美高梅國際酒店集團 (MGM) 2007 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the MGM Mirage second quarter conference call.

Joining the call from the Company today are Terry Lanni, Chairman and Chief Executive Officer MGM Mirage, Jim Murren, President, CFO, and Treasurer of the MGM Mirage, and John Redmond, President and Chief Executive Officer of MGM Grand Resorts, Aldo Manzini, Executive Vice President and Chief Administrative Officer of the MGM Mirage.

Participants lines are on a listen-only mode.

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

(OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Jim Murren, go ahead sir.

Thank you, Robin.

Good morning, everyone.

As you know we are broadcasting this conference call on the internet on MGM Mirage.com, as well as on Companyboardroom.com.

A replay of the call will be available on our website.

We furnished an 8-K press release today with the SEC, and additional information was posted on our website, which gives very significant detail behind the numbers included in the release.

As you know, we are obligated to remind you that information that we present in this 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 words like, we expect, we anticipate, and similar phrases.

These forward-looking statements may include information about future periods, 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.

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

With that I will now turn it over it Terry Lanni for a discussion of our results.

Thank you very much, Jim.

Good morning, everyone.

I wanted to let each of you know that Bobby Baldwin and Gary Jacobs will not be on the call this morning.

Bobby is on a much-deserved vacation, and Gary is on Company business in the People's Republic of China.

Earlier today as you note, we reported diluted EPS from continuing operations of $0.62 for the second quarter.

This is a record for the second quarter, and a 27% increase over the second quarter of last year.

Net income per share on a fully diluted basis was $1.22, compared to $0.50 in the second quarter of '06, which was positively impacted by the gaines recognized this quarter from sales of Primm Valley Resorts which closed in April, and our sale of our Laughlin Properties, Colorado Belle and Edgewater, which in turn closed in June of this year.

As far as operating results, net revenues increased 10% to $1.9 billion, up 4% excluding Beau Rivage, an all-time record revenue quarter for the Company.

Our fundamentals are clearly strong, as evidenced by tremendous hotel results and excellent cash flow results across our portfolio of resorts.

As mentioned in the release, we had all-time record second quarter property EBITDA of $686 million, which represents a 9% increase over the prior year.

Las Vegas Strip occupancy percentage of 97.8% was our Company's highest occupancy since 2000.

Combined with a strong average room rate of $162 our Las Vegas Strip REVPAR was up 7%.

Demand has remained robust, and increased visitor volume to our Las Vegas trip resorts continues to drive revenues.

MGM Grand Las Vegas earned $108 million of EBITDA, which is an all-time record for any quarter in that property's history, and a 43% increase from the prior year.

TI and Excalibur also earned all-time record property EBITDA.

The Mirage earned $59 million, a record second quarter which represented a 41% increase over the prior year.

New York New York also had a record second quarter.

Bellagio had it's second highest ever second quarter property EBITDA, against a very tough comparison to the second quarter of '06, despite having an abnormally low hold percentage this year, and a high hold percentage last year.

Let me talk a little bit about recent highlights.

Kerzner International you have heard our announcement about that.

We announced that we have entered a letter of intent with Kerzner International to form a 50/50 joint venture to build a multi-billion dollar integrated resort.

We will be contributing 40 acres of land to the joint venture, and will be receiving $20 million per acre in contributed value.

Kerzner International and one of its financial partners will contribute cash equity.

On CityCenter, construction is progressing nicely.

For those of you who have a chance to see it from time to time, it is really coming up and out of the ground with each of its property development portions of it.

We have reached the 22nd floor at the CityCenter Hotel and Casino Tower, and the resorts, show room, convention center and parking garage are well underway.

Construction of Vdara, the condo hotel has reached the 11th floor, and the Mandarin Oriental is up to the fifth level.

It needs 49 more levels to get to my unit, but we are working on it.

Foundation and structural work has commenced on all the other elements.

Vira Residential, The Harmon Hotel and Residences, and the [Crystal's] Retail development.

We remain on-budget and on-track for a late 2009 opening.

On the residential front, we have sold a total of almost $250 million of residential products since our last earnings call, or a total of almost $1.4 billion of real estate to-date.

The Harmon Residences, the final CityCenter residential product will go on sale late in this quarter.

The permanent MGM Grand Detroit facility is expected to open in the fourth quarter, with what we believe will be Detroit's finest hotel and casino.

John Redmond will be providing more details in his report shortly.

MGM Grand Macau is on-track for opening as we have said all along later this year, and we will share more details on its opening on our next quarter's conference call.

We formed MGM Mirage Hospitality, which is headed up by Gamal Aziz, who remains as President of MGM Grand Las Vegas.

Hospitality will oversee our Foxwoods and [Batelaan] Development Company, and the Diaoyutai Guest House partnerships, among its other activities.

We are working on some very exciting projects and look forward to sharing those with you when we are able to, for this new development and new subsidiary.

I would now like to turn it back to Jim for a few more comments on our financial results.

Thank you, Terry.

I would like to discuss items that affect the comparability to last year.

The Beau Rivage was closed last year, and this year in the quarter it reported property EBITDA of $23 million.

Regarding the signature at MGM grand, Tower 3 opened in June, and we recognized income of $63 million in the quarter, from our share of the profits on the closings of the units for a total of $0.14 a share.

