FX Real Estate and Entertainment, Inc. Business Update Call Transcript

FX Real Estate and Entertainment, Inc. (FXRE)

Business Update Call

April 15, 2008 10:30 am ET

Executives

Robert Sillerman – Chairman and Chief Executive Officer

Paul Kanavos, Sr. – President

Barry Shier – Chief Operating Officer

Analysts

Ethan McAfee - Ramsey Asset Management

Mark Argento - Craig-Hallum Capital Group LLC

Presentation

Operator

Welcome to today’s FX Real Estate and Entertainment conference call. Today’s call is being recorded. At this time I would like to turn the call over to you host, Mr. Robert Sillerman. Please go ahead, Sir.

Robert Sillerman

Good morning everybody and thank you for taking the time to talk with us. When we announced the rights offering for FXRE it was done as part of the now completed spin out of the real estate interests from CKX combined with some other real estate interests to create FXRE which, as you know, owns outright the almost 18 acres in Las Vegas which sits directly across from City Center, owns the development rights and the option to acquire phenomenal consideration in 100 acres that surround the Graceland Mansion, Elvis Presley’s ancestral home in Memphis, Tennessee and owns an exclusive world wide development right to develop location based entertainment projects using the Muhammad Ali and the Elvis Presley names.

When we did so we did so at a time when the excitement we had for the transaction was palpable and that the development plans were forming but were not yet formed for what was going to be built in Las Vegas and in Memphis and no conversations had yet taken place of any substance to bring the Ali and the Presley brands around the world.

It was done also in recognition of conversations and presentations that had been made prior to the spin out to the CKX board of directors that indicated certain values for development opportunities to take place on just a part of the land in Las Vegas. So with that confidence we created the transaction to separate the location based opportunities and the intellectual properties interest that were related to CKX.

We always viewed FXRE not really as a real estate develope4r as you will, where I guess the definition rather of a real estate developer is someone who goes out, tries to find an intriguing piece of property and then tries to determine the program to fit on that property. A fundamental difference between that and FXRE is that we have the defined and from our perspective the undeniably world class program already defined.

The opportunities that we are looking at are to take advantage of [to one] and by the way according to many measures the two most influential people on culture around the world from 1950 forward with designations like “the most influential recording artist of all time” for Elvis Presley, “the Sports Illustrated Man of the Decade” excuse me…of the century and things like that for Muhammad Ali. So our mandate is quite a bit different. It is not to find a location to put these iconic pieces of content, but in reality to sift through the many offers we have on where to place them and make sure they go in the areas that take advantage of their strength.

When we said that we were going to…we actually issued a press release reminding people that the right to offering was expiring I believe last Friday and we had some in-bound traffic from people requesting more information about the progress we made, but rather than do that piecemeal we thought the fair and appropriate thing was to extend by one week and have this opportunity to talk to people.

By the way, extending one week has absolutely no impact whatsoever other than the date the funds are received by FXRE on any other transactions specifically on the CKX privatization. The price adjuster has already been determined and that price has been set and the back stop provided by myself and Huff remains in place and that we in fact will close that in a slightly tighter time frame in all probability but certainly in sufficient time to meet all of the required deadlines.

So what we thought would be helpful today would be to first of all answer any of your questions but to try and give you a sense as to why I have already exercised my rights, why every member of management has or is exercising their rights, why the Huff organization has exercised rights totaling over $11.5 million, I believe. $11.4 perhaps. Why we are committed to the back stop and are buyers of as much stock as we can at $10 per share, which by the way to some extent puts us in conflict with everybody on this call because obviously to the extent that shares are not subscribed we do get to buy those shares.

But I actually don’t’ know, I am embarrassed to tell you, the exact number of shares that I own. I think I’m up to something like $14 million and feel that FXRE continues to be a wonderful buy. It is not fair to look at the trading price because the stock doesn’t trade and in fact we have had conversations with people about their interest in buying blocks of stock simply because they recognize that to accumulate a position, and I would say that is a position of again – I’m not an expert of this but 25-50,000 shares would have a material impact on driving the price up. If someone wanted to accumulate 100-500,000 would probably double or triple the stock price. Again, I’m not an expert at anything like that so I’m sure there are people who could do that analysis.

The reality is we are extremely bullish on this. We have made so much more progress as we have described in the proxy, excuse me…the prospectus, for the rights offering where we defined exactly what the development is going to be in great detail in Las Vegas and have described conceptually what the development is going to be in Memphis that we are so much farther ahead we think if people understand that in greater detail they will be enthusiastic and perhaps will come along on the rights offering.

So with that, just as a general overview, I have with me Barry Shier who is the Chief Operating Officer and whom I hope many of you have had the opportunity to meet and who obviously is the driving force behind the development, and Paul Kanavos, President, who is spearheading the sifting through of the opportunities around the world.

So any of the three of us are available to answer any question that anyone has in the interest and the hope of explaining to you how much progress we’ve made and why we are particularly optimistic about the company.

The final thing I would say is this. We are of course not naïve around the world and in the debt markets. The intriguing thing for us is that our significant capital requirements take place in 2009, 2010 and 2011. We have plenty of time to determine the best use of this company’s capital and how to access that. We have tremendous assets; the land that we own, the land that we are about to acquire for nominal consideration and the license fees and feel as comfortable as you can and I have been doing this for a fair amount of time. I feel as comfortable as I have ever felt that access to the appropriate capital for these developments is going to be there and is going to be there on terms that will be attractive to us as equity investors. I’m only an equity investor at FXRE and have acquired stock at various prices, most recently acquired a little bit over three million shares at $10 per share. As I said, we are not naïve about that but we are in the fortunate position that our capital requirements come out well in the future.

So again with that as an introduction I’m going to turn it over to the operator and ask her to instruct us on how to answer your very specific questions.

Question-And-Answer Session

Operator

Thank you. If you would like to ask a question at this time please press *1 on your touchtone phone. If you are on a speaker phone please make sure you depress your mute function before signaling to be sure your signal can reach our equipment. Once again that is *1 to ask a question and we’ll pause for one moment to give everyone a chance to signal.

We will take our first question from Ethan McAfee with Ramsey Asset Management. Please go ahead.

Ethan McAfee - Ramsey Asset Management

Hi guys. I just had a couple of questions and just wanted to get a little bit of clarification. Could you just go back to the debt markets. Obviously I think you see you need to raise approximately $2 billion roughly to complete the project in Las Vegas. Has any of those debt commitments actually been made yet or what is the status of those?

Robert Sillerman

No. They haven’t. We have had conversations with our existing senior lenders. You know that on the project that we had acquired productive senior loan of I believe we are at Libor +125. We are at Libor +150. Obviously that debt was placed in June of 2007 in a different world. We’ve had very direct conversations with that…it is a consortium of German banks. No commitment has been asked for or received although indications of debt at the level you are talking about, albeit at higher pricing by the way, have been discussed. It has been my belief and I cannot seek specific commitments on the debt until such time as we have a little bit more clarity on the rest of the capital structure. I think I’m going to change that view. I think that some time in the near future, and I won’t want to speculate as to what that means but I had originally not planned on going to seek commitments until 2009 because we have that flexibility, but I am now thinking it will answer a lot of your concerns if we are able to convert those conversations about what our existing lending group is willing to do in expanding this $2 billion plus facility – if we convert that into commitment.

Paul you have been leading those conversations. Do you have anything you want to add on that?

Paul Kanavos

Well what I would add is the current lending group that we have is very pleased with the loan they have on our property and they realize we probably have the finest location in the marketplace with 1,200 linear footage of frontage approximately located right across from City Center. They are very bullish on the Vegas market long term. They recognize the short-term constraints right now and they have indicated they want to stay affiliated with this property through the development stage and have indicated they are prepared to sit down and talk with us at the appropriate time and we want to talk with them and they have a real interest in leading a facility to allow us to get the development underway.

Robert Sillerman

Again, I hope that is specific enough. I think that you can probably expect, and again I don’t want to be too specific, but I think that some time in the third quarter of 2008 as opposed to the first quarter of 2009 is when we will seek commitment.

Ethan McAfee - Ramsey Asset Management

I seen. Could you just comment briefly on the status of your interest in the Riviera? I noticed there was quite a large number of block trades over the past week or two of that stock and if that might have been you or…

Robert Sillerman

No. We still hold our shares and we still have an interest in the Riviera. We think it is an intriguing property and think that frankly the market is conspiring to increase our interest in the Riviera because it is making the Riviera even more attractive to us.

Ethan McAfee - Ramsey Asset Management

With the stock price going down you mean?

Robert Sillerman

Correct.

Ethan McAfee - Ramsey Asset Management

Right. Just lastly. I have a question on how the detachable warrants look? Especially the trading of the FXRE are? With those warrants and if you are a shareholder and you choose not to exercise those warrants does that mean that you guys when you actually do the back stop that you effectively buy those warrants or do they expire as worthless?

