MGM Mirage tells investors Las Vegas is rebounding

Apr 30, 2002 7:45 AM

NEW YORK CITY ”” Jim Murren, president and CFO of MGM MIRAGE Inc. (MGG) set the tone at the Gaming, Lodging & Leisure Investment Forum sponsored by Bear, Stearns & Co Inc. at the Waldorf Astoria Hotel.

The forum was part of the 11th annual Credit Research Conference with some 120 companies making presentations.

Murren emphasized that Las Vegas had rebounded from last year’s terrorist attacks far quicker than what was generally believed, although the numbers of tourists still lagged a bit.

Nevertheless, MGM MIRAGE has seen its booking trends moving strongly with almost no cancellation activity in conventions. During the recent Chinese New Year celebration, he said, there were fewer customers but that the level of play was significant and the house held 21%. Helping to insure continuous action, he said, the company owned three aircraft that “are constantly moving around the country.”

The company recently started a “Players Club,” at the Mirage Resorts, giving executives the opportunity of monitoring slot and table play that can be updated continuously.

Earnings for the first quarter of the fiscal year came in at $0.52, and EBITDA (earnings before interest, taxes, deprecation and amortization) reached $228.5 million, a 50% increase over the attack-impacted fourth quarter of 2001. EBITDA margin rose to 30.7%. Average daily rate per room was $117 while occupancy reached 92.6%.

“We worked very hard to reduce our costs,” Murren said, adding that part of the saving came from “properly scheduled” employees.

He said MGM MIRAGE had a strong balance sheet, superior operating results, strong seasoned management, the premier collection of resorts, and “the best CEO (Terry Lanni) in the business”¦the most respected person in gaming.”

Pinnacle Entertainment Inc. (PNK)

It was like the return of the prodigal son when Dan Lee, recently named CEO of Pinnacle Entertainment Inc. (PNK) took the microphone to address a nearly-full room of Wall Street investors.

Lee was once one of them having spent several years with Drexel Burnham and CS First Boston before joining Steve Wynn’s Mirage Resorts in the early 90’s.

“I guess I’m proof,” said Lee, “that an analyst can invent a good job.”

He said he was excited by his new position because of its current base of operations and because of the prospects for the future. He cited the Indiana riverboat, Belterra, as having a great potential because of its location to the Ohio market areas of Cincinnati, Dayton and Columbus.

In New Orleans, the company’s riverboat was “a cash cow, the most profitable casino in New Orleans”¦It’s just like at Station Casinos property.”

The quality of the property in Biloxi “was second only to Beau Rivage,” while the Reno casino was a giant truck stop.

He said he expected this year’s EBITDA to be in the $75 million to $80 million range with the potential of going to $100 million in a couple of year. “This,” he noted, “with only 25 million shares outstanding.”

Station Casinos Inc. (STN)

Station Casinos Inc. was described by Glenn Christianson, executive vice president, CFO and chief administrative officer, as offering “a key investment strategy, a unique supply and demand play in the fourth largest gaming” sector in the country. He was referring to the so-called “locals” market of Las Vegas.

Christianson said that his company pioneered the development of the locals market and had become the “clear market leader.”

He described Las Vegas as the “fastest growing community” in the U.S. with one and one-half million residents. He said he saw the gaming market growing to $3 billion by the end of the decade.

He said Station Casinos gets 85% of the revenue from slots play, making it both predictable and less volatile. The company operates 20,000 slot machines.

Among recent innovations, he said, were the introduction of Extra Pay Cash which offers free play to regular customers, and the Jumbo Bingo Progressive which has shown “incredible results.”

Investments, he said, include about $90 million in land; a $15 million investment in the Palms resort, a Las Vegas property whose majority owner is the Maloof Family; an operating contract with the Auburn Indians of California, and still to be approved $5 million investment in an online gambling venture with Sun International Holdings Ltd. (SIH).

Boyd Gaming (BYD)

Two projects will impact the near-term and long-term prospects for Boyd Gaming Corp. (BYD), said Ellis Landau, executive vice president, treasurer and CFO. These are the recently-opened Delta Downs “racino” and the Borgata, the casino destination resort being constructed in Atlantic City.

So far, he said, Delta Downs is doing far better than anyone had anticipated with about $300 a day being derived from each of its 1,500 slot machines. The Borgata, a joint venture with MGM MIRAGE Inc., will open in the summer of 2003. It will be the first destination resort developed in Atlantic City.

Meanwhile, he said, existing properties have been performing very well with earnings per share for the first quarter reaching $0.31 compared to last year’s $0.10.

Park Place Entertainment Corp. (PPE)

It was a debut performance for Harry Hagerty, executive vice president and CFO of Park Place Entertainment Corp.

“I’ve only been on the job for 21 days,” said Hagerty who added that some Wall Street stalwarts probably knew more about the company than he did. However, he said, he had developed his presentation with the help of Matt Mattox of the company’s finance department.

He cited three reasons for the company’s potential: diversity, market clustering and technology. The company has properties in the top three markets, Las Vegas, Atlantic City and the Mississippi Gulf Cost.

He said that Las Vegas was “recovering strongly” and that March “was close to last year.”

For the current year, he said, the company would increase efficiencies, be careful in its capital investments, improve its technology focus and use cash flow wisely. He estimated the annual EBITDA would be about $1 billion.

Future developments, he said, would include an Indian casino in the Catskills, possibly by the middle of the decade; a connector between Bally’s Atlantic City and the recently purchased Claridge Hotel & Casino, and the development of its customer card for cross-property promotion.

As for the potential for the approval of some forms of gaming in Pennsylvania, Mattox noted that the company “owns a piece of land in Philadelphia.”

Riviera Holdings Corporation (RIV)

The Riviera Hotel/Casino in Las Vegas “is the oldest surviving casino in Las Vegas”¦the first high-rise property in the early 50’s” explained Bill Westerman, company chairman.

“I believe that we are the smallest gaming company presenting at this conference,” he said but suggested that his company should be looked at. because his company was “doing very well.” In addition to the Riviera, the company operates a casino in Black Hawk, Colo.

Although the Riviera has recovered a good deal from the October, 2001 fall-off, he said room rates remained “below last year.” And, he said he anticipated they would stay below historical levels throughout 2002 and 2003.

As for Black Hawk, he said, EBITDA climbed last year to $12.7 million from $6.5 million.

Expected soon is a decision by Missouri gaming regulators relative to a proposed development in Jefferson County the most underserved area in Missouri. Also awaited, is the allocation of a license for a “racino” in Hobbs, N.M.