美高梅國際酒店集團 (MGM) 2008 Q2 法說會逐字稿

Good morning 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, Jim Murren, President and Chief Operating Officer, Bobby Baldwin, Chief Design and Construction Officer of MGM Mirage and President and CEO of CityCenter, and Dan D'Arrigo, Executive Vice President and Chief Financial Officer, 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, Amanda and good morning, everyone.

Welcome to our second quarter earnings conference call.

This call this morning is being broadcast live on the Internet at www.MGM Mirage.com and at www.companyboardroom.com.

And a complete replay of the call will be made available on the Company's website.

This morning we furnished this earnings release on form 8-K to the SEC, and it also is available through their website as well.

Additional, supplemental information was posted on our website this morning, which gives you significant detail behind the numbers included in the release.

And before we get started, 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.

Any forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those 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 it over to Terry Lanni for some introductory comments on our results.

Thank you, Dan and good morning, everyone.

We are very pleased actually with our second quarter results, and though the economy certainly remains challenging, we believe we're very successful at generating revenues very near prior-year levels.

And considerable work on the expense side of the equation allowed us to hold profit levels that we saw in the first quarter.

On an overall basis, we reported earnings of $0.40 per diluted share compared to $0.62 in the 2007 quarter.

The year prior including significant profit -- did include significant profits from residential sales at The Signature and MGM Grand.

That was $63 million or $0.14 per share.

That makes up a large portion of the decrease in EPS from the prior year.

There were other less significant items affecting comparability, and we outlined those in the release.

Dan and Jim will give you some more specifics on trends seen during the quarter as well as our outlook later on in this call.

I'd like to point out some highlights from the quarter.

On a comparable basis, property EBITDA was down 12% on a 2% decline in net revenue.

These results are better than others in this marketplace.

We believe our market share is growing based on the superior quality of our resorts and premium guest service.

In Las Vegas, Bellagio and Mandalay Bay posted increases in cash flow, with Bellagio reporting the highest property EBITDA of any resort on the Las Vegas Strip and Mandalay Bay producing a record second quarter.

Also reporting increases in cash flow, were Gold Strike in Tunica, Beau Rivage in Biloxi and MGM Grand in Detroit, which accelerated its year-over-year increase from the first quarter.

We've taken a significant number of measures to right-size the Company for these changing times, and have done so without impacting the quality of service to our guests.

These measures have allowed us to maintain profit margins at superior levels to our competition.

I'd like to discuss the results at MGM Grand Macau.

MGM Grand Macau generated net revenues of approximately $268 million in the quarter and a disappointing property EBITDA of $23 million.

Clearly these are disappointing results.

If you really take a look at the Macao marketplace, we have 8% of the market as far as volume -- number of units of tables and slots and basically in this quarter period we did about 8% of the revenue.

I'm pleased to say in the numbers that were released by the government of Macao just last week, that our July market share has increased to 9.5% from 8%.

We basically have set aside 57 table games within the 366 games that we have there for junket promoters, and they do basically $60 million in turnover, which is a good number for those number of tables and a win of US $1.8 million per day.

In-house VIP, we hold 23 tables.

So we're limited in this regard that we have 80 tables and we have six junket operators and as I say, that is our capacity.

We have reached out to and others have reached out to us a number of other junket operators who would like very much to associate themselves with MGM Grand Macao, but at this point we don't have the capacity.

What we're doing to correct that is the following.

We have on the 34th and 35th floors, determined to convert those floors to be VIP rooms.

And by the middle of August, we will have added 22 tables to our existing number of 80 tables.

Level two, we were converting, that was originally set aside, a section of that, for mass market.

And we have determined it would be important to add more VIP tables, and by the end of the year, we will have added another 48 tables on level two.

That will bring us to a total of 150 VIP room -- tables, I should say, as compared to the current level of 80 ,and they'll be flowing in through the rest of this year and be in place by the first of 2009.

One of the issues that has been a very positive for those people who have it is the retail component in Macao.

And when we originally planned our project, we have a project immediately next door to us and actually connected to us which is called One Central.

This includes some 250,000 square feet of net rentable high-end retail, which has proven to be a very significant component, as I say, in the Macao marketplace.

The original anticipation was that Hip [Hing], the contractor for that project for Hong Kong Land and [Suntack], would be able to open that facility concurrent with ours.

Unfortunately, that did not happen.

There was significant construction delays, and it is expected now that that project will be flowing in, starting sometime about this time next year.

That does put us at a disadvantage because we have two minimal retail outlets in the existing MGM Grand Macao.

When this opens, with its some 1200 condominiums, service apartments and the Mandolin Oriental Hotel along with the retail component, we think will be a significant factor to improve the reported numbers and the production of that particular property.

One other factor was, that when we opened on December 18, and until the month of June, we had actually operated that property without the benefit of the excellent MGM Mirage International Marketing Organization.

