helpful to us.

It will be a problem, very frankly, for the next two quarters until we get into that fourth quarter and the first quarter of '08 on a comparative basis.

But we have a very significant marketing team.

And our marketing team obviously is working aggressively to bring people in.

And that exposure in Macau is going to be a significant one.

Quite frankly just as our exposure with Diaoyutai and various cities in the People's Republic of China we think will give us a leg up moving forward as compared to our competitors.

So we're disadvantaged at this point, we'll be on a level playing field by the end of the year.

And we think when we are up and running in various cities of the People's Republic of China with our brand name that we will have a further advantage.

How difficult are the high end comps over the next couple of quarters?

I think it's difficult to say.

We've got good business and very strong business coming in.

But I think that if you take a look at the first quarter and compare it, there was a pretty good increase in high end [Vacera] play in the Las Vegas marketplace.

And we were pretty even.

And they were up and we weren't.

So, it's going to be a pretty tough comparison for the next couple of quarters.

By as I say by the fourth quarter and then first quarter of '08 we should be back up on a level playing field.

And if I can add.

As you know, Harry, the first quarter and the fourth quarter are the more meaningful quarters for the high end.

Right.

And so we'll see.

The opening of the MGM Grand Macau is coming at a good time from the perspective it's coming into the fourth quarter.

And we do have some significant events coming up in the second and third.

But they're really more nationally oriented, like for example, the fight this weekend.

And so I think we'll-- I mean I think that's a good comment on that.

And the international ones, Jim, as you know during the summer are much more geared towards Vietnamese and Japanese festivals.

And that's not going to be a disadvantage for us.

So you're absolutely right, the fourth quarter is the next big quarter for business to generally comes in from the PRC and other parts of (inaudible) in Northern China and those areas.

I think also we had a pretty good hold though in the third quarter at some of our properties.

So you look back-- you should look back in the transcripts on that.

It won't impact much the second quarter, but we did highlight that in the third quarter call that we did well in the third quarter of '06.

Oaky that's helpful.

Thank you.

Welcome.

Your next question comes from Steve Kent, Goldman Sachs.

Hi, good morning.

Hey,Jim, could you just give a little bit more discussion on the directional difference between the hotel rates food and beverage versus the casino spend?

I guess I'm not sure I've seen such a difference, at least directionally in the past.

I understand the issues about the number of hotels online or offline and impact of casino volume.

But could it also just be share of wallet?

Jim and you've done a good job to getting people to spend more on the rooms, by getting to spend more on food and beverage.

And that's high margin business.

So, I mean are you managing more towards that to just sort of how much people are coming into the casino-- into an MGM property and not as sensitive to where they spending it as much as you used to be?

Steve, it's Bobby Baldwin.

I could speak for some of what I see in the Las Vegas market.

First of all with our properties we have a lot of construction.

A lot of construction is touching Bellagio, severely impacting Monte Carlo and to a lesser extent New York-New York.

Monte Carlo was-- had more impact in slots this quarter than any of the other properties.

It basically has the front of it's building closed as it builds two new restaurants on the Las Vegas strip, and the back of it's got 26 construction cranes associated with the construction of CityCenter.

So some of the impact is there.

Jim mentioned the importance of these room remodels and how they impact some of the properties.

But there's also some marketing away from some of the slot play that's not as profitable as it used to be, into retail sales.

And I think MIRAGE Casino Hotel particularly for this quarter was an example of that, where [Scott Sabella], intelligently and purposely shifted some of the slot play into cash sales.

And his slot department was down by about $1.5 million if I recall, and his cash sales were up by about 4.5.

But he did that intentionally.

So that's-- those were some of the things that work that are impacting the slot picture.

And I think you are on to something there, Steve.

Clearly we do focus, we have been talking about how much we're focusing our marketing and our capital energy on nongaming.

The market for that audience is far greater than the gaming audience.

And we have found a way to make it as profitable as the gaming business.

And so our incremental capital dollars are almost exclusively on the nongaming side.

And every time we open a restaurant or a lounge, upgrade a public space we get a very positive financial result on that, and that's happening.

On the negative side, on the gaming side as Bobby said there have been some projects that have temporarily hurt us.

As well as the fact that really we can't lose sight of the fact that we only merged out Mandalay a short while ago.

We clearly are not operating as cohesively from a gaming perspective as we expect to as we roll our marketing systems on the gaming side throughout the entire portfolio.

Now where as I said we only did Excalibur in the first quarter and certainly we could not say that we have maximized the gaming opportunity of having like properties on Las Vegas strip operating to the mutual benefit.

