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MGM MIRAGE (NYSE:MGM) today reported its third quarter 2008 financial results. The Company earned $0.22 per diluted share from continuing operations for the 2008 third quarter compared to $0.62 in the prior year third quarter. Results for the 2008 quarter included a non-cash write-down of $30 million, or $0.07 per diluted share, related to the 36-hole Primm Valley Golf Club and underlying land. Results for the third quarter of 2007 included $135 million, or $0.30 per diluted share, of income related to insurance proceeds received for Hurricane Katrina.
Three months ended September 30, 2008 2007
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Profits from The Signature at MGM Grand $ - $ 0.03
Preopening and start-up expenses (0.01) (0.06)
Hurricane Katrina business interruption income
(recorded as a reduction of general and
administrative expenses) - 0.06
Property transactions, net:
Hurricane Katrina property damage income - 0.24
Other property transactions (0.08) (0.04)
The Company's net revenue decreased 6% to $1.8 billion. Las Vegas Strip REVPAR(1) decreased 10%, casino revenue decreased 8%, while food and beverage revenue and entertainment revenue were down 3% and 4%, respectively.
Property EBITDA(2) was $502 million in the quarter compared to $705 million in 2007. The comparison was affected by the items noted above, and a $15 million impact from the reversal of bonus accruals in the 2008 quarter due to the Company not meeting its internal profit targets. On a comparable basis, excluding these items, Property EBITDA declined 18%, with a margin of 28% versus 32% in the prior year.
Consolidated EBITDA was $442 million compared to $635 million in 2007. Adjusting for items affecting comparability, including a total company-wide bonus accrual reversal of $22 million, EBITDA declined 14%. This decline is less than the Property EBITDA decline due to significantly lower corporate expense.
Bellagio reported extremely strong results for the third quarter with a 3% increase in net revenue and Property EBITDA of $90 million, an 8% increase over the prior year third quarter. Bellagio's average room rate increased 1% to $247 and occupancy was 96%, leading to an increase in REVPAR to $238 and an all-time high in terms of third quarter hotel revenues.
"We continue to manage our resorts to achieve maximum performance across all our businesses, and achieved occupancy of 95% at our Las Vegas Strip resorts for the third quarter," said Terry Lanni, Chairman and CEO of MGM MIRAGE. "Our performance was impacted by the global economic environment, a trend that is not unique to our industry, but we continue to generate strong cash flows. Bellagio, our flagship resort, continues to outperform the market as evidenced by its third quarter performance."
Detailed Discussion of Third Quarter Operating Results
Casino revenue decreased 8%, mainly due to a decrease in table games volume of 13% at the Company's Las Vegas Strip resorts. The table games hold percentage was within the Company's normal 18% to 22% range in the current quarter and slightly higher than in the 2007 quarter. Slots revenue decreased 6% in the quarter, with the Company's Las Vegas Strip resorts reporting a 13% decrease, partially offset by double digit increases at Gold Strike Tunica and MGM Grand Detroit.
Rooms revenue decreased 10%. Average room rates were down 9% at the Company's Las Vegas Strip resorts, with Las Vegas Strip occupancy at 95% compared to 97% in the prior year quarter. The following table shows key hotel statistics for the Company's Las Vegas Strip resorts:
Three months ended September 30, 2008 2007
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Occupancy % 95% 97%
Average Daily Rate (ADR) $135 $147
Revenue per Available Room (REVPAR) $128 $143
Other non-gaming revenues were relatively strong in light of current market conditions. Food and beverage revenues were down 3%. Entertainment revenues were down 4%, largely due to fewer events at the Company's arenas. The Company's market-leading Cirque du Soleil production shows continue to attract large audiences, with revenues consistent with the prior year quarter. In addition, Believe starring Criss Angel is currently playing preview performances at Luxor and will perform its grand-opening show on October 31.
Corporate expense decreased from $63 million in the 2007 quarter to $24 million in 2008. The current quarter includes the impact of cost reduction measures implemented throughout 2008 as well as the reversal of bonus accruals. Additionally, the 2007 quarter included $18 million of costs related to severance, development initiatives, and the CityCenter joint venture transaction.
MGM Grand Macau, of which the Company owns 50%, recorded Property EBITDA of $35 million, a 52% increase over the $23 million earned in the second quarter. The Company recognized its share of MGM Grand Macau's results as follows: $8 million of income in the "Income from unconsolidated affiliates" line and $3 million of expense in "Non-operating items from unconsolidated affiliates."
On a comparable basis, the Company's operating margin was 14% versus 19% in the prior year quarter, and operating income declined 29%. These year-over- year comparisons exclude the impact from the reversal of bonus accruals during the current quarter and the other items listed in the table earlier in the release.
"While our margins have held up well in a difficult environment, we continue to make permanent improvements to our cost structure which will benefit us now and into the future," said Jim Murren, President and Chief Operating Officer of MGM MIRAGE. "We continue to mobilize the unmatched talents of our management team to identify opportunities for margin improvement and remain focused on providing the highest levels of guest service. We believe we have plentiful opportunities to further reduce costs and we are dedicated to maximizing our cash flows."
Projects Update
In October 2007, the Company announced the development of MGM Grand Atlantic City, to be located adjacent to the Borgata on a 72-acre site in Renaissance Point in Atlantic City, New Jersey. The Company has made extensive progress on design and other pre-development activities. Current economic conditions and the impact of the credit market environment have caused the Company to reassess timing for the project. Accordingly, the Company has postponed additional development activities.
"We continue to believe that Atlantic City represents an important market for further development," said Mr. Lanni. "We intend to resume development at such time as economic conditions and capital markets are sufficiently improved to enable us to go forward on a reasonable basis. Likewise, with respect to our joint venture with Kerzner International and Istithmar announced in September 2007 for the development of a major resort complex on the southwest corner of the Las Vegas Strip and Sahara Avenue in Las Vegas, we have agreed with our joint venture partners that we should defer additional design and pre-construction activities and have amended our joint venture agreement accordingly. These actions reflect the Company's commitment to maximize our financial resources in this environment."
Financial Position
In September, the Company entered into an amendment to its $7.0 billion senior credit facility. The amendment increases the maximum total leverage ratio, modifies drawn and undrawn pricing levels as well as revises certain definitions and limitations on secured indebtedness. Available borrowing capacity under the Company's senior credit facility was $1.2 billion as of September 30, 2008.
In early October, CityCenter successfully completed the first phase of its financing by securing a $1.8 billion senior bank credit facility. CityCenter has received additional signed commitment letters totaling in excess of $500 million, and the Company and Dubai World continue to work with lenders to obtain additional financing, up to a total of $3.0 billion, for CityCenter. During the third quarter, the Company and Dubai World each provided CityCenter with additional loans of $300 million to fund construction.
"Securing $1.8 billion of financing at CityCenter and amending our $7.0 billion senior credit facility provide the Company with significant additional financial flexibility," said Executive Vice President and Chief Financial Officer of MGM MIRAGE, Dan D'Arrigo. "We intend to further access the capital markets, and aggressively manage our liquidity and financial position."
Third quarter capital investments totaled $181 million, which included $73 million for room and suite remodel projects, primarily at The Mirage and TI, and $19 million for projects related to CityCenter, including the people mover connecting Bellagio, CityCenter, and Monte Carlo, as well as expenditures for Monte Carlo's share of a new parking garage. The remaining $89 million was for other capital expenditures, including various new and upgraded amenities at the Company's resorts.
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