美高梅國際酒店集團 (MGM) 2011 Q1 法說會逐字稿

Good morning, and welcome to the MGM Resorts International First Quarter of 2011 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 City Center; Dan D'Arrigo, Executive Vice President, Chief Financial Officer and Treasurer. Participants are in a listen-only mode. After the Company remarks, there will be a question and answer section.

Now, I would like to turn the call over to Mr. Dan D'Arrigo.

Well, thank you, Conchetta, and good morning, everyone, and welcome to our First-Quarter earnings call. This call is being broadcast live on the internet at www.mgmresorts.com, and a replay of the call will also be made available on our website.

This morning, we furnished our Press Release on Form 8-K to the SEC, and before turning it over to Jim, I'd like to just read the Safe Harbor real quickly. Information we present on this call may contain forward-looking statements, including statements regarding our expected future financial performance, results of operations, and financial condition. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from estimates. We have based these forward-looking statements on our current expectations and assumptions, and not on historical facts.

In providing these forward-looking statements, we're not undertaking any duty or obligation to update these statements publicly as a result of new information, future events or otherwise except as required by law. You are cautioned not to place undue reliance on forward-looking statements.

Listeners should also refer to our disclosures about risks and uncertainties made in our filings with the SEC, including our most recent Annual Report on Form 10-K. During the call we will also discuss nonGAAP financial measures in talking about the Company's performance. You can find the reconciliation of these measures to GAAP financial measures in our Press Release and on our website.

Now, I'd like to turn the call over to Mr. Jim Murren.

Well, thank you, Dan, and I'm glad I don't have to read all that, Dan. Good morning, everyone. MGM Resorts reported a solid First Quarter today, and we're seeing some positive trends here in the Second Quarter. If you exclude the impact of last year's write down, our Company-wide property EBITDA was up 34% year over year. Property EBITDA attributed to the wholly-owned operations, that was up 12% year over year, and had our whole percentage been in the midpoint of our range, that number would have been up 25% year over year.

On our last quarter call, we had indicated that strip RevPAR would be up as much as 10% in the First Quarter of this year. It was actually up 16%. There are really several factors attributing to the success in the quarter, but I'm going to take a moment to highlight 4 of them.

First, we're executing on the goals of building the base of our business in the convention segment, and that is driving flow-through to the bottom line. Convention room nights represented 20% of our room mix in the First Quarter. That's an increase of 5 percentage points year over year, and the best convention mix quarter we have had since the First Quarter of 2007.

The solid base of convention business allowed us the yield up rates in all of our retail segments, meaning in our FIT and Leisure segments as well, driving overall ADR up 13%. And with the improved convention mix in the First Quarter we saw a flow-through in many of our other business lines beyond just room revenue. To give you a few examples, food and beverage revenues were up 7%, entertainment, retail, and other were up 4%.

Convention bookings remain strong and we continue to expect the full-year convention mix to be up nicely year over year, up in around the 14% range. That represents a 2 percentage point improvement from last year. For the remainder of this year, we're pacing ahead of last year in every month in terms of convention bookings.

Secondly, consumer spending is strengthening and we will take advantage of this through a very strong event calendar that we have throughout the Summer and into the second half. We see evidence that consumer spend is in fact strengthening. One metric, for example, which has been slow to recover, has been the revenue per occupied room, excluding hotel and casino. In other words, the retail, entertainment, and other type of revenue. That was up 3% in the First Quarter. We also saw an increase of approximately 4% in our rated domestic play, which is a very important part of our business, and we have benefited even in the First Quarter from a strong event calendar.

Our Las Vegas core brands are strengthening as well. You can see that in the table of cash flows of the core properties, and that is also reflective of a retail customer that is healthy and improving. Those properties saw EBITDA increase 40% in the First Quarter collectively, and we believe those properties will continue to see the benefit of better retail room revenue.

Looking out, we focus on room pacing, and to say that we're happy is an understatement. Over the next 4 months, we're consistently outpacing last year's rooms on the books. April occupancy and rate, for example, up nicely, driven by strength in those retail segments.

Our event calendar is also improved, and it's up significantly year over year. I think it's up over double digits in terms of events booked at both the Mandalay Event Center and MGM Grand Garden. And why is this important? It's because we know that when we have good events at the arenas, people spend more money, and we're seeing that right now.

