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Published Tuesday, Oct. 12, 2010 | 2:31 p.m.
Updated Tuesday, Oct. 12, 2010 | 6:10 p.m.
Sun Coverage
MGM Resorts International today said it expects to post a third-quarter operating loss of $206 million as it likely will take a financial hit on the sale of its share of the Borgata resort in Atlantic City and because of continued asset writedowns at CityCenter on the Las Vegas Strip.
At the same time, MGM Resorts is looking to Wall Street to raise more than $600 million in a stock offering.
On a net income basis, which includes debt payments, MGM Resorts expects a third quarter loss of $317.2 million or 72 cents per share vs. a loss in the year-ago quarter of $750.4 million or $1.70 per share.
MGM Resorts needs to raise cash to pay down a bank loan of $1.1 billion that’s coming due a year from now, analysts said today. Proceeds from the sale of stock, in addition to the pending sale of its half-owned Borgata resort in Atlantic City and earnings from its Chinese resort in the lucrative market of Macau could be used to do that, they said. Earlier this year, the company negotiated with lenders to postpone by a few years billions more in debt that would have come due in 2010.
In addition, analysts said the cash may give MGM Resorts the cushion it needs to avoid violating terms of a bank loan. The company has paid about $1 billion in interest payments over the past year and is earning little more than that in earnings. The bank loan requires that MGM generate at least a billion in earnings this year.
If earnings continue to fall, the company could be at risk of defaulting on the loan, giving lenders the right to collect. Lenders have so far been willing to give MGM Resorts more time to recover from the recession. They have negotiated more favorable loan terms for the company in exchange for repayment, in some cases at higher interest rates, to help the company avoid default and potential bankruptcy.
Net revenue for the third quarter is expected to come in at $1.47 billion, down 3 percent on a year-over-year basis, the company said in pre-announcing quarterly results. A key indicator on the Las Vegas Strip -- revenue per available room -- was down 2 percent from the 2009 quarter to $97.
The decline in revenue per available room indicates continued tough operating conditions for Las Vegas gaming operators because the recession has reduced visitation to Las Vegas while the number of hotel rooms continues to grow in the U.S. gaming capital.
Also highlighted in announcements today:
-- MGM Resorts has received an offer for its share of Borgata from a party it did not immediately identify. Based on Borgata's debt, this offer would yield about $250 million for MGM Resorts' 50 percent interest. This caused MGM Resorts to post a $128 million impairment charge as the $250 million is
less than what MGM Resorts has been valuing that asset at. The offer — valuing Borgata at $1.35 billion — will now be reviewed by Borgata partner Boyd Gaming Corp., which has rights of first refusal. The fact that the offer has been referred to Boyd indicates the offer disclosed today by MGM Resorts was not made by Boyd.
-- MGM Resorts said its CityCenter construction completion guarantee obligation has increased by $232 million as the $8.5 billion CityCenter construction closeout and litigation process continues. At the same time, because of the increase, "the company reviewed its investment in CityCenter due to such increase and expects to record a pre-tax impairment charge of approximately $182 million in the third quarter."
-- MGM Resorts is taking a pre-tax charge of $46 million for impairment of CityCenter’s residential real estate inventory.
-- CityCenter itself -- half owned by MGM Resorts -- is writing down by $279 million the value of the unopened Harmon Hotel there. That property is the subject of much of the CityCenter construction defect and construction closeout litigation.
-- Aria at CityCenter turned profitable in the quarter, generating net revenue of $219 million and adjusted EBITDA of $41 million. EBITDA means earnings before interest, taxes, depreciation and amortization. In the second quarter it reported an EBITDA loss of $17.138 million.
-- MGM Resorts expects to receive $125 million from the loan to its MGM Macau
property in China. That money is coming from retained earnings at the property, where an initial public stock offering is also in the works.
-- MGM Resorts is looking to raise cash by offering to the public 40.9 million shares of its common stock, plus potentially another 6.135 million shares in potential "over-allotments." Cash raised from the deal would be used for general corporate purposes including reducing debt. At current prices the offering would raise up to $641 million.
-- Billionaire Kirk Kerkorian’s Tracinda Corp., the largest MGM Resorts shareholder, is separately offering 27.782 million shares and up to 4.167 million shares for over-allotments. Cash raised by Tracinda wouldn’t go to MGM Resorts.
In a statement, Tracinda said that following the planned stock sale, Tracinda would own about 30 percent of MGM Resorts' outstanding common stock.
"As MGM Resorts' largest shareholder, Tracinda believes that there is substantial value in the assets of the company and that MGM Resorts is a good long-term investment. Tracinda is not currently seeking other strategic alternatives with respective to its investment in MGM Resorts," the company said in a statement.
