MGM Grand weighs options for excess Atlantic City land

David Strow

Thursday, May 25, 2000 | 10:52 a.m.

The president of MGM Grand Inc. is denying reports the casino giant has decided to sell a key land parcel in Atlantic City -- but confirmed that some land sales in that market may be inevitable.

MGM Grand Inc. will become "the land baron of Atlantic City" after acquiring Mirage Resorts Inc., said MGM Grand President and Chief Financial Officer Jim Murren. It will control three parcels at Mirage's 150-acre "Marina District" land tract, the 35-acre "Uptown" site assembled by MGM Grand over the past several years, and two smaller parcels totaling 20 acres.

"We'll have six to seven casino sites we'll control," Murren said. "The only thing I know is we won't have six to seven casinos in Atlantic City in the near future. It would make sense to divest some of that land."

MGM Grand is acquiring Mirage Resorts for $6.4 billion. The deal is expected to close May 31, one day after Mirage shareholders and Nevada gaming regulators vote on the acquisition.

The Press of Atlantic City and the Associated Press have reported that MGM Grand has already targeted the Uptown land parcel for divestiture, citing unnamed sources. Analysts have long suspected that this parcel would be one of the first assets to be sold by MGM Grand as it pared debt from its balance sheet.

On Tuesday, Murren denied these reports.

"That was a report based on hearsay," Murren said. "We haven't made any determinations on any land, whether it's ours or Mirage's."

A final decision on which parcels will be sold will be made by the executive committee of MGM Grand, headed by a "an extremely experienced member of our team" responsible for implementing MGM Grand's Atlantic City strategy. Murren said an announcement on the Atlantic City executive will be made within 30 days.

"If they're looking to raise cash to pay down debt, (land) is one of the things they'd have to look at," said Prudential Securities' Joe Coccimiglio. "It doesn't produce any cash, as opposed to a property."

Though a final decision may not have been made on which parcels to sell, Bear Stearns gaming analyst Jason Ader said the Uptown tract is the one most likely to be sold.

"Given the likelihood of competition from Indian gaming in New York and expanded Indian gaming in Connecticut, it would be foolish to deploy $2 billion in that market developing two sites simultaneously," Ader said. "In our analysis, (the Mirage tract) is the better site for development. That's the property I'd advise them to pursue.

"If I were them, I'd try to sell (the parcels) to someone that wouldn't be a competitor."

Since the mid-1990s, Mirage and MGM Grand have separately accumulated land in Atlantic City, each with the goal of building a $1 billion megaresort in the New Jersey city. Neither company is in that market today.

Mirage's 150-acre site is considered by most analysts to be the most attractive land parcel available for development in the Atlantic City market. There, Mirage has proposed the construction of "Le Jardin Palais," a palatial 1,100-room resort. Mirage first proposed this project in 1995, but has been delayed by a variety of issues, including litigation by archrival Trump Hotels & Casino Resorts.

MGM Grand, meanwhile, began assembling its Uptown tract in 1996, ultimately spending $50 million on land acquisitions. Its parcel is located on the Boardwalk, near Atlantic City's Garden Pier.

In January, MGM Grand received unanimous approval from the Atlantic City City Council to build a $1 billion resort on the site.

Construction has not begun on either site, but the Mirage site is further along in preparations for development. Mirage, for example, has already spent $110 million to provide road access to its site.

Murren said MGM Grand has long envied the attractiveness of the Marina site, which he called the best in Atlantic City.

"We were very jealous of Mirage and their outstanding location on the H-tract," Murren said. "We're very excited about the opportunity to bring that into the family. But I couldn't tell you if we'd develop one (tract) to the exclusion of the other."

Murren was also quick to add the attractiveness of the Marina site didn't diminish MGM Grand's confidence in its own tract.

"We invested a lot of time, energy and money in (the Uptown) site," Murren said. "We wouldn't have done that if we didn't think it was a great site."

The ultimate fate of that parcel, Coccimiglio said, may depend on how other asset sales go.

"If they're able to sell excess land in Las Vegas and elsewhere, they may be able to hold onto (the Uptown land)," Coccimiglio said. "It's possible they may want property on the Boardwalk.

"They've said they'll sell any asset if they get the right price for it. They're not wed to anything."

Also moving forward on the Marina site is the Borgata, a joint venture between Mirage and Las Vegas-based Boyd Gaming Corp. Earlier this month, Boyd announced it was in talks with Mirage to expand the scope of Borgata from 1,200 to 2,000 rooms. Its cost would rise from $750 million to more than $1 billion if that happens.

The expanded cost would increase Mirage's cash contribution to $117 million, and Boyd's to $207 million. When first announced in mid-1998, Mirage and Boyd envisioned a 1,000-room, $500 million resort.

Murren said MGM Grand has been heavily involved in talks to expand Borgata's scope.

"It appears that the project would make a lot of sense in that expanded state ... it works better operationally," Murren said. "But I don't think there's been any final determination on that."