November 04, 2010 04:46
MGM Resorts International, 50 percent owner of the LEED certified CityCenter project in Las Vegas, announced its third quarter results yesterday. The company's operating loss for the quarter was $206 million. That is down from an operating loss of $963 million in the third quarter of 2009. In the company's press release announcing its third quarter results, Jim Murren, MGM Resorts International's chairman and CEO, said the following: "We continue to see the Las Vegas market stabilizing, Aria's operating performance is ramping up, and MGM Macau reported a record quarter. We have made significant progress on our financial position this year and have deployed several programs to better position our portfolio of resorts to benefit from a broader economic recovery going forward."
Aria is part of the $8.7 billion CityCenter project and had an occupancy rate of 82 percent and an average daily rate of $175 in the third quarter. Not too bad for Las Vegas. Aria, however, like Vdara, Crystals, and Mandarin Oriental--other business entities within CityCenter--experienced a significant operating loss. One has to wonder how the top executives of MGM Resorts International and Dubai World, both owners of CityCenter, sleep at night. According to an article this week in The Wall Street Journal, CityCenter's value has dropped from $5 billion a year ago to $2.4 billion today. Ouch. MGM Resorts International and Dubai World are in the process of negotiating terms on a $1.8 billion loan. If they cannot do that, CityCenter could be in default of the loan as early as mid-2011.
CityCenter, the largest privately funded construction project in the United States, may wear its LEED Gold medals like an Olympian but when it comes to making money it is like a 100 meter sprinter pulling both hamstrings in the biggest race of his life. Of course the timing could not have been worse for CityCenter but what the project is experiencing should be a lesson every hotel and resort developer should take to heart. No matter how environmentally friendly or progressive a project is, it has got to be positioned to make money and cover its debt--even in the worst of times. It will be interesting to see whether or not the award winning CityCenter will even survive.