A Tracinda representative declined further comment on the stock sale, which is expected to dilute Kerkorian’s interest in the company to just under 30 percent ownership.
Sun reporter Liz Benston contributed to this report.
MGM should make a movie about itself to make money.I would guess it would be in the horror section.
On over about 500 stations nationwide and in Canada, Dave Ramseys (heard on kxnt locally) tells people not to spend money or gamble (it is stupid he says) He says don't take a vacation until your home is paid off. He sells out his events and charges people up to $6000 for his "seminars" etc.
The casino industry marketing does nothing to counter this "tight wad radio." If I was a casino owner I would stay clear of "Ramsey stations."
Obama did far more to damage Las Vegas in two comments than Dave Ramsey(not Ramseys, mr.red) could do in 10,000 years.
mred,
Most of those are nothing AM stations that very few listen to. Seems you listen to them for some reason since you know all about them.
The counts are up for the last month so I guess many others don't listen to them either or they don't follow this guys advise.
Executives shouldn't be stealing so much money. How about leaving some money to run the business.
Heck, a million lost here, a million lost there, soon you'd think it would sink into the investors that MGM management is running their company into the ground.
"We will get our rightful majority share of that incremental revenue" ... "It's now my responsibility to make sure this company's never in a position to be as vulnerable."
(Nov 18, 2009) -MGM CEO Jim Murren
206 million no problem...mgm will just lay off 500 or so more employees to make up the difference...why should managment be held responsible for bad judgement and poor business decisions...
mred... thank god that not everyone has the discipline to adhere to what's best for them. Ramsey's schtick sounds great and I'm sure many are doing their best to give it a shot, but it's just like all the people who start New Years off with a resolution and a diet, by April they're back at the pizza parlor.
I'm not irresponsible, but not as responsible as I could be and I bet most fall into that group. I overeat when I want to and overspend when I want to... it makes me feel good. If you subscribe to his deal, you sacrafice all your life, then you die. WTF... that's not who I want to be... not sayin' it's not something for many to strive for... but it's not me. I like a good hangover once in awhile! Life's tough... enjoy it, laugh and let loose sometimes.
smartone, I basically agree with you. I am a pretty conservative person but just like you I enjoy cutting loose sometimes. I am in my mid fourties and just last week two people I knew that were in their mid fifties passed away. I sure bet they had things they wished they could have done. Money in the retirement account is no good to you when you are gone. Of course I am sure that my family is taken care of but we have done some amazing things that no amount of money can replace.
I give up trying to understand these numbers.
I have come to three conclusions:
1. I am not smart enough to understand hotel-casino accounting.
2. The biggest loser seems to be the federal government, since tax-impairment charges must mean less tax owed by MGM.
3. I was stupidly naive to think that loosening the slots would help MGM's bottom line. Their problems are so massive that loose machines are irrelevant.
If the consumer stops consuming....any buisness can fall.
When these large corps have problems you can finally see what all their lobbying of both parties get them. A dizzying list of numbers that no one can follow. Somehow they can avoid taxes when things are bad and avoid taxes when things are good. They stiff investors and employees alike. All the while warning that if they don't get what they want we will suffer.
MGM is going to be hurting for a number of years for the City Center fiasco. I understand Vegas always in constant flux, but I do not think they will be able to unload it in time.
Donate $1 to the schools in Las Vegas so your neighbors will make more money when they graduate and be able to gamble more at the MGM so share prices won't have to fall like they will soon because of this: www.donorschoose.org/mrcombs
Regardless of what President Obama or Mr. Ramsey say, how many of you out there are gambling instead of paying your bills?
Fat meat is greasy meaning....DUUUUUUUUUUUUUUUH
Mred I agree with you. The consequences of late payments on credit card debt ($40 late fees) are so severe that people shouldn't be gambling with anything bigger than pennys and nickels. Unfortunately people are getting themselves into massive new toxic debt in the form of student loans. Getting in trouble with your student loan debt is as bad as being an indentured slave laborer in Dubai.
http://www.youtube.com/watch?v=YYFJnCmj-...
The City Center (dead real estate-there is no cash flow as opposed to free standing Casino's like Bellagio or Mirage) and the Night Clubs (over $200 million in revenue that is going to owners of the Club and not MGM) are what is hurting them. The Night clubs, attract the party kind who don't gamble and the gamblers don't visit the night clubs. The old Vegas crowd came to do both and they are staying away because of that and the one's who do come are spending less.
<Obama did far more to damage Las Vegas in two comments than Dave Ramsey(not Ramseys, mr.red) could do in 10,000 years>
Logic ----
GET OVER IT ALREADY!!!!! MOVE ON!!!