Riviera weighs expansion options

John Wilen

Monday, April 20, 1998 | 10:22 a.m.

Riviera Holdings Corp. is considering an ambitious expansion plan for the Riviera Hotel & Casino, including a possible 60,000-square-feet domed shopping and entertainment complex and a new hotel tower.

Plans are in the most preliminary stages, said Duane Krohn, Riviera's treasurer and chief financial officer.

"We've had various people come to us and talk about it," Krohn said of the proposed dome.

The dome would be built above the Riviera's current casino floor, and would compliment the hotel's glass facade, he said. It would be connected by escalator to the casino floor.

The dome would include a mixture of shops, entertainment and restaurants, Krohn said. One plan, under which the Riviera would have created an attraction with a mixture of television and movie screens, has been scrapped, he said.

Whatever mix of attractions the Riviera ultimately settles on, it will be something that appeals to the resort's target market, which is aged 45 to 65, Krohn said.

Riviera is also looking at building a new hotel tower on six acres of land it is using as a parking lot. The tower would be located next to the Riviera's convention facility, which is currently being expanded, and in close proximity to the Las Vegas Convention Center, Krohn said.

Riviera is looking for joint venture partners who already have a presence in the convention hotel industry to help build and operate the hotel.

"We need someone with the expertise who does these kinds of things," Krohn said.

Financing would be shared by Riviera and its partner, Krohn said.

"We have sufficient funds ... to fund part of the construction," he said.

Riviera raised $175 million through a first mortgage note offering in August. Though $104.3 million of that was re-invested to cover the retirement of an earlier series of notes, the offering did increase Riviera's cash reserves from $39.4 million in 1996 to $65.1 million at the end of 1997.

Krohn cautioned the plethora of other Vegas hotel projects currently underway could temper any decision to build more hotel rooms.

"There are a lot of rooms being built in town, and we have to take note of that," Krohn said.

Riviera is not the only older Strip property to be considering expansion. Boyd Gaming Corp. has said it is seriously considering expanding the Stardust hotel-casino as a means of turning that troubled property around.

Dave Ehlers, a gaming analyst at Las Vegas Investment Advisors, questioned whether the types of expansions being considered by Riviera and Boyd are wise given the current environment.

"I don't really understand why these guys are all adding additional properties," given the current glut of hotel rooms, Ehlers said. "I think the properties above Spring Mountain (Ave.) are all deteriorating."

But Jay Kornmayer, senior vice president at Wells Fargo, said it's hard to judge any plan without seeing all the details.

"It's hard to pass judgement," Kornmayer said. "A lot of it has to do with how well it's executed."

The latest Riviera expansion musings come as the resort, one of Las Vegas' oldest, is feeling pressure from newer competitors farther down the Strip. Revenues decreased last year to $153.8 million from $164.4 million in 1996. Earnings were down even more sharply, dropping to $2.1 million, or 40 cents per share, from $8.4 million, or $1.63 per share in 1996.

Revenues were down across the board, Riviera said, including an $8.8 million drop in casino revenues, a $1 million drop in food and beverage sales, a $900,000 drop in entertainment revenues and a $400,000 drop in hotel revenues.

Part of Riviera's plan to reverse this trend involves increasing convention-related hotel occupancy from its current level of 25 percent to about 30 percent, Krohn said. As part of that plan, Riviera is adding 86,000 square feet to its convention center this year.

The company has taken other steps to turn things around. Last year, Riviera expanded its casino operation by opening 'Nickle Town,' a nickle slot-machine arcade. And Riviera is planning a new casino in Black Hawk, Colo.

Despite Riviera's cash reserves and expansion proposals, champion race horse magnate Allen Paulson recently dropped his plan to buy the company for $250 million. Krohn had little to say about the aftermath of the Paulson acquisition, other than to note Riviera is anticipating the possibility that Paulson will sue to recover his $6 million merger deposit.

Krohn said the Riviera is in no hurry to find another buyer.

"We've got $60 million in the bank and we're doing just fine, thank you," he said.