MGM targets high-
end hotel market

Apr 17, 2007 6:52 AM

MGM Mirage is preparing a move beyond casinos into the luxury hotel business with plans that will bring the power of recent partnership agreements to bear on opportunities in major cities throughout the world.

Within the last two weeks MGM signed separate agreements involving the Diaoyutai State Guesthouse in Beijing which operates under the Ministry of the Interior, and the Mubadala Development Company, the latter being a development vehicle wholly owned by the government of the Emirate of Abu Dhabi in the United Arab Emerites.

Collectively, they open doors to opportunities that MGM strategists see as lifting the company to the front ranks of luxury hotel operators.

MGM CFO Jim Murren alludes to the impressive cash flow multiples generated by recent sales of the Four Seasons and Fairmont companies. They represent circumstances "that have not been lost on us."

Murren adds, "We believe there is great potential in this business for us. We know how to develop and we know how to manage hotels ”¦ Finding the right partners worldwide is a great way of diversifying our cash flows."

The result in this case will be products exhibiting Four Seasons style that will include the company’s own takes on satisfying guests accustomed to buying the best of whatever is available.

The Mansion at the MGM is the kind of very upscale niche property that CEO Terry Lanni believes can succeed anywhere a guest is looking for a quality hotel experience. Lanni says it already attracts business for that reason alone. The same is also true of possible marquees incorporating names such as MGM and Bellagio.

Lanni says the new business platform will mean new titles for some people in the company. MGM Grand Hotel President and COO Gamal Aziz is probably among them.

This new direction may require adjustments to current thinking for some people.

The interesting thing about being one of the world’s best known casino operators is that industry followers sometimes pay little attention to anything except the gambling. Gambling is the name of the game, casino wins are reported in easy to digest monthly chunks of information.

Everything else represents inconsequential add-ons, right?

Not any more. But MGM is not unique in this respect.

The move into non-gaming developments such as retail shopping by major resorts still occasionally merits a whoops-when-did-that-happen-and-what’s-it-all-about kind of attitude.

Look at how long it took Wall Street to pay serious attention to the significant real estate holdings of companies such as Station Casinos. Lanni regularly reminds people that more than half of the company’s revenue already comes from non-gaming sources.

But in the case of the new MGM plan, Wall Street already has its attention on the earnings of companies with strong positions in the high-end hotel business.

Fascination with China explains a lot of it.

Shares of Starwood, which is planning a number of new hotels in China, have recently reached their highest level in almost 20 years. Four Seasons shareholders have approved the sale of the company — it’s a $3.37 billion deal — to a private group that includes that includes company Four Seasons founder Isadore Sharp and Bill Gates.

The prospect of British Chancellor Gordon Brown succeeding Tony Blair at No. 10 Downing Street during the next couple of months appears to put a damper on plans for Parliament taking another look at proposals to expand the number and type of casinos across the country.

That’s the view of a senior official with one of the Las Vegas companies hoping to take advantage of relaxed casino rules that could eventually permit 16 regional casinos and one "super casino."

The executive notes that Brown is no fan of the casino business. Gaming leaders were disappointed by the recent House of Lords vote that rejected casinos despite easy earlier approval in the House of Commons by a margin of 24 votes.

Another of the possibilities is that the single super casino proposed for Manchester will be dropped for the time being since it appears this would open the door to speedy approval of the 16 regional casinos.