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MGM MIRAGE (NYSE:MGM)

Q4 2008 Earnings Call Transcript

March 17, 2009 6:00 pm ET

Executives

Jim Murren – Chairman and CEO

Dan D’Arrigo – EVP and CFO

Bobby Baldwin – Chief Design and Construction Officer, MGM MIRAGE & President and CEO, CityCenter

Analysts

Felicia Hendrix – Barclays Capital

Larry Klatzkin – Jefferies

Steven Kent – Goldman Sachs

David Katz – Oppenheimer

Joe Greff – JPMorgan

Bill Lerner – Deutsche Bank

Robin Farley – UBS

Operator

Good afternoon, and welcome to the MGM MIRAGE Fourth 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; Jeremy Jacobs, Executive Vice President and General Counsel and Secretary; Aldo Manzini, Executive Vice President and Chief Administrative Officer; and Bob Selwood, Executive Vice President and Chief Accounting Officer. Participants are now 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.

Dan D’Arrigo

(inaudible) we’re getting some background noise there. Is it possible to look into that real quick before we get started? Well, good afternoon and welcome to MGM MIRAGE fourth quarter earnings call. This call is being broadcast live on the Internet at www.mgmmirage.com and at www.companyboardroom.com. A replay of the call will be made available on our website.

We furnished our press release on form 8-K to the SEC this afternoon. Additional information was posted to our website, which gives significant detail behind the numbers included in this release. 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 material from – materially from estimates. Listeners should also refer to our disclosures about risks and uncertainties made in our filings with the SEC.

I’ll now turn it over to Jim Murren.

Jim Murren

Well, thanks Dan and good afternoon everyone. As you know, we are reporting later than as typical, but the added time I think was well spent as we’ve achieved a sought-after amendment. So, first I want to address our liquidity situation. I’ll be succinct, but we’ll fully cover what we are able to disclose at this time. For further detail, I would refer you to our earnings release and the 10-K, which as Dan mentioned, we filed earlier this afternoon. We will not be addressing these items further in the Q&A portion of the call.

As discussed in the release and in our 10-K, we obtained an amendment providing for a waiver of the requirement to comply with our financial covenants under the senior credit facility through May 15th of this year. Under the terms of that amendment, we paid – repaid $300 million outstanding under the senior credit facility. This amount is not available to be drawn upon without the consent of our lenders. And as we have previously disclosed, in February we had drawn the remaining availability, which was $842 million under that facility.

The amendment that we signed restricts us from repaying or repurchasing our long-term debt and limits our ability currently to sell assets. But importantly, we have not provided any collateral to obtain the short-term waiver. And the fees and the rate increase of 100 basis points, we believe are reasonable. Also of note, we will be able to continue to make our required equity contributions to CityCenter during this period.

We are very pleased that our lenders have worked with us to obtain this waiver and amendment. It is just the first step, but an important step towards developing a comprehensive long-term solution to our liquidity issues. Following the expiration of the waiver, we will be subject to an event of default under our senior credit facility if we are not in compliance with our financial covenants as of March 31 of this year. And in the event of such default, our lenders could take several actions including demanding immediate repayment of all our outstanding borrowings.

So, we intend to work with our lenders during the next two months to address these issues. But we can provide no assurance that we would be able to secure additional covenant release. We’ve also retained the services of outside advisors to assist us in implementing plans to address our liquidity issues. We’ll talk about that more in a while, but we are evaluating several possibilities including raising additional debt and/or equity capital, modifying or extending our long-term debt, and disposing of certain assets.

We are considering all of our options and are committed to finding the best possible solution. However, we can provide no assurance that we will be successful in achieving our objectives given the situation and all the variables involved.

I want to take some time to talk about our operations in current market conditions. First, let’s talk about Las Vegas. It’s really still unclear when things are going to turn around here as the overall market is under pressure. However, you should know that Las Vegas is still welcoming millions of visitors every month and we expect that close to 35 million visitors will choose Las Vegas as their vacation and business destination of choice this year. And particularly, as Las Vegas demonstrates, obviously a clear value proposition.

We at MGM MIRAGE are able to maintain occupancies in the 80% to 90% range, which we believe to be impressive in this marketplace. Although we’ve had a lower rate significantly and we do expect RevPAR in the first quarter to be down year-over-year to even a greater extent than it was in the fourth quarter.

On the convention side, we are expecting room convention nights to be lower this year in 2009, but because of the unpredictability in the convention market, it’s very difficult to project how much we will be down. We did experience significant group cancellations in December and January, but we have recently begun to see fewer cancellations in the more recent periods. And our attrition rates though are still above normal and we do think therefore 2009 will remain a challenging year for the group business.

With regards to our transient and leisure booking pace, over the past nine weeks we have seen a significant pickup in booking pace, with most of this being greater than 30 days out and at discounted rates. We are now booking between 150,000 and 175,000 room nights a week, which is up nicely from earlier this year.

