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Octopussy

“You have a nasty habit of surviving.”
-Kamal Kahn
 
As far as we know, ex-Galleon employee, Roomy Kahn is not related to the wealthy Afghan prince from Octopussy. That said, there seems to be plenty of metaphors that apply to James Bond spy films in the latest hedge fund round of arrests. The man with the smoking Galleon gun called himself Octopussy.
 
Ok. So. We know some of these hedgies are really smart, but…
 
1.      No Man makes up his own nickname

2.      Octopussy is a woman


I couldn’t make this up if I tried. The way by which certain people in this business sought out inside information is both pathetic and sad altogether. We need these people to just strap on a Raj-green sweater vest and some cuffs and go on their merry way to the Big House. It’s time for these Goldfingers to fully admit what it is that they do, leave the US Financial System, and hand over the assets to those fiduciaries who have a legitimate investment process.
 
Whether it be Madoff, or Stanford, or now Octopussy… for the Burning Buck, it’s all the same. Not only is American Finance land locked with the most politicized monetary policy we have ever seen, the Asset Management side of the business is facing a Credibility Crisis of generational proportions. In the age of YouTube and real-time data feeds, what do you think the Chinese think when they watch these almost fictional missions of espionage and deceit?
 
As the Credibility Crisis mounts, the Buck continues to Burn. Here are the three main drivers of the US Dollar hitting 2-week lows this morning:
 
1.      Fed Balance Sheet – after dropping last week, it went straight back up this week to $2.17T (T, as in TRILLION)

2.      G20 Meetings – they’ll play a little golf in Scotland this weekend; Monday’s news-flow will be anti-US Dollar

3.      Octopussy – re-reruns of the 1983 flick will be playing on a cable channel near you this weekend; starring General Orlov Hedgie

 
As Octopussy fans will remember, the Soviet renegade (Steven Berkoff) was the bag man for Kamal Khan. Russian style geo-political power is making a comeback these days. If you didn’t know that – now you know. It’s one of those unintended consequences of our Fed Heads not getting out of Washington much. The Russians get paid in inflated petrodollars, fyi…
 
Now that Russia’s stock market is leading the majors of the world for the YTD at +115% (including another +0.44% gain this morning in early European trading), Putin Power is looking to raise some debt. This is big. Understand that the Russians haven’t issued government debt since Pierce Brosnan played Bond in “Tomorrow Never Dies”, circa 97-98’. Remember Russia’s default? The guys at LTCM do. These Russian financial instruments “have a nasty habit of surviving!”
 
Whether it be Middle Eastern “Sukuk” oriented bond deals or the American LBO train finding her rails on Burlington Northern associated deal speculation again, it’s all born out of one and the same. Government’s have a Greenspan mandate to issue moneys from the heavens. This debtor addiction has indeed gone global.
 
Octopussy (when Bond was in traction): “I wish you weren’t in such a weakened condition.”
 
As long as the self perceived heroes of our governments can release themselves from the traction associated with massive debts and passionately kiss Octopussy, what does it matter folks? This is out of our control at this point. This movie is for real.
 
For those who are telling you that the US Dollar has stabilized, please get them a movie clip of the Slow Moving Train Wreck that has become our currency chart since Nixon abandoned the Gold Standard in 1971. The US Dollar is trading down for the 4th week out of the last five. Since March, its down -16%. That’s a crash.
 
I know it’s becoming consensus, but so is Bond getting the girl. “I trust that you can handle this contraption” of a dollar DOWN = everything priced in dollars UP correlation. It won’t last forever, but for now you are still getting paid by this “From Russia, With Love.”
 
Ahead of the employment report, I have done a lot of nothing.  My immediate term support/resistance lines for the SP500 are now 1029 and 1076, respectively.
 
Have a great weekend. Best of luck out there today,
KM

LONG ETFS

 EWZ – iShares Brazil President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt –leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. Brazil is a major producer of commodities. We believe the country’s profile matches up well with our reflation call.

EWT – iShares Taiwan With the introduction of “Panda Diplomacy” Taiwan has found itself growing closer to mainland China. Although the politics remain awkward, the business opportunities are massive and the private sector, now almost fully emerged from state dominance, has rushed to both service “the client” and to make capital investments there.  With an export industry base heavily weighted towards technology and communications equipment, Taiwanese companies are in the right place at the right time to catch the wave of increased consumer spending spurred by Beijing’s massive stimulus package.

