Monday, June 14, 2010

MGM Mirage (MGM) Talking About 2nd Quarter Profit for City Center

That was from Friday's WSJ:

City Center, the troubled Las Vegas mixed use casino project, is on track to be profitable for the three months ending June 30, MGM Mirage Chief Executive Jim Murren said Friday.
The improvement was led by higher occupancy at Aria, the largest hotel at City Center, which meant more money spent on food and entertainment, as well as more stays at the other hotels at the development, Mr. Murren said in an interview.
I want you to imagine that I am a CEO of a hypothetical struggling hotel company.

Let's say that I had a portfolio of older hotels (the Legacy segment), but I had also drunk the real estate bubble Kool Aid and incurred staggering debt to build the Luxurious new hotel, which recently opened, and whose financials are broken out separately in my financial reports.

What if the Luxurious hotel's first quarter 2010 had been underwhelming, causing uncomfortable questions as to my judgment in deciding to build them? Would there be any way that I could stack the deck in favor of the Luxurious and against the Legacy hotels when I reported second quarter results?

First, I would want Luxurious to cannibalize as much of the Legacy hotels' revenue as possible. Second, I would want to allocate as many expenses to Legacy as possible.

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