We also know that events continue to volume and our event calendar is strong through the second and third quarters. And we are also very proud of Bellagio. It continues to be the market leader in Las Vegas and the profit leader in Las Vegas. Property EBITDA, as you saw in the fourth quarter, was $77 million, and that came in at $391 million for the full year. We have no doubt that our resorts continue to increase market share here in Las Vegas.

Regarding Las Vegas as a convention destination, I believe Las Vegas certainly has had an unfair shake in the media recently. This has been discussed before. Las Vegas really should be the first choice of business and we are actively getting that message out. The value proposition is undeniable with less expensive rooms and the largest room base among the convention destinations and we have tremendous airline access and reasonable fares. There is also strong evidence supporting better attendance and success for conventions and business meetings that are held here in Las Vegas.

Two final points on that topic, one related to Las Vegas and one to us at MGM. Compared to other convention and vacation destinations, Las Vegas visitor volume seems to holding up actually rather well. And the large portion of our convention business at MGM MIRAGE, particularly at Mandalay Bay are large trade shows, not as much the corporate incentive business and the trade business is down only slightly.

Finally, as it relates to operations, I’d like to move out of Las Vegas into Michigan and Mississippi. The regional markets, obviously, are holding up better than the Las Vegas strip and they did so in the fourth quarter. Those trends are continuing here into the first quarter. As an example, gaming revenues in the Detroit market were down about 6% in January, Mississippi revenues were down less than 2%. Our market share is extremely strong in both of those markets given the quality of our resorts. In Detroit for example, we continue to capture over 40% of that market.

We’ve made good progress regarding the Treasure Island sale and I want to update you on that. The sale is expected to close literally within the next week or so, which is obviously accelerated from our previous expectation. We had given guidance hoping we’d close the transaction in the second quarter. Looks like we’ll close it in the next week or two.

We and Phil Ruffin, the buyer of Treasure Island, have had our transition teams working very hard toward a very orderly turnover and we believe that customers should see no impact at all from this transaction. We also, this month, entered into an amendment to the purchase agreement, which extends the maturity of the $175 million note from two years to three years at Mr. Ruffin’s option and also provides Mr. Ruffin the opportunity to pay us all of our proceeds back by April 30th with a $20 million discount.

So in other words, we are going to receive $500 million cash. As you recall, $100 million comes within six months, now $175 million can come within three years, but if Mr. Ruffin chooses to repay us by April 30th, we will receive all of those proceeds, the now $255 million by April 30th.

Finally, on CityCenter, we remain very, very focused on the opening of this landmark project at the end of this year. We and our partners each have just under $500 million left of remaining equity and that will take us to June when construction expenditures will begin to be funded by CityCenter’s $1.8 billion credit facility. We have started taking reservations for CityCenter’s hotels and have started the hiring process of over 10,000 employees, which will be lifeblood of CityCenter. And of course, Bobby will provide you a full update in his remarks today.

So with that, I’ll turn it over to Dan to review the quarter a bit more and a further discussion on our liquidity and our financial position.

Dan D’Arrigo

Thank you, Jim. Let me first start out by discussing our fourth quarter results. Trends impacting the Las Vegas market related to the global recession, which were present through 2008, but particularly after the credit crisis in the fall continued during the fourth quarter. The release outlines various items that impacted comparability for the fourth quarter. Excluding these items, EPS for the fourth quarter would have been a loss per share of $0.11 compared to earnings per share of $0.41 in the prior year’s quarter.

Our property EBITDA was down approximately 41% quarter-over-quarter on a comparable basis with the margin up 22% this year compared to 31% last year. Particularly interesting to note is the fact that our whole percentage was materially lower in the 2008 fourth quarter with an estimated impact of $0.05 per share. Also, our bad debt expense was approximately $32 million compared to $7 million in the 2007 quarter, an impact of $0.06 per share. Combined, these two items impacted our year-over-year property EBITDA by approximately $45 million to $50 million quarter-over-quarter.

Our operating results benefited from a decrease in corporate expense, $26 million, compared to $53 million in the prior-year quarter as we continue to reduce corporate cost including lower incentive pay year-over-year. A few other items of note. MGM Macau earned EBITDA of $17 million during the fourth quarter of 2008. Our share of depreciation expense or in this case, operating income from that joint venture is well outlined and we provided all of the details in the release. Remember, our share from our unconsolidated affiliates in our EBITDA line is 50% of operating income net of depreciation expense.

In the fourth quarter, our gross interest expense was $213 million with capitalized interest of approximately $44 million for a net interest expense of $169 million, slightly higher than the prior-year quarter. For the full year of 2008, we generated net revenues of $7.2 billion and earned property EBITDA for the full year of $2 billion, a decrease of 20% on a comparable basis. And as Jim mentioned earlier, to note, Bellagio had an extremely strong performance in a difficult environment, producing $391 million in property EBITDA for the year.

As it relates to our cost savings initiative, we continue to develop strategies to further reduce our cost structure. So far this year we have identified an additional $140 million in new cost savings, opportunities mostly related to payroll and procurement. In total, this brings our projected cost savings since we started our initiative in October of 2007, to approximately $700 million, of which we recognized $300 million in 2008 and expect an additional $400 million in 2009, a large portion of which is sustainable even when revenues improved in a more normal economic environment.