We determined that was a mistake not to utilize that organization, and the joint venture agreed to utilize the facilities which exist throughout the world, especially in the Far East.

And since we have incorporated MGM Mirage marketing, which was in the month of June of this year, we have doubled our VIP in-house business and we think that can continue to grow.

We do have some issues in construction and I always hate to complain about construction as a reason why we have some difficulties.

But getting in and out of our property is very difficult as a result of all the construction, both done by the government of the Special Administrative Region as well as existing and some would-be or future competitors.

And that's going to take probably about another nine to 12 months to complete that construction, including the one central property next door to us, which should alleviate some of the restrictions that the mass market has in getting in to our property.

So on balance, we're not pleased with the past performance of our property in Macao, but we believe that we are taking the necessary steps, and the early indications from those steps are indicating that we are getting a good response.

We believe that we will consistently improve that particular market and our particular property in that market.

And I think you also know we have appointed effective on August 1, Grant Bowie as President of MGM Grand Macao.

He's an experienced gaming operator, including four years as a Chief Executive in Macao.

At the same time Bob Moon has moved back to his role as head of International Operations for MGM Mirage, and will continue to lead our efforts overseas including our casino international marketing efforts.

I'd now like to turn the meeting over to Dan for a few detailed comments on our operating results for the quarter.

Dan?

Thank you, Terry.

I'd like to provide a quick, short summary on the results of our second quarter.

On a high level, the trends in the second quarter were similar to those experienced in the first quarter.

We also provided significant detail in our release this morning and posted the supplemental information I mentioned earlier to our website.

Our casino revenues decreased by approximately 4% compared to last year's quarter, while our net noncasino revenues were essentially flat for a 2% overall decrease in net revenue.

We achieved a 97% occupancy at our Las Vegas Strip resorts, and as you've seen in the market, we did have to give on rate to some extent for the benefit of the overall operation.

But Las Vegas remains in high demand, and we have the properties of choice in each of the market segments.

REVPAR at our Las Vegas Strip resorts was down approximately 5% year-over-year, similar to the 4% decline we experienced in the first quarter.

And a point to note is that our occupancy trend from the first quarter to the second quarter in a year-over-year basis actually improved, from being down some 230 basis points in Q1 to only 90 basis points in Q2.

So we've picked up significant traction on the occupancy levels.

Still worthy to note is that our comps are incredibly difficult as we're up against an all-time record 2007 second quarter for both revenues and profits, and our Strip REVPAR last year was actually up 7% in the second quarter.

Adjusting for comparable items, property EBITDA margin at this quarter was approximately 30% versus 33% in the prior year's quarter, a very strong operating margin in this environment.

We still see room for company-wide margin improvement as our cost-saving initiatives continue to gain more traction in the coming months.

Our income from unconsolidated affiliates was $17 million in this quarter versus $97 million in the prior year's quarter.

Approximately $63 million of this variance, as Terry mentioned earlier, was attributable to the prior year residential sales of the Signature at MGM Grand.

The remaining difference is due to lower income from our pick-up from Borgata as well as Macao's operating loss, and this year of course we have our share of the CityCenter residential expenses in our unconsolidated affiliate line item.

Our net interest expense was $145 million compared to $183 million in the prior year's quarter as we continued to benefit from a lower deck balance year-over-year.

Our gross interest in the second quarter this year was $184 million,.

Our capitalized interest was approximately $39 million for a net number of $145 million.

Our income from continuing operations, which excludes the gains recorded last year on the sale of both the Prim properties in Laughlin, was $113 million in 2008 versus $183 million in 2007.

Most notably the difference there is the Signature event last year versus this year.

Now I'd like to turn it over to Jim for some more detailed discussion on our operating results.

Well, thank you, Dan.

Well, it certainly has been a tough year from an economic perspective, but we've made quite a bit of progress this year.

We know we picked up a bunch of market share here in Las Vegas, for example.

Unfortunately the June numbers for the market are not out, but I can give you through May.

Year-to-date through May, our ADR is down 2.2%, the Strip is down over 4%.

Year-to-date through May our table drop was only down 1.3%.

Las Vegas was down 3.3%, and actually our Baccarat drop has been up year-over-year through May and of course the Strip has been down.

We've picked up quite a bit of market share.

We see that through the gaming numbers and the nongaming numbers, and it's particularly notable since there was a large competitor that was added to the market this year, and yet our market share went up nonetheless.

It's well advertised that people coming to Las Vegas is down, and of course airport traffic is down as well, but our occupancy was 97% in the second quarter, and as Stan mentioned, it actually improved sequentially.

We do have the best of class properties in every market in which we operate and there's a reason for that.

We've invested heavily in these properties in the past.

The capital expenditures that we're making this year will position us very well into 2009 and, of course, that means CapEx is going to fall pretty dramatically next year.

And we do have the profit leaders as well, which is actually more important.

Obviously, we mentioned Bellagio being up year-over-year and obviously the most profitable casino here in Las Vegas.

