Friday, July 15, 2011

Market unfazed by Legionnaires report

Wall Street shrugged off news Thursday that six former Aria hotel guests came down with Legionnaires disease and that tens of thousands of patrons who stayed at the CityCenter resort may have been exposed to the bacteria.
News of the outbreak was revealed during the middle of trading Thursday on the New York Stock Exchange, but shares of MGM Resorts International, which owns 50 percent of CityCenter, were not materially affected.
Shares of the company were off 14 cents, or 0.94 percent, and MGM Resorts closed at $14.71. Analysts didn't see anything unusual with the stock.
Aria, with more than 4,000 hotel rooms, is the centerpiece of the $8.5 billion CityCenter development, which is 50-50 owned by MGM Resorts and Dubai World, the investment arm of the Persian Gulf emirate.
It is also viewed as one of MGM Resorts' leading revenue producers, competing for high-end gambling business with the company's neighboring Bellagio and luxury resorts operated by Wynn Resorts Ltd. and Las Vegas Sands Corp.
While any mention of Legionnaires disease can worry customers or hotel operators, analysts said the news shouldn't impact the company's long-term margins at Aria. The disease, while not a common occurrence, is no longer considered rare.
"It's certainly not a positive development, but these things happen from time to time," said Rodman & Renshaw gaming analyst Robert LaFleur. "Unless there were signs of a massive epidemic, or negligence of the part of MGM, neither of which seem to be the case, I think everything just moves forward."
LaFleur said similar events happen on cruise ships, but that hasn't kept people from booking trips.
"There are procedures to deal with these sort of events," LaFleur said.
Union Gaming Group principal Bill Lerner said he didn't believe the Legionnaires disease reports would have any notable impact on Aria's bottom line.
"Not to downplay the seriousness, but I think consumers generally recognize the mitigation to these things as long as this was confined to a very small area," Lerner said.
In May, MGM Resorts said Aria saw its net revenues increase 41 percent, to $225 million in the first quarter, which ended March 30. Hotel occupancy at Aria was 86 percent with an average daily room rate of $201. The figures helped Aria increase revenue per available room by 13 percent over the fourth quarter and 41 percent from the first quarter of 2010.
The Legionnaires disease report followed Tuesday's news that Clark County's Building Division has given CityCenter developers until Aug. 15 to devise a strategy for either repairing or demolishing the unfinished Harmon tower.
A structural engineer said the 27-story unfinished building could collapse in a strong earthquake.
MGM Resorts and Dubai World are required to "provide a plan of action that will abate the potential for structural collapse and protect" neighboring buildings and businesses along the Strip.
CityCenter includes Aria, the Vdara Hotel and Condominium Tower, the Mandarin Oriental, the all-residential Veer Towers and the Crystals retail and dining mall.
CityCenter opened in December 2009 following a 61-month building process that was not without its challenges.
The recession, which led to the collapse of the credit markets, and other outside financial factors nearly derailed CityCenter, which saw its budget more than double beyond the initially announced $3 billion to $4 billion.
The project came within hours of filing bankruptcy in March 2009, which would have halted construction and shelved the jobs of 8,500 construction workers. With little time to spare, the company was given permission to make a $200 million equity payment to keep the project funded.
The demise of the high-rise condominium market forced MGM Resorts to cut prices for CityCenter's 2,400 residential units by 30 percent in order to spur sales.
Meanwhile, the tragic deaths of six construction workers between February 2007 and May 2008 overshadowed CityCenter's promise.
The issues continued after opening.
Last September, the Review-Journal first reported that visitors to Vdara's pool said they were scorched by super-charged sun rays -- the "Vdara death ray" ---- bouncing off the glass facade of the south-facing tower.


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