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Oct. 21, 2009
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THE STRIP: CityCenter valued below cost

MGM Mirage: Half-stake in project worth $2.44 billion

By HOWARD STUTZ
LAS VEGAS REVIEW-JOURNAL

MGM Mirage's CityCenter is seen Tuesday on the Strip. Tracinda Corp., the private investment company run by MGM majority stakeholder Kirk Kerkorian, said it "believes there is substantial unrecognized value in MGM Mirage and CityCenter that is not reflected in the market value of MGM Mirage's stock."
Photo by The Associated Press



Kirk Kerkorian
MGM Mirage majority stakeholder hints that he may divest himself from company

CityCenter is worth about half of what it cost MGM Mirage and Dubai World to build the massive Strip development, according to third-party valuation specialists.

In a statement to investors Tuesday, in which MGM Mirage said it was writing down more than $1 billion related to CityCenter, the company estimated the value of its 50 percent ownership in CityCenter at approximately $2.44 billion. The project's total construction budget is $8.5 billion.

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    • "This decision and related market conditions led to the conclusion that the carrying value of the residential inventory is not recoverable," MGM Mirage said in a statement.

    MGM Mirage said CityCenter was required to have unnamed third parties review its residential inventory for impairment because of the company's decision to reduce the cost of project's 2,400 residential condominiums by 30 percent.

    Also, MGM Mirage's largest shareholder, billionaire Kirk Kerkorian, hinted he might divest himself from the company.

    MGM Mirage said it would write down $955 million of its CityCenter investment in a pretax, noncash charge. In a statement, the company said its joint venture with Dubai World in CityCenter would take a $348 million noncash charge related to the development's residential real estate. MGM Mirage suspects it will have to cover about $200 million of the write-down.

    The company may provide more information on the write-downs when it reports earnings Nov. 5.

    The 67-acre CityCenter development, which has a 4,004-room hotel-casino, boutique hotels, high-rise residential and dining, entertainment and a retail district, opens in December.

    Wall Street, which watched as CityCenter came close to bankruptcy in April and has seen the project hampered by cost overruns, had little reaction to the news. Shares of MGM Mirage closed at $11.93 on the New York Stock Exchange, up 13 cents, or 1.1 percent.

    "Investors have long expected (and will probably expect further) write-downs of the carrying value of its residential towers at CityCenter, especially after it reduced unit pricing by 30 percent or so," BMO Capital Markets analyst Jeffrey Logsdon said in a note to clients. "We do not expect investors to have a negative reaction to this step."

    In a separate announcement, MGM Mirage majority shareholder Kirk Kerkorian said he might reduce his 37 percent stake in the company. According to a filing with the Securities and Exchange Commission, Kerkorian controls more than 163.1 million shares of MGM Mirage.

    In a brief statement released through Tracinda Corp., his privately held investment arm, the 92-year-old Los Angeles billionaire said the holding company was exploring the possibility of strategic partnerships with respect to his MGM Mirage investment.

    Tracinda "believes there is substantial unrecognized value in MGM Mirage and CityCenter that is not reflected in the market value of MGM Mirage's stock." Tracinda said it won't engage in a transaction until CityCenter is complete.

    Kerkorian's holdings in MGM Mirage decreased from 58.3 percent in May to 37 percent when the company completed a $2.6 billion restructuring package.

    Gaming analysts speculated that Kerkorian, who founded the company's predecessor, MGM Grand Corp., and sits on the MGM Mirage board of directors, may be trying to drive up the price per share.

    In 2006 and 2007, Kerkorian twice tried to move the needle on MGM Mirage, including by suggesting he would take both CityCenter and Bellagio private in 2007 before Dubai World purchased half of the project.

    "It's hard to guess what exactly Kirk Kerkorian is up to here," Susquehanna Financial Group gaming analyst Robert LaFleur said. "This could be a public statement that Tracinda believes MGM Mirage shares are undervalued. This could also just amount to nothing, as the filing just suggests he is just mulling the possibility of a sale."

    Union Gaming Group principal Bill Lerner said Kerkorian might have finally reached a point where he wants to get as much value for his holdings as possible. Lerner wouldn't be surprised if Kerkorian sells his stake.