In fact, this weekend we have a very important fight at the MGM. This is going to draw attention from around the world. Manny Pacquiao is fighting Shane Mosley. This is clearly going to be a strong draw for the strip properties. And I don't know if we announced it, I think we just announced recently we signed Paul McCartney. He's coming here in June. That will also be a big casino event.

My third point is to enforce the point that we're investing in the future of our business, both in terms of M life and in terms of Capital Expenditures. As we have now begun to see the recovery in the US consumer, it's important to note that we have been investing and will continue to invest in our properties and our marketing efforts to maximize on that improvement.

On the M life side, as you may recall, we launched this a year ago in the Fall in our regional properties, and more recently in January this year in our Las Vegas properties. M-life was and is designed to increase the benefits and access for all of our customers. It provides additional transparency to our customers and how they earn rewards and how they redeem them. And that allows our customers to benefit from their total play at all of the 15 MGM Resorts properties. Importantly, we're also providing these valuable customers with preferred access and more personalized experiences through what we call M life moments.

Since we launched this program, we have enrolled over 1 million new customers into our loyalty program. M life has been especially active in the regional markets, so we have more data that's been there longer. Our regional properties have seen an increase in the number of active players and in terms of trips in the First Quarter led by Beau Rivage where trips were up approximately 10%.

Our gold and platinum levels, our higher-level customers, have seen trips up in the double digits indicating people are migrating up the benefit scale, and the benefits are compelling. Regional player activations are also up. They are up about 10%. That's another key barometer in engaging the attraction and the success to the program.

M life also gives us better data about our customers, allowing us to be more specific in our customer marketing, and create a better bond with the customers, leading to increased market share. We're certainly seeing that in Detroit. And with that analysis, and because we had a good convention quarter in the First Quarter, we've been able to see a meaningful reduction in our promotional expenses, particularly at the lower tiers of our program, and still increase our slot revenue, and our margins as you saw are improving.

So M life is really important to us as we drive this business, improve the profitability of our consumer segment. And it's also helping us tie better relationships with other strategic partners. We had already announced SBE as a strategic partner. We just signed, this week, a very important alliance with Avis Budget. We signed a deal with Rank Gaming in the UK. Dover Downs was just signed. And as we continue to form these marketing relationships around the globe, both in gaming companies and in non-gaming retail channels, it improves the value of M life to our customers, and we believe it will increase market share.

We're also rolling M life throughout Asia. It will be in our MGM Macau property. And then of course, all of the work we're doing in China with MGM Hospitality, we're opening a hotel in Sanya on Hainan Island later this year, and we are going to tie it all together with M life.

On the CapEx side, we really have invested quite a bit in our properties over the past decade or so, and we will continue to invest in the properties. It's important. This year, we began a room remodel at Bellagio and at MGM Grand. A little later this year, Bellagio will also welcome Hyde Lounge, a hot new nightclub that will be where Fontana was here at Bellagio. And that's in a partnership with SBE.

We're adding a couple new retailer stores including Hermes and Louis Vuitton here at Bellagio. We're redoing the Jet Nightclub over at the Mirage, and soon we'll be announcing a very important replacement for Rumjungle over at Mandalay Bay. We are also developing new restaurants at Luxor, Excalibur, Mirage. In other words, really across our portfolio, we continue to improve, upgrade, and become more and more competitive.

On the entertainment side, we signed Blue Man Group. They're going over to Monte Carlo next fall. And the Michael Jackson Immortal Tour, this is a partnership with Cirque Du Soleil, has already pre-sold 10,000 tickets, and it's going to be a permanent show over at Mandalay Bay beginning in 2013.

My final point is on our joint ventures, and I'll start with Macau. Obviously, we had a very strong quarter at MGM Macau, a record quarter. Operating income was $126 million, depreciation was $20 million, for the EBITDA $146 million.

Our improved operating performance reflects what we've talked about before, as a broad-based strategy, we saw improvements everywhere, in our VIP and in our main floor and in our slot segments. In fact, drop in VIP up 94%, drop in main floor up 21%, and our slot drop was up 92% in the quarter.

