Thursday, November 5, 2009

City Center: MGM Mirage Posts $750M Loss, But Remains Hopeful About December's Opening

Well, we have some bad news and some good news. First, the bad: MGM Mirage's bottom line REALLY bled red last quarter. The good news? They're looking at a better 4th Quarter so far.

With its CityCenter resort set to open, MGM Mirage today reported a loss for the third quarter as revenue fell on the Las Vegas Strip -- but also said its results are improving in the fourth quarter.

"We continue to show sequential improvement in our operating results over the course of 2009,'' Chairman and Chief Executive Jim Murren said in a statement.

MGM Mirage lost $750.4 million, or $1.70 per share in the third quarter vs. a profit in the year-ago quarter of $61.3 million or 22 cents per share. Net revenue of $1.533 billion was down from $1.785 billion.

The results include previously announced noncash accounting charges against earnings of $1.17 billion. These include a $956 impairment charge for the company's investment in CityCenter and $203 million to write down the value of condominiums under development there.

Yikes! Those are some serious losses. So why the hell is Jim Murren still so upbeat? MSNBC (via Stiffs & Georges) provided some answers earlier this week.

[Union Gaming Group analyst Bill] Lerner and others also predict a rebound in visitation of up to 5 percent next year as people check out CityCenter, take advantage of the ongoing bargains and begin to feel better about their own financial situation. International visitation is also increasing, says Jicinsky, and now accounts for about 15 percent of the total. (Last week, British Airways started daily, non-stop service from Heathrow; next May, XL Airways will start twice-weekly charter service from Paris.)

All of which bodes well for both CityCenter and Las Vegas and, perhaps, for travel in general. “We’re a good microcosm of the broader business community,” says Murren. “The next six months are going to be muted, but business travel and consumer activity are going to improve, particularly by April or May of next year.”

And so far, even Murren's cross-Strip rivals are cautiously optimistic about City Center's ultimate success.

"We hope it grows the market," said Steve Wynn, chief executive at Wynn Resorts Ltd (WYNN.O). "But so far, the talk has been about its problems, instead of about what an incredible, unusual place it will be." [...]

Rival Las Vegas Sands Corp (LVS.N) is also rooting for MGM. "It think it will succeed," said Sands CEO Sheldon Adelson. "If it doesn't, they will lower the room rates and that will affect everyone."

Wynn said he is unable to predict 2010 hotel rates "with any degree of confidence," given the wide number of market variables related to CityCenter and the general economy.

I guess this is one of those rare times when I'll agree with both Steve Wynn AND Sheldon Adelson! I may be perceived as some "crazy extreme left socialist", but in reality I'm also rooting for MGM Mirage and City Center right now. I really do hope they ultimately succeed.

And so far, there's good reason to hope. The worst of "The Great Recession" is over, and once unemployment turns around more people will have more money to spend on such discretionary items as trips to Vegas.

Still, everything isn't coming up roses just yet. Again, unemployment is still high and even a lot of people with jobs are focusing on saving money right now just to stay on top of the bills. Unfortunately for the big casinos (but good for savvy travelers!), room rates are likely to remain in the bargain basement just to lure all those tourists here to see the shiny new Vegas attraction next to what was our shiny new attraction 11 years ago.

So don't fret too much, Las Vegas will very much survive the rest of this recession and ultimately recover. Just don't expect a return to 2000 or 2005 hey days so quickly. There may be some bumps along the way, but City Center will bring in the tourists and Sin City will go on.

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