Now, I’ll turn to a discussion of our liquidity and financial position. As discussed in the release, we completed various transactions to help our liquidity and financial positions during the fourth quarter. In repurchasing $345 million of base amount of outstanding senior notes at a purchase price of $263 million and as Jim outlined, our efforts to address our liquidity needs continue.

Our primary obligations in 2009 include approximately $1 billion of senior notes due in 2009, $226 million of which are due in July, and approximately $829 million in October after our recent debt repurchases – open market repurchases in the fourth quarter. Our remaining required equity contributions to CityCenter are approximately $700 million as of December 31st and now, approximately $500 million as both we and Dubai have made additional scheduled contributions already in 2009.

We have approximately $200 million of planned capital maintenance expenditures this year plus our interest payments and cash taxes. Our source to the funds to meet these obligations include in excess of $900 million in cash and potential availability under our senior credit facility; the proceeds from the sale of TI of at least $600 million, but that could be more as Jim pointed out, if Mr. Ruffin decides to pass earlier by the April 30th deadline; and our cash flows from operations.

Now, I’ll give you some details on what we are currently forecasting for certain of our items to help your modeling purposes here on the first quarter. Our total stock compensation is estimated to be approximately $10 million in the quarter. Corporate expense is estimated to be approximately $30 million, which includes approximately $4 million of stock compensation, and also includes the higher level of costs for some of the consultants and advisory services that are helping us with our liquidity needs.

Our pre-opening expenses should be consistent with the fourth quarter, primarily consisting of our share of our CityCenter expenses and depreciation expense is estimated to be just under $200 million. We expect to receive additional amounts related to our Monte Carlo insurance claim. That’s estimated to be $24 million, which we expect to receive in the next few weeks. That would bring our total claim to close to $74 million in total. We estimate our gross interest expense will be approximately $230 million to $235 million with capitalized interest of roughly $65 million in this first quarter.

Now, I’d like to hand it over to Bobby to provide an update on CityCenter.

Bobby Baldwin

Thanks, Dan, and good afternoon, everyone. CityCenter remains on track to have the entire project, except for the Harmon Hotel, open in about nine months in December of this year. Most buildings are at full height and the buildings are in various stages of interior fit-out. There are currently six remaining tower cranes on the site and approximately 8,500 men and women actively involved in the construction of CityCenter.

Peak construction is expected to be reached in May of this year with approximately 9,000 workers on site. There will be a phased opening of CityCenter. Vdara opens October 1st 2009; Mandarin, Veer Towers, and Crystals, December 3rd of this year; and finally, the ARIA Resort and Casino on December 16th this year.

In Crystals, we’ve begun the process of turning over the spaces – the various spaces for tenants. At ARIA, we will turn over the theater to Cirque du Soleil in June of this year when training for the new Elvis show will commence. The closing process for residential units will commence in the fourth quarter of 2009 for the residences at Mandarin Oriental first, later followed by Veer and Vdara in the first quarter of 2010.

We announced in December 2008 the postponement of the Harmon Hotel until late 2010 and the cancellation of the residential component of the Harmon. All corresponding deposits have now been returned to those who have signed the contracts for units in the Harmon. The exterior of this building, however, will be complete before CityCenter opens later this year.

Our construction budget estimate is lower than our previous announcements due to the cancellations of the Harmon residences, about $140 million. As disclosed in our Form 10-K filed this morning, we had GMP contracts totaling $6.9 billion with estimated cost savings of approximately $500 million. Non-construction project cost totaled $2.3 billion for a net estimated budget of $8.7 billion including the ultimate completion of the Harmon Hotel, which is $200 million. Management believes an additional $200 million in savings is quite possible in addition to the amounts that I’ve just discussed.

The CityCenter career center began accepting employment applications from external candidates on January the 5th. To date, CityCenter has received 90,000 applications in total, 15,000 of which are MGM MIRAGE employees mostly in Las Vegas. The internal – the interview process to fill the 10,000 open positions at CityCenter is approximately 30% complete.

On February 23rd, room reservations opened to the public for ARIA and Vdara. All reservations are currently being handled through the existing Bellagio call center, proprietary website, and online distribution partners.

And with that, I’ll turn it back to Dan D’Arrigo.

Dan D’Arrigo

Thanks, Bobby. That concludes our prepared remarks. At this time, operator, we’ll turn it over for questions and answers.

Question-and-Answer Session

Operator

(Operator instructions) We’ll pause for just a moment to compile the Q&A roster. Your first question is from the line of Felicia Hendrix with Barclays Capital.

Felicia Hendrix – Barclays Capital

Hi, good afternoon guys.

Jim Murren

Hi, Felicia.

Felicia Hendrix – Barclays Capital

Hi. Just a question – I know you mentioned that you weren’t going to talk about the amendment. I think this is just a question you can answer though. It suggests that you can’t sell assets, but we’re interpreting that as you can’t sell assets without the bank’s consent. Is that true?

Jim Murren

That’s correct, Felicia.