So, I think that you should continue to expect our nongaming revenues to increase as a percentage of our overall revenue as the actual dollars grow more rapidly than our gaming dollars.

That was projected to be the case.

That's what's been planned for several years, and it's happening right now.

Jim, I think to add to that, is I think if I'm not (inaudible) in the first quarter we did 60% of our revenues were nongaming and 40% were gaming, and the prior year's first quarter we had 56% nongaming, 44%--

Yes it was actually 58%--

58%?

Yes 58% this year verse 56%, I-- the year on-- we would agree that that's the trend that we're getting to, 60% /40%.

Okay thank you.

Our next question comes from Joe Greff, Bear, Stearns.

Goof morning guys.

I have a follow up question to some of Harry's questions, before.

Jim, looking back at the 1Q and looking at the table game volumes on the strip.

Was there a big disparately between domestic players and international players?

Well in terms of the growth of them?

Yes.

In the early part of the quarter we didn't do well on the national side.

Really, I don't think anyone really particularly did on a Las Vegas strip for the reasons that -- macro reasons we talked about in January and February.

Chinese New Year was actually was a fine experience for us, and we picked up quite a bit in March.

But we were down in both, but I think on the high end side, I think Terry hit upon it in terms of the incremental business we just did not get it.

As a result, the incremental Chinese business we just did not get it.

And on the national side, March madness was very successful.

And that moved us into April as being a decent comparison.

But if I could add one thing here, Jim.

The other issue that we did have some challenges with was the confluence on President's weekend when we had the NBA all-star game which turns out to be an interesting game, but a very difficult situation for all of Las Vegas.

And that was at the same time as the second week of Chinese New Years and the President's holiday itself.

And frankly with some of the groups of people that came from Los Angeles and other areas who didn't come for the game but came for other activities, other than legal activities.

And they did have a significant effect.

And we know from our agent business, and the people stayed in their villas and suites rather than risk coming out into areas where they felt uncomfortable.

So, the impact from the NBA all-star game, it wasn't just a-- was it a shift in revenues or was it a reduction in revenues do you think?

It was a significant reduction in revenues.

David Stern, he can keep the all-star game and not bring it back here as far as we're concerned.

Easy comparison for next year.

Thanks, guys.

You're welcome.

Your next question comes from Celeste Brown, Morgan Stanley.

Hi guys good morning.

First it's just-- a quick question on the Bellagio, is the hold within the range there, this quarter?

Bellagio, yes it was in the range.

And then can you comment on the Barney Frank bill that's been proposed your thoughts on whether or not it has a chance of getting through, and how you guys would participate if it did pass?

Actually we're members of the American Gaming Association, I serve on the Board.

And we did indicate in a release just two days that we support Congressman Frank's proposal, because we think it's appropriate.

To what degree he's going to support it, he pretty much indicated that he's going to leave it to other people to really push this.

He did introduce it.

And we'll see what happens there.

We through our representatives in the house and senate have asked for a study bill.

And we think that representative, Shelly Burkley, is going to be reintroducing that bill shortly in the House of Representatives in which there would be a study for a period of a year, to deascertain if those three issues that are always raised, one geographic location of the person making the wager, the age verification and the issue of the problem gaming component if those would be available under current technology.

We firmly believe that they are, and such a study commission we think would prove that.

And I think it's probably realistic to say the study commission under the Democratic leadership has a better chance now than it did before.

I may not be able to override a veto of the President.

But who knows if the President would veto that or not?

I suspect the Barney Frank Bill probably won't go too far.

I am much more hopeful the study commission will be enacted and we can move forward and legitimately allow those of us in commercial gaming to participate in internet gaming where it should be legalized, taxed and regulated as we've always said.

All right, thank you.

Your next question comes from Dennis Forst, KeyBanc.

Yes good morning.

I had a couple of questions.

First on CityCenter now that the start-up costs are starting to become significant, I think in the first quarter was about an $8 million pre-opening startup cost, yet operating loss, Jim or maybe even for Dan, was $14.5 million.

What's the $6.5 million difference there?

Well on CityCenter, the residential sales piece we expensed that, Dennis.

So, that's the difference.

Are you talking about the operating cost?

The marketing of the residential?

Exactly.

So that's $6 million.

So that number is not going to change a whole lot?

Probably the pre-opening keeps going up, but that marketing component would stay in the $6 million/ $7 million range?

Yes, that is a fair assessment.

Okay and then looking at a bigger picture, yesterday Las Vegas Sands had talked about competition getting more severe in Macau their revenues were up strongly in the quarter, yet cash flow didn't go anywhere.

