Financial

MGM Resorts International Reports Third Quarter Results

MGM Resorts International (NYSE: MGM) today announced its financial results for the third quarter of 2010. The Company recorded a third quarter diluted loss per share (EPS) of $0.72 compared to a loss of $1.70 per share in the prior year third quarter.

MGM Resorts International Senior Credit Facility Extended to February 2014, Significantly Improving Liquidity Profile

The current year results include pre-tax impairment charges totaling $357 million, or $0.51 per diluted share, net of tax, including pre-tax impairment charges of $182 million related to the Company's investment in CityCenter, $46 million related to CityCenter's residential real estate inventory, and $128 million related to the Company's Borgata investment. The prior year results include pre-tax impairment charges totaling $1.17 billion, or $1.72 loss per diluted share, net of tax, including pre-tax impairment charges of $956 million related to the Company's investment in CityCenter and $203 million related to impairment of CityCenter's residential real estate under development.

The following table lists these and other items which affect the comparability of the current and prior year quarterly results (approximate EPS impact shown, net of tax, per diluted share; negative amounts represent charges to income):

Three months ended September 30,

2010

2009

 
Preopening and start-up expenses

$     --

$     (0.01)

 
Property transactions, net:

 
     Investment in CityCenter impairment charge

(0.27)

(1.40)

 
     Investment in Borgata impairment charge

(0.17)

--

 
     Other property transactions, net

(0.01)

(0.02)

 
Income (loss) from unconsolidated affiliates:

 
     CityCenter residential inventory impairment charge

(0.07)

(0.30)

 
     CityCenter forfeited residential deposits income

0.02

--

 
     Borgata insurance proceeds

--

0.02

 

Key operating results for the quarter included the following:

  • Net revenue, excluding reimbursed costs, decreased 3% to $1.5 billion;
  • Las Vegas Strip REVPAR(1) decreased 2% compared to the prior year quarter. Both Bellagio and Mandalay Bay recorded increases in REVPAR for the third quarter;
  • Adjusted Property EBITDA(2) attributable to wholly-owned operations was $314 million, down 13%;
  • Net revenue at the Company's regional resorts increased 3% compared to the prior year third quarter with Adjusted Property EBITDA increasing 12%;
  • MGM Macau reported its best quarter ever and earned operating income of $61 million in the third quarter of 2010 which included depreciation expense of $22 million; and
  • Aria reported Adjusted Property EBITDA of $41 million during the third quarter of 2010.
 

Other key events:

  • In October 2010, the Company issued 40.9 million shares of its common stock for net proceeds to the Company of approximately $512 million and issued $500 million of 10% senior notes due 2016 for net proceeds to the Company of approximately $486 million;
  • The Company used a portion of the net proceeds from the equity offering and all of the proceeds of the debt offering to effectuate the extension of its senior credit facility to February 2014.  Revolving commitments and term loans were reduced by $1.2 billion, leaving $3.6 billion of total commitments ;
  • The Company received approximately $125 million from MGM Macau during October 2010, which represents a partial repayment of principal and accrued interest on the Company's interest and non-interest bearing notes to that entity;
  • The Company recently received an offer (subject to diligence, definitive agreements and approvals) for its 50% economic interest in the Borgata Hotel Casino & Spa ("Borgata") equal to slightly in excess of $250 million, based on an enterprise value for Borgata of $1.35 billion for the entire asset; and
  • The Company expects to close the sale of its long-term land leases and associated real property parcels underlying Borgata in November 2010, with net proceeds to the Company's New Jersey trust account of approximately $71 million.
 

"We continue to see the Las Vegas market stabilizing, Aria's operating performance is ramping up, and MGM Macau reported a record quarter," said Jim Murren, MGM Resorts International Chairman and CEO. "We have made significant progress on our financial position this year and have deployed several programs to better position our portfolio of resorts to benefit from a broader economic recovery going forward."

Detailed Discussion of Third Quarter Operating Results

Net revenue for the third quarter of 2010 was $1.56 billion. Excluding reimbursed costs revenue mainly related to the Company's management of CityCenter (approximately $89 million in the 2010 third quarter and $16 million in the 2009 third quarter), net revenue was $1.47 billion, a decrease of 3% from 2009.  

Third quarter casino revenue decreased 9% compared to the prior year quarter, with slots revenue down 3% for the quarter.  The Company's table games volume, excluding baccarat, decreased 7% in the quarter, while baccarat volume was down 6% compared to the prior year quarter.  The overall table games hold percentage was lower in 2010 than the prior year quarter; in the current year third quarter the hold percentage was above the midpoint of the Company's normal 18% to 22% while it was slightly above the high end of the range in the 2009 quarter.

Rooms revenue decreased 3% from the prior year. The Company achieved 93% occupancy compared to 95% in the prior year quarter with consistent ADR, which led to a 2% decrease in Las Vegas Strip REVPAR.

"Our luxury properties are leading the way, driven by improving convention mix.  Both Bellagio and Mandalay Bay recorded REVPAR increases in the third quarter," said Mr. Murren.

