Tropicana reports loss, cites Las Vegas ‘room inventory imbalance’

By Steve Green

Sunday, May 9, 2010 | 5:13 p.m.

The Tropicana Las Vegas hotel-casino lost about $7.7 million during the first quarter and its owners are investing more cash in the resort to help finance $165 million in renovations.

Canadian investment company Onex Corp. and co-investors picked up the resort out of bankruptcy last July for $205 million.

Onex said in its quarterly earnings statement last week that the Tropicana sustained a quarterly operating loss “during its restructuring and refurbishment stage'' and that the loss for Onex's portion of the investment was affected by fluctuations in the value of the U.S. dollar to the Canadian dollar.

Comparable numbers for the first quarter of 2009 aren't available, though it's been disclosed the property generated net revenue of $33.6 million and a net loss of $19 million during the second half of 2009.

The Tropicana said in a regulatory filing that occupancy at the property fell from 80 percent in 2008 to 67 percent in 2009, while the average daily room rate fell from $71 to $55 because of “the economic downturn coupled with a severe supply-demand room inventory imbalance in Las Vegas.''

Onex said it and members of its management and partners in the Tropicana in April purchased an additional $45 million of preferred shares in the resort company. These shares accrue dividends at a rate of 12.5 percent and are convertible into common stock. In 2009, the partners purchased $60 million in preferred stock under a similar arrangement.

With 1,772 hotel rooms and a 50,000-square-foot casino at a 34-acre strategic location on the Las Vegas Strip at Tropicana Avenue, Onex has called the Tropicana deal a “distressed-for-control opportunity'' executed during a cyclical low in the gaming industry.

“Alex Yemenidjian, our gaming industry partner and CEO of Tropicana Las Vegas, and his team continue to make progress on the operational and physical transformation of the property. With the expectation of continued weakness in the Las Vegas market, the decision was made to accelerate the second phase of the renovation into a single, comprehensive redevelopment. Once the transformation is complete, we believe Tropicana Las Vegas will be well-positioned when the Las Vegas market eventually recovers,'' Onex said in its earnings report.

The Tropicana last month said its $165 million transformation to be completed in April 2011 will include a redesigned facade, all new rooms and suites, all new amenities, restaurants and bars, and South Beach-style entertainment and nightlife options.