MGM Resorts Plans New Macau Casinos After `Turning Point' in June Revenue

MGM Resorts International, the biggest casino operator on the Las Vegas Strip, plans to build “multiple properties” in Macau as it expands in Asia.

“We are starting to assert ourselves” in Macau, the world’s biggest gambling hub, Chief Executive Officer Jim Murren said in a Bloomberg TV interview today. “We will have more properties in Asia over time.”

MGM yesterday reported a wider second-quarter loss after writing down its CityCenter joint venture as room rates bottomed. CityCenter, the $8.5 billion hotels, condos and casino venture with Dubai World, opened in Las Vegas in December after skirting potential bankruptcy. It now has an equity value of $2.65 billion on the partners’ books.

MGM’s Macau venture has the smallest market share of the six casino operators in the only city in China where they are legal. Macau casino revenue surged 70 percent in July from a year earlier to 16.3 billion patacas ($2 billion), and has doubled in the three years ended December.

“The month of June was a turning point for us” as revenue at MGM’s available Las Vegas rooms increased year-over-year for the first time since October 2007, driven by luxury resort gains, Murren, who’s also company chairman, said in a separate interview yesterday. “That cut us deeply in 2008 and 2009, and now we’re starting to see a recovery.”

The venture with casino billionaire Stanley Ho’s daughter Pansy Ho, MGM Grand Paradise SA, on Aug. 2 said it agreed to a $950 million loan to refinance existing debt and provide added liquidity.

Share Performance

MGM fell 0.9 percent to close at $11.17 in New York Stock Exchange composite trading. Its shares have gained 22.5 percent this year, lagging behind billionaire Sheldon Adelson’s Las Vegas Sands Corp., which has climbed 88 percent.

“MGM has the capability to execute in Macau, but that will require a sophisticated senior management team that knows Asia very well and can help them access Asia’s capital market,” Jonathan Galaviz, an independent gambling industry strategist, said in a phone interview today. “Steve Wynn and Sheldon Adelson have demonstrated the ability to be versatile and agile in the Asian market. The question is can a large corporation like MGM have that same maneuverability?”

MGM’s loss in the three months ended June was $883.5 million, or $2 a share, compared with $212.6 million, or 60 cents, a year ago, the Las Vegas-based company said yesterday in a statement. It booked a $1.12 billion reduction in its CityCenter valuation, its second major writedown.

The company’s adjusted loss of 35 cents a share was wider than the 24-cent average estimated loss in a Bloomberg survey of 20 analysts.

Room Prices

CityCenter had an operating loss of $128 million and will become profitable as Strip room revenue return to growth in the second half, when conventions boost rates and occupancy, MGM forecast.

As Las Vegas struggles to recover from a record two-year slump, resort operators in the largest U.S. casino and conference market have cut room prices and boosted specials to attract gamblers and vacationers. After adding almost 6,000 rooms with CityCenter’s three hotels, MGM’s average daily rate at its 10 Strip resorts slid $1 in the quarter to $110. MGM filled 93 percent of its rooms, down from 94 percent a year ago.

The company’s sales climbed 2.9 percent to $1.54 billion in the quarter. Convention bookings will rise to more than 14 percent of MGM’s overall Las Vegas bookings next year, from about 13 percent this year, Murren forecast. Room prices in 2011 are 15 percent to 20 percent higher than this year, he said.

Recovery ‘Under Way’

“The Las Vegas trend is better,” Janet Brashear, an analyst at Sanford C. Bernstein & Co. in New York who rates the shares “market perform,” said a research note. “Management believes the recovery is well under way”

Cash flow, measured as adjusted earnings before interest, taxes, depreciation and amortization, declined 16 percent to $305 million at MGM’s wholly owned properties in the quarter. Adjusted Ebitda for all properties was $279 million, including $9 million at CityCenter, partly because of lower-than-expected winnings at casino baccarat tables.

“It’s a risky story,” said David Bain, an analyst at Sterne Agee & Leach Inc. MGM’s interest expenses exceeded cash flows in the quarter, he said. “We weren’t overly impressed with the results.”

MGM and Dubai World are required to review the market value of CityCenter quarterly because of joint-venture accounting rules, Murren said.

Macau contributed $18.7 million to earnings before interest, taxes, depreciation, and amortization, MGM said. The company owns the MGM Grand Macau in partnership with Pansy Ho, and said it is seeking to build a second casino resort in the city.

MGM and Ho plan an initial public offering of their Macau venture later this year, Murren reiterated. The venture on Aug. 2 said it agreed to loans due 2015 comprising of HK$4.29 billion ($553 million) of term loans and a HK$3.12 billion revolving facility.

To contact the reporters on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Robert Fenner in Melbourne rfenner@bloomberg.net

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