美高梅國際酒店集團 (MGM) 2009 Q2 法說會逐字稿

Good morning.

Welcome to the MGM Mirage second quarter conference call.

Joining the call from the Company today are Jim Murren, Chairman and Chief Executive Officer, Bobby Baldwin, Chief Design and Construction Officer of MGM Mirage, and President and CEO of CityCenter, Dan D'Arrigo, Executive Vice President and Chief Financial Officer, and Bob Selwood, Executive Vice President and Chief Accounting Officer.

Participants are in a listen-only mode.

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

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

Dan D'Arrigo.

Thank you Molly.

Good morning everyone, and welcome to MGM Mirage's second quarter earnings call.

This call is being broadcast live on the internet at www.mgmmirage.com, and at www.companyboardroom.com.

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

This morning we furnished our press release on Form 8-K to the SEC.

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

Before we get started, I would just like to read our Safe Harbor disclosure.

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 Amendment of the Private Securities Litigation Reform Act of 1995.

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 would like to turn it over to Jim Murren.

Well thank you, Dan.

Good morning everyone.

As I reflect upon this call, I believe that there will be three themes that you hear from us today.

I will hit on those, and we will get into the details.

First, of course, the second quarter was incredibly important to us, as we took extraordinary and very successful steps to solidify, our financial position, and provide us with time to thoughtfully make further improvements to our capital structure.

Second theme you will hear is that we have clearly shifted our focus to maximizing our cash flows at our resorts, and the opening of CityCenter.

Maximizing cash flows means market share gains, continued improvements in customer experiences, ongoing cost management, and profit improvement.

You will hear quite a bit about that today.

And third, we will talk about the operating environment, which clearly stabilized in the second quarter, but we are not out of the woods.

The operating environment we think will remain choppy in the near term, however we see extremely positive signs, especially as we go into 2010, or even starting in the fourth quarter, but into 2010 and 2011.

So let me get into some of these points in detail.

If you recall in our last earnings call we talked about our CityCenter solution, which we had achieved at that point, and that we were making progress on our global financial strategy at the corporate level.

It was only a few weeks later in May that we executed the next step of our plan, with a $2.65 billion debt and equity issuance, and a major amendment to our Credit Facility.

These successful transactions further prove the value of our strong relationships, our proven track record, and the quality of our resorts.

We paid off over $1 billion of debt in the quarter, and I would like to thank our banks, our financial advisors, and our partners for all of their hard work.

We will continue to deleverage our balance sheet, and we have many additional tools at our disposal to do so, and Dan will discuss that in more detail.

There are a few points I would like to make, as it relates to CityCenter, and Bobby Baldwin will of course be getting into this in greater detail, but I want to reiterate our belief that CityCenter in our minds will drive growth, not only at our surrounding properties, but in the Las Vegas market as a whole.

We have received tremendous feedback from the few so far that have been able to tour the site and the buildings themselves, and we are really incredibly excited about all aspects of CityCenter.

We believe this is the next generation of a casino complex, and probably the only one that will be built for many years to come in Las Vegas, and certainly no other property built at this level.

It is unique and it is must see.

It is the Mirage and Bellagio of its time.

It is sophisticated and will draw customers from other premium properties, as well as draw new, high end national international customers into the market, from other parts of the world.

It will profoundly increase foot traffic to the South side of the strip, which of course benefits MGM Mirage.

And of course, it will be home of a new Cirque show with Elvis, and all of the other amenities that make our properties one-of-a-kind.

We think about 39 million people are going to come to Las Vegas next year.

Most of them are going to visit CityCenter, millions upon millions will be in CityCenter as we speak next year, and therefore, we don't want to lose sight of the growth proposition in our Company, and what will happen in 2010 and beyond.

I would like to talk also about current operations, and the current market conditions.

I know that is important to everyone.

Obviously the operating environment remains challenging, but we have been pleased with continued signs of stabilization in this market here in Las Vegas, and ongoing improvements in our revenues and our margins.

Our operating teams have been very focused over the past nine months in the face of significant adversity, and our second quarter results reflect the tremendous effort of those men and women, as we made numerous operating achievements and sequential growth in our earnings.

We will be a much stronger Company on the other side of this recession, and there are clearly recent positive economic indicators here, and more nationally, that indicate that we are on our way.

On a year-over-year basis, the decline in RevPAR for example, here in Las Vegas was sequentially better than our RevPAR decline in the first quarter, even though we took a hit in May from I guess they call it H1N1, don't they Bobby, or swine flu, which hurt our occupancy and therefore our rates in the month of May.

Nonetheless, second quarter was better than the first quarter, and the first quarter was better than the fourth.

We think we will see that trend continue here in the third quarter and beyond; where our RevPAR declines will be minimized as we move forward into next year.

Our high end business continues to holdup very well, and in fact Baccarat volume was up 17% in the second quarter, with extremely strong international play.