We've also been very disciplined in granting credit and managing our junket operators, which I'd hope you'd expect of us. It's been our history. And that has also demonstrated very easily here as you see in our strong margins, and I'd like to say that we held within our normal range in the quarter.

My second point on Macau is an important announcement we made about a month ago with our partner, Pansy Ho. And that's regarding a realignment, restructuring of the ownership of Macau on a going-forward basis in connection with our IPO. This is very important to MGM Resorts. It will result in us controlling one of the finest and certainly the fastest-growing asset in our portfolio post-IPO when we own 51% of MGM China.

It also strengthens our bonds with Pansy Ho, which we like and we're doing more with her in China. And in fact, as you know, as part of this deal she's investing a significant amount of her money into MGM Resorts. We announced last week we've been continuing to make progress with the Hong Kong Exchange as part of this listing. And we've been responding to their inquiries and comments, and we continue to pursue a prompt listing of MGM China.

Finally, and this is brief because Bobby will touch upon it, City Center. We're very happy with the operating improvements we've seen in the quarter, and a continued brand awareness and market share that we clearly achieved in the First Quarter. And we expect more great things to come for that venture.

So with that I'll turn it over to Dan D'Arrigo to talk about our operating results and financial position.

Well, thank you, Jim. I'd like to, as Jim mentioned, go over some key components of our results this quarter. As we've mentioned in our release, we were impacted in our earnings as it related to a lower than normal hold percentage. On an actual basis, our net revenue was up 3%, and our adjusted property EBITDA attributable to our wholly-owned operations was up 12%. Both of these would have been higher, up 6% and 25%, respectively, had we held at the midpoint of our normal range. And to remind folks, that range is 19% to 23% on our table game hold side. That negatively impacted our wholly-owned EBITDA, adjusted property EBITDA by approximately $34 million, of which over half of that $34 million was attributable to Bellagio alone.

On the margin side, our margins were up 160 basis points. Hold adjusted, they would have been up 385 basis points year over year. We did see improvement, as Jim mentioned, in RevPAR. RevPAR in the First Quarter was up 16%, one,six, including resort fees. Excluding resort fees, RevPAR was up 11% in the quarter year over year.

In our regional properties we had a solid quarter led by Detroit, which had its third-best quarter in its history, and continues to lead that market in terms of its share. As many of you have heard by now, due to the weather conditions in the Midwest, and in the interest of safety of our employees and our customers, our Tunica property has temporarily closed. It closed on Monday by mandate of the Gaming Commission. We will continue to monitor that day by day on a go-forward basis and update you as circumstances change. But that Gold Strike Tunica is currently closed, and our folks down there are doing a tremendous job in taking care of our assets and preparing for the crest of the river.

Switching gears, on the liquidity front. Since the beginning of the year, we utilized borrowings under our credit facility to retire approximately $325 million of senior subordinated notes, which had matured in February. As we mentioned in the release, we also received approximately $31 million in distributions from MGM Macau during the First Quarter. And just last week we received a tax refund of $175 million, thereby taking our pro forma liquidity of excess cash and amounts available under our revolver to over $1.1 billion currently.

To help you on the modeling front going forward, our corporate expense in the Second Quarter is estimated to be in a range of $30 million to $35 million, excluding our stock compensation expense. Our stock comp expense in the Second Quarter is estimated to be about $9 million to $10 million.

Depreciation expense in the Second Quarter is estimated to be approximately $150 million to $155 million. And our gross interest expense in the First Quarter was $270 million, of which $220 million was cash interest. We had no capitalized interest in the quarter, and we estimate gross interest expense in a range of $265 million to $275 million in the Second Quarter with no capitalized interest anticipated. To give you a sense of where we're forecasting RevPAR in the Second Quarter, we're forecasting RevPAR to be up in the mid-single digits in the Second Quarter and we're on pace from that standpoint, actually did a little bit better than that in April already.

On the Macau front, as you consider your models going forward, as Jim mentioned, upon the consummation of the Macau IPO under this new structure, MGM will consolidate MGM China, which will be the public vehicle on the Hong Kong Exchange. Within its consolidated financial statements, it will no longer account for that entity under the equity method. As part of that exercise, all of the assets and liabilities of MGM Macau will be consolidated on our balance sheet with an offsetting non-controlling interest being a component of stockholders' equity going forward.

