Issue 285
February 27 - March 5, 2006
Volume 6
page 2

Top two locals casino operators take different paths to prominence
As Reported by In Business Las Vegas

LAS VEGAS, Nevada - There's more than one way to skin a cat.

That much was obvious from the recent 2005 earnings results reported by the No. 1 and No. 2 locals casino operators, Station Casinos and Boyd Gaming Corp.

For Station, the company's high reward, high risk strategy of investing primarily in suburban Las Vegas is paying off in spades.

For Boyd, the company's diverse portfolio of casinos in and beyond Las Vegas also paid off in a big way.

Long-held investment wisdom says you don't put all (or even most) of your eggs in one basket. After years of proving skeptics wrong, Station has shown that it doesn't hold true if that basket happens to be the economic anomaly known as the Las Vegas Valley.

Las Vegas is a place where demand begets more demand, which begets more population growth, which benefits Station more than any other single casino company. It's a nice gig if you can get it. Which you can't - unless you're Boyd Gaming, in which case you're a close second.

Station profit grew 144 percent in 2005 compared with the year before. Excluding one-time costs and in particular a $61 million charge in 2004, profit grew 33 percent to $184.9 million.

Earnings before interest, taxes, depreciation and amortization - a key profit indicator for casinos that is otherwise known as operating cash flow - rose 25 percent to $480.9 million.

The skeptics continue to dog Station, questioning how long the company can sustain its torrid, double-digit growth.

Number crunchers say earnings per share will decline this year, jump again in 2007 and 2008 with its Red Rock casino up and running, slow in 2009 and jump again in 2010 when future casinos are expected to come online.

That may not be the exceptional returns some investors now expect from Station, though the company's operating cash flow is expected to show stronger and more continuous growth over the next five years.

But Station executives say investors should focus on a key metric - return on investment. The $925 million Red Rock is expected to post a return "in the high teens to low 20 percent range" by 2007, according to Chief Financial Officer Glenn Christenson.

Las Vegas' economic growth engine remains strong, fueled by continued population growth outpacing demand, executives say.

"We have a strong growth profile" that can be extrapolated over the next several years, Christenson said.

At Boyd Gaming, profit fell 30 percent to $144.6 million last year, including a $56 million impairment loss related to the impending closure of the Stardust around the end of this year to make way for the company's $4 billion Echelon Place resort project.

Excluding that charge and other one-time expenses and credits unrelated to business operations, 2005 earnings rose 94 percent to $225.4 million.

Operating cash flow rose 49 percent to $688.1 million in 2005. And revenue rose 28 percent to $2.2 billion.

Boyd set new records in the fourth quarter of last year, with all six operating units reporting higher revenue and operating cash flow.

"We showed strength across the company," Chief Financial Officer Ellis Landau said during the company's fourth quarter conference call with analysts. "You've got to agree 2005 was one hell of a year."

Operating a diverse set of assets helped earnings, with smaller gains in some regions offset by bigger gains in others, executives said.

Boyd's central region reported an 18 percent gain in cash flow year over year that was mostly because of Treasure Chest, the storm-damaged Louisiana casino that did bang-up business once it reopened in the aftermath of Hurricane Katrina.

The company's downtown Las Vegas properties reported a 9 percent increase in cash flow last year. And cash flow rose 37 percent at the Stardust on the Strip - the property's highest in eight years.

Operating units that reported big profit increases in 2004 were able to improve on those results. The Borgata resort in Atlantic City posted a 17 percent increase in operating cash flow in 2005, the company's Boulder Strip casinos reported a 20 percent jump last year over an already strong 2004 and its Coast Casinos unit posted a 24 percent increase.

A diversified portfolio results in a "nice balancing effect," President and Chief Operating Officer Keith Smith said. "It helps take the seasonality out of the business."

Atlantic City and Midwest casinos are historically strong during the summer months, which aren't the busiest months in Las Vegas, for example, he said.

Any company would be happy with double-digit gains. The least of those gains, 9 percent, was in the downtown market. Yet in the fourth quarter, the three downtown casinos reported a 40 percent increase in operating cash flow - one of the biggest gainers at the company and breaking the company's quarterly record by $3 million.

Equally important to those big gains is the fact that Boyd is continuing to improve each business segment, Smith said.

"When you look at pure growth those gains are difficult to repeat," he said. "It's important that you can maintain those and grow them at a lower level."

The company's diversified portfolio didn't come by accident. Executives made a conscious decision many years ago to acquire and develop casinos across the United States - a strategy that continues today with Boyd's application for a potential casino license in Pennsylvania as well as its recently-announced acquisition of a casino site in North Las Vegas.

"There are many ways in our industry to run a business," Smith said. While MGM Mirage and Station have cultivated success on the Strip and the locals market, Boyd and Harrah's Entertainment have emerged as preeminent models of diversified operators that have sites in many lucrative locations, he said.