XLU – SPDR Utilities We bought low beta Utilities on discount on 10/20. TRADE and TREND bullish.

EWG – iShares Germany Chancellor Angela Merkel won reelection with her pro-business coalition partners the Free Democrats. We expect to see continued leadership from her team with a focus on economic growth, including tax cuts. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; with fundamentals improving in a low CPI/interest rate environment, we expect slow but steady economic improvement from Europe’s largest economy.

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP – iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

 
SHORT ETFS

 

XLI – SPDR Industrials Industrials shot up +1.1% on 11/3 because of a monster Berkshire bid. That’s now in the price of XLI. We’ll short expectations for V-shaped recovery. TRADE bullish, TREND bullish.

EWU – iShares UK Despite areas of improvement, broader fundamentals remain shaky in the UK: government debt continues to expand, leadership in critical positions lacks, and the country’s leverage to the banking sector remains glaringly negative.  Q3 saw its GDP contract by -0.4%. Further bank stimulus and the BOE’s increase in its bond purchasing program suggest that this will not end well.

XLY – SPDR Consumer Discretionary We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30. TRADE and TREND bullish.  

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

UUP – PowerShares US Dollar We re-shorted the US Dollar on strength on 10/20. There continues to be no government plan to support it.

FXB – CurrencyShares British Pound Sterling The Pound is the only major currency that looks remotely as precarious as the US Dollar. We shorted the Pound into strength on 10/16.

SHY – iShares 1-3 Year Treasury Bonds  If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.


IGT 4Q2009 REVIEW

Beneath the messy results, the quarter was better than we expected. 2010 guidance looks reasonable.

 

 

IGT reported $515MM of revenues and normalized adjusted EPS of $0.19, beating the Street and our expectations.  Beneath the mess of deffered revenue and one-time charges, we think that the quarter was actually pretty good.  Furthermore, visibility on 2010 has improved.  While near term growth is still not in the cards, we like the long-term outlook for the sector.  The opening of new gaming jurisdictions, normalized replacements, and the leaner meaner IGT, could all combine to double EPS for IGT in 3-4 years.

 

Despite not being able to recognize revenues on 2,000 units shipped to North America, IGT reported much better than expected product revenues.

  • Replacement sales were surprisingly strong, since the September quarter is usually a seasonally slower quarter.  It doesn't appear that sequential replacements were down very much at all.  IGT's share of replacements also increased materially, hitting or exceeding 40% for the first time in over a year.
  • 2,300 new and expansion shipments also implies that IGT got over 60% ship share.
    • We estimate that most of the CityCenter units that were shipped in the quarter were IGT's (~800)
  • ASP's were materially higher than our estimate due to the higher mix of MLD's

International product sales were mostly in line with our expectations.  The FX headwind should reverse itself in FY2010, and therefore ASP's should appear higher.

 

Gaming operations revenues were a little below our expectations while margins were better due to lower D&A charges given that a higher percentage of IGT's install base is fully depreciated

 

 

Other thoughts:

  • The Walker Digital charge off should come as no surprise since the pre-paid poker play at Station's was basically a complete failure
  • We continue to be impressed with Patty and her assurance of focusing on running a lean and ROI focused organization.  For those of you who have followed this space as long as we have, you know that IGT has never been know for being "lean",  "efficient", or "ROI-focused"
  • If IGT can really move to a single platform, that could mean huge capital expenditure savings and higher ROI for it's gaming operations business. In that past they have replaced 20k participation units per year without recycling or redeploying those units given the numerous platforms at IGT

 

Going forward:

  • Deferred product sales should provide a nice cushion of roughly $4MM for just NA new unit sales and provide a very nice bump in the $20MM range for 1Q2010 international box sales
  • We think management guidance of $0.77-$0.87 is reasonable.  Our revised estimate is $0.83 after factoring in the $0.06 non-cash hit to the P&L from the accounting change related to the convertible note.

IGT 4Q2009 CONF CALL

Messy quarter but top line comes in strong.  Should be good enough. 