Felicia Hendrix – Barclays Capital

Okay. And then just, moving on to your operations, I’m wondering at ARIA, are you seeing any turnover by tenants who have signed prior – prior to opening?

Bobby Baldwin

Yes, we’ve seen some, but it’s very limited.

Felicia Hendrix – Barclays Capital

Okay. And how booked – how booked is that now?

Jim Murren

Are you referring to Crystals, Felicia?

Felicia Hendrix – Barclays Capital

I’m sorry. Yes, Crystals, sorry.

Jim Murren

Okay. The tenants?

Felicia Hendrix – Barclays Capital

That’s right.

Bobby Baldwin

Crystals will be about 65% to 70% booked at opening.

Felicia Hendrix – Barclays Capital

Okay. And then just to clarify, you interpreted my question correctly when I asked about the turnover by the tenants?

Bobby Baldwin

Yes.

Felicia Hendrix – Barclays Capital

Okay. And then, just talking about – on Bellagio with the out-performance in the quarter relative to the rest of your properties, are you still seeing that?

Jim Murren

Well, we don’t know how everyone else is doing in the current quarter, but –

Felicia Hendrix – Barclays Capital

No, relative to your own properties.

Jim Murren

Yes.

Felicia Hendrix – Barclays Capital

Okay. And then finally, I’m trying not to ask yes-and-no questions here.

Jim Murren

We’ll try not to give you a yes-and-no answer.

Felicia Hendrix – Barclays Capital

My last one. Okay, so just – and then as far as just your property level EBITDA margins, it sounds like you are expecting them to get worse before they improve, but to potentially improve as you go throughout the year. Is that correct?

Jim Murren

Well, we – this is Jim, Felicia. The – certainly the cost savings that we are implementing are ongoing and that will have a – it should have a positive impact mitigating the fact that – yes, our RevPAR is down more in the first quarter than it was in the fourth. And RevPAR and rooms revenue is the real issue for Las Vegas right now. The operating leverage of this business is very significant on the positive and on the negative and I would guess about 70% of the shortfall in cash flows is represented solely by the rooms department. So, we are occupying the buildings reasonably well. We’ve sacrificed rate to do that. We still have to service the customers in an outstanding manner and we are doing that. And so, the margins will be impacted by the lower rooms revenue as a result of lower RevPAR, but we do expect that our cost savings will continue to have a positive impact as the year progresses.

Felicia Hendrix – Barclays Capital

Okay. All right, that’s it. Thank you.

Jim Murren

Thank you.

Operator

Your next question is from the Larry Klatzkin with Jefferies.

Larry Klatzkin – Jefferies

Hi guys, happy St. Patty’s Day.

Jim Murren

Thank you, Larry.

Larry Klatzkin – Jefferies

Dan, what’s your cash on hand right this minute?

Jim Murren

Are you talking about Dan D’Arrigo or are you talking about –

Dan D’Arrigo

My wife picked me up this morning. We have a little over $600 million of cash on hand.

Larry Klatzkin – Jefferies

Okay. And then, you still have to put 500 in the CityCenter, is that correct?

Jim Murren

Just a little less than that, a little bit less.

Larry Klatzkin – Jefferies

Okay. So then you’re getting, say, $600 million from Ruffin, so you really have $700 million of cash at the end of this month available to you plus what you generated in the – in cash flow plus $24 million I guess from the insurance. Am I doing this right?

Dan D’Arrigo

Sounds about accurate.

Larry Klatzkin – Jefferies

Okay. So, at this point in time, as far as your bank relation with the banks and the talks, they made you pay down some money in advance and at the same time they didn’t let you buy some of your bonds that are – some of the pretty extreme discounts. Would you call the relation, Jim, contentious or friendly at this point in time?

Jim Murren

I would say extremely constructive and friendly. The banks – our bank group is unique in a sense that it’s been with us for many, many years, certainly the 11 years that I’ve been here, and longer than that. And what the banks and MGM attempted to accomplish with the waiver and amendment was to give us some runway for a couple of months so that we can work with the banks and come up with solutions. Asset sales, as an example, will likely be part of a solution, but we certainly can’t sell anything within the next 30 days. Same with debt restructuring with our bonds. So, we’re going to sit down through Evercore who we’ve hired as our financial adviser and with our bank group and work through all of these issues and that’s why we got the two months and I think that that is a sufficient amount of time to make a lot of progress.

Larry Klatzkin – Jefferies

Jim, what would you – if you woke up in the morning, what would be the perfect waiver that you got? What are you looking for?

Jim Murren

Well, we felt very strongly that at this point in time, Larry, that it was not in our best interest to grant collateral for a waiver and our banks agreed with us. And I feel that returning some of the money and paying a little bit more in fees was a very fair deal from the banks’ perspective and we appreciate their position that they have taken. So, I can’t tell you exactly what the ultimate solution will look like, but I can tell you that the dialog with the steering committee and with the banks, banks that we’ve known for decades, and through Evercore has been very constructive and we appreciate their efforts. And these banks that have lent us this money are also have been major underwriters of our bonds over many years and they have strong liability management departments and we’re going to be working through this. That’s why we wanted to have a short-term solution. That’s what we went out to seek. We got exactly what we were looking for in this waiver and amendment and I think that’s a good first step.