We are pretty good at estimating how much profit we are going to make per tower but not exactly the timing of when we are going to get that profit.

It was a little bit better than we thought, quite a bit better in terms of time.

Prior year quarter had profits from the signature at the MGM Grand of $28 million for a total of $0.06 a share, so $0.14 this year, versus $0.06 a year ago.

This quarter profits were a little bit better than we talked about as a result of the higher pace of closings.

Tower 3 profits are on-track to exceed profits from Tower 2 in the aggregate.

and we will touch on those expectations for the third quarter closings when we talk about outlook.

We had $0.04 a share impact from pre-opening and property transactions, compared to the impact of $0.06 a share a year ago.

We closed on the sale of Primm Valley Resorts, we sold those assets for $400 million, and the Laughlin properties which we sold for $200 million.

The combined pre-tax gain was $264 million, and that is included in discontinued operations along with the results of these operations for both periods.

On the hotel side, hotel revenue was $555 million, up 9% in the quarter, up 5% if you exclude Beau Rivage.

The results of course were achieved, despite the fact we had 60,000 less available rooms in the current year, related primarily to the room remodel activity, that I am sure John will touch upon, at Mandalay Bay, which was out 46,000 rooms, and the closure of Nevada Landing out at Jean, which closed in March of this year.

I already mentioned this, but it is worth repeating, our occupancy for the Las Vegas Strip resorts was 97.8%.

You know really a very strong quarter.

ADR was $162 million, $162.00 compared to a year ago.

$162 million we wouldn't be on this call.

(laughter) 7% REVPAR increase was our 16th consecutive year, which is about four years I think, of consecutive year-over-year REVPAR increases.

Gaming revenues were up 5%.

You pull out Beau Rivage, however gaming revenues were down 5%, the decrease was mainly due to decrease in Baccarat volumes compared to a pretty tough year a year ago.

We were down 13% in baccarat volume.

Second quarter last year we were actually up 19%, but we were down 13% this year.

The good news is as customers were here, they beat us though, which is not so good, and lower hold obviously has a dampening impact as well on lower drops.

Table game whole percentage was within our normal range as we have defined it year in and year out with you, of the 18 to 22%, but it was toward the low end in the current quarter, versus being in the high end in the 2006 quarter.

There was about a 300 basis point difference between whole percentage between the two years.

And I think we noted in the release, Bellagio and Mandalay Bay were particularly affected by the low hold, and they were both below the low end of the range.

Excluding Beau Rivage, slot revenues were up slightly from the prior year.

Slot volumes at our Las Vegas Strip resorts were actually up 4%, which is a distinct improvement versus the first quarter, in terms of volume.

So occupancy slot volumes far more vibrant in the second quarter year-over-year than the first quarter.

Food and beverage our revenues were up 15% in the quarter, up 9% if you take out Beau Rivage, and that of course was due to many new enhancements to our properties, new restaurants and lounges at several of the resorts, including at the Mirage and Mandalay Bay, and a very, very strong performance at the MGM Grand Las Vegas, which has benefited from the foot traffic also, from the two Signature Towers that came online throughout the year, and of course were in the second quarter.

Entertainment revenues were up 37%, and that was the big benefit there, of course with the opening of Love at the Mirage that opened in July of last year, and we had a very strong event calendar at the MGM Grand Las Vegas.

That included the De La Hoya-Mayweather fight that was just a really terrific event for the resort, and really across our portfolio properties.

EBITDA was $686 million, that was up 9% versus the prior year.

Terry mentioned there were several records and highlights.

But I think the key takeaways were that we generated significant cash flow increases across all market segments, even while we are making substantial improvements to resorts like Luxor, Monte Carlo, and Excalibur, we saw very strong traffic and profit right from the economy segment, and right up through our highest end properties from a volume perspective.

We believe that we can continue to generate very strong returns from these kind of investments, as evidenced by our margins, which are very strong still, they are 33% in the current quarter if you exclude out Beau Rivage and the Signature.

I think now we have half the year underway, we can say with some confidence that 2007 looks like it is going to be a solid year in Las Vegas here, as we capitalize on its market's increased popularity, and it looks like it is going to be at least as good as 2006.

So with that I will turn it over to John.

Thanks, Jim.

Good morning, everyone.

MGM Grand Resort had an exceptional second quarter, driven by strong slots, hotel, food and beverage, and convention business.

EBITDA at MGM Grand and Excalibur was the highest quarterly results ever achieved, as Jim mentioned.

Mandalay Bay's results were negatively impacted by a less than normal table gains whole percentage, and 39,000 less occupied room nights, due to the room renovation project currently in progress.

The combination of a lower hold percentage and less occupied rooms, reduced EBITDA by approximately $10 million at Mandalay.

The standard rooms will be completed later this month, with the suites expected to be finished in October.

In Q3 2007 we expect to be down approximately 19,000 occupied room nights at Mandalay Bay, due to this ongoing renovation.

In addition, in Q2, we completed a pool area enhancement at Mandalay, which includes climate controlled pool side gaming, additional exclusive cabanas, and much needed additional pool seating.

With regard to the Signature and MGM Grand, the Q2 gains related to closing condo sales was $63 million, and the forecasted gain for Q3 should be approximately $13 million.

