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MGM Resorts loses $883.5 million in second quarter

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Sam Morris / Las Vegas Sun

The sweeping forms of Aria are visible from a two-bedroom apartment at Veer Towers at CityCenter.

Updated Tuesday, Aug. 3, 2010 | 12:11 p.m.

MGM Resorts International Financial Information

  2Q 2010 2Q 2009 % Change 1Q 2009
Revenue $1.54 billion $1.49 billion 3% $1.46 billion
Net income ($883.5 million) ($212.6 million) N/A ($96.7 million)
Net income per share ($2) (60 cents) N/A (22 cents)
Click to enlarge photo

Jim Murren

MGM Resorts International posted a hefty loss today to write down the value of its investment in the $8.5 billion CityCenter resort complex, which is now valued at $2.65 billion. But the company also reported some encouraging numbers about hotel room rates on the Las Vegas Strip.

The Las Vegas Strip giant lost $883.5 million in the second quarter ended June 30, mainly because it took an impairment charge -- on paper -- of $1.12 billion against its investment in CityCenter, which failed to turn a profit in the second quarter.

MGM took another charge of $29 million against the value of CityCenter's residential inventory -- that was its half of a $57 million charge to write down the value of the CityCenter condominiums.

The impairment charges, or writedowns, are required by accounting rules. When an asset declines in value, it's expected to produce less revenue and profit than earlier anticipated. That decline in value must be reflected in the income statement of the asset's owner.

It's the third time the company has written down the value of its CityCenter resort, which opened during the worst recession in Las Vegas history. The complex reported an operating loss of $128 million.

MGM Resorts lost $2 per share vs. a loss of $212.6 million or 60 cents per share in the second quarter of 2009.

Net revenue of $1.53 billion was up from $1.49 billion. This increase was significant since in the first quarter, MGM Resort's net revenue was down on a year-over-year basis, despite the December opening of CityCenter.

The Aria at CityCenter reported net revenue of $157 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $17 million.

Unlucky play at the casino -- a low table games hold -- for the company reduced Aria's adjusted EBITDA by about $24 million.

Aria’s occupancy percentage was 80 percent and average daily rates were $178, resulting in significant revenue per available room improvements from the first quarter of 2010.

Aria's hotel occupancy percentage was 63 percent in the first quarter with an average daily rate of $194, indicating that by lowering rates the company boosted occupancy in the second quarter.

Crystals, CityCenter's luxury mall, was 62 percent occupied in the second quarter and will be 72 percent occupied by the third quarter with the arrival of such high-end retailers as Prada and Gucci.

CityCenter overall reported net revenue of $401 million in the second quarter, which included $218 million related to residential operations like condominium sales, of which $56 million related to forfeited residential deposits.

The half-owned CityCenter venture generated an operating loss of $128 million, including the $57 million impairment charge for its residential inventory and a loss on sales of residential units of $17 million.

MGM Resorts expects to finish paying subcontractors owed money for their work on CityCenter by the end of this year. General contractor Perini Corp. sued MGM and partner Dubai World in March, saying construction firms are owed nearly $500 million. MGM has spent weeks negotiating final payments with subcontractors.

Despite the problems at CityCenter, MGM Resorts reversed a slide in room rates at some of its big Strip resorts.

The average daily room rate at Bellagio of $209 was up from $200 one year ago, with occupancy of 94.7 percent down slightly from 95.6 percent. The MGM Grand generated an average daily rate of $116, up from $114, with occupancy of 96 percent vs. 97.3 percent a year earlier.

Revenue per available room of $198 at Bellagio was up from $191 while it increased $1 to $112 at MGM Grand.

June marked the first month in which the company's revenue per available room figures on the Strip had improved, reversing a slide that began in 2007, executives said.

They attributed much of the increase to returning convention business, which is up from a year ago. Groups are paying higher rates than leisure travelers, with groups paying 15 to 20 percent more for rooms in 2011 than convention-goers this year, MGM Resorts CEO Jim Murren said during a conference call to discuss earnings.

A $1.2 billion convertible bond offering in April and efforts to refinance chunks of the company's bank debt have raised $2 billion in cash - more than enough, Murren said, to cover debt payments for the next two years. The company reported debt of $13.3 billion as of June 30.

"The Las Vegas operating environment remains difficult, but as we expected, we are seeing a gradual recovery. Our adjusted EBITDA improved compared to the first quarter, despite low hold percentages," Murren said in a statement. "CityCenter is seeing improved business activity. Aria is gaining brand awareness, which led to a 17 percentage point sequential occupancy increase in the quarter and higher non-casino revenues."

Deutsche Bank analyst Andrew Zarnett noted that unlucky play and reduced business volumes overall at its Las Vegas hotels and casinos reduced EBITDA for MGM Resorts, with Las Vegas Strip revenue per available room overall declining 2 percent.

The 2 percent decline was a marked improvement from the first quarter, when Strip revenue per available room decreased 8 percent compared to 2009’s first quarter; and from the 16 percent decline reported in the fourth quarter of 2009.

The company's Las Vegas Strip adjusted EBITDA of $243.7 million in the most recent quarter beat Zarnett's estimate of $221 million.

Sun reporter Liz Benston contributed to this report.

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