美高梅國際酒店集團 (MGM) 2007 Q3 法說會逐字稿

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

Joining the call from the company today are Terry Lanni, Chairman and Chief Executive Officer, Jim Murren, President and Chief Operating Officer, Dan D'Arrigo, Executive Vice President and Chief Financial Officer, Gary Jacobs, Executive Vice President, General Counsel and Secretary, Aldo Manzini, Executive Vice President and Chief Administrative Officer.

Participants are in a listen-only mode.

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

(OPERATOR INSTRUCTIONS)

Now, I would like to turn the call over to Mr.

Dan D'Arrigo.

Thank you, Sarah.

Good morning, everyone and welcome to the MGM Mirage third quarter earnings call.

This call will be broadcasted live via the internet on www.MGMmirage.com and at www.companyboardroom.com.

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

This morning, we furnished this earnings release and a form of 8K with the SEC, and that information is available either on our website or with the SEC.

Additional information and supplemental financial details were also posted to our website this morning, and you can find that under our investor relations section of our company website.

Before we get started, I'd like to read our Safe Harbor disclosure real quickly.

Information we present on 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 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 financial 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.

Now I'd like to turn the call over to Terry Lanni for discussion of our overall results.

Good morning, ladies and gentlemen.

Dan, if I had known you were going to read that as well as you did, we would have made you Chief Financial Officer a long time ago.

Jim's been waiting to hand that off a long time.

It's really (inaudible).

I agree.

We just could have promoted you sooner.

First, I do want to recognize a few individuals who actually have been recently promoted in addition to Jim Murren, as we know.

Bobby Baldwin has been named Chief Design and Construction Officer and will continue to serve as President and CEO of the CityCenter Development Project.

Bobby is traveling internationally on company business and will not be able to join us today.

Jim Murren, who we've had a great relationship for a long period of time and for many years and the future, has been named Chief Operating Officer of the company, retaining his title as President, and he'll be providing comments for the first time on a quarterly basis geared toward operating results.

And if he kind of strays into the financial areas, Dan and I will bring him right back.

And he'll talk about the trends, as well as our many growth initiatives.

Dan D'Arrigo, as I mentioned, was promoted to Executive Vice President and Chief Financial Officer.

In addition to his many new responsibilities, he'll be providing comments on our financial results on this meeting's call.

Bob Selwood is here with us today, and is now Executive Vice President and Chief Accounting Officer of the company.

Also here today, we welcome Cathy Santoro, who has recently been promoted to Senior Vice President and Treasurer of our company.

Let me talk a little bit about the overall results here.

Earnings--today, earlier we reported the diluted EPS from continued operations of $0.62 for the third quarter that compares to the $0.53 in the prior year's quarter.

Earnings benefited from $135 million of income from hurricane Katrina insurance recoveries for our Beau Rivage property in Biloxi, Mississippi.

The $135 million total is above the guidance that we gave of $44 million, and that's due to receipt of cash actually sooner than we expected, awkward sometimes with insurance companies that you get money before you expect to get it.

And the execution of final settlement agreements have taken place with several carriers in the third quarter.

$107 million is recorded in property transactions, and $28 million is an offset to general and administrative expenses.

We very recently reached final agreements with the remaining carriers.

Our final proceeds numbers will be $635 million.

We expect to recognize approximately $150 million of income in the fourth quarter relative to this matter, with approximately $40 million recorded as a reduction in general and administrative expenses and $110 million recorded as property transactions.

And that will be the Beau Rivage property obviously.

Dan will provide further explanation of other amounts impacting comparability in the quarter in his comments which will be coming shortly.

Top-line performance for the company was strong, as net revenues increased 6% to an all-time record of $1.9 billion.

Hotel and nongaming results led the increase in revenue this quarter.

Las Vegas Strip RevPAR for the company was up 6% versus 2006.

That represents our 17th consecutive quarter of RevPAR increases on the strip here in Las Vegas.

Many of our Las Vegas Strip properties had record third quarter hotel revenues, which is a very strong indicator of the strength of this market and the continued effectiveness of our operations and the management of those operations.

Gaming revenues increased 3% in total, but were down 3% if you take out Beau Rivage.

And we're impacted by a lower hold percentage in our high-end baccarat business in the quarter.

Our customer trip levels remained quite strong, and we continue to believe our high-end results will improve when we open MGM Grand Macau later this calendar year.

We opened the all-new MGM Grand Detroit on October 2nd, and it is truly a spectacular hotel and casino resort.

We held our recent board of directors meeting in Detroit, and we were all extremely impressed with the resort and its people.

Congratulations to our Detroit team led by George Boyer and Tony Brolick and Ben Mammina, who is responsible for developing the property on their behalf.

And it's a historic project, the most expensive building ever built in the city of Detroit, and truly is transforming that city.

And I encourage people to see it if you have not seen it.

It's quite a property.

On CityCenter, we entered into a joint venture agreement with Dubai World for 50% of CityCenter.

It should be noted that we will continue to be the developer of that project.

Once again, we will operate CityCenter, and we will receive a management fee for doing that.

This transaction truly represents a paradigm in our growth strategy.

With us joining a strategic financial partner in Dubai World to leverage our management ability and real estate asset is the most effective way possible that we could even think of.

Along with the CityCenter transaction, we completed the sale of 14.2 million shares of common stock at $84 per share to Dubai World on October 18th.

It should be noted that was also a 13% premium over the price of the stock on the closing of that day.

That produced proceeds of approximately $1.2 billion.

We expect to work alongside Dubai World for many years to come on CityCenter and a significant amount of other global projects, many of which are under discussion as we are here today.

We're already working with Dubai World in connection with the Kerzner International joint venture on the Las Vegas Strip on 40 acres of land we contributed across from Sahara and north of Circus Circus.