Mandalay had an all-time record in the second quarter.

We had several departmental records in the quarter, despite the economy, and outside of Las Vegas, we did well in Mississippi and in Detroit.

One reason why we've been able to do this,in addition to the capital we've spent ,are the initiatives that we put into place beginning last year.

We've cut quite a bit of cost out of this Company and to the tune of over $200 million a year, and those cost savings are gaining traction and will continue to resonate in our coming quarters.

That is why we believe you'll see profit improvement in 2009.

Dan's going to get into the guidance when he gets back to you, but we view this quarter as a trough quarter, and we see improvement in the fourth quarter and in most revenue items and certainly in a profit picture as well.

Specifically to the second quarter, get back to that, our REVPAR was down 5%.

The average rate decreased to $155 versus $162 a year ago.

We had fewer group room nights in the second quarter.

We mentioned that on the last quarter call.

That's still in line with our guidance, it's down 4%.

Because we had higher attrition rates than we had a year ago, but that attrition rate has also stabilized and we see improvements actually in attrition rates into the fourth quarter and, in fact, many of our properties experienced records in this past quarter in terms of booking new business, which is particularly encouraging.

In fact, Mandalay, Mirage, Bellagio and MGM Grand all had all-time records in the second quarter just ending in terms of booking business into 2009 and beyond and so we believe that will bode well for future periods.

On the table side, our volume was down 7%.

We did have 11% decrease on our Strip resorts, but that was mostly on the lower end of our portfolio.

Bellagio was actually up year-over-year in volume.

Mandalay, as I said, had the best second quarter ever.

MGM was down, but it was an all-time record last year and as I mentioned earlier, other elements of MGM were actually quite strong, including food and beverage.

From the standpoint of slots, slot revenue was down 2% in the quarter.

We actually did well in many of our properties, including in Mississippi and particularly notable in Detroit.

Detroit was up 18% and that was better than the results that they had even in the first quarter this year.

And, of course, the MGM Grand Detroit property continues to gain market share.

It now, as of June, stands at 44%.

We've been upgrading our loyalty marketing programs.

We believe we have been behind the market for many years in customer acquisition and loyalty marketing,.

We have great initiatives led by Al to my left over here and his team to much better market our properties and be more productive on a customer acquisition perspective.

It's not rocket science, actually, it's just block and tackling, and we're going to be far more valuable to our gaming customers on a going-forward basis as we provide more value to them and I think that will do well on the market share as well.

Food and beverage revenue was also strong actually in the quarter.

It was up 2%, pretty incredible given the environment.

And that's a benefit of having high occupancies with the right kind of customers.

Strong international visitation to Las Vegas has had a benefit to all of our -- particularly our nongaming areas and of course our entertainment is second to none and our entertainment was very solid in the quarter as well.

We had a big fight last year.

As you recall, we had to De La Hoya/Mayweather fight last year, a tough comparison, but because of the Cirque du Soleil productions and other productions in the arenas, we had very solid results in the second quarter.

In summary, hospitality has taken many body blows this year -- gasoline prices, airline traffic, consumer credit issues, but we believe we've performed admirably.

We've made important profit improvements in the quarter that are lasting.

We continue to see softness on the revenue side this summer, but that we see improvement in our profit picture and into 2009 beginning actually in the fourth quarter.

We're going to have fewer rooms out of service in the current quarter than we did in the second quarter, and fewer still in the fourth quarter, and even fewer still in 2009, so that will help us on the revenue side.

And on the gaming side, we continue to pick up market share in a difficult environment as we continue to improve the profitability of our resorts, but also the attractiveness.

So with that I'll turn it over to Bobby for his comments.

Thank you, Jim and good morning, everyone.

First I want to talk a little bit about Monte Carlo.

As you know it had a fire in the first quarter.

And for the second quarter it had 23,000 room nights that were out of service and impacted the cash flows.

As of June 30, the 31st and the 32nd floor of the hotel remain out of the inventory.

This 32nd floor from the damage and the 31st floor, Clarke County has not permitted us back on to that floor to keep it as a buffer floor.

We expect to have the 31st floor back in inventory within the next 30 days and for the third quarter, we estimate we're going to lose about 10,000 additional room nights.

The insurance claim is spelled out pretty clearly in the release, but so that everybody can be reminded, Monte Carlo made about $13 million in cash flow in 2007.

It's going to do about $96 million this year.

$50 million of that is business interruption, and $46 million is cash.

Overall it's going to be down about 14% when you make those two adjustments.

We -- we're about halfway through the BI claim because we're going to recover an additional payment of $18 million in Q3 and -- pardon me, $9 million in Q3 and about $9 million in Q4 to complete the business interruption claim at Monte Carlo.

Also, Monte Carlo is under stress that relates not to the events of January, but mainly the stress from the construction side of CityCenter.

