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MGM Mirage hopes for quick resolution to CityCenter feud7 May 2010
By Howard Stutz
Murren, during MGM Mirage's first-quarter earnings conference call with analysts and investors Thursday, briefly said he hopes the matter will be handled quickly in Clark County District Court.
After the call, Murren said he understands MGM Mirage is facing the brunt of the criticism over the disputed payments, which has left dozens of small contractors and firms on the short end.
Many of the firms not being paid are minority- or women-owned businesses that were brought into the CityCenter project by MGM Mirage as part of the company's diversity hiring program. The casino operator required Perini, the general contractor for CityCenter's $6.29 billion construction contract, to award more than $800 million in subcontracts to minority- and women-owned businesses.
"Our issues are not with those firms. Our issues are with Perini," Murren said. "Those firms have signed contracts with the general contractor."
Murren said it bothers him that small local businesses are caught in the middle of the dispute.
"People are upset and we empathize with them," Murren said. "It's an unfortunate situation, which is why we offered to take this to arbitration so it could be resolved quickly. We have a very different position than Perini has, and that will be fully fleshed out in court. We have taken the high road and they have resorted to theatrics in the media to express their point of view."
Perini asked Gov. Jim Gibbons and other elected officials to intervene in the matter. A spokesman for the governor said the office's legal counsel was examining the letter from Perini executives.
A spokeswoman for Perini and a coalition of the subcontractors said Thursday that newspaper and Internet advertisements were being placed to pressure MGM Mirage. Perini officials could not be reached for further comment late Thursday.
CityCenter was much discussed during MGM Mirage's earnings call.
The $8.5 billion development, which opened in December, suffered an operating loss of $255 million in the quarter, which included a $171 million noncash impairment charge related to its residential inventory and other expenses totaling $75 million. CityCenter reported net revenue of $260 million.
MGM Mirage said it lost $96.7 million, or 22 cents per share, for the quarter ended March 31. A year ago, MGM Mirage reported a net income of $105.2 million, or 38 cents a share. Analysts polled by FactSet Research expected a loss of 24 cents a share. Revenue fell 2.7 percent to $1.46 billion from $1.5 billion.
MGM Mirage preannounced earnings last month, so the news wasn't a surprise.
Aria, CityCenter's centerpiece 4,004-room hotel casino, reported net revenue of $160 million and an operating loss of $66 million, which included depreciation expense of $54 million. Aria's hotel occupancy percentage was 63 percent, with an average daily room rate of $194.
CityCenter CEO Bobby Baldwin said the nongaming Vdara Hotel lost $4.1 million in cash flow while the Mandarin Oriental's cash flow lost $6 million. He said the two properties rebounded in April, reversing a combined operating loss of $2.7 million in March to a combined operating profit of $300,000 in April.
"Through reduced expenses, we're becoming more efficient," Baldwin said.
Murren said CityCenter's overall results were affected by weakness in the Las Vegas convention market, but he is optimistic about the rest of the year.
"We see signs of improvement in the Las Vegas market and expect those to accelerate in the second half of the year and into 2011," Murren said. "Our forward bookings continue to improve as our convention bookings continue to gain traction."
Murren said MGM Mirage is unveiling a comprehensive new marketing effort for Aria in the coming weeks. He expects Aria's occupancy to improve over the balance of the year.
As for the development's high-rise condominiums, Vdara has closed sales on 78 units and the Mandarin Oriental has sold 78 condominiums. From those sales, MGM Mirage has realized $116 million in revenue.
Murren said job reductions took place at CityCenter as the company explored ways of operating the facility more efficiently. He couldn't say how many employees were affected, but many areas saw hours and staffing reduced.
The company said the MGM Grand Macau had operating income of $49 million in the first quarter, compared with an operating loss of $5 million in the same quarter of 2009.
Murren said MGM Mirage hired an investment bank to help sell its 50 percent stake in the Borgata in Atlantic City. He said 12 potentially qualified buyers had signed nondisclosure agreements. However, the company is not in a rush to sell its ownership.
"This is not a fire sale," Murren said.
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