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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Sales spark surge for MGM Mirage

3 August 2007

LAS VEGAS, Nevada -- Becoming a seller has been a profitable move for MGM Mirage.

After spending much of the last 10 years as an acquirer -- paying a combined $13 billion for rivals Mirage Resorts and Mandalay Resort Group -- the casino operator sold off pieces of the company in the past year to focus on other projects.

The results significantly fueled MGM Mirage's second-quarter earnings that were announced Thursday.

MGM Mirage said its net income in the quarter ended June 30 was $360.2 million, or $1.22 per share, compared with $146.4 million, or 50 cents per share, a year earlier.

Analysts polled by Thomson Financial expected the company to report earnings of 58 cents per share.

The company's earnings included a combined pretax gain of $263.9 million for the sale of its three Primm Valley Resorts to Herbst Gaming and the company's two Laughlin casinos to a partnership headed by Anthony Marnell III.

In addition, MGM Mirage said it recognized $63 million in profits during the quarter for sales of condominium units in the third tower of its Signature at MGM Grand development.

"When we look at our company, we don't aspire to be the largest gaming company in the world. We look at ourselves as a portfolio manager of tremendous assets," MGM Mirage President and Chief Financial Officer Jim Murren said following the company's quarterly conference call with analysts and investors.

"We have never sold any land on the Strip nor do we anticipate selling any of our Strip holdings," Murren said. "The Strip is a four-mile-long beachhead and we own more of it than anyone else. We've worked hard to acquire as much Strip land as we can, and it's more than enough to develop over the next 20 years."

Murren said Wall Street speculation in the past that MGM Mirage might sell off a few of its Strip casinos, such as Circus Circus, was not unexpected. Instead of selling, though, the company plans to remodel the casino and focus on the midmarket customer. Murren said he thought that property's customer base was strengthened because competition, including the Stardust and New Frontier, have closed in the past year.

Meanwhile, the company's Strip casinos helped strengthen the quarter for MGM Mirage.

Overall company revenues rose 10.5 percent to $2.1 billion from $1.9 billion a year earlier. Strip revenues rose 6.7 percent to $1.6 billion from $1.5 billion.

On the Strip, occupancy at MGM Mirage-owned casinos was almost 98 percent, the highest occupancy for any quarter since 2000. Also, New York-New York, The Mirage, Treasure Island, Excalibur and the MGM Grand all reported record property cash flow, defined as earnings before interest, taxes, depreciation and amortization.

At MGM Grand, the property cash flow was $108 million a 43 percent increase compared with a year ago and accounted for one-fifth of the company's Strip total cash flow of $531.2 million during the quarter.

Initially gaming analysts had a differing view of MGM Mirage's performance on the Strip.

"The operating results were generally mixed, with the upside coming from better than expected residential sales," CIBC World Markets gaming analyst David Katz said in a note to investors. "Performance on the Strip was mixed across the portfolio."

Goldman Sachs gaming analyst Steven Kent thought MGM Mirage's results from its Strip casinos "were a little below our expectations."

Murren said the company was able to explain away some conference questions, such as how a drop in the casino affected results at Bellagio.

"Clearly, we are barometer as to the health of the Strip," Murren said. "Because of our prominence here, many messages come out. I think this year is going to be a lot like last year with solid results."

After Murren's explanation, investors reacted positively. The company's shares rose $2.59, or 3.58 percent, to close at $74.89 on the New York Stock Exchange.

Also during the quarter, the reopened Beau Rivage helped re-energize MGM Mirage's holdings in Mississippi, which include a casino in Tunica. Overall Mississippi revenue jumped to $138.2 million in the quarter from $38.6 million a year ago. The Beau Rivage in Biloxi reported cash flow of $23 million.

At CityCenter, MGM Mirage's $7.4 billion development, half of the residential units that have been put on the market have sold, accounting for $1.4 billion in CityCenter sales to date.

Sales spark surge for MGM Mirage is republished from Online.CasinoCity.com.