We had one of our Baccarat tournaments in May.

It was extremely well attended despite the reports of H1N1, and we brought in a lot of people from around the world, some of which had not visited us for many years.

That was very positive.

We expect our gaming business will also continue to improve, particularly as we go into 2010.

On the non-gaming side the second quarter was challenging, no question about it.

Our convention room nights were down 34% in the second quarter, but we were able to replace that business with leisure travelers, to drive our occupancy back into the mid-90s in the quarter, albeit at lower rates.

The good news is that convention business attrition improved in the quarter again.

It is still higher than normal, but where we experienced attrition in the low 30% range in the first quarter, we are now in the low 20% range in the second quarter, and that is improving again moving forward.

That compares to our historical average in the mid-teens, so we are far from home from a standpoint of being back to normal, but we are on the right track.

We are very encouraged that the meeting planners who seemed invisible for the first part of the year, are now being much more active, and we are seeing signs of recovery in their business, which therefore translates into business into Las Vegas, and that means we are booking for business into 2010, 2011, and beyond.

In July for example, we booked a lot more business into the future years than we did in July of '08, and we have also seen sequential improvement in future rooms booked in the past two quarters.

We typically actually book more business in the first quarter of any given year, that was not the case this year.

We booked more business in the second quarter.

We think that trend is continuing.

As it relates to our room strategy, we do have a clear plan to maximize our occupancy.

That is not unknown to anyone on this call, but we also are trying to generate rate premiums compared to the market, and we have been able to accomplish that.

In the near term, our goal is to occupy our resorts in the mid-90s, and we are succeeding on that front.

In the medium term, we have continued to build market share by rebooking cancelled conventions, providing incentives to groups to book for multiple periods, and target specific business not currently coming to Las Vegas, or coming to our properties, and we are growing our market share, not only from our Las Vegas competitors, but nationally, and we are achieving strong rates in our forward business.

Maybe not as strong as we saw in 2007 and early 2008, but certainly comparable to our 2006 booking rates, which we think is very respectable given this environment.

And we are succeeding in these strategies, and we do believe that with our deep relationships with our group planners, and our superior convention product, and our customer service, we will continue to win these market share battles.

Remember that our combined conference and convention space is newer and bigger than our competitors.

We believe that our sales team has adapted tremendously to this market, and is the result that we are winning this business more than ever before.

Why is this important to us?

By succeeding here in booking conventions and group business into 2010, 2011, 2012, and beyond, this helps us in numerous ways.

First as I said, it allows us the opportunity to wow these groups, and create long term loyal customers.

We believe once we get them, it's our business to lose, and we very rarely do that.

Second, we achieve higher rates in this segment than any other segment, so it is purely additive to RevPAR and to our earnings, to convert the mix back up from leisure to convention, and third, because right now our mix is artificially skewed toward the leisure customers, due to the high recognition rates and low bookings in the end of last year and early this year, we need to get that mix back into balance, and as we do that, again, we are able to drive better rates in even our leisure segment.

And lastly, of course, because that is the business that books far out, we have a better handle on our future occupancies, and that allows us to more successfully yield our entire portfolio of rooms to the benefit of RevPAR.

So we have a strategy, we believe, to continue to show improvement in our earnings, but particularly as we move into 2010 and beyond, that our buildings are in outstanding shape, the people are motivated and excited about the future, and are very proud of the fact that we have been able to navigate through an extraordinary time in our countries history, and certainly our Company's history and we seem to be making sequential improvements almost on a daily basis.

So with that I will turn it over to you, Dan, to hit some of the financials.

Thanks, Jim.

First, let me touch on our overall results as outlined in our release.

There were various items that impacted our comparability for the second quarter.

Most prominently, the $188 million in impairment charges, which primarily related to the M Resort convertible note, resulted in $0.34 of loss per diluted share net of tax, and we also had non-operating expenses of $58 million, related to losses on the retirement of our long term debt, or $0.11 per share.

The M Resort charge was base on the subordinated nature of this note.

The overall challenging economy, both here in Las Vegas and the general economic outlook as well.

Our results were also impacted by an increase in corporate expense of $43 million in the quarter, compared to $27 million in the prior year quarter, due to legal and advisory costs associated with our liquidity and financial position, and the activities there of about $13 million, or $0.02 a share.

We also experienced some incremental interest expense in the quarter, which added about $0.02 per share, and a loss related to breakage fees on our corporate credit facility.

These items in total plus our pre-opening and property transactions made up approximately $0.52 of the $0.60 loss that was reported in the quarter.

So the $0.08 differential compares pretty favorably to Consensus estimates.

You will note in the release we presented operating results on a same-store basis excluding TI.

As you recall that property was sold in March of this year.

The same is true in these remarks.

Property EBITDA was down 29% quarter-over-quarter on a comparable basis, which is sequentially better year-over-year than we experienced in the first quarter.