 

 

"Our fiscal 2009 results reflect a challenging operating environment which we believe stabilized during our fiscal third and fourth quarters... While we remain cautious on the timing and extent of the replacement cycle, we have been encouraged by modest upticks in spending by many of our casino operator customers over the past two quarters."

 

 

IGT 4Q09 CONF CALL

  • Gaming operations continues to feel the impact of a weak economy, although they are starting to see some stabilization in win per day. 
    • $50 win per unit per day
    • Higher sub-segment yielded north of $110 per day
    • Margins benefited from a higher percentage of fully depreciated games
  • Installed base should resume growth as the environment stabilizes.  International saw relative strength
  • Product sales domestic:
    • Domestic replacement units were 3,800 in the quarter 
    • Future unit sales will exceed trough levels seen earlier this year
    • Domestic non-machine revenues were impacted by lower systems revenues and lower conversion kit sales
    • Higher deferred revenues due to bundling
    • ASPs increased as a result of higher mix of MLD products
  • International product sales:
    • Continue to feel the effects of economic weakness - especially in Western Europe
    • Higher systems and conversion kit sales
    • International ASPs were down due to a higher mix of lower price units
  • Product sales gross margins should remain in the 50% range
  • Operating expenses would have decreased 17% ex-non cash charges
  • Cost reduction efforts are becoming more evident.  Previously announced two rounds of $100MM of cuts.  They have completed about $135MM of annualized savings.  2010 plan contemplates the remainder of these initiatives, which will be partially offset by PGIC and inflation
  • SG&A expected to remain at approximately $100MM and R&D to remain in the low $50MM's range
  • Bad debt provision of $9MM stemmed from customers being impacted by the weak economy
  • D&A was $65MM including game operations
  • Beginning in the 1Q2010 they will have to bifurcate the interest expense calculated on the converts impacting them by $30MM or 6 cents a share next year.  (Basically interest expense > cash interest because the convert is at a discount to par and it needs to accrete re: new FASB rules)
  • Quarterly rate rate to trend at 39-40%
  • Have $1.7BN available on their R/C line.  New FASB rules will reduce their debt by roughly $140MM because the converts will be accounted for in equity
  • Capital expenditures were $250MM in 2009 due to lower investments and falling PP&E, expected to trend in the $50-75MM although they continue to trend at the low end of that range

 

 

Patty's comments

  • "While we remain cautious, there was continued improvement in operator sentiment"
  • This quarter saw operators cautiously re-enter the market to replace aging product
  • 1,700 MLD's shipped in the quarter and are excited about the 2.0 version which will be showcased at G2E
  • Stabilizing win per days at $51 per day are encouraging
  • Believes that this year's product portfolio will provide better clarity on the direction of the company
    • Game ops - introducing Sex in the City
    • Center stage mega jackpot series - Wheel of Fortune experience
    • They will finally have a common hardware platform  
    • Presenting a package that includes a box and package of games
  • Focusing on getting a better ROI
  • Refocusing sales organization around account management
  • New options exchange program will better align management with shareholders
  • New organization will be more focused on operating efficiencies, ROI, and delivering content driven product
  • Remain cautious on predicting timing and scale of the replacement cycle
  • Want to leverage renewed focus on content in their product sales business
  • Continue cost cutting efforts which will provide them with a leaner business model
  • Significant changes to accounting and capital structure impacting 2010 guidance of $0.77 to $0.87 which includes 6 cents a share of non cash accounting changes

 

 