We'll need to perform a purchase price allocation for those assets and liabilities based on market valuation, and that will be based on the valuation through the IPO process. We expect to recognize a significant gain on the transaction based on the anticipated excess value to be established by the IPO over the carrying value of the Company's existing investment.

And as part, as we previously announced, as part of the relationship with Pansy going forward, we've agreed upon the successful completion of the IPO and shareholder approval authorizing an increase in our authorized shares at our June shareholders meeting. We would issue to Pansy $300 million in aggregate senior convertible notes due 2015 for total proceeds of $311 million.

As of March 31, MGM Macau had approximately $695 million of debt outstanding, and a cash balance of $280 million.

Give you one more data point. In the First Quarter, we had Capital Expenditures of $34 million, and we continue to expect to spend in total around $275 million for all of 2011.

With that I'd like to turn it over to Bobby Baldwin for City Center update.

Thank you, Dan, and good morning to everyone. As Jim mentioned, we're extremely pleased with the overall performance of City Center as we closed out our strongest quarter to date. City Center's resort operations reported adjusted property EBITDA of $64 million in the First Quarter. ARIA reported adjusted property EBITDA of $55 million, Crystals $6 million, Vdara $3 million, and Mandarin $515,000. ARIA's net revenue was $225 million, up 13% from the Fourth Quarter of 2010, and 41% from the First Quarter of 2010. ARIA's net casino revenue was $111 million in the First Quarter, up 12% from the Fourth Quarter of 2010, and 47% from the same period last year.

First-Quarter 2011 table games revenue was $72 million, up $10 million from the Fourth Quarter, and $29 million when compared to the First-Quarter last year. ARIA experienced a higher than normal hold percentage for the First Quarter, which contributed to EBITDA and had an impact of approximately $13 million. ARIA 's non-casino revenues were $147 million in the First Quarter, up 6% from Q4, and up 25% from the First Quarter of last year. ARIA 's occupancy was 86%, and the ADR was $201, the highest level since we opened the property.

RevPAR at ARIA has continued to increase each quarter since opening. First-Quarter RevPAR was $172, an 11% increase over the Fourth-Quarter last year, and 41% over the First Quarter of last year. We continue to be more efficient with the operations of ARIA, which has allowed us to further reduce expenses and improve margins, while overall traffic and volumes have sequentially increased each quarter. Additionally, ARIA benefited from a favorable property tax adjustment in the First Quarter of about $6 million.

First Quarter convention business at ARIA was extremely strong with over 72,000 room nights. Future bookings continue to be strong. 2011 convention room nights on the books have already surpassed forecasted totals for the year. Convention business for the 2012 year and beyond looks extremely positive, as lead volumes and bookings continue to outpace last year and our forecast.

The end of the quarter marked the Las Vegas debut, or in this quarter marked the Las Vegas debut of the Michael Jordan Celebrity Golf Invitational, which was of course, hosted by ARIA , at the company's Shadow Creek Golf Course. This spectacular event will continue to return to ARIA for 2 more years under the current agreement. The event was enormously popular, and further showcased ARIA, as well as Shadow Creek, both as premier destinations. We look forward to further leveraging this event to drive awareness and strength across all of ARIA 's brands.

This also was the first full quarter of operations that the Cosmopolitan was open for business adjacent to City Center. Overall we believe the opening had a positive impact on ARIA, and all of City Center, and it's helped to increase foot traffic to the various operating entities of City Center.

Vdara's net revenue for the First Quarter was $15 million, an increase of 23% from the Fourth Quarter, and 114% from the same period last year. Vdara's First Quarter occupancy was 83%, up from 75% in Q4, and 52% from the First Quarter last year. Vdara increased its room inventory on March 1 by 200 units, which resulted in 6% more available room nights than the Fourth Quarter of 2010, and 26% more room nights from the First Quarter of last year.

Crystals' revenue was $12 million, up 6% from the Fourth Quarter, and up 87% from the First Quarter of 2010. As of March 31, 82% of Crystals' leasable area was occupied by tenants open for business following the opening of TAG Heuer. Jimmy Choo is scheduled to open this August, and we are in final negotiation with Dolce and Gabbana for a men's and a separate women's store with an estimated January 2012 opening.

