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StumbleCityCenter writedown pushes MGM Mirage to 1Q loss
Published Thursday, May 6, 2010 | 6 a.m.
Updated Thursday, May 6, 2010 | 9:24 a.m.
MGM Mirage Financial Information
| 1Q 2010 | 1Q 2009 | % Change | 4Q 2009 | |
|---|---|---|---|---|
| Revenue | $1.457 billion | $1.498 billion | -4% | $1.452 billion |
| Net income | ($96.7 million) | $105.2 million | -- | ($433.9 million) |
| Net income per share | (22 cents) | 38 cents | -- | (98 cents) |
MGM Mirage today said it lost $96.7 million in the first quarter -- a number in line with an April 14 announcement that the gaming company would post a loss on lower revenue.
The loss, equal to 22 cents per share, compares to a profit of $105.1 million or 38 cents per share in 2009's first quarter.
The 2010 quarter's loss reflects a writedown, on paper, of $86 million to reflect reduced values of CityCenter residential units. Another key factor was a decline in visitation and spending at MGM Mirage's big Las Vegas Strip resorts.
The company said these resorts, such as Mandalay Bay, MGM Grand, Bellagio and the Mirage, generated room occupancy in the quarter of 85 percent, down from 87 percent in the 2009 quarter. The average daily room rate fell from $118 to $111 and revenue per available room fell from $103 to $94.
Analysts have said MGM Mirage's results have been affected by the U.S. recession continuing to limit travel to Las Vegas, and by an oversupply of hotel rooms on and near the Las Vegas Strip that has resulted in MGM Mirage properties cannibalizing business from each other.
Overall, net revenue fell 4 percent to $1.4 billion despite a strong performance from MGM Grand Macau, which posted $23 million of EBITDA in the 2010 quarter vs. negative EBITDA of $3.6 million one year ago. EBITDA means earnings before interest, taxes, depreciation and amortization.
Jim Murren, chairman and CEO, said in a statement today that things are looking up for the rest of the year.
"We see signs of improvement in the Las Vegas market and expect those to accelerate in the second half of the year and into 2011. Our forward bookings continue to improve as our convention bookings continue to gain traction," Murren said in his statement.
Jim Murren
"This market is healing. We've gone through the worst of the economic storm here," Murren told analysts on a conference call today.
Murren said higher-spending convention customers are returning to Las Vegas as convention planners around the nation look to save money by booking events at lower-cost cities such as Las Vegas.
Murren said just 14.5 percent of MGM Mirage's room nights were booked by conventioneers during the first quarter, down 5 percentage points from the first quarter two years ago. With future bookings, the company is building toward a 16 percent convention room-night mix, he said.
"That has a dramatic impact on our overall room rate," he said, explaining conventioneers typically book rooms at $140 or more while leisure travelers spend on average about $80.
"As we yield our rooms away from leisure to conventions, the profit impact is profound," Murren said.
Murren said the company's proposed name change to MGM Resorts International will better clarify "who we are as a company" and will coincide with a beefed-up customer loyalty program.
"That (the loyalty program) has been a competitive disadvantage for this company for the past decade," Murren said. "We need to provide the customers with a better understanding of the value we have. This we believe will have a tremendous impact. Many of our competitors have done more with less."
MGM Mirage said in February it hired two companies to improve its customer database mining capabilities and boost its guest loyalty programs.
MGM Mirage said at that time it hired ESS Analysis, a Boston-based advanced analytics-focused consulting firm, and A.T. Kearney, a global management consulting firm, "to take customer database 'mining' capabilities to a new level and further enhance guest loyalty programs."
MGM Mirage said the firms would better align its database of more than 60 million customers with marketing efforts.
The move may improve MGM Mirage's competitive position against industry leader Harrah's Entertainment Inc., which is known for mining its own databases with scientific formulas to produce personalized offers to customers through its Total Rewards Program, which launched in 2000 and now has some 40 million members.
MGM Mirage executives have for the past few years said they hadn’t fully capitalized on technology-based marketing and the company’s loyalty program, which includes the MGM Mirage Players Club Card offering benefits at 12 resorts and casinos around the country.
At the $8.5 billion CityCenter on the Las Vegas Strip, executives today said revenue from rooms, the Aria casino, nightclubs, restaurants, retail and condominium sales is improving after initial results since its opening in December were depressed by the recession. They expect the complex to at least break even during the second quarter after generating net revenue of $260 million and an operating loss of $255 million in the first quarter. Those numbers include the noncash residential writedown.
Occupancy at Aria ran 69 percent in April, up from 63 percent during the first quarter, the company reported.
Some 56 percent of the Crystals luxury shopping center was leased at the end of the first quarter, a number expected to grow to 76 percent by the end of the third quarter and 82 percent by the end of the year.
