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  • MGM Grand CEO Interview: Jim Murren

     

    MGM MIRAGE – JIM MURREN (MGM)
    CEO Interview - published 08/10/2009

    Jim Murren is Chairman and Chief Executive Officer of MGM Mirage, a Las Vegas-
    based company with significant holdings in gaming, hospitality and entertainment. Mr. Murren joined MGM Mirage in 1998 as Executive Vice President and Chief Financial Officer, having held various positions, including President and Chief Operating Officer, before being named Chairman and CEO late last year. Previously, Mr. Murren spent 14 years on Wall Street as a top-ranked equity analyst, joining C.J. Lawrence, Inc. (later merged into Deutsche Morgan Grenfell). Mr. Murren is currently a member of the Board of Directors of Delta Petroleum, a Denver, Colo., energy company. He received his Bachelor of Arts degree in art history and urban studies from Trinity College in 1983.

    TWST: May we start with a brief overview of MGM's rich history?


    Mr. Murren: Our company's roots date back to the days when Mr. Kerkorian built many of the MGMs that are now called something else. And he built the biggest and best of many casinos in the 1970s and 1980s. But our company really, I think, more appropriately dates back to the late 1980s and early 1990s, when the MGM Grand Las Vegas was under development and then opened in 1993. The company is the product of significant internal growth and two large acquisitions - one in 2000, when MGM Grand acquired Mirage Resorts and renamed the company MGM Mirage, and then four years later when MGM Mirage acquired Mandalay Resort Group. Our history is rich with acquisitions and with internal growth. We've built this company into one of the largest, certainly I think the most respected, gaming companies in our industry.

    TWST: Would you give us an overview of what you've been able to accomplish in recent months and what you hope to accomplish in the future?

    Mr. Murren: Absolutely. It's been an extraordinarily difficult time in the hospitality industry over the past year and a half, and more so late last year and early 2009. MGM Mirage, like many capital-intensive businesses in hospitality, was hit on many fronts. We dealt with the recession, which has had a profound impact on revenue and profitability as a result of lower discretionary spending by consumers and lower business travel. In addition, there was the credit crisis that led to a financial freeze that paralyzed corporate America through most of last year and the early part of this year. On top of all that, we were and still are today, building the largest, privately
    funded project in the United States. So we had a triple threat of issues to deal with. And how we've been dealing with these issues, I think, will be written about for many years to come because we were able to successfully navigate through the credit crisis by refinancing and fully financing CityCenter, the project that's under development. We've been able to cut costs dramatically and are now starting to build revenue to maximize the cash flow in this recession that we are in. And we've been able to do all that while negotiating with our bank group and with our bondholders to buy us time by extending maturities and building up our current reserves of cash. It has been very difficult. It would be simplistic to say that we're out of the woods and the sun is going to shine now forever. But we've largely solved our problems, certainly all our immediate ones, and now we are positioned to benefit from the recovery that seems to be gradually underway.

    TWST: How strong is your balance sheet right now?


    Mr. Murren: Well, not as strong as I would like. We have, as a result of a debt and equity offering that we did about a month and a half ago, raised $2.65 billion of capital and, as a result of amending our bank facility and reducing its size, we have ample cash to fund our 2009 or 2010 maturities. And we'll be in a position of relative strength to renegotiate with the bank group to extend that facility, which is a $5.7 billion bank facility. The way hospitality looks at leverage, we have approximately $13 billion of debt against a company that is throwing off, by most analyst estimates, about $1.5 billion of cash flow, and so we're meeting all of our financial obligations. We have, as a result of those offerings, excess capacity on our bank lines of about $1.5 billion. And we're spending more moderately, about $190 million of capital expenditures this year. And we're likely to spend about the same next year to put ourselves in a position to hopefully generate free cash flow that will further reduce debt in 2010 and beyond. But of course we're wrapping up that most significant project that I mentioned earlier - CityCenter, which opens up in December of this year. That will start contributing, we believe, significantly to our cash flow in 2010.

    TWST: Can you give us an update on CityCenter?


