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CityCenter loses $255 million
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Duane Prokop/LAS VEGAS REVIEW-JOURNAL
The Aria hotel-casino at CityCenter complex, shown Nov. 15, opened in December. » Buy this photo
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LAS VEGAS REVIEW-JOURNAL
Updated: Apr. 15, 2010 | 9:11 a.m.
CityCenter is expected to report an operating loss of $255 million in the first quarter when MGM Mirage releases earnings in early May.
In a statement to investors after stock markets closed on Wednesday, the casino operator said it expects to report a first-quarter net loss of $96.7 million, or 22 cents per share for the first three months of the year. A year ago, MGM Mirage reported net income of $105.2 million, or 38 cents per share, in the first quarter.
Analysts polled by Thomson Reuters expected MGM Mirage to report a first-quarter net loss of between 11 cents and 30 cents per share.
The earnings preannouncement also included some insight into the first full quarter of operations from CityCenter, the $8.5 billion Strip development that MGM Mirage owns jointly with Dubai World, the investment arm of the Persian Gulf emirate.
The expected operating loss for CityCenter, which opened in phases during December, includes an approximately $171 million noncash impairment charge related to the development's 2,400 residential units, depreciation expenses of $69 million and preopening expenses of $6 million.
CityCenter results, however, benefited from revenues of $24 million related to forfeited residential deposits. Sales closings began in January on residential units inside the Vdara nongaming hotel and the nongaming Mandarin Oriental. According to statistics compiled by Union Gaming Group, 25 condominium sales had closed by March 31 with a combined sales price of $38 million.
Aria, CityCenter's 4,004-room hotel-casino centerpiece, reported an operating loss of $66 million, which included deprecation expenses of $54 million.
MGM Mirage said occupancy at Aria during the quarter was 63 percent with hotel rooms garnering an average daily rate of $194.
Macquarie Securities gaming analyst Joel Simkins said MGM Mirage may have to change its marketing and strategy for CityCenter. The company, he said, is being squeezed by business being lost at mid-tier Strip properties.
"Customers are able pay a slightly higher rate to stay at an upper-tier property," Simkins said. "Unfortunately, it appears that the deal-oriented customers that may have traded up to these higher tier properties are keeping a lid on their spending during their stay.
"We believe these results support our belief that Las Vegas faces a protracted recovery that will lag the rest of the country by 12-18 months," he also said.
MGM Mirage executives did not provide any commentary on the preannouncement. First-quarter earnings will be officially reported on May 3.
On Wall Street shares of MGM Mirage, which closed at $14.53 on the New York Stock Exchange Wednesday, down 88 cents, or 5.71 percent, fell another 86 cents, or 5.58 percent, in after-hours trading.
The company said its overall quarterly results will include a gain on the extinguishment of $142 million of debt, or 21 cents per share. Also, MGM Mirage said it was taking a pretax, noncash charge of approximately $86 million, or 13 cents per share, which represents the company's share of an impairment at CityCenter related to the residential inventory.
In the 2009 first quarter results, MGM Mirage reported a gain of approximately 44 cents per share related to the sale of Treasure Island to businessman Phil Ruffin.
MGM Mirage expects net revenue for the first quarter of 2010 to be approximately $1.46 billion, down 4 percent from a year ago.
For the company's 10 Strip casinos, revenue-per-available room, a nontraditional figure used to gauge profitability, is expected to be down 8 percent to $94 while occupancy levels fell to 85 percent.
The company's projected gaming revenue will be down 5 percent with slot machine revenue falling 1 percent and table games, excluding baccarat, off 4 percent.
The company opened CityCenter following a nearly five-year development and construction period and in the middle of an economic downturn that has zapped Las Vegas tourism.
MGM Mirage said the operating income from its 50 percent owned MGM Grand Macau was expected to be $49 million in the quarter, which included depreciation expenses of $22 million. The figure was "a significant improvement" compared with an operating loss of $5 million in the 2009 first quarter, which included depreciation expenses of $21 million.
Before Wednesday's announcement, two analysts upgraded their views of MGM Mirage, saying they believed the company would benefit from increasing travel numbers .
"We are raising our 12-month price target on MGM Mirage shares given improving business travel trends and our continued confidence that MGM Mirage will complete asset sales according to plan to deleverage the balance sheet," Goldman Sachs gaming analyst Steven Kent told investors.
In February MGM Mirage reached a deal with lenders to extend the deadline for paying off about $3.6 billion of its $13 billion in debt to February 2014.
JP Morgan gaming analyst Joe Greff thought investors are underappreciating MGM Mirage's advance convention bookings.
"We continue to believe that the group booking acceleration should drive improved blended Strip room rates based on positive mix shift," Greff said.
In a separate announcement, MGM Mirage said that it intends to offer up to $750 million worth of convertible senior notes due in 2015 in a private placement and use the proceeds to pay down debt.
Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.
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Now MGM says they'll try to pawn off $1B in senior notes. And Kerkorian says he won't buy for 60 days, because MGM is undervalued. Does he think investors are so foolish they'll believe him? Who would buy these notes?
@Brandt
I'm sure they postponed the accrual of the pre-opening expenses so that they could be partially offset by the "windfall" of the $24Million if forfeited condo deposits.
I don't think even "accelerated group bookings blended with 100 proof vodka and positively mixed with MurrenPoo" is going to save MGM from the train wreck that is about to happen.
Time to call the "waaaahhhhmbulance" for MGM.
Negative EBITA. 63% occupancy. 2 billion of short term debt sitting on City Center, LLC's balance sheet with a 2011 maturity date. They've already taken almost 1/2 billion (yes, that's billion) of the project cost to the P&L already an an impaired loss. I'm I reading this right? Not even Harry Reid will be able to save City Center this time.