Some $116 million of revenue was booked from 109 residential closings in the first quarter at CityCenter, with additional closings under way, executives said. Of those first quarter closings, 78 were at the Vdara hotel-condominium tower and 31 were at the Mandarin Oriental. Of some additional 600 condominium rooms under contract at Vdara, the company expects to actually sell about 175 through this summer and then return the remainder to the property as hotel inventory.
"It is quite clear to us that CityCenter will become the major showcase not only in our portfolio, but in Las Vegas," Murren said. "We knew the first half of the year would be challenging."
On other issues, executives said they continue to proceed with plans to sell MGM Mirage's stake in the Borgata resort in Atlantic City, are proceeding with plans for an initial public offering of the company's Macau business and hope for a favorable legal resolution of a dispute over construction costs and construction defects with CityCenter builder Perini Building Co.
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" Another key factor was a decline in visitation and spending at MGM Mirage's big Las Vegas Strip resorts."
The visitation and spending decline is also directly attributed to the fleecing of the tourists and players in today's corporate casino practices.
America is allowing a staple city in it's limits fail. By allowing other states to have casino gambling it's taking from the draw of tourists... It will never be what it once was.
CityCenter. What a God-awful catastrophe. Will be an albatross around MGMM's neck for years to come
Now you know why they wont pay the contractor the half a billion dollars they still owe for the construction of City Center. They just don't have the money.
I wish poor harry, when he forced banks to loan to MGM, would have put in something that made them pay their bills so all the local contractors don't have to bankrupt as they float MGM's cash flow trouble.
They can build whatever they want in Vegas...it wont help.
A big part of their visitation base is gone forever. The boomers from So Cal have to prepare for retirement. Stuffing money down a rigged slot machine is not part of the plan.
Why even print what MGM upper managment has to say. Its just cheerleading. They want people to buy their stock so they can sell their stock options.
I am surprised they didnt lose more. So I guess this is good news.
The prudish religious people in the US stop people from having conventions in Las Vegas. The religious right wing is a big part of the problem.
I surprised they didn't mention that the oversupply of hotel rooms was, for the most part, their doing. Hah!
Evolution is slower than revolution the gentle effects are profound and longer lasting.In the age of "disposable" and instant gratification the holistic approach of the apothecary a better bet.With global markets expanding and Vegas becoming more easily accessible and attractive internationally, City Center is first in that respect, mixing modern tech with local flair. Looking at the overall effect city wide I find streets alive with people dramatically different from this time last year. Sawa Bona MGM.
Las Vegas really does face an increasing problem. My wife and I are a perfect example. We have May 28-31 open for a short vacation. We haven't been to LV in about a year and I would love to visit. We do play at other casinos within 2 hours of our home. When I really gave this some thought I had to really figure out why we would want to make the trip. We have seen most of the sights and our last trip the slots ate our money as fast as we could pull it out. We have also seen most of the better shows. I don't really know. It is just diffrent from the way it used to be.
Maybe the Ritz Carlton can show them how to manage the property.
being from Canada and going to Las vegas years ago and coming back now years later its a dissappointment...the prices of stuff are outrageous...Vegas was always know as a great place to have fun that didnt cost an arm and leg if u didnt gamble alot.I am coming in June again..but my wallet will be close to me...
The room rates are double what they were just 6 months ago, how can they be losing money?
THEIR PRICES ARE OUTRAGEOUS BECAUSE THEY NEED THAT MUCH PROFIT TO SERVICE THEIR MASSIVE DEBT LOADS. LAS VEGAS CAN NEVER GO BACK BECUASE CORPORATIONS HAVE TAKEN OVER AND THEIR NEVER ENDING QUEST TO BUILD A BETTER PRODUCT HAS BACKFIRED AND NOW IT HAS BITTEN THEM IN THEIR COLLECTIVE ARSES.
City center is a TOTAL BUST.
You can buy one of the condo's for $68,000.00
rooms rent for $19- bucks a night.
Karma baby
@Boomer111-
"City center is a TOTAL BUST.
You can buy one of the condo's for $68,000.00
rooms rent for $19- bucks a night.
Karma baby"
Tell you what, genius, if you're going to make idiot statements like this, put your money where your mouth is. If you go and buy a CityCenter condo for $70k, I'll buy it from you for $85K. If you go ahead and book 5 rooms for $19 a night, I'll rent them from you for $39.
Dense baby...
I like the energy of the Mirage and that they have a lot of long term staff members, so I go there.
Really though for me it's about being in the spa and eating some healthy food.
Resting, and maybe a show and some pool time.
Gambling? I cannot justify it in this economy as new money, other than social security has been very hard to come by.
The masive city presence of CityCenter in the photo that accompanies this article turns me off so badly I hate looking at it. The dark, disciplined, steely towers repulse my nature. I used to see Las Vegas as a carefree gambler's paradise. An adult adventure realm where Chance was an alluring mistress. The feeling now is disillusionment and sadness. Childhood's end.
