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Steve Green
 

Vegas downturn weighs on MGM Mirage earnings

3 August 2009

LAS VEGAS, Nevada -- MGM Mirage's Las Vegas customers spent considerably less in the second quarter, a decline contributing to a quarterly loss by the hotel-casino operator.

With the recession reducing travel and discretionary spending worldwide, MGM Mirage responded in the quarter with lower room rates and deals to entice visitors.

Net revenue of $1.494 billion in the quarter ended June 30 was down 17 percent from the $1.895 billion reported in 2008's second quarter.

Operating income, a measure of profitability, fell from $333.8 million in the 2008 quarter to $131 million in the 2008 quarter.

Including one-time charges for impairment of a convertible note and retirement of long-term debt, MGM Mirage lost $212.6 million or 60 cents per share vs. a profit in the year-ago quarter of $113.1 million or 40 cents.

At the company's big resorts on the Las Vegas Strip such as Bellagio and Mandalay Bay, hotel revenue per available room tumbled from $151 in the 2008 quarter to $104 in the most recent quarter, as the average daily room rate fell from $156 to $111.

MGM Mirage said year-over-year hotel occupancy in Las Vegas fell three percentage points to 94 percent.

These declines for the quarter are in line with results posted earlier by Las Vegas competitors Harrah's Entertainment Inc., Las Vegas Sands Corp. and Wynn Resorts.

Despite the declines, MGM Mirage said it sees signs of stabilization in Las Vegas as the countdown begins to the opening of the $8.5 billion joint-venture CityCenter complex beginning later this year.

During the quarter the company secured funding for the completion of the CityCenter hotel, gaming, retail and residential destination in Las Vegas; issued $1.15 billion of equity through an offering of common stock, issued $1.5 billion of senior secured notes and secured key amendments to its senior credit facility.

"This has been a monumental quarter for us, as the significant capital market transactions and other corporate finance activities meaningfully improved our financial position," Chairman and Chief Executive Officer Jim Murren said in a statement. "Perhaps as important, we saw a more stabilized -- though still difficult -- operating environment in the second quarter. Our operating teams are focused on continuing to sequentially increase cash flow and our CityCenter team is driving towards completion and opening of CityCenter. We believe CityCenter will invigorate the Las Vegas market and be a key component of the future growth of MGM Mirage."

MGM Mirage said the $188 million impairment charge is primarily related to its investment in the M Resort in Henderson. In 2007, MGM Mirage announced plans to finance $160 million of the M Resort in the form of an eight-year, subordinated convertible note. The value of that note has declined based on its subordinated nature and local and national economic challenges, said Dan D'Arrigo, MGM Mirage executive vice president and chief financial officer.

The company also took a $12 million impairment charge related to the write-off of development costs related to the company's postponed joint-venture resort on the North Strip at Sahara Avenue.

During a conference call this morning, MGM Mirage officials said the decline in hotel room revenue will likely continue on a year-over-year basis in the third quarter. But they said the decline, on a percentage basis, has been improving sequentially since 2008's fourth quarter.

"The operating environment clearly stabilized in the second quarter, but we're not out of the woods. The operating environment we think will remain choppy in the near term. However, we see extremely positive signs, especially as we go into 2010," Murren said.

Executives said CityCenter is poised to be a game-changer for Las Vegas and that MGM Mirage expects some 39 million people to visit Las Vegas next year, most of whom will visit CityCenter. (Some 37.5 million people visited the destination in 2008). CityCenter is likely to drive growth in foot and auto traffic in an area of the Las Vegas Strip already dominated by MGM Mirage properties such as Bellagio, Monte Carlo, New York-New York and the MGM Grand.

"CityCenter in our minds will drive growth ... in the Las Vegas market as a whole," Murren said on the call. "We believe this is the next generation of a casino complex and probably the only one that will be built for many years in Las Vegas and certainly no other property at this level.

"It is unique and it is 'must-see.' It is the Mirage and Bellagio of its time. It is sophisticated and will drive customers from other properties as well as drive new high-end national and international customers into the market. It will profoundly increase foot traffic to the south side of the Strip, which of course benefits MGM Mirage," Murren said.

Company officials downplayed concerns that CityCenter will cannibalize business from other MGM Mirage properties -- insisting any cannibalization will more likely affect competitors. They noted future bookings at the high-end Bellagio are holding up, while convention bookings are increasing for Mandalay Bay.

And MGM Mirage reiterated it's considering lowering prices for CityCenter condominiums and looking at options to help buyers finance the condos so more sales can be completed and revenue booked in the fall.

Vegas downturn weighs on MGM Mirage earnings is republished from Online.CasinoCity.com.