MGM Mirage Bets Big on Vegas

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MGM Mirage (NYSE: MGM) investors face a tough call. They may look at the same numbers, but draw different conclusions.

On the one hand, the company took a Las Vegas-sized $956 million pre-tax non-cash charge for its giant CityCenter project, which is scheduled to open next month. Last month, MGM warned of a CityCenter-related charge due to its sharp discounting of prices for its residential properties.

The CityCenter charge and other one-time items were worth $1.17 a share, pushing MGM Mirage into a reported third-quarter loss of $1.70 a share, versus a year-ago profit of $0.22. Net revenue, excluding promotional allowances, dropped 14% to $1.5 billion.

On the other hand, third-quarter revenue came in ahead of Wall Street's forecast by about $60 million. If you strip out various one-time items, MGM Mirage's non-GAAP earnings of $0.01 per share beat the Wall Street estimate of a $0.08 loss.

Throw in the news that MGM Mirage and lenders had agreed to amend its credit facility to provide more flexibility, and you have the elements, at least in early trading, for a higher stock price on Thursday.

A still-uncertain environment
When measured against big-market-cap peers like Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NYSE: WYNN), MGM Mirage relies more on Las Vegas Strip casinos and has a smaller investment in Macau, although it does have a joint venture with a China-based company for one Macau casino.

It's no secret that Las Vegas Sands and Wynn Resorts rely more on Macau than on Las Vegas, but the question for them and  MGM alike is: When does the bleeding stop in Las Vegas?

In their latest third-quarter reports, Las Vegas Sands and Wynn Resorts reported revenue declines in Vegas, although Sheldon Adelson, chairman and CEO of Las Vegas Sands, said group bookings for 2010 had already exceeded what it expects for all of 2009.

MGM Mirage's Vegas Strip hotels were hit hard in the third quarter. Revenue per available room dropped 23% year over year, even though average occupancy remained at 95%. Total revenue for its Las Vegas Strip properties fell to $1.22 billion from $1.45 billion.

Jim Murren, chairman and CEO, told investors to look on the bright side. During the second quarter, revenue per available room fell 31% versus the comparable period in 2008. He is counting on CityCenter "to grow our business significantly."

For investors, CityCenter must be an unqualified hit. Otherwise, MGM Mirage will have difficulty keeping shareholders happy by continuing to say, "We're not doing as poorly this quarter as we did a year ago."