CEO tries to quell talk of Tropicana overhaul

By Liz Benston (contact)

Thursday, April 24, 2003 | 11:22 a.m.

Aztar Corp.'s top executive on Wednesday tried to quell rumors that the company has decided to redevelop its Tropicana resort in Las Vegas.

The company won't know whether to green-light an overhaul of the property until it completes a feasibility study that is expected by the end of the year, Aztar Chief Executive Officer Paul Rubeli said on a quarterly earnings conference call. Even so, the company may not make a decision until the first quarter of 2004, when it expects to open a major expansion of its Tropicana Atlantic City casino, he said.

"No decision has been made," he said. "Until the Atlantic City project opens we may not be able to make that decision about where to spend the money."

The decision process will involve determining whether a newly designed casino can generate acceptable returns for the kind of intense capital investment required. The company is shooting for an 18 to 20 percent return on the proposed resort.

Aztar has for years hinted at its desire to redevelop the property, which analysts say would require demolition of the site and construction of a building more resembling its luxury counterparts on the Strip.

News this week that the company has stopped booking conventions past May 2004 shouldn't be construed as a sign that the company will proceed with the development, Rubeli said.

The company made that decision to protect itself against liability should it be forced to reneg on long-term contracts struck with conventioneers, he said.

"I wouldn't read anything more into it than it's part of the process -- and it's a small part of the process."

Only about 15 percent of the company's occupied rooms come from convention business. Of that business, about 80 to 90 percent are short-term bookings.

"When other places sell out and can't get in, we can sell the alternative," Rubeli said.

The Tropicana, which opened in 1957, has been successful attracting overflow from other properties as well as bargain-conscious gamblers, executives say.

Average daily room rates at the hotel were $71 in the first quarter, in line with last year's quarter. But occupancy rose, to 97.8 percent from 92.6 percent, the company said.

Revenue at the property rose 6.1 percent, to $38.3 million. Cash flow jumped 47.6 percent, to $6.2 million.

Unlike more lavish neighbors that continually spend to upgrade their hotel rooms, the Tropicana hasn't undergone a major room remodel in years. Room rates have been stable, removing pressure to hike room prices, Rubeli said. If the resort decides to scrap a major redevelopment effort, observers shouldn't expect the company to instead pump more money than normal into room upgrades, he added.

"We have some of the best mid-priced rooms in Vegas ... we are not trying to compete with the billion-dollar properties."

Separately, the company reported a 2 percent increase in profit, to $13.5 million. On a per-share basis, the company reported earnings of 36 cents compared to 35 cents. Revenue fell to $203 million from $206 million. Cash flow dropped to $44.2 million from $44.6 million.

The relatively flat results were favorable given bad winter weather that cut into returns at the company's casinos in Atlantic City and the Midwest, Rubeli said.

"We wound up dead even with last year and last year was a record year for this company."

The opening of the luxury Borgata resort in Atlantic City this summer should eventually help operators there as it drives more business to the region, he added.

Some analysts say the company will take a hit in the near term as customers flock to the Borgata, which could overshadow the company's Tropicana Atlantic City expansion. The expansion includes 502 additional rooms, 20,000 square feet of meeting space and a 200,000-square-foot dining, entertainment and retail center.

This year will be a "transition year" for Aztar, Lenman Brothers analyst Joyce Minor said.

"Looking to 2004, our increasing optimism around Aztar's expansion in Atlantic City is offset by uncertainty around the company's decision whether to pursue a redevelopment at Tropicana Las Vegas," Minor wrote in a research note today.

"Aztar's very good track record of returns on invested capital in both Atlantic City and Las Vegas make us confident that these projects would be successful."

The company's Ramada Express in Laughlin reported a 2.8 percent decline in revenue, to $24.4 million, as the struggling economy, war fears and airline woes cut into travel plans, the company said. Cash flow fell 10.8 percent, to $6.6 million. Average daily rates were about $28, flat with the previous year, and occupancy fell to 78 percent from 85 percent.

The company owns Casino Aztar properties in Evansville, Ind., and Caruthersville, Mo., and Tropicana Atlantic City, its flagship property.

Aztar purchased the Tropicana in Las Vegas outright in February 2002. The company had previously leased the property from a partnership in which the company owned a 50 percent stake. The property sits on about 34 acres, has more than 1,800 hotel rooms and offers a 62,000-square-foot casino. Its convention center is about 100,000 square feet.