Business improves for Vegas Tropicana

Thursday, July 22, 2004 | 10:56 a.m.

The owner of the Tropicana resort in Las Vegas reported a 50 percent drop in second quarter profit Wednesday as the aftereffect of last year's parking garage collapse at the company's sister property in Atlantic City continued to hurt business.

But the Tropicana Las Vegas hotel-casino's performance improved significantly in part because of decisions made last year to cut out conventions booked far in advance as well as eliminating certain casino events for comped casino customers, executives said. Both initiatives freed up rooms for higher-paying convention-goers and tourists, they said.

Aztar Corp. Chief Executive Officer Paul Rubeli said that his company still won't decide on whether to go ahead with long-awaited plans to redevelop the Tropicana until the first quarter of next year. Design work for a potential megaresort is "essentially complete" but management still must evaluate the national economy and the Las Vegas market, he said.

"That real estate is getting ever more priceless ... at some point in time it may make sense to redevelop it," Rubeli said.

The property continues to do well in the face of new competition, defying analysts' predictions that "somehow we were going to be put out of business because we were a second-tier property," he said. "We're not under the gun to have to do it at any point in time that may not make sense."

Some analysts today said they were disappointed by Aztar's results but said the company's prospects in Atlantic City and Las Vegas are good.

In a report, Bear, Stearns & Co. gaming analyst Mark Abramson said Aztar could open its new Las Vegas resort by mid-2007, which could add some $13.27 per share or $475 million to the company's annual earnings. That would include redevelopment of the north side of the property, which is slated for a separate project that would be connected to the resort.

"We sense management is now more inclined to pursue this redevelopment opportunity, based on the strength in the Las Vegas market."

Cash flow at the Tropicana rose 55 percent to $10.1 million and revenue grew 11 percent to $42.6 million. The hotel's occupancy rate was 100 percent compared to 99 percent a year ago. The average daily rate rose $15.33 to $83.84.

Aztar Corp. profit fell to $9.3 million or 25 cents per share in the second quarter from $18.8 million or 51 cents in the same quarter of last year. Revenue declined 4 percent to $206.3 million. Cash flow fell 12 percent to $46.7 million. That figure included $5 million of insurance recovery as a result of the delay in opening the expansion of the Tropicana Atlantic City.

A parking garage under construction as part of a $245 million expansion of the resort collapsed in October, killing four construction workers and injuring others. Aztar is attempting to recover at least $6 million in additional insurance claims related to the collapse.

The opening of the resort expansion, including 500 hotel rooms as well as a retail and restaurant district, has been pushed back to mid-October.

Phoenix-based Aztar also owns the Ramada Express in Laughlin, Casino Aztar in Evansville, Ind., and Casino Aztar in Caruthersville, Mo.

The Laughlin property reported a 3 percent gain in revenue in the second quarter and a 2 percent increase in cash flow in spite of the continued threat from nearby tribal casinos.

Without mentioning them by name, Rubeli accused two "deep-pocket" owners of Laughlin properties, Mandalay Resort Group and Caesars Entertainment Inc., of failing to keep up their casinos and said he would welcome new blood into the Laughlin market should those assets be sold in the latest round of potential megamergers.

"I would instantly trade the opportunity for (Mandalay-owned casinos) Colorado Belle and Edgewater to be bought out," Rubeli said during a conference call Wednesday. An entrepreneur or smaller company "ought to come in and run a joint and be proud of what they're running and not be afraid to ever mention it on a conference call."

"Good operators ... have done just fine in Laughlin," he said. "You don't need deep pockets in Laughlin. You need commitment."

Caesars Entertainment spokesman Robert Stewart said the company is "very proud of our Laughlin property" and cited year-over-year increases in cash flow and room rates.

"Our investments have resulted in a property that is very attractive to customers," he said. "We've got increased average daily room rates, which indicates that people want to play and stay there."

Mandalay Resort Group representatives could not be reached for comment.

Rubeli also said his company probably won't be among those lining up to buy assets that could be sold if MGM MIRAGE buys Mandalay Resort Group and if Harrah's Entertainment Inc. merges with Caesars.

The company hasn't historically grown through acquisitions like its peers and has instead chosen to focus on developing its core properties in Las Vegas and Atlantic City, he said. The assets slated for sale could have doubtful prospects, he added.

The latest megamergers could have a positive, negative or even neutral effect on business, Rubeli said.

"People don't care who owns the rooms they're in. It's a short walk across the bridge to get to our property," he said.

From a marketing perspective, the MGM-Mandalay deal could draw more business to the south end of the Strip where the Tropicana sits across from Mandalay casinos, he said. Longer term, however, the properties could use strengthened gambler rewards programs to lure players away from the Tropicana.

"I guess a 600-pound gorilla could squash a 60-pound gorilla, but we live in a highly regulated environment and I'm just of an opinion that that's not going to be allowed to happen," Rubeli said.