On a comparable basis and excluding TI in all periods, property EBITDA increased to $379 million in the second quarter, versus $347 million in the first quarter of 2009, and $333 million in the fourth quarter of 2008.

So as we set out to do, we have improved sequentially quarter to quarter.

In fact, when looking at our Q2 compared to Q1, in all of our Las Vegas strip resorts, we generated sequentially higher cash flows, except for Monte Carlo, with cash flows up overall 14% versus Q1.

Our property EBITDA margins for the second quarter improved over the first quarter, with a 25% margin versus a 24% margin in the first quarter, and a 22% margin in the fourth quarter of 2008.

Our margins in Las Vegas were again stronger than the first quarter, as we grew net revenues by 6%, and held costs in check.

The sequential increase in margins was mainly driven by our cost containment efforts, our FTEs decreased 14% year-over-year in the second quarter, and on an absolute basis, FTEs were flat with the first quarter, even with Company-wide revenues up 4%.

Our regional markets continue to perform well.

Our combined Mississippi property EBITDA was up slightly over the prior year, lead by strong results at Gold Strike Tunica.

MGM Grand was down slightly year-over-year, but we think much of that was due to the anxiety over the ongoing financial issues faced in that market, mostly by the auto industry.

We note that July was a solid month, and MGM Grand continues to maintain a dominant 40% market share.

In the second quarter 2009, interest was $268 million, with capitalized interest of $67 million in the quarter.

This was above our guidance, because of higher interest rates associated with the secured notes that were issued during the quarter, and the amendment to our credit facility.

Also included in the $268 million was about $10 million of the breakage fees, which I noted earlier.

This was on LIBOR contracts of our corporate credit facility, that due to the voluntary repayments of our revolving facility, resulted in the incremental expense in the quarter.

Our financial position has improved significantly, as Jim noted.

Our capital raising transactions in the second quarter were a huge step.

We have paid down $1.1 billion of debt through June from December.

In July, we repaid the remaining $104 million of senior notes not tendered earlier in May, and as of today, we have availability of just over $1.4 billion under our senior credit facility, this is enough capacity to take us through 2010, as we have approximately a little over $1.1 billion of senior debt, maturing between now and the end of 2010.

Also as Jim noted, our credit facility was amended which has provided us significant financial flexibility.

Our leverage and coverage ratios were eliminated, and replaced with a rolling four quarter minimum EBITDA covenant test.

For this year, that covenant is set at $900 million through December.

We believe this will be easily achievable as we are already over 75% there in just the first two quarters, and on a trailing 12 month basis we are at about $1.5 billion.

Our Credit Facility was reduced from $7 billion to $5.78 billion, and as you recall, that facility matures in October 2011.

Under this amended facility, subject to certain limitations, we can redeem debt in an open market, issue unsecured debt, or exchange equity for any outstanding debt.

We also have the ability under our indentures, to issue meaningful amounts of secured debt.

Given our historical capital reinvestment, our resorts remain in excellent condition and capital expenditures remain low, approximately $33 million for the quarter, bringing us to 89 million year-to-date.

We expect cash taxes to be significantly lower in '09 compared to '08, and remain low in 2010.

In addition, we have closed on the sale of a corporate aircraft, and are in the final negotiations on other agreements to sell other non-core assets related to a second aircraft, as well as some real estate located on the Las Vegas strip, with total estimated proceeds in the neighborhood of $75 million.

Now I would like to give you some details for your forecasting models for the third quarter.

Total stock compensation expense, we estimate will be approximately $9 million in the quarter.

Corporate expense is estimated to be approximately $35 million, including approximately $4 million of stock compensation expense.

Pre-opening expenses should be consistent with the second quarter, primarily consisting of our share of CityCenter pre-opening.

Depreciation is estimated to be in the $170 million to $180 million range in the quarter, and we estimate gross interest expense will be approximately $250 million to $260 million, with capitalized interest of approximately $65 million.

We reiterated our guidance of approximately $200 million of capital expenditures for the year, and our overall outlook for the remainder of this year, is pressure obviously remains on room rates, so once again we will be down year-over-year, but we expect the year-over-year percentage decline to be lower in the third and fourth quarter than we saw in Q2.

EBITDA margins should remain relatively consistent.

We believe we will continue in the 25% area in Q3.

We look for meaningful margin improvement as the general economy, and more specifically room rates rebound, and given the significant leverage in our business model, and I would like to highlight a few key points there.

We have tremendous amount of leverage in this business model.

Just to give you a few points, for every $5 increase in our average daily room rate, we will generate over $50 million in annual cash flows, and for every 100 basis points improvement in occupancy, we generate nearly $40 million in annualized cash flows.

As Jim mentioned, when our mix shift shifts back to our historical levels, we will be in a position to generate significant gains, in both ADR and occupancy.

At this point, I would like to turn it over to Bobby Baldwin for an update on CityCenter.