We announced plans for MGM Grand Atlantic City, which will be between a $4.5 and $5 billion casino resort.

We will initially use 60 of the 72 acres of that site at Renaissance Point.

12 acres will be reserved for future development.

Based upon the importance at the time, it could certainly have residential as a component.

It certainly could potentially have an arena.

We're evaluating that as we move forward with this project.

We are extremely excited about this project, and we believe the [iconic] Kohn Pedersen Fox design and unmatched amenities will increase casino and noncasino demand in the Atlantic City marketplace, and it will be the most impactful resort in that market's history.

It should be noted that Kohn Pedersen Fox is a firm that we have great relationship with because they're also designing the Mandarin Oriental at our CityCenter project, and that is indeed an iconic building into itself.

At CityCenter, the construction budget has increased as we noted today approximately $400 million, from $7.4 billion to $7.8 billion.

It's always our goal to build the finest and the best, and yes, the projects do tend to increase in cost, may increase in costs, but we want to be sure that that is an iconic structure at a series of structures.

The cost increase is largely due to other factors, though--the complexity of the hotel casino podium, the fair buildings, and the Libeskind-designed roof structure over the crystals retail area, which required additional steel, concrete and fabrication, along with additional design changes for exterior lighting and water features and site utility costs.

But it's not like to say you have one chance to make a great first impression, and we're not going to do anything to deny this company the opportunity to do that with our project CityCenter.

Construction has made substantial progress during the third quarter.

We've reached the 26th floor of the hotel casino tower.

Construction of Vidara, the condominium hotel has also reached the 26th floor.

And Mandarin Oriental is up to level 15.

All other elements of the project are underway, as well.

On the residential front, since our last earnings call, we've contracted for $170 million of residential units, bringing the total at CityCenter to over $1.5 billion.

Almost half of all available units are now under hard contract to be sold.

The Harmon Residences, the final CityCenter residential project, went on sale in September of this year to friends and family, and we've already contracted for 25% of those units.

There's 207 units in that particular building.

Sales to the public will start in early 2008.

In Macau, the updated cost estimate for the project is $1.25 billion, up from the previous estimate of $1.1 billion.

And as I mentioned earlier, the resort is expected to open by the end of this year.

I'll now turn it over to Dan for additional comments on our financial results.

Dan?

Thank you, Terry.

As Terry mentioned, I'll first discuss some of the items that impacted our comparability year-over-year.

Profits from the sale of our condominium units at The Signature MGM Grand were $12 million in the current quarter versus $26 million in the prior year's quarter.

This is mostly due to the closeout essentially of Tower C, which I'll get to a little later, but this impacted EPS by about $0.03 in the quarter.

Terry already talked about the insurance recoveries from Katrina that are are included in property transactions.

But offsetting the $107 million profit in that particular line item were higher other property transactions in 2007.

We had roughly about $18 million of demolition costs and write-offs in the third quarter versus less than $1 million in the prior year's quarter, about a $0.04 per share difference, and most of that was at the MGM Grand and Mandalay for some of the room remodeling and some of the other projects that are underway at those two properties.

Also, we had a $0.06 per share impact from preopening and start-up expenses compared to only $0.01 per share in 2006.

The current quarter's higher due to the October 3rd opening of MGM Grand Detroit and the ramp up of preopening activities and our share of those preopening activities at MGM Grand Macau.

Property EBITDA of $705 million was up 13% versus $621 million in the prior year's quarter.

Excluding the impact from the insurance recoveries, write-downs, preopening expenses and The Signature profits, property EBITDA was flat compared to 2006.

The property EBITDA margins were also consistent in both periods, excluding these items.

Corporate expense increased to $63 million versus $35 million in the prior-year quarter.

The increase in corporate expense over our original guidance of $40 million was due to certain unanticipated costs related to our recent announced transactions, the accrual of certain compensation costs, and some development expenses related to Macau and Atlantic City, as well as CityCenter transaction costs.

Our net interest expense in the quarter was $180 million, which was consistent with our guidance.

That was made up of roughly $243 million of gross interest expense and about $63 million of capitalized interest in the third quarter.

I'll now turn it over to Jim for more detailed components of our operating results.

Thank you, Dan.

I'm going to drill into some of our operating performance, and give you an outlook, as well, of what we see happening here.

First in the hotel side, our hotel revenue is up 7% in the quarter, to $511 million.

That was notable since we had 29,000 less available room nights here in Las Vegas versus the prior year, and that's primarily due to the room remodel project that's now complete over at Mandalay Bay.

Terry had mentioned that our RevPAR was up a healthy 6%.

To get into that, our occupancy was up from 96% to 97% and our ADR also increased.

It went from $140 to $147.

In fact, RevPAR was up everywhere in the quarter in all our properties.

I think it's worth noting that we are somewhat dependent on air traffic here in Las Vegas.

And in Las Vegas, the market air seat capacity actually increased 16% year-over-year.

And our daily air passengers have increased 5% into the market.

That obviously bodes well for our 36,500 rooms here in Las Vegas, as approximately 70% of our customers come by plane.

On the food and beverage side and also on entertainment, we're very gratified, very strong results.

Food and beverage revenue was up 10%, even up 6% without including Beau Rivage.

Our restaurants and nightclubs have continued to show nice growth in both volume and in profits Our entertainment revenue is up 13%, really strong demand across our portfolio of entertainment amenities.

Our Cirque shows continue to be a huge draw here and are obviously clear marker leader.

In fact, our longest-running show "Mystere" draws more customers than any of our competitors' shows -- the trick now for us, and we've been doing this for the last several quarters is to capture more of the customer spend through improved amenities in food and beverage entertainment on lounges.

On the gaming side, our gaming revenues were up 3%.

But if you strip out Beau Rivage, they're actually down 3%.

To get into that in a couple minutes, revenues were a mixed bag.

