Casino Owner Rolling The Dice On New Properties - Tuesday 12th of April 2005

Over the last couple of years, Boyd Gaming Group made two huge bets that eventually put it at the same table as the big boys of the gaming industry.

One was the Borgata in Atlantic City, which opened in July 2003. It was the first new hotel and casino to open in the resort town in more than a decade.

The other was its July 2004 acquisition of Coast Casinos, which made Boyd a major player in the lucrative Las Vegas locals market.

Boyd is now the U.S. gaming industry's third-biggest player. It ranks behind Harrah's Entertainment, which is buying Caesars Entertainment ; and MGM Mirage, which will soon merge with Mandalay Resort Group.

What's more, Boyd has lost much of its ho-hum reputation with the success of its showpiece Atlantic City property. The $1.1 billion Borgata has drawn so many customers that a $200 million expansion plan is already in the works.

"It was apparent to us very quickly that demand was so strong that additional supply would be a wise investment," said Ellis Landau, Boyd's chief financial officer

The Borgata boasts more than 2,000 hotel rooms. It ranks first in Atlantic City in gaming wins, with a 14.2% market share.

In March, the facility's table wins rose 8.4% from the prior year to $17.8 million. Bally's, which is owned by Caesars, suffered a 5.6% decline in table wins in March. Tallies were from the New Jersey Casino Control Commission.

"It's been a huge home run for (Boyd), as well as MGM," said analyst William Schmitt of CIBC World Markets.

Boyd and MGM are 50-50 partners in the Borgata. Boyd developed the property and runs it. Its share of operating income from the Borgata totaled $79 million last year, the first full year of operation.

"Its execution at Borgata has been flawless, so it has a lot more credibility," Schmitt said.

That credibility will likely work to Boyd's favor as it seeks to develop its 63-acre property on Las Vegas's up-and-coming north strip.

The property, occupied by the Stardust, is across the street from Steve Wynn's new Wynn-Las Vegas, which is expected to make the north end the new hot spot in town.

Boyd execs are taking their time mulling over plans for the Stardust property, which is large enough to hold two hotels. The Stardust, built in 1958, likely will be torn down.

Meanwhile, Boyd's purchase of Coast Casino's four properties in suburban Las Vegas' locals market put the company deeper into an area with rising demand and limited supply.

Though Boyd was the first to enter the locals market with Sam's Town, rival Station Casinos and others grew more aggressively.

The new Coast casinos added $179 million in revenue and $61 million in cash flow to Boyd's books in the fourth quarter, helped by the 460-room tower expansion in October of the Orleans hotel/casino.

"Management has successfully taken this company to a new level and has made Boyd one of the strongest gaming companies in the industry," analyst Lawrence Klatzkin of Jefferies & Co. wrote in a report.

Boyd took in $1.7 billion in revenue last year, up 38% from 2003. Earnings rose 73% to $1.44 a share.

First-quarter earnings are due to be reported on April 25. First Call analysts expect profit to come in at 52 cents a share, a 79% gain.

While Atlantic City and Las Vegas are firing up Boyd's prospects, its casino and riverboat operations in the Midwest and Gulf Coast seem static by comparison.

On a same-store basis, fourth-quarter revenue for Boyd's six central-region properties grew only 1.8% from the prior year and were down 2% for the full year.

"Riverboats are now playing second fiddle," Landau said.

Still, the acquisition of Sam's Town Shreveport in Louisiana last year helped boost the region's overall revenue.

And Boyd's expansion and renovation of its biggest Midwest property, the Blue Chip Casino & Hotel in Michigan City, Ind., is expected to be completed in late December. The Blue Chip faces potential competition from a new gaming operation the Pokagon Tribe might open across the border in Illinois.

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