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Vegas downturn weighs on MGM Mirage earnings
Company says it sees some signs of stabilization
Published Monday, Aug. 3, 2009 | 7:16 a.m.
Updated Monday, Aug. 3, 2009 | 10:38 a.m.
MGM Mirage - second quarter
| 2Q 2009 | 2Q 2008 | % Change | 1Q 2009 | |
|---|---|---|---|---|
| Revenue | $1.494 billion | $1.895 billion | -17% | $1.499 billion |
| Net income | -$212.6 million | $113.1 million | N/A | $105.2 million |
| Net income per share | -60 cents | 40 cents | N/A | 38 cents |
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Beyond the Sun
MGM Mirage's Las Vegas customers spent considerably less in the second quarter, a decline contributing to a quarterly loss by the hotel-casino operator.
With the recession reducing travel and discretionary spending worldwide, MGM Mirage responded in the quarter with lower room rates and deals to entice visitors.
Net revenue of $1.494 billion in the quarter ended June 30 was down 17 percent from the $1.895 billion reported in 2008's second quarter.
Operating income, a measure of profitability, fell from $333.8 million in the 2008 quarter to $131 million in the 2008 quarter.
Including one-time charges for impairment of a convertible note and retirement of long-term debt, MGM Mirage lost $212.6 million or 60 cents per share vs. a profit in the year-ago quarter of $113.1 million or 40 cents.
At the company's big resorts on the Las Vegas Strip such as Bellagio and Mandalay Bay, hotel revenue per available room tumbled from $151 in the 2008 quarter to $104 in the most recent quarter, as the average daily room rate fell from $156 to $111.
MGM Mirage said year-over-year hotel occupancy in Las Vegas fell three percentage points to 94 percent.
These declines for the quarter are in line with results posted earlier by Las Vegas competitors Harrah's Entertainment Inc., Las Vegas Sands Corp. and Wynn Resorts.
Despite the declines, MGM Mirage said it sees signs of stabilization in Las Vegas as the countdown begins to the opening of the $8.5 billion joint-venture CityCenter complex beginning later this year.
During the quarter the company secured funding for the completion of the CityCenter hotel, gaming, retail and residential destination in Las Vegas; issued $1.15 billion of equity through an offering of common stock, issued $1.5 billion of senior secured notes and secured key amendments to its senior credit facility.
"This has been a monumental quarter for us, as the significant capital market transactions and other corporate finance activities meaningfully improved our financial position," Chairman and Chief Executive Officer Jim Murren said in a statement. "Perhaps as important, we saw a more stabilized -- though still difficult -- operating environment in the second quarter. Our operating teams are focused on continuing to sequentially increase cash flow and our CityCenter team is driving towards completion and opening of CityCenter. We believe CityCenter will invigorate the Las Vegas market and be a key component of the future growth of MGM Mirage."
MGM Mirage said the $188 million impairment charge is primarily related to its investment in the M Resort in Henderson. In 2007, MGM Mirage announced plans to finance $160 million of the M Resort in the form of an eight-year, subordinated convertible note. The value of that note has declined based on its subordinated nature and local and national economic challenges, said Dan D'Arrigo, MGM Mirage executive vice president and chief financial officer.
The company also took a $12 million impairment charge related to the write-off of development costs related to the company's postponed joint-venture resort on the North Strip at Sahara Avenue.
During a conference call this morning, MGM Mirage officials said the decline in hotel room revenue will likely continue on a year-over-year basis in the third quarter. But they said the decline, on a percentage basis, has been improving sequentially since 2008's fourth quarter.
"The operating environment clearly stabilized in the second quarter, but we're not out of the woods. The operating environment we think will remain choppy in the near term. However, we see extremely positive signs, especially as we go into 2010," Murren said.
Executives said CityCenter is poised to be a game-changer for Las Vegas and that MGM Mirage expects some 39 million people to visit Las Vegas next year, most of whom will visit CityCenter. (Some 37.5 million people visited the destination in 2008). CityCenter is likely to drive growth in foot and auto traffic in an area of the Las Vegas Strip already dominated by MGM Mirage properties such as Bellagio, Monte Carlo, New York-New York and the MGM Grand.
"CityCenter in our minds will drive growth ... in the Las Vegas market as a whole," Murren said on the call. "We believe this is the next generation of a casino complex and probably the only one that will be built for many years in Las Vegas and certainly no other property at this level.
"It is unique and it is 'must-see.' It is the Mirage and Bellagio of its time. It is sophisticated and will drive customers from other properties as well as drive new high-end national and international customers into the market. It will profoundly increase foot traffic to the south side of the Strip, which of course benefits MGM Mirage," Murren said.
