Park MGM project puts strain on MGM Resorts’ earnings

A look inside the Nighthawk Suite at Park MGM, Tuesday, Nov. 28, 2017.

MGM Resorts International’s first quarter earnings were below last year’s marks during the same quarter as the company deals with the changeover of Monte Carlo to Park MGM.

The company's net revenue came in at $2.1 billion, down 1 percent from the previous year, MGM Resorts announced Thursday.

While the RevPAR (revenue per available room) decreased 4.3 percent compared to the prior year at the company's Las Vegas Strip resorts, the average occupancy rate during the quarter there was 89 percent, down from 91 percent the year prior, with an average RevPAR of $150, under 2017’s first quarter mark of $157.

MGM Resorts’ net income was $223 million, up from $206 million the prior year. This year’s amount includes a noncash income tax benefit of $94 million.

During the first-quarter earnings call, MGM Resorts CEO Jim Murren said Strip revenues were down 2 percent compared to the first quarter of 2017, which was better than the 3-5 percent the company projected in its fourth-quarter earnings call.

Murren tied the dip to the rebranding of the Monte Carlo on the south end of the Strip, which resulted in a bigger monetary hit than expected.

“It’s worth noting we’ve never undertaken anything like this before, and when it’s all said and done we will have literally changed every square inch of the property while keeping it open,” Murren said. “The disruption that we’ve seen there, we’ve obviously completely underestimated the financial impact that that would cause.”

Murren foresees the financial lag at the property continuing until the end of the year when the Monte Carlo-Park MGM switch finishes.

“It’s looking now like its more intended final product,” he said. “We are finally coming to the completion on that at the end of this year.”

The lack of vehicle access to the main entrance of the property during the rebranding effort is a big part of Park MGM’s problem, Murren said.

“It’s kind of a tough thing when you go to a resort and can’t drive up to the front door,” he said. “We knew we had to do it, we’ve done it and that we completely underestimated the negativity to that.”

Also, direct pedestrian access from the Strip is also closed and will be the final portion of the expansion.

Murren said that 90 percent of the rooms are done at Park MGM and that restaurants and the sports book at the property are doing well.

“When we do release things to the public, we are seeing very high returns,” Murren said. “It’s just been brutal in this process.”

Murren looked ahead saying they’ll likely lower expectations for the second quarter with the continued switch over coupled with the cancellation of the Saul “Canelo” Alvarez-Gennady Golovkin boxing match scheduled for next month at T-Mobile Arena and the continued rebound at Mandalay Bay after Oct. 1.

“We also are not going to have a fight that we were all highly anticipating in May,” he said. “Those are the factors that led us to lower our RevPAR expectations and our margin expectations for the second quarter. To be clear, it’s isolated to those factors.”

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