Even if you're the No. 2 locals operator, that's not a bad place to be. Nor does it hurt to have the most profitable casino in the country's second largest market. The Borgata's 33 percent profit margin is one of the industry's highest.

Station - which is moving ahead with two casino sites in Reno and has multiple tribal contracts underway in other states - is doubling down in Las Vegas by expanding three of its existing casinos.

At least one analyst has questioned why Station doesn't go ahead and expand other properties, especially given the company's 96 percent hotel occupancy rate last year.

Executives say they can afford to be selective when plenty of opportunities are available.

The company has chosen projects "with the highest return and lowest risk," Chief Executive Frank Fertitta III told analysts during the company's conference call. "Clearly those opportunities exist that's not to say we wouldn't (expand) some other properties."




Property investors get decisive on Macau casino boom
As Reported by Reuters UK

HONG KONG - At a convention in Shanghai, a group of investors with $110 billion (63 billion pounds) in funds between them asked a property expert where in Asia he would put his money.

"Without hesitation, Macau," answered Peter Barge, author of "The little book of big decisions" on how to be decisive.

Barge, who is also Asia head of property consultants Jones Lang LaSalle, has two "opportunity funds" for property in the former-Portuguese colony, which is rushing to build huge casino resorts to draw Chinese gamblers in their millions.

Other foreign investors are following. What was once a speculative residential property market, supplied by local developers, is starting to attract bigger international names interested in building shopping centres, offices and flats.

Citigroup Inc. has hooked up with private developer Macau Land to build two luxury high-rise apartment blocks.

The site overlooks the Cotai Strip -- a parcel of reclaimed land fusing two of Macau's islands, where U.S. casino operator Las Vegas Sands Corp. is luring investors to Asia's first "neon alley" of hotels, shopping centres, casinos and theatres.

And a joint venture between Morgan Stanley, Wachovia Corp. and Hong Kong-listed Pioneer Global bought a 22-storey office tower last year. Many investors believe too many office blocks have been turned into casinos in recent years.

Dan Tagliere, co-founder of Macau Land, gives regular tours of the 27 sq km territory for investment bankers, fund managers and wealthy individuals. For all these investors, property is one of the few ways to bet on Macau, which has no stock market and whose Pataca currency is pegged to the Hong Kong dollar.

The Macau of cobbled streets and pastel colonial facades, smoky casinos and seedy massage parlours is being bustled out of the way by $24 billion worth of private and government investment pledged for the next decade.

The boom began in 2002 when Macau, the only place in China where casinos are legal, broke a four-decade-old gaming monopoly, letting in U.S. operators Las Vegas Sands and Wynn Resorts A year later, China eased rules on overseas travel for citizens of its main cities, unleashing a flood of gamblers.

"If you believe in the increasing tourist numbers and think the economy will grow and survive regional economic downturns, as Las Vegas has, real estate is a good investment," Tagliere said.


Macau's economy grew 28 percent in real terms in 2004 and 6.2 percent last year, while visitor numbers have climbed from 11.9 million in 2003 to 18.7 million last year.

The government expects that when the Cotai Strip is built, Macau will host 40 million tourists a year, and will need to swell its population by 27 percent to 610,000 to make it all work.

But not all property investors are convinced. Morgan Parker, Asia president at U.S. mall developer Taubman Centers Inc., thinks there will be an oversupply of luxury malls.

"People like us are being hounded by mixed use developers, casino developers, to build retail," said Parker.

"All the projects have a retail component and the aspirations are quite similar. But how many stores can a retailer like Louis Vuitton have in Macau?" Macau though, thinks it is too small for the investment plans and is adopting a policy of territorial expansion.

Last month it unveiled sea reclamation plans to add 14 percent more land.

The move will give more opportunity for foreign developers in the crowded city, but will probably upset those who bought near the three areas earmarked.

"Investors who bought pristine waterfront land woke up to discover they're going to have a view of a 10-year building site," Barge said, urging the Macau government to consult more.

Developers believe Hong Kong and mainland Chinese people will keep buying apartments as investments in anticipation of an influx of expatriate executives, partly because prices are still about one fifth of those in Hong Kong, an hour away by ferry.

Macau home prices jumped about 50 percent in 2004 before rising interest rates and high vacancy subued the market.

The main worry for developers are shortages, which are raising the costs of materials and labour.

"Part of the risk is construction, getting it built on time and at the right quality," said Nicholas Sallnow-Smith, chief executive of Hongkong Land Holdings, which is building luxury apartments with partner Shun Tak Holdings Ltd.

Borgata Hotel Casino and Spa Announces Details of The Water Club at Borgata
Press Release

ATLANTIC CITY, New Jersey - After igniting Atlantic City's revival with its 2003 opening as the first new resort in 13 years, Borgata Hotel Casino and Spa -- a joint venture between Boyd Gaming and MGM MIRAGE -- today announced details of the second phase of its two-part expansion project including the identity of a $325 million hotel tower to be named The Water Club at Borgata. Scheduled to debut in fourth quarter 2007, The Water Club at Borgata will mark the completion of the property's $525 million master plan development.

