MGM Still Has 1 Big Problem

MGM Resorts (NYS: MGM) recently reported fourth-quarter and year-end financial results. In the press release, the company boasted improved financial results for 2011, but was still unprofitable in the fourth quarter. The company realized a loss per share of $0.23 compared to the $0.29 per share last year in the final quarter. The Las Vegas Strip properties had a REVPAR increase of 13% for the year. And while overall net revenue (excluding MGM China) increased by 4% for the year, it is now crystal clear that the company's nightmarish City Center project is the elephant on the lion's back.

Las Vegas vs. Macua
Although MGM is set up to benefit the most from increased travel and tourism headed to Sin City, other competitors are realizing record-breaking profits because of their exposure in Asia. Las Vegas Sands (NYS: LVS) reported net revenue of $9.41 billion in 2011 with only eight properties; of which half are in Asia. Wynn Resorts (NAS: WYNN) recently announced $5.27 billion in net revenue with only four resorts; two in Las Vegas and two in Macau. MGM owns 15 properties in the U.S., has 50% interest in three others, a 51% stake in MGM China and the company's total net revenue was still only $7.8 billion.

Of that, $1.5 billion came from the 51% stake in China, an investment that added very little to the company's $13.4 billion of debt. MGM's 50% stake in City Center, which put the company billions of dollars in debt, only brought in $550 million of net revenue for MGM during the year.

Not only does the ownership stake in China bring in far more revenue, it performs extremely well with only 600 hotel rooms, compared to over 4,000 rooms City Center holds. The property in China was not only cheaper to build, but is much cheaper to maintain and operate on a daily basis. All of MGM's Las Vegas properties realized positive operating income for the year, except City Center, which put the company in a negative $56 million hole over the past 12 months. While this is much better than the $253 million loss in 2010, it still shows the entire project has been a nightmare.

On a positive note, MGM China announced the board has voted on paying out $400 million in dividends. This comes after the company has only been publicly traded since June 3 of 2011, and its only hotel has been open for just four years. The good news for domestic shareholders is that MGM Resorts will receive $204 million from the dividend payout. But as I have mentioned before, this money will not find its way to current domestic shareholders in the form of a dividend anytime soon. (We can thank City Center for that).

Foolish take 
While I agree that MGM is improving financially, the company still has a long road ahead. Without dramatic improvements from City Center, the long-term debt and continuing yearly losses associated with it will ultimately bring the king of the jungle down.

At this point, I am stamping a Hold on MGM because I want to see how the company performs during the first quarter, which historically is a very strong convention season in Las Vegas. To find a company that our analysts have placed a strong Buy rating on, take a look at The Motley Fool's Top Stock for 2012. This free report details one company every investor should own in 2012. Read it here

At the time this article was published Fool contributor Matt Thalman does own MGM Resorts, but no company's mentioned above. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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