CityCenter, budget buster

By Liz Benston · February 8, 2008 · 12:57 PM

About that $7.8 billion, multi-resort CityCenter project, the most expensive in U.S. history? Turns out it's going to cost more than $8 billion, maybe more like $8.4 billion. So it goes in Las Vegas, where cost overruns are affecting nearly every project of size. MGM Mirage revealed that news late yesterday along with lower forecasted earnings for the fourth quarter, which will be reported Feb. 21. The ballooning CityCenter budget, though offset by Dubai World's 50 percent investment in the project, will add to Wall Street worries about the slowing condo-hotel market in Las Vegas and the housing slump, which has dried up bond financing nationwide. "If debt capital market weakness continues, we are concerned that MGM would be forced to provide additional equity into the structure, raising the debt burden on the balance sheet," Wachovia Capital Markets bond analyst Dennis Farrell Jr. wrote in a research note to investors. MGM Mirage said operating results in the fourth quarter were in line with a year ago, though estimated earnings and hotel revenue on a per-room basis for January were lower than the same month in 2007 more disappointing news for Wall Street. Still, MGM Mirage believes the company is undervalued and is buying back its own shares by the boatload 7.4 million in the fourth quarter and an authorization to buy back more than 18 million more. The company had previously warned that the economic slump was hurting its lower-end properties, though the high end business was holding up well. Baccarat volume was up 17 percent, "an indicator that the high-end customer is still visiting Vegas," Stifel Nicolaus Capital Markets stock analyst Steven Wieczynski said in a research note. MGM Mirage said it doesn't know how much last month's fire at the Monte Carlo will cost the company but noted that it has insurance with a $1 million property damage deductible and a business interruption deductible equivalent to a 24-hour period of profit. The report seems to suggest what some insiders have been saying for the past few weeks - that overall Strip results will flatten this year until the economy starts to turn.