Moving to Detroit, the permanent facility under construction in Detroit will open October 2, 2007, approximately two years from the date construction commenced.

The current temporary or interim facility will close on the evening of September 30th, in order to transition over to the permanent MGM Grand Detroit.

This 400-room hotel casino and entertainment complex spread over 25 acres is a fully-integrated Las Vegas style resort.

The current interim casino facility consistently operates at or near capacity on two gaming floors, with 2876 parking spaces, 2840 slot machines, and 72 table games.

The new facility will have 7300 parking spaces, 4500 slot machines, and 98 table games, all on a single level.

The restaurant seating capacity will more than double the existing count, anchored by 24-hour casual dining and room service managed by Wolfgang Puck, and a steak and seafood venue managed by Michael Mina.

These world renowned chefs, coupled with numerous exciting bars, entertainment venues, health spa, and retail outlets, and 30,000 square feet of meeting space, will vault the fun and excitement bar to all new levels.

The 510-square foot standard rooms, and 78 suites will impress the most discriminating customer, with the highest quality and latest technology.

As a reminder, when the permanent facility opens October 2nd, the current gaming tax rate of 26% will roll back 500 basis points to 21%.

Finally, I want to give you an update on the interior transformation of the Luxor.

We felt the property had significant upside potential, with better management, operating strategy, and prudent capital investment.

As we discussed some time ago, the initial quick strategy was to address the slot floor, and drive occupancy, and I think the success to-date speaks for itself.

Realizing the inside of the building did not deliver on the expectation created on the outside, we are adding numerous exciting bar and restaurant concepts, to drive more foot traffic, eliminate the dorm effect, by providing guests a reason to stay, and further drive ADR.

To expedite the interior transformation and enhance quality creativity and know-how, we have signed leases with strategic partners, including The Peer Group, who will operate multiple venues, including the LAX Nightclub, which will open next month around Labor Day.

Throughout the year and into next, we will continue to add new and exciting venues, culminating with the Criss Angel CirqueDuSoleil show in the latter part of next year.

The aggregate investment being made by these strategic partners will total approximately $60 million.

Given the advanced discussions we are having with other potential partners, I would expect the aggregate investment by partners to approach $100 million at the Luxor.

With that, I will turn it back over to Jim.

Thank you, John.

I would like to give you some other financial data from the quarter.

Our net interest expense was $184 million, that was slightly lower than our guidance.

I believe we said $190 million.

The composition of that was we had $236 million gross interest, $53 million of cap interest, net interest of about 183 or 184.

A year ago the gross interest was $219 million, cap interest was 28, for a net of 191.

Corporate expense was $44 million, and that was slightly higher than our forecast.

We gave you a range of 35 to $40 million, and that is largely due to the fact that we incurred some additional expense, about $3 million related to the that Tracinda 13d filing that occurred in May.

Other charges affecting earnings and EBITDA were the pre-opening and start-up expenses, that was $14 million, primarily related to CityCenter, but also MGM Grand Macau, and MGM Grand Detroit, and property transactions net that was $2 million net, primarily related to construction of new amenities at the properties that we have been talking to you about.

You add those two together, as I said that was about $0.04 a share.

From a CapEx perspective, we spent $1.3 billion of capital in our existing resorts, and of course on our major development initiatives, and obviously the major part of that was CityCenter.

We spent about $441 million on CityCenter, $81million at MGM Grand Detroit, $23 million of trailing payments for the Beau Rivage reconstruction.

Capital expenditures also included spending around $54 million on the room and suite remodel projects, primarily that was at Mandalay Bay, and we spent $580 million on land that we had purchased, and that is land remember is north of Circus Circus.

A large part of that land has now been flipped into the joint venture with Kerzner at a profit.

We also had expenditures of $27 million on corporate aircraft.

These were deposits on planes that we have already talked to you about.

They will be delivered later this year and in to 2008.

And the remaining $90 million was just other routine CapEx, mostly here in Las Vegas, as we are upgrading our properties.

From a debt perspective, we were quite fortunate to be in the market in the second quarter.

We issued $750 million of senior notes, the coupon was 7.5%.

And at the same time, we redeemed $710 million of notes, The coupon on the old debt was 9.75.

So that is a good trade.

Yesterday we paid off another $692 million of fixed rate debt.

$492 million of it was couponed at 10.25%, and the other $200 million was at 6.75, and they were both redeemed at maturity.

We have no bond maturities this year, and we have about $1.2 billion, over $1 billion of available capacity, about 1.2 billion, on our credit facility.

And we have the capacity certainly therefore to do everything we have been talking about.

Our fixed to floating rate is 59% fixed, 41% floating.

We received in the quarter another $19 million of insurance recoveries that is related to Hurricane Katrina.

These amounts have not been recognized into income.

And that is pending the final settlement of the Company's insurance claim.

Through June 30th, we had collected a total of $430 million in recoveries, $82 million of which has been deferred.

We will start recognizing some of that income in the current quarter.

I will talk about that in a minute.

We continue to believe, as looking out into the future here, that we will see strong operating trends, particularly here on the Las Vegas Strip, REVPAR we expect to be again strong in the current quarter.

Operating margins we also believe will remain strong, to say with half a year under the belt, we feel more confident to say that Las Vegas is on-track to have a very solid year.

