Coast Resorts expanding Summerlin hotel-casino

David Strow

Friday, Aug. 24, 2001 | 11:16 a.m.

Coast Resorts Inc. posted strong financial results for the second quarter, driven primarily by its newest hotel-casino, the Suncoast.

Business is going so well at the Summerlin-area hotel-casino, in fact, that Coast is busily doubling the number of hotel rooms at the year-old property in an $11 million expansion.

"We just didn't know what the demand was going to be out there," said Coast President Harlan Braaten. "We were presently surprised by the extent of the demand, and as a result, opted to complete the rooms."

The Suncoast opened with 200 rooms, but these were all located on one side of the building. The other half was an empty shell, designed for the construction of additional rooms when demand warranted.

That planned expansion began early this year, in response to average room occupancy rates that topped 90 percent. Earlier this week, 167 additional hotel rooms were opened to the public; once the expansion is complete early next year, the Suncoast will have 428 rooms.

This is hardly the only expansion activity Coast has launched. In its quarterly financial report, the Las Vegas locals casino operator outlined $71 million in new expansion activity, including stepped-up expansions of its Orleans and Gold Coast hotel-casinos.

Coast reported cash flow of $29.5 million for the quarter ending June 30, a 34 percent increase over the year-ago period. Coast's $7.03 million in net income, however, was hardly changed from the year-ago quarter.

Coast's stock is not publicly traded, but its bonds are. As a result, cash flow is the more closely watched indicator of financial performance, as it determines whether the company can keep up with debt payments.

Net operating revenues rose 40 percent to $126.7 million.

Coast attributed these increases to the Suncoast, which opened in mid-September 2000. With the Suncoast now in its inventory, Coast's casino revenues rose 45 percent to $94 million. Food and beverage revenue rose 38 percent to $26.4 million, while hotel revenues were up 16 percent to $9.5 million.

A number of factors, however, prevented Coast from reporting net income growth during the quarter. One was lower-than-expected hotel occupancy rates; a second was $1.5 million in extra interest expenses, caused by debt raised to build the $200 million Suncoast; third was a $1.66 million loss taken on the sale of gaming equipment; and fourth was a $641,000 increase in electricity and natural gas expenses. Coast also noted a decline in revenues at its Barbary Coast hotel-casino on the Strip, and said that was "possibly due to the recent economic downturn."

Gold Coast also posted a somewhat weaker quarter, partially from competition from Terrible's hotel-casino, which opened earlier this year about two miles east of Gold Coast on Flamingo Road. But construction activity on a $20.5 million expansion and remodeling also took its toll.

Yet that isn't deterring Coast from stepping up that activity. In its quarterly report, Coast said it has launched a $30 million second-phase expansion of the property. This will include a 2,000-car parking garage, a 10,000-square-foot expansion of convention space, and the addition of 30,000 square feet of casino space.

The main reason, Braaten said, is the Palms, the $265 million Maloof family-owned property set to open across from Gold Coast in December.

"This is a new, modern casino with plenty of amenities, and we felt we needed to bring the Gold Coast facility to the kind of level that can compete with the new, modern (casinos)," Braaten said.

Coast is also stepping up the scope of its expansion of the Orleans. The expansion's cost was initially put at $100 million, and includes an events arena, a 620-room hotel tower, a 2,600-space parking garage, additional restaurants and 40,000 square feet of additional casino space.

Coast has increased the estimated budget of the expansion by $30 million. Part of this cost came from the addition of two more restaurants and a bar, but most of the additional expense came from enhancements to the arena, Braaten said.

The size of the center is largely unchanged -- seating will range from 7,500 for sporting events to 9,500 for events like concerts and boxing matches. But the enhanced plans call for a much more flexible center, with the ability to host a wide variety of sporting and entertainment events, Braaten said.

"Anything that could possibly come to town and fit in that size an arena, we can put there now," Braaten said.

To make the arena a financial success, Coast needs to use it an average of 150 to 200 days a year. To help meet that goal, Braaten said, the company is examining the possibility of attracting a minor league team to play in the arena. One possibility Braaten mentioned several times was arena football, which has the semi-professional Arena Football League.

"It's possible those kind of things (minor league sports) could end up in there," Braaten said. "We have people out there looking into those things for us."

The arena should open in early 2003, Braaten said.