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MGM announces nongaming hotel project in China

19 Jun 2008

By Howard Stutz

CHINA -- MGM Mirage and its Chinese joint-venture partner announced their first nongaming hotel project in mainland China on Wednesday in which construction is expected to begin later this month.

No financial details were released but one analyst thought the project could be worth $200 million in annual cash flow for MGM Mirage once the development opens.

The deal with the Diaoyutai State Guesthouse calls for MGM Mirage, through its MGM Mirage Hospitality subsidiary, to provide development and management services for Sinosteel International Plaza, a mixed-use project in Tianjin, China.

Tianjin, which has 10 million people, is a gateway city to Beijing and is also a port city in Northern China.

MGM Mirage will develop and operate the 350-room MGM Grand Tianjin, which will include 50 separate suites and 60 condominium residences, along with a spa, restaurant and other amenities. Sinosteel International Plaza will be built in two phases and will include hotel, residential, conference and office components.

Deutsche Bank gaming analyst Bill Lerner said in a note to investors that deals such as this could provide MGM Mirage with "high margin, free-based cash flow." He said MGM Mirage may eventually spin off its nongaming hospitality group into a separate publicly traded company in order to increase its value.

MGM Mirage provides its brand, development and management expertise to the projects.

"(We) would expect many more deals like this one in geographies like Asia, the Middle East, Europe and northern Africa," Lerner said.

MGM Grand Tianjin is the first announced joint-venture project between China's Diaoyutai State Guesthouse and MGM Mirage. In a statement, the company said similar deals are expected in major markets in China.

Groundbreaking for the first phase of Sinosteel International Plaza is expected later this month.

The deal was announced before the stock markets opened Wednesday. Shares of MGM Mirage closed at $41.12 on the New York Stock Exchange, down $1.51, or 3.54 percent.

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