Las Vegas Sun

November 28, 2014

Circus aiming higher

The transformation of Circus Circus Enterprises Inc. from a midmarket casino concern operating mainly in Nevada into full-service global gaming company is continuing to gain momentum.

The company's announcement of an alliance with Four Seasons-Regent Hotels & Resorts, the world's largest luxury-hotel operator, means far more than just a single, albeit decidedly elegant, new hotel in Las Vegas.

It also signals Circus' determination to serve gamblers worldwide a savory smorgasbord of gaming options, from the nickel slots of its flagship Circus Circus Las Vegas to the big-bucks baccarat favored by foreign bettors.

And it's probably propelled, at least in part, by the realization that the current antigaming mood in Congress means domestic growth opportunities are likely to be limited to three areas -- Las Vegas, Atlantic City and the Gulf Coast -- for the foreseeable future.

That means companies such as Circus, which generates enormous cash flow, have to find someplace to invest the money that will fuel future growth or end up paying it out in taxes or dividends.

"They'll have to move offshore to find viable investment alternatives large enough for the cash flows they'll be seeing," said Andrew Zarnett, a gaming analyst with Ladenburg, Thalmann & Co.

One offshore market Circus is eager to tap is Asia, where Four Seasons-Regent operates under its two brand names and caters to an upper-income clientele.

"It's clear to us the Pacific Rim countries will create the most new millionaires," said Glenn Schaeffer, Circus president. Four Seasons-Regent operates in several Asian jurisdictions, including Hong Kong, Singapore and Kuala Lumpur.

"We have an opportunity wherever they are located to ask them to help us in the pursuit of a casino license," he said. "And wherever there is a resort destination where legalized gaming is proposed, we can bid their brand."

That could include Europe, the Middle East and Mexico, which is considering legalizing gaming in certain areas to promote tourism. Among its more than 50 hotels in 22 countries, Four Seasons-Regent operates an elegant resort in Mexico City.

While he says Circus doesn't know what the Mexican government will do, Schaeffer has strongly indicated the company will move into that market if gaming becomes legal.

Before jumping into offshore waters, though, Circus will concentrate on incorporating a luxury hotel -- the Four Seasons Las Vegas -- into the 4,000-room destination resort to be built on the Strip where the Hacienda now stands.

Circus will build and own the 400-room hotel -- part of the 4,000-room complex -- while Four Seasons-Regent will operate it for a management fee. Guests at the luxury hotel will be able to walk to the gaming "megastore" through a "highly finished promenade," said Schaeffer.

Circus, which owns a one-mile stretch of land running south of Tropicana Avenue to Russell Road, expects to own or control as many as 20,000 hotel rooms on its "Masterplan Mile" by the end of the century. That includes Excalibur, Luxor and the three new projects on parcels south of the pyramid-shaped resort.

While Schaeffer says it'll be two months before the company announces the theme of the 4,000-room project just south of Luxor, it clearly won't clash with the Four Seasons.

"They've inspected our master plan and liked what they saw," said Schaeffer. "They believe it's a fit. It will be upscale from the product we already have in Las Vegas.

"We expect to spend $700 million to $800 million overall on the project," the first of three south of Luxor, he said.

"When you look at what we did with Monte Carlo and consider we'll spend twice as much, I think you can see how we'll cover the upper end of the market."

Monte Carlo, a $344 million joint venture of Circus and Mirage Resorts Inc., opens on the Strip north of Tropicana Avenue on Friday. Actual construction cost less than $300 million and preview visits have left analysts amazed at how far Circus can stretch a dollar to provide elegant surroundings.

The Four Seasons-Regent agreement "enhances our profile in competing for new gaming opportunities and establishes, at once, that our Masterplan Mile will appeal to the whole of the international traveler market," Circus Chairman Clyde Turner said in a statement.

"They couldn't have chosen a better partner," said Zarnett. "Four Seasons is probably one of the highest service hotels in its rank and there's a lot of prestige in having that name brand."

"It's intriguing and exciting for Circus because it clearly gives them expertise at the high end of the lodging industry," said Jason Ader of Bear Sterns & Co. "This will give Circus the ability to charge higher prices and raise the profile of what they've historically developed.

"For Four Seasons, Las Vegas has a lot of attractive characteristics. There's no competition in the lodging segment it serves. It's coming into a tremendous transportation infrastructure with 30 million visitors a year and very friendly political climate. And they put up no money."

"Circus is clearly going after the upper end of the market, which is a surprise because that hasn't been their history," said Joe Coccigmiglio, an analyst with Dean Witter Reynolds & Co.

Circus' 13 existing Nevada properties and its Illinois and Mississippi riverboats have traditionally served middle-income gamblers, while Monte Carlo is its first bid to capture a segment of the upper-income business. Luxor, under earlier Circus management, had been planned as a high-end property, but increasing competition helped quell that.

Executives of Toronto-based Four Seasons-Regent couldn't be reached for comment.

Circus stock closed at $42, up $1.50, in trading on the New York Stock Exchange Monday.

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