As you know, Monte Carlo's main entry is in the rear of the building and, of course, we're building 18 million square feet surrounding that.

They have the benefit of our concrete batch plant unfortunately, and we're going to improve their entire arrival next year by the end of the year.

This year they're going to get their garage back.

We tore down their garage to make a larger garage to share with Monte Carlo and CityCenter and we doubled the spaces available to them for self park.

But currently they have no self park as we complete the new garage.

We also disconnected for the second time the people mover system from Bellagio, so they'll have the benefit of the new people mover system beginning December of next year.

There's been plenty of talk about Bellagio, just a few notes.

We did have a terrific quarter.

EBITDA was up about 7 million or 6.5% from the last year, but locally, the hotel people here did a very good job.

They had $95 million almost in hotel revenue for the quarter, which was a record and the REVPAR was up nicely.

Finally, CityCenter, as we track the maximum price contracts for CityCenter, we have all eight of the GMPs in.

Six have been signed and executed by the joint venture board with Dubai World.

The other two will be executed, the last two will be executed and signed on the 20th of August and that will complete all of the -- all of the GMPs for CityCenter.

I said on the last call that everything is on schedule.

If you've been by CityCenter lately, you can see that most of the buildings are approaching full height.

In fact, all of the buildings will be full height by the end of February of next year.

The major casino hotel tops out completely later this month, the Mandarin Oriental tops out in September.

All Crystal's retail structural steel is up, and it's going to begin to turn over some of its spaces to some of its tenants beginning in February of next year in three phases, February, March and April for those important tenant fit outs to be prepared for the December opening next year.

If you've driven by, you've seen the APM or the Automatic People Mover guideway system up and the cars -- the train cars are in fabrication.

They'll begin testing early next year as well.

As it relates to CityCenter residential, 37 units or about $34 million worth of inventory were sold in the second quarter.

We've said before, we track the entire market here in Las Vegas, of course, particularly for high rise sales and for better or worse, CityCenter represents virtually all new high rise condo sales in Las Vegas.

I might add that if you look back to the first quarter, we sold 56 units.

In the second quarter, I said we sold 37 and in July, we sold 32.

What's important about July is we had 17 sales that came from our new sales office in Dubai, so we look forward to future success in that channel of sales.

Total from inception to date is about $1.75 billion in residential sales representing about 59% of our total sales when we complete the project.

We have sold 54% of the inventory or 1421 units.

And that's my report.

Thank you, Bobby.

First, before we get into some guidance, quick discussion on our balance sheet.

In regards to capital spending, we invested $221 million in the quarter with the details specified in the release this morning.

As we mentioned earlier this morning, we're now forecasting our CapEx to come down somewhat based on the tremendous shape of our properties and the positioning that we've taken over the last couple of years to strategically make sure that all of our properties were in the best shape as we head into the opening of CityCenter.

And we're completing most of that capital program here this year.

I'd expect capital spending going forward in each of the last two quarters of '08 to be approximately $200 million.

This would bring our total spent to approximately $800 million for the year of '08, down from our previous guidance of about $1 billion.

While it's too early to give a number for 2009, while we're just beginning our budget process, we would expect that spending in 2009 will be considerably less than in 2008.

Regarding our long-term debt, we borrowed net debt of just over $200 million in the quarter.

At quarter end, we had approximately $1.7 billion available under our bank credit facility.

And here in early August, we had some senior notes that matured, so after giving effect to roughly that $200 million of senior notes, our credit facility availability is approximately $1.5 billion in early August.

In the quarter, we repurchased 2.6 million shares at a cost of $134 million.

That completed our 2007 authorization and in May of 2008, our Board had authorized another 20 million share repurchase program which we have not utilized to date.

On the CityCenter update, on the CityCenter financing, we have -- once the financing is in place, we'll have spent approximately $4.2 billion of the estimated $9.1 billion of gross cash construction and preopening costs and, therefore, that will leave just under $5 billion left to spend to complete the construction of the project.

As we said in the release, the joint venture is seeking a $3 billion financing package which we're working on with our lending group right now.

We believe that bank portion will be completed this quarter and as highlighted, in this very difficult credit environment, but we have already received firm commitments of over $1.65 billion of this package.

We continue to work with several domestic and international relationship banks to complete this financing.

Based on these expectations, the partners will be committed to funding the difference, which will be just under $2 billion after financing is in place, split evenly between MGM and Dubai World.

We anticipate that the timing of these remaining funds would be approximately half throughout the remainder of '08 and into early '09 and the remainder towards the end of construction as needed.

I'd highlight that these numbers are before the application of any condo proceeds or any future debt financing that may be done at the joint venture level.

From an MGM Mirage perspective, we have ample capacity to fund our share of these costs through our available credit lines and available free cash flow from our operations and as most of you know, our credit facility can actually be expanded from $7 billion to $8 billion with additional commitments from lenders as well.

So we're well in good shape there to fund these costs.