Larry Klatzkin – Jefferies

Yes, how about the ability to buy back bonds that – which will be tomorrow, probably more discounted prices, which given that everyone’s trying to pursue right now would improve the banks’ position I guess you could argue?

Jim Murren

I think that the banks and MGM took the view that it should part of a global solution if we do sell at all and that’s what we are working toward and the fact that we did not grant collateral means that we have significant amount of collateral that we can use overtime and we are going to use that collateral to its maximum benefit to the benefit of all our constituents.

Larry Klatzkin – Jefferies

How much can you give the banks today if you go out and buy the bond covenants?

Jim Murren

I don’t think that we’ve disclosed that.

Dan D’Arrigo

We have not. It’s a pretty complex – Larry, this is Dan. It’s a pretty complex debt structure given the issuers we have out there and the different levels and aspects that are under each of the particular issues of the debt.

Jim Murren

We – I’ve seen a lot of estimates and they are fairly close.

Larry Klatzkin – Jefferies

So, between $2 billion and $2.5 billion or $2 billion and $3 billion is probably a good estimate?

Jim Murren

We can’t go any farther.

Larry Klatzkin – Jefferies

All right. That’s fine. The tax payment –?

Jim Murren

This is the last question, Larry, to give everyone else a chance.

Larry Klatzkin – Jefferies

All right. What assets you are working on selling?

Jim Murren

Are you interested in buying something? We have had – we’ve had an extraordinary amount of interest in our portfolio of assets, both individually and in some cases, collectively and we have turned over that body of work to Evercore so that they can help us sift through this. One thing that we do know about MGM MIRAGE is that we have the highest quality assets, the most desirable assets in every market in which we operate and they are operated by the best people in our business and that will be part of the dialog that we have and we will not talk about any specific asset sale at this time.

Larry Klatzkin – Jefferies

Okay. Well, thank you, Jim.

Jim Murren

Thank you, Larry.

Operator

Our next question is from Steven Kent with Goldman Sachs.

Steven Kent – Goldman Sachs

Hi, Jim and Dan. Just a couple of questions, one – and maybe this is for Bobby, why not push back the opening of CityCenter given the core weakness we’re seeing out there? Second, your 85% occupancy that you saw roughly in Q4, is the target to move that too higher and even if you need to take even lower room rate and is that what went on in Q1? And then, on the CityCenter condos, what are you hearing from the buyers as to their ability to close? And then just one final, just housekeeping, on the Ruffin numbers that you put – you’ve noted now a couple of times, are those pretax and what would it be after tax?

Jim Murren

Okay, Steve. We are going to jot down and you had a bunch there. So, I’ll turn it over to Bobby first and then, you had two different CityCenter questions I think Steve, and we’ll have Bobby handle those and we’ll hit the rest.

Bobby Baldwin

Hi, Steve. Well, as it relates to the slowdown of CityCenter, if you had so much momentum, we are only nine months from opening, this is a six-year project, it’s not easily slowed down. If we – we have looked at slowdown scenarios in order to eliminate overtime and some other things and maybe make the project more efficient. It’s actually less efficient if we slow it down. It also can unwind all of our Crystals retail leases that are very important to us and our partners and it could impact the residential closings because those people, the people that intend to close are quite anxious to get into their spaces. So, we have looked at the slowdown. It doesn’t look like a good idea, we are on schedule, we’re going to stay on schedule. Everything with the exception of Harmon Hotel will be opened by December 16th ready or not. There is no indication that if we slowed it by three or six months we’d open up into a more robust environment any way. So, we’re going to open in 16th December. The second part – what was your second question as to the condo buyers, Steve?

Steven Kent – Goldman Sachs

Yes, Bobby, all I wanted to know was when you talk to your condo buyers, their ability to get their own financing to in fact close with you in Q4, or a little bit after?

Bobby Baldwin

Well, we’ve polled all the condo buyers as to their likelihood of closing as to whether they are going to be cash or people that might need bank assistance. We have about a total of $1.6 billion in contracted sales after you deduct the Harmon residencies and we have a whole mixed group as to the people that are intent to pay cash and as people would be financing. The most troubled financing is in the condo hotel environment since condo hotel financing is currently not available. But the net result of it is that we are where we believe we can close and generate cash proceeds at least in the 75% range of what we’ve contracted. And there is a lot to be done as it relates to closing these units and we’ll know a lot more by the time we talk on our next call.

Steven Kent – Goldman Sachs

Okay. And then, Dan or Jim, if you had answers to the other two?

