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Murren: Make Us An Offer

By Chuckmonster on Tuesday, 17th February 2015 10:39am
  » filed under Las Vegas  comments: 9

   

In this morning's investor relations call, MGM Resorts International reported positive results for Q4 2014, "the best Q4 EBITA since the peak in 2007" and "the best full year in six years."

City Center has been a bright spot for the company it almost bankrupted. City Center has retired its long term debt, is banking profits and considering strategic re-investment and recapitalization of the property including leveraging assets and exploration of possible sale of portions of City Center.

The company stated that Harmon demolition is going full steam ahead at the rate of one floor per week, and expect the building to be completely removed by the end of 2015, whereupon a new facade for Crystals will be constructed. Executives are starting to engage in "whiteboard" meetings to discuss how to best capitalize on the 2.2 acres that will open up when Harmon demolition is complete.

Murren believes that MGM's large real estate holdings on The Strip combined with low interest rates and heightened interest by private equity firms may benefit MGM investors.

"I can't say for sure that there won't be a sale on The Strip" Murren stated before recalling the $750m sale of Treasure Island to Phil Ruffin. "I'm a firm believer of culling a portfolio."

Of all assets MGM holds at CityCenter, selling Crystals is the obvious choice. Selling the Veer structures and property management business is another option.

As for the casino resorts on the Strip, MGM has tons of options to divest - I'd guess that everything except MGM Grand, NYNY, Monte Carlo, City Center and Bellagio is fair game. Mirage and Mandalay Mile are the lowest hanging fruit, as evidenced by their perpetually embroiled in sale rumors.

Circus Circus and the old El Rancho parcels will increase in value, and become more attractive, should the North Strip redevelopment becomes a reality. Circus Circus will require capital investment to modernize the place or it remains a grind joint. The El Rancho requires vision, patience and pockets deep with cash and ego to warrant a peek. A multi-phase completion of Fontainebleau might be better use of capital. Barely.



Tagged: murren   mgm resorts   city center   crystals   harmon   





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Comments & Discussion:

With the sale of the Riv no longer a rumor and the Riv likely closing in mid-August, this presents an interesting opportunity for MGM Resorts in regards to Circus Circus. Could we see the Riv do like the Sahara and sell off their player's club database to Circus Circus? Could the sale and redevelopment of the Riv spur MGM to revisit earlier plans for their North Strip real estate?

For many casino operators, Mandalay Bay would be a flagship property, but for MGM Resorts, it's an afterthought to some extent.

But who could be potential buyers for some of these assets if MGM Resorts were to sell some of them off? There's really not a lot of players out there when you think about it. Penn National's name has popped up in the past with rumored hotel deals in Vegas, but seem content with M Resort. Would Pinnacle be interested in anything on The Strip MGM might have on offer? Does the Mirage finally get sold to Ruffin? Could someone completely unexpected come in and make a bid for assets (Like say Westgate making an offer to buy Vdara.)?

I really hope they don't sell the Mirage, especially not to Ruffin. I know he's a GREAT business-man and all but in his quest for more $$$ per sq.ft he would most likely get rid of the volcano and put up another CVS or Walgreen's! AND God only know's what he would do to Siegfried & Roy's Jungle Habitat...

Vespajet - there are tons of folks out there who what to get in. You need to think outside of existing casino companies at the massive sea of private equity folks like TPG/Leonard Green (who bought Palms) and Blackstone (who bought Cosmo) and Onex (who bought Trop) or Stockbridge (who bought Sahara). They're real estate speculators first, optimizers second and operators third.

TPG along with Apollo also own a piece of Alliante which they got in the Station Casinos bankruptcy because they would have gotten a lot less had the property been auctioned off.

I wonder if some private equity folks may be a bit hesitant to make the leap into casinos or expand their holdings. Blackstone, TPG and Apollo also have their fingers in the pie over at Caesars and we all know what their buyout of the then-Harrah's Entertainment snowballed into. With Blackstone's existing hotel portfolio prior to the acquisition of Cosmo, they may be a likely buy if the deal makes sense.

Perhaps Starwood Capital will continue to have a presence in Vegas after selling off The Riv? They've acquired some upscale malls in recent months, so perhaps they potentially make a bid for Crystals? They've definitely got the means to acquire other casino properties in Vegas.

A while ago I would've suggested MGM sell the Mirage and buy the Cosmopolitan and from a purely network-externalities-based viewpoint this makes sense, but MGM are pouring some money into the Mirage (new restaurants, new casino carpet and I was told by my host there that they'll be putting a lounge with live music into the middle of the casino) so I don't think they'll be willing to part with it.