From a future operations outlook, our outlook is generally consistent with the commentary you've heard so far in this call relative to the second quarter.

As Jim pointed out, our REVPAR forecast here in this third quarter we believe will decrease from the first half of the year.

We're projecting REVPAR to be down in the high single digits in large part due to the seasonal weakness in the third quarter that is typical for our operations.

As a result of our cost-cutting initiatives, our property EBITDA forecast calls for year-over-year decrease in about the same range that we saw in the first and second quarter of this year.

So our cost cutting initiatives are gaining more traction and will continue to benefit us going forward.

Looking out into the fourth quarter, we expect to see improvement from these levels as we mention in the release.

We're seeing positive room trends heading into the fourth quarter and with revenues, we expect fourth quarter to show some improvement quarter-over-quarter in property EBITDA as well in the fourth quarter.

Other specific guidance to help you with your modeling, our total stock compensation in the third quarter is estimated to be approximately $10 million.

Corporate expense is estimated at around $35 million to $40 million, including about $4 million of stock cost expense.

Our preopening expenses should be consistent with the second quarter, which is primarily our share of preopening related to CityCenter.

Our net interest expense, we're forecasting to be consistent with the second quarter as well in the $140 million to $150 million range, and our depreciation is estimated to be approximately $200 million as well in the quarter.

Our effective tax rate is estimated in the third quarter to be approximately 37%.

(OPERATOR INSTRUCTIONS) Your first question is from Felicia Hendrix with Lehman Brothers.

Good morning, guys.

Hi, Felicia.

Just wondering.

The $1.65 billion, what rate was that priced at?

Well, we'll give those -- all of the information once the detail is finalized, Felicia, but it's very attractive margin spreads and the LIBOR rates are still very low in this environment.

So it would be pretty attractive project financing, and as we pointed out on our last call, would be very similar, if not inside of what Borgata had priced at when we did that project financing several years back.

Okay.

When we see those rates, should we assume that they were priced at a discount, so we should ask about the yield to discount at the time?

No.

They won't.

They will not be.

They're not going to be priced at a discount?

Correct.

Okay.

And then Bobby, can you just tell us how the leasing for Crystals looks so far?

It looks pretty good.

We have 76 different leases to get completed, which includes all the retail and all the food and beverage at Crystals.

We have 20 signed deals and we have another 20 or 30 where the business -- the business points are pretty much worked out, but have yet not to be -- yet to be signed.

We expect to get just about all of the leases done and Crystals should have all but about six spaces leased by the time we open.

We have five or six locations within Crystals that are pretty tough locations given the traffic flows and they take more time.

The retail environment, as you probably know, is also slow, particularly in the United States.

It's difficult to get these companies, many of which are foreign companies, to sign their leases, as strange as that may seem.

They don't want to do anything until the very last moment, but Crystals is coming together nicely.

Okay, great.

And then I don't know if this is for Jim or who, just on the Bellagio, the property held up remarkably well considering how some of the -- your competitors have done.

I mean, Venetian is fine, that's competing against the opening of the Plaza.

But Wynn is down year-over-year.

Bellagio is up year-over-year.

Wondering in particular, what do you think is driving that?

Obviously from your comments, you expect it to be sustainable, but just wondering if you could reiterate that there.

This is Bobby.

The Bellagio really has the benefit of being in the marketplace for 10 years.

It has a much deeper and more committed and loyal customer base, at least I believe, than maybe some of its newer competitors.

It also has the benefit of being part of MGM Mirage that has 10 operating companies in Las Vegas, and it can synchronize it's business activities in concert with other companies in Las Vegas and generally makes it strong overall.

I think Bellagio has proven that it has withstood the test of time, and it's a great property and great location and it's always going to do very well against Steve's stiff competition.

Okay.

Thank you.

Your next question is from Larry Klatzkin with Jefferies & Co.

Hey, guys.

The Mirage seems a little out of line with some of the other big ones.

Did you have some bad luck there?

Was there something there that might have brought the number down a little bit?

We had a couple of things there, Larry.

I'll tackle that one.

Bobby gets the good news.

I get to handle the one's that were down.

When you have so many properties, they're not all going to be up or down at the same time.

We did have a little bit of that, but we have been working on the Mirage.

We've had a lot of CapEx into that property this year.

Those programs are done.

We've been working on the casino marketing side quite a bit.

That's going to improve.

And on the room side, of course, it's been part of the whole process here, but the room trends are also starting to improve.

It doesn't do as well on the convention side as some of our other properties, and that's an area that we're working on right now.

So on balance, we have had to hold issues up and down.

As you know, we don't give hold per property and we don't use that as an excuse because as a portfolio, our property holds are about the same as a year ago and within our range, but, you know, you get ins and outs with the properties.

And --

Oh, and -- And just to add one other --

Let me -- go ahead.

The Mirage unfortunately had an unfavorable legal lawsuit go against it in the quarter, and they actually took about a $6 million to $7 million accrual for that legal matter.

