美高梅國際酒店集團 (MGM) 2010 Q3 法說會逐字稿

Good morning and welcome to the MGM Resorts International third 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 Resorts International and President and CEO of CityCenter, Dan D'Arrigo, Executive Vice President, Chief Financial Officer and Treasurer.

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.

Well thank you, Concetta, and good morning everyone.

Welcome to our third quarter earnings call.

This call this morning is being broadcast live on the Internet at our website www.MGMResorts.com, and a replay of the call will be made available on that website.

This morning we also furnished our press release on Form 8-K to the SEC and it's available on the SEC website as well.

Before getting started, just a quick review of our Safe Harbor disclosures.

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.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from estimates.

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

With that, I'd now like to turn it over to Mr.

Jim Murren.

Well thank you Dan, and good morning everyone.

As you know, we have preannounced so we would like to spend some time today talking about what we see happening in our markets.

And just to reflect upon some of the accomplishments this year and what we see on a go forward basis.

We have an ambitious goal at the beginning of the year.

We set out to increase liquidity, extend our maturity schedule so that we would have plenty of cash available to handle all of our obligations over the next several years.

I'm very proud to say that we have executed on all those goals this year, certainly in October, which I'll speak to in a minute.

October we raised about $1 billion between the equity in the unsecured debt market and that allowed us to pay down the non-extending portion of our credit facility and that means that we've addressed all of our debt maturities until 2013.

And so with that, I am very happy to say, take a little breath here Dan, and that we don't expect to be in the capital markets at all for the rest of the year.

Also in the quarter, in the third quarter, we made some key management changes which I believe make us more cohesive and a more forward-thinking operation.

Corey Sanders was promoted to Chief Operating Officer of the Company.

He has been working with Bill Hornbuckle, our CMO, and all the leadership of all the resorts to implement a very coordinated effort to drive many of our operational and our marketing initiatives.

The results of those initiatives, I believe, you're starting to see right now and in particular, in 2011.

Gamal Aziz was promoted to the President and CEO of MGM Hospitality, so now he solely focuses on this large and growing international opportunity we have, as we expand our brands literally throughout the world.

It's not well known today, I don't believe, but in fact, we have signed 16 different deals in really all corners of the world and very soon, brands such as the MGM and Bellagio will be welcoming guests in places such as China, Egypt, Dubai, India and many others.

In fact, our first hotel opens in just over a year in Sanya, China.

It's a 665-room MGM Grand.

It's a very capital-light enterprise for us and allows us to grow our brands internationally and expose our brands and our form of hospitality to literally millions of people, and of course, it's a great cross marketing opportunity, and we are very excited about it.

Back here at home, our loyalty program has been totally revamped and dramatically improved and it's called MLife.

We've talked about it before, but now we have a little data as to what it means for us, and what we believe it will mean for our future.

As you know, we have over 60 million customers in our database.

July of this year we rolled it out for the first time in our regional properties, down first in Mississippi then up into Detroit, and we are going to roll this out in all of our Las Vegas properties at the very beginning of this coming year, starting in January.

This phase that we're already in allows us to tier our benefits, and then we are adding more benefits over the coming months, which will make this, we believe, the leading global program in our industry.

We have been behind the curve and we think we are getting ahead of the curve very rapidly.

I know it's early but I'll give you a few points that we've seen already in Mississippi and Detroit, where the programs have been in there a couple months, and we've had unquestionably an increase in customer database counts our database is improving because of this, there is no doubt.

People -- our customers as to move up the tiers, exactly what we had hoped for in an aspirational program, and that is occurring in Mississippi and Detroit.

Our slot revenue is up pretty significantly.

In the first month of this, for example, up 8.5% on average, and we have to attribute a lot of that to this program, there is no other initiative in either of those markets that would account for that.

And our market share, as you see, in Mississippi and Detroit have improved.

We've invested quite a bit in slot technology.

I don't think any gaming companies have bought more slot machines over the last couple of years and certainly this year, and that has also had a positive impact on our customer numbers.

Specifically to Las Vegas, because of course, that's very critical to us .

We are very happy to say that the trend to continue to stabilize and we've finally seen some pockets of absolute strength.

We know the customer spend remains constrained.

It has been all year in our domestic business, but we do see those customers lightning up a bit when they come out for special events.

And this has been increasingly true throughout this year.

When we have a concert, a big holiday weekend, or a good conference, we are starting to see nice firm improvement in domestic spend.

We think that bodes well going forward.

We saw that in the third quarter, and we also saw in the third quarter continued strength in our international high end.

We are doing particularly well in that segment of our business and I can say we are continuing that strength here into the fourth quarter.

It's really very important for a company of our nature to do well in the international business, and we are.

Back to the domestic side, and also this speaks to international.

Some of the other customer spend metrics are improving.

Restaurants spend per cover, for example, is now up year-over-year.

RevPAR at Bellagio Mandalay and here in October, a few other of our luxury properties up year-over-year.

Continued strength in our convention forward bookings.

Our mix is improving pretty significantly, and we will speak to the first quarter in a moment, but you will see a very significant increase in convention business and mix in the first quarter 2011.

And then October, I can say without wanting to give too much in terms of specifics, very solid month here in Las Vegas for us.

In terms of our entire business and particularly on the convention side, and of course when the convention business does well for us, that benefits various aspects of our business, RevPAR, non-gaming and gaming all benefited from that aspect.

One note I would make and looking at our third quarter numbers is that September was a particularly tough month for us from a comparison perspective versus 2009.

But we had a chance to look back, didn't we, Corey, for many years prior to that September, was actually a fine month relative to almost any other year in the last five years except for that particular year, last year.

So over on RevPAR, there's a lot of discussion about this.

We have announced long ago that we were down 2%, we also had announced that we did well or better at our luxury properties, and certainly that trend is continuing.

Bellagio and Mandalay not only had RevPAR increases in the third quarter, they're up again in the fourth quarter, and they've been joined by our other luxury properties so far in October.

We saw a very strong overall RevPAR number for Bellagio, I think Bellagio probably led the marketplace in terms of its absolute RevPAR.

Our mid tier properties remain very challenged, it's just very difficult on the RevPAR side, our customer spend in general at those properties, has been all year, but as we see the business starting to improve increasingly, in luxury, we're starting to see that benefit our mid tier properties as well.

Conventions, I want to spend a moment on this, before we get into Dan's comments and Bobby's.

The business continues to improve, we've talked about this being a forecast, I guess in the beginning of the year I hope, and then a forecast that's reality now that our convention business continues to improve, particularly after Labor Day, and the mix improved in the third quarter.

We do expect this trend to continue and to pick up.

We're seeing that happen right now, and we had a very, very fine October in the convention side and now into November, it looks like it also will be a good activity for us.

We are seeing booking pace up still in the high teens year-over-year.

We see the entire Strip looking like it will benefit from higher convention activity.

The LV CVA, for example, talks about a 10% increase in convention attendance next year versus this year.

We will do better than that.

MGM has picked up market share in that segment, we are getting much better rate, and overall, our mix is going to be improved.

And of course as the mix improves, we expect to see ancillary revenue increases in catering and F&B and all the way up in terms of covers and our revenue per cover we see productivity improving.

In the first quarter, on our wholly owned properties, our room nights on the books are up over 30% versus last year and our room rates are up, meaning our convention revenue is going to be up very significantly, probably over 40% in the first quarter.

Now mix is going to be quite robust in the mid to high teens.

Bobby will probably speak to Aria in a moment, but they certainly are going to be up dramatically year-over-year in the convention business in the first quarter versus its first quarter of operations.

Bobby will also get into detail obviously on CityCenter, but I just want to make a point here, because it's been such a challenge to open up such a large, and yet very beautiful, and very complicated enterprise, and I'm just very proud to acknowledge the unyielding efforts of Bobby, Bill McBeath, the entire team, that has taken CityCenter to where it is today, a profitable and growing enterprise.

And it's been a journey, but very proud of the efforts, and clearly, it's benefiting us now here at MGM Resorts.

And I think you'll see that Aria has started to emerge in its rightful place as a luxury prime property here in Las Vegas.

Finally, I'd like to spend a moment on Macau.

We had a very fine third quarter, as you can see, in Macau it's the best quarter ever, with our cash flow, EBITDA was about $83 million with a 23% EBITDA margin.

And it was importantly very broad-based growth.

Our mass table game volume was up 25% year-over-year.

Our slot volume was up 38% year-over-year.

Our VIP turnover was up 39% year-over-year.

So as to dispel any notion that this is a one trick pony, our entire gaming enterprise is building in all aspects, very broad-based growth in Macau.

And that has certainly continued in October.

October, led by Golden Week, was a record month for MGM Macau, in terms of everything.

In terms of revenue, in terms of EBITDA, and yes, in terms of margins.

And that property is continuing to improve we are making we believe very smart business decisions there, which is increasing our cash flows and our profitability, and with that, I'd like to turn it over to you, Dan, to talk about some of our operating results and our

Well thanks Jim.