Thanks, Dan.

Good morning, everyone.

CityCenter construction continues to be on track as planned.

There are currently only two tower cranes remaining on the site, 9,500 construction workers are actively involved in the finalization of the construction of CityCenter.

The opening this December will be phased with Vdara opening first on December 1st of 2009.

This is followed shortly by Mandarin, Veer Towers and Crystals on December 3rd, and finally the Aria Resort & Casino is scheduled to open on December 16th of this year.

To date CityCenter has received over 153,000 applications of which 87% have been external applications, with 13% coming from our employees at other MGM Mirage properties.

Over 72,000 HR reviews have been conducted, with 45,000 departmental interviews having already taken place.

We will begin our job offering process for Aria and CityCenter in early September.

At Aria, we continue to see a steady pace of room bookings, with over 132,000 room nights on the books, over 41,000 of these room nights have been contracted with convention groups.

This is a 67% increase over what Bellagio had five months prior to its opening.

Booking rates for Aria are at a premium to Bellagio rates over the same period.

We also have over 61,000 room nights on the books for Vdara.

At our Crystals Retail District, we have executed 39 leases to-date, including two stores that CityCenter will own and operate.

We have executed leases with a number of international luxury brands, including Louis Vuitton, Tiffany & Company, Prada, Tom Ford, Christian Dior, and Cartier.

We have also signed on several dining concepts, including Eva Longoria-Parker's Beso, Mastro's Ocean Club, and two new Wolfgang restaurants.

We are currently on track to open Crystals on December 3.

Construction of the core and shell is close to completion, and 32 tenants have received possession of their space, to perform their own interior fit out work.

We anticipate 48% of the square footage to be open in December, and have 84% of the square footage available, open at least by April of 2010.

In terms of residential update, we are working on our closing plan to safeguard a smooth transition for our residential buyers.

We are planning to begin closing on condo units at Mandarin Oriental starting in December followed by Veer in January, and finally Vdara in February of 2010.

We have had a productive dialogue with the residential financial advisors, and will be prepared to discuss closings with our customers.

As it relates to CityCenter budget, CityCenter's budget of $6.9 billion has been funded to-date, and we have about $1.6 billion left to complete CityCenter, based on the budget of $8.5 billion.

We have approximately a $950 million remaining to be drawn on our CityCenter credit facility, an additional $400 million from pre-funded sponsor equity, and the remaining funds will come from closing proceeds from condo sales of about $250 million.

When the Mirage opened in 1989 as the city's first mega-resort, it transformed the Las Vegas market and attracted a whole new generation of visitors to the city.

When Bellagio opened in 1998, it raised the bar with unprecedented high end five-star amenities in Las Vegas.

These game changing moments have introduced the innovative product to Las Vegas, has consistently increased visitor volume and gaming revenue dramatically.

These resorts grew the market as a whole, outpacing the percentage of additional room inventories that they contributed.

The introduction of CityCenter with its unprecedented scale and amenities, will perhaps be the most defining moment in the history of Las Vegas.

We will wait and see.

Just like the Mirage and Bellagio, the opening of CityCenter will drive new growth into the market, by attracting new domestic and international visitors to the marketplace.

CityCenter offers contemporary luxury, and is designed to compliment other MGM Mirage high end properties, like Bellagio, which offers a more traditional classical and romantic experience.

As the most highly anticipated development in the Las Vegas history, CityCenter is poised and positioned to secure a disproportion at share of the market from our competitors, and drive overall growth in the Las Vegas market.

That concludes my report.

Dan?

Thank you, Bobby.

Molly, at this time we would like to open it up for Q&A, and as typical, it looks like we have approximately 30 minutes to answer your questions.

(Operator Instructions).

We will pause to compile the Q&A roster.

Your first question comes from the line of Joe Greff with JPMorgan.

Good morning everyone.

Good morning, Joe.

Jim, I just had some questions with regard to your comments on group and convention business for end of this year, into next year and beyond.

if you look at the premium that you are getting, or if you are looking at the rates that you are getting for group conventions, versus the leisure rates that you are getting this year, so the pricing next year for group convention, versus that wholesale leisure rate, what is that delta?

You mentioned the positive mix shift, I am just trying to quantify that?

Sure, Joe.

Obviously it changes property to property, but let's pick Mandalay Bay as an example, because that is where most of our convention space is, and that is where we are obviously most directly competing against other convention centers in our market and elsewhere.

The difference between a leisure ADR and a convention ADR is over $70, so we are booking leisure business say about $100 a night, and we are booking convention business north of $170, closer to $180 a night.

And if you were to look at say Mandalay as a proxy for volume, what, if you were to look at next year anticipated group room nights versus next year say versus this year, what is the increase in room nights?

Okay.

So far this year, that is Company-wide, that is not Mandalay, we have, let me get it for you.

Let me get it for you, I think it was 128,000, Corey.