The more I realize that the corporate casinos are desperate to decieve me into spending money to save their CEO's "bottom line", the sadder and wiser about Vegas I become.
My Boomer retriement dollars are best spent in more enjoyable pursuits.
I booked a few nights at the Vegas Hilton in March. For 40 dollars per night, plus tax. And I received a valued coupon sheet. It was a good experience. I am planning my next trip to Vegas for fall 2010. The Hilton is now offering rooms for not less than 110 dollars per night, weekdays. Hello? Am I missing something? This place is old, the rooms are ok but not new. The view is great but what is the reason for a 200 per cent rise in room rates????? They gotta be kidding me, but I will book elsewhere. I don't care how many hookers assemble at the sports bar after midnight. It was obvious what was going on there, even if security guys apparently close their eyes or get palm greased.... The Vegas Hilton was great for 40 dollars plus tax, but I will find better places for 110 dollars. And this will definetely not be any of the MGM Mirage properties....
From Switzerland
The City Center? Thanks for bringing "Blade Runner" to reality a little early. Looks like a corporate wet dream.
Oh that's right gotta remember next quarter's profits ~dream on.
I love this statement regarding the MGM losses:
"Another key factor was a decline in visitation and spending at MGM Mirage's big Las Vegas Strip resorts."
Translation:
The public will only tolerate being ripped off and price gouged for so long until they just say enough is enough and go somewhere else (like another city).
People are fed up with MGM about getting screwed over by 6/5 blackjack. They are tired of continuous auto shufflers. Furthermore, people are just done with ridiculous minimums on table games. Ex: DD blackjack min. $50 a hand on a Tuesday afternoon at Aria. Come on now.
The public is also done with MGM when paying $17.50 plus toke at a smoky casino bar for a domestic draft beer and a well vodka tonic.
Customers have had enough with MGM and their rip off "snack bar" in Aria that charges close to $20 for a deli sandwich and a bottled water. Don't forget to toke also...
When MGM (and Harrah's) finally figure out that a large percentage of visitors to Las Vegas are not dumb sheep who enjoy gettting ripped off, then both of these companies are going to struggle for a long time.
not an expert, but if you dig down it shows a 121% decrease in EBITDA from LY. If this trend continues, you are looking at around $500 to $600 million in EBITDA for TY? PLUS an almost 6% increase if G&A plus almost $9MM in stock compensation? They need to do something "better" to pay off notes.....
I just read on trip advisor that a glass of OJ at aria was $7.50. OMG. Never in my life!
I've finally heard out of the CEO's mouth what I suspected forever. MGM's player club is NOT competitive. I have stayed and played almost exclusively with them for the last ten years. Particularly enjoying Mandalay Bay, and the Mirage. My inlaws constantly utilize Harrah's player club. Everytime we go to Las Vegas with them, we are in an MGM prop, them in a Harrah's. I have gambled 50 dollars to every one in a MGM casino to a Harrah's casino. However....I have received better offers from Harrah's club than MGM. Next trip is this June at Paris resort. Comped four night, with the fifth one 40 dollars. Best offer from MGM ever was 2-3 comped nights, with two at around 80.
Have to agree with some comments.
-City center is ugly, and will bankrupt MGM eventually.
-Value does need to play back into this city...with looser slots. 6/5 BJ is here to stay...get used to it. They won't back off of that or continues shufflers. Too many people can count into a six hand deck. There never was a big enough house advantage at BJ.
-And there is a large number of tourists who are gone for the foreseeable future with indian and locale casinos proliferating...!! They offer value, plus its quicker and cheaper to get there.
Southpoint No 1, and well live the other locals casinos. The tourists will find out that the locals casinos are very nice and competitive. Let's just hope that the future will be the same. The Orleans is about to convert to a locals/tourists thing, but the further away you go and stay from the Strip the more authentic Vegas will be for you. That's what I noticed. If you need a dose of Vegas Strip, hop in your rental car and get to the center, but staying on the Strip? No thanks!
From Switzerland
What the article did'nt include that only 100 of the 2400 condo's are sold and the others that were under contract the buyers forfieted their
deposits. City Center made 25 million on the
forfeitures. Easy money.
I used to go to vegas at least four times a year from LA it was easy. I did not mind spending a few hundred bucks a day on gambling, service was good food excellent. That was in the 90's. Now I will do my best to go any where other than Vegas. Out of town guest say lets go to Vegas I will say no way. The attitude and lack of manners from staff and stuck up we are better than you attidude by pit bosses, ha look where you are at now Vegas. If you travel to other areas such as asia gambling is booming they are making a killing in business. The reason oriental high rollers dont go to Vegas is lack of high end service. I hand you 2000$ in bills and you dont say thank you sir. Give me a break. I will go back when Bellagio is down to 20$ a nite. Should be within a year.