I'll briefly recap some of the key points of our earnings, touch on our liquidity, and help out with what you're modeling and you're forecasting for the next quarter.

In looking at our operating results, as Jim mentioned, we pre-released a few weeks back, our net revenues excluding our reimbursed costs were down about 3% to $1.5 billion in the quarter.

Our adjusted property EBITDA from our wholly-owned operations was $314 million, down year-over-year by approximately 13%.

Both of these numbers have sequentially improved throughout the year every quarter thus far, in fact, in terms of our revenue and EBITDA growth in absolute dollars quarter over quarter.

Our net revenue in our regional properties has increased 3% due to the prior year's third quarter.

And adjusted property EBITDA has benefited, increasing some 12% year-over-year.

Beau Rivage and MGM Grand Detroit continue to be the market leaders in their region, and Detroit continues to grow its market share, which now stands at an impressive 42.5% for the third quarter in that marketplace.

On the liquidity front, we've been busy as Jim mentioned, improving our balance sheet, and currently have sufficient liquidity runway to cover our maturities into 2013.

I want to spend a little bit of time focusing on some of the tremendous accomplishments we've made throughout the year.

In looking at what we were able to get done in February, we amended and negotiated the extension of our credit facility, which really set the wheels in motion for the rest of the year.

Following completion of that, we executed on four separate transactions, raising over $3 billion of liquidity this year, in various debt and equity raises.

And here in October, we capped those equity raises and debt senior unsecured raises, which allowed us to use the net proceeds from those two transactions to pay down and retire approximately $1.2 billion in non-extending bank commitments, which were scheduled to mature in October, 2011.

I'm happy to report that yesterday, we officially retired those commitments.

We extended the credit facility of roughly $3.6 billion to February 2014.

And of that amount, approximately $1.7 billion is revolving commitments within that credit facility.

Today, our excess cash and our credit facility availability is approximately $1.2 billion as the dust settles here from all these transactions.

In Borgata, as you recall, we have our trust arrangement in place.

In the third quarter we received $105 million in distributions from Borgata into trust, bringing our investment balance in our trust account to $114 million as of September 30.

In addition, we expect the previously announced land transaction to close this week .

It's scheduled for tomorrow, which will add another $71 million to our trust account, as that deal is consummated.

In addition, as we have previously announced, we received an offer for our 50% interest in Borgata.

We appreciate Boyd's prompt response to the offer, and now we're focusing our efforts and working with our bidder and finalizing diligence, documentation, and various regulatory matters.

Upon completion of the sale of our interest in Borgata, the remaining trust proceeds will be distributed to MGM Resorts, as we are the sole economic beneficiary of the trust.

In Macau, we've made some positive strides there not only on the operations side but in terms of its balance sheet.

We are able to enter into a new $950 million five-year credit facility in July.

This provides a joint venture with terrific financial flexibility going forward.

That enabled us to take the next step and file our A-1 filing as well, that we did on September 27, with the Hong Kong Exchange.

And as you all know, we are now in a quiet period with respect to the Macau IPO.

We did receive here in October $125 million repayment from MGM Macau, which reimburses certain intercompany loans and accrued interest that MGM had out to the Macau enterprise.

MGM Macau may make future distribution to the joint venture partners, going forward.

On the MGM Resort front, here in terms of our balance sheet, at the end of the quarter, we were compliant with our minimum EBITDA covenant, and based on our current projections, we believe we will remain in compliance going forward.

CityCenter has approximate $1.85 billion outstanding under its credit facility, we are currently in discussions with our lenders at the CityCenter level, and believe that refinancing the current facility at CityCenter would provide a long-term capital structure, thus allowing this asset time to continue its ramp up, and we are actively pursuing our options related to that refinancing.

I'll now turn to help you out with some of your modeling.

For the fourth quarter, we expect our stock compensation expense to be approximately $9 million to $10 million in the quarter, our depreciation expense in the fourth quarter is estimated to be in the range of $155 million to $160 million.

Our gross interest expense in the third quarter was $285 million, of which $261 million was cash interest.

And we had no capitalized interest in the third quarter.

Our estimated gross interest expense for the fourth quarter is estimated to be in the range of $270 million to $280 million and we don't anticipate any capitalized interest in the fourth quarter.

On the CapEx front, we're projected to spend just inside of about $200 million in 2010, of which we spent approximately $129 million through the first nine months through September.

We're spending on various maintenance and capital projects throughout the Company including the purchase of new slot machines, some suite and villa remodels at the Mirage, and in the early stages of some room remodel programs that will get fully underway at next year.