In the First Quarter, the residential division worked successfully to contain cost and generate leasing revenues under the City Center leasing program. To date, we've leased 212 units with total monthly lease income of $440,000. The 212 units are comprised of 72 units in Mandarin Oriental and 14 units in the Veer Towers.

Despite the current market challenges, in the First Quarter this year we closed 8 units with revenues of $7.5 million. We closed 1 unit in the Mandarin Oriental with a sales price of $2.7 million. In the Veer Towers we closed and sold 4 units with sales prices totaling $2.8 million. In addition, we closed 3 additional units in Veer previously contracted for, for an additional closing revenues of $1.9 million.

In Q1 2011, the carrying value of the residential notes receivable was reviewed by PennyMac, our outside residential consultant. Due to the softening in the market for such investments, a $5.4 million write down was taken against our notes receivable for the quarter. At present, cash at City Center is approximately $100 million, of which $20 million is cage cash. And that concludes my report.

Thank you, Bobby. Conchetta, with that, we'll open it up for Q & A.

(Operator Instructions)

We'll pause for a just a moment while we compile the Q&A roster. Your first question comes from the line of Steven Kent with Goldman Sachs.

Hi. Good morning. A couple things. First, Jim, you mentioned that your convention percentage was almost 20%. Is that for your whole strip? For the whole strip all of your hotels as a percentage? And I'm assuming in some of your other properties it was even higher.

Then also you said your revenue per occupied rooms were the retail and the entertainment was plus 3%. Was that running negative prior to this and that's why the delta is so compelling? And then finally, Dan, I think you said something about mid single digit RevPAR in the second quarter, mid single digit RevPAR growth. Is that because the comparisons get tougher or there's something else there that we're missing given the strength you saw in the first quarter?

Okay, Steve. If we miss any of those let us know, okay? One, on the convention mix, 20%. By the way that's wholly owned. That excludes ARIA . We can give you that too at ARIA , but 20% is the mix. That is higher than what we had predicted, and of course it's much better than that at the luxury properties, particularly Mandalay Bay which is a convention oriented hotel. And the 20% mix is higher than what we had predicted.

On the revenue per occupied room, what we tried to do there is you could already see the revenue -- the room revenue. We talked about gaming, but the metric of every other aspect of our resort business, that revenue being up 3%, you are correct. That is a change. That has been a nagging problem out here in Las Vegas and it's a retail spend issue. That has turned from a negative to a positive and that happened in the quarter. Dan, do you want to talk about RevPAR? I think that was directed

Sure. Yes, I think Steve, as you look at obviously the seasonality of the convention business is always seasonally stronger in the first quarter. That obviously impacts the seasonality of the trend and RevPAR is projected to be up, led by stronger retail, stronger FIT and leisure business. Our convention business is solid in the quarter, and like I said, hopefully we can do a little bit better. We've seen that already in April, but as you get into May and June, you're seasonally trading into your more Leisure and FIT business at that point.

Okay, thank you.

Thank you.

And your next question comes from the line of Joe Greff with JP Morgan.

Good morning, all. Jim, looking back at the first quarter, looking at the non-higher end strip properties, and they outperform meaningfully versus what we were expecting, can you just talk about what you think the drivers are there?

Are you benefiting from the other Las Vegas strip properties reducing their promotions and perhaps your gaining some market share? Is it M life, and then I have a couple follow-ups. Thank you.

Well, yes. The core properties really across-the-board did very well relative to last year. We think that's a beginning of a trend. One aspect is the obvious on doing very well on the convention side has allowed us to yield up on the whole portfolio. But I think it has been a bit of a narrow focus to just simply look at the convention business. As the recovery is underway, we're seeing organic growth in FIT and in Leisure business allowing us to drive rates.

That of course is the bread and butter of the core properties. And that has significant flow through because our cost structure, which I don't think we talked about, but our costs are very much in check.

So as the convention business continues to be robust this year and it will be better next year, we think, you should see a continued drafting of the core properties because of that one reason and secondly, because the retail customer is improving and that has a more direct benefit to our core properties.

And when you look out to the second half of the year or maybe particularly the second quarter on the strip, where do you think room nights as a percentage, or group room nights as a percentage of total, where does that mix go? Does that go close to that 20% and then if that's the case or you see a pick up Q3 versus certainly the Q2, would that imply that your RevPAR growth in the third quarter will, year-over-year, will be higher than the mid single digit in the second quarter?