The announcement of The Water Club comes as Borgata's $200 million first phase expansion nears completion for a second quarter 2006 opening.

Since opening in July 2003, the 2,000 guest room hotel has experienced overwhelming popularity and near-capacity occupancy. The clear leader in the Atlantic City market, Borgata has been the top-grossing casino for 41 of the last 42 months. Borgata's investment of $525 million into the $1.1 billion property will account for one-third of the city's planned capital announcements of improvements that total $1.5 billion over the next three years.


The $325 million Water Club at Borgata is aptly named for its magnificent views of both the Atlantic Ocean and for the scenic bays surrounding the property, as well as for the four unique pools it includes. The Water Club will satisfy the high consumer demand for an upscale hotel experience. Offering 800 guest rooms and suites, three residences, a two-story, 36,000-square-foot spa in the sky, 18,000-square-feet of meeting space and six retail shops, the glass tower will combine familiar elements of Borgata style, while delivering a unique personality of its own. With the addition of The Water Club at Borgata, more guests than ever before will be able to experience the upscale lifestyle that defines Borgata.

The Water Club will feature 750 classic rooms; 20 one-bedroom suites; 15 two-bedroom suites including four corner suites equipped with a media-rich mini-theater; three residences modeled after chic New York-style lofts; and a two-story spa including 15 treatment rooms, a spacious 25-yard lap pool and fitness center. As its name implies, The Water Club will offer guests the ability to soak, swim, or relax in their choice of two indoor pools or two outdoor heated pools that will remain open year-round surrounded by beautiful landscaping.

Collaborating on the construction and design of the project are Yates-Tishman Construction Corporation serving as construction manager; Bower Lewis Thrower/Cope Linder Associates, project architects; Laurence Lee Associates, principal interior designers; and Lifescapes International, interior and exterior creative landscaping.

"We conceived The Water Club as an exclusive extension to the sophisticated, international style that already defines Borgata," said Bob Boughner, who oversaw the design of the Water Club. "Quietly cosmopolitan yet energized, The Water Club will be defined by clean, contemporary architecture. The element of water will introduce the notion of vitality and set the overall aesthetic tone for the property with various intriguing design materials."

Upon completion, The Water Club at Borgata will be directly connected to Borgata Hotel Casino and Spa, allowing guests easy access to and from each property.


The first phase of Borgata's $525 million expansion totals $200 million and will feature 36,120 square feet of casino floor space including 36 table games, approximately 500 slot machines, an 85-table poker room, three fine dining restaurants by renowned chefs Wolfgang Puck, Michael Mina and Bobby Flay, a second nightclub, mur.mur and a multi-concept quick service dining option, The Cafeteria. The Cafeteria will include a number of beloved national and regional outlets such as Tony Luke's Old Philly Style Sandwiches, Fatburger, Panda Express, Hibachi San, Villa Pizza and Ben & Jerry's Ice Cream, as well as two original concepts, Lettuce Heads and MiniBar.

Bobby Flay, Wolfgang Puck and Michael Mina will join the culinary roster of premier chefs at Borgata, further establishing the resort as a leading dining destination on the East Coast. The three new restaurant concepts, designed by David Rockwell, Tony Chi and Adam Tihany respectively, are expected to open in the second quarter of 2006. These additional restaurants will join Suilan by Susanna Foo, Luke Palladino's Ombra and Specchio and New York's venerable Old Homestead Steakhouse at Borgata.

Bobby Flay Steak

Food Network personality and chef Bobby Flay with partner Laurence Kretchmer (Bolo, Mesa Grill and Bar Americain in New York City, and Mesa Grill in Las Vegas) joins Borgata with his first steak house venture. Bobby Flay Steak is an 11,000-squarefoot space that fuses sleek, modern design elements that incorporate natural materials such as leather, cast glass and hewn woods.

Flay conceptualized this chic, comfortable steakhouse to complement the exciting backdrop of Borgata. Guests enter through an entryway lined floor-to-ceiling in red leather, which then reveals a gleaming circular brass cage. Design elements such as hand-stitched brandished leather and rough-hewn woods encapsulate the notion of a traditional Western steakhouse, but are updated with a modern sensibility. Positioned between the bar and main dining room, the Lobster Bar will feature a handmade cast glass bar front and lobster tanks. The dining room houses four towering wine displays and a dramatic ceiling composed of wood panels arranged to create an undulating landscape. Bobby Flay Steak seats 150 people, and includes two private dining rooms perfect for special occasions.

Flay is excited to present the classic steakhouse fare he remembers enjoying as a child in New York City as well as new dishes that incorporate his famous grilling techniques and signature Southwestern fare. Bobby Flay Steak will feature the finest steaks paired with zesty rubs and seasonal ingