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Published Tuesday, Oct. 20, 2009 | 7:05 a.m.
Updated Tuesday, Oct. 20, 2009 | 8:07 a.m.
In Today's Sun
MGM Mirage today said it's slashing by 31 percent the value of its investment in the CityCenter megaresort complex opening in December on the Las Vegas Strip.
The company plans to take $1.1 billion in non-cash charges against earnings to reflect reduced profit expectations for the $8.5 billion development.
In a separate announcement this morning, Tracinda Corp. -- owned by MGM Mirage board member and the company's largest shareholder, Kirk Kerkorian -- said it's exploring "the possibility of strategic partnerships or other alternatives" with respect to its stake in MGM Mirage.
"Tracinda believes there is substantial unrecognized value in MGM Mirage and CityCenter that is not reflected in the market value of MGM Mirage’s stock," Tracinda said in a statement.
Tracinda doesn't expect to take any actions until after the opening of CityCenter.
A Tracinda spokesman, Tom Johnson, said he couldn't comment further or comment on a report that Tracinda intends to cut its 37 percent stake in MGM Mirage.
MGM Mirage stock closed Monday at $11.80, well off its 52-week high of $17.30. The stock opened higher this morning, trading at $12.20, up 3.39 percent.
MGM Mirage, in its announcement, said that when it reports third quarter financial results on Nov. 5, it expects to take a pre-tax non-cash impairment charge of approximately $955 million related to its investment in the 67-acre CityCenter.
In addition, CityCenter, the company's 50-percent owned joint venture with Infinity World Development Corp, is expected to recognize a $348 million non-cash impairment charge related to its residential real estate under development.
MGM Mirage will recognize 50 percent of that impairment charge, subject to adjustments. The net pre-tax impact of the CityCenter residential charge to the company's third quarter operating results is expected to be approximately $200 million, MGM Mirage said.
The residential charge follows the company's decision to discount the prices of CityCenter condominiums by 30 percent to reflect market realities that have slashed the value of real estate in Las Vegas and have made it difficult for buyers to finance and close on deals signed before the onset of the recession.
As for its overall investment in CityCenter, MGM Mirage's announcement follows weak operating trends for the Las Vegas gaming industry -- and little hope for a dramatic turnaround in visitation to the city in 2010 because of the U.S. recession.
Bill Lerner, an analyst at Union Gaming Group in Las Vegas, said Kerkorian at age 92 seems to be signaling that he's looking at ways to distribute his wealth in a way that is not disruptive to the stock and may be preparing to transfer his shares to a partner or other party.
Lerner said the good news for the stock is that Kerkorian is not intending to place his shares on the open market and in today's announcement expressed his view that the value of MGM Mirage and CityCenter is not reflected in the stock price.
"It's exploratory. He may do nothing at all. We can take comfort he won't put his shares on the open market," Lerner said.
As for the CityCenter writedowns, they were not unexpected by investors who are accustomed to seeing such writedowns by companies that have seen the value of their real estate holdings decline, Lerner said.
"It's a function of the economy," Lerner said.
Lerner said that in discussions with gaming and food and beverage operators around town, there's a sense that the Las Vegas market is stabilizing.
Business improved in September and bookings for October and November are improving sequentially, he said. Additionally, McCarran International Airport reported September traffic was off 1.2 percent from the year-ago month, an improvement from trends earlier in the year that have pushed year-to-date numbers down 10.2 percent.
"Less bad is starting to rear its head," Lerner said.
The Las Vegas Convention and Visitors Authority reported that in August, visitor volume to the city totaled 3.092 million people -- down 3.7 percent from August 2008. The city's hotel room count, in the meantime, had risen 2.7 percent to 141,200.
The monthly occupancy rate was down 6.9 percentage points to 81.4 percent.
"Based on revised operating forecasts developed by CityCenter late in the third quarter, MGM Mirage has now determined that the carrying value of the company's 50 percent investment is greater than its fair value and an impairment is indicated. The company, based in part on consultations with third-party valuation specialists, estimates the fair value of its 50 percent investment to be approximately $2.44 billion as of Sept. 30, 2009,"MGM Mirage said in its statement.
The new carrying value is down from $3.551 billion as of June 30.
MGM Mirage will manage the operations of CityCenter for a fee. CityCenter will feature Aria, a 4,000-room casino resort; two 400-room non-gaming boutique hotels, the Mandarin Oriental and the Harmon Hotel & Spa. Completion of the Harmon has been delayed.
CityCenter will have about 425,000 square feet of retail shops, dining and entertainment venues; and about 2.1 million square feet of residential space in some 2,400 luxury condominium and condominium-hotel units in multiple towers.
You can discount all the numbers. The recession is not ending till we get someone more responsible as president , whether Dem or Rep. We also have to not reelect Sleazy Reid, Pelosi,and Barney Frank. As for MGM they will be giving away rooms at City Center in 3 Mos if not sooner.
LMAO, just another company working the system and what they're not speaking much about is Leed Tax credit. The biggest winner of the break as written by Darren A. Prum, MBA, JD is "MGM-Mirage's Project City Center ($80M already and $900M over its life)", so what is a 1 billion or what one would say, $2 billion taken out of the system.
