Undershooting Wall Street‘s expectations for 2Q10, MGM Resorts International missed analyst projections and also took a big-ass writedown on CityCenter (above) consigning $1.2 billion to the dustbin. Hotel occupancy was up from 85% to 93% overall (although RevPAR slipped a wee bit) and CityCenter revenues were 39% better than the first quarter. The latter can be partly attributed to more amenities coming online or (more likely) room pricing that better reflected market realities and MGM’s oversupply of rooms.
It could be worse but a source familiar with CityCenter says MGM’s been playing some serious handball with subcontractors on the project. “MGM’s not stupid,” the source said, explaining that when the real estate bubble imploded the company renegotiated contracts 20% downward, putting pressure on subcontractors’ operating margins. Now, the source says, “They’ve been grinding those people down” to pennies on the dollar, with one glazier offered $2 million for a $7.5 million job. “There’s no other work out there” for these vendors, they say, so they’re acceding to MGM’s dictates, quoth the source: “CityCenter’s been open seven months and they need the money.” The casino company also has considerably less cash on hand than rivals Las Vegas Sands and Wynn Resorts, which may have something to do with the take-or-leave-it negotiating tactics being alleged.
It was a profitable quarter at Boyd Gaming, but one that gave additional indicators as to why CEO Keith Smith called off the pursuit of Station Casinos‘ lesser assets. Boyd’s Las Vegas locals revenue was down 8%, as were its Midwest and Bible Belt properties. In Vegas, Boyd is contending with an economically depleted customer base and, generally speaking, finds its players now wary of the slightest economic hiccup. The company’s downtown Vegas casinos, so beloved by Hawaiians, were a bulwark, down only 2%. (In terms of cash flow, the declines were much worse, well into double-digit terrain.) Now that Wall Street is assuming Boyd will obtain MGM’s half of Borgata, year/year comparisons no longer apply, although the resort’s $187 million net revenues comfortably dwarf any other property — or group of properties — in the Boyd chain.
“They’ve been grinding those people down” to pennies on the dollar, with one glazier offered $2 million for a $7.5 million job…
I hope there are enough county & state inspectors to keep an idea on these jobs.
In Q1 and Q2 of this year, I witnessed Boyd downtown properties pretty damn full of Hawaiians gambling up a storm.
So no surprise there.
No need to try to monopolize the local market (or resurrect construction on Echelon — still a stupid name — when you can sit tight without bleeding too much.
Building inspections on CityCenter were farmed out to third-party private contractors. It was they who failed to spot the misplaced rebar in the Harmon Hotel, resulting in that building’s unfortunate truncation.
So City Center is now worth $2.65 billion dollars and it cost $8.5 billion dollars to build. And it opened only 8 months ago. Wow, MGM Resorts International sure has lost a lot of money so far on City Center.
In a Bloomberg TV interview, Jim Murren made the writedown sound worse than it is, saying equity in CityCenter had gone from $5B to $2.5B. The official numbers are $4.88B written down to $2.65B. Still, a 46% loss of equity is nothing about which to crow. Talk about building the wrong project in the wrong project at the wrong time: MGM went 3-for3.