We have some of the newest rooms obviously on the Strip with Aria, and our entire luxury portfolio has been extremely well taken care of, over the past several years.

We recently remodeled our rooms at Mirage and Mandalay, and now we plan on refreshing the rooms here at Bellagio and at MGM Grand starting next year.

We're currently refining our projection for CapEx for 2011 and expect to have that more refined for you on our next earnings call.

And with that, I'll now turn it over to Bobby to talk

Thanks Dan, and good morning, everyone.

CityCenter reported adjusted EBITDA of $52.4 million.

Aria reported EBITDA of $41.4 million, Crystals $2.4 million Vdara and Mandarin combined -- actually, Vdara lost $600,000 and Mandarin lost $3.6 million in the quarter.

The other components of CityCenter were $13 million net and that's income of $26.1 million in residences and administration costs of about $13 million.

Mostly, or primarily, legal fees.

Aria's net casino revenue was $125.5 million in the third quarter, compared to $48.7 million and $75.9 million in the second and first quarters.

Casino revenue was positively impacted by an increase in table games drop of about 48% from the second quarter to the third quarter, as well as a more favorable win percentage.

Aria continues to it experience successfully strong-rated play and baccarat year-to-date through August.

Aria has continued to capture more than its fair share in the market.

Additionally, Aria operated without its permanent high limit slot area for the majority of this quarter.

The high limit slot area was closed toward the end of July and underwent a remodel to better reflect the comments received from our high end slot customers.

It was reopened in mid-October and has received tremendous positive feedback from those high end slot customers.

Aria's non-casino revenue was $94 million in the third quarter.

Room occupancy continued to grow throughout the quarter.

Overall third quarter occupancy was 82%, up from 80% in the second quarter, with an ADR of $175.

For 2011, Aria has more than 136,000 convention room nights on the books, which is 74% of our estimated total convention room nights for all of 2011.

In the first quarter alone, Aria has 50,000 room nights booked for 2011, compared to 30,000 room nights in the first quarter of this year.

We continue to fine-tune and further enhance the property, as mentioned, we just redesigned our high limit slot area, and in addition, we are rolling out additional signage in order to increase Strip foot traffic into the campus.

We continued to monitor our costs while maintaining the level of high end service our guests expect.

Aria's full-time equivalents in the third quarter have trended down approximately 3% sequentially, while service continues to improve.

Vdara finished the quarter with 70% occupancy and an overall ADR of $129 in the third quarter.

Occupied room nights were relatively flat compared to the second quarter, with a slight increase in ADR.

Net revenues were $10.9 million in the third quarter, compared to $10.6 million in Q2, primarily due to stronger catering and banquet food revenues.

Mandarin Oriental revenue for third quarter was $7.4 million, with EBITDA loss of $3.6 million.

Occupancy was 44.3%, which was 4% higher or four points higher than the second quarter.

Of course we continue to work closely with the Mandarin Oriental management to increase occupancy and further control cost.

By the end of the third quarter 70% of Crystals' leasable area was occupied by tenants open for business, up from 62% in the second quarter, following the openings of Gucci, Christian Dior, Balenciaga, and Prada opened on October 6.

Several tenants are scheduled to open over the next few months including some notable brands such as Yves Saint Laurent, Donna Karan, Stella McCartney, Harry Winston, and Pucci.

This will result in Crystals being 80% occupied by the year-end.

We continue the closings of the units of CityCenter residential, we commenced in January of this year.

To date we have closed 419 units at CityCenter, representing $361 million in revenues comprised of 60 units in the residences at Mandarin Oriental, 150 units in Vdara CondoHotel and 209 units in Veer Towers.

In September, 2010 we commenced our CityCenter leasing program, whereby developer owned units are made available for lease over a minimum one-year lease term.

The purpose of the leasing program is to help offset developer inventory costs still in the buildings, and reduce the supply of salable inventory residentially.

There are 200 units in this program, and in a short period of time, we've already leased 27 of those 200 units.

And that concludes my report, Dan.

Thank you Bobby can chat do with that I think we have about 25 minutes or so we will open it up for questions.

(Operator Instructions).

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

And your first question comes from the line of Felicia Hendrix with Barclays Capital.

Hi, good morning, guys.

Good morning, Felicia.

Just a few questions first, Dan or Jim I don't think I heard you say this are you still looking for RevPAR to be up year-over-year in the second half?

Well we -- I'll start that and then you go to Dan if you'd like.

As you see Felicia, we were down 2% in RevPAR in the third quarter.

One of the programs that we rolled out I don't think we talked about on the call did we?

No.