Several of our properties were up very nicely up in the 8% range, both at Bellagio, MGM Grand and Mirage, also, Mandalay was up strong, up 9%.

Overall, on the strip, our slot revenues were up 2%.

And that means that we were down in some of our properties such as the Luxor, Monte Carlo, Excalibur.

These are properties that ar undergoing fairly dramatic repositioning, which obviously impacts temporarily customer account which is I'll get into in a minute.

We're also down at MGM Grand Detroit in the interim facility.

Obviously, we're widening down that facility, and then closing, when we opened up the MGM Grand as it is today on October 2nd.

That had a temporary impact on the slot revenues there, and I'll tell you how we're doing in a minute.

It's very remarkable.

Table games side--Our table game revenues were down, that's mainly due to a decrease in whole percentage.

Our volumes were flat, and Bellagio, of course, was down year over year a whole percentage, which impacts Bellagio's EBITDA and overall whole percentage.

It's also notable to talk about Bellagio, I think we closed the baccarat room Mike in July.

So the baccarat room here at Bellagio has been closed.

It is in a temporary location, which is obviously not optimal for the very high end customers, we've learned, and I don't think anyone knows more about this business than we do.

We learned that the high end customers gravitate toward the best rooms, in the private rooms, the baccarat areas, the state of the art technology and design.

We've been ham strung by not having that room open.

It opens up in time for the very important season coming up, Christmas, new year's, Chinese new years, I think you'll see an impact at Bellagio due to that important amenity.

It's only been a short period of time since we acquired Mandalay Resort Group.

It was in the middle of 2005, if you recall, and it took us a few months to find out where the restrooms were, and figure out what we had there, and also a few months more to put together an operational and development plan.

That plan is rolling out right now, and the results you can see have already been very profound as we apply capital to these properties, the properties are responding immediately, that process is not yet done.

If you go into our properties today, of the older Mandalay properties, you'd see dramatic construction underway as we reposition these properties.

The short-term impact is obvious, it has an impact on traffic, the long-term impact is also obvious, as evidenced by when we do this, we did it at the MGM Grand, the results, revenue and cash flows have been profoundly positive there, as we reposition that property, gives us great confidence that these type of increases will happen at the Mandalay resort properties, they're already beginning to happen, and it will be done in the mid to late '08, you'll continue to see, I think, growth in these properties and then real taking off after we're done with the repositioning.

Terry mentioned Detroit really just a tremendous opening to this property.

I'd also add John Redmond to the kudos and thanks.

John is no longer with us, but he had a positively profound impact on the development and our thanks go out to him.

The traffic has been tremendous.

Our volumes were up substantially.

Our room counts and guest counts are twice what they were in the old facility.

Our customer volumes are twice what we were experiencing.

Our table game guides are up 70% year over year.

We believe that the amenities of the property, not only the gaming space itself.

But the food and beverage entertainment in rooms, spa, conference facilities will continue to attract a great customer, a premiere customer in the marketplace, which spend more money in those types of amenities and are better table games players.

We added over 1600 more slots than the interim facilities housed, and our win per unit is about the same, which is really remarkable.

So with an increase of slot machines from our 2400, 2500 slot machines to well over 4,000 slot machines now, our win per unit is about the same over $300 a day.

I'd also remind you that now that the permit is opening, our tax rate rolls back from 26% to 25%.

That will obviously result in a pickup of cash flow, once that process is finalized and we're working with the appropriate authorities to do so.

I mentioned the repositioning of the Las Vegas resorts.

I'll give you a couple exams of what's happening in Las Vegas.

Take, for example, Luxor, our new nightclub LAX opened on August 31st.

I don't go to these clubs, but I'm told it's a great club and the hot place to be.

It's probably one of the premiere clubs now in the country.

Many other restaurants, bars, nightclubs are opening up at Luxor over the coming months and quarters, for example, company, which is pure management group is doing an American bistro, Cat House, a sexy kind of restaurant.

Again, I won't be there, but I'm sure it's going to be great.

With great chef there, liquidity, and it goes on and on.

These amenities will open later this year and into 2008.

Now, an example over at Mandalay Bay.

Mandalay went through its room remodel.

We expanded dramatically the pool areas, as you next we're getting great feedback in both of those areas, in October we opened up a hot new lounge there called iCandy.

Right in the middle of the casino floor, I've been by it many times, it's packed.

I want to -- and that's just a couple examples, I could go on and on on that.

But on the corporate side, we're going through our '08 budgeting process now, and we are really excited about some of the key areas where we see tremendous opportunity both in terms of driving additional revenue, in the areas of rooms, say international, national marketing, database marketing, convention sales and expenses where we feel like we can drive some great efficiencies through consolidating certain areas, say on room reservations, payroll, HR, and there are many other financial areas of opportunity that will cut some costs, we'll be reporting to you on the progress of this as we move forward into the balance of this year, and into '08.

But I think you should expect to see a fairly substantial increase in revenue and a resulting improvement in margins, although we're high already, we have room to improve as we go into 2008.

With that, I'll turn it back over to Dan D'Arrigo.

Thanks, Jim.

We'll kind of recap here with just some follow-up highlights for the quarter, get into a little guidance, kind of help the models, and then leave plenty of time for your questions and answers.

For the quarter we spent approximately $767 million at our existing resorts.

Roughly about $451 million was spent on CityCenter in the quarter and another $140 million on MGM Grand Detroit.

Capital expenditures also included the spending of $61 million on the room and suite remodel project, primarily at Mandalay and Bellagio.

And we also had about $13 million in spending related to the new corporate aircraft.

The remaining $102 million related to our routine capital expenditures on various new and upgraded amenities the ones Jim was touching on at our resort properties going forward.