Yes.

The story is not finished with that, that legal matter.

It's on appeal right now, but it was about a $7 million hit in the quarter.

Okay.

Okay.

That makes more sense, then.

You're saying you need $2 billion for the -- for CityCenter, you have $1.7 billion of condo sales.

Is there a chance some of those condo sales will be applied toward some of the final needs and you actually won't need to put in your share of the on poll -- on balance $1 billion, that you'll be able to take out some of the money from the condo sales?

That's correct.

As I pointed out, some of the requirement is due at the end of -- and near completion of construction and we start actually -- we're about -- I think about a year away from Vdara being completed, so we will start receiving condo proceeds in August of '09.

So that is before the application of any condo proceeds, which we're expecting, obviously, based on our track record thus far.

And will the banks let you apply the condo proceeds to -- toward the $2 billion needed?

Yes.

Okay.

So if you end up selling $2 billion of condos, the odds are you won't have to come up with the bulk of that money?

That's correct.

Okay.

You have a big bank maturity next year.

Anything going on with the banks on that?

We had -- our bank credit facility doesn't mature until 2011.

I think you might be referring to -- we have a couple of bond issuances that come due in July -- kind of around July and October of next year that I think --

Right.

I saw that, the bond.

-- that total about $1.3 billion in total next year, so we'll be -- after CityCenter, we'll be working on extending those maturities and being proactive on that front.

Okay.

For CapEx, the next year might we think something in the tune of, you know, $400 million plus-minus, which means the next 18 months your needs might be, $750 million, which means your positive cash flow generator excluding CityCenter?

Not to speak for our Board as we'll be bringing that budget to the Board in the upcoming months, but I think that would be a fair assessment.

Okay, great.

I come in, you have probably close to a $1 billion of free cash flow, excluding what you need to put into CityCenter.

You're obviously not going to answer that one.

Yes.

That's your estimate.

Got to try, got to try.

Last question.

On Macao, you do have a problem where you -- you can't get there from here, where the road is such that you've got to almost drive past your place and go around Macao Tower and there's a conflict between China and Macao about who's land is the invented land of fund yield turn around.

Any temporary solution that may be turned around there to make ease eventually?

We are working with the SAR in Macao to do a right-hand turn lane on the front of our property, and it's not -- kind of you have to go past it, you have to go all around, down to the tower and come back.

It's about -- if you're leaving from the ferry station, you add about 12 minutes to it, depending on traffic.

So that one we expect, and hopefully will have, resolved much sooner than later.

And the issue is when they reclaimed land, the Chinese government claims that is still part of China.

So to widen that road there is still difficult in front of our property because the widening area would have to go into what is perceived by the central government of Beijing to be China compared to the special administrative region.

We think we can get that right-hand turn lane regardless, and we've had the Chief Executive's commitment for that and that's job number one for Grant Bowie.

So basically if I have this right, if your condo sales are over $2 billion, and you really -- you really don't need to raise any additional money for CityCenter and you'll end up with more than $1 billion of increased free cash over the next 18 months?

I think you're on the right track, Larry.

I mean it --

All right.

Thanks, guys.

It's been a remarkable commentary around CityCenter financing.

We've done dozens of bank financings over the past decade and there's an incredible amount of interest in this particular one, and it's taken a little bit longer than we would have liked because we've been having healthy discussions on rate and also on structure.

But we're over halfway there, we're going to get it done this quarter, we wanted it done last quarter, but we're going to get it done this quarter and in the meantime we're funding CityCenter with our partners and we have a tremendous amount of optionality with this in terms of other joint venture financings and other bank financings.

We think it's been completely overdone in terms of the interest on this, but nonetheless, it's, topical.

All right.

Well, thanks, guys.

Thanks, Larry.

Your next question is from Robin Farley with UBS.

Great.

You saw the news yesterday about the Nevada joint venture and obviously the news of Echelon that Boyd had the other day.

I wonder if you can comment on your joint venture with Kerzner and whether the timing of that has changed and anything is changing there?

I can take that, Robin.

It's Terry Lanni.

We have selected an architect and we're in the final stages of dealing with that particular entity.

We suspect we would have that in position probably by October.

We will not be breaking ground any time soon on that project, obviously, because of the credit markets as they are, but we're still very excited about it as is Kerzner and we continue to meet and fine tune it.

One of the advantages you have with these credit markets being the way they are, is it allows us to get much more detailed into the drawings and when we do eventually begin construction on these properties, we'll be in much better understanding of what the actual cost will be and a chance of having overruns and what have you, obviously, would be mitigated.

So that's a built in advantage from the disadvantage of the credit markets as they are.

And I would add, Robin, that I haven't seen a lot of this, maybe it's been done, but the amount of new capacity that's going to hit Las Vegas is going to be a fraction of what people thought it was going to be a year ago.

I mean a dramatic decline.

