$1.5 billion A.C. resort shelved by MGM MIRAGE

Wednesday, Oct. 16, 2002 | 11 a.m.

MGM MIRAGE said today it will suspend work on its planned $1.5 billion casino resort at Renaissance Pointe in Atlantic City to free up cash for other opportunities, including upgrades in Las Vegas and expansion into new gambling markets.

The company had anticipated building an as-yet-unnamed resort on land it owns at Renaissance Pointe, adjacent to its half-owned Borgata resort expected to open next year. The Renaissance Pointe project, which had been scheduled to open in 2006, is in the Marina district, which is inland from the city's famed Boardwalk casino area.

The move will reduce earnings for MGM MIRAGE, which will no longer be able to capitalize the interest associated with the Atlantic City project. The company will expense the interest until the project resumes. The capitalization of such interest boosted the company's earnings per share by about 5 cents per quarter during the first nine months of 2002.

The move will not cut operating cash flow -- a key indicator often used by analysts to determine the overall health of casino operations.

The company expects to direct excess free cash flow "to improve its market leading position" in markets like Las Vegas, Detroit and Biloxi, Miss., as well as to strengthen its balance sheet and repurchase shares.

The luxury Borgata casino resort, a joint project with Las Vegas-based Boyd Gaming Corp., remains on schedule and on budget for a summer 2003 opening, the company said.

"Atlantic City is a vibrant market with an assured path for growth," MGM MIRAGE Chairman and Chief Executive Terry Lanni said in a statement. Over the next few years, more than 3,000 new rooms -- including Borgata's 2,010 guestrooms -- will improve the market and help remake Atlantic City as a destination resort, he said.

"Gaming is likely to expand overseas, as well as in several U.S. states and on Native American lands ... we intend to participate in this growth."

The move isn't timed to any specific competitive move in Las Vegas, such as Steve Wynn's planned $2.4 billion Le Reve casino resort, an MGM MIRAGE spokesman said.

"This has everything to do with the fact that not since the early '90s have we seen the scope and breadth of the new opportunities on the horizon," spokesman Alan Feldman said.

The company aims to deploy capital to existing projects in Las Vegas rather than new casinos, such as a previously-delayed resort once planned at the company's aging Boardwalk casino on the Las Vegas Strip, he added.

"This has more to do with .. maintaining the pizzazz of current projects. We're constantly adding new restaurants and new shows, remodeling and upgrading rooms. It's a constant process here."

Some Wall Street observers expressed approval today, saying the company is responding to recent developments in an ever-changing competitive landscape.

"I think it's a smart strategic decision for the company," said Marc Falcone, a casino industry analyst with Deutsche Bank Securities.

"It's tough to make a commitment to build a $1 billion to $1.5 billion (casino) knowing you could have legalized gaming in Pennsylvania, New York and Maryland" in the near term, Falcone said.

"There's a lot of competitive pressures that could emerge in Atlantic City."

McDonald Investments analyst Dennis Forst said the prospect of legalizing slot machines at racetracks in Pennsylvania and Maryland could be the biggest threat to Atlantic City in the near term.

"There are higher return opportunities for them elsewhere."

The suspension of the Renaissance Pointe project delays a long-term threat to major competitors in Atlantic City, including Las Vegas companies Park Place Entertainment Corp. and Harrah's Entertainment Inc., Bear, Stearns & Co. analyst Jason Ader wrote in a research note. The move also could slow a "potential shift in critical mass" from the Boardwalk to the Marina, he wrote.

Several states are considering either legalizing gambling for the first time or expanding existing gambling operations, including New York, Pennsylvania, Maryland and Delaware. The proliferation of Indian gambling and the expansion of casinos abroad is also at hand, analysts say.

In August, the company hired a full-time consultant to lead its development team and pursue relationships with Indian tribes for the first time. The consultant, Ken Rosevear, is helping a tribe develop a new casino resort in downtown Palm Springs. And last month, MGM MIRAGE became the first major U.S. casino company to launch a site for Internet gambling, which remains illegal in this country. The casino, intended for foreign gamblers, is based in the Isle of Man, a small island nation off the coast of Britain that has developed Internet gambling regulations.

In Las Vegas, the company recently announced plans to spend $375 million on a second tower at its profitable Bellagio casino resort.

In January 2001, MGM MIRAGE announced it would delay plans to build a new resort at the Boardwalk, an aging casino near Bellagio. The company had intended to build a property catering to "Generation X" but decided instead devote capital to the Borgata in Atlantic City, resulting in an expense charge that reduced earnings last year.

MGM MIRAGE stock fell roughly 2.7 percent in early trading today, to $33.95.