Looking at our capital position on October 18, we closed on the sale of the stock 14.2 million shares to Dubai World, we received roughly $1.2 billion on proceeds under the sale of that stock sale.

We use those proceeds to pay off our credit facility balance, there by reducing our credit -- outstanding credit facility balance.

And everyone creasing our availability to roughly about $2 billion under our senior credit facility.

Our fixed to floating ratio is just north of about 60%, right now fixed, just inside a 40% floating.

The CityCenter joint venture transaction is scheduled to close here in the fourth quarter as well.

These two transactions combined will have a profound impact on our balance sheet, and just to put a little framework or perspective around the CityCenter joint venture, right now we will have invested almost about $2 billion in CIP.

When we close on the CityCenter transaction, our land carrying book value is roughly about $1 billion and book value when we bought the land, mostly in the acquisition of Mirage Resorts, in 2000, bringing our total investment to roughly $3 billion today at MGM Mirage.

Upon closing, we'll receive over $2 billion after paying some taxes, significantly increasing our return on invested capital as we will continue to own 50% of this project as Terry mentioned earlier, and receive a management fee going forward.

The financing is expected to be nonrecourse, to MGM Mirage, and we expect to be in the market later on this quarter we only have minimal maturities in 2008, under $400 million.

So we're in pretty strong financial position going into not only the remainder of this year, but well into 2008.

We did not repurchase any shares of common stock during the quarter, and year-to-date, we've repurchased 2.5 million shares for roughly $175 million.

Which leaves us with 5.5 million shares under our current board authorized program.

From an outlook perspective, we expect the fourth quarter to be our 18th consecutive quarter of Las Vegas strip rev par growth.

We also believe to our operating trends, nongaming revenues and operating margins will remain strong.

Two factors to just point out going-forward, we have reached agreement on two new labor contracts.

One is a five-year deal here in Las Vegas, which roughly will increase wages and benefits pretty consistent with the last contract we had of roughly about 4% per year over that five-year term.

In Detroit, we've reached a new labor agreement as well.

For wage and benefit increase in the first year of roughly about 7% decreasing slightly in years two to four of that contract.

Remember, as Jim pointed out, these two cost increases will be partially offset by that gaming tax reduction in Detroit.

Now that the permanent is open, want to receive certification of our permanent facility, the tax rate will reduce from 26% to 21%, a nice pickup for MGM Grand Detroit property.

Our continued investments in our Las Vegas resorts are providing excellent returns, and we anticipate the planned additional investments in our properties will lead to further increases in property cash flows.

We are currently going through our capital allocation process for 2008 and have many exciting high-return projects on the table.

Now I'll just run through some specific income statement guidance for the fourth quarter to help you with some of your models.

As we mentioned earlier, we expect to recognize income from insurance proceeds related to Katrina.

At Beau Rivage during the fourth quarter of approximately $150 million.

$40 million of which will be a credit to G & A expenses and $110 million will be a credit to property transactions, similar to the third quarter here.

Total stock compensation expense is estimated to be approximately $10 million in the fourth quarter, and corporate expense, we expect to be roughly in the mid-$40 million range, around $45 million, which includes stock compensation expense of roughly $5 million.

For the opening expenses, will be approximately $20, 25 million.

As our joint venture in Macau ramps up its preopening activities in anticipation for the opening of that property later on this year.

Net interest expense will be approximately $150 to $160 million in the quarter.

Please note that this does not reflect any potential savings if we close the CityCenter joint venture prior to year end and we're on pace to personally do that right now.

Just to give you one update and kind of close the loop on the Signature at MGM Grand, in October, the joint venture partners decided to finalize the operation of our joint venture.

MGM Mirage has acquired the remaining 88 units of the Signature product at a profit to the joint venture.

We will not recognize any future profit from the sale of these 88 units.

As our final profits will reduce our basis in these unit that is we acquired.

We'll be using these units predominantly for corporate uses, mostly for our consultants and other business partners who currently are using our hotel rooms at our resorts.

As you think about CityCenter and our other projects going-forward, there's a lot of folks using up vital real estate within our hotel rooms that we can use for our paying customers and bring in additional revenue into those buildings.

Additionally, the CityCenter sales -- the Signature sales center at MGM will be converted to a CityCenter sales center, that will be the third pavilion outside of the sales pavilion between New York, New York and Monte Carlo.

And just to kind of recap what a tremendous success the Signature product has been at MGM.

That joint venture sold over $1 billion worth of real estate at an average of $930 per square-foot for the sale of the 1728 total units.

Not too bad for some old theme park land.

We recognized over $200 million of profit from that venture, with our initial investment consisting only of that excess land of roughly nine acres behind the MGM Grand.

We also received the benefit of managing some of those units, and received the foot traffic benefit at the MGM Grand for the customers who stay at the Signature.

Depreciation in the fourth quarter, we estimate to be in the $180 to 185 million range.

Our income tax rate, our effective rate should be 36% in the fourth quarter, and just a reminder that our share count will increase in the fourth quarter by roughly an average, about 11 million shares as a result of issuing 14.2 million shares to Dubai World during the quarter.

Our guidance for CapEx remains largely the same, about $3 billion in total for the year, including all of our development projects, and excluding the land purchases of the strip land here in Las Vegas, but does not include the impact from closing the CityCenter transaction prior to year end as well.

I think with that, operator, we'll open it up to Q & A.

And start to take your questions.

(OPERATOR INSTRUCTIONS)

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Felicia Hendrix with Lehman Brothers.

Guys, just a few quick questions.

One is, I think Dan, you had mentioned this.

Just talking about-- Or, Jim-- You had mentioned significant future projects with Dubai World.

I was wondering if you could elaborate on that a little bit.

Regarding CityCenter, just wondering-- You mentioned-- You described why some of the costs were escalating.

Wondering what you're doing to contain that going forward.