Can you give us your thoughts of what's going on, and what's you're going to face when you open up in the fall?

Dennis, it's Terry Lanni.

It seems to me that one of the disadvantages of not being opened in Macau is you don't get the cash flow from Macau operations.

One of the advantages is as we're moving up and ramping up to the opening is to study what our competitors are doing.

And there seems to be a disparity now in the commission structure paid between some of the operators.

One operator is paying a higher level of commission, the others generally are paying a lower one.

We're watching that.

We haven't ascertained yet what we're going to be doing.

It's something that we are watching very, very closely.

And obviously with competition and with different things, I mean you can kill yourself in the marketplace.

We see that in Atlantic City, with the comps that are created there and we would hope that wouldn't be the similar approach in the Macau marketplace where people are giving more and more commissions away.

Time will tell, we're not really quite sure.

We're looking at as I say very, very closely.

The real factors that's going to change all of that in my opinion, is at some point the (inaudible) should be a convertible-- fairly convertible currency, and once it is, frankly you don't need room operators.

They're providing credit, and that's not necessary once the (inaudible) is freely traded.

We suspect that will happen.

I think most of the economists and financial analysts in the country and the world will believe it will, it's a question of when.

Some people estimating as early as shortly after the Olympics in August of '08.

But that's going to be a significant factor, I think moving forward.

Okay and then lastly, Jim, can you reconcile the diluted shares outstanding?

You said you bought back a couple million shares, yet the average shares between the fourth and first quarter went up to $4 million.

Well as the stock goes up the dilution factor goes up too.

So the stock went up-- the stock price went up.

So it had that dramatic of an impact on it?

Yes.

There weren't a lot of new options given or things like that?

Yes I think the average at the end of the year in the stock was there the $50 range .

It was in the $70 range at the end of the first quarter.

So that was the impact

Okay you need to get the stock down so we can get the EPS up.

Well we'll just buy more then I guess Dennis.

Okay, thanks.

Your next question comes from Jay Cogan, Banc of America Securities.

Yes hi, good morning.

Got a few questions for you, I know we try to dissect the quarter in a few different ways.

So far let me just throw one more question out there on it.

Can you talk a little bit about the high end versus the mid-end?

And not just like high end gambler, just high end versus mid-end.

I remember in prior quarters, it was the first half of last year, you were talking a little bit about some weakness in, I guess you call it the lower and mid-end properties.

And they seemed a little bit soft to me.

Understanding some of the issues at Excalibur, but on New York-New York it seems like it's struggling a little bit, and Luxor just seemed okay.

And I was just kind of curious if you guys were thinking about it in that context or is it just really not that way?

Well I'll make a general comment and maybe turn it over to the gaming experts, Bobby or Terry, or whoever wants to jump in.

I just want to remind that we had many records really across our price points in terms of record cash flows in the quarter.

So we're not apologizing for having record earnings at Bellagio, MGM Grand, Mandalay, but also record earnings at Treasure Island and Monte Carlo at the mid-point price points.

So, I think that the business model is working well.

We're not satisfied with the gaming numbers in the first quarter.

We made that clear on the first page of the release that they were down.

And we expect them to improve.

We're not giving up the fight, there.

I think we have the best properties, the best people, the best marketing offices, and certainly we should have better than our fair share of the gaming numbers.

We always do and we continue to expect that.

But from specifically I want to remind everyone that we had a very solid quarter across the portfolio in terms of overall earnings.

We were not happy with the gaming numbers.

Bobby, do you have anything to add on that?

Well there's just a tremendous amount of potential in the various markets.

In the mid-markets, speaking for Treasure Island and Monte Carlo was record quarters.

There's a great deal of potential in those properties and that's why we're diligently improving the public spaces and accommodations at the mid-market facilities.

And then maybe if I can ask just kind of on that point.

We saw that you announced you have another show coming for Luxor this time.

And I was wondering maybe if you can just kind of lay out for us when we should anticipate some of these up grades, and maybe even if there's more details you could provide as it relates to Monte Carlo, Excalibur, Luxor et cetera, New York-New York.

Maybe you know a few of the ideas that are going to be coming out and when it's going to hit the P&L and just kind of help us think about when some of these properties might be showing some pretty decent growth?

Well I'll take a couple of that, and maybe Bobby jumps in too.

Excalibur is actually the next property to get some nice show.

And that happens this year.

And so that along with several new restaurants, a couple clubs that I won't go to but I think will be heavily populated, and a few other amenities.