Jim Murren

Well, I’ll hit the occupancy one since I forgot the other one and maybe Dan can hit the other one. In the first quarter, Steve, we saw – the most weakness we saw was actually in January and we lost quite a bit of convention business in the January period and then it really slowed down in terms of losing business or another way of looking at it, convention business perked up a little bit until President Obama took a hit on Las Vegas. And then we saw more cancellation business for about a two-week period and that has also now slowed down. We have seen very little cancellation after that one-week period. So, the weakest month for us from an occupancy and rate perspective will probably be January of the first quarter. February improved and we did sacrifice rate in order to maintain some level of occupancy as a result of losing that convention business in January and for that one-week period in February. We have seen an improvement in the convention business and therefore – a little bit, we’ve seen an improvement in rate. And so, we are willing to discount more to keep the buildings occupied. That will be result of the lower RevPAR year-over-year in the first quarter versus the fourth quarter. We think it’s important to keep the buildings reasonably occupied. And so, we have sacrificed rate to do that and it has been a little bit sporadic in the first quarter, but because as I said, that was weak in January, perked up again, we took a temporary hit from our TARP babies that left us and we have now improved again, since that has not been in the news lately. Dan, if you want to –?

Dan D’Arrigo

Yes. I think, Steve, the last question you had related to the TI transactions, the – those numbers that recorded earlier are all gross and the tax that we’ll pay related to that transaction will be offset by several factors including taxable income as we go forward. So, that cash taxes could be anywhere from $80 million to $100 million throughout this year and into early next year.

Steven Kent – Goldman Sachs

Okay. Thanks, guys.

Jim Murren

Thank you.

Operator

Your next question is from the line of David Katz with Oppenheimer.

David Katz – Oppenheimer

Hi, good afternoon.

Jim Murren

Hello, David.

David Katz – Oppenheimer

Hi. So, I wanted to make sure that I can try and get my cash flows just right. And I think what it says is $494 million left to spend on CityCenter. If you could talk about how you expect to that flow, we’ve been modeling $100 million, $150 million a quarter or so going out and I think if I’m understanding correctly, that – the $1 billion 8 of bank financing on CityCenter does not come into play if I heard you correctly, until June. And then with respect to the Treasure Island proceeds, it sounds on the one end like we’re not a 100% sure that the $20 million discount is going to be taken or do you have some indication that that’s a more likely outcome than less? And I guess I’m just trying to map out how the rest of the year flows cash wise.

Dan D’Arrigo

David, this is Dan. As it relates to CityCenter, remaining $494 million will be between now and early June. We are running roughly per partner about $100 million to $150 million a month in terms of payments for the joint venture and that obviously depends on the amount of construction activity on the site, but we get to the 1.8 in bank funds, once each partner makes those remaining contributions of $494 million each, which we project would be in early June when get to the 1.8, which will take us through completion.

Jim Murren

And we’ve already made $240 million of payment this year per partner, made $240 million so far. As it relates to Treasure Island, I can’t speak for Phil, but I do believe that it’s highly that we will get the $500 million obviously upon closing and that could happen as early as the end of this week, if not next week. So, that’s an acceleration versus our original timeframe and we may receive the other $100 million, which is payable within six months. We probably will get that I would guess within 30 days. As it relates to the remaining money, there is no way for me to know.

David Katz – Oppenheimer

Got it. One last quick one. Just as a – an outside observer with respect to Las Vegas, there has been so much as we read the newspapers every morning about the financial institutions and the economy and everything else and very little sort of collective messaging in terms of the value proposition that Las Vegas offers. I recognize that you all are sort of tending to your own yards at this point, but is there any collective effort toward communicating that value proposition and we’ve all sort of read about the instances with some institutions canceling paying any way and then going somewhere else more expensive just for optics reasons. What – is there anything collectively going on?

Jim Murren

Yes, there is quite a bit actually. We’ve worked very aggressively with the Las Vegas convention authority and obviously, with U.S. Travel Association. There has been a tremendous amount of effort that’s going on nationwide. You’re going to see more ads on TV as it relates to this effort. We have our federal delegation highly engaged and they have been extremely vocal in support of and – all of them and that’s been very appreciative. The President’s Press Secretary came out with clarifying remarks on Las Vegas, which we felt was also positive. It supports the view that Las Vegas is an attractive value destination. So, we have been working with the convention authority, we’ve been working with the broader trade groups like U.S. Travel Association, and we’ve been working with the airlines, quite particularly Southwest, but all the carriers that are very aggressively bringing in flights here. Also, charter flights have increased from locations such as Canada. So, this is a message we need to get out. You are correct that we all have our own individual issues to deal with, but collectively we are all over this. As an industry – we agree as an industry that we need to get the message out. We’ve been using our travel partners to help us and our federal delegation and state representatives as well.

David Katz – Oppenheimer

Okay, hang in there guys. Thanks.

Jim Murren

Thank you.

Operator

Your next question is from Joe Greff of JPMorgan.

Joe Greff – JPMorgan

Good afternoon, guys. Jim, I was hoping if you can just discuss the relationship with Dubai World. Is it contentious, is it friendly, are they supportive of this strategy and do you anticipate they are being a big part of the solution going forward?