    Mr. Murren: Well, this project, which was born as an idea back in 2004 and was
    approved by our board later that year with a projection to open up in December
    2009, is remarkably going to open up exactly then. So in the era of construction
    delays and missed deadlines, we're especially proud to say that it's going to
    open up right on time, and I think it's particularly remarkable given the financial turmoil that we've all been wrestling with. CityCenter was conceived as a master plan, urban development that has a gaming hotel as its core but aspires to be far more than a gaming resort in the form of non-gaming hotels, residential product, and very unique retail and entertainment offerings. It's going to open all this year, and our opening date is December 16. And it is quite remarkable. All the buildings have been topped off. All but two tower cranes -at one point we had 12 on-site - have been removed. The buildings are enclosed. We've been locking in all the cost of CityCenter, which of course has come down in light of the fact that construction costs in general and labor costs have declined as a result of the slowdown in theeconomy. We are loading in furniture and all the fixtures into the hotel rooms at the casino hotel and its sister hotel called the Vdara. The podium of the casino hotel has largely
    taken shape and the finished materials are being installed as we speak. The theatre where the Elvis Presley Cirque du Soleil will perform is already getting its theatrical equipment installed and Cirque has been in production. In fact, we'll see a first cut of the show in a couple of weeks in Montreal. The Crystals, the retail component of it, is shaping up to be as Bobby Baldwin, whose managing the project for us, says - the most significant retail experience in the United States, and it's certainly spectacular and beautiful. Much of the art that we have commissioned is under development now and, in some cases, is even installed, including the Nancy Rubins sculpture, which is profound. It's striking, and it sets a very strong tone for the contemporary excellence that I think that we're accomplishing at CityCenter. And the Henry Moore piece has
    already been installed and it's being protected right now as we're building around it. But it is a very important work of art of that artist's great body of work. All the architects have finished all their design work, of course. So you get a very good sense of the feel of the buildings that Cesar Pelli has designed in ARIA; and our casino hotel where Rafael Vinoly had imagined has now come to pass in Vdara. KPF, the design architect for the Mandarin Oriental, is particularly proud of its design, and that is going to be a spectacular building right on the Strip. And of course Daniel Libeskind has done one of his crazy roof designs for Crystals, which creates opportunities for a tremendous amount of ambient light. And David Rockwell has re-engineered and re-imagined what retail could look like inside Crystals. So I have to say that we are firmly underway. Obviously we have over 9,000 men and women working daily on the project. It is on schedule, as I mentioned, and really taking shape. And the fun part is beginning now. We're starting to energize CityCenter with the operating teams, which are being picked. We had over 180,000 applicants for 10,000 jobs, and those men and women are being identified. And the lucky ones will know soon who will be joining the CityCenter team. The senior management team, of course, has already been in place for many months, in some cases a couple of years, developing the pre-opening plans and their operating plans for CityCenter. The Marketing Department and the Public Relations Department is just beginning to spool up a major launch of a campaign for CityCenter itself and the important elements of CityCenter to show the world what we are accomplishing here. So we're getting down to the fun part. It's really starting to take shape and I
    know people will be amazed. And I think they'll be very pleased by what we're
    accomplishing.

    TWST: There's been a lot of discussion recently that with the opening of
    CityCenter and some other projects, Las Vegas will be over capacity. What do you think?