So the answer is yes, if I understand. Are you talking about the convention business, Joe?

I am, yes.

Yes. That would be an accurate statement.

Great, and then my last question here, with regard to Borgata in Atlantic City, and given your proposed change in structure in Macau , does that cause you to rethink or potentially have conversations with the regulators in terms of how you view that asset in your 50% ownership of that

We have a settlement agreement which we're adhering to in New Jersey. And I think that is the focus is to honor the settlement agreement and we have good dialogue with New Jersey by the way as we do with all of our other regulators, but our focus at this point in time is to go public in Macau .

Great. Thanks.

Thanks.

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

Hi, good morning guys.

Good morning.

So Jim, you were talking about your convention room nights, that they're up. I was wondering if you could give us a picture though of what rate is looking like there relative to peak. And the crux of my question is I'm just really trying to figure out where your convention bookings or occupancy needs to be before you can actually really drive that rate.

Well, we're driving it now. Our rates on the convention side are consistent, actually a bit better, than our last guidance with you last quarter. We were trying to compare rates to prior years and I think we're talking about what we were achieving back in '05 levels and we're certainly there and that's improving.

Our rates are up this year versus last year, and they will be up double digits next year versus this year, so we're getting an improvement in mix. We're also getting an improvement in the room rate on the convention side and that obviously is helping us yield the whole portfolio. I think you had another part to that question?

No, that was it. Thank you. So and then just moving on to your, I guess what you're calling now the core properties. On the casino side, I was just wondering what you can share with us in terms of what you're seeing there. Because overall your casino revenues beat our expectations even adjusting for hold, so I'm wondering if that was just driven by the high end, again adjusting for hold, or if it was just more across-the-board?

It was pretty much across-the-board, and I don't feel like we have enough data to really give you or give ourselves a good indicator of how M life is going to do out here. We are very, very optimistic about what M life will do in terms of casino revenue here in Las Vegas. And it just really rolled out a couple months ago.

So we saw good traffic in Las Vegas in general. We saw that manifest itself into revenue across-the-board in the core properties. The casino numbers were better than they've been. Our slot handle is improving as you saw.

That's very important for the core properties. And in the mass market, or the main line table business, is starting to pick up as well. But most of the improvement on core, so far, has been on the non-gaming side, on the room side.

Great, and then you've given us some visibility into the second quarter, a little bit into the third. I guess rounding out for the year, do you see that, I mean I know fourth quarter is always the toughest, but is there any reason to see particularly on the RevPAR side the trajectory slowing at all?

Well, we have -- October is going to be a good month, that's for sure, on the convention side. And it's hard to look out too far, but I think we're off to a good start here.

Great, and then just one last quick question for Bobby. The Mandarin unfortunately continues to be a drag. I was just wondering if you could talk about anything you're trying to do there to boost EBITDA?

Well the occupancy has improved by about 20 percentage points, but it was only about 35 last year in the same period and about 55 this year. The Mandarin people are doing a very good job in understanding the Las Vegas marketplace which is really difficult at this point in time for their products. It's their high end non-gaming hotel.

But they continue to get traction, even though they only made a $0.5 million the first quarter this year, that's a big improvement over losing $6 million in the first quarter last year, so they're working very closely with us to understand the Las Vegas market. I think that they will slowly improve. It's not going to be a sharp upward trend but they're going to figure it out.

Great. Thanks so much.

Thank you.

Your next question comes from the line of Shaun Kelley with Bank of America Merrill Lynch.

Hi. Good morning, guys. I just wanted to go back to the operating expenses for a second. It looks like the incremental flow through you guys got on the revenue increased this quarter was very solid. So I guess my first question is, is there anything we should worry about as we move throughout the year in terms of operating expense creep, whether it's bonus accruals or additional rollouts of new programs that would drag that expense or push those expenses up a little bit moving forward?

I was going to make a funny comment about bonus accrual but I think I'll pass. No. I think you saw if you look at G&A and corporate expense and combine those, that's a pretty good number to think about going forward. Our biggest costs are payroll. Obviously that goes up a little bit in terms of wages every year, but I don't expect to see expenses as a percentage as a revenue go up. I expect them to stay flat or go down.