Jim Murren

Well, our relationship with Dubai World is outstanding and has been since August of ’07 when we consummated the joint venture. They have been steadfast partners, they are major shareholders in MGM and 50% owners in CityCenter. We have been aligned in our interest from the beginning. They have, as have we, made our monthly payments or sometimes twice-a-month payments. Just talked with Johnny on the Spot. They were just actually out here. We hosted them for about a week and half, Bobby? Maybe a week and a half and it’s beautiful weather out here, they left with great awe and pride in CityCenter. And they realize, as do we, that this is a tough time that we’re all in, both globally, financial crisis, the economic crisis, and they have been great to work with and I’m very proud of the relationship that we have with them, and I’m glad that we have them.

Joe Greff – JPMorgan

Will they be part of the solution going forward in the broadest sense of that?

Jim Murren

It’s hard to say at this point. If what you are saying is in terms of the broader solution at MGM MIRAGE and in terms of how we restructured the company to best handle the economic crisis, I can’t say that specifically, but they certainly are very much engaged in the dialog with our advisors on looking for best solutions.

Joe Greff – JPMorgan

Okay. And then, when you go back and you look at the fourth quarter or maybe it’s happened to as going on right now in the first quarter in Las Vegas, did you have any meaningful amount of rooms out or dark at any property on the strip?

Dan D’Arrigo

No, Joe. Overall, we had – we are pretty consistent in terms of our available room nights year-over-year.

Joe Greff – JPMorgan

Okay. Thanks, guys.

Jim Murren

Thank you.

Operator

Your next question is from Bill Lerner with Deutsche Bank.

Bill Lerner – Deutsche Bank

Hi guys. Hi Jim, lots of people think you’ll fail. I think others unfortunately are rooting for it. I think maybe this is a good platform to speak too – I think the tools you have at your disposal and the desire to resolve as quickly as possible, I mean that’s an obvious question, you touched on that. Also – you touched on a little bit, but also I guess as the largest private employer and taxpayer in the state I suspect people in Nevada and Washington are polling for you or are supportive somehow. Can you color that in a little bit?

Jim Murren

Sure, Bill. I know – I spent a little time on Wall Street myself and I really do not get at all emotional about people’s points of view as it relates to securities, whether they are long or short, whether they are rooting for or against companies. That is part of the capital system that I think is great in America and I’m proud of the system. I can only control to the best of our ability what we can do here and I do not ever try to control people’s attitudes toward our company positively or negatively, that’s for them to decide. I do know a few things about the company that I think are relevant. I do know that we are the market share leader everywhere we operate.

I do know we out-operate everybody else. I do not think it’s a coincidence that when we acquire properties or merge with properties, the end result is those properties make more money than they did under prior ownership. I don’t think it’s a coincidence that our properties are in better shape than our competitors or better located or better managed. I do think that we have many tools at our disposal. I think that our financial partners are second to none and I think that if polled, our bank group would say that we have been great sponsors, great partners over many years. I think that the fact that we have the best employees in the business, the best assets in the business, a very supportive and flexible bank group, that we have locations around the world, we have strong partners around the world whether that be Dubai or Mubadala or Diaoyutai or any of our international partnerships, which we have forged and pioneered, which have served us well.

I have no illusions that this is going to be easy and I welcome everyone’s observations and I do not at all harbor any ill feeling toward people who think that we will fail because this is not without risk. But I do believe that given the fact that we do have these tools at our availability, the financial partners, the operating talent, the financial talent, good advisors, great properties, I do believe in the long-term viability of Las Vegas, I do know that we have the best properties here, the most profitable, the most successful, the most sought after, I do think Las Vegas will continue to be a viable market.

I do know that we are better in our markets than our competitors. It is not luck that we make more money in Detroit than anyone else or luck or happenstance, we do the same on the Gulf Coast, and I think that that is recognized. So, our bank group – we asked our bank group one thing. We asked our bank group to give us a little time to work through these issues, to deal with the financial crisis, a recession, as we restructure a balance sheet that has a significant amount of debt, more than we should have given our current levels of cash flow. And our bank group said, yes. And I think that is a very important message. They did not have to say yes.

They did not have to allow through this waiver or amendment to go forward in this fashion. It could have been contentious, it could have failed, but it did not. So, as we look forward knowing that we are trying to accomplish the near-impossible, trying to build something here in Las Vegas that will employ over 10,000 people, trying to build a resort complex that will be admired around the world, trying to drive visitation to the market, which will be to the benefit of everyone in Las Vegas and in Nevada, trying to employ people when unemployment rates are rising, trying to develop something that is environmentally important and invaluable and admired.

I think all of those things are recognized as attributes and something that should be admired. And I know our federal delegation is on board, I know this has gotten the attention of the White House, I know that our state understands the significance of CityCenter and the viability of its largest employer and largest taxpayer. So, I wake up thinking that we’re going to make progress every day and I believe that the time that we took in terms of the extension of the K was time well spent because it allowed us to navigate through some of these issues with our bank group. I continue to believe that we have the tools available to us to work through this, but I have no illusion that it’s going to be easy or that we necessarily will succeed.