Because of many reasons, not only the credit markets, construction cost, the ability to finance these projects and it really boils down to if you're not almost done, you're just not going to do anything for a long time in Las Vegas.

That, of course, accrues to the benefit of the incumbents, and as long as the market continues to show durability and a lot of people are coming here, even right now, we continue to build our market share as we are, we think that's a positive.

But you're right, we've pushed off joint ventures, we've canceled some, many projects that had been announced will just never be built and the reality is if you're not here right now, if you're not fully financed or have the balance sheets to do projects, you're just not going to do anything over the next several years.

And that, we think, is a profound positive for our competitors that are here today and ourselves.

Great.

Thanks.

Two other questions.

One is just to clarify on CityCenter budget, you mentioned $9.1 billion.

On the last call you talked about $8.3 billion or $8.6 billion.

Is there a difference?

Is some of that pre-opening or can you clarify how the budget has changed if it has changed since the la quarter?

Sure, Robin.

This is Dan.

Two things, one is the $9.1 billion does include preopening, which is about $200 million, and also that number is the full GNP number which still contains some contingencies and some potential cost savings.

So it's up to our collective efforts now to keep everyone on time and well within these GNP amounts.

So the number that I've given you is on the outside GNP -- relates to the outside GNP numbers that are essentially locked down now.

And the number we gave you last quarter is unchanged in terms of guidance and obviously the delay of many projects puts Bobby and his team in a much better competitive position as we debate costs at every level with CityCenter and that the tide has turned a little bit so that the owners now have a lot more leverage than the builders.

Okay.

Great.

And then my last question is your comments about forward-looking trends in Q4 showing improvement.

I guess that's a little surprising because your comps kind of looked like they wouldn't get easier until Q1 and obviously there's a lot of concern about air lift into Vegas.

Can you give us a sense of whether -- it seems like your visibility was somewhat limited in Q4 and just kind of what you think is driving that and whether that's something -- I know in the last few months that convention bookings got a little worse than they looked initially and I don't know if you're seeing the same in other segments, but just so we can get a sense of how -- how that improvement in Q4, as we get closer to it, whether that's likely to get better or worse?

Sure.

I'll tackle that, Robin, and maybe my colleagues can jump in.

When we last talked to you all three months ago, of course you -- gas was about $3.66 a gallon and then it spiked well over $4 and it's come down quite a bit.

We had a view as to the second half on the convention side.

We don't really do well in the third quarter on the convention business and that's really our best lead indicator as you know.

We just can't get businesses to come out here in any numbers in the third quarter, particularly in July and August.

We see improvement in a variety of areas on the convention side, even beginning right after Labor Day, but particularly in the fourth quarter.

So one element of the fourth quarter will be on the convention side, I think you'll see positive comparisons from a standpoint of the year-over-year trends versus what we've seen this year, number one.

Number two, we've had many self inflicted wounds here in Las Vegas.

We've alluded to it, but I don't think we've been specific from a standpoint of the massive amount of capital we're spending this year and what the impact has been on traffic.

You know, the casino floor, the entire floor of New York, New York has basically been out of service this year as we've gutted that floor and totally remodeled it.

It will be done.

The Luxor, of course, has had a profound repositioning and we open up a new Cirque du Soleil show in October which, along with other restaurants and a very successful night club in other venues, will improve to the benefit of that property.

And I can go property by property.

I mean every property has its own story, but that's a big component.

The third component is the room nights that have been out of service.

I mean to give you a sense of it, in the second quarter we had about 77,000 room nights out of service.

We just didn't have them available because of the room remodels.

The third quarter, that will drop to 35,000 room nights and the fourth quarter it's only 5,000 room nights and we'll have basically, you know, minimal room nights out of service throughout the entire year of 2009.

And we -- we look very encouraging on the event side as well from a standpoint of our entertainment, big concerts, big fights, so when we reforecasted as we're trying to get a handle on what's happening here in Las Vegas in particular, we have shown through our operators improvements in RevPAR on a year-over-year basis.

In the fourth quarter, we see improvements in overall property trends because of what I just mentioned and the booking trends for 2009 are quite clear.

So unless we get another shoe to drop and we have another major economic hit to the whole system, the whole economy, we feel very confident that the fourth quarter will be better than the third and the final point is the cost savings.

We have had many initiatives, it's been a lot of work.

It's been exhaustive right from the CEO down and every quarter we get more of the benefit of that.

It was over $50 million in the second quarter alone and that will be more in the third and more in the fourth and the $200 million I gave as an annual number is a minimal number.

It's going to improve, we believe, in 2009.

All right.

Thank you.

Thank you.

Your next question is from Celeste Brown with Morgan Stanley.

Hi, guys.

Good morning.

Jim, sorry to belabor the point.

I just want to be clear on what you're saying on the fourth quarter.

You're saying the fourth quarter will be better than the first three, but you're not saying it will be up year-over-year; is that right?