Excalibur is a big deal, of course the room remodel program is helping a lot.

The new rooms are just, Terry was saying this morning, ther're just tremendously different than the old rooms.

They are a very upgraded product.

And then the Chris Angels show over at Luxor, that opens up next year, right Corey?

June of next year.

That is a big deal.

He's an extraordinary popular guy on A&E.

And he performs there now in his show, but having that new theater will have a big impact.

And the property itself is undergoing just a dramatic transformation in restaurants, clubs, bars, et cetera.

So you're going to see every quarter like you've seen at the MIRAGE and other properties that we have owned for a longer period of time.

Significant improvements in properties which will hopefully yield the same kinds of results that we've gotten in the prior improvements.

And just to continue on that, Treasure Island's about halfway through it's remodel project.

New York-New York is completing the corridor and some guest room refurbishments.

It's going to have a new nightclub.

Monte Carlo has just opened a new food court they're reconfiguring the front of the building include a new Mexican restaurant, a new barbecue restaurant, they just opened a new high limit slot room.

In fact about a week ago, they're redoing the pool deck since I crushed it with all my construction at CityCenter.

I think the river keeps leaking, and of course I keep getting the bills to fix it.

But we're going to settle down the construction of CityCenter in their immediate proximity within the next month or so.

And by September we'll have a good part of the work done in front of Monte Carlo completed.

And so there's lots of activities and lots of new things coming into the marketplace for New York -New York, Treasure Island and especially Monte Carlo.

Got it.

And then if I could just ask a couple on longer term growth questions here.

On (inaudible) Jim, if I remember correctly, what is it, like within 120 days we'll have some kind of details as it relates to what exactly you and your partner intend to do both in (inaudible) as well as in Las Vegas.

I was wondering if there's any more you can add to that?

And then also on the north Las Vegas strip development project which got talked about earlier, I was just wondering if maybe you could touch a little bit more, I know you're looking at their partners, but exactly how much of the capitol outlay do you expect it to be, what's the timing, return expectation?

What's it going to be like, and if you can just maybe add a little bit on both of those projects-- or opportunities?

Sure Jay.

Yes.

the clock is ticking on the (inaudible) agreement from a standpoint that we've agreed that we're going to work diligently over the 120 day period from the signing of that definitive agreement.

I don't know what day we are in.

We probably got 90 something days left, Gary, something along those lines.

And we're having very good dialogue with our friends at (inaudible).

And until we have that dialogue manifest itself in to something to announce we really can't share with it.

All I can tell you is that the dialog is productive, and you'll know more.

As it relates to the land up on the northern part of the strip, Terry and I were talking that there isn't a north strip and a south strip.

The valley is getting so large that it is the strip.

And so I think that at that land we have assembled just a tremendous opportunity.

78 acres all north of Circus Circus drive is larger than than the CityCenter sight, and which is pretty impressive.

We close on those two land transactions that we've announced this month.

One I think today.

Today.

Yes today on the smaller of the two pieces.

And later this month on the larger of the two pieces.

And Terry's correct, we really have gotten a overwhelming amount of interest with entities that would like to partner with MGM.

I think the concept is that there is no doubt that many people want to invest in real estate in Las Vegas.

They come in many forms.

We have private equity firms, we have pension insurance Companies, we have very wealthy individuals, real estate Companies, nongaming hotel Companies, entertainment Companies, global franchises.

All have an interest in Las Vegas.

They recognize that land prices are skyrocketing and they recognize also that that is the cost of entry now.

They also recognize construction costs are high.

And then they recognize the fact that if they get into this market they will have to compete against the encumbrance of which we of course are the largest.

And they feel like a great opportunity could be to partner up with we think the best but the largest gaming Company here in Las Vegas.

So, those conversations are preliminary and-- but are very encouraging.

And I think as the quarters progress this year we have to give you a little bit more information.

At this point in time candidly we haven't done any real significant work at all on the property.

It is not appropriate.

We haven't closed the property transactions yet.

We know what we're going to own, but we don't own it yet.

And then once we do, we'll be able to drill into it and do the kind of work that we did on a preliminary basis with CityCenter, that was a lot of work before we announced to the community that we actually had a project called CityCenter.

So, I think that a little bit early on but I could tell you that we're encouraged.

And with that really I checked the time and it's actually 9:01.

So, I'd like to turn it back over to the operator.

But just to conclude by saying thank you very much for joining us.

And as always if you have any questions please get to us and we'll get back to you as soon as possible.

Thank you for participating in today MGM MIRAGE first quarter conference call.

You may now disconnect.