I think we will, but it’s going to be not without a lot of hard work and some risk and at this point, I don’t know what else we can say expect for the fact that we’re trying very hard. We see – we’ll take every question, we’ll take every criticism, and we’ll own it all and we’re going to be communicating to you more frequently now. One of the things that has frustrated me as an ex-Wall Street guy is the fact that we have not been able to communicate to our constituents because we’ve been in blackout period, the quiet periods, and that’s been frustrating I know to the Street and to ourselves. That is not our style, we are the disclosure leader in this industry, we provide more financial information than anyone. We provide more access to management than anyone, and we’re going to do that in the future to the best of our ability, and we’ll be giving you constant updates as to our progress.

Bill Lerner – Deutsche Bank

Thanks, Jim.

Jim Murren

Thanks.

Operator

Your next question is from Robin Farley with UBS.

Robin Farley – UBS

Thanks, Jim. Your comments were pretty comprehensive. So, really just – I wanted to do a small follow-up, I was going to ask about Dubai World. You made a lot of comments about the constructive relationship. I guess I just want to ask how comfortable are you that they can make all the contribution that they need to and are obligated to?

Jim Murren

Well, there’s been an awful lot of dialog and debate in the press and a lot of media around that, Robin. And so, that certainly is a logical question to ask. And all I can say is they have been steadfast, consistent, completely dependable partners, and they have done everything from the beginning that has ever been asked to them. And I think that somebody’s record should stand for itself and all I could say is their record has stood for support and enthusiasm on the project.

Robin Farley – UBS

Okay. Okay, great. And then, just a minor clarification on the Q4 results actually. For Bellagio and the out-performance there, I know you normally just sort of give hold for the company overall, but was part of the out-performance there slightly above average hold or is it something that you’re seeing in consumer behavior?

Dan D’Arrigo

No. Actually, Bellagio, Rob and this is Dan. Actually Bellagio was lower than the prior year in terms of whole percentage.

Jim Murren

Yes, the whole percentage was down year-over-year. The whole percentage was down more significantly at MGM Grand, Las Vegas, and MIRAGE on a year-over-year basis.

Robin Farley – UBS

Well, okay. All right, great. Thank you.

Jim Murren

Thank you.

Dan D’Arrigo

Operator, we’ll take one more question as we get to the 7 Eastern Time. Let our friends on Wall Street head home.

Operator

Okay. Your final question is a follow-up question from Larry Klatzkin with Jefferies.

Larry Klatzkin – Jefferies

Hi guys. Just a couple of questions on CityCenter. You say you have $319 million more you might have to put in if no apartment sales. Would that be reduced by the non-refundable deposits you’re holding?

Dan D’Arrigo

Where did $319 million come from, Larry?

Larry Klatzkin – Jefferies

That’s in the 10-K. It says that related to your $600 million guarantee, that you may have $319 million more to put in.

Jim Murren

That’s right. It would be reduced by condominium sales.

Larry Klatzkin – Jefferies

But how would if there is no sales? You’re sitting with a chunk of non-refundable deposits. Would that deposit money lower that $319 million?

Jim Murren

No.

Larry Klatzkin – Jefferies

All right. As far as a partner to take over or to take part of the Vdara, is there any consideration to that, the Four Seasons kind of thing?

Jim Murren

We are exploring lots of options at CityCenter, Larry, and there is nothing to report at this time, but we certainly have many options available to us in that project, but there are no current plans to do anything other than what we have announced.

Larry Klatzkin – Jefferies

All right. The advance CityCenter bookings, could you just talk about what you have kind of in the pocket right now?

Jim Murren

Well, we – we, Larry, we track this according to how we did see at Bellagio when we opened ten years ago with Bellagio on a more normal economic environment. We’re actually on pace for our convention bookings for 2010 or ’11, ’12, and ’13 and it’s – we’re on pace to satisfy our need there. We’re on pace or actually a little above pace to 2010 when you compare to where we were when we opened Bellagio ten years ago. So, bookings have been good. As you know, room reservations as it relates to the other segments in the market, they don’t book until much closer to opening, but the convention statistics look strong.

Larry Klatzkin – Jefferies

All right. And then, is there – the $600 million guarantee, is there a cross default with the CityCenter debt? How does that work exactly?

Dan D’Arrigo

There is a – at the CityCenter level, there is a cross default within the CityCenter credit facility at the CityCenter level.

Larry Klatzkin – Jefferies

But not at MGM MIRAGE?

Jim Murren

Not at the – not on the corporate credit facility.

Larry Klatzkin – Jefferies

All right. So, how does that work exactly, Dan? If let’s say CityCenter would have event of default, what – how would that work at MGM?

Dan D’Arrigo

We don’t believe that would impact the corporate credit facility. It doesn’t come upward in terms of that particular credit facility.

Larry Klatzkin – Jefferies

Good, that’s the answer I wanted to hear. Thanks.

Jim Murren

Thank you. Well, operator, I think that’s it for our call. As always, we’ll be available for any follow-up questions or calls and I’d like to thank you very much for participating in the call, and sorry that it was a little late back East, but it’s past happy hour on St. Patrick’s Day. So, enjoy yourselves. Thank you.

Operator

This does conclude today’s conference call. You may now disconnect.

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Source: MGM MIRAGE Q4 2008 Earnings Call Transcript

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