And I'm just wondering, given the higher costs now, is the $100 million bonus for completing on time and on budget now basically a moot issue?

And then, in Macau, I'm just wondering if you're seeing anything now that the Venetian's open, are you seeing anything that's caused you or causing you to change your strategy at all there?

And drivers behind cost increases there?

Thanks.

Thanks, Felicia.

I think maybe-- Terry will take the first one on Dubai World and we'll jump in on CityCenter and Macau.

Good morning, Felicia, let's just talk a little bit about it.

You may have noticed in the news not too long ago, that Dubai world, one of its subsidiaries, won a significant bidding competition for a non-casino site in the Republic of Singapore.

And we are in discussions with them about a development of that site.

It's good to have two large towers.

We'll have two hotel components, retail components, residential components.

And we're talking to them about a couple of our brands in one of those towers.

In addition, I mentioned earlier, that Bobby Baldwin has gone to the Middle East.

I said internationally, it's actually the Middle East.

He's in Dubai as we speak and because of the time differential it was difficult for him to be here.

But one of the first things we did when we entered into the agreement-- Sultan Sulayem, we had a discussion and it was suggested that we take and develop a sales center for CityCenter in the city.

In Dubai.

And, in turn, to develop a marketing office to market the non-casino aspects of tour various hotels throughout the United States and the world, with specific influence and focus, if you will, on the Las Vegas marketplace.

So we'll shortly have open there, sometime in the first half of next year, a sales center comparable to the one that we have here on the strip between New York, New York and Monte Carlo.

And in addition, we'll have a separate marketing office where our marketing people will market the non-gaming aspects of our resorts-- Food and beverage, retail, the spas and the like.

So, we're very excited about those transactions.

In addition, Gary Jacobs and I just returned from the People's Republic of China and had very significant meetings there and had meetings just last week with representatives of Dubai who have indicated a significant in investing and owning these non-casino hotels that we're going to be developing with the Diaoyutai State Guesthouse in the People's Republic of China.

In addition, there are some other areas of the Far East-- The head of their investment fund in Singapore met with us just this-- Last Friday, as a matter of fact -- Thursday, and we are looking at opportunities in other parts of Southeast Asia, both gaming and non-gaming, which would be in some form to be in partnership with Dubai World or one of its affiliates.

And on CityCenter, Felicia, I'll jump in on that one, a little bit.

The CityCenter, as we've said all along, is a very detailed and very complex project.

We are working with our business partners there on a G&P process.

That process is beginning here in the 4th quarter, it probably won't be wrapped up until sometime in middle of next year.

But that's when we'll really have a lot more clarity and the project will be locked down with our business partners through the G & P process there at CityCenter.

As it relates to Macau --

Back to CityCenter, there was a 100 million bonus for completing on time and on budget, so I'm wondering if that is now in flux.

I would say that it's in flux, but it's certainly not off the table.

The bonus is based upon the net cost of CityCenter, so there are many components to it.

It's not only what CityCenter ultimately costs, but the ability for us to sell the residential product,.

The residential story is uniquely positive.

I think unique to what's happening in the United States, and certainly unique to what's happening here in Las Vegas, so our sales pace and the price per foot we're getting, is very positive.

And the bonus is based upon how we end up on a net base when we're done with the project which will be late '09, so we certainly haven't written it off.

Okay.

And then Macau?

And then, in Macau.

There's kind of a -- the good and the bad of following others that -- the good news is, we can evaluate the marketplace, and react as we're continuing to kind of develop our property.

I think when you look at where we started out in this development and construction phase, we're focusing more casino space on the VIP rooms and the marketplace today, than we probably would have a year or so ago.

So the property has been kind of changed slightly through this design and development process, and we continue to kind of monitor that.

And so there's kind of a -- you know, a good side of following others and the bad side is, we're a little later than others to the marketplace, but we'll be there real soon.

And we have a lot more data points today than we had in kind of evaluating the VIP customer segment as well as the mass market.

And I would add Dan, not only does our property sit next to Steve Winn's beautiful property.

Not only does it tower over it, actually, but it's substantially larger than the Winn property is today, both in terms of number of table that we will open up with.

Significantly more, over 75 more, in fact.

And in terms of slots, we have a far easier ability to expand that property even further, so we're going to come out of the box, we think, on a fast run with a larger facility tailored to what the market expects today, with the ability to expand it.

And it opens in a couple months, and I don't think people have really focused on the impact that that property will have on our company, both in terms of how it does in Macau, but the cross-marketing impact it will have on our Las Vegas properties.

Great.

Thank you.

Your next question comes from the line of Lawrence Klatzkin with Jeffries & Company.

A couple questions.

One, this is housekeeping.

Capitalized interest for the 3rd quarter?

I thought we gave that.

I think it's roughly $63 million, if I remember correctly.

$63 million.

$63 million.

Okay.

Perfect.

Could you quantify the hold effect?

Just maybe in a more general number than it was "a lot"?

Larry, we tend not to do that, as you know.

Because it's a-- It gets us into a situation where we'll be talking about this every single quarter up and down.

Clearly, the hold was lower.

It's no excuse, it's just a reality of how we-- We are in the gaming business, I don't think we should lose sight of that.

It had its most profound impact on the property of Bellaggio, obviously, as well.

But it was within our normal range, and, so, therefore, I would just leave it.

I would just leave it as saying it impacted Bellaggio's results, both in terms of its hold and the fact that its most important weapon in the high end was on the sidelines.

The baccarat room was effectively out of business.

And that will be opened up here in the 4th quarter.

Okay.

So there may be some effect on that in the early part of 4th quarter also?

Sure.

Yes.

The baccarat room opens-- What, Mike?

December?

Mid-December.

A vast preponderance of our high end business occurs, as you know, mid-December right through New Year's.

That's when you want it open.

