Stratosphere cash flow up

David Strow

Wednesday, April 3, 2002 | 11:05 a.m.

The Stratosphere's new 1,000-room hotel tower led to a 5 percent increase in revenues for the quarter ended Dec. 31, despite a downturn at the Las Vegas Strip property caused by Sept. 11.

The hotel-casino, controlled by financier Carl Icahn, posted revenues of $36.6 million for the quarter, up 5 percent from the year-ago period. The property reported a loss of $830,000, compared to net income of $1.37 million; however, it is likely most of this loss came from interest payments to Icahn-controlled entities.

The new tower opened in June 2001, giving the property 2,444 rooms.

Stratosphere Corp. did not detail the quarter's results in its annual report, filed Monday with the Securities and Exchange Commission. It did say, however, that revenues would have been higher, had it not been for the Sept. 11 attacks and "general economic conditions."

Revenues are still expected to increase through the second quarter as a result of the new tower, the Stratosphere said, though the increase could be muted because of decreased air travel, poor economic conditions, and "increased competition from high-end casinos and hotels who have entered the mid-level casino customer market as a result of the Sept. 11, 2001, terrorist attacks and the recent economic downturn."

A specific example of the post-Sept. 11 downturn came in visitations at the Stratosphere's tower. Since Sept. 11, revenue from tower visitations fell 31 percent over the comparable year-ago period, to $3.3 million.

For all of 2001, the Stratosphere posted revenues of $142 million, an 8 percent increase over 2000. But net income fell more than 80 percent to $825,000.

A large factor in declining net income was interest expense, which rose from $1.1 million in 2000 to $4.2 million in 2001. These increased interest payments, however, were made to Icahn-controlled entities, on loans used to fund the Stratosphere's expansion.

On a cash flow basis -- which factors out interest, taxes, depreciation and amortization expenses -- the Stratosphere earned $15.8 million in 2001, up 7.5 percent from 2000.

Casino revenues were up 18 percent, which the company attributed to three factors -- the hotel expansion, a 2.7 percentage point increase in table game hold, and increased marketing through the Stratosphere's slot card program. Hotel revenues were up 22 percent, food and beverage revenues increased 1 percent, and entertainment revenues rose 13 percent in 2001. Hotel and food and beverage increases were attributed to the expansion, while the entertainment boost came partially from the Stratosphere's outdoor events center, opened in September.

The one business line that did not grow in 2001 was tower, retail and "other" income, which fell 7 percent to $26.5 million. Increased competition on the Strip and Sept. 11 were blamed.

These gains in revenues were offset by a 10 percent increase in expenses, to $137.4 million. These additional costs were associated with higher payroll expenses to meet additional demand from the expansion, as well as higher slot expenses and gaming taxes resulting from higher casino play.