    Mr. Murren: Well, at the risk of showing you how old I am, I started covering
    this industry as a junior analyst back in 1984 and picked up the industry in earnest in 1987. And I could name the analysts who have lost their jobs over those many years predicting the doom of Las Vegas. The year when Mirage opened was supposed to create a tremendous disruption in 1990, and of course 1990 was a huge year for Las Vegas. And 1993, when Luxor, Treasure Island and MGM Grand opened up, two analysts predicted the doom of Las Vegas in 1994. And those analysts are off the radar today. And of course that happened more recently in 1998 when Bellagio opened up; it was supposed to be an extraordinarily, over-the-top, excessive, overly expensive property that could not possibly get a return, and it's the most profitable casino in Las Vegas today. So it is easy to dismiss the critics because they've been wrong every time. But I think there is more merit to the point of view today because of the recession that we're in, the failure or lack of success of many projects that have opened recently and the sincere concern that people have that we're opening up too many rooms at too quick a time. So my answer is, "We'll see." But we're a little more analytical than that. So my view is that if we accomplish what I think we will accomplish in terms of developing something that is vastly different than what exists
    today, that will attract incrementally hundreds of thousands, if not millions more people to the community because of something incrementally different and distinct and important, then we will drive overall visitation in Las Vegas at its most crucial times. And I think CityCenter alone, single-handedly, will be the reason why visitation is up in 2010 in Las Vegas versus 2009. And if we do it correctly, we'll get a premium for whatever the market can bear at that point in time when prices go up and down. But we should get a premium for the occupancy of those buildings; and if that's the case, then our property should be able to draft off of that and actually benefit from not only the foot traffic that will ensue as a result of this development, but the pricing that we're going to achieve. If we're simply building a casino hotel or adding hotel towers to existing buildings or adding casino capacity to existing buildings, I would say that they are dead right. There is no way you could call that a positive development. But on the other hand, we are doing something that has gotten the attention of the world, and we know it's going to bring incremental people by the millions to Las Vegas. I think the trick will be whether or not we can build
    incremental business not only on the hotel side, but on the gaming side, and whether we cannibalize properties that we own 100% of by just shifting business over to a 50-50 joint venture while still managing that property to the benefit of the joint venture owners Dubai World and ourselves. And that's why we've spent a lot of time on this, and I think we've accomplished that in the design of it, and we have to execute on the operation of it.

    TWST: There's been a lot of talk that Las Vegas will never return to its 2006,
    2007 peaks. What's your view?


    Mr. Murren: I'm always amused by that point, as if people know what factor they
    have at their disposal to say that Las Vegas will never return. That is absurd to the extreme. Las Vegas has been around as a tourist destination for 70 years. It's lived through recession. It's lived through wars. It's lived through global crisis. It's lived through 9/11. It's lived through local disturbances, the collapse of the defense industry in California, $5 gas prices, and on and on. And, yes, we lived in a world of excess, consumer excess in 2007, 2006 maybe also. But Las Vegas has persevered and flourished in every type of economy for decades. There is no other Las Vegas and there never will be. And so unless the population stops growing in the United States and people stop traveling, and people stop going on vacations, there is no factual basis to say that Las Vegas cannot continue to grow. Thirty-five million people will be there this year in the heart of a recession, and more people will come next year. And it will remain the top destination in the United States. And with all that, we have the flexibility to cater and to tailor vacation packages and experiences to whatever the economy may throw at us. So sure, we're not going to sell as many $1,000 bottles of wine and $400 and $500 cabanas at a pool in the middle of a recession. But we can occupy 3,000-, 4,000-, 5,000-room hotels at over 90% occupancy. Even though we're charging less, we sure can make money at that. And I feel that the recovery that we will experience is not a matter of whether it will happen, it's how long it will take for us to get back to 2004 through 2007 levels. And I think it's going to be gradual. And we've set up a cost structure here that will allow us to be profitable during this gradual recovery. And what's important to my team is that we do not allow our cost structure to grow with revenue so that as revenue does improve, we're able to bring more to the bottom line and be more profitable. This business is not particularly difficult. It's not complicated. It is a consumer-based business, a cash-based business model with high margins. And so I don't know how many businesses are running in high 20s operating margins as we are right now and generating 90%-plus occupancies. Our issue is not the business model. Our issue is that we have too much debt for our current level of cash flow because our cash flow fell so rapidly during the severe recession. Now that our cash flow has stabilized, we
    have our cash flow starting to improve and our debt levels declining. And that's a good formula for long-term success. I'm not optimistic to the point where I think we're going to have a sharp recovery, but I think there is no doubt that we're going to have a recovery. And there is no factual basis to say that Las Vegas won't come back.

