Buyout could lead to rebuilding of the Tropicana

Tuesday, Feb. 3, 1998 | 10:50 a.m.

The Tropicana hotel-casino is situated on 34 acres at one of the best gaming intersections in the world: Tropicana Ave. and the Las Vegas Strip.

But the aging property is widely viewed as an underperformer in need of renovation and expansion in order to compete in the new world of gaming dominated by the likes of the MGM Grand, New York-New York and the Hilton, Mirage and Circus Circus properties.

That could happen thanks to an agreement announced today by Aztar Corp. of Phoenix, 50 percent owner and the operator of the Tropicana.

Aztar said it obtained an 18-month option to acquire the Jaffe family's 50 percent interest of the Tropicana for $120 million.

Aztar said it also engaged financier Goldman Sachs & Co. "to explore alternatives for a major redevelopment of the property."

"Aztar now has the ability to control the destiny of the Las Vegas Tropicana and to unlock the value of this irreplaceable site on the Las Vegas Strip," said Aztar CEP Paul Rubeli.

"With the opening of Bellagio, Paradise, Paris, Venetian and others, we expect a revitalization of the Las Vegas market in which the biggest, best and brightest properties will achieve the highest returns. Nobody has as strong a geographic position as the Tropicana for future development. As these new projects come on line, we think our location will become increasingly attractive," Rubeli said. "With an exercise date potentially as late as Aug. 2, 1999, the option agreement gives us a great deal of flexibility to provide value for our shareholders."

An analyst said the Tropicana could be redeveloped at a low price -- by Las Vegas standards.

"This gives Aztar the opportunity to create a must-see attraction on what I would consider one of the best Class A properties on the Strip," said Bill Schmitt, a gaming analyst with Gerard Klauer Mattison & Co.

"Aztar makes no money on the Tropicana now. But if they do it smart, maybe joint-venture it with somebody, they can could get a decent return," said Schmitt. "They don't need a huge facility any more. Maybe something three-quarters the size of a (Project) Paradise or a Paris, maybe around $500 million, $600 million or so."

Aztar Corp.'s fourth quarter earnings report is due this month. In the third quarter, which closed Oct. 2, the company reported net income of $21.3 million compared with $16.1 million for the third quarter of the previous year, which closed Sept. 26, 1996. Revenues were $201.9 million compared with $204.3 million the previous year.

The company indicated it is being carried by Aztar's Atlantic City, N.J., property and its riverboat operations. The Tropicana Las Vegas reported an operating loss of $3 million for the third quarter compared with a loss of $3.3 million for the same period in 1996, based on revenues of $37.2 million in 1997 and $38.8 million in 1996.

In midmorning trading, Aztar's stock was up 7.8 percent on the New York Stock Exchange. At 10 a.m., it was trading at 8 5/8, up 5/8 on trading of 392,000 shares -- about twice the normal volume. The company's stock had been trading near its 52-week low at around 6 as recently as mid-December.