Company officials downplayed concerns that CityCenter will cannibalize business from other MGM Mirage properties -- insisting any cannibalization will more likely affect competitors. They noted future bookings at the high-end Bellagio are holding up, while convention bookings are increasing for Mandalay Bay.
And MGM Mirage reiterated it's considering lowering prices for CityCenter condominiums and looking at options to help buyers finance the condos so more sales can be completed and revenue booked in the fall.
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If the room rate has fallen by a third hasn't the room tax also fallen by a third. How are the local tax receipts doing. The state and local governments just passed budgets. The spending is continuing according to plan but it looks like the income is going to be way short of projections.
Is it time for the budgets to start cutting back on spending before the deficit is way out of balance again?
When I visit Las Vegas, it is typically the weekends where the rates are highest. If I book early enough I can get pretty goods rates on the strip, but if not I will book off the Strip for half the price. What will be interesting is that when City Center does open that will put pressure on the rates on the strip which the off-Strip locales will have to match. The question is whether these off-Strip locales survive when their former prices were barely enough to keep them going. There will be a loss of rooms but it will occur off-strip, pushing the bargain hunters like myself to pony up a little more cash for an on-the-Strip locale.
"The question is whether these off-Strip locales survive when their former prices were barely enough to keep them going. There will be a loss of rooms but it will occur off-strip, pushing the bargain hunters like myself to pony up a little more cash for an on-the-Strip locale"
Every hotel will feel the pinch when City Center opens, but mostly the Strip hotels. And it won't be forever. Local casinos have their own solid clientele and perhaps may acquire new clientele as the economy worsens and people won't want to pay even the cheaper Strip prices. If you want to abandon the local properties and stay on the Strip, you will by "ponying up" a lot more than just a little bit of cash.
Neiman,
I'm not sure, but I think the (new)room taxes are a flat rate, but oviously the sales tax numbers would be a third. Anyone know for sure?
Room tax moved to 13% and is based on the rate. It is not nor has it ever been a flat hotel tax. The higher the room rates, the more tax revenue. That is why the LVCVA with obtaining so much revenue during the good years has to be questioned about their ability to sell Las Vegas during a down economy. Sorry Shin Whacker commercials will not bring serious business clients, which spends the most money, to Las Vegas. City Center is already pushing high $200 rates for CES. If they get their chance, they will push Wynn, Venetian and Bellagio for same customer base. With Manderin and Four Seasons also chasing high end, not sure if there is enough to fill all of these rooms at those rates in this economy.
Someone want to find a new National Airlines to start up in Las Vegas? Not enough flights coming into McCarron to fill all of these rooms right now, let alone when CityCenter opens up.
"Someone want to find a new National Airlines to start up in Las Vegas?"
I think it's called Allegiant.
As far as I'm concerned MGM has soured me on their properties as they blatantly focused on my wallet. Bummer that they took over Mandalay Bay. One less place for me to stay. Venetian and Wynn will never lose me to an MGM property.
the minute the strip went from like 7 or 8 companies going at it against each other down to 4 or 5, it began a long downward spiral for vegas.
the buffets are all the same, same machines ( i don't gamble that much, but i'll throw a few dollars in a nickel slot if it looks fun ), same clubs, same retail stores, etc.
yuck.
Someone want to find a new National Airlines to start up in Las Vegas?
I miss them!! GREAT airline.
Right on Stevem. What I call the two main monopolies have destroyed Vegas. It's easy to offer 6:5 blackjack when you can fix it at all of your properties so that the customer can't walk next door. Service and renovation came to a halt on those properties. Unfortunately, all the people in Vegas are paying for the poor management of those companies and the folks who authorized all of the merging. I highly recommend to those who do visit Vegas that they avoid the MGM and Harrahs properties.
The problem with Goldman Sachs posting a huge profit is that they did it by doing business as usual--packaging sub-prime loans into bonds and then betting against the bonds before they fell in value. That would be okay if the money being lent was used to develop new products or start businesses, but instead the money was used for stuff like condominiums or over-priced houses or bad ideas like City Center.
In a year or so MGM and Harrahs properties will try to become the best values in Las Vegas by realizing that you must include locals in any marketing plan. The problem is they will be the last to come to this obvious conclusion and the smaller, faster-reacting properties will have a 6 month headstart. 6-5 21 payouts? You'll see 3-2 all over town along with cheap rooms, looser slots and $2 breakfasts. That is what tourist and locals want. It's really very simple but these big companies are being managed by Harvard graduates that have never been inside a casino where customers are actually having fun.
Hey, adviceischeap. I'm totally with you with one exception. I don't believe these monopolies are managed by Harvard graduates. I'm guessing that these companies are being managed by people who had to copy our tests in high school and somebody else's tests in community college.