Tropicana results decline, redevelopment studied

By Liz Benston (contact)

Thursday, July 24, 2003 | 11:13 a.m.

Aztar Corp. executives said Wednesday they are on track with a plan that will allow them to make a definitive decision on whether to redevelop the Tropicana resort in Las Vegas.

The company won't make that decision until at least the first quarter of next year, when the plan is complete, they said.

"We don't have a gun to our head," Aztar Chief Executive Paul Rubeli told investors during the company's second-quarter earnings call.

The company reported lower revenue and cash flow at the Tropicana during the second quarter. The property, like many other Strip resorts, was hurt in April by the war in Iraq but began to recover by the end of the quarter.

Economic prospects remain uncertain in Las Vegas, which is still recovering from an economic slump that was in progress before the Sept. 11 terrorist attacks, Rubeli said.

"There's some unanswered questions about Las Vegas," he said. "At this point it is not logical to make up your mind on Vegas, to spend $700 million dollars and fly blind."

Last month, the Tropicana filed plans with the county for an upgrade that would level the north half of the property, nearly double the resort's 1,800 rooms, and add timeshares. A company consultant attending the Clark County Commission meeting estimated the cost of the project at around $500 million.

Those plans could be delayed or scrapped altogether if the company finds that the project can't warrant an adequate return on investment, executives said.

The company is aiming for at least an 18 to 20 percent return on the project -- a return that some other Las Vegas projects haven't met in the past, Rubeli said. He did not name those projects.

The Tropicana reported revenue of $38.5 million, down 2 percent from the second quarter of last year. Cash flow was down 22 percent, to $6.5 million. The property's occupancy rate was 98.9 percent, up from 97.7 percent. But average room rates fell to $68.51 from $69.84. And cash room revenue -- excluding giveaway rooms -- was down 4 percent in the quarter.

The Tropicana increased its marketing and gave away rooms to keep occupancy high, Rubeli said. On the upside, cash room revenue firmed up in June and is up for July, he said.

The company's flagship Tropicana in Atlantic City, on the other hand, had an "absolutely great quarter," he said.

Companywide, the company earned $18.8 million, or 51 cents per share. That compares to $16.5 million, or 42 cents per share in the year-ago quarter.

Cash flow was $53 million -- a company record -- up from $52.3 million.

The Atlantic City property had 96 percent occupancy and increased cash room revenues by 3 percent.

The company achieved the returns even after cutting marketing and promotional expenses over the summer in preparation for competition from Borgata, a luxury casino that opened this month in Atlantic City, Rubeli said.

"What I read from this is the depth of demand for more hotel rooms required in Atlantic City," he said.

In April the company opened up a retail and gaming area near the Boardwalk and will open an expansion of the Atlantic City Tropicana next March.

The expansion will add 502 hotel rooms, 20,000 square feet of meeting space and a 200,000 square-foot dining, entertainment and retail center with more than 60 tenants.

The Borgata is expected to be "the rising tide that lifts all boats by the end of the summer," Rubeli said.

The Borgata, a joint venture of MGM MIRAGE and Boyd Gaming Corp., is expected to grow the market and energize the city by attracting a younger, higher-end crowd, he said. By contrast, many properties have long fought price wars over an older generation of customers accustomed to redeeming casino freebies.

"Their rooms are a great addition to the city's inventory and their positioning as a young, hip and edgy place will bring new customers to the city who had rejected it in the past," he said.