We planned its downtime for this period of time for this reason.

It will be open at that time.

But it has an impact here in October-November.

Okay, okay.

As far as Dubai goes, is there any chance you'll be doing something similar to what Kerzner is doing?

Some kind of property in Dubai itself.

non-casino.

non-casino.

We are looking at an interesting site.

In fact we'll be looking at it the day after -- Two days, I think, as a matter of fact.

A significant development would be there, in which we would use one or more of our brands for a non-casino hotel, not unlike what Saul Kerzner is doing with Atlantis, which is a non-casino hotel in Dubai.

And I guess he's doing one in Morroco also.

So, yes.

We do think there are opportunities there.

We entered into an agreement -- and we think there are fascinating opportunities there, and reviewing that about same time for our brands.

Our non-casino hotel ventures in that marketplace also.

In Abu Dhabi it's more their money, and Dubai wouldn't be" MGM, would you invest some money?" I know with the Kerzner thing, Kerzner's putting in half the money and Dubai's putting in half the money.

We'd have to wait and go through the whole process.

I would suspect that in that part of the world, most of what we'll be doing-- Significant part of it is going to be development, branding, management fees.

I think the investments if any, would be more limited.

I would just add, Terry, I don't think our capital is what compels our partners to do business with us.

It is our brands, our unique approach toward development and the way we operate resorts.

And the fact that most of our hotel friends are already omnipresent.

They're in almost every market.

It's not really particularly exciting to add yet another X hotel in a major market globally.

It is quite exciting to add some brand new markets into a new market a brand-new brand.

And that is really where these discussions are coming.

I think you'll find us very much as a fee-based model for these development projects.

Alright.

And then, A.C.

14 Acres, now that you've decided to make your big move on the big block of land.

The smaller block.

You guys talking to people, you willing to put it in a JV or donate it into something?

A number of people, as you might imagine, have contacted us on that particular site.

We're adding tremendous value to it with the development of 60 acres immediately across the street from it.

And as you know, it's also-- I think you're also aware it's in litigation.

We've won the original case, but it's on appeal.

It's something that's probably more prudent for us to wait through the legal process before we do anything.

But there is significant interest of outright purchasing, a joint venture, anything you can possibly name.

All right.

Great, and then the last thing as far as Macau property-- Originally, the feng shui dates in the early part of December.

Is that still the case, or should we be expecting it a little later in the month?

Well, we are practical people.

We have a series of feng shui specialists that we can work on various dates some of them find to be more enticing than others.

We will get it open before the end of the year, and as Jim mentioned, and I think Dan mentioned.

We did indicate the cost of increase, and that's not merely a cost of just additional labor which is part of it, but if you take a look at, and you'll see it when it does open, the quality of restaurants, compares very favorably to what we have here.

We saw very frankly what Steve Winn did, and he built a quality product.

And it trans formed that area in the peninsula.

And we need to properly compete with that, and I think we'll have a very cooperative spirit there because he'll develop business, we'll develop business, and that will interact between those two properties and probably Lisboa.

But I don't think we can really issue the importance and understand the importance of us being in Macau for that very high-end business that we have here in Las Vegas.

It's extremely important to us to be there.

I've said this will be the third quarter and hopefully the last quarter I have to say this, is that we have operated at a distinct disadvantage to the Venetian and Winn.

Give them credit.

They were there first and they are meeting people we don't know.

That's all going to change by the end of this year, and we'll be on a level playing field and ready to do battle.

Alright.

Well, I look forward to the invitation to the opening.

Thanks.

Thanks, Larry.

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

Thanks.

Yes, a couple questions on the Las Vegas property.

One is, can you-- [Perhaps] I want the hotel revenue.

Just in Las Vegas, the increase in total hotel revenue.

I know your revPAR was up, but you also had some rooms out of service, so...

Yes.

You're breaking up a little, Robin, but I think you asked what our hotel revenue was up on the Las Vegas strip.

Yes.

Overall, we gave that number was up $511 million.

It was up 7%.

Our overall on the Las Vegas strip was up 5% in revenue.

Okay.

Great.

And then also, the table volume you commented with and without Beau Rivage.

I wonder if you took out Detroit.

Just Las Vegas table volume.

The Las Vegas table volume was flat.

Great.

And then, can you talk about any impact so far on the fourth quarter from two things-- One is, I guess-- A couple of days You had your reservation systems were down, and tell us how significant of an impact that was at the properties where that happened?

Or they were, I guess, on and off for a few days.

And then, also any impact-- Southern California is obviously an important market for you, and whether you're seeing any impact from the wildfires there in terms of visitation to Las Vegas..

Sure, I'll tackle the first.

Yes, we did have a system failure for a brief period of time.

It started on October 17th, wrapped up on October 26th.

Seven of our resorts here and also Beau Rivage in Mississippi.

So, seven total were impacted by this.

We had unscheduled downtimes.

Resulted in 19 hours of downtimes of our properties' hotel system.

That's the Opera system which was developed by Micros, it runs on an HP platform and has an Oracle database associated with it.

And that combined system did break down for that period of time.

We went into our recovery mode when that happened and brought a lot of staff on place, and manually checked in people, which when you have properties as big as ours,obviously, there are significant issues involved in that.

The problem was in a memory leak in the operating system, and that has been-- We've working on it, really, 24 hours a day.

The system is fully functional right now, but we don't like the lack of redundancy in the system.

So we're improving the redundancy of the system, and getting a more robust system to handle it.

This is a bruising edge, because Micros never has developed a system that operates this scale of room product, both for property and systemwide and we're working with them.

It has -- we lost some revenue as a result of that.

We had some customer issues that we know how to handle.

We're customer-service oriented.

And they were inconvenienced for that period of time.

We're sorry for that, and we're in that recovery mode.

As I say, it is working right now.