Operating loss for the third quarter of 2010 was $206 million, which includes the CityCenter investment impairment, the Borgata impairment, and the Company's share of the CityCenter residential impairment charge discussed further below. Prior year operating loss was $963 million and included an impairment charge related to the Company's investment in CityCenter and the Company's share of a CityCenter residential real estate impairment charge. Adjusted Property EBITDA attributable to wholly-owned operations was $314 million in the 2010 quarter, down 13% compared to the prior year.

Impairment Charges

As of September 30, 2010, the Company recognized an increase of $232 million in its total net obligation under its CityCenter completion guarantee, and a corresponding increase in its investment in CityCenter.  The increase primarily reflects a revision to prior estimates based on the Company's assessment of the most current information derived from the CityCenter close-out and litigation processes.  This accrual does not reflect certain potential recoveries that CityCenter is pursuing as part of the litigation process. The Company reviewed its investment in CityCenter due to such increase and recorded a pre-tax impairment charge of approximately $182 million in the third quarter. This impairment charge reflects a fair value of $1.3 billion for the Company's 50% equity interest in CityCenter.

The Company recently received an offer for its 50% economic interest in Borgata based on an enterprise value of $1.35 billion for the entire asset. The Company submitted this offer to Boyd Gaming Corporation, which owns the other 50% interest, in accordance with the right of first refusal provisions included in the joint venture agreement. Subsequently, Boyd announced that it does not intend to exercise its right to first refusal in connection with such offer; therefore, the Company intends to pursue negotiations with the original bidder. Based on Borgata's September debt balances, the offer equates to slightly in excess of $250 million for the Company's 50% interest. This is less than the carrying value of the Company's investment in Borgata; therefore, the Company recorded a pre-tax impairment charge of approximately $128 million in the third quarter of 2010. The consummation of any transaction as a result of the offer is subject to negotiation of final documents, due diligence, and regulatory approval.

Loss from Unconsolidated Affiliates

The Company had a loss from unconsolidated affiliates of $7 million in the third quarter of 2010 compared to a loss of $133 million in the prior year third quarter.  The current year includes $46 million related to the Company's share of residential inventory impairment at CityCenter and the prior year included $203 million related to an impairment of CityCenter's real estate under development.

MGM Macau earned operating income of $61 million in the third quarter of 2010 which included depreciation expense of $22 million, compared to operating income of $50 million in the 2009 third quarter which included depreciation expense of $23 million.

Results for CityCenter for the third quarter of 2010 include the following (see schedules accompanying this release for further detail on CityCenter Holdings, LLC's third quarter and year-to-date 2010 results):

  • CityCenter's net revenue was $413 million in the third quarter, including $166 million related to residential operations, of which $28 million related to forfeited residential deposits;
  • Aria's net revenue was $219 million and Adjusted Property EBITDA was $41 million.  Aria's results were positively affected by a high table games hold percentage, which increased Adjusted Property EBITDA by approximately $26 million;
  • Aria's occupancy percentage was 82% and its average daily rate was $175, resulting in REVPAR of $142; and
  • CityCenter recorded a $93 million impairment charge related to its residential inventory due to an increase in estimated final costs of the residential components and also recorded a $279 million impairment charge related to its Harmon Hotel & Spa component due to CityCenter's conclusion that it is unlikely the Harmon will be completed using the building as it now stands.  The Harmon impairment did not affect the Company's loss from unconsolidated affiliates because the Company's 50% share of the impairment charge had been previously recognized by the Company in connection with prior impairments of its investment balance.
 

Financial Position

At September 30, 2010, the Company had approximately $12.9 billion of indebtedness (with a carrying value of $12.6 billion), including $3.4 billion of borrowings outstanding under its senior credit facility, with available borrowing capacity under the senior credit facility of approximately $1.3 billion.

In October 2010 the Company issued 40.9 million shares of its common stock for total net proceeds to the Company of approximately $512 million.  In connection with the Company's issuance, Tracinda sold approximately 27.8 million shares of the Company's common stock.  The Company will not receive any proceeds from the sale of such common stock by Tracinda. The underwriter has the ability to purchase an additional 6.1 million shares from the Company and 4.2 million shares from Tracinda up to 30 days after the original offering to cover overallotments.

Also in October 2010, the Company issued $500 million of 10% senior notes due 2016, issued at a discount to yield 10.25%, for net proceeds to the Company of $486 million.  The notes are unsecured and otherwise rank equally in right of payment with the Company's existing and future senior indebtedness.  

The Company used the net proceeds from the issuance of the senior notes and a portion of the net proceeds from the common stock offering to effectuate the extension of its senior credit facility. Revolving commitments and term loans were reduced by $1.2 billion, leaving $3.6 billion of total commitments that will mature in February 2014.

The Company's New Jersey trust account received a distribution of approximately $105 million from Borgata during the third quarter.  The balance in the trust account was approximately $114 million at September 30, 2010.  All amounts in the trust account, including the proceeds from the sale of the Company's Borgata interest and the underlying land parcels, will be distributed to the Company upon consummation of the sale of the Company's Borgata interest.

"Our recent capital raising transactions extend our maturity profile and significantly enhance our liquidity," said Dan D'Arrigo, MGM Resorts International Executive Vice President and CFO. "Subsequent to quarter end, we have reduced our debt from $12.9 billion to $12.3 billion.  We have current availability under our senior credit facility to cover debt maturities into 2013."



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