CityCenter's performance turns corner, and MGM is glad

LAS VEGAS -- CityCenter has not always been about just gaming.

The development, which was created by MGM Resorts International and carried a price tag of $8.5 billion when it opened in December 2009, was the most ambitious project ever built in Las Vegas.

It was also the most highly scrutinized, a fact that remains today.

CityCenter had just one casino, the 4,004-room centerpiece CityCenter Aria Resort & Casino. Other elements included high-rise residential, nongaming hotels and a retail, dining and entertainment district.

Last month, MGM Resorts executives told investors that CityCenter's total cash flow (pretax earnings) was a record $71 million for the second quarter that ended June 30. Aria's cash flow was $56 million, a 5.4 percent increase over the same quarter a year earlier.

CityCenter Chief Executive Officer Bobby Baldwin termed the year-over-year cash flow growth "impressive" given that Aria's hold percentage on table games was 24 percent on wagers, compared with 29.2 percent a year earlier.

"Aria's growth, despite having held a lower year-over-year rate, is indicative of the growing core customers at Aria," Baldwin said during the company's second-quarter earnings conference call.

During the second quarter, Aria had a room occupancy rate of 92.7 percent. The figure marked the first time in the property's history that room occupancy exceeded 90 percent for an entire quarter. June marked the fourth straight month that Aria had room occupancy above 90 percent.

Revenue per available room, a nontraditional reporting figure analysts use to determine profitability, was $187, the highest ever for Aria in one quarter.

Baldwin and the MGM Resorts team believe CityCenter has turned a significant corner.

"It is noteworthy that the growth in the hotel is occurring in more profitable cash businesses as we continue to perfect the market mix at Aria," Baldwin said.

CityCenter has had its share of issues.

Midway through CityCenter 61-month construction time frame, MGM Resorts sold a 50 percent interest in the complex to Dubai World, the investment arm of the Persian Gulf emirate.

Meanwhile, the economy tanked and MGM Resorts came within hours of shutting down the project entirely until the company was able to persuade banks and lenders to refinance a portion of the development.

The recession blew the bottom out of the high-rise condominium market, forcing a price reduction of CityCenter's 2,400 planned units.

The deaths of six construction workers between February 2007 and May 2008 focused attention on safety issues.

Also, one of the planned buildings, the Harmon Hotel, was halted mid-construction because of structural defects. The building was never finished and has become the center of a protracted legal battle between MGM Resorts and CityCenter general contractor Perini. MGM Resorts wants to demolish the unfinished structure; Perini believes it can be repaired.

Despite the excellent quarter, CityCenter is still a question mark to many on Wall Street.

Less than a year after it opened, CityCenter's equity value was downgraded by MGM Resorts to $2.65 billion.

The development is still a work in progress.

Two years ago, City Center officials put a rental program in place to lease out unsold condominiums at Veer Towers. Condominium sales at Vdara were canceled and the property became a nongaming hotel.

In the second quarter, Vdara's cash flow increased 22.6 percent to $7 million.

There are cosmetic changes under way, too. Construction began recently for a new Strip marquee for Aria, which will have the boulevard's largest digital screen. Baldwin and the sign will increase visibility and drive foot traffic to all of CityCenter.

At Aria, tickets have begun for "Zarkana," a new Cirque du Soleil show that opens November 1, replacing the "Viva Elvis" show.

Tetsu, a teppanyaki grill opened August 1 and Javier's, a high-end Mexican restaurant located off the casino floor, is expected to open this month.

The Crystals retail center also continues to show improvement.

In the second quarter, cash flow was $8.3 million, the center's highest ever for a three-month period. The center is 87 percent leased and SHe by Morton's, a restaurant and nightclub owned jointly by actress Eva Longoria and Landry's CEO Tilman Fertitta, will open in December. The restaurant will take over the space previously occupied by Longoria's Beso Steakhouse.