Q&A

  • Interest income was $15.8, $36.8MM of interest expense
  • Conducting pre-G2E meetings with customers and the feedback has been very positive.  Like the MLD technology and greater balance between participation and for sale games
  • Guidance doesn't include revenues from new jurisdiction
  • Replacement assumption ranges from 2009 like to something better
  • Japan sales?
    • Continues to be a challenging environment.  Introduced 3 games in 2009 that performed at market level
    • Shipped 775 units this Q
  • Gaming operations for 2010 assumptions
    • Slight improvement in play levels and also a slight increase in install base
  • Walk through the deferred revenue accounting
    • The majority of the replacement units were recognized
    • As they sell more and more bundles it puts them into the world of the software accounting (a la BYI)
    • Two new accounting pronouncements that will let them more easily separate the boxes from the downloaded games
    • In Aria they will need to recognize those revenues over time
    • Apparently Rosario (Argentina) was also deferred, due to the bundle, despite company telling us otherwise
  • CityCenter and SBG color on other manufacturers
    • Inter-operability testing had to cease in October so that the opening can be flawless
    • So SB-system will be on all IGT machines and some WMS machines.  Everyone else will use Nex-Gen as a bridge 
  • Guidance implications - are they sandbagging?
    • Low end is fairly conservative around the replacement cycle, yields, and install base.  Top end assumes 4Q like replacements, slightly better yields and small increase in install base
    • IL:  just focused on matching product functionality to the market regulations
    • OH:  Still some political and litigation risk, gaming commission needs to be formed, expect some litigation.  Not likely to ship there in FY2010
    • We don't think the high end is sand bagging - 3,800 replacement units is way above recent quarters, new and expansion unit shipments will be down, and their install base hasn't seen much growth in years.  New markets probably won't ship in the next 12 months
  • ASP increase has been driven by 85% AVP mix and MLD units
  • ASP guidance?  Will it be like 16,000 or 14,000 next year. Will they lower MLD pricing?
    • They don't think the MLD pricing is an issue - save on conversion costs for steppers.  Are getting more creative on bundling the MLD with other products in their arsenal to get more on the floor
    • ASP's over time are moving up
  • Non-machine sales, very hard to model? International units shipped... how do we think about that?
    • Non-machine revenues is most susceptible to deferred revenues (systems piece - again, this is just like BYI)
    • UK pretty stable, continental Europe should improve in FY2010, seeing continued improvement in Latin & South America and Mexico can also provide growth
  • 45.6k units in game operations install base was domestic
  • Deferred units:  CityCenter and Rosario were the vast majority
    • Rosario will be a FQ1 revenue recognition event
    • Aria is a 2 year revenue recognition event
    • Washington 1,200 units recognized over 2 years (split btw this and last quarter)
  • What market share are they assuming in their range of guidance?
    • 40-45% for 2010
  • 6,900 were shipped last quarter and 6,700 recognized
  • International, what drove sequential improvement?
    • Improvement in non-box
    • PGIC assets are starting to nicely contribute to international
    • New box launched for Australian markets
    • UK also was up
    • ASP increase was also due to higher priced platforms

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

SBUX – BETTER THAN MY EXPECTATIONS

Positive takeaways following my initial read through of 4Q09 results:

 

Earnings came in at $0.24 per share, higher than both my $0.22 EPS estimate and the street at $0.21.

 

U.S. same-store sales growth improved to -1% from -6% in Q3, better than my -3% estimate.  Trends continued to improve on a 2-year average basis as well.

 

Consolidated same-store sales came in -1% relative to -5% in Q3.

 

SBUX raised its fiscal 2010 EPS guidance range to up 15%-20% from its prior range of 13%-18%.

 

This guidance assumes “modestly positive comparable store sales.”  As I outlined yesterday in my earnings preview, I thought guidance above -1% would be a positive catalyst for the stock.

 

Management also raised its margin growth guidance for the U.S. to up 200-250 bps, from its initial expectation of 150-200 bps of improvement.

 

SBUX expects to generate free cash flow of $900 million in fiscal 2010, in line with its fiscal 2009 level (came in above the company ‘s free cash flow goal of $500 million).

 

The company exceeded its Q4 cost savings initiatives of $180 million in the quarter by $30 million.

 

U.S. operating margins of 12% in Q4 were in line with my expectations, up 760 bps YOY.

 

International operating margins grew 470 bps YOY to 8.8%.

 


WEN – MORE GOOD NEWS FOR BKC

WEN stated on its earnings call that Wendy’s October same-store sales declined 4%.  Although management stated that 2-year average trends are still up 1% as the company is lapping a difficult 5%-plus comparison from October 2008, this -4% number is a significant sequential step down from the +0.1% result in 3Q09 (-1.4% on a reported basis, which includes the negative impact of 300 fewer units YOY serving breakfast, as shown in the chart below).  Management commented that this -4% excludes the impact of removing breakfast so this number is even lower on a reported basis.

 

When asked specifically whether BKC’s $1 double cheeseburger could be somewhat responsible for the sequential fall off in trends, management attributed the softer result to both a tougher comparison and marketing in early October that focused on more thematic, brand repositioning “You Know When It's Real" advertising rather than value/price point advertising.