We think that our trends have improved, second quarter was certainly better than the first, in terms of some important revenue and volume metrics, slot volume, occupancy, building of rate, all underlying demand metrics that we are very happy with.

We continued to invest in these properties, and the investments yield immediate returns.

And therefore we believe that you will see the greatest delta in our property performance, at the properties that are getting the major investments, and a lot of those properties are the Mandalay Resort Group properties.

We continue to work on some pretty exciting strategic partnerships, Terry mentioned the Kerzner one.

That is an example of things that we can do and are working on.

And we believe that we can significantly monetize the value of our brands and our substantial real estate holdings, in the quarters and years ahead.

John mentioned MGM Grand Detroit.

It cannot be overemphasized how strong we are, and how excited we are about the opening of that property.

And as well of the MGM Grand Macau property that also opens up in the fourth quarter, and we expect them to be the market leaders, and expect them to contribute significantly to our earnings in 2008.

Specifically in terms of guidance in the third quarter, we expect profits from Tower 3 of the Signature of around $13 million.

This brings the total profit tower of Tower 3 to $76 million.

To put that in perspective, you recall that we earned about $54 million, this is our share $54 million of profit in Tower 1.

About $71 million of profit in Tower 2, so far we are saying $76 million of profit in Tower 3, and we still have a few units left to sell.

As I said, we expect to recognize income from insurance proceeds related to Katrina in the third quarter.

Our guess on that is $44 million.

That is due to the settlement of a portion of the claim subsequent to the quarter, the second quarter end.

There are still outstanding claims for which we have not received payments, and we do expect to receive additional proceeds pending further negotiations with various carriers.

Total stock compensation will be we believe about $10 million in the quarter.

Corporate expense in the 35 to $40 million range, that includes stock compensation expense of about $4 million.

Pre-opening expenses we believe will be approximately 30 to $35 million, as we ramp up the pre-opening activities in Detroit and in Macau.

Net interest expense we are estimating to be approximately 175 to $180 million in the quarter, with a gross interest expense of approximately 240 to 245 million, cap interest around 65.

Depreciation we estimate to be in the 170 to $175 million range from continuing operations.

The income tax rate, our effective tax rate excluding one-time items will be approximately 37% in the third quarter.

In addition we will record a one-time tax provision charge in the third quarter, due to a change in tax law in Michigan.

The new tax law will led us to record an increase in our deferred tax liabilities, and a corresponding charge to the income tax provision.

The impact of that one-time item is about $20 million.

As it relates to capital expenditures our guidance remains the same.

We expect to spend approximately $3 billion this year on everything that we have discussed, all the property developments, new projects and the CityCenter being the most particular one.

And that has always excluded the land purchases that we have made.

With that, we have about 30 minutes for your questions.

So I will turn it back over to Robin to get to it.

(OPERATOR INSTRUCTIONS) The first question comes from the line of Felicia Hendrix.

Good morning guys.

First question for you, you gave the hold impact at Mandalay Bay.

What was it at Bellagio?

I think it was the other way around.

John gave it specifically.

I am sorry.

I wasn't listening to you, John.

What was it at Bellagio?

I can give you the Bellagio Felicia on hold.

Remember we said in last year's second quarter that the unusually high hold at Bellagio in the second quarter, resulted in about a $15 million increase in EBITDA, so this year the abnormally low hold was a negative 10 to $15 million EBITDA.

So the year-over-year swing I guess if you look at it that way, would be a 25 to $30 million difference.

So that is Bellagio.

Another way of looking at it is, looking at our hold percentage in general.

And I guess the one way of looking at it is, although and we have said we have been between 18 and 22%.

Table hold really for the past 6.5 years, a 1% difference in table hold represents about $8 million of EBITDA as big as we are now.

So the swing in the quarter between a year ago, was about a little over $24 million, or about $0.05 a share in earnings.

Moving on your Kerzner JV, wondering when you expect to have a signed contract?

And if you have any kind of details about how they are going to finance the project?

Or how the project in general is going to be financed, rather?

Well, we are pretty much wrapping up the definitive agreement negotiations now, Felicia.

So we expect to have that definitive signed this month.

And of course when we get that signed, we will disclose that at that time.

In terms of what the project will look like, that will be next year.

We are sitting down with our friends there, and working on a plan, and I think what would you guess Terry?

Middle of next year?

I would say clearly by the middle of next year.

What I can tell you is remember how that deal works.

Kerzner and its partners put in $600 million cash.

We put in the 40 acres at a land value of $20 million an acre.

When that occurs, we actually, MGM Mirage pulls out $200 million.

We put that in our pocket, and that $1.2 billion equity, of land and cash equity, we believe will be more than sufficient to raise the bank debt capital that we expect will largely fund the project, and between Kerzner and MGM Mirage as sponsors, the ability for us to raise money in the bank market is I don't think, I don't think has any question.

And we could do that today if we felt like it.

So we will do all that probably some time early next year, and at that time we will be able to give you very detailed ideas of what the project looks like, what it will be, and when it will open.

Okay, that is great.

Along those lines as we try to forecast, or think about future projects that you might do domestically, given your experience, probably given the quality of the partners that you are going to be working with, even in light of this environment do you see risk or maybe timing delays, on any kind of future domestic JV projects you might have in the pipeline?

