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September 30, 2014

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The economy:

Can luxurious Mandarin Oriental hotel make it here?

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Sam Morris

Bram and Sarah Tihany take in the view from the Mandarin Bar at the grand opening of the Mandarin Oriental at CityCenter on Friday, Dec. 4, 2009.

Mandarin Oriental Grand Opening

A ribbon of flowers is cut at the grand opening of the Mandarin Oriental at CityCenter, Friday, Dec. 4, 2009. Launch slideshow »

Mandarin Oriental Las Vegas

CityCenter's Mandarin Oriental makes it's Las Vegas debut.

In the months before CityCenter opened, it seemed there couldn’t be enough hand-wringing over the awful timing: the christening of an $8.5 billion resort complex in the middle of the Great Recession.

The naysayers wondered how long before CityCenter would cough and gasp for air before maybe it would start making money.

The answer is now in.

Just about every part of CityCenter is making money on its anniversary — except one.

Disappointing results at Mandarin Oriental, a small, superluxury hotel that is taking steps to boost business — is the latest example of how Las Vegas lags behind the national recovery in certain segments of the economy.

Nationally, high-end hotels are faring better than budget counterparts as customers pay up for finer digs at discount prices. Upscale hotels also attract those who can most afford to travel.

Similarly, higher-end hotels are outperforming budget hotels on the Strip.

However, even the town’s finest hotels haven’t experienced the recovery that luxury hotels have in many other cities, and are still selling rooms at depressed prices.

“As a discretionary market, Vegas seems to be its own dynamic,” said Patrick Bosworth, a partner with Duetto Consulting in Las Vegas. Many guests of the town’s poshest hotel rooms are big gamblers who don’t pay a dime to stay in comped rooms.

Las Vegas’ upscale hotels attract many “aspirational” customers who might be spending more than they can typically afford, he said. Such customers, he said, tend to be less well-traveled and more sensitive to price increases.

Although an improvement in business travel helps boost profits for high-end hotels across the country, conventiongoers account for less than 20 percent of the rooms booked in Las Vegas. That limits the recovery’s benefit for casinos, and especially nongambling hotels such as Mandarin that lack large convention centers, Bosworth said.

By one earnings measure reported this month by MGM Resorts International, Mandarin reported a loss of $1.3 million in the fourth quarter, but Aria — buoyed by its casino — made $30.1 million, Crystals mall made $6.1 million and its casino-free Vdara condo-hotel tower made $949,000. These figures represent earnings before interest, taxes, depreciation and amortization, a primary performance indicator for investors.

Bermuda-based Mandarin Oriental Hotel Group manages the hotel and shares earnings with MGM Resorts, which did not disclose the property’s fourth-quarter occupancy or room rates.

The 400-room Mandarin, known for its hushed atmosphere and attentive, formally dressed staff, has been forced to drop prices along with other high-end competitors in Las Vegas. This month, the property is offering guests who stay two nights a third night free, in addition to free breakfast and a $100 spa credit.

Mandarin opened with prices that couldn’t be justified in the recession but has since lowered them to a competitive level that should help the hotel, said Bill Lerner, an industry analyst and principal with Union Gaming Group in Las Vegas.

“I expect there’s been some debate between (MGM Resorts) and Mandarin, as the management company, about what the market will bear,” he said.

Farther north on the Strip, Encore opened with depressed rates that undercut competitors in December 2008, as business slowed in Las Vegas.

Aria lowered rates not long after it opened a year later, when it became clear that a recovery wasn’t imminent.

MGM Resorts CEO Jim Murren called Mandarin’s results “disappointing” in light of improving earnings, helped by the recovering convention trade, at CityCenter’s other hotels. Murren said it’s understandable, though, as the Mandarin brand is known among international travelers but isn’t necessarily familiar to visitors of Las Vegas, where casino brands dominate.

To improve Mandarin’s fortunes, MGM Resorts has stepped up cross-marketing efforts between Mandarin and other company-owned properties in Las Vegas that include drawing Mandarin customers to gambling and nongambling events at other resorts, Murren said.

Mandarin made some money in January, when it was sold out a couple of weekends for the first time, Murren said. January was a good month for MGM Resorts and the Strip as a whole, as roughly 10 percent more attendees than January 2010 descended on Las Vegas for its biggest annual trade show, the Consumer Electronics Show.

During the show, several budget hotels charged from $200 to $300 and higher-end properties charged from $400 to $600 for rooms that would otherwise cost half that. Some analysts wonder whether such improvements are sustainable, as the first three months of the year typically account for as much as 40 percent of Las Vegas’ convention trade for an entire year.

Mandarin spokeswoman Alyssa Bushey said the boutique hotel has aggressively marketed its brand locally since it opened in December 2009, though the property last month hired a new director of sales and marketing, Diane Yost, to help those efforts. Yost previously led sales and marketing for the Ritz-Carlton hotel in Grand Cayman and has worked for the Four Seasons chain. The hotel’s latest marketing efforts are expected to tout its recent Five Diamond rating by AAA and its Five Star spa rating from Forbes, Bushey said.

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  1. "Just about every part of CityCenter is making money on its anniversary -- except one."

    Really? I would like to know where the writer learned this fact.