So we are up about $128,000 delta this year versus last year down, and going on a going forward basis on a Company-wide basis, we have 400,000 less convention room nights this year versus last year.

So going forward, and our mix is down at Mandalay Bay into the 20s, in terms of its overall room mix convention rooms as a percentage of the total rooms at Mandalay, whereas normally it runs around 40%.

So the encouraging thing that we are looking at in terms of convention business, is we have booked just in July alone almost 200,000 convention room nights for future periods, and half of those are going to happen late this year, and into 2010.

So if you were looking at the convention picture, let's just look at Mandalay, the room mix went from 40-odd percent convention down to the low 20s, because of the attrition rates, because of the fewer bookings that we had earlier.

The room mix is going to improve in 2010 and beyond.

The ADR is obviously dramatically different between the convention rooms booked and what we are getting at leisure.

The convention business being booked is up pretty significantly in the out years, and we are getting rates for that convention business comparable to the rates we got at Mandalay in 2006, so we are still down versus '07 and '08, but the convention room nights ADR in 2010 is about where we were, a little bit up actually versus 2006, and it is growing in 2011, it is up about 20% from 2010 levels.

So you can figure out at Mandalay how many rooms we have there, between the hotel and Mandalay Bay, and figure out the operating leverage of improving our room mix, from where we are today in convention, to where we will likely be in 2010 and beyond.

Great, that is helpful, thanks, Jim.

And just if I could have one more question, with regard to New Jersey and the DGE's recent communication with the New Jersey Casino Control Commission.

Can you comment on recent conversations you may have had with the New Jersey Casino Control Commission, and then how I kind of look at it here, is I think it is more a potential issue with regard to regulators in Nevada, and can you just comment on recent conversations you may have had with Nevada regulators, and how big of an issue is it for them, and do they share any of the same concerns as some of those in New Jersey?

Well first, Joe, it is Nevada not Nevada.

You have to get that one.

I think you have corrected me a couple of times on these conference calls.

(laughter).

Yes.

From a New Jersey Casino Control Commission's perspective, the moment they receive the report by the DGE, that is tantamount to reopening the license for ourselves and for Borgata, and so that happened really that is old news therefore what happened last week, because from a CCC's perspective, there was no other option but to reopen the license, so we look at that as a procedural step required by the Act, and it does not in any way represent a finding of any kind as to the issues raised by the DGE.

It is just simply a procedural act.

They need to reopen the license.

Then they do that is unclear, and we certainly will be prepared to respond in full.

this has been a multi-year process, quite frustrating to us, and we are looking forward to be able to explain our point of view to the CCC, and I can't tell you right now when that is going to happen.

It is certainly one that we are looking forward to having in a public forum, because it has been a long time in coming.

As it relates to how this impacts other jurisdictions, I will not speak for Nevada or any other jurisdiction, but to remind everybody that we have been unanimously approved everywhere else that is applicable, as it relates to our partnership with Pansy Ho in Macau, and unless there is new information available to these regulators that have approved us unanimously, or to us, I couldn't imagine why there would be any difference in their position, than the ones that they have already taken, but I will not speak for them.

And we have not had communication other than the appropriate notification, as we always do, to our jurisdictions everywhere in which we operate, so this is a procedural step.

It is one that from a CCC perspective was one that was logical to occur.

We are looking forward to the hearing.

We do not know when that date is, and we will be prepared once we have that hearing.

Great.

And then Dan one final question.

What was the MGM Grand Macau's Q2 EBITDA property level?

At the property level, and this is 100%, it was roughly around 15 million in the quarter, 1-5.

Which is lousy, and we are happy to say we made more money in July, than we made all in the second quarter, and our market share is improving finally in Macau, and we have got a lot of work yet to do there, but it has been an underperforming property for the joint venture, and one that we are focusing our attention on right now, and the early returns on this activity if July is an indicator, is that we are making some significant progress.

Good enough.

Thanks guys.

Thank you.

Your next question comes from the line of Bill Lerner with Union Gaming Group.

Hi guys, good morning.

Good morning Bill.

Two questions.

The first is on your Credit Facility, your October 11 credit facility, where your creditors I believe are still unsecured.

How much collateral do you guys have to give now, as I think about the ways you could resolve that timing, one seemingly would be securing these guys that are unsecured perhaps, and rolling that.

How much is left to give?

And then I have a follow-up.

Well, under the bond indentures as we stand right now, that basket probably remains up to $1 billion of future potential collateral we can grant.

Okay, and then I know this is fresh off the heels of your recent equity and debt offerings, but are you having constructive conversations on that already, Dan or Jim, and if so, how are those going?

Well, maybe I will jump in, Dan.

Yes, we are taking a little breather here, Bill.

We were quite busy in the spring, and my conversations with our financial partners, and Dan probably would say the same, has been extraordinarily positive productive since May.