Has been the concept of a resort fee, in fact the resort fee in the third quarter alone was $20 million of revenue.

And so, this is a program we started in some of our smaller properties last year, been rolling through our properties this year, Felicia, and in fact, by the end of the year all of our wholly owned properties and also Aria will have a resort fee instituted.

Bellagio's going, Corey, in the fourth quarter?

Or January 1.

We think that most hotel companies include that in RevPAR.

We're not quite sure, you all might know.

Certainly if you did include that we were up even in the third quarter in RevPAR.

We were up in RevPAR however you want to look at it in October, I can speak to that.

And the resort fees are actually gaining quite a bit of traction.

So I think we're comfortable saying that our RevPAR is improving.

That certainly if you include the resort fees, it's already been up.

Even if you don't we were up in October and we think we are going to be up significantly in 2011, we just don't have the whole fourth-quarter forecast nailed down.

So I think the summary would be we are improving, this is real revenue so our hotel revenue was up even in the third quarter certainly here in October so far.

And with the convention business we see on the books right now, that trend should continue.

You want to add anything to that, Dan?

No, I think that was pretty comprehensive.

Okay, so basically no change from what you've been seeing before?

That's correct.

Okay.

And then just wondering if you could give us a little bit of color on the casino revenues at Bellagio and Mandalay Bay in the quarter?

You had said that those are the two properties we all have seen this for a while, that generated RevPAR growth.

Just wondering, were the casino revenues up year-over-year at each of those properties and just wondering what it look like in terms of Baccarat drop at those?

We are taking a look at that now Felicia --

Bellagio

Yes, we're looking at it now.

As I mentioned, September was a particularly challenging comparison for us because we had an extraordinary September 2009.

September of 2010 was favorable most any other September we've had, but that comparison was particularly challenging, which is why you saw a decline in the quarter.

But what do you have Dan?

What do you think?

I think the Bellagio was up in the quarter.

And you said Mandalay was up, too.

Both Bellagio and Mandalay were up in the quarter.

Just in terms of general casino revenues?

Table games, yes.

Table game.

Okay great.

And then just moving on to Harmon, there was a sentence in the release just saying it's unlikely you'll complete you can complete Harmon using the current building.

I was wondering if you can elaborate on that?

Well, we can't elaborate much because it's a subject of a lawsuit between our Company and Perini Building Company.

We can say that Clark County has found structural deficiencies in the Harmon building and that's just about all we can say.

So because of the litigation with Perini, we can't say anything further.

Okay, thanks.

And then my final question is, I can't remember if it was you, Dan or Jim that mentioned, just on the CityCenter credit facility in terms of refinancing that, so obviously the face of the creditors has changed somewhat.

So I was just wondering your thoughts on any kind of hurdles you might have in terms of getting that done?

Well I think when you kind of look at that Felicia I mean there's only $1.85 billion of debt on an asset that clearly has much more value than that.

This existing debt is, in my view, way over collateralized to begin with.

We've got a strong level of interest from not only banks but others in looking at a refinancing opportunity there.

And we are going to explore those options in real-time here.

If I can jump in, Dan.

There's been an awful lot of discussion about the fact that a lot of the original banks have sold down, as if that's going to create some kind of obstacle to us, we just don't see that at all, for the reasons that Dan just mentioned.

The bond market is very hot.

The bank market, and in real estate in particular is very strong.

And there's a high degree of interest in participating in a new facility, a new debt structure at CityCenter.

Dan mentioned that we're working on it right now, we think this is not only eminently doable, but it won't take long, and that we want to get something done hopefully by the end of the year.

And so I think that once we put the clarity around that, I think that will help a lot quite a bit for everybody, but it is not something that we think is particularly going to be difficult to do.

Okay, great, thanks a lot.

And your next question comes from the line of Steven Kent with Goldman Sachs.

Hi, good morning.

Could you just give us more details, maybe it's Bobby who could give us more details, about the Aria profitability ramp?

Because even if you adjust the hold issues in both quarters, Q3 EBITDA was double of Q2, basically the way I'm looking at it.

So maybe some sense as to what you're seeing on a go-forward.

Is the property gaining traction with retail consumers, with gamblers, with convention?

Is it more on the expense side that you are getting things right sized?

Just a little bit more there?

Sure Steve.

Of course, it continues to get traction throughout all those categories.

And obviously, the quarter benefited by a higher hold percentage, but we were also $40 million or $50 million down in terms of hold percentage for Q1 and Q2, so the third quarter just kind of normalized the hold percentage year-to-date.

Every component of the business at CityCenter gets stronger and stronger every day.

