Majestic Research

Reuters

MGM Mirage loss wider than expected; shares fall

By Deena Beasley
Published: May 06, 2010

LOS ANGELES, May 6 (Reuters) - MGM Mirage reported a wider-than-expected first-quarter loss on Thursday, hurt by weakness in the Las Vegas convention market and the write-down of condominiums at its $8.5 billion CityCenter joint venture.

The casino and hotel operator’s profit margins also disappointed investors, and its shares fell 9.7 percent.

"Overall, Vegas hasn’t rebounded to the magnitude investors were hoping for,” said Majestic Research analyst Matt Jacob.

MGM, which opened the multi-tower CityCenter project on the Las Vegas Strip in December, warned last month that its quarterly results would fall short of Wall Street estimates, sending its shares lower.

Some investors have been concerned that the addition of CityCenter’s 6,000 rooms to a tourist destination already hit by the economic slump could limit the ability of Strip resorts to raise room rates.

Aria, the centerpiece casino resort at CityCenter, had an operating loss of $66 million.

But MGM officials said they are confident that the project can become profitable by the end of the current quarter.

Chief Executive Jim Murren said higher-paying convention bookings accounted for 14 percent of MGM’s Las Vegas room mix in the first quarter, up from 11 percent a year ago. “As it improves into the midteens that has a dramatic impact on overall rate,” he said on a conference call.

Murren said MGM’s Las Vegas revenue per available room—a key metric of the lodging industry which fell 8 percent in the first quarter—will turn positive in the second half of this year.

On a net basis, MGM posted a first-quarter loss of 22 cents a share, compared with a profit of 38 cents a share a year earlier.

Excluding items such as the $86 million CityCenter condo writedown, MGM had a loss of 31 cents a share, in line with the company’s forecast but wider than the loss of 27 cents expected by analysts in a Thomson Reuters I/B/E/S survey.

Revenue was $1.46 billion, also in line with MGM’s April forecast.

High-end baccarat play in Las Vegas held strong in the first quarter, rising 17 percent, but slot machine revenue remained sluggish, falling 1 percent.

Vegas trends appear to be stabilizing, but filling rooms is coming at a cost, said Stifel Nicolaus analyst Steven Wieczynski.

“Las Vegas margins were sloppy. MGM clearly remains promotional and is sacrificing ADR (average daily room rate) in order to keep their properties filled,” he said in a research note.

MGM owns 10 Las Vegas Strip resorts as well as casino resorts in Mississippi and Michigan and joint ventures in New Jersey and China’s Macau. CityCenter is a 50-50 joint venture with Dubai World [DBWLD.UL].

The company said earlier this year it planned to sell its 50 percent stake in the Borgata resort in Atlantic City after New Jersey regulators questioned the suitability of Pansy Ho, MGM’s joint venture partner in Macau, where the venture plans to conduct an initial public offering late in the third quarter or early in the fourth quarter of this year.

Shares of MGM fell $1.45 to $13.49 at mid-afternoon on the New York Stock Exchange. (Reporting by Deena Beasley and Deepa Seetharaman, editing by Gerald E. McCormick, Dave Zimmerman, John Wallace and Richard Chang)