I think there is a collective point of view here, that MGM in connection with its partners did something quite extraordinary, very positive to the benefit of its stakeholders, its bondholders, the bank group and its shareholders, and there is no sense that there needs to be anything done in the immediate term, because we have significant time under our credit facility.

We have many options available to us, not only in the secured market if we so choose to be there, but in other markets as well, and it seems to be the impression of the banks that given the operating stabilization at our business, and the fact that we believe, as do they that our business is improving, that the general feeling is we should allow these businesses to continue to recover, as the financial markets themselves continue to heal, and that we can revisit refinancings or future capital raises in the future, but not in the immediate term.

Okay.

That is helpful.

Thanks.

Then Bobby talked about forward bookings for CityCenter, Aria and Vdara, I think he was referring to, and gave some specific numbers, and maybe this is too granular, but can you tell at this point how much of that is incremental relative to I think people's perception that 100% of your CityCenter volume will be cannibalization, and then you will give half of that away to your JV partner?

I guess early on, it would be encouraging to hear if you are actually seeing incremental bookings because of CityCenter, instead of penalizing yourself?

Well, as it relates to Bellagio for example, it is between Bellagio, Aria is all incremental.

Bellagio's books have not been affected nor has its rate, but I think everybody needs to understand that CityCenter, and I hope everybody can come out and see it as soon as it gets finalized, is far more powerful, at least we believe, of course the consumers or the visitors are the ultimate judges, as to what developers do and how attractive a project is, but we believe that CityCenter, particularly Aria, will grow the market in an extraordinary fashion, just like the projects have in the past.

Now we will have to wait to see about that, but as it relates to cannibalizing the existing portfolio of MGM Mirage Properties, we think that will be a very small component of its customer mix.

We think most of it is from the competitors, and hopefully all of it is from growing the market, so we think CityCenter and Aria are going to raise all boats in Las Vegas, and its quite an extraordinary project, so I guess the short answer is, it hasn't had any impact on Bellagio's pacing, as it relates to rooms.

Maybe I will add-on to that Bobby, is that is true across our portfolio, Bill, that rooms booked at all of our major properties are up in 2010 and 2011, versus where we were this year number one.

Number two, Aria is getting premiums to even Bellagio, so we are booking rooms at Aria, a brand new yet to open property, at higher ADR than the most profitable, most successful building in the market, Bellagio.

And Vdara is booking rooms at a higher rate than any other property except for Bellagio, so any other property in our portfolio, Vdara is getting a premium to it, with the exception of Bellagio itself.

So Bellagio and Mandalay, Mirage and MGM are showing growth in our convention bookings pace in 2010 and 2011.

Aria and Vdara are ahead of where Bellagio was before it opened, Aria certainly is in terms of its convention business, and we are getting rates that Aria and Vdara that are very high, and relative to our portfolio higher than any other property in the case of Aria.

In the case of Vdara, higher than any other property except for Bellagio, so there is this, I know overwhelming position, that CityCenter in general is going to simply cannibalize Las Vegas itself and MGM Mirage, I think that is simplistic and wrong.

We believe that visitation of Las Vegas will be up next year, after being down this year and last, and we believe that the foot traffic will be significant in the area of which Aria sits, which is right between all of our properties, and that it will be incrementally positive to our gaming volumes, our slot handle, our food covers, and even our occupancies, because we are driving people to the center of the strip.

Okay.

Last one for me, guys.

On CityCenter residential, you are talking about still budgeting some proceeds of course, or maybe notable proceeds, from closing existing contracts, starting in December with Mandarin.

Can you talk a little bit, obviously you don't want to be too specific here I suspect, but what are some of the tools you have at your disposal?

Maloof over at Palms Place, as you know, was able to get approval for seller financing, and then tells us that he is closing, we see it in the assessor data, but it is starting to close a lot more units from having closed none in the prior couple of months.

So is seller financing something you are thinking about, how difficult or easy is that to move forward with, and then you can address I guess the other tools, such as pricing and so forth, if you would like?

Well, this is Bobby.

Obviously, the condo closings are going to be a more complicated process than was originally contemplated, but we have learned from Maloof, and from other competitors locally and nationally, that you just can't simply arrange a closing date with a customer, and expect to close your deal.

You have to provide many of the tools, some of which you mentioned, financing is very, very important, and the developer has to develop the programs for financing for the consumer, and that was not the case of course historically.

Dan D'Arrigo and MGM Mirage parent has done a lot of work with its lenders and other institutions, to make sure that there are the kinds of products available in the fall to close these units, in terms of the financing for the customers.

Price discounting is something that is always under consideration, and we are working through that, but the bottom line to the residential program at CityCenter, is that the customers themselves since we know them all, there are about 950, Chris?

960 consumers, and these are people that we know very well.

We poll them continually, as to their attitude, relative to their purchase at CityCenter.