    TWST: Convention business in Las Vegas has taken a big hit. How is the segment faring now, and are you seeing a little uptick or do you foresee an up-tick in business soon?


    Mr. Murren: The convention business is the last to fall in a recession. I'm just
    talking on a macro-basis: It is the last to get hurt, it is last to come back. What we have seen is a good pickup in late 2010 and 2011 bookings. We're still seeing very moderate business activity for the balance of this year and the early part of 2010, which shows that it's going to be a gradual, not a rapid recovery in that business. We also have seen a significant improvement in what we call attrition rates, in which people book a convention and they whiff; they just don't show up. And those attrition rates became very high during the crisis of last year and the early part this year, north of 50% in some cases, in select cases. And now it's into the high teens. So I think the convention business in general will recover, but it's going to take longer for that to improve than the leisure business or the conference business, which is a distinctly different customer segment. Those would be the incentives group, the smaller meetings that we also host. They tend to come back more rapidly than the large conventions. That said, Las Vegas as a convention market has significant value advantages over its peer group, whether it's Phoenix or Southern California, or even as far away as Dallas-Fort Worth or Chicago. We're able to wrap our value proposition into the dialogue, and we're picking conferences and conventions from a lot of those higher-priced markets. So we're trying to make lemonade out of lemons and get additional convention business to come, get people to sample us. We
    generally keep a convention once they come here because, frankly, it's heck of a
    lot more fun to have a convention in Las Vegas than Phoenix, where the town is
    down at 10 o'clock at night and not too cool. So that's the key.

    TWST: You have said that you are interested in selling assets. Which are for
    sale? What's the overall strategy?


    Mr. Murren: When you're dealing with the Rubik's cube of problems that we're
    dealing with, you have to be as flexible as possible, and you have to keep all
    your options open. And when you have too much debt for your current levels of
    cash flow, you have to do everything you can and explore every option. And of
    course, getting debt down, you could do it in a variety of ways. You could issue
    capital, which we have done. We mentioned before that was the best way, so we
    issued. We sought to raise $2.5 billion. We got $2.65 billion, so that was a success. You can reduce debt by selling assets, or you can reduce debt by free cash flow. We're trying to do all three. In the form of asset sales, we have explored selling operating assets, and mostly we looked in the regional markets - not because we feel like those properties have less of a future or are less valuable to us, it's frankly because they are doing better. And I don't have to debate with a potential buyer the current cash flow levels as well as valuations. Whereas in Las Vegas, since our cash flow got hit so hard, I would have to debate what a reasonable level of cash flow would be to value the property at, plus the multiple. That's a battle on two fronts, that's hard to do. So it's very unlikely to be extreme, for us to sell a Las Vegas property. We've had more interest in potentially selling a regional property. We've been exploring it. But even there, valuations are so low relative to what these
    properties are clearly worth, particularly in light of the fact that it is clear to us that not only do we have the best properties in the best condition, but no one is going to build a property that will successfully compete against us in the future. The cost of building these properties, even today when construction has come down a bit, is so prohibitively high, and the access to capital is so low that we pretty much know what our competition will be like decades into the future, which makes the incumbents more valuable. So the sales were more interesting to me early this year. We certainly are not in a mode where we need to sell assets now, and therefore it would have to be something that would be very attractive to us before we did it.

    TWST: Are you looking to do any more partnerships like the one you announced recently to open an MGM Grand hotel in Egypt?


    Mr. Murren: Sure, as we have probably a dozen more in various stages of
    development.

    TWST: New Jersey regulators may force you to choose between Atlantic City and Macau due to the problems they encountered with your Macau partner, Pansy Ho. Do you plan to fight this?


    Mr. Murren: Oh, we're fighting. We think they're wrong. New Jersey has a wonderful process. This was simply a recommendation by the Division of Gaming Enforcement, which then goes to the Casino Control Commission, and the Casino
    Control Commission will ultimately opine on that. And then there are further rights that licensees have even beyond that. So this is a process that will go on for a long time. And I think most likely, it could be a year before we even know what direction it's going to go, and in the meantime, we have a lot of options. But we feel very strongly about our position. We feel like we need to defend ourselves, and we will. And we feel like we have a lot of options, and it's not going to come down to a point whether we have to decide whether it will be one place or another. And I think that in the category of things that I'm focused on, it doesn't make the cut, because it is long term in nature and not significant right now.

