Columnist David Ehlers: New York-New York off to strong start

David Ehlers

Friday, Feb. 7, 1997 | 11:59 a.m.

MGM GRAND'S president and chief financial officer, Alex Yemenidjian, appeared on CNBC on Wednesday. He was asked if Las Vegas' visitor growth was being affected by the well-advertised problems of Stratosphere Corp. and whether the latter's difficulties were an indication that Las Vegas was in a period of slowdown. He responded by saying he believed Stratosphere was an isolated case and pointed out that New York-New York, of which MGM Grand is a 50 percent partner, has broken all records for visitor and other volume since opening on Jan. 3.

Since New York-New York's opening, Las Vegas Investment Advisors has undertaken a series of pedestrian and vehicle traffic surveys at New York-New York for the purpose of measuring the trends in visitor volumes. Our survey clearly indicates that through the fourth weekend following New York-New York's opening, the new property is attracting increases in visitor volume each week.

MGM Grand's other partner in New York-New York is Primadonna Resorts, whose stock reached a high of 36 several years ago when gaming stocks were in favor. Since that time Primadonna has steadily deteriorated in price as the company endured several management changes at Primm casinos. Primadonna recently increased its authorized stock repurchase program to $50 million and has purchased 835,000 shares. Primadonna's willingness to buy back stock appears well grounded in simple arithmetic. Primadonna now possesses a very large asset and cash flow base and its stock sells for a substantial discount from what I believe to be its real value. Herewith our views with respect to a new era of Primadonna which commenced Jan. 3.

Essentially Primadonna Resorts may now be viewed as possessing two major asset groups, i.e., the historical business at Primm, and now its 50 percent share of New York-New York.

Primm facilities

Primadonna Resorts recently reported 1996 fourth-quarter and full-year operating results. The quarter and the year were impacted by non-recurring items associated with pre-opening charges of New York-New York ($7.8 million) and expenses associating with abandoning development efforts in Biloxi, Miss., Baltimore, abandoning part of its investment in Southwest Casino & Hotel and termination costs of a former president's resignation ($3.4 million).

Net revenues for the quarter, exclusive of New York-New York, amounted to $56 million, a decrease of 4.1 percent from the year-earlier level. The lower revenue levels reflected a lessening of traffic on I-15 due to the lower cost of air fares. For the year, similarly, net revenue of $242.8 million declined $3 million or 1.3 percent from the year-earlier level. Thus, 1996, insofar as Primadonna Resorts' traditional properties are concerned, was about flat. Despite the trend, I hope, as management believes, this will be a temporary condition. Primadonna Resorts will open its Primm Valley Golf Club within a few weeks and expects a resurgence in motor vehicle traffic at stateline. Moreover, Primadonna Resorts will soon commence construction of a large, upscale factory outlet mall which may open in late 1997. I am less concerned with Primadonna Resorts' historical business than my Southern Manhattan (Wall Street) counterparts. This is because of my growing conviction that Primadonna Resorts' primary asset is its 50 percent interest in New York-New York.

New York-New York

During its initial 24 days, the resort generated net revenues of $19.3 million, including $12.3 million of gaming win, and operating cash flow (EBITDA) of $9.3 million. The resulting EBITDA margin of 48.2 percent is the highest we have noted for any operating company in Southern Nevada. The answer to the durability question of New York-New York's thus far phenomenal results will be known only with the passage of time, however, Las Vegas Investment Advisors notes, as discussed above, that pedestrian and vehicle traffic have become stronger with the passage of each week and not weaker as one would expect from historical precedent.