Well the folks we are talking to, Felicia, are not looking at the CMBS market.

The folks we are talking to are very, very large strategic partners, nongaming strategic partners.

And other investors that are not dependent upon the day-to-day fluctuation of the credit markets.

The work that we are doing which is constant, has not abated whatsoever in the past month.

Great.

Thanks a lot.

Thank you.

Your next question comes from the line of Larry Klatzkin.

Hey, Jim.

I am number two but I try harder.

Larry, what happened to you?

This is a first that you are not first.

Felicia is the early bird.

Couple of of quick questions, one, on the management company, or hospitality, could you just explain how you envision we will see things come out of that?

Is it going to Abu Dhabi, in Abu Dhabi first, and not hotels around the world?

Is it going to be expand existing Guest Houses, before you build new ones?

Can you give us some idea of the direction you are looking at?

Larry, this is Terry Lanni.

Gamal and I have met a number of times over this, he is traveling as a matter of fact right now.

If you break it down with the existing agreements we have, for example with the Diaoyutai State Guest House, we are in Beijing and different cities in China right now, looking for various sites to develop noncasino hotels within China.

We have found some excellent sites and we are moving toward closure on those, and will have announcements shortly on those.

So in that regard, there would be development of a new brand, and it would be MGM at the Diaoyutai as boutique hotels, and the thought would be these would be 300 rooms roughly, all suites.

They would have a City Club, so you have the wealthiest people in those cities participating in that, and a world class spa.

So they would be a boutique in that regard, and it would be a new brand.

But brands that are very familiar already in China, the Diaoyutai is well-known throughout the higher circles of the people in the People's Republic of China.

And because of our affiliation with our sister company for so many years, the studios, MGM is a very well-known name in the PRC.

That is moving along quite well.

In Abu Dhabi, with Mubadala, the joint venture called [Maralda], we are working on the development joint venture of a hotel in the Emirate Abu Dhabi, as well as a potential property here on the Strip, a noncasino property with them, because that is noncasino development company in that regard.

As you know, also we have the mGM grand in Foxwoods in Ledyard, Connecticut will be opening in June of next year.

That is coming along very nicely.

And we are looking at other opportunities in that regard with them.

What we are doing also in hospitality is the idea.

We are approached all the time with different people, with new brands, existing brands that are looking for participation.

In many instances, these will be noncapital investment areas, they will merely be management, development, and operating agreements, and again it is the early stages of it.

But we have great hope and expectation for this company and Gamal is very excited about it, and he is putting a team together, and I think the opportunity is going to be both domestic and international.

As Jim was mentioning with the other aspects of our businesses, we are partnering up with significant partners, with significant resources at every level.

We should be looking for an 18 to 20 times multiple on that, like Four Seasons used to get, right?

We will call ourself Five Seasons.

We will get an extra season.

(laughter) Second question.

Your outlook on Japan.

LVS mentioned a little bit that things are going on.

Do you see any timing there?

Obviously it is a market you would be looking at?

It is a market that we are looking at.

We have international relations subsidiary, which is headed by Bob Moon, who is also the current President in the development company at MGM Grand Macau.

We have watched with interest obviously, Prime Minister Abe's loss of the Upper House, which is the first since the end of World War II is a significant one, and what he does or doesn't do, may have an impact, and the minority party is now the majority party in the Upper House, or at least plurality.

They will have a lot to say about it.

I think the easy flow that was expected with liberal democratic party, is going to probably be facing some adjustments here, and I think it will be more time than maybe all of us had anticipated before it will approved.

But I suspect it will be approved, and we believe it is a market that we should be a part of.

As far as the 14 acres in Atlantic City, can you guys, and also CityCenter East, any feeling for CityCenter East?

And also what you might do with the 14 acres?

As we mentioned before, a couple of calls go out again the last one Ken Rosevear is heading up the design and the program for the 71acres at Renaissance Point, immediately adjacent to Borgata.

We would expect to be in a position to move further on that, and present it to our Board at the end of this year, or the beginning of next year, with a proposal for a development on that site.

The second site that you referred to, the 14 acres had been in litigation with an issue that had been determined in our favor by the Court.

That is being appealed.

And as it's being appealed, we obviously think the Court should be involved in this process.

And we will evaluate our opportunities.

The land values, fortunately in Atlantic City are only increasing.

It is a great location, it is 14 acres immediately next to Trump Marina, and we think it has potential.

But I think it has the need to follow through in the litigation and the appeal process, which probably will take some more time, won't it Phyllis?

Phyllis James is here.

In fact, she is the #2 person in our legal department.

She does all the work anyway, and Gary is in China.

She just tells me it is going to take a little while on this.

Larry, this has got to be your last question.

Last question.

As far as timing and announcing the next Macau site?

We are working on that.

Obviously our focus is to get open in Macau, which we will by the end, during the fourth quarter of this year, and we are moving on that.

We also have located a site and working with the government on that ,and that will be announced when the work is completed on developing the program for it.

As you probably know, that is required.

You need to develop a program on government-owned land with the government to determine the lease cost of it.

And that is what we are in the process of working on right now.

Thanks and congratulations on good earnings, guys.

Thank you.

Robin Farley.