And then I guess digging in a notch, on the promotional allowances being down actually $10 million year on year, despite a revenue increase, you mentioned, you called out M life a little bit there, but is that kind of magnitude of a decline in promotional expense, is that something you're able to continue and maybe even accelerate a little bit as M life rolls out through the Vegas portfolio?

That's absolutely true. One of the dual benefits of M life, well there are many benefits to M life, we want to drive revenue but we also want to more intelligently have a relationship with our customers and maximize the value of the highest value customers. And as we do that, it has a dual benefit of improving expenses .

And just the last thing would be on the [Baccarat] business. That business had a very good business last year. It has tougher comps this year and so the market statistics haven't shown quite the magnitude of growth. But I guess could you give us any sense with all of the business you do at Bellagio, and at MGM Grand and ARIA , what you're seeing from that customer, are you still seeing healthy growth trends within your business because all we get a sense of is the market

The simple answer is yes. We did have a tremendous quarter last year, a tremendous year, record year last year, tough comp this year. And we do cater to a wide range of high end customers. Some of them are very, very big. And some times they beat us.

But we know who they are and they tend to come back. So I would say the international business, it's going to be harder for the international business in Las Vegas to show the kind of growth it has shown over the last couple years, but we do expect growth. And the national high end business is improving so on balance, we believe that we'll pick up share in a market overall in the high end that will be up this year.

Thanks very much.

Thanks.

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

Oh, great, thanks. I wonder if you can just give a little color around the Macau, your casino reserves and just kind of the provision versus the prior year, that kind of thing.

Sure, hello, Robin. It's Dan and we have to be careful here as we are still in a quiet period as it relates to Macau. But at the end of the quarter, we had roughly about $120 million in gross receivables that we are about 50% reserved on at the end of the quarter.

That's great. Thank you.

Thanks.

Your next question comes from the line of Janet Brashear with Sanford Bernstein.

Thank you. Bobby, I wonder if I could ask you what the rates you're getting on the lease inventory is at City Center, and then also how many of the Vdara rooms are in inventory now cumulatively?

On the lease it's $2 a foot in terms of the rentals.

The number of rooms at Vdara is a little over 1100.

1050. 1050 rooms at Vdara currently.

Okay, and the ARIA held high for the last couple of quarters. Are you seeing anything systemic that's causing that or is it just sort of the luck of the draw?

I think it's the luck of the draw. More or less, of course we had some rough periods last year as you may recall, so I think it's just a balancing out.

It's also, obviously it's a higher end property so its whole percentage should be higher than our portfolio at large. And the Baccarat emphasis.

Okay. And then Jim, on internet gaming, is there anything that's happened in the last couple months that changes your idea of what the MGM strategy should be going forward?

No. I think it enforces what the MGM strategy should be going forward and so I think that's maybe enough said. We're very actively involved in this. We believe that we have the proper approach and the only thing that's happened in the last couple months is to reinforce our position on how internet gaming should be regulated and pursued.

Thank you.

And your next question comes from the line of Harry Curtis with Nomura Securities.

Hello, Jim. Just a quick follow-up on Shaun's question. The mix of national versus international Baccarat business in Vegas for you is how much?

I don't know. You're just talking about just purely Baccarat, Harry or just the overall high end business in general?

Mainly Baccarat. I'm just trying to get a sense of if the high end, if the national high end is beginning to lift, what sort of delta that could have.

Yes, they just don't play a lot of Baccarat. Most of our Baccarat business is international. There's very little national Baccarat play. We're seeing some good lift in the national high end play but it's not in Baccarat.

Okay, and then to my second question. I was interested the mix of your third party or discount channels. As you move inventory from the discount channels to the non-discount channels, what kind of revenue delta is there?

Let me put it off to Corey or Bill. Do you know?

When you say revenue delta, Harry, you mean what the opportunity is?

Yes, I mean what sort of ADR are you getting from the discount or online travel channels, and as you move some of that in inventory back under your own control, what kind of opportunity is there?

In the first quarter, for example, Harry, the shift of the additional convention business pretty much came out of that leisure channel and that differential is north of $50.

Okay. All right and Corey just one other related question. I'm interested the mix of your casino rooms in the first quarter of 2011 versus 2010. And what was the differential in the cash pay rooms really coming out of the casino mix?