Robert Sillerman

That is correct. If somebody doesn’t exercise they forfeit that right and we get that right. That is why we extended a week was to give people the opportunity to fully understand but if somebody doesn’t exercise then we will go ahead and do that.

Ethan McAfee - Ramsey Asset Management

Effectively you buy that warrant at $10?

Robert Sillerman

We buy the stock at $10, not the warrant. The warrant is a right to buy the stock.

Ethan McAfee - Ramsey Asset Management

So the warrant would be worthless if the investor chooses not to…

Robert Sillerman

That is correct.

Ethan McAfee - Ramsey Asset Management

Great. Thanks so much, guys.

Operator

As a reminder it is *1 to ask a question. *1.

We’ll take our next question from Mark Argento from Craig-Hallum Capital. Please go ahead.

Mark Argento - Craig-Hallum Capital Group LLC

Thanks for taking my question. In regards to the balance sheet as it sits right now, do you guys need to tap any equity capital after the rights offering to get to 2009 and to get the extensions on the current facilities?

Robert Sillerman

Hi Mark, how are you? Thanks for taking the time to be on the call. In all probability we will. It is unclear how we are going to handle the balance in 2009. There is capital that is required. It is not significant by any stretch of the imagination. There obviously is some excess proceeds from the rights offering but there still is some modest capital needed. I don’t know if we’re going to do that with equity or an equity look alike with just a small amount of debt. We’ll make that determination I suspect in the month of May.

Mark Argento - Craig-Hallum Capital Group LLC

Would you refresh my memory in terms of the rights that you guys took out of CKX and put into FXRE? Do you have the rights to do Elvis themed properties in and around Asia as well?

Robert Sillerman

Correct. It is world wide. It is an exclusive world wide development license. So presciently in your question anything that took place in Macao or Singapore or by the way for Elvis, Tokyo which is a huge market – the Japanese market for him, any of those development rights rest with FXRE.

Paul Kanavos

And by the way, Mark, I would add that probably one of the most valuable components that we have in FXRE is the opportunity to do just that in Asia because the brands of Elvis Presley and Muhammad Ali are very well recognized over there and there are great opportunities for us to expand those brands in all of those markets and it is fair to say we have had conversations and have been approached by groups that control what I consider to be some of the better locations in each of those markets.

Mark Argento - Craig-Hallum Capital Group LLC

I might say here in the states are you going to try to build/develop the Vegas casino out yourself. Could you see yourself entering a license deal or partnering with somebody overseas? What are the possibilities there?

Robert Sillerman

I think more likely that there will be joint ventures or licensing deals. The types of things that are appealing to me is where we contribute the intellectual property and somebody else contributes the land and/or cash and then we joint venture something. If you take a look back at my history it has historically been to limit the down side while giving away some of the speculative upside and particularly in jurisdictions where we have less familiarity and less expertise I think that you will see us be loathe to deploy capital and will perhaps therefore be giving away upside and perhaps in future years people will be criticizing us for giving away 50% hypothetically in Tokyo where Elvis is so popular that it seems like it is a slam dunk. But for a variety of reasons I think that I have to in good conscience tell you we’re probably not going to go for the individual home run in any one of these locations. Collectively I think if you add up what we could make around the world from…let’s not forget Ali but from Ali and Elvis that it is a home run but I think that is going to be cobbled together principally from other people’s money.

Mark Argento - Craig-Hallum Capital Group LLC

Fair enough. In terms of a development lead time is that still 3-4 years out before we could see something happen over there or is there some opportunity where you could accelerate that?

Robert Sillerman

No, I think that is right. I think that 3-4 years overseas is right. I think Barry…do you think that the first opening in Memphis is a little bit sooner than that?

Barry Shier

Yes I do, Bob. We’re right on that same track, possibly a little bit earlier if we decide to move forward by the first quarter of 2009.

Robert Sillerman

Development in Memphis is a little bit faster but I think world wide Mark that is a good schedule.

Mark Argento - Craig-Hallum Capital Group LLC

My last question for you. I know you guys have been working with the city, I believe, of Memphis really trying to drill out and work on some cityscape improvements and whatever. Have you gotten the support that you need to see the success down there that you would hope?

