MGM Grand weighing 1,500-room addition

David Strow

Friday, Feb. 11, 2000 | 11:07 a.m.

The MGM Grand hotel-casino became the latest Las Vegas resort to talk about expansion Thursday when the property's top executive said the resort was "aggressively looking" at a 1,500-room addition.

Bill Hornbuckle, president of the hotel-casino, announced the possible expansion at the American Gaming Lodging & Leisure Summit Thursday. Hornbuckle provided no details on the project, possible costs or time frame for construction.

"We've always looked at possible expansion opportunities," Hornbuckle said. "We are now aggressively looking at that opportunity."

Such an expansion would give the MGM Grand 6,500 rooms, solidifying its position as the largest hotel in the United States.

The announcement made the MGM Grand the fifth Strip resort in recent weeks to publicly discuss expansion. And that's starting to make analysts nervous.

Jason Ader, senior managing director for Bear Stearns, said analysts had looked forward to a lull in Las Vegas expansion after a spate of new hotel openings in 1998 and 1999.

"This is going to create a perception that there's a higher degree of risk (among Strip operators)," Ader said. "It's not good."

The project would be situated on 4 acres of land near the MGM convention center. MGM had actively considered the project before, initially planning a hotel on the site operated by Marriott. But MGM pulled back from the project when Las Vegas room growth took off.

Strong occupancy numbers, particularly in January and February, have restored the company's confidence, Hornbuckle said.

"We had been concerned with all the growth," Hornbuckle said. "Some of those concerns have now abated. Occupancy continues to be strong."

In the fourth quarter of 1999, the last figures available, the MGM Grand reported an average daily room rate of $111 and average occupancy of 89.1 percent.

If MGM decides to move forward on the project, it will do so without an outside partner, Hornbuckle said.

Other properties talking expansion currently are the Bellagio, Caesars Palace, the Venetian and the Rio. Together, the five hotels could add as many as 7,300 rooms to the Strip's hotel room inventory.

Mirage Resorts Inc. Chairman Steve Wynn kicked off the surge several weeks ago, announcing plans to break ground on a 1,300-room, $250 million expansion of the Bellagio this summer. Those rooms would go online in 2002.

The other projects announced aren't as firm about a time frame, though Venetian owner Sheldon Adelson said Wednesday he hopes to break ground on a 3,000-room tower by Fall.

"I know what the thinking is ... he who goes first gets the advantage," said Joe Coccimiglio, gaming analyst with Prudential Securities. "All of a sudden, you're seeing the usual arms race you get (with expansion announcements).

"That's a negative for investors, unfortunately. Adding rooms without attractions ... that's just not good for the market."

Coccimiglio, like Ader, believes investors had looked forward to a lull in new capacity on the Strip, after going through a period of rapid expansion that saw room inventory rise 40 percent.

"Investors would like to see that capacity get absorbed," Coccimiglio said. "They want to see share buybacks and debt reductions ... they don't want to see more (capital) spending.

"They want returns now, not in three to four years."