MGM Mirage and Dubai World hope to use their gigantic Las Vegas development CityCenter as a cash machine next year — but sources say the ATM may read “insufficient funds.”
That would be tough news for the co-owners, which are both running low on cash.
MGM and Dubai World are equal partners in the $8.5 billion CityCenter, which opens in phases this month. Vegas’ new anchor tenant spans about 70 acres and includes four top architect-designed hotels, luxury condos, retail, restaurants and public spaces.
MGM CEO James Murren said in late November that CityCenter would consider planning to either go public or borrow money to pay its owners a dividend, possibly as early as mid-2010.
But, a source close to the situation said that’s an optimistic prediction.
In fact, he said, CityCenter might not be worth much more than its debt in 2010, which means the equity would be worth nothing.
The Vegas megadevelopment is expected to generate between $200 million and $400 million in earnings before interest next year, the source said, with $400 million being reasonably optimistic. The source believed the right number to use would be between these figures — around $300 million.
The most CityCenter could borrow is about five times these earnings, $1.6 billion. But, CityCenter already owes $1.8 billion.
Among options, the owners might look to reduce the debt by selling condos. The development made deals to sell $1.5 billion worth of condos, collecting $300 million in down payments. But the sales, many of which took place during the economic boom, have not yet closed.
In October, CityCenter slashed its condo prices by 30 percent, reducing the potential $1.3 billion in receivables to about $800 million.
That amount is expected to fall even further as some buyers are likely to walk away from their investments, even giving up some of their deposits, the source said.
If CityCenter reduces its debt to $1.2 billion, it will still only be able to borrow another $300 million for a total debt load of $1.5 billion.
This $300 million surplus would not do much for Dubai World, which is trying to restructure some of its $59 billion of debt, or MGM, which is rated below investment grade and owes $13 billion.
If it seeks to go public, CityCenter would need more than two quarters of real financials before filing, an investment banker said, adding that public investors would be skeptical of a company that relies on a single asset during difficult economic times.