Aztar may have missed opportunity
With all of the recent buzz about Harrahs Entertainment Inc.s plans for future redevelopment projects at the Imperial Palace and Ballys casinos, investors may be losing some interest in a long-discussed project at the Strips southern end.
Aztar Corp. has spent more than two years planning the potential redevelopment of its Tropicana hotel and casino -- a period that some observers say has cost the company and caused it to miss out on the latest wave of growth on the Strip.
The 1,900-room property, which dates from 1957, has become a rhinestone in a chain of diamond-league resorts that have sprouted north and south of it in recent years.
Redevelopment discussions intensified in early 2002 when the company bought out its 50 percent partner in the Tropicana, laid out a design plan for two interconnected resorts on the site and said a decision would be made on whether to build them by summer 2003.
Summer 2003 came and went. Another deadline for first quarter 2005 was missed when the company postponed its redevelopment plans indefinitely late last year. During Aztars fourth quarter conference call, executives suggested that some kind of news would be forthcoming this fall -- a notion they have since dismissed.
Executives explained the delay by saying their design needed to reflect the influx of condominiums and other high-rise residential developments on the Strip.
Aztar also cited a major construction accident at the site of an expansion at its sister resort in Atlantic City. The 2003 accident delayed the opening of a hotel and retail expansion at the Atlantic City Tropicana until late 2004. Executives said they wanted to wait until the company could generate higher seasonal revenue from the expansion, which included a 502-room hotel tower and a 200,000 square-foot retail and dining area called "The Quarter." The past two quarters have yielded positive results from the expansion, analysts say.
For nearly a year, the company has been sitting on virtually-completed design work on the north site of the project, according to documents filed with the Securities and Exchange Commission.
The details are tantalizing. The design calls for two interconnected, 17-acre sites that would feature 2,725 hotel rooms and suites; 200,000 square feet of dining, entertainment and retail outlets; a 120,000 square-foot casino and a four-acre rooftop pool and recreation deck overlooking the Strip. The north site would be developed by Aztar and the south site would be held for development by Aztar, a joint-venture partnership or by another party.
Yet the only definitive statement investors are left with about this project is a vague disclaimer that casts a large shadow of doubt on whether the company will pursue anything at all.
"The amount and timing of any future expenditure, and the extent of any impact on existing operations, will depend on the nature and timing of the development that we ultimately undertake, if any," the company said in its 2004 annual report.
Aztar representatives could not be reached by press time to comment on their current outlook for redevelopment. They have historically declined to discuss details beyond previous financial disclosures.
Wall Street has clearly been frustrated with the delay, noting that the propertys profit potential -- in spite of maintenance upgrades over the years -- is limited by the propertys vintage design.
"We continue to wonder why management has not accelerated the redevelopment process given the resurgence and phenomenal strength of the Las Vegas market over the past several years," CIBC World Markets stock analyst William Schmitt wrote in a research note last month.
One Las Vegas casino executive, who declined to be named, called the delay a "travesty for shareholders" and said theres been no significant impediment preventing the company from pursuing a redevelopment project sooner.
"If you had a choice of whether to develop in Atlantic City or Las Vegas, which would you choose?" the executive asked. He is biased, of course, but hes not the only one who would lay his money on Las Vegas, which continues to be the fastest growing tourism destination in the nation.
"This is a company that works in mysterious ways," he said.
Or it could just be more conservative than some.
So says Carlton Geer, director of CB Richard Ellis global gaming group. Geer, who has never worked with Aztar, said recent developments might have delayed the project longer than usual.
The company recently appointed Robert Haddock to replace Chief Executive Paul Rubeli, who retired in March. The company has also had lawsuits and insurance claims to contend with since the 2003 construction accident.
"Theyre absorbing all of that," Geer said. "The company has the funding capacity. Its a matter of their desire to take on that project. Some would say they should have redeveloped that property 10 years ago."
The Tropicanas 34-acre site could be worth as much as $680 million given a benchmark of $20 million per acre. Thats what Harrahs is paying per acre for the Imperial Palace site. Given Harrahs specific interest in the Imperial Palace, that rate might be higher than future deals could command. As an equity contribution, however, experts say $680 million -- plus Aztars good relationships with investment banks -- would be enough to jump-start financing a billion or multi-billion-dollar resort.
Some analysts say they are waiting along with everyone else to find out whats in store for the property.
Deutsche Bank stock analyst Marc Falcone said the company has had to change its design to reflect evolving demand trends in Las Vegas.
"I think they are still trying to figure out what to do with that property," Falcone said.
2005-08-12