    "I think it's real and I think he wants to distribute wealth given his age," Lerner said. "He seems to be telling the market he'll do it responsibly."

    Lerner thought Kerkorian would rather sell his shares to a partner rather than sell them on the open market.

    Kerkorian tumbled the furthest of all gaming executives recently on the Forbes 400 List of Richest Americans, falling from 27th in 2008 with $11.2 billion, to 97th in 2009 with a net worth of $3 billion.

    MGM Mirage's declining stock since the end of 2007 reduced the value of Kerkorian's holdings in the company from $11 billion to $1.5 billion. Other Kerkorian investments in oil and automotive industries also suffered throughout the year.

    Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

    KIRK KERKORIAN’S MGM MIRAGE INVESTMENT

    DATE SHARE PRICE VALUE
    Oct. 9, 2007 $99.75
    (All-time high)    		 $15.84 billion
    (based on 158.8 million shares)
    Oct. 20, 2009 $11.93
    (Tuesday close)    		 $1.945 billion
    (based on 163.1 million shares)


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    Fred Frazzetta wrote on October 28, 2009 06:59 AM: CityCenter is worth about half of what it cost MGM Mirage and Dubai World to build the massive Strip development, according to third-party valuation specialists.

    If CityCenter is only worth half of what it actually cost MGM/Dubai to build, then why is there only a 30% reduction in the condominium prices? Shouldn't the prices reflect the true current fair market value? Why should investors pay more than the CURRENT FAIR MARKET VALUE? The investors should not bear the cost of MGM Mirage & Dubai World's mistake. It is unfair of MGM Mirage & Dubai World to attempt screwing the investors!


    butcher wrote on October 21, 2009 11:16 PM: CityCenter is right on!The rest of you need to get back on the bus where you came.The Natives know City Center is Big,so try putting your money in the stocks,if you had invested in LVS,MGM BYD,WYNN,Sirius,AIG C,in March,when The President said its time you'd have gained 400 to 500 % your investment.You chicken little's have been crying the same tune forever,can't wait to hear you whining as 12/21/12 arrives.


    captain obvious wrote on October 21, 2009 08:02 PM: Duh!!


    Tom, Burbank wrote on October 21, 2009 07:06 PM: City Crater worth less than it cost to build? Su-prise, su-prise, su-prise. In the long run it may be worth something to someone, once it's broken up and sold in bits, pieces and parcels. Time will tell.


    InDemand wrote on October 21, 2009 06:40 PM: I hope it tanks! I come to Las Vegas at least once a year. I travel from Henderson to the hills. If you stand on top of the parking garage of Green Valley the skyline is just not the same. My wife and I just cry at the distruction of the strip.


    ms wrote on October 21, 2009 04:41 PM: They spent too much money on drug and alcohol testing!


    City Cemetery wrote on October 21, 2009 04:07 PM: Who would even set foot on this POS? Especially, with all the worker deaths.


    douglas wrote on October 21, 2009 03:42 PM: at the city albatross, unless the gcb changes the regs, the slot devices must return 75%. conversely they must "only" hold 25%. that instead of the 5-10% all over town.

    could be some savings, some faster recoup of the project cost. no need for a cage window for the supplicants to redeem gaming checques.

    as to the share price loss/project "value".... well mr. kerkorian might be able to stand the loss. i'd wager he won't miss a meal, no matter. and the dubai folks, well, their investment cash came from american consumers. mainly due to harry osama reid's continual senate floor manipulations to prevent exploration and harvesting of u.s. energy resources. and for the 'merican citizen investors, well what could be more of a gamble than gambling on a gambling joint ?


    CityCenter wrote on October 21, 2009 03:42 PM: CityCenter is different then any other development in Vegas or for that matter U.S. history. Even though it has taken a major hit with the presales in the highrise sector, they have been proactive in reducing original purchase prices with all CC condo owners. It's still real estate folks and to have a CC address is going to be its weight in gold. If you think that everything in Vegas is a buy (which it is), then why not own a piece of CC? CC will be a complete success!


    Ending Badly wrote on October 21, 2009 03:26 PM: It's been nicknamed Sh*tty Center.


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