 

Based on MCD’s guidance for October U.S. same-store sales of flat to negative, both MCD and Wendy’s experienced a sequential slowdown.  Again, BKC did not provide any specific color around October trends, but it did say the $1 double cheeseburger had provided a lift to traffic trends in the markets where it had already been launched in fiscal Q1, and it was launched nationally on October 19.  If this product’s success continues, October will not experience the full benefit as a result of the mid-month launch, but I would expect to see some sequential improvement and then see trends move higher for the balance of the year.  My expectation mirrors TAST’s recent comments about its Burger King comparable sales trends.  Earlier this week, TAST said that it expects its Burger King same-store sales to turn positive following a -5% result in October.  Even this -5% number already showed marginal improvement from TAST’s reported -6.1% comparable sales growth result in 3Q09.

 

WEN – MORE GOOD NEWS FOR BKC - Big 3 SSS


MGM 3Q09 CONF CALL

As expected, MGM beats the quarter.  Outlook was bullish, too bad Bobby slipped on the call

 

 

MGM reported strong numbers this quarter.  Most of the beat was driven by better hold and therefore EBITDA at MGM Grand and the Mirage, with some offset from weak hold and EBITDA at the Bellagio.  


"We continue to show sequential improvement in our operating results over the course of 2009...We continue to earn occupancy through our superior assets and focus on the customer, resulting in increased market share.  We expect CityCenter to grow our business significantly and we are extremely excited to open this tremendous asset"

 

 

MGM 3Q09 CONF CALL

 

  • It's not a stretch to say that in the 3rd quarter "our results were monumental" for the company
  • Exceeded even their own expectations for profits in the quarter
  • Continue to focus on efficiency without sacrificing guest service
  • Outperformed their competitors in all markets where they operate
  • Added market share in conventions, hotels, and gaming in Vegas and Macau
  • Bellagio had it's best baccarat drop but held low on tables
  • Don't "buy" occupancy
  • Bellagio's RevPAR decreased less than other luxury properties in the market
  • Confirmed 550k rooms in the 3rd quarter, putting them on a more "normal" pace
  • Returned to normal booking levels and are confident that next year will be even better
  • Believe that they are building market share coming out of a recession
  • Think that CityCenter will add volume to their surrounding properties 
  • "Have created an icon, a must-see property"
  • They are laser focused on the market, while others may be distracted with other markets and corporate transactions
  • Lead volume was up 9% vs last year. Meaning that corporations are trying to secure meeting space (Pharma, insurance and auto)
    • Oct was a big month for them
  • Conversion rates on booking inquiries are also increasing
  • Cancellations have slowed down dramatically and while they aren't back to normal yet, they are close.  90% of cancellations are for 2009, while 2010 & 2011 cancellations are minimal (isn't that obvious though)
  • Room nights booked forward are back to levels of pre-recession
    • But they have more supply going forward too, no?
  • Continue to produce sequential improvements
  • FTE's are 12% lower y-o-y and 17% lower than 2007
    • compares to 14% in 1H09
  • MGM Macau property level EBITDA of $73MM, $24MM was their share of operating results
  • Capitalized interest was $76MM in the quarter
  • Seeing a return to normalcy in their bank agreement
    • Provides them with their normal historical capital markets access
    • Have enough capacity on R/C to sustain them through 2010
  • $1.4BN of TTM EBITDA vs a $900MM covenant
  • Expect a lower y-o-y RevPAR decline in the 4Q
  • 4Q09 guidance
    • $10MM stock comp expense
    • $34-35MM of corporate
    • Pre-opening higher
    • $170-180MM of D&A
    • $250-260MM of gross interest expense
    • $40MM of capitalized interest expense
  • CityCenter details:
    • 12,000 employees, 3,100 came from other MGM properties
    • At Aria continue to see a steady pace of room bookings.  Pricing continues to be at a premium to Bellagio
    • Advertising and PR budget is $20MM for opening days
    • Expect to spend $27MM in TV media and print ad placements
    • 47% of retail SQFT open in Dec and over 80% by July 
    • Seen 50% increase in traffic at the retail site and 6 new units have entered into contract since the price reduction.  A number of buyers actually upgraded their unit
    • Closing at Mandarin in Jan and Vdara in March
    • $740MM left to fund, $7.5BN funded, $180 of sponsor funds left to be contributed

