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MGM Mirage Stock Falls 5.45% on News of $96.7 million First Quarter Loss:
CityCenter Expected to Report a $255 million Operating Loss

By Howard Stutz, Las Vegas Review-JournalMcClatchy-Tribune Regional News

Apr. 15, 2010--Shares of MGM Mirage fell almost 6 percent Thursday on the New York Stock Exchange, the day after the company told investors it expected to report a $96.7 million loss in the first quarter. The casino operator also said it would report a $255 million operating loss at CityCenter.

MGM Mirage's share price, up some 60 percent from a year ago, closed the day at $14.57, down 84 cents or 5.45 percent.

Wall Street wasn't surprised. Many analysts predicted the company would have a challenging first quarter this year as the Strip tries to recover from the recession.

"MGM Mirage's preliminary results support our view that the Las Vegas market should remain pressured due to the inflow of supply from the recently opened CityCenter," Oppenheimer gaming analyst David Katz told investors Thursday. "While initial results for Aria were modestly positive, they were below expectations, as were results from some of the wholly owned Strip properties."

Aria, CityCenter's centerpiece 4,004-room hotel-casino, is expected to report an operating loss of $66 million. The hotel ran at just 63 percent room occupancy in the quarter.

MGM Mirage also said CityCenter would take a $171 million noncash impairment charge related to the development's 2,400 residential units.

Stifel Nicolaus gaming analyst Steven Wieczynski said investors were probably disappointed by the preliminary quarterly results. Las Vegas gaming revenues grew 33 percent in February, which helped drive up the company's stock price.

"After strong Las Vegas February results were released, we believe expectations for a quicker recovery were starting to get baked into MGM shares," Wieczynski said. "MGM Mirage's preliminary results suggest March trends did not improve and February was an anomaly. Investors looking for a quick recovery in Las Vegas have to realize a large chunk of supply still needs to be absorbed, which will likely weigh on room rates."

Janney Montgomery Scott gaming analyst Brian McGill said that although the Strip might be a drag on the company's results, strong numbers coming from MGM Mirage's casinos in Detroit and Biloxi, Miss., could buoy results.

"The Las Vegas Strip results were well below our low expectations for the quarter," McGill said. "The surprise to us came at the higher-end properties, which saw a drastic drop from year ago levels. The negative leverage in the model continues to manifest itself, as the properties cannot cut enough costs to match the lower level of revenues."

However, Union Gaming Group principal Bill Lerner told his firm's clients he maintains a positive view toward MGM Mirage despite the down quarter. He sees potential in the company's long-term prospects.

"We suspect Aria's room pricing dynamics caused some cannibalization of MGM Mirage's mid-market properties on the Strip," Lerner said. "At the same time it is clear to us that other elements of the MGM Mirage model are reflecting favorably, such as the strength of high-end volume at CityCenter and Bellagio in totality. We are optimistic about further balance sheet improvement and feel strongly that MGM Mirage can disproportionately capture a recovery in Las Vegas."

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

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