So, we did have a temporary breakdown in the system.

it's regrettable, but it was temporary, and it's behind us.

As it relates to, I think the California wildfires and the impact on traffic, I'll say it's something that -- it's been minimal to us.

I don't know if my partners would disagree, we've seen, you know, very good vehicular traffic into Las Vegas at our properties.

As I mentioned before, we're more of a fly-in destination than a drive-in destination, at least compared to the overall market here in Las Vegas.

We do have the resort nature that people gravitate to from great distances.

Our drive-in business even still has been largely uneffected.

Great.

And just the last question.

Do you have any sense of whether Dubai World-- they didn't get much in the tender they did to the market.

Whether they would have interest in coming back at a higher price or what your sense is of that.

Robin, I think the issue there is you'll have to chat with them about that.

They obviously have an agreement that they can go up to 20% of our stock, and now own slightly below 5%.

And I know they believe in the company, you'll have to ask them at what price they want to move back into this market.

Okay, great, thank you.

Your next question comes from the line of Steve Kent with Goldman Sachs.

Hi, good morning.

Could you just talk a little bit about margins?

And I guess what I'm trying to figure out is, is there some offset between the casino margins and the non-gaming margins?

Is there a mixed change?

Or is there actually a decline in each one of those line items that I'm not able to see?

What do you mean decline, Steve?

Some pressure on either -- The casino-- I'm assuming the casino margins were under some pressure this quarter, but are they under more than just the volume, or is there something else going on there?

Some expense structure or something else going on?

No, as you know, Steve, the margins on the casino side are most significantly impacted by whole percentage, so really it's as simple as that.

Year over year, the margin and the casino department was impacted by the lower hold this year and last year on the expense side.

There's been really virtually no change, both in terms of promotional activity , n terms of discounts, in terms of overall labor and other expenses related to generating the casino revenue that we have.

As it relates to the non-casino side, that's why I was confused-- 'Cause our margins are flatter up in every area of our company.

And that continues to improve as we continue to improve our food and beverage, our retail business was quite strong and entertainment was even better.

Our margins going into 2008, as I indicated earlier, will likely be up if we have anything to say about it, because of some of the revenue initiatives that we're deploying right now-- And I think more importantly, some of the cost initiatives that have an impact

Okay.

Thank you.

Your next question comes from the line of Joseph Greff with Bear Stearns.

Good morning, guys.

Jim, I was hoping you could just give us an operating outlook for the convention bookings for Las Vegas for the third and fourth-- For the fourth quarter and for the first half of next year, please?

Sure.

That's a good question 'cause I dont think we-- We typically talk about that, and we didn't bring that up.

Right.

Sorry about that.

It's unintentional.

Well, the -- in the fourth quarter, it looks like we're going to have another solid quarter on the convention site.

And so far in 2008, looking out into 2008, we're significantly ahead of our booking pace this year than we were last year.

In fact, up in the mid -- in the teens in terms of booking for 2008 business, versus where we were a year ago, booking into 2007.

And the attrition rate in the 3rd quarter was about 8.8%.

Year-to-date our attrition was 9.4.

So we had an improved attrition rate in the third quarter.

By the way, the industry runs around 10%.

So we're better than the industry in both metrics.

And, you know, the citywides are down.

but MGM Mirage did not everybody.

But it looks like our convention business looked solid into the fourth quarter.

And as I stated our forward bookings into 2008 are significantly greater than they were a year ago.

Great.

Excellent.

And Jim, or Terry, maybe you can give us an update on other Macau opportunities with Pansy.

Obviously, you had some Macau development issues expense in the third quarter, if you could give us an update there.

We have a second site that the Chief Executive has indicated would be available to us.

And we continue the process.

There's a process you have to go through on that.

We provided documentation to the government.

We'll be there next week, and may have an opportunity to have further discussions with them.

But these processes take some time.

But we have identified that it's a very exciting site.

It is on Cotai and we are doing some preliminary planning on that right now.

It doesn't mean that we wouldn't find other sites.

We've been -- Frankly, had conversations with Dubai World again, interestingly enough.

'Cause Dubai World has secured property in the -- in that area, and they're looking for other properties and have had conversations with us about potential involvement of our joint venture to develop some part of that as a casino development.

I would just add, Terry, that's an excellent point because our pre-opening expenses are higher than you probably anticipated.

we're planting many many seeds and we're seeing immediate results in the formulation of transactions that some of which have been to the point of disclosure.

And others are not yet there, but there are many conversations underway, both in the Macau area, Asia in general, as Terry mentioned, as relates to many of our partners there, In the Middle East with Dubai, Abu Dhabi and other parts of that region and in Southeast Asia.

We also opened up-- We're helping, of course, the MGM Grand at Foxwoods.

We didn't mention that, but that opens up next year, and that has been a -- An effort of ours, which we think will help on the cross-marketing perspectives.

And Gamal Aziz with his MGM Mirage hospitality is really geared toward looking at non-gaming locations all around the world.

So pre-opening expenses, which burden our current results, we think, will yield very substantial profitability on a going-forward basis.

The other near-term impact, of course, was those property transactions which people really need to digest when they're looking at particularly the results of the MGM Grand here in Las Vegas, and at Mandalay Bay.

They both had significant transactions in the third quarter, which impacted the results, but the underlying operating trends are obviously very positive in both properties.

Great.

And then one final question, I think both you and-- Jim, both you and Dan talked about identifying some capital investment that would hit '08.

In terms of a dollar amount, it may be early, can you give us a range you think what capital investments would be in '08?

I think it's too early to tell right now, Joe.

We'll be taking that to our board later on this year or early next year.

And once we've shared that with our board, we'll come back to you with that, probably on the fourth quarter call, early in the first quarter.

