MGM: Q4 NOT AN INFLECTION PT ANY MORE

How are we looking now? I called out management on their projections for a stable Q3 and a positive inflection point in Q4, which were issued during their Q2 conference call. I try, but I too am unable to predict the future. Visibility in gaming is notoriously cloudy especially when times are tough. Booking windows get even shorter. Management had no business making that prediction.



  • MGM will report Q3 EPS on Wednesday morning. I expect a sequential decline in trends from Q2 and a decidedly more negative outlook for Q4. Will management be so bold as to predict a Q1 positive inflection point? Obviously, MGM is still trying to raise financing for CityCenter and is incentivized to put the best Las Vegas face forward. Hopefully, though, the company will be more realistic this time around.



  • YouTubing: The following are some important metrics and quotes from the Q2 release and transcript that should be updated on Wednesday:

    • CityCenter Residential - 1,421 units sold or 54% of inventory for $1bn as of early August
    • Regarding closure rate for CityCenter residential – “we feel very, very confident in the quality of the customers that we’ve not only signed up but are signing up today as well who are entering into new contracts”
    • $1.65bn in committed financing for CityCenter
    • All in cost of CityCenter of $9.1 billion
    • Capex for “remainder of 2008 and 2009 significantly below recent past”

    We already know business is not good and likely will not recover until mid-2009 at the earliest. For us, the big issues relate to the balance sheet and financing, both for CityCenter and MGM corporate, covenants, and CityCenter residential sales and close rates. MGM has a $1.3 billion bond maturity in 2009 and a $1.1 billion in 2010.






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