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Rod Smith

The Strip: Mandalay Revises Earnings Upward

6 April 2004

Startled Wall Street analysts, seeing estimated first-quarter earnings at Mandalay Resort Group revised upward 30 percent Monday, described Las Vegas as a boom town with bright prospects for the months ahead.

Mandalay announced that its first-quarter earnings would exceed $1.10 per share, which is more than 25 cents, or 30 percent, higher than previous Wall Street estimates of 84 cents a share.

Mandalay President Glenn Schaeffer said the increase came as a result of a 20 percent increase in revenue per available room and a 30 percent increase in slot revenues so far in their first quarter.

Merrill Lynch analyst David Anders said in an advisory to investors that the surging performance at Mandalay is a result of the robust demand for rooms on the Strip, the opening of The Hotel, the new Mandalay Bay convention center and increased leisure travel.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said business has to be white-hot for Mandalay to have surprised the market with the announcement 25 days before its 2004 fiscal first quarter ends.

"Everybody had a sense room rates and occupancy were leaning strongly upward. However, this reflects a broad, mass-market type of growth (surge)," Greff said.

The average rate charged for rooms on the Strip booked three weeks or more in advance increased 30 percent in the first quarter and is up 50 percent so far in the second quarter, Fulcrum data show.

Caesars Entertainment last month also increased earnings estimates to about 18 cents a share from about 12 cents a share, or 50 percent, based on surging demand and increased room rates, higher gaming volumes and improved international demand.

The biggest surprise in the Mandalay announcement was the extent to which incremental revenues are translating to the bottom line, with 55 percent of the incremental room rate revenue going straight into profits, Greff said.

Cash flow, a key measure of profitability, is expected to increase 50 percent at Mandalay, based on the revenue increases.

"Las Vegas is a boom town and April is going to be an even stronger month," Greff said.

Fulcrum data show in April that the number of live shows is up 70 percent from last year, the number of conventions is up 136 percent and the number of major events is up 367 percent.

In May, the trend continues with shows up 50 percent, conventions up 29 percent and major events up 25 percent.

Anders said Merrill Lynch expects demand for Las Vegas as a destination will continue to grow as Bellagio, Caesars Palace and The Venetian add towers. He said the growing demand bodes well for continued strength in room rates and gaming industry profits.

Deutsche Bank analyst Marc Falcone said Mandalay's Strip properties are likely to report their highest profit margins in recent history when the quarter closes and that growth could accelerate over the summer if the underlying trends persist as forecast.

Analysts agreed the developments should bode well for Mandalay, Caesars and MGM Mirage, in particular, because of their strong Strip presence.

Mandalay shares closed Monday at $61.23, up $3.02, or 5.2 percent; Caesars closed at $14.08, up 49 cents or 3.6 percent; and MGM Mirage closed at $48.57, up $1.80, or 3.9 percent.


Las Vegas: Conventions and Live Shows

Number of shows*Number of conventions*Number of events*Mandalay Bay events meetings

April 2004 34 33 14 16

April 2003 20 14 3 5

Year-to-year increase 70% 136% 367% 220%

May 2004 12 22 10 9

May 2003 8 17 8 3

Year-to-year increase 50% 29% 25% 200%

* more than 10,000 attendees

SOURCE: Fulcrum Global Partners