    TWST: Would you give us a brief overview of your background and those of the key members of your management team?


    Mr. Murren: Sure. I went to Trinity College in Hartford, Conn. I have a B.A. in art history and urban studies. I designed that curriculum to become an architect, that was the goal. I took several internships while at Trinity, including some at the regional banks, and it was in the Equity Research Department where I first read The Wall Street Transcript back in the early 1980s. I went to a small brokerage firm called CJ Lawrence in 1984 as a junior analyst and rose through the ranks. I spent 14 years on Wall Street, ultimately. I ran the Equity Research Department for Deustche Bank. I was tapped to be the CFO of MGM Grand, and I joined that company in 1998, became President in 1999. We acquired Mirage Resorts, as I mentioned, in 2000, and I have been the President of MGM Mirage until August of 2007, where I became the President and Chief Operating Officer. And last December, December of 2008, I became the Chairman and CEO of MGM Mirage. And I've lived in Las Vegas now for 11 years. In terms of my CFO, he predates me in Las Vegas. Dan D'Arrigo joined our company when it was MGM Grand, a few years before I arrived. He came in through the casino ranks, working in various corporate departments at a variety of gaming companies, and he was in corporate financewhen I joined the company. He worked for me initially. And he has developed into an outstanding CFO. He went to the University of West Virginia. He is from the East Coast as well, and he has been in Las Vegas probably 15 years or so. Bobby Baldwin is my partner, and he is in charge of CityCenter. He has been in Las Vegas for many years, and he has held a variety of positions at Golden Nugget and then Mirage Resorts and then at MGM Mirage since that merger took place in 2000. And from the moment we came up with the CityCenter idea, the board tapped Bobby to develop that project, and that's
    what he is in charge of now. He is the CEO of CityCenter.

    TWST: What would you reasonably hope the company to look like in three or four years?


    Mr. Murren: Well, MGM Mirage is quite dominant in the markets in which it operates. We certainly have the premier properties in every market in which we operate - the most profitable, the most desirable. I think that those properties have enduring value and will be able throw off increasingly large amounts of cash flow over the current configuration. That will allow our company to very consistently and, I think, quite rapidly deleverage. I think the shareholders will be rewarded by the company whose balance sheet is progressively improving. I think that given the basic cash flow that we have, which I think is durable for the long term, we will grow the company in a much less capital-intensive way. And that will be through the development and management of casino hotels, or hotels around the world as we are doing today. And we've planted many seeds around the world, and I think those seeds will develop into quite a large division of our company over time. I think our company will continue to be a leader in important areas of diversity, employee relations, in philanthropy. And we believe we are the standard for a company in any industry in the way it conducts itself in the communities where we operate with our employee family. That's something we're quite proud of. I think that we will continue to be viewed as a company that is very transparent to the investment community. Many
    of us have worked in the investment community ourselves. We understand the value
    and the importance of communication and clarity, and consistency. And we're proud of ourselves in having the best possible ethical standards in financial reporting and conduct in our industry. And I think we will help our state of Nevada, where we are headquartered, dig itself out of the recession that has so profoundly hit a small state like the state of Nevada and the community of Las Vegas. And I believe that over the next few years, we will emerge not only as a stronger company than we are today - that's, I think, quite easy to achieve, frankly, given what I see on the horizon - but also a company that is increasingly admired.

    TWST: Thank you. (JAD)


    JIM MURREN
    Chairman & CEO
    MGM Mirage
    600 Las Vegas Boulevard South
    Las Vegas, NV 89109
    (702) 693-7120
    (702) 693-8626 - FAX
    'Disclosure: No positions'
    Tags: MGM, ISLE, TRMP, LVS
    Sep 30 01:56 pm | Link | Comment!
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