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LV theme: Build it while things are slow

May 13, 2008 7:00 PM

Earnings by Ray Poirier | When is the right time to build? Why when business has slowed down a bit. At least that is what is happening in Las Vegas where MGM MIRAGE Inc.’s CityCenter is going up full force.

And so is Wynn Resorts’ Encore project set to open at the end of this year. This will be a neighbor to Las Vegas Sands’ recent unveiling of the Palazzo.

Harrah’s Entertainment, now privately-held by affiliates of Apollo Global Management LLC and TPG Capital LP, experienced a decline in revenues and income but are going forward with a $1 billion expansion at Caesars Palace on the Las Vegas Strip.

Not to be left out, Tillman Fertitta, who is trying to buy out his company, Landry’s Restaurants Inc. (LNY), has announced that he has a signed contract to build a $160 million hotel tower at the Golden Nugget in downtown Las Vegas.

This is being done despite a substantial loss reported by the company for its most recent quarter. Income for the three months ended on March 31 came in at $1.5 million or $0.10 per share compared with $22.1 million or $1.01 per share in the comparable period of 2007.

Same-store sales for the company were described as flat while revenue from the Golden Nugget operations reached $69.8 million, down a shade from last year’s $70.7 million.

Fertitta originally offered to acquire the 61% of the outstanding shares he does not now own for $23.50 per share but later reduced that offer to $21 per share. The directors reportedly have hired a company to consider the offer.


As for MGM MIRAGE Inc. (MGM), one of the big three major public companies operating on the Las Vegas Strip, the first quarter was similar to previous reports from Las Vegas Sands Corp. (LVS) and Wynn Resorts Ltd. (WYNN).

Revenue was down two percent to $1.88 billion from last year’s $1.93 billion with earnings coming in at $118.3 million or $0.40 per share. In 2007, the earnings were $168.2 million or $0.57 per share.

Commenting on the numbers, Terry Lanni, chairman and CEO remarked, "They’re not what they were last year and they’re not what they will be next year, but they are what they are now and we’re dealing with it."

He noted that the slowing economy has affected business but said that if the company did not go forward with the new construction, "you will end up being in a very difficult position when the economy does turn around."

His first priority, Lanni said, was to lock up the remaining funding needed for the $8.2 billion CityCenter project. Also, he said, the company might consider splitting its hotel and gambling operations to boost the value of company shares. He lamented that investors gave a higher margin for non-gaming hotel companies.

Harrah’s Entertainment

Harrah’s Entertainment, whose stock no longer trades on the open market since a January buyout, must still report its financial experiences because of publicly-traded bonds issued both before and after the company’s change of status.

Because of costs associated with the privatizing deal and because of a slowdown at its properties, Harrah’s reported a net loss of $187.8 million for the first quarter, compared to a profit of $185.3 million recorded during the first quarter of 2007.

These figures included $211.3 million in pretax charges for retiring debt and $142.5 million in nonrecurring costs related to its acquisition.

Excluding these items, Harrah’s said first quarter income fell to $401 million from last year’s $451 million with revenues declining to $2.6 billion or 2.1% less than last year’s $2.65 billion.

Gary Loveman, chairman and CEO, attributed the drop in business to the "challenging economic conditions" and a "softness in the gambling market."

He added that "We’re seeing softness across the board but much less so at the upper end. It is in many instances folks coming and playing at lower levels."

The company has laid off about 100 employees during this slowdown and has failed to fill some 1,000 job openings caused by people leaving the company.

As for the immediate future, no comments were made but the New Jersey Casino Control Commission on the weekend indicated that April’s figures showed a continuing decline in gaming revenues.

At Harrah’s properties, the impacts included an 18.2% drop at the Showboat Casino Hotel, an 11.7% drop at Caesars Atlantic city, and a 10.5% decline at Bally’s Atlantic City. The only property that showed improvement was Harrah’s Resort Atlantic City with a 2.7% increase in revenues.

Pinnacle Entertainment

Although earnings were higher for the first quarter of the fiscal year, Pinnacle Entertainment Inc. (PNK) failed to impress analysts who noted that the company’s earnings were increased by insurance proceeds from Hurricane Katrina damage.

Net profit climbed to $0.08 per share compared to last year’s $0.05 per share but analysts noted that the figure included insurance proceeds of $21.2 million or $0.35 per share.

Revenues during the period were $257.2 million, slightly less than the $258.7 million projected by Wall Street analysts.

Like other gaming companies, the recent decline in economic activity weighed heavily on Pinnacle’s future earnings.

"Although the portfolio of properties bears incrementally fewer headwinds from competition and regulatory changes," said David Katz of Oppenheimer & Co, "the potential impact of the economy is real."

Felicia Hendrix of Lehman Brothers expressed another concern: the company’s development pipeline. This, she said, "faces uncertainty due to the recent difficulties businesses have had securing financing for their projects."