EO Jim Murren said he believes MGM Mirage will succeed despite carrying too much debt, but not without hard work - and risk. "I have no illusions that this is going to be easy," Murren told investors in a conference call after the company announced it lost us$ 1.15 billion in the fourth quarter of 2008.
The Las Vegas-based company reported a loss of us$ 4.15 per share one year after reporting soaring profits of us$ 872 million, or us$ 2.85 per share. The latest-quarter loss included a us$ 1.18 billion charge related to the declining value of several acquisitions, while the year-ago period included a us$ 1.03 billion gain on its CityCenter transaction.
Excluding the charge, MGM Mirage would have posted earnings of 10 cents per share in the 2008 quarter. Revenue fell to us$ 1.6 billion in the quarter that ended December 31, from us$ 1.93 billion a year earlier. The results missed the average forecast of analysts polled by Thomson Reuters, who had expected earnings excluding one-time items of 14 cents per share on revenue of us$ 1.71 billion.
MGM Mirage said lower market values, room rates and cash flow forecast for the Mandalay Resort Group led the company to write down the 2005 investment’s value by us$ 1.17 billion. Other charges relate to the value of Mirage Resorts, which the company bought in 2000, and to the value of intangible assets such as MGM Mirage’s trademark.
Companies are required to account for assets that have lost value on their balance sheets. MGM Mirage officials said the company repaid us$ 300 million to its lenders in exchange for breathing room on its obligations through May 15.
Murren said in an interview that he thought the deal was fair for the banks and he was happy that the company didn’t have to put up any of its properties as collateral. "I think they were pretty reasonable," he told The Associated Press. "In no way does it change the path of the company."
MGM Mirage said Tuesday that its debt totaled us$ 13.47 billion as of December 31. Shares of MGM Mirage fell 20 cents, or more than 6 %, to close regular trading at us$ 3.03, and were down 7 more cents in aftermarket electronic trading.
The company said it lost us$ 855 million for all of 2008, compared with a profit of us$ 1.58 billion in 2007. The fourth-quarter loss was the first for MGM Mirage in 2008, though its profit declined in the first three quarters even before the gambling industry took a nosedive as the general economy started eroding.
MGM Mirage officials said this month that they were worried the company may default on its debt as it finishes its largest casino project ever, the us$ 8.6 billion CityCenter complex on the Las Vegas Strip. The company warned Tuesday that it will break its loan agreements by March 31 unless the economy turns around and more people start gambling again.
Analyst Chris Jones of Telsey Advisory Group said MGM Mirage still has a lot of work to do to solve its debt problems, but hasn’t specifically said which route it will take.
"They kind of leave the last portion sort of hanging, which is: what is generating the cash flow that they’re going to need in 2009," Jones said. "That’s clearly the big question mark given how challenging the fourth quarter was, and obviously the first quarter of 2009 could be even worse."
MGM Mirage did not forecast its future other than to say that declining trends - people spending and gambling less - have continued so far this year. The company delayed filing its annual report while it assessed its financial position. Its decision to tap us$ 842 million of its us$ 4.5 billion senior revolving credit agreement to cover general expenses played into the delay, the company said.
Many U.S. casino companies borrowed huge sums in recent years to develop resorts around the world. Several are having trouble making payments on that debt because their revenue has fallen sharply as fewer patrons spend less money on gambling and related services the companies offer.
MGM Mirage has been trying to secure us$ 1.2 billion to finish CityCenter, which CEO Jim Murren has called the company’s top priority. Bobby Baldwin, the company’s chief design and construction officer, said the company considered delaying CityCenter but decided against it because it would lose money on retailers renting space in a mall and on condominiums - and nobody has pinpointed when a better time to open will be. "It’s actually less efficient if we slow it down," Baldwin said. "It doesn’t look like a good idea."
MGM Mirage modified the 27-hectare development by CityCenter Holdings LLC, a partnership between MGM Mirage and Dubai World subsidiary Infinity World Development Corp., when it announced construction problems in January. The company said that the openings of the various hotels and attractions on the site would come in stages. It has been considering several options to help its balance sheet, including selling casinos and licensing its name in deals around the world.
It sold the Treasure Island casino on the Strip to Kansas billionaire Phil Ruffin for us$ 775 million late last year and has since been shopping other properties. Murren said MGM Mirage has retained advisers to help determine whether offers are good for the company. "We are not actively out there marketing our properties to buyer groups. We have had a very high level of inquiry on either individual assets or groups of assets," Murren said. "We have some smart people looking into all this."
He said that the company - which said it had us$ 600 million cash on hand on Tuesday - needs to lower its debt, but has to think about its casinos as long-term moneymakers and not just items to sell off for quick, low sums.