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CityCenter's Value Plummets: At a Cost of $8.5 billion to Build,
MGM Resorts International Now Lists Equity Value at $2.65 billion

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

Aug. 04, 2010--MGM Resorts International's CityCenter, which was built at a cost of $8.5 billion, now has an equity value of $2.65 billion, company officials said Tuesday.

The Las Vegas-based casino giant announced the new valuation during a conference call Tuesday when it blamed much of its second quarter loss on a $1.12 billion pretax, noncash impairment charge related to its investment in CityCenter.

MGM Resorts Chief Financial Officer Dan D'Arrigo said the equity value of CityCenter was $2.65 billion, down from October's equity value of $4.88 billion. Equity value doesn't take into account the value of the buildings, which MGM Resorts has not made public.

MGM Resorts owns CityCenter in a 50-50 joint venture with Dubai World, the investment arm of the Persian Gulf emirate.

There was a separate $29 million noncash charge due to an impairment of CityCenter's residential inventory.

The Strip project dragged down the company's overall numbers.

MGM Resorts said CityCenter, which includes the 4,004-room Aria, smaller nongaming boutique hotels and 2,400 residential units, had an operating loss of $128 million in the three-month period that ended June 30.

"CityCenter took some more big write-downs and operationally, CityCenter's results left a lot to be desired," Hudson Securities gaming analyst Robert LaFleur told investors. "The quarter was CityCenter's second full quarter of operations and trends are definitely headed in the wrong direction. CityCenter had a terrible quarter and another big write-off."

During the quarter, MGM Resorts said its net loss was $883 million, or $2 a share, compared to a loss of $212 million, or 60 cents, in the same three-month period a year ago. Analysts polled by FactSet Research expected a loss of 24 cents a share.

Despite the results, MGM Resorts Chairman and CEO Jim Murren said CityCenter is improving. Advanced convention bookings for the end of 2010 and into 2011 have increased, and Aria's market share is equaling that of Bellagio. Aria saw hotel occupancy increase in the quarter and grew noncasino revenues.

Following the company's quarterly conference call, Murren said the noncash impairment charge was taken because of accounting rules for joint venture businesses. He said the figure did not have a financial impact on the company or the joint venture itself.

Murren understands that, on paper, the raw numbers don't give CityCenter a glowing review.

"We feel like we are at the point where the business is growing," Murren said. "Aria has developed a brand following and our market share is up without cannibalizing the rest of our properties."

MGM Resorts' net revenue grew in the quarter to $1.54 billion, compared with $1.46 billion in the first quarter of 2010.

"The Las Vegas operating environment remains difficult, but as we expected, we are seeing a gradual recovery," Murren said.

CityCenter reported net revenues of $401 million in the second quarter, which included $218 million related to sales of condominium units at Vdara, Mandarin Oriental and Veer Towers. Part of the residential revenues included $56 million in forfeited residential deposits.

MGM Resorts closed sales on 196 units at CityCenter during the quarter -- 18 at Mandarin, 105 at Vdara and 73 at Veer.

Aria reported net revenue of $157 million and an adjusted cash flow loss of $17 million. Aria's results were hurt by a low table games hold percentage. CityCenter CEO Bobby Baldwin said Aria had $140.1 million in gaming revenue and 14.1 percent of all baccarat wagers on the Strip during the quarter.

Aria had a room occupancy of 80 percent in the quarter and average daily room rates of $178.

The figures resulted in a "significant" improvement from the first quarter in revenue per available room, a nontraditional measurement Wall Street uses to gauge profitability. Shares of MGM Resorts, traded on the New York Stock Exchange, closed at $11.17 Tuesday, down 10 cents, or 0.89 percent.

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

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Copyright (c) 2010, Las Vegas Review-Journal

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