MGM: UPDATE FROM LAS VEGAS

Here are the MGM notes from our meetings in Las Vegas last week

CityCenter slots:

  • They are opening with baby steps on SBG. The service window, a portal for the customer at the slot machine, allows them to communicate players club info (points/free play), to educate the guest and advertise the hotel amenities, and to use it to market promotions. Over time, they will figure out how to better yield the floor/change demons/change min wagers
  • There are certainly challenges with interoperability. IGT/WMS imbedded the window into the games. BYI/ALL/Konami separate the window from the games. So the iViewDM will facilitate the server based window software on all BYI/ALL/Konami devices. Takeaway ability to change the number of min lines that you can bet on
  • Slot market shares:  WMS - 22.5%, IGT - 50%, BYI - 20%, ALL - 5%, Konami - 2.5%
  • Participation levels are at 8% - all the big players
  • 800 slots on the floor now were ordered in May.  1,940 slots currently will be on the floor. Pricing is the first thing they look at.  $17k is the average price - BYI - $10k for basic 3 reel standard. Barcrest - $30k bonus top products
  • The company uses IGT for accounting and marketing. IGT had invested the most capital into SBG

Environment:

  • In 3Q/4Q09, tons of meetings were cancelled so the company thinks that 2010 will be better
  • Vegas is stealing a lot of business from other markets because it’s a lot cheaper there
  • Excalibur is sold out the last four weekends at $79 per night. All of it is last minute or walk in business
  • Harrah’s is sold out through October on weekends because they priced too low
  • The mood is better but there is still a way to go
  • It is difficult to push up rates, especially for leisure.  They would be happy to get a few percentage points of increase in 2010 ADR
  • MGM thinks 2010 will be better than 2009 for sure

CityCenter:

  • Mandarin will price the highest. But their other rooms will likely price below or at Wynn’s level
  • Harmon will be finished out at the end of 2010
  • They will open the retail 50% full. The rest of the tenants will be in by April/May 2010. 90% of the space is contracted but the Tier I’s aren't complete. LVHM, Hermes, Tom Ford - anchors

Macau:

  • They are doing $20mm of FCF
  • A new team recently put in place down there that found a lot of issues - control related (Side betting)
  • Property should be doing $250-300mm in EBITDA

Stock price:

  • An equity/convert deal now would make sense but Kerkorian may not want to be diluted
  • Shocked that their stock is getting bid up

Asset sales:

  • Bid/ask has narrowed a lot now
  • MGM thinks they can sell the Mirage for 10x
  • They wouldn't sell any Vegas assets now