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MGM: Las Vegas market stabilizing, but mid-tier resorts ‘challenged’

Updated Wednesday, Nov. 3, 2010 | 11:12 a.m.

MGM Resorts International expects revenue to grow from its CityCenter joint venture and its high-end hotels elsewhere on the Las Vegas Strip -- but lower-end properties remain challenged by recessionary pressures and the oversupply of hotel rooms in the city, executives said today.

The company's outlook was discussed by executives after MGM Resorts posted third quarter financial results in line with numbers pre-announced on Oct. 12: A loss of $317.9 million or 72 cents per share vs. a loss in 2009's third quarter of $750.4 million or $1.70. Net revenue, not counting reimbursed costs, fell 3 percent on a year-over-year basis to $1.47 billion. Both quarters were affected by one-time charges including charges at the CityCenter joint venture.

Highlights of today's report and an MGM Resorts conference call with analysts:

• MGM Resorts' revenue per available room (REVPAR) on the Las Vegas Strip, which fell 2 percent in the third quarter, trended up in October for Bellagio, Mandalay Bay and other luxury properties.

"Our mid-tier properties remain challenged," Chairman and CEO Jim Murren said.

However, executives said that as resort fees for amenities spread to additional properties, they'll add to revenue.

In the third quarter, Bellagio's occupancy rate of 94.8 percent was down from 95.7 percent a year earlier. But the average daily rate of $200 was up from $195, lifting REVPAR to $190 from $187.

REVPAR, however, fell to $102 from $106 at the MGM Grand in the third quarter.

Still, Murren expressed optimism overall as convention business is picking up on the Strip and consumers, who haven't been spending much during the recession, are spending more while in town for special events such as concerts and conventions.

"We continue to see the Las Vegas market stabilizing," said Murren, adding Aria at CityCenter "has started to emerge in its rightful place as a luxury property."

• The 4,000-room Aria, with an average daily rate of $175, has seen continued improvements in its occupancy rate, which averaged 82 percent in the third quarter. The property's weekend occupancy rate has improved from 76 percent in the first quarter to 93 percent in the second quarter to 95 percent in the third quarter. These improvements are expected to continue as convention bookings there increase, awareness of the property grows and as it earns repeat business it didn't have earlier in the year as the property is not even a year old. Aria posted its first profit on an EBITDA basis, generating $41 million during the third quarter. EBITDA means earnings before interest, taxes, depreciation and amortization.

• Elsewhere at CityCenter, the 400-room nongaming boutique Mandarin Oriental hotel posted a $3.6 million EBITDA loss with occupancy of just 44.3 percent and MGM Resorts is working with the operator, Mandarin Oriental Hotel Group, to improve revenue there.

• The 425,000-square-foot Crystals shopping center at CityCenter was 70 percent leased at the end of the third quarter and expects to be 80 percent occupied by year-end. It has emerged as the second-highest selling mall per square foot in the city behind the Forum Shops at Caesars. Once occupancy improves to the hoped-for mid 80 percent range, the CityCenter joint venture may sell the center as has long been a possibility, executives said.

• The company took a $279 million charge in the third quarter to write down the value of CityCenter's stalled Harmon Hotel, where construction was halted this year. The property is the subject of litigation over construction defects and in today's report MGM Resorts said CityCenter has concluded it "is unlikely the Harmon will be completed using the building as it now stands."

• CityCenter continues to weigh options for selling or otherwise earning a profit from some 400 unsold condominium units. Of the initial inventory, some of the Vdara condo/hotel units have been moved to the hotel pool while some 200 CityCenter units have been placed in a pool for leasing with one-year minimum leases, and 27 of those units have been leased. MGM Resorts said that since closings started in January, 419 units have closed generating $361 million in revenue. These units include 60 at Mandarin Oriental, 150 at Vdara and 209 at Veer Towers.

• MGM Resorts expects to see "tens of millions of dollars" in increased profits as it rolls out a beefed-up player rewards program with a database of 60 million customers called M life. The program, which will improve marketing efforts to individual players like Harrah's Entertainment Inc. has done with its Total Rewards program, has already improved revenue for MGM Resorts at Beau Rivage in Mississippi and at MGM Grand Detroit and will be expanded to Las Vegas next year.

• The opening of the 2,995-room Cosmopolitan next month between CityCenter and Bellagio isn't expected to affect MGM Resorts' results, executives said. The company expects CityCenter to benefit from more foot and auto traffic as it installs more signage on the Strip directing pedestrians into CityCenter, as traffic disruptions on Harmon Avenue ease and as a pedestrian bridge over the Strip becomes operational.

• Murren was pleased with the re-election of Nevada Sen. Harry Reid, who has been a supporter of the gaming industry. He said Gov.-Elect Brian Sandoval and legislators face tough budget choices, but it's doubtful there will be a move to boost Nevada's gaming tax. Such a move would be "reckless" given the devastation the recession has brought to the state's big gaming industry, he said.

• MGM Grand Macau, a joint venture where an initial public stock offering is planned, had its best quarter ever in the third quarter with operating income of $61 million.

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