That's correct.

We were down -- obviously we've given you the RevPAR trends.

You've seen what we've done in terms of cash flow declines year-over-year.

We think that we're going to be -- the decline in the fourth quarter will be the least -- the smallest decline of the year, and so sequentially from a profit perspective on a year-over-year basis, we're going to improve.

Okay.

Thank you.

And then when should we see the benefit, or have we already started to see the benefit of the reopened Baccarat room in terms of the comp last year?

Did you close it in the second half last year or in the first half?

At Bellagio?

Yes.

Bobby, I'm not certain exactly when the new rooms reopened.

It was late last year, right?

Yes.

December --

It was in December, so we've had -- Baccarat volumes are up year-to-date and they were up in the second quarter.

We certainly picked up market share in the second quarter as a Company, and Bellagio was leading the way this year in the second quarter from a volume perspective and as a Company, as we said, we held about the same year-over-year in our range.

Last year in the second quarter it was close?

No, I think it -- I think it closed -- Celeste, this is Dan.

I think it was around late July, early August and reopened in mid-to late December.

Okay, thanks.

And then finally, you mentioned a few times and in the release $1.65 billion of commitment.

How firm is that?

Is that contingent on getting the rest of the money?

You know, is it -- they've signed the dotted line, just --

Those are firm commitments.

They've done all their due diligence.

It's part of what's taken on with consultants and third parties that these banks have hired.

They're a pretty firm commitment.

They're not pretty firm, they are firm commitments.

The 1.65, that refers to the lead banks or that refers to the lead banks plus the --

Those are the top five banks and we have more committed than that, nicely more than that, but we're not going to give day-to-day updates on that, but that's why we believe we're going to close this deal this quarter because we're in the home stretch.

Okay.

And then one last question.

It -- are you -- have you renewed your focus on the gaming customer given the pressures on the nongaming customer in this environment or is -- are the things you mentioned from a marketing perspective just something you're doing as you think about the entire company, I guess, Jim, since you've taken over as COO?

Well, we've done really, really well on the nongaming side and, in fact, room revenue is down because of ADR, but -- excuse me, but on the other nongaming sides, we're doing extremely well and obviously we think we're going to pick up.

We've never lost sight of the gaming customer.

We do very well.

We have a commanding share of the high end of the business as you know and we have good shares up and down the food chain on gaming.

What we have done, is we have spent more time on the technology of the gaming customer and improving our understanding of the gaming customer like our competitors have done.

What I was alluding to, that we don't think we've led the market from a standpoint of loyalty programs, customer acquisition, database mining.

We haven't been the leader there and we will be.

It's not particularly difficult, it just takes some time and that is absolutely an emphasis.

We are not going to compete as a price leader.

We're not going to do that.

We don't have to.

We have the best properties.

But we can provide more value to our customers as other companies have done and that is an emphasis, yes, and it has been an increasing emphasis over the past year.

Okay.

Thank you.

Thank you.

Amanda, I think we're approaching our 9 o'clock hour or noon there on the East Coast, so maybe we'll take one more question and wrap up.

Thank you.

Your final question is from Joseph Greff with JPMorgan.

Hi, Joe.

Good morning, guys.

I just have a question kind of going back to the MGM Grand Signature Tower,.

What was the closure rate on those condo sales?

And is that sort of the experience you're anticipating in terms of closure rates for the CityCenter residential sales?

Well, I think, Joe, as you recall, we had a little bit over 1700 units on all three towers.

We bought the remaining eight -- or 80 units of that particular development and that was clearly in a different time in the marketplace when those units closed.

So we had a very high closure rate on those towers, and given the timing of CityCenter being in the back half of 2009, we have a lot of time to kind of wait and see how the mortgage and the credit markets are shaping up over that course of time.

But we feel very, very confident and -- in the quality of the customers that we've not only signed up, but are signing up today as well who are entering into new contracts.

And we're confident because we know them.

We know these people.

These are not -- for the most part, these are not people that are unknown to us.

These are people that have been well acquainted with MGM Mirage for any number of reasons.

We have as good a degree of confidence as you can have in this very turbulent time.

We don't know what's going to happen next year, but this is not a foreign entity for us.

We've had experience closing condos in the past.

These particular customers are well known to us and we feel as good as you can feel given the economy right now.

You want to comment maybe on internal forecast for what you're talking about to the commercial banks in terms of how many condos are sold and those deals are final by the time CityCenter opens up?

Or give us an estimate, roughly, what you would expect?

Obviously the environment is kind of tough.

Well, the financing package is not contingent on the condo piece, so I think those are two separate -- two separate pieces.

Okay.

Thanks.

And I think with -- with that, Amanda, we'll -- we'll end there.

For anyone who has any follow-up questions or calls, please feel free to call my office and we'll be happy to take those calls and thank you for joining us this morning.

Thank you for participating in today's conference call.

You may now disconnect.