I have a question about your Las Vegas trends, they came in on the broader market a little better than we might have expected in terms of REVPAR, but maybe a little more color on the baccarat volume decline.

I think we saw the same thing in Q1.

On the baccarat, I sound like a broken record.

But I have had long conversations with [Al Pacenta], who is President of our International Marketing, and with Bob Moon, who is on the ground right now if you will in Hong Kong and Macau.

And it is more anecdotal than what I can provide factually.

The anecdotal aspect is that very clearly, our friends and I use that advisedly, at Venetian, and at Wynn, are meeting a lot of people from the People's Republic of China.

That is not someone here in this office, by the way.

We whine on occasion.

The issue is that we really do believe that they are being introduced to new business that we haven't seen, and we can't wait to open, as we will in the fourth quarter of this year and put back on level playing field.

But we are holding our business very well with existing customers and historical customers.

But it is clear that there are new people that we don't know ,who are visiting the Wynn and the Sands properties in Macau, and they are properly, and give them credit for it, they are taking advantage of that and welcoming them here in the States, and here in Nevada, and we expect to be a level playing field and deal with that as we have historically.

But in the interim as I said two quarters ago, this is going to be a problem for us and challenge for us until we do open.

Yes I would add to that, Robin, is a couple of things to put in perspective, one is yes, we certainly have not gotten a lot of the incremental business, the underlying business on the high end for us is still quite strong.

Our table game volume at Bellagio and MGM Grand Las Vegas was significantly above our neighbor up the street that just reported yesterday.

And in terms of hold, remember our hold has an impact on drops, from a standpoint of how hold is calculated.

Therefore, without making excuses on it we have lost business.

But I believe Terry you are saying, the incremental business.

New business.

The fundamental business on the high end is still firm.

We had very strong customer activity in the quarter.

I should have said it, I didn't say it.

We had very attractive events, like the De La Hoya fight, for example, and other events that brought in play.

But sometimes they beat us, darn it.

And that happened in the quarter.

And clearly Jim you are right.

In the national business we are doing quite well and exceeding expectations, very frankly, in a very robust economy is helping us, but that is moving very much in that way.

I was referring specifically to baccarat, and specifically to new clients from the People's Republic of China, who are going into the Sands and to Wynn in Macau, and they can go into our property right now, but they have to bring some hammers and nails.

Thank you.

Your next questions comes from the line of Joseph Greff.

Good morning, guys.

In a second quarter, I guess what you would characterize as mid-market properties, TI, Excalibur, New York-New York did quite well.

Can you just amplify what were the drivers there?

You want me to tackle that, and maybe turn it over to John?

One, we saw really accelerating throughout the quarter, we saw better walk-in business.

We saw better occupancy through the FIT channels.

We saw overall stronger activity on the floors, which was evidenced by the slot volumes being up.

And we had some aberrant behavior in the first quarter, we had some highway closures temporarily.

We had a consumer that clearly was more distracted in the first quarter than the second.

So our mass market business, our economy up through the mid-market business was clearly stronger in the second quarter versus the first quarter, and that translated into you saw the occupancy, and also the slot volumes and table volumes, excluding the baccarat.

I think also some of the amenities that we have been adding over the past several quarters are starting to kick in, and I think the big impact in that segment has not yet been felt.

Because most of the important work, as John mentioned, is taking place right now at Luxor, Monte Carlo, Excalibur, Mandalay, and you will see, I hope customer traffic increase because of that.

Anything specific John?

I think you have touched it.

It is really a slot and hotel story.

In the case of the Excalibur, we have only renovated 1,000 of the 4.000 rooms.

The next 1,000 rooms are coming up and scheduled to start in November of this year.

So that story continues to get better over the next several years.

But clearly its occupancy, ADR improvement, and slot traffic.

Your next question comes from the line of Steve Kent.

Hi.

Good morning.

Just two questions.

First from a strategic perspective, can you just give us some color or an update on where you are seeing demand for your assets, giving the filings on June 20th?

Are there still as many people interested in the individual assets or the Company, and have those parties changed?

And just from a operations perspective forward bookings going into the Q3/Q4, especially on the convention side of the business, maybe you could give us some color on that?

Sure.

In the first part I'll tackle that, and then turn it over to Terry and John on the operating trends, which I think we have touched on, but we will give you a little bit more detail on it.

The Kerzner joint venture occurred quite rapidly to us, in fact in the room that we are in right now.

When Saul Kerzner called Terry Lanni, and you sat down with Saul, it immediately resulted in a decision to meet as a collective entity, to see if we could hammer out a letter of intent, which we did in record time.

I think for a variety of reasons we have a high degree of respect, admiration for each other.

We think a lot alike as it relates to development and management, and we had a common objective of putting a great resort with a Kerzner flavor on the strip.

Because we believe that will be great for the valley, and great for the neighborhood.

Of course we own a lot of land in the neighborhood.

So that deal came together quite quickly.

But what we recognized through the original 13 defiling in the process that ensued from that, was there is an enormous amount of demand from a variety of sectors, on trying to partner up with us, whether that be passive money, insurance companies, pension money, and the financial segment, to other financial sponsors, whether it is PE money, or hedge funds, or otherwise, to the strategic side where we have been very encouraged, and actually quite surprised about the quality and size of companies in the nongaming arena.