Most are very excited about what it is we have developed there, and look forward to purchasing these units in some fashion.

Of course, it is all subject to financing, and to being treated properly as it relates to price.

We are making a lot of headway as it relates to the condominiums, and we think we are going to have a very successful program in the fall.

Thanks guys.

The next question comes from the line of Dennis Forst from KeyBanc.

Good morning all.

I wanted to maybe follow-up on Bill's question about the residential.

First, Bobby, can you clarify the 1.6 billion left to go?

I think you said 950 million left on the credit line.

Yes.

And 400 million from down payments?

No, those are pre-funded equity partner contributions from Dubai World and MGM Mirage, and now you need 250 million more to get to the 1.6, and those are proceeds from condo closings.

Oh, 250 and that is over and above the 300 plus that you have taken in in deposits?

That is correct.

And the deposits of 3-something, any of those subject to going back if the condos don't close?

And how many condos have been sold right now?

Is it like 1,600 or 1,700?

What is the current number?

Well I will get that for you but of the 2.6 billion in inventory we have sold about 1.6 and in terms of the units we have sold 1,336 units, and therefore, there are 1,100 units remaining to be sold.

1,100 units remaining to be sold.

And those 1,336 should close by the end of the first quarter, or some number of those, we will know by the end of the first quarter of 2010?

Yes, we will, and as it relates to the deposits, there are all kinds of programs that relate to the residential program at CityCenter.

The deposits are all reported net of all transactions where we return some deposits, we keep some deposits, but there are 313 in total, they are all netted out in terms of the proceeds.

Okay, so the 313 million is yours no matter what?

Well, 75% by law would be ours, 25% would have to be returned by State law.

We can only keep 15% of the 20% deposit.

And I don't know if you mentioned when the Mandarin Hotel was going to open.

Is that still October?

It is December 3rd.

And actually, I think you were probably thinking of Vdara.

Actually early on as we go through these earnings calls over the years, we actually did have Mandarin opening a little sooner but we didn't have any road to get there, so the infrastructure wasn't complete and the storm drains and that sort of thing, so it was synced up with the rest of them.

So everything will open the first couple weeks of December?

That is correct.

And then lastly, Jim, can I ask for a clarification when you were talking about group room nights, I think you said Mandalay Bay was down 128,000 room nights, group room nights this year?

Yes, this year versus last year.

And then you mentioned 400,000.

Was that corporate?

Yes, that is Company-wide.

This year versus last year, when you say this year versus last year, is that the first seven months, or is that an estimate for the full 12 months?

That is an estimate for the full 12 months of this year versus where we ended up last year.

Got you, okay.

Thanks a lot.

Thank you.

Your next question comes from the line of Felicia Hendrix with Barclays.

Hi, good morning guys.

Good morning.

Just getting back to the rooms, can you just walk us through what you are doing to generate kind of rate premiums relative to the market, or at least to generate results that are better than some of your competitors have shown, and that is for today.

And then I am wondering just looking next year to your comments, the detailed comments that you gave us, Jim, about your legacy properties vis-a-vis the new ones, wondering how you are maintaining the rate at the legacy properties?

Are you just reaching out to different customers say more international, or are there other things that you are doing to just actually make you better positioned, than I think some folks think you might be?

Well, I think those are good questions, and I think the turmoil that we have had this year, has I think forced people to neglect what has always been the case with our properties.

They are the premium properties in the market segments in which they operate.

They clearly are in the best condition, and we have over the past couple of years worked very hard, especially in the past 12 months, to be more productive in yielding these rooms as a family of properties, as opposed to the simple cannibalization and internal competition that did exist early on.

And we do have very talented men and women yielding these properties, and we have been around a long, long time, and we have the deepest relationships with the third party providers, the internet channels, the convention planners.

We have a wide network around the world of wholesale partners, leisure partners, convention partners, and we have very, very durable relationships, and Bellagio would be a good example of that, where we are booking significant business here.

We do not lose generally a business to our competitors from Bellagio.

When we do lose business, it is because we have been undercut in price and that does happen, but when we look at where we are today, we know a few things.

One is that bookings are increasing, probably for the whole market.

We have the newer convention facility, the newest in town, and it is beautiful, and it is well serviced by the best people in that business.

It is hard to take a group from someplace else that has had a good experience, but once you get that group, you generally have them for a long time.

Las Vegas is more competitive in price than other markets in the Southwest.

we are more competitive than the Phoenix, Scottsdale area, than the Texas market, than Southern California, and so collectively, Las Vegas should do better in a weak economy, in terms of moving business from other markets, and it is, and then internally here, it is our job in a very competitive market to grab some of that business, and not simply win on price, because obviously that has a detrimental impact on our profits.

We have shown month after month our ability to improve our bookings, and I think you will see that continue through the balance of this year, and into next year.

And at premiums.

our mid market properties get higher ADRs than their competitors.