Plus, the Mirage gives them a presence on the North Strip. Over time there will certainly be an increase of energy in that area.

At the moment, however, I think MGM need to focus on renovations and bringing their products up to scratch. Mandalay Bay's normal rooms seriously need an update. NYNY, Monte Carlo, Luxor and Excalibur all need updates/refreshes as well.

If there is going to be a new resort by MGM, I wonder if it will be placed on the North Strip. Doesn't MGM have a spot next to Circus Circus, where either a CityCenter North or a project with Kerzner International was going to be built? The idea of an "Atlantis Las Vegas" is certainly interesting, although the Vegas water park business has several competitors already and Resorts World is going to have one too.

The land MGM has on the North Strip is where they're building the festival site for Rock In Rio USA and will also hold other events at. MGM also has land on the South Strip across the street from Luxor next door to the Trop which is also being used as an outdoor entertainment venue.

I think Mandalay Bay is safe in the collection of assets. Convention business is a huge revenue driver and Mandalay Bay's thing is conventions. Mandalay Bay was also 3rd in line for Vegas properties with highest EBITDA.

Luxor I could see similar situations to Delano. Turn on of the towers into a Hotel Indigo - boutique hotels are all the rage. IHG I think would eat that offer up. Millennials are the new market, and Luxor already attracts that.

Excalibur was built for the only purpose of ROI. So I do not think Excalibur is going anywhere as it is just a pure profit making machine.

If any assets were to go, I see the ones outside of the Vegas market. Look at MGM Grand in Detroit. It runs $249 on weekdays and $299 on weekends. No one is staying in that hotel. If the rates are static like that - I can guarantee their occupancy is running 20-30%. Maybe. Let's also not forget about the dying AC - they still have investment in Borgata. But my solid guess would be Tunica on the chopping block.

I hope and pray that The Mirage doesn't fall in the hands of Phil Ruffin. It is one of my favorite properties and has always held a special place in my Vegas Heart as I remember visiting it as a kid in 1989 shortly after it opened. The Wynn era Mirage is my favorite casino of all time. I don't think MGM even needed to renovate it much. If anything all they should have done was ripped out the carpet, replace it, and given it a fresh coat of paint, etc. The bamboo/tiki huts throughout the gaming area were awesome. Now all that remains of them is the roof over the bar adjacent the sports book. Before MGM getting their hands on it volcano use to light up. The area where the water cascades down use to go up in flames. Not just the top. Well, enough of my stroll down memory lane and back on topic.

I don't think Phil will get his hands on The Mirage. He's obviously a shrewd and successful business man which I give him props for, but his style is that of a bargain hunter. He got Treasure Island for a song because MGM was in dire financial trouble and needed the funds to continue City Center construction. MGM does not appear to be in the financial boat they were in when they sold Treasure Island . If anything, reading between Jimbo's lines, he's ready to sell properties but it doesn't sound like he's willing to entertain low ball offers. From the estimates I've heard it would cost about $3 billion to build a Monte Carlo/Mirage caliber property. With that being said I don't see Jimmy even looking at anyone who does not offer $2 billion plus. Additionally, I think they would also have offers from multiple parties (i.e. private equity companies, mid sized casino companies, etc.) for any of their strip properties they were considering selling. I see them holding on to Circus Circus and the adjacent land to it. If anything the value of that property is increasing with the Riveria being replaced by a convention center expansion, and future construction of Resorts World and Elan. Unless someone makes them an earth shattering offer I don't see them selling it. I think the smart thing for them to do is hold onto it for another 3-4 years. By this time Resorts World and Elan should hopefully be operating full swing and then sell it. Perhaps utilize the funds generated to pay down some debt or reinvest.

MGM has been putting money into Gold Strike in Tunica. Although Tunica traffic has been declining over the years in Tunica, Gold Strike is the king of the hill in Tunica, in my opinion. Plus this is a feeder property to Vegas. So I would be hesitant about MGM selling off Gold Strike.

I do not see MGM selling off Beau Rivage in Biloxi. This property is the premier casino resort in all of MS and surrounding area (again in my opinion, but also rated as the best by many polls).

I am puzzled by thinking MGM would sell Mandalay Bay. This property has such a large convention complex. I see MGM using their hotel network to serve this convention complex. For instance, when I attend a convention at MB, the organization informs us attendees of hotel rooms at only MGM properties. MB does not have enough hotel rooms so other hotels are needed. So MGM uses the MB Convention center as a feeder to their other hotels, restaurants, and casinos.

I too hope MGM does not sell off the Mirage.



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