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MGM Mirage reports $750.4 million quarterly loss

6 November 2009

LAS VEGAS, Nevada -- For the moment, forget about MGM Mirage's $750.4 million quarterly net loss, $1.17 billion in noncash impairment charges and a revenue decline of 9 percent.

To the Strip casino giant and its investors, the company's third-quarter earnings announcement Thursday was all about CityCenter.

The first component in the $8.5 billion, 67-acre Strip development, the 1,500-room nongaming Vdara, opens in 26 days. The project's retail, dining and entertainment component opens two days later, followed by the nongaming Mandarin Oriental on Dec. 4.

MGM Mirage executives spent a considerable portion of their hourlong conference call with analysts expressing optimism that the $8.5 billion CityCenter will not only grow the market, but will fuel Las Vegas' economic rebound in 2010. They said the company, which now operates nine Strip hotel-casinos catering to all ends of the consumer spending spectrum, has the necessary data showing that a turnaround has begun.

"We're not out of the woods and we're not popping the champagne corks like the New York Yankees, but there are signs the market is healing itself," said MGM Mirage Chairman and Chief Executive Officer Jim Murren. "We know the market. None of our competitors has the empirical data that we have in front of us because we deal with every type of customer that comes to Las Vegas."

Murren told investors CityCenter could spur a 5 to 10 percent increase in Las Vegas visitor volume in 2010 and a gradual increase in revenue per available room, a nontraditional measurement Wall Street uses to determine profitability. Convention bookings into 2010, he said, have increased. The company has booked about 550,000 convention room nights into the third quarter of next year, the bulk of which are at Mandalay Bay.

Las Vegas history, Murren said, has shown new resorts grow the market. He cited The Mirage's opening in 1989, MGM Grand in 1993, Bellagio in 1998 and Wynn Las Vegas in 2005. None of those resorts, however, opened in the middle of a recession.

"We believe this opening will truly differentiate ourselves," Murren said. "(CityCenter) is a must-see iconic destination. It's an investment not only for next year, but also for future years."

Wall Street is still skeptical.

"We remain cautious on Las Vegas' operating trends heading into a 10 percent supply increase starting next month with CityCenter," Goldman Sachs gaming analyst Steven Kent said.

To ensure attention, MGM Mirage plans to spend $20 million by the end of December on advertising and promotional activities surrounding CityCenter's opening. In 2010, the company will spend $27 million on newspaper, television and Internet advertising to build the CityCenter brand.

CityCenter CEO Bobby Baldwin said company projections have Aria, the development's centerpiece 4,004-room hotel-casino that opens Dec. 16, generating $1.2 billion in revenue in 2010. Aria has booked hotel rooms 258 days and has become the Strip's most expensive hotel, booking a room rate that is a premium to Bellagio 80 percent of the time. Crystals will open with 47 percent of its tenants in December and expects to be 82 percent occupied by July.

Baldwin said the CityCenter residential sales employees have spoken with about 700 of the 975 buyers of the project's residential offerings about the 30 percent price reductions announced in October. Condominium sales will begin closing in January at Mandarin Oriental, the all-residential Veer Towers in February and Vdara in March.

Even with the price reductions, Baldwin said the condominium sales will exceed the company's financial projections. MGM Mirage previewed its third-quarter earnings somewhat on Oct. 20, telling Wall Street about the impairment charges, the impending quarterly loss and a third party valuation of CityCenter that said MGM Mirage's 50 percent equity investment in the project was worth $2.44 billion.

The investment community wasn't surprised by the net loss, which translated into a loss per share of $1.70 for the quarter that ended Sept. 30. In the same quarter a year ago, MGM Mirage reported net income of $61.3 million, or earnings of 22 cents a share.

Analysts polled by Thomson Reuters, whose estimates typically exclude one-time items like charges, expected MGM Mirage to post a loss of 7 cents per share.

The impairment charges included a pre-tax charge of $956 million related to the investment in CityCenter and a pre-tax non-cash charge of $203 million related to impairment of CityCenter's residential real estate under development.

Dubai World, the investment arm of the Persian Gulf emirate, owns the other half of CityCenter.

Companywide revenue in the quarter was $1.5 billion, a 9 percent decline compared with $1.9 billion in the same quarter a year ago. Casino revenue, however, declined just 1 percent because of strong baccarat results from the company's Strip casinos.

Murren said the company's cash flow and margins improved in the quarter.

MGM Mirage reports $750.4 million quarterly loss is republished from