Dem's did good, lie to American's and feed corporate.
WTF do Democratic politicians have to do with City Center's opening? Except for Harry Reid helping efforts to KEEP City Center on track to open, I can't think of anything. Jeez, the extreme righties are grasping at straws. Next, I guess Obama and Reid will be blamed for clouds in the sky.
atdleft Stop the pandering for Obama and Sleaze. Obama your pal destroyed the gaming industry and hospitality by telling co's NOT to come to Las Vegas to have their conventions. As for sleaze he is not a friend of Las Vegas . We never found out about his land deal!
Small minds talk about people.
Medium minds talk about things.
Great minds talk about ideas.
Some ideas on these post would help!
The economy is the main reason for our problems here in the land of expendable income. The second biggest problem is how the big three have tightened up their slots and fail to offer any room and food values to lure the tourists back. City Center might as well grasp this reality and offer discounted rooms, loose slots, and lots of 'em. Also 30 % discount on the sale of the condos is not enough, more like 50 % at todays real estate value to hold on to thos who signed on before the bubble burst, then mabey 35 or 40 % to perspective new buyers. They might want to consider holding off on the high end restuarants in favor for more middle of the road eateries like Friday's, Chili's Applebee's, Subway, (Basically the Orleans formula). Free self and Valet parking, free entertainment in the lounges, and FORGET the Ultra Techno lounges. 5 dollar minumums at the tables etc. This type of approach will have a positve effect on City Center's success and luring tourists back!! PERIOD!!!
Correct me if I'm wrong, but aren't self-parking and valet parking already free?
You are so right environ, but that would make to much sense and all the moronic executives who sit in their offices and make all these decisions that have destroyed the real meaning of what Las Vegas was all about, wouldn't get all the millions that they feel they are worth(less). The slot system that is suppose to be used at the CityCenter is failing horribly at the Monte Carlo. The system goes down so many times a week and takes all the slots down. The IGT system techs are there every single day with gaming... ONE THING: They have lowered the room rates but have jacked the prices up on everything else.
Why would someone go to citycenter to go applebees or subway?
Get ready for more charges by MGM. Even after the 30% price cut, condos in CityCenter are waaayyyyyyy overpriced and they still won't sell.
Potential buyers have actually been calling the CityCenter sales office at a greater rate than was recorded in the last fiscal year, just so you know. The price reduction has generated more interest for sure.
Jeez, the usual suspects are so clueless. They obviously don't understand the gaming industry, so they resort to wildly fact-free attacks on Obama and Reid. Nothing new...
So anyway...
solar-
Yes, self-parking is always free and valet parking is "free" except that you're expected to tip the attendant. Oh, and I hope you're right about the City Center condos. I still fear they're a little overpriced, but I hope the new lower rates are attracting more attention. If I had more money to "upgrade", I'd be looking there.
stratboy-
"Why would someone go to citycenter to go applebees or subway?"
They wouldn't. Maybe some "bargain tourists" are interested in that, but I think most tourists who come to Vegas are coming here looking for a different experience. I know we've had some bad experiences with "celebrity chefs" that are all celebrity and no chef, but overall the culinary revolution has really been good to Las Vegas in getting people to think of this town as a true sophisticated getaway instead of just another gambling town. I, for one, can't wait to try Pierre Gagnaire's new Twist restaurant and perhaps take my dad here for his birthday when he visits me in December.
Glad someone else is interested in trying Twist. With the exception of John Curtas, I haven't heard a lot of excitement regarding the latest addition to the Vegas dining scene.
Sheesh you guys are all living off of the carcass of the recent old world out here, City Center is going to fail unless some very creative, may I say "themed" ideas are put into it to attract large numbers of tourists. I hope for it's success, however reality is reality.
haah these comments are hilarious... People are clueless
SOLAR:
It's nice to hear that "potential buyers have actually been calling the CityCenter sales office at a greater rate than was recorded in the last fiscal year". However, it is a mighty big step from phone call to actually signing a contract and plunking down a 20% deposit to then actually closing on the unit. Given the disastrous plunge in the LV real estate market and the fact that, even after a 30% price reduction at CityCenter, units remain absurdly overpriced, I'm just not too optimistic -- are you??
I'm optimistic in that the bleaker numbers at the beginning of this year that put condo deposits at something of 1 a month, have increased above that, and that the buyers who have taken tours thus far are greatly encouraged that their investment will reap some dividend once this all plays out.
The Orleans is one of the last properties that retains the value oriented draw I have been harping about all over the place. This Boyd operation really replaced the Stardust when that came down. Boy the executives at Boyd must be beating themselves up for the poor timing on that demolition mid strip no less...
Give it a year and this place will not be talked about or visited.
Terrible design, cheap restaurants and ghosts of all the dead men who died during construction roaming the hallways.
F MGM!!!