So if you look at the third quarter, if you ignore the hold percentage, you might have had a base of $15 million, maybe $20 million in EBITDA, that should improve in each quarter going forward.

We don't look much further than Q4 right now, but Q4 ought to be a profitable quarter for CityCenter as well.

So the business across-the-board get better and better, mostly because of our awareness.

There are a lot more people that are aware of Aria, we have repeat business that of course we didn't benefit from in the earlier quarters, and that continues the snowball effect in terms of building this new enterprise.

And it continued in the fourth quarter Bobby.

I think Aria's occupancy was high 80s -- 88, so it was mid-80s in the third quarter, 82 in the third quarter, 88 in October, selling out on the weekends, the gaming volumes are strong.

Slots are one of our highest performer in our Company amongst all the luxury properties, is Aria already, on the slot side.

Baccarat market share is tied with Bellagio usually, so the business is starting to build in every aspect.

Crystals obviously, as we add stores, the food traffic has improved there, and that helps Aria as well as the overall revenues at Crystals.

It's just, that's why I'm so proud of the effort that Bobby and the team have done.

It's been very difficult to do, but clearly we're seeing sequential improvement.

And I think to finalize that, Bill McBeath and Bill Bosenberg and their teams, particularly at Aria have done a wonderful job in terms of occupancy and maintaining the rate, something that Bill McBeath is religious about, and so we suffered a little bit in the first and second quarters from a program that caused us to maintain the rate and keep the tie-in property where it belongs.

But midweek, our occupancy in the first quarter was about 59%, the second quarter it was 76%, in the third quarter was 78.5%, that was midweek business so big improvements there.

And the weekends, the picture is the same.

First quarter we had weekend occupancy of 76%, in Q2 it's 93% and in Q3, it was 95%.

So we're real proud of what's happening at CityCenter, particularly aria and of course, as Jim pointed out, we have a high regard for the people doing this work for us.

And one other separate question with Cosmopolitan opening up in a couple of weeks.

Can you just talk about your strategy both from a marketing perspective and from an operational perspective just as that property opens up and adds new capacity, what you can do to blunt that?

Well first as it relates to Cosmopolitan, we are certainly happy that property is opening up, because it's always nice to have strong neighbors and of course they are immediately to the north of CityCenter and to the south of Bellagio.

So it's nice to have a new fresh enterprise between those two companies.

We of course have strategies to deal with Cosmopolitan, to make sure they are additive to the market and that they impact our business in a positive way.

We think that's going to be the case.

A couple of things we've done, we've improved the signage or are in the process of improving the signage greatly as it relates to that corner of Harmon and Las Vegas Blvd.

For the first time, we're going to have a fully operational pedestrian bridge that crosses Harmon.

As you know, it's connected to a construction site now.

We didn't have the benefit of the full four to six lanes on Harmon for the first three quarters for the very first time, when Cosmopolitan opens up that thoroughfare will be completely open for the benefit of not only Cosmopolitan but to a greater extent, Aria itself.

So we have some other programs.

We can't really sense any impact as it relates to occupancy at Aria or any other components of CityCenter or rate.

But it's early.

They obviously are going to have lots of marketing as it relates to the opening of Cosmopolitan, they have a big, big entertainment agenda for New Year's Eve, but we're happy to see them in the marketplace.

We think they'll have little or no effect as to the business of CityCenter as it relates to a negative impact and long-term of course it's great that Cosmopolitan is coming into the marketplace.

Okay, thank you.

And your next question comes from the line of Bill Warner with Union Gaming.

Thanks, good morning, guys.

Couple of questions, the first one a fairly obvious one, obviously Harry Reid won, kept his seat, and Sandoval now is our new governor.

Can you just talk a little bit about your thoughts on both?

Harry Reid, is this just thinking about this the right way, that Internet interests will be maintained for guys here like you in Nevada, obviously he helped you on the debt repo tax benefit front.

But how do we think about Harry Reid sitting in that chair and then Brian Sandoval for those that don't know him, and then I have a quick Macau follow.

Okay Bill at the risk of getting myself into all kinds of trouble.

I'll take that, no one else once that question.

Clearly I am happy that Senator Reid won, because I lived here in the state of Nevada and I work in the gaming industry, and I know what he means to the gaming industry.

And I know that the Internet Gaming Bill has a better than decent chance now.

And had he lost, it would have been DOA for a decade.

So specific to your question in Internet gaming, that we would like to participate in the right forum, this was a positive for the whole industry today, secondly he clearly has helped leverage the companies and he's helped our company and he's a very powerful force.

