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Gaming Guru

Howard Stutz

CityCenter budget hits $9 billion

15 May 2008

LAS VEGAS, Nevada -- The cost to build MGM Mirage's massive CityCenter development has cracked the $9 billion mark.

In a filing with the U.S. Securities and Exchange Commission, MGM Mirage said the construction budget for CityCenter had increased to $9.2 billion, which includes capitalized interest. The casino operator had previously estimated CityCenter's construction budget was between $8.1 billion and $8.4 billion.

Meanwhile, MGM Mirage announced Wednesday it would repurchase up to 20 million shares of the company's stock. No timetable was given for the program. In a statement, MGM Mirage said it has repurchased 1.27 million shares during the current quarter, leaving 1.36 million shares available for repurchase under the previous program approved in December. MGM Mirage had more than 278.7 million shares outstanding as of May 7.

MGM Mirage spokesman Alan Feldman said the budget increase reflected continued rising construction costs development projects are experiencing nationwide. The new price also takes into account an increase in the value of the assets. Last year, Dubai World, the investment arm of the Persian Gulf state of Dubai, purchased a 50 percent interest in CityCenter.

Other enhancements to the project's budget include $1.7 billion for the cost of land, $2 million the company has spent on preopening expenses and $1 million for intangible assets. When the expected residential sales proceeds of $2.7 billion are factored into the equation, CityCenter has a net project budget of $8.5 billion.

On Wednesday, construction workers topped off Vdara, CityCenter's 57-story nongaming hotel and condominium project. The 4,000-room CityCenter hotel-casino, the 76-acre project's centerpiece, is expected to be topped off in August. Three other high-rise projects, the Mandarin Oriental, Harmon Hotel and the residential-only Veer Towers, are also in various stages of construction. In all, the company has sold a little more than half of the expected 2,750 residential units.

CityCenter also includes Crystals, a 500,000-square-foot retail, dining and entertainment complex, and a Cirque du Soleil theater for an Elvis Presley-themed show. CityCenter is still on target for a November 2009 opening, Feldman said.

Gaming analysts said the stock repurchase effort might boost the company's sagging stock price. Shares of MGM Mirage have traded between $47.60 and $100.50 over the past 52 weeks, falling some 30 percent since Jan. 1.

"Given MGM Mirage's strong balance sheet position, and the recent weak share-price performance, we are not surprised by this morning's announcement," Bear Stearns gaming analyst Joe Greff said in a note to investors. "We continue to maintain our 'outperform' rating given what we see as value in the company looking beyond the current year."

The announcement boosted MGM Mirage shares on the New York Stock Exchange. The company's stock rose $1.01, or 2 percent, to close at $51.46.

Should MGM Mirage complete the repurchase, it would increase the equity stakes of its major shareholders, billionaire Kirk Kerkorian and Dubai World, which now own 53.4 percent and 9.3 percent, respectively.

"The continued share repurchase activity and high insider ownership of the company increases the likelihood of a privatization of MGM Mirage at some point in time," gaming analyst Dennis Farrell Jr. of Wachovia Capital Markets said in an investors note.

CityCenter budget hits $9 billion is republished from