CITYCENTER OF DISASTER

For a variety of reasons, the numbers for CityCenter’s first full quarter of operations were ugly.

After $9BN (or $8.6BN to be exact – since the Harmon tower was left incomplete), MGM’s Mona Lisa produced an EBITDA loss of $28MM in its first quarter of operations.  We get to adjusted EBITDA by starting with an operating loss of $255MM less $171MMof impairments plus $24MM of forfeiture deposits on condos less $7MM of pre-opening expenses.  Yes this is worse than almost anyone’s guess.   Here are some general thoughts as to why:

  • Expenses are too high – A lot of expenses need to be carried when there are a lot of unsold condos.
  • Revenues are too low – It’s difficult to leverage such a huge development with 63% occupancy.  As management stated recently, Aria opened with almost no convention business on the books... so midweek occupancy and play levels are miserable.
  • Funneling of high end players to wholly owned properties – We have no direct knowledge of this but I think MGM would rather have 100% of some Chinese tycoon’s $100k bets than 50% but that’s just a guess.  The database is all MGM and the wholly owned higher end properties did perform better than we expected (Bellagio in particular).

ARIA

Aria suffered an EBITDA loss of $12MM.  Disappointing but not a shock since Strip hotels are not built to be profitable at sub 80% occupancy and ADR’s this low.

  • Slot win of $28MM (we heard from a few sources that the first few months were running at $9MM/ month).  I guess Server Based gaming isn’t producing great results just yet… but there are still 7 quarters left for the trial to produce ROI results
  • Table win of roughly $45MM or $3,700 per table… not too bad.  However, we heard that the property played lucky in Jan & Feb but that volumes dropped off in March (Jim blamed it on hold).  Q1 is also a pretty big Baccarat quarter.
  • Room revenue of $44MM
  • Total revenues of $146MM, implying operating costs of $158MM. 
    • This compares to around $415MM of annual operating expenses at Venetian LV or $841MM annual of operating expenses at Venetian & Palazzo in 2009
    • $985MM annual total operating expenses at Wynn/Encore Las Vegas
    • $790MM of total operating expenses at Bellagio in 2009
    • We estimate that Aria will produce EBITDA of only $55MM in 2010 ramping to by $218MM in 2012

CITYCENTER

So if you back out the $12MM of EBITDA losses at Aria, that implies the rest of City Center lost $16MM of EBITDA – that is, Vdara, Crystals, Mandarin, and the cost of carrying those wonderful unsold condos.   We assume that Vdara, Crystals, and Mandarin positively contributed to EBITDA although at a very low margin since all of these assets are operating below optimal capacity.  We estimate the $16MM EBITDA loss is really coming from the carry cost of the unsold/unclosed condos, since MGM is still on the hook for maintenance, real estate taxes, and some fixed operating expenses for these condos.  Only after these close and maintenance fees start trickling in from the owners does MGM get some income to offset these fixed costs.  If MGM closes on all the condos these costs will eventually go away.  For now, we’re projecting CC will produce $19MM of EBITDA, ramping to $290MM in 2012.

Not much more to say.  CityCenter ain’t getting it done.  It was built for a different era and it’s unclear whether we’ll see those good times anytime soon.