Robert Sillerman

More than…in December of last year the city council of Memphis passed a resolution which was the first step to give us the kind of support that they recognize that this is a once in a lifetime opportunity and they have been beyond supportive. We do expect that there will be specific and tangible support that we will be able to tell people I suspect by the end of June that is going to be significant. I mean this is a game changing moment for the city of Memphis and both the city, county and the state recognize how impactful this is. It is thousands of jobs and millions and millions of dollars of incremental tax revenue so we are expecting they are going to do the right thing. What they passed was a conceptual resolution that gave them the authority to go ahead and negotiate with us and we are expecting that is going to be quite significant.

Mark Argento - Craig-Hallum Capital Group LLC

Great. Thanks for the time.

Robert Sillerman

Thanks for the interest.

Operator

Thank you. As a reminder it is *1 if you would like to ask a question. *1. Please make sure you de-activate your mute function before signaling.

There appears to be no further questions at this time.

I would like to turn the conference back over to Mr. Robert Sillerman for closing remarks.

Robert Sillerman

Okay. Thank you. In closing, let me just say like I said we are in the very fortunate position that we don’t need immediate access to the capital markets for any significant capital. Most of our capital requirements are in the future. Barry and his team have put together a spectacular development that is described in broad terms in the prospectus. It contains all of the professional elements that you would expect from somebody who had the senior position with Steve Wynn that Barry has, but it has elements in it that with no sense of arrogance are available only to us with the translation of Elvis Presley to Las Vegas, with the location with 1,200 linear feet on Las Vegas Boulevard where we are in essence grand fathered. That is not the right term…but because we are right on the strip – we are not set back, it provides us with opportunities that are just simply not available to other people based on the way they have historically filtered they way their sites are. I think when we finally do get to show you numbers you are going to see a very professional presentation that presents the kinds of numbers and performance that is usual and customary to Las Vegas. We’re not being overly aggressive about that but we are adding to it the elements from the Elvis experience and driven from the location that we have that are generally only available to us.

There is only one Graceland in the world and it is the second most visited house or private residence in the United States already with a less than magnificent before they primed the existing hotel there…the Heartbreak Hotel, provides us the opportunity to do that properly and by the way to provide a brand to take around the world. Not just the high end brand we refer to from Las Vegas but the kind of brand that can compete with some of the four star operations.

So when we do get the opportunity you will see a fully put together development plan where we will try to persuade you that our stabilized EBITDA is so much greater in any multiple than the debt we are going to take on to build the two identified projects and that with the world wide opportunity that frankly I see this as the same opportunity at FXRE as exactly when we announced the CKX transaction when we bought [Speo] when we bought an inactive company and we and the Huff people were able to buy in our shares…I think our average price Tom was $0.71 on the predecessor there and I think the Huff share the average price there was $3.30. I view this as exactly the same moment in time.

I think this explains of course why we and Huff are willing to buy all the un-subscribed shares at $10 and as I said we are somewhat in a conflicted position because on the one hand we are very happy and anxious to buy them but on the other hand we bargained for and gave rights to people and want them to have the same opportunity to evaluate it that we had and to make that decision. The offering expires I guess Friday at the close of business. So we are hopeful that some of you will see the wisdom of that. More importantly we are hopeful that as the months progress and you see our progress that you understand we are committed to only one thing and that is building shareholder value.

That is what historically we have fortunately been able to do and believe that this presents an opportunity that is equal to any one, frankly, that we have seen in our careers. Thank you for your interest and we look forward to building this company for every body’s benefit. Thank you again.

Operator

Ladies and gentlemen this does conclude today’s conference. Thank you for your participation. You may now disconnect.

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Comments

[Tom Nocera:]

A few weeks ago I visited Memphis. It quickly became apparent just how important Graceland is - not just to the River City, but to Shelby County and the entire state of Tennessee. The Elvis brand continues to shine brightly - thanks to wise management decisions over the years made by Priscilla and Jack Soden. Elvis is providing hundreds of good, clean jobs in the "green" world wide industry of global tourism. Elvis, as a brand, is like no other. It is both magic and magnetic at the same time. The Elvis magnetism is certain to become a powerful draw once again for Las Vegas - bringing in the baby boomers, bringing in new generations of fans from all over Europe and Japan.
The way I read the transcript, the business plan appears to be well thought out. Certainly, the team behind it have proven themselves over the decades to be winners. Elvis can be counted on to bring his magic. And, Las Vegas, in its own way can be counted on, too.
The only uncertainty comes down to the cost of opm at some point in time next year. Given all the factors, other people's money is likely to flow to this project with the force of the Mississippi itself.

2008 Apr 15 11:27 PM