Stratosphere’s $80 mil. expansion on hold

John Wilen

Tuesday, March 23, 1999 | 10:46 a.m.

If the lack of activity in the Stratosphere hotel-casino's unfinished hotel tower is not clue enough, Stratosphere Corp.'s latest Securities and Exchange Commission filing makes it official: the resort's long-awaited expansion is on hold.

And according to a close read of the document, the expansion might not ever happen.

"Completion of the unfinished 1,000-bay hotel tower and other amenities (Phase II) of the project remains on hold," states a Stratosphere 10K annual report form filed last week. "The company does not have in place any financing arrangements for Phase II in the event it determines to proceed with the project."

The expansion plans would also include a swimming pool and spa, and would cost about $80 million, said the filing. The expansion is "critical for the company to remain competitive in the long-term," states the filing, which adds that any expansion would take about 10 months.

The Stratosphere was bought out of bankruptcy by billionaire Carl Icahn last year. In August, Icahn told gaming regulators he would immediately begin work on the planned expansion. Work on the hotel tower was halted in September 1996 when its previous owners ran out of money. Stratosphere filed for bankruptcy in January 1997 and emerged from insolvency last October.

Stratosphere officials could not be reached for comment on the reasons for the delay or why the company's billionaire owner needs to secure financing to finish the project.

All pre-bankruptcy Stratosphere stock was cancelled by the bankruptcy proceeding. Icahn owns 89.6 percent of the reorganized company's new common stock. According to the 10K, Icahn is the only shareholder who owns more than 5 percent of the company's stock.

For the year that ended Dec. 27, Stratosphere posted lower revenues, but the company turned a profit. Stratosphere earned $3.4 million on revenues of $130 million last year, up from a loss of $19.3 million on revenues of $137.5 million in 1997.

The company reported an extraordinary gain of $153.4 million reflecting the discharge of its debt when it left bankruptcy. The special gain gave Stratosphere bottom-line 1998 earnings of $156.8 million.

Casino revenues fell about 7.4 million, from $62.9 million to $55.5 million year-to-year, due to increased competition on the Strip, the company said. Hotel revenues were flat, with the company offsetting a slight decline in average daily rate with increased occupancy. Occupancy rates at the Stratosphere increased from 88 percent in 1997 to 91 percent last year, while the average daily rate fell from $51.31 to $49.91.

The company said its percentage of rooms given to customers on a complimentary basis increased from 10 percent in 1997 to 15 percent last year.

Revenues from tower visitation, an important component of the Stratosphere's earnings picture, fell from $30.3 million in 1997 to $29.3 million last year. The decline was due to the number of tower visits falling from 2.7 million in 1997 to 2.4 million last year, a factor partially offset by higher admission fees.