I would remember that, Joe, the old CFO of this company used to try to encourage people to do a five-year plan and look at, not only the money that just came into the company in the form of the stock sale, but also more importantly, the money that's coming as Dan mentioned soon, in the form of selling the 50% interest in CityCenter.

It has just a profound impact on our balance sheet, profound from a standpoint of overall debt in terms of our leverage statistics, and in terms of our flexibility to do many things in the capital allocation program.

We have been very aggressive acquirers of our stock.

For example, in the past, we have managed the balance sheet very aggressively and, I think, prudently from a standpoint of risk, and we've been able to plant some significant development seeds over time.

So we're going to go to our board once Terry approves, first, of course, our budgets for '08.

And we're going to our board in January.

It would be a career-threatening move to give you numbers now before we present it to our board.

But I would say that our opportunities are better than they've been before.

Great.

Thanks, guys.

Operator, we'll take one more question.

Your last question comes from the line of Harry Curtis with JPMorgan.

Hi, guys.

Dan, if you read a little faster, we'd get more questions.

[ Laughter ]

You're only supposed to ask one, it's been 3 or 4 every question.

All right.

Well, with that in mind, I'll keep mine to Atlantic City.

But I have a 17-part question.

[ Laughter ]

What about a one-part answer?

Okay.

So with respect to Atlantic City, can you give us a little more detail on the timing?

Also your thoughts on the increase in capacity in the area, where the -- To what extent profitability is going to come from the existing casinos and your projections, versus expanding the market and to what degree to you factor Bader Field into your thoughts?

That's not 17, but 3 or 4 different issues.

And I tell you, they can last for us.

On Bader Field, we welcome that as an opportunity.

And we -- You know, I read the press, just seems like one companies that been assigned that particular site, and I think that's a mistake, because I know a number of us who are interested in that site.

If and when the governor and the city council and the other powers that be determine that that is an area that could be developed into resort casino-development, we'd be very interested in it.

You ask about capacity and what is going to happen in that particular regard.

The issue is, to me, if you take a look at Atlantic City.

It's like 36 million visitations a year, but the average number of visits per person is like 8 times a year, so you really have not penetrated that market.

And the more -- we saw with our joint venture in Borgata an ability to change that marketplace, from a dynamic 8/10 of one day as a visit to extend it much closer to a 1.2 nights and a little bit more in days, and that's a paradigm for us.

We think that the Renaissance Point-- Harrah's has put a ton of money into Renaissance Point.

We've approved with our joint venture partner to expand Borgata, unfortunately, a fire slowed that up.

It's going to be open in the -- I guess late spring, early summer of next year, and we believe that will continue to change the marketplace, but we're going to do in a $4 1/2 to $5 billion project is going to truly be transformational for Atlantic City.

And we believe that that will have the ability to attract people as Bob [Vogner] likes to refer to them, as the New York rejecters, and that's why we've kept the 12 acres in the back open.

We think there's a possibility, maybe a probability that residential units would be an interesting component to add to that 60 acres.

And if we have a must-see sight that is a destination resort, which I know we will do if Tom [Peterson], Fox and our people are involved in that.

We believe that will more than offset what is happening in Pennsylvania.

Today, as you know, Pennsylvania has slot houses, basically.

And with the tax rate they have there, there's no way you could afford to build a destination resort.

Any change in that tax rate or the expansion of gaming is going to take some time, in my opinion, in Pennsylvania.

And Atlantic City has one opportunity and we think it's Renaissance Point and the Marina, to develop destination resorts that are second to none.

The premiere resorts on the East Coast, and would attract those New York rejecters as well as people from the Philadelphia marketplace.

One of the advantages in the Marina district-- Harrah's from the time I was back there in 1978, '79 and '80, never had a bussing program.

Doesn't have one now.

Our Borgata project has no bussing program.

We anticipate no bussing program for our MGM Grand Atlantic City resort.

And that in my opinion, from what I read, maybe more anecdotal than the specific factual statistics, is what is happening with the business along the boardwalk.

They're losing one heck of a lot of that business that comes in on buses and that bus program, which may not necessarily be the most profitable business in the world, but it's a business we don't want to be a part of and we don't need to be a part of.

We're very bullish in Atlantic city, we like the fact that it has a constant rate.

8% tax rate plus 1 1/4% worth of CRDA funding gives us a predictable rate.

And that's why we said now-- For about three years now, Jim, we really wanted to focus our growth on states with stable tax rates.

State of Nevada obviously, where we put our money, obviously, and are putting our money.

The state of Mississippi and the State of New Jersey.

Because those are stable tax rates, we're not interested in some of these other areas where we happen to be as a result of mergers, operating in their fine places and all of that.

But at t the same time, the tax rates are kind of like, every Monday morning they may change.

So, very bullish in Atlantic city, bullish on the Marina, more bullish on Renaissance Point and we will build a destination resort that will keep people coming to Atlantic City and staying for a lot longer periods of time than they have in the past.

And the last part as far as competition-- I think competition without capacity or just capacity alone, is just rooming house.

That's,all they are.

You need somebody coming in and developing a dynamic resort.

And that could be one of our existing competitors, and I would welcome them.

I welcome them to wherever they would like to build in Atlantic City.

Because that will bring more people.

We're not in the gas station business, where you're on one corner and somebody pulls in, the other three gas stations don't get the business.

If we're doing what we're doing right, and with our new Chief Operating Officer, I know we will be doing it right.

We will attract those people to come to our properties also.

That's why we love being next to Steve Winn in Macau, it's going to be great.

We're going to have the two best facilities.

They're going to be boutique compared to a certain facility, but they're the quality facilities.

Thanks, guys.

Thanks, Harry.

And I think, operator, with that, we'll wrap it up.

Thank you everyone for joining us, and feel free to call my office with any follow-up questions.

Thank you.

This concludes today's conference call, you may now disconnect.