MGM Mirage warns of possible charge to earnings for CityCenter

By Steve Green

Thursday, Sept. 17, 2009 | 7:40 a.m.

MGM Mirage today warned it may take a charge against earnings to write down the value of its 50-percent interest in the $8.5 billion CityCenter complex preparing to open in December on the Las Vegas Strip.

At least part of the writedown may be related to the company's need to lower condominium prices at the resort in order to close sales of the condos. There are some 2,400 condominium and condominium-hotel units in multiple towers at the resort.

"The company expects to conduct an impairment analysis of its investment in CityCenter as of Sept. 30," MGM Mirage said in a regulatory filing. "The company believes it is reasonably likely that the outcome of this review may lead to a non-cash impairment charge but cannot reasonably estimate the amount or range of such impairment charge at this time.

"In addition, CityCenter has a significant amount of residential real estate currently under development. Its ability to close out its residential sales program will be based, in part, on future market conditions," the company said.

With luxury condominium sales throughout Las Vegas slumping because of the recession, analysts have suggested MGM Mirage would need to cut prices by 30 percent for some of the unsold condos -- and convert some of the units to hotel units.

MGM Mirage had warned June 30 that CityCenter may incur a non-cash impairment charge if discounts to the prices of residential units prior to their completion led to a conclusion that the carrying value of the residential inventory was not fully recoverable.

"Once the residential inventory is complete, CityCenter will be required to measure such inventory at the lower of a) its carrying value, or b) fair value less cost to sell," MGM Mirage said in a regulatory filing today. "It is reasonably likely that the fair value less cost to sell of the residential inventory at completion will be below the inventory’s carrying value, and that the joint venture will be required to record an impairment charge at that time — which may be in the fourth quarter of 2009 or the first quarter of 2010."

MGM Mirage didn't immediately say whether overall revenue and earnings projections for CityCenter have been revised or would be included in a writedown of the overall project's value. These items would include revenue from gaming, hotel, retail, food and beverage and entertainment operations.

MGM Mirage said it reviewed its CityCenter investment for impairment on March 31 and found an impairment at that time was not necessary.

"The company’s discounted cash flow analysis for CityCenter was based on estimated future cash outflows for construction and maintenance expenditures and future cash inflows from operations and residential sales of CityCenter," MGM Mirage said.

Since March 31, visitor volume to Las Vegas and gaming win on the Las Vegas Strip have continued to decline from year-earlier levels as the U.S. recession deterred travel to the U.S. gambling capital.

CityCenter is widely expected to boost visitation to the city, at least temporarily, as a "must-see" attraction. Some analysts, however, are warning that it will likely cannibalize existing business in Las Vegas -- including business at MGM Mirage properties on the Strip.

Investors didn't seem bothered by today's announcement, with the company's stock trading up about 7 percent at $13.28.