I happen to have that, Harry. Our casino mix in the first quarter was 15% of our rooms. It was exactly that in the first quarter of last year. The ADR, inter-company ADR for the casino segment was actually down a little bit this year versus last year.

Do you expect that casino mix to stay about the same, or might it decline as the increased demand for cash pay customers comes through?

I think eventually, as M life takes off in Las Vegas we'd like to see it increase a little bit over time. But we're comfortable where the mix is right now.

It won't increase much, I don't think, right?

It will a little bit.

Very good. Thank you.

And your next question comes from the line of David Katz with Jefferies & Company.

Hello. Good morning, all.

Good morning.

Two questions. One, this may be my own perception, but just thinking about intuitively table hold percentage and the expectation that when volume or length of play shortens or contracts, that the volatility would increase. But my inclination is that would be in both directions and I wonder if there isn't some element of it that creates more of a negative bias to it, and is it more just happenstance that we've seen more impact from table hold percentage this quarter or recently or statistically, or is there something actually to it?

Hello, David. It's Dan. I think we looked at this obviously when you're building some hold well you look at it from a variety of angles. And all of the analysis that we've looked at, we are getting the length of play. Obviously as Jim mentioned earlier, we're up against a tough quarter in terms of overall volumes with the events last year of ARIA being opened, etc.

But we looked at the length of play. That does not look like its been impacted. We are getting the length of play from the customers and it's purely just a run of bad luck across a handful or so of customers within some of the buildings.

And it's a fourth quarter/first quarter phenomenon. That's where we do our high end.

Got it. One more question if I may. In response to an earlier question, you talked about operating expenses going down and if we could just be a bit more detailed about that.

Just looking at it from the casino, direct expense perspective, the room direct expense perspective or should we be thinking more in the G&A category where you feel like you have some room to improve, or all of the above?

Well, I think it is going to be from all of the above. I think when you look at obviously the margins this quarter, they were impacted by that low table game hold percentage. That impacted us. I think when you look at, and you strip out some of the promotional re-classes that are required from an SEC standpoint, and look at my true operating expenses in my hotel division for instance, those true expenses were only up 9%.

There's just less of a re-class this year given the lower promotional activity and the rooms department. And as you see in our SG&A and our corporate expense, when you look at it combined, due to some of the allocations from corporate to the properties, those combined are pretty flat year-over-year. So I think you'll continue to see improvement throughout the cost structure as we continue to grow the top line.

All of the above. Got it. Thank you.

And your last question comes from the line of David Hargreaves with Sterne, Agee.

I just wanted to make sure I heard correctly, I think with City Center you mentioned there was a property tax benefit and I wanted to find out if that had been included in EBITDA?

We had a benefit from property taxes from the first quarter of approximately $6 million. On an annualized basis the benefit going forward is going to be about a $17 million benefit annually.

Okay, so it was recurring then.

Yes. In the first quarter we had some recovery, some refund from the last year. About $4 million of the $6 million related to 2010, and $2 million to the current period. But going forward, it's a reduction of about $17 million a year.

Got it. That's all I had. Thank you.

Thank you.

And there are no further questions.

Well with there being no further questions, Conchetta, I thank you all for joining us today and I don't know, Jim if you had any closing remarks.

No, I think that while we're very proud of the pace of business so far, we're off to a good start here in the second quarter. We see some good summer activity. Our annual summer promotion by the way, that's up about 20% year-over-year. That's our summer promotion that we do at Cirque du Soleil, we've booked 20% more rooms already than we did last year.

The events I think are going to be very important this year. We'll see how we do this weekend. It's a very important one but that's another indicator of how the retail business looks for 2011 versus '10, having more events is very, very important. And the convention business really has been a great story. That will continue and in fact looking at a note here that Mandalay Bay is sold out for the first six months of 2012 on the convention side.

And my final point is the data point that I'd like looking at. We look at credit cards, and credit card charge volumes, and I'm looking at it in March, American Express charge volumes in our properties were up almost 20% year on year. Again speaking to a consumer that's starting to spend some more money.

We've got a lot more work to do but we're off to a good start here this year and we'll continue to report back on our progress and I appreciate that you've been on our call and we look forward to talking to you again.

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