  2. Americans might not be able to afford Las Vegas, but Canadians, Europeans, Chinese, and Brazilians can. A trip to Las Vegas is cheap for them. However, as we cut the State Department budget ("to save money"), we cut funding for Consular Affairs -- the people who process visas, so we make Las Vegas less accessible to potential customers. So we limp along with underperforming casinos, hotels, restaurants and clubs, and unemployment.

  3. I see the cup as half full; the others, apparently, see it as half empty. Although I have no money at risk in the CityCenter venture, I am happy to see it turn profits. Even with Osama Obama at the helm, the mighty ship of commerce, known as FREE ENTERPRISE, will right things in the long run and, I believe, it is beginning now. One caveat: the Mid-East turmoil will affect fuel prices and push our economy further into the dumpster. We should be drilling for oil, building nuclear plants, utilizing shale oil, boosting geothermal, wind & solar power generation and burning clean coal to get off depending on foreign supplies as quickly as possible! One other thing: I was around (tho young) during WWII when we could no longer get natural rubber. So, American ingenuity came up with synthetic rubber in no time. We already have synthetic oil in small quantitys. This should be expanded greatly and, if it costs more to buy, so be it! Let's keep our petro dollars in the USA!

  4. It is rather an odd statement to say that almost every segment of CityCenter is making money, later qualified by the proviso that interest on the massive loans is not taken into consideration.
    That strikes me as similar to saying that almost all Las Vegas homeowners are financially secure in their homes, as long as their mortgages are taken out of the equation.

  5. The "earnings before interest, taxes, depreciation and amortization" metric is one of a number of metrics. It tries to assess the amount of cash flow that is left after operating expenses.

    There is money left over, but whether it is sufficient to cover the debt is a big question mark. The debt is the problem with this mess. I would note that just last month, a couple of the rating agencies were not impressed with this project.

  6. People want to spend more time with nature, not in a glass and concrete prison. That is why people stay in a rural setting in Arizona.

    We should require that all unfinished buildings (fountain blue, echelon, Manhattan West,etc.) be completed or torn down within 1 year or be seized by the government for auction to someone that will complete the projects.

  7. Many had posted the early demise of City Center and they now have positive cash flow one year out. That is great. Things are turning around a bit in Vegas and we have a long way to go but it will get there, always does.

    mred, I can't understand how you would want the taking of private property. To much listening to low budget hate radio again?

    Maybe I don't like how you keep your lawn so the state should take your property and sell it to someone that will do a better job. ;-)

  8. Ms. Benston: May I suggest, if you purport to be a serious financial columnist, since you are frequently running these articles containing EBITDA information provided by the casinos, that you do an in depth article on EBITDA. EBITDA can and often is grossly misleading concerning providing a true picture of a companies financial performance. It is not based on GAAP (generally accepted accounting principles). It is not a substitute for cash flow ---- interest and taxes are real cash items. It also doesn't take into account the effect on cash balances of changes in working capital items. Additionally, different companies use different earnings figures as the starting point for the EBITDA calculation. Also, depreciation and amortization, while non cash expenses, cannot be avoided forever, stuff wears out. Since it isn't defined in GAAP companies can report EBITDA any way they want. Glad to hear City Center is doing better but I would advise taking their spin with a degree of scepticism.

  9. I'd love to stay at the Mandarin,and I'm not offended by their pricing,but the fact that its a non-gaming property and I gamble means I'll never be able to establish a relationship with them like the one I have with Aria,one where my gambling earns me complementary rooms and other perks.
    I think that lack of dynamic will always hinder the Mandarin and their ability to fill rooms.

  10. Is the Sun providing damage control for CityCenter?
    I do not believe The Mandarin is the only property in CityCenter losing money.

  11. If I borrow a million dollars to buy or build a business and the revenue stream doesn't cover expenses and the loan, is there any way I'm making money?

  12. I would say they are making money only if they are able to pay all of their bills and reduce the debt load, even if by a small amount. If the debt is not going down (oe worse, going up), they are not "making" money.
    Just as a homeowner is only getting ahead if at the end of the month, their mortgage, credit cards, car loans, etc. have lower balances than at the end of the previous month.
    The other item not mentioned is the fact that many corporations (large and small) have ordered those who travel on business to find lower cost (but still nice) accommodations. Good bye Ritz, Hello Hampton inn. Or in the case of Las Vegas, No City Center, Bellagio, Venitian, etc. Instead it's Harrahs or Luxor, or some other middle priced location. First class air travel, high priced restaurants and luxury car rentals are also frowned upon more and more by corporations.

  13. As of 2010 the U.S. had Reserves totaling 21 Billion Barrels of oil. Our annual consumption was 16.8 Billion Barrels of oil in 2009. So we essentially can supply ourselves for 15 months, and then...no more reserves.

    Yes, we could produce oil from shale -- if we had proven technology to do so economically, but guess what campers, those projects lost funding twice, once under Reagan and once under W. Bush -- because they were viewed as unnecessary. (Something about private industry would fill the gap if it were really necessary, but that hasn't happened yet because the price of oil isn't yet high enough.)

    We could also produce oil from coil, but those projects were killed too during the same administrations for the same stated reasons -- with the same results.

    So until we change the fuel we use in our vehicles, or restore the oil shale and coal conversion programs on a crash basis (which will cost a lot more money than if we had just soldiered on), we are hooked on foreign oil.

    All the talk about drilling, etc., is just fantasy.