And he understands the gaming industry he was the Chair of the Gaming Commission and his opponent did not and does not.

As it relates to Brian Sandoval, he's a very, very fine man and somebody we all like an awful lot.

He's got a tough job, as his opponent would have, Roy Reid, either one of them are very capable, very high quality, this was an environment where we had two good candidates running.

And Brian Sandoval won.

And Brian's going to be working in the state with the assembly and the Senate here to try to craft the budget that's going to be very difficult.

And there are going to be a lot of tough decisions that will have to be made on expenses and on broadening our revenues and many other elements .

And it's a little early for him to get into the job doing it, but we're going to be right there, helping out any way we can and we are very happy

Okay thanks Jim, and then a little follow-up to that.

The one concern of course I would have given budgetary issues here like anywhere else would be the gaming tax proposal gaining any steam.

You think Sandoval will be protectionist in that respect?

I'll give you my own view, it's just mine, because it's early days Bill.

But the gaming industry represents over 40% of this state's budget.

And this Company, MGM, represents over 11% for the entire state budget.

I don't think that there would be any support or appetite for any type of gaming tax increase.

The gaming industry that has been so devastated by the great recession and certainly the Las Vegas economy and we are a real prime example of that, only now starting to recover.

It would be very reckless, and I think very remote to consider raising taxes on the gaming industry at this very vulnerable time.

So I think that I can speak very strongly about this view, certainly that will be our view, and I don't think that will become an issue in the next session.

Okay, thanks, and then my last one is on Macau.

What could you guys say, or can you give us a little bit of color on distributions in the future post the potential IPO in Hong Kong?

Right so you brought back vis-a-vis intercompany loan some money recently, you talked about that.

I think you maybe have $70 million or $90 million left based on our own assumption of what you could bring back.

What post IPO could you do beyond that, without having to repay local debt.

Could you actually use proceeds to start Cotai?

Bill, this is Dan.

Unfortunately, given that we are in a quiet period, we can't talk about the timing or any IPO related matters at this point in time.

What I can tell you is that the bank credit facility we put in place this summer in Macau does give us a lot of financial flexibility in what the partners can do going forward, As it relates to the existing operations and the current capital structure.

So the partners can look at future distributions from the operations of Macau based on its current credit facility and we will review that with our partner each and every month going forward.

So we made a large one.

We made a large one.

And we can continue to make monthly distributions if we choose?

Correct.

That's helpful, thanks guys.

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

Good morning everyone.

I have a few questions here.

A quick one for you Dan, at the end of the third quarter, what was MGM Grand Macau gross debt in cash?

I don't have the cash in front of me but debt was in an estimate just over $800 million.

I don't have the cash number in front of me Joe, I'll have to give that off-line.

And then touching on the CityCenter refinancing, do you think you'll need to put equity in, in order to get something done, is that something that you are anticipating?

Well I think given the fact that we are overcollateralized today on $1.85 billion, we think we can roll that into a new structure that would minimize any capital confusion by the partners.

And then back to the topic of CityCenter/Aria profitability.

Is the profitability ramp tied more to revenue growth versus expense control?

Looking at the resort operations in the third quarter, I know high end gaming revenue contributed to it.

But the $2.2 million of operating expenses per day, are there ways to shrink that down, so that you get an incremental profitable list on the expense side?

Well, most of the future profits from CityCenter are going to come from revenue growth.

The expense structure has been refined dramatically over the last three quarters.

So there's less opportunity there although the there still remains some, and much more opportunity in the top line.

Great and my final question quickly is, Jim maybe you can give us any kind of sense on timing with respect to potentially selling your Borgata interest to the one bidder?

Thank you.

And your next question comes a line of Shaun Kelley with Banc of America.

Well let's answer that question first.

Do you want to hit that, Dan?

Sure.

Obviously hang on one second, Shaun, but just to answer Joe's last question, we will be working with our bidder and the Borgata team as quickly as possible to get through this process.

Obviously it's contingent upon the regulators weighing in and approving any such transaction, so it's difficult from that time period .

But we would look to kind of get this closed as quickly as we can.

Shaun, are you on

Okay, and your next question comes from Shaun Kelley with Banc of America.

Great, thanks guys, just two questions first of all, Jim, in your prepared remarks you mentioned a little bit about the marketing program and some of the management changes that were made, could you help us maybe as we start to think about next year and the impact of those start to think about quantifying that?

Is the opportunity more in reducing some of your promotional spending versus a revenue benefit?

And any sense of magnitude of how much more efficient you might be able to be on some of those programs?