Funny thing Reid is ad campaigning how he worked the lending institutions to keep the MGM on track.Maybe a good thing but my Question is why did Reid not do the same for Fountainbleau.I can only think of one reason campaign support from a much larger employer.If Reid is so great for his efforts and he felt so passionate for Nevada and Las Vegas why did we loose 3000 construction jobs right down the street.
MGM is reducing its condos by 30 percent to stimulate the intrest of their product and I would expect that they will also reduce its employment numbers by 30 percent also.They are bringing people to Vegas for work,hiring people from all over the country.They need to just hire the locals and keep them working instead of driving the states unemployment in a few months.
I do not see the impact of City Center will have for the long term.I see it being a liability in the near months to come and will be the end of MGM/Mirage.
Wait and see if this happens. They have created a false sense of hope.Lets get real they are padding politician pockets to get what they want and they will find themselves standing alone when Reid is voted out of office.
INSIDER FACT: MGM should have taken a $3.3 billion dollar charge.
Condos will only sell for $69,000 much less than the "discounted" $850,000 they want.
Billy C Argentina
Did I say $69,000? Ooops Mistake, I mean $39,000
As a tourist who visits vegas twice a year.. I have to say city center looks terrible. what is that catastrophe supposed to be anyway... as many have said i go to vegas for the bright lights the gambling the booze the clubs.. not to look at glass buildings that shouldnt be on the strip.. vegas should have made a huge hotel casino resort in that area which would have made people come to see it. i know now harrahs sends me three nights free to come out there and usaully comp my meals too.. vegas is hurting bad but it is a great time for me to head out there in jan...
CityCenter will either bring Vegas out of the recession or lead to significantly lower room rates and new price wars (worse then currently) among the casinos, which would be a total disaster for the city. I think the former will happen and Vegas will once again come out of a recession through a renaissance and better then ever before. Viva Las Vegas!
MR. KERKORIAN IS SHOWING HIS CARDS EARLY ON-- TO PREVENT A FINANCIAL DEBACLE OVER THE CITY CENTER
FIASCO !!! - I APPLAUD HIM FOR REACHING OUT EARLY & FACING THE REALITY OF WHAT WAS DONE TO HIM BY YOUNG WELL WISHERS - WHO HAVE ACADEMIC SKILLS BUT LACK THE CREATIVE - INNOVATIVE MARKETING SKILLS OF A JAY SARNO - WHO CREATED CAESARS PALACE IN 1966 !!! JAY SARNO DID NOT HAVE THE ACADEMIC OR FINANCIAL SKILLS WITH HIS PARTNER TO ACHIEVE - THE PROPER MONEY MANAGEMENT SKILLS TO RETAIN THE PROPERTY!!!
MR. KERKORIANS ORIGINAL LAWYER WHO WAS ALSO HOWARD HUGHES LAWYER -- BY THE NAME OF GREG BAUTZER ESQ. WOULD HAVE NEVER ALLOWED KIRK KERKORIAN TO GET IN VOLVED WITH THIS VERY RISKY CITY CENTER PROJECT - TO PROVE TO THE WORLD THAT MGM/MIRAGE IS MORE THEN A GAMING COMPANY FOR CORPORATE IMAGE !!! INVESTORS DO NOT CARE ABOUT IMAGE THEY ONLY CARE ABOUT THE RETURN ON THER INVESTMENTS AT THE END OF THE DAY !!!
THE YOUNG ACADEMICS WHO MEAN WELL - PLAYED A VERY DANGEROUS EGOTISTICAL GAME BECAUSE THEY ARE NAIVE & TOTALLY INEXPERIENCED - ABOUT BUILDING NEW BUSINESSES FROM SCRATCH !!! THEY MUST BE MONITORED VERY CLOSELY BECAUSE THEY DO NOT HAVE A REALISTIC PERCEPTION OF THE REALITY OF WHAT THE POTENTIAL DOWN SIDE RISK COULD BE --
THEY ARE PLAYING MONOPOLY WITH OTHER PEOPLES MONEY !! I DO NOT BLAME THEM - I BLAME THE PEOPLE THAT SHOULD HAVE KNOWN BETTER TO STOP & DISIPLINE THERE WELL INTENDED DREAMS & VISION !!!
WHEN A CHILD GOES IN TO A CANDY STORE HE WANTS EVERY THING !!! ITS UP TO THE PARENTS TO DISIPLINE THEM !!!
MR. KERKORIAN MAY LACK THE ACADEMIC & INTELLECTUAL QUALITIES THAT THEY HAVE - BUY HE IS VERY STREET WISE & ALWAYS RELIED ON THE INTELLECTUALS TO GUIDE HIM - UNFORTUNATELY HE BET ON THE WRONG HORSE THIS TIME - WHICH WAS THE BIGGEST GAMBLE OF HIS ADULT LIFE -- I HOPE HE SUCCEEDS BECAUSE I ADMIRE HIS LIFES EXPERIENCES & HIS SUCCESSFUL ENDEAVOURS !!! AT 92 YEARS OLD HE IS REMARKABLE - MENTALLY - EMOTIONALLY & PHYSICALLY -- I AM A REAL FAN OF KIRK KERKORIAN !