MGM Mirage scales back CityCenter again (United States)
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MGM Mirage scales back CityCenter again (United States)
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Category: North America & West Indies / Carribean islands - United States - Industry economy -
Hotel projects
This is a press release selected by our editorial committee and published online for free on 2009-01-08
MGM Mirage is scaling back plans for its massive CityCenter joint-venture project on the Las Vegas Strip as the gambling giant said Wednesday that it will postpone the opening of one hotel while canceling a condominium component to save about $200 million.
The cuts, which come on top of a previous $400 million savings from design changes, mean that the Harmon Hotel & Spa will now open in 2010 -- about a year behind schedule -- while the Harmon condominiums, slated to have 200 residential units, will not be built.
Slightly fewer than half of the units had been spoken for to date; those buyers will be offered alternatives within CityCenter or refunded their deposits. The once-robust Las Vegas real-estate market has collapsed with the rest of the country, and several huge planned projects have been scaled down, postponed or canceled altogether.
"By canceling the Harmon condominium component, we will be able to avoid the need for substantial redesign . . . resulting from contractor construction errors," said Robert Baldwin, chief executive officer of CityCenter.
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MGM 14.52, -1.44, -9.0%) said all other components of CityCenter remain on track to open in December 2009. Indeed, earlier this week, the company announced that it would be hiring about 12,000 people to work at CityCenter, a joint venture with the government of Dubai that is the largest privately-financed development project in history.
"We believe this scope change, which eliminates a portion of the residential inventory and lowers the overall cost ... will be received well by investors," wrote Joe Greff of J.P. Morgan in a note to investors.
He added that he thinks "this news flow has been circulating among the Las Vegas Strip development community (and investors) for a couple of weeks now and has been a primary reason for MGM's recent positive share price move."
Shares of MGM Mirage, however, fell 6% to $15 in early action after recently running up to almost $17 from a late November low of just $8. In February, it was trading north of $75.
Still, Greff added that the move is "a positive, given the liquidity concerns we believe to be prevalent in MGM at present given considerable debt maturities and limited dry powder in the coming quarters."
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