 

Q&A

  • Think that visitation this year will be 35.4MM and 38.1MM in 2010
    • Project that there will be 54.4MM available room nights in the market, 5% increase over 2009
    • Think that their market share will increase next year and well as being able to maintain their occupancy
    • Think that occupancy will be 89% citywide and they will be north of 90%
    • Think table and slot win will be up double digits and that MGM will get more than their fair share
  • How much did hold benefit profits in Macau
    • Hold was about 3%
    • Extended reach to more junket operators
    • New management introduced
    • Did a lousy job before so easy comps too
    • Also construction projects around their property (One Central, L'Arc, Encore) are wrapping up/ have been completed and will get a right turn lane
  • CityCenter advertising dollars? How does that compare to Bellagio opening in '98?
    • $20MM upfront is about standard, $27MM is a little heavy - but thinks it's in the company's best interest
    • BOBBY SLIP UP "we are forecasted to have about 1.2 billion in revenues" 
      • I suppose Greff and most of the Street will need to lower their projections now
    • Want to take advantage of being the only new property opening up
  • Amendment #7 is the "exclamation" to the end of the amendment process with their bank group. Gives them back some of the flexibility they had before
  • Now that that facility has been paired back from $7BN to $5.5BN it's more manageable - facility doesn't go current until Oct 2010.  Expect they will start working on a new facility in 1H2010
  • Income stream from MGM hospitality
    • Have nine properties in contract
    • Just signed a new project in Egypt 48 hours ago
    • Make 10-15MM a year though these development deals
    • Have 30 deals in various stages (many in LOI or negotiation stage)
    • Think that they will make 100-200MM of EBITDA in the next 5 years...
  • Seeing similar banquet pickup a la - LVS
  • Have $244MM whole in CityCenter expected to be funded with condo proceeds, and believe that they will get more proceeds than that
  • Will be paying bills on CityCenter well into 2010, so from a condo closing timing standpoint should match up well
  • A lot of the rooms being added to the market are at the high end ... so can they fill them and maintain rates at their other high end properties
    • Indications on pricing are good for next year
    • A lot of the conventions and conferences they are booking are at higher rates
    • Expect continued robust occupancy next year
  • Rooms booked for next year - every quarter for 2010 improves, and lead times have expanded - seeing more rooms booked out 60 days +
  • Hooks on the convention side: have the most "value attractive" markets, many dates/ spaces desired in the past as now available, have more amenities than other markets
  • Taking share from other markets and competitors in Vegas
  • Convention rates are as much as $60 better than leisure pricing so as they get more convention business their ADRs should increase
  • Their hold % was just slightly higher than the top end of their range in Las Vegas
    • they down play the impact but the reality is 100bps above the high end could be several hundred bps better than last year
  • Forward room nights aren't same store.  Convention room nights are most at MGM Grand, also Aria doesn't have that many rooms
  • Murren says that he never said that RevPAR will be up 5-10% in 2010 - but visitation will be up 5-10%
  • Very interested in doing a Macau listing - and are working on it - will hopefully occur in 1H2010. But won't have impact on the NJ issue
  • Goal of $600MM of cost savings and how we can see what they have achieved, how much is permanent?  Jay Sugarman's addition to the board.  Normal run rate for other Capex?
    • Have taken out a little over $700MM of cost savings, 85% of those costs are reflected in the numbers already - they started some of this as early as '07 those programs are largely complete
    • FTE's was down 12% despite same occupancies
    • Believe that when things recover their margins will exceed those seen in the "early 2000's" (peak markets)
    • Jay Sugarman's addition was partly driven by growing HC costs, spend $400MM a year on healthcare
    • Have high capex this year as they prepare all their properties for CityCenter opening - $200MM (normal maintenance run rate) and should in that range next year
    • Will spend $10-15MM more on technology next year
  • Residential $200MM write-down was MGM's 50% share of the pain resulting from the 30% price reduction and their portion was a little greater
  • $2.44BN is still MGM's share of their investment in CityCenter
  • MGM has fully funded through their commitment to CityCenter - to be funded by DW's LOC

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