But large companies nonetheless, that are interested in perhaps partnering up with a company like MGM Mirage, given our position in the marketplace.

So since that filing I believe you are referring to, Steve, it has been constant, our focus has been to get the definitive agreement completed with Kerzner.

As I said that should be done this month.

And to continue to dialog with other folks.

I think it is logical to expect that you will hear more on this topic in a productive way as the quarters progress.

As it relates to the operating trends, can you repeat it?

Yes the slot volumes actually, you did a better job let's say I'm sorry.

The booking the convention bookings going into Q3 and Q4, Just forward bookings, more broadly.

This is John Redmond.

Q3 and Q4 on all fronts whether convention, FIT, tour and travel, any market segment you want to pick looked very, very strong.

Obviously we are a month into a quarter already, and there is no reason to believe that the third and fourth quarter won't be very strong.

So we are very encouraged by what we have seen, and what we believe we are going to continue to see on a go forward basis, it looks very strong.

Okay.

Thanks.

Your next question comes from the line of [Felice Brown].

Hi is it Celeste.

I was intrigued by the comments about how much your partners are investing into the Luxor.

Is that new, or is that something you have seen in the past?

Should we see more of that if it's new?

Secondarily, Jim you mentioned a lot of passive partners potentially, wanting to put money into, you know, potential future developments.

How much management capacity do you have, you don't have, you know, five Kerzners out there.

But how much management capacity do you have to do multiple deals, given everything you are trying to do right now?

Terry Lanni, on that issue, the issue is on the management side with a hospitality company, for example, we are basically taking only two people from our existing operations to join Gamal Aziz in that.

Others are being engaged from the outside through search firms, and individuals with significant backgrounds in the pure hospitality industry, pure hotel industry.

A lot of people very frankly who want to invest with us, there are a lot of people who want to work with us, and that is coming through very well.

In the individual operations, I don't think there is a company in the industry that has the depth of management that we have.

We bring a lot of talent along through different programs.

And when you see a great President like Felix Rappoport at Luxor, or you have ten people below him who are moving right along, and giving opportunities to people.

I am very comfortable with the depth, the breadth, and the quality of our management, and the ability to reach out where we need to in new areas.

I am very comfortable on the management side.

Maybe I can add to that for a second, Terry.

Not all the transactions will require a significant amount of management time from our perspective, in some cases we are a managing partner, and in some cases we are a passive partner.

And in addition to the fact that you know the depth of the management we currently have, an example would be the Turnberry joint venture, where our friends at Turnberry did quite a bit.

We were very active, but they did quite a bit of work, and that little joint venture made over $400 million.

We got over $200 million, right John?

And our partners got $200 million.

A $400 million profit on nine acres of land is pretty cool.

I wish we can do that, I think we can do deals in the future with that kind of template.

That is a pretty good one.

Some of them require almost little time relative to our partners, some require more.

The other point I would make is in light of what is going on in the industry, and I mean the hospitality industry, with many companies going private, in many cases you have a pick of very talented people that are out looking for work.

And MGM is an employer of choice.

We are the largest employer in this state.

I think we pay people pretty well, and people like working here.

So the ability to attract manage to supplement the deep bench that Terry mentioned has never been better.

I will touch base on the Luxor.

Maybe before that we have kind of demonstrated the bench that Jim and Terry referred to, when we took over the Mandalay properties, we placed new management as all of you know, in most of those properties, and I'm sure our results show we haven't skipped a beat here.

We have very, very deep operations.

Bobby and I spent a lot of time developing talent in all of our respective properties, and we are very comfortable about the folks we have on board here.

Speaking about Luxor and the investment being made by others, I think each property you have to look at a little bit differently, in terms of how you look at outside investment.

Luxor we felt there was such tremendous opportunity, but it was also going to cost a lot of money to put Luxor in a position where we thought it needed to be, as well as potentially a lot of time, if you looked at it as a sequential process of development.

We didn't want to waste that much time, you know this company all too well, we wanted to move quickly and aggressively.

So it made sense for us to look for additional partners.

Ones who have a demonstrated track record of success, and have the financial wherewithal to move as quickly and aggressively as we do.

So we are very happy with the partners we brought on, we have some other very interesting partners in compelling projects that we are exploring on a go-forward basis, as I think I was mentioning, I think we are about $60 million that other partners are putting in, and upwards of another $40 million in the not too distant future by additional partners.

So that is going to get the Luxor property to where we think it needs to be.

And we have always thought that that property had so much upside, that we are just going realize it faster, when we bring in partners in the way we are doing.

I think you bring up an interesting point.

Four or five years ago we wouldn't have been able to do that type of transaction.

We would be out looking around the country, looking for people that would manage something that we build, and burdened by our capital.

The success, the dramatic success of these venues, these night life venues, which I don't go to, but the dramatic success of that has attracted an awful lot of interest.

So the tables have turned a little bit, where we are getting approached by people that are more than willing to put up capital, and they seem to be very successful once they do so, and it allows us to upgrade these properties at a much lower cost to us.

Thanks.

Just one last question.

I was wondering if you can give a little more detail on the $250 million in incremental sales for CityCenter, where those units were sold, in terms of the different buildings?

And was any of that from exclusive resorts, or will those fall into the third quarter?

