Orleans hotel-casino to be expanded again

David Strow

Monday, April 17, 2000 | 10:40 a.m.

Less than a year after completing its first expansion of the Orleans hotel-casino, Coast Resorts Inc. said it is now considering a second expansion of the locals-oriented property that would add at least 600 hotel rooms.

"In order to capitalize on our strong presence in the locals market, we are considering further expansion of the Orleans by adding additional movie theaters, two restaurants, a new hotel tower and a parking garage," Coast said in its annual report.

The company added, however, that "no definitive plans" have been made for an expansion, nor has financing been arranged.

"There's no question that we're going to do an expansion project at the Orleans," said Harlan Braaten, president and chief operating officer of Coast. "It's just a matter of timing. Ideally, I think we'd like to be doing something within the next two years."

The cost of such a project would probably range between $60 million and $85 million, Braaten said.

The Orleans completed its first series of expansions last May, adding a 12-screen movie theater, a child care center, a buffet and 10,000 square feet of casino space. The property now has 840 rooms, a 110,000-square-foot casino and 2,450 slots. It opened in December 1996.

A second hotel tower would probably add at least 600 rooms to the Orleans, Bratten said. That would help the hotel-casino add business from the visitor market segment as well as locals, he said.

"This is still a very strong tourist market," Braaten said. "We are able to fill our hotel rooms with 95 percent occupancy. So it makes sense for us to take advantage of the continuing demand to Las Vegas by adding more hotel rooms."

The Orleans is less than 2 miles west of the Strip on Tropicana Avenue. Coast also owns and operates the Gold Coast hotel-casino, located just west of the Strip on Flamingo Road, and the Barbary Coast at the Strip and Flamingo Road. Coast's fourth Las Vegas property, the Suncoast, is expected to open near Summerlin by October.

The expansion talk is being spurred by stronger operating results in 1999, particularly at the Orleans and Gold Coast.

In 1999, Coast reported net revenues of $362.5 million, up 9.1 percent from the previous year. Operating income rose 31.9 percent, to $53.5 million, while cash flow increased 21.5 percent to $78 million.

The strongest contributor to revenues was Coast's $265.8 million in casino revenues, a 9.4 percent rise over 1998 figures. Still, hotel revenues increased 6.5 percent in 1999, to $30.3 million, and occupancy averaged 94.1 percent at the company's three hotel-casinos in Las Vegas.

Despite the strengthened earnings, Coast still reported a net loss of $5.8 million, down from net income of $8.8 million in 1998. Coast said this was the result of a $27 million charge related to the early retirement of debt in March.

The stronger operating results may lead rating agency Standard & Poor's to upgrade its credit ratings on Coast. On April 10, S&P changed its credit outlook on Coast to positive, saying an upgrade is possible in the intermediate future.

"The ratings reflect Coast's solid operating performance during 1999 and management's good track record in developing and operating properties in the Las Vegas locals market," S&P's report said. "Standard & Poor's expects that (the Suncoast) will be a good cash flow contributor for 2001. In addition, The Orleans and the Gold Coast are expected to perform well over the intermediate term."

S&P said an upgrade would depend on whether Coast "continues to demonstrate strong operating momentum, has a successful opening at Suncoast, and maintains a moderate expansion strategy."

S&P currently has a "B+" corporate credit rating on Coast, as well as a "B-" rating on its subordinated debt, both ratings below investment grade. The company currently has $311 million in total liabilities, including $234.8 million in outstanding long-term debt.

An upgrade by S&P would improve Coast's credit profile, making it possible for Coast to borrow money for future projects at more affordable interest rates.

That would assist an expansion of the Orleans, but Coast has more expansion plans on its plate. Earlier this month, Coast Chairman Michael Gaughan said he expects to break ground on a dockside casino in the Gulf Coast town of D'Iberville, Miss., by the end of 2000.

"Mississippi is a market, in many ways, that has similarities to Nevada," Braaten said. "You're not limited ... it's a more free enterprise system."

Braaten said Coast plans to build the casino in partnership with local owners in Mississippi, though Coast will remain the casino's majority owner and operator.

"One of our strengths is marketing ourselves to both locals as well as visitors to the market," Braaten said. "We feel we can be very successful at that site."

Although the Suncoast will be Coast's fourth Las Vegas resort, built at a cost of $185 million, Braaten said the company is already looking at chances to build a fifth hotel-casino in the area. One of the most intriguing, he said, revolves around a land parcel Coast owns next to the Fiesta hotel-casino in North Las Vegas.

Braaten said it'll be tough to top North Las Vegas for market opportunity -- in February, the market's 35.3 percent increase in gaming win was the largest of any market in Nevada, according to statistics from the Nevada Gaming Control Board.

Coast's time to develop the land is limited -- under Senate Bill 208, the parcel's gaming exemption will expire at the end of 2002, Braaten said. That gives the company two and a half years to build a property at the site.

"A lot depends on whether other opportunities present themselves that we feel are better," Braaten said. "If we get into Mississippi ... certainly that would probably delay the possibility of developing the Rancho Road site until the last part of the (SB 208) deadline. Conceivably we could sell that site, and let someone else develop it.

"Coast will probably develop another project in the Las Vegas Valley in a couple of years, but if it's on Rancho Road or another site, only time will tell."