Sure, I'll give it a shot and we'll have a lot more to talk about what we actually have more data in this current quarter.

Particularly in the regional properties that have now M life for the entire quarter, for the first time they will have the whole quarter.

Number one, we will be much smarter in how we are marketing to our casino customers, and therefore, there will be efficiencies.

We have done many mailers, many campaigns that have lost money for us.

I think every company would candidly say that so we can be more specific and better targeted as to how we are marketing to various groups of our customers and so there will be an expense savings no doubt.

The program is very rich in analytics.

And this is something that we've been weak in the past, but we have spent a lot of money internally, well over $20 million this year with consultants and with outside technology companies, to get much better on customer analytics.

And so that is a very important aspect of being specific, and therefore we think it will have a revenue impact where we can truly one-to-one market to customers, not just based on their spend but based on their spend and their inclinations, very different for us and very important.

We will be able to yield our rooms far more effectively because we'll have a better sense of where we stand, not only in the casino mix, but in general with all of our customers, and yielding the rooms when you have as many as we do, particularly in this one market, more than anyone else, has tremendous operational leverage benefits.

And so, in terms of putting numbers around it, this isn't a $1 million or $2 million type of impact.

This will be, we believe tens of millions of dollars of incremental profit to us and more as we grow.

Our competitor, Harrahs has done a fine job for many, many years, and have been more productive in some areas of their properties.

We have the premier properties and we believe you are going to see increases in our slot handle, increases in our overall gaming wins and decreases in a lot of our casino promotional activity, because we are more targeted in the way we market to our customers.

That's helpful.

And then one on the CityCenter residential, if I could?

I guess given some of the prepared remarks, it feels like the trajectory of some of the closings there has slowed down but obviously you have some significant physical real estate investment.

Beyond the leasing program is there anything else that you can do to I guess in the near-term or medium-term to think about monetizing that asset a getting a little bit of cash back into the JV?

Well sure.

The closings of course are slowing down we have our final 30 closings in the fourth quarter.

So the first group of closings, 438 units, that leaves us with about 600 units, remaining 200 of which are in the lease program, and we have a variety of things that are under consideration by the joint venture board as relates to the other 400.

But even in a very, very quiet residential market, particularly high-rise residential market, in Las Vegas.

We have in the last 12 months sold 23 units in spite of that.

We have sold 20 at Veer, one large unit at Mandarin Oriental and a couple at Vdara.

So there still is some activity, if you look at in a simple form, we have about 400 units available for sale.

The Vdara unsold units, as you know, are transferring into the Vdara hotel inventory and will no longer be for sale.

And I think I would add Bobby it becomes then a subjective decision by the Joint Venture Board.

Should we choose to, there's a lot of international interest for US real estate that's quite obvious, should we choose to bulk sale inventory, that's a very plausible avenue.

Should we choose to stay on this inventory for a longer period of time, that is certainly also viable.

In other words, we don't have any pre-described direction that we have to follow with our inventory and the options for that remaining inventory are growing for the Joint Venture Board to consider.

Great, thanks everyone.

Operator I think we'll will take we have time for one more question, we will take one more.

Okay, and your last question comes a line of Robin Farley with UBS.

Two things.

One, I just wanted to clarify, Jim.

Your opening remarks you said not having to access the capital markets between now and the end of the year.

Were you just referring to the US capital markets or was that all capital markets?

No I was referring to the MGM balance sheet, Robin.

Okay, that's helpful.

And then also a while back when CityCenter was in the design phase, you talked about designing it so that the mall could be sold potentially at some point as operating process pickup there and it was designed so it could be sold.

You have any further thoughts on that topic?

It was designed that way, and it is therefore very much of an opportunity for us down the road.

We'd like to get this stores more of the stores open, I think you mentioned we would be at 85%?

80%, and then into the mid-80s next year, and as we do that, obviously, the NOI improves, and as you know, retail is sold off of NOI multiples, cap rates.

So yes, it's a very viable possibility for us.

I don't think is going to happen tomorrow because the business is improving.

In fact I've seen some data that Crystals, I guess I can say this, right Dan?

Has already become, in terms of the space that's open, its already the second highest revenue per foot retail experience here in Las Vegas.

So the Forum Shops is always the star in that regard, but Crystals is are the emerging as a very high productivity retail experience.

And as the stores continue to open up, the overall cash flows we think will improve.

So I don't think it's probably a good idea to do it today, but it certainly something that we will consider in the future.

Great, thank you.

Thank you, and operator, with that, that concludes our call today.

Thank you everyone for joining us.

Thank you for participating in today's teleconference, you may now disconnect.