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CityCenter writedown pushes MGM Mirage to 1Q loss

Updated Thursday, May 6, 2010 | 9:24 a.m.

MGM Mirage Financial Information

  1Q 2010 1Q 2009 % Change 4Q 2009
Revenue $1.457 billion $1.498 billion -4% $1.452 billion
Net income ($96.7 million) $105.2 million -- ($433.9 million)
Net income per share (22 cents) 38 cents -- (98 cents)

MGM Mirage properties

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MGM Mirage today said it lost $96.7 million in the first quarter -- a number in line with an April 14 announcement that the gaming company would post a loss on lower revenue.

The loss, equal to 22 cents per share, compares to a profit of $105.1 million or 38 cents per share in 2009's first quarter.

The 2010 quarter's loss reflects a writedown, on paper, of $86 million to reflect reduced values of CityCenter residential units. Another key factor was a decline in visitation and spending at MGM Mirage's big Las Vegas Strip resorts.

The company said these resorts, such as Mandalay Bay, MGM Grand, Bellagio and the Mirage, generated room occupancy in the quarter of 85 percent, down from 87 percent in the 2009 quarter. The average daily room rate fell from $118 to $111 and revenue per available room fell from $103 to $94.

Analysts have said MGM Mirage's results have been affected by the U.S. recession continuing to limit travel to Las Vegas, and by an oversupply of hotel rooms on and near the Las Vegas Strip that has resulted in MGM Mirage properties cannibalizing business from each other.

Overall, net revenue fell 4 percent to $1.4 billion despite a strong performance from MGM Grand Macau, which posted $23 million of EBITDA in the 2010 quarter vs. negative EBITDA of $3.6 million one year ago. EBITDA means earnings before interest, taxes, depreciation and amortization.

Jim Murren, chairman and CEO, said in a statement today that things are looking up for the rest of the year.

"We see signs of improvement in the Las Vegas market and expect those to accelerate in the second half of the year and into 2011. Our forward bookings continue to improve as our convention bookings continue to gain traction," Murren said in his statement.

Click to enlarge photo

Jim Murren

"This market is healing. We've gone through the worst of the economic storm here," Murren told analysts on a conference call today.

Murren said higher-spending convention customers are returning to Las Vegas as convention planners around the nation look to save money by booking events at lower-cost cities such as Las Vegas.

Murren said just 14.5 percent of MGM Mirage's room nights were booked by conventioneers during the first quarter, down 5 percentage points from the first quarter two years ago. With future bookings, the company is building toward a 16 percent convention room-night mix, he said.

"That has a dramatic impact on our overall room rate," he said, explaining conventioneers typically book rooms at $140 or more while leisure travelers spend on average about $80.

"As we yield our rooms away from leisure to conventions, the profit impact is profound," Murren said.

Murren said the company's proposed name change to MGM Resorts International will better clarify "who we are as a company" and will coincide with a beefed-up customer loyalty program.

"That (the loyalty program) has been a competitive disadvantage for this company for the past decade," Murren said. "We need to provide the customers with a better understanding of the value we have. This we believe will have a tremendous impact. Many of our competitors have done more with less."

MGM Mirage said in February it hired two companies to improve its customer database mining capabilities and boost its guest loyalty programs.

MGM Mirage said at that time it hired ESS Analysis, a Boston-based advanced analytics-focused consulting firm, and A.T. Kearney, a global management consulting firm, "to take customer database 'mining' capabilities to a new level and further enhance guest loyalty programs."

MGM Mirage said the firms would better align its database of more than 60 million customers with marketing efforts.

The move may improve MGM Mirage's competitive position against industry leader Harrah's Entertainment Inc., which is known for mining its own databases with scientific formulas to produce personalized offers to customers through its Total Rewards Program, which launched in 2000 and now has some 40 million members.

MGM Mirage executives have for the past few years said they hadn’t fully capitalized on technology-based marketing and the company’s loyalty program, which includes the MGM Mirage Players Club Card offering benefits at 12 resorts and casinos around the country.

At the $8.5 billion CityCenter on the Las Vegas Strip, executives today said revenue from rooms, the Aria casino, nightclubs, restaurants, retail and condominium sales is improving after initial results since its opening in December were depressed by the recession. They expect the complex to at least break even during the second quarter after generating net revenue of $260 million and an operating loss of $255 million in the first quarter. Those numbers include the noncash residential writedown.

Occupancy at Aria ran 69 percent in April, up from 63 percent during the first quarter, the company reported.

Some 56 percent of the Crystals luxury shopping center was leased at the end of the first quarter, a number expected to grow to 76 percent by the end of the third quarter and 82 percent by the end of the year.

Some $116 million of revenue was booked from 109 residential closings in the first quarter at CityCenter, with additional closings under way, executives said. Of those first quarter closings, 78 were at the Vdara hotel-condominium tower and 31 were at the Mandarin Oriental. Of some additional 600 condominium rooms under contract at Vdara, the company expects to actually sell about 175 through this summer and then return the remainder to the property as hotel inventory.

"It is quite clear to us that CityCenter will become the major showcase not only in our portfolio, but in Las Vegas," Murren said. "We knew the first half of the year would be challenging."

On other issues, executives said they continue to proceed with plans to sell MGM Mirage's stake in the Borgata resort in Atlantic City, are proceeding with plans for an initial public offering of the company's Macau business and hope for a favorable legal resolution of a dispute over construction costs and construction defects with CityCenter builder Perini Building Co.

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