Shares of MGM Resorts tumble on 3Q earnings news

By Steve Green

Wednesday, Oct. 13, 2010 | 8:33 a.m.

MGM Resorts International stock fell about 9 percent this morning as investors absorbed a flood of information issued since Tuesday afternoon about third quarter results and a public stock offering.

The Las Vegas-based gaming company's stock traded early today at $12.38, down $1.23.

Also today, MGM Resorts priced at $12.65 per share its public offering of as many as 47.035 million shares it intends to sell to raise cash to pay down debt and improve liquidity. At that price, the offering would raise as much as $595 million before expenses.

Deutsche Bank analyst Andrew Zarnett called MGM Resorts' third quarter operating numbers issued Tuesday disappointing, saying much of the decline in EBITDA -- earnings before interest, taxes, depreciation and amortizaiton -- was attributable to reduced business volumes in Las Vegas.

MGM Resorts said adjusted property EBITDA from wholly-owned operations such as Bellagio, Mirage, MGM Grand and Mandalay Bay was about $314 million in the quarter ended Sept. 30, down 13 percent compared to the prior-year quarter.

With the Las Vegas room supply still growing and the recession deterring visitation to the city, MGM Resorts said a key indicator on the Las Vegas Strip -- daily revenue per available room -- was down 2 percent from the 2009 quarter to $97.

Zarnett said he remains concerned with MGM Resorts being highly leveraged -- that is carrying a high level of debt ($12.9 billion) in relation to earnings.

"We continue to be concerned by the excess supply in the Las Vegas market, which we believe will cannibalize existing Las Vegas Strip operators including properties owned under the MGM portfolio," Zarnett added in a report today. "Upside risks include improvement in Las Vegas group demand, which may lead to EBITDA being higher than our estimates."

Still, Zarnett said the capital raising plan, along with recoveries of cash from MGM Resorts' Borgata and MGM Grand Macau investments, should leave the company with enough liquidity to pay down debt of $1.6 billion maturing in 2011, $544 million maturing in 2012 and to fund the balance due to CityCenter under the project's construction completion guarantee, which he estimated is about $370 million.