I will tackle the second question right away.

Exclusive resort transactions falls into the current quarter here.

One thing to mention on that, because is a significant transaction, they are announced they are going to have 30 units at Vdara, but that is 30 units as reconfigured.

We have actually sold I think we sold 76 units to them, which they are going to convert to 30 units, so that will have a significant jump in the quarter.

We have sold well over 600 units now at Vdara just alone.

But in total remember that Harmon is not even on the market, and how many units is Harmon?

209.

209.

So when we say 2,600 units, we really are only trying to market about 2,400 units right now, and we have sold 1,200 of them.

We have sold half of the units that are on the market right now.

Specific to the quarter it was really across the portfolio, with a significant amount occurring and Veer, to a lesser extent at Vdara, and we sold a few units that we had leftover at Mandarin, which was already the runaway success earlier.

So most of the activity in the second quarter was at Veer.

I believe Terry we put Harmon on the market the end of this quarter?

Yes.

At the end of September.

Actually end of August.

End of August.

Thank you very much.

Your last question from the line of Harry Curtis.

Hi, guys.

You made it in under the wire, Harry.

I try to do the opposite of Larry.

If you could talk about where your cash might come from over the next couple of years, outside of cash flow from operations.

You have talked a little bit about where it could be extracted from the Kerzner partnership, is there much that we could expect coming from those kinds of transactions?

And also do you have any appetite for selling individual, or groups of assets?

Could you see some cash coming in that way, and what do you do with if?

Well, we would like to say we planned perfectly for this day, and that we knew exactly what was going to happen in the credit markets over the past 3 weeks, but of course we didn't.

But we did want to make sure that we had enormous amount of financial flexibility going into 2007, because we knew we were going to spend about $3 billion this year.

That is why we were very active issuers of bonds through '06 throughout, and into '07 and doing a large deal in the second quarter.

That put us in the position that we are in today.

Which means we are not dependent upon nor expect to be in the bond market at all this year, and probably won't see the bond market until some time next year, as I said we have substantial amount of bank capacity, and our banks love us.

They should, we are good guys.

We have a substantial relationship with our banks that is very productive on a going forward basis.

Between our bank facility which is large, the largest in our industry, and our cash flows, we feel very comfortable about our financial needs over the coming period of time.

From a standpoint of joint ventures, these joint ventures you know we have put in the land as equity.

We are getting cash back.

If we do this a couple more times, which I expect that we will, we will get more cash back.

These properties are unlevered.

So when we go out and do deals, we are not the kind of joint venture partner, that needs to access the CMBS market, or the bond market.

We go out and talk to our friends the banks, and we go out and do nonrecourse bank deals, and they are lining up to do that with us even today.

So joint ventures become immediately balance sheet positive, they provide us with a platform to provide bank financing, and provide us with an opportunity to grow quite rapidly.

As it relates to selling assets, we do that, too.

We sold two major groups of assets last quarter alone.

And we are constantly getting pinged by people that want to buy some of our properties.

And I would bet that there will be properties that we do sell, small ones over time.

As we continue to do what good portfolio managers should do.

That is emphasize your winners, and cut your smaller properties away.

In terms of existing major properties, there has been a major initiative underway, where people have approached us about partnering up with existing resorts, or existing development projects.

Both of which we are open-minded to.

So we look at the opportunities today, as not just simply greenfield construction opportunities, of which we are working on a few others.

But also more broadly within our asset spectrum.

So I think we have got a little bit lucky in the sense that, there is a lot of interest in gaming from a variety of investors that we had not anticipated a year ago.

We made some luck by buying land at the right time and buying companies at the right time.

And we have been very, I think fortunate in our timing of accessing the credit markets, so as to give us an awful lot of latitude and time, to see how this whole market shakes out.

So a quick follow-up how does share repurchase fit in it with this?

You didn't mention any share repurchase in your prepared remarks.

If you could comment about your appetite going forward?

Well we were a little distracted in the second quarter, which was why we were not in the markets.

We likely would have been.

We are consistent acquirers of our shares, and we have I think 5.5 million shares remaining in our current reauthorization.

If history is any guide, we will finish that up, and ask the Board for another authorization.

That is what we have done year in and year out.

We believe that the best opportunity to invest in gaming today is in ourselves.

We don't see any M&A activity out there that is attractive to MGM Mirage at any multiple.

I don't see unless you disagree, Terry, and Terry used to tease me all the time, that I want to buy everybody and we are looking at every company and every thing.

But the reality is, where we are today, given the land that we own, given the opportunities that we have, the opportunity or the attractiveness of using our capital to acquire other gaming companies is not appealing to us.

So as we allocate capital it is going to be in ourselves through the virtue of capital expenditures and share repurchases.

And I would expect that in the future, you would see us take a page from the past and continue to reinvest in ourselves.

Let me add one point, Jim.

I was looking at the figures the other day.

We have actually purchased over 139.5 million shares history to date at a cost of $2.156 billion.

That is $16.60 per share.

It has been a good investment.

Thank you.

And up to thank on behalf of everyone here in Las Vegas, I want to thank you all for participating in the call.

As always, if you have any follow-up questions, please feel free to give us a jingle.

Thank you.

This concludes today's conference call.

You may now disconnect.