Our high end properties get about the same, if not higher ADRs than its competitors, and even in the value segment we do better.

We have an enormous database of people, over 50 million names in our database.

We have done a relatively poor job in the past of targeting our best customers, being most productive in bringing people to our buildings, and that is changing.

It has been changing for the past year, and we promise there will be more significant change going forward, as we provide a better value proposition, more targeted value proposition to our customers, and therefore, provide value not just on price, but on all of the services.

No one has two arenas in town.

No one has Shadow Creek, other than ourselves.

No one has the room product that we have, and so we believe that when people focus again on Las Vegas as a recovering market in a recovering economy, no one obviously has more operating leverage than we do, and we have the properties of choice in every segment.

So though we have had our share of problems, more than most this year financially, obviously we are resolving those, and I think the attention will at some point turn to the fact that we are Las Vegas.

We do the best in this market, and if Las Vegas is going to recover, we are going to do better than the market as we always have, so from a standpoint of who we think we are, and what was happening, we are just looking at the empirical evidence.

We get premiums to our competitors and rates.

We are building market share, which you should do in a recession.

You should build market share and we are.

Our margins are going to improve in our opinion, because we are going to keep costs in check.

Our competitors are cutting costs now.

We did it two years ago.

Where were they two years ago?

We have been doing it for the past two years, and we will continue to be very diligent on our cost structure, so that as our revenues pick up, as they are beginning to, we are going to see significant flow through in our margins.

That is 75% EBITDA margin kind of revenue, if we can keep our expenses in-line, the revenues that we generate on a going forward basis are extraordinarily profitable to us, and that is the goal.

So I understand that there has been a lot to think about in our Company this year, and I am proud of the efforts to get us to the point that we are now here, and can be a beneficiary of our recovering market and our recovering economy, and I think you are going to see that in spades over the next year and a half or two years.

Thanks.

Just moving to Dan, your comment that margins are going to be flat sequentially in the third quarter, I was just wondering if you could reconcile that to what is going on with your cost savings program, and where you are in that?

Well, when you look at the cost savings initiatives that we have undertaken, as Jim pointed out, we are anniversarying, or have anniversaried some of those programs, we have achieved well over 600 million of cost savings on an annualized basis.

We still have some of that traction out in front of us, maybe about 20 to 25% of that is still in front of us from a cost savings standpoint, and we will continue to look at other ways, but I think we have accomplished quite a bit on that front already.

Typically as you know, our third quarter margins would be lower because we just don't get the room rates.

It is 112 today, so we don't get the room rates in July and August.

That is the temperature, not the rate.

(laughter).

We haven't tried that marketing program, nor will we, but we typically don't do as well, so the fact that we believe that we can keep margins equal to a second quarter is a testament of the cost savings, and we would expect that our margins would improve on a going forward basis, as we get back into the seasonal uplift of the fourth quarter.

Okay, that makes sense and then just finally Bobby on Crystals, that was helpful when you said that you expect about 84% occupancy by April of next year.

Just wondering if you expect that to be 100% by the year-end, and I am wondering just to help our models, what kind of average rent per square foot should we be using for 2010?

Well we expect to be at 91% occupancy by the end of the year.

Let me get you this other number.

Which is probably pretty much full occupancy for retail complexes in this environment.

Because you always have a certain amount of your space in flux, or being transferred from one tenant to another.

It is about, the rent is about $1,300 per foot per month.

Okay.

Great.

Thanks a lot.

Thank you.

Operator we will take one more question.

Thank you.

Your final question comes from the line of David Katz with Oppenheimer.

Hi, good morning.

Good morning.

All of the information on convention has been very helpful, thank you for that, but I wanted to ask, do you track inquiries from event planners, or sort of live leads, when it comes to convention bookings going forward, and can you offer any comparisons on that stuff?

Yes.

We actually do track that.

That business, that is down, but we are converting a higher percentage of them right now, which is leading to the higher booking experience, so the lead generation has been down.

The conversion rates have risen pretty significantly, and that is why we are seeing better booking trends for '10 and beyond.

Well, why would you suspect they are down?

What would you guess, Corey?

In general, when times are good, there are a lot of inquiries to space, and many times we don't have a lot of space, so I think the people now that are considering booking, are focused into periods, and are looking to do business.

Yes, I think that is a good point, Corey so a lot of the, certainly 2007 would be a good year.

A lot of our inbound calls were people shopping spaces, and trying to find where they could shoe horn in a convention, they don't have to do that right now as much, so they are more targeted in their calls, which means our call volume is down, but the conversion rates are up significantly.

Is there sequential improvement?

Yes.

Fair enough.

Thanks.

Thank you.

Operator, I think that concludes our allotted time.

If there are any other further questions, please feel free to call my office, the number is in the press release.

We thank you for participating, and we look forward to speaking to you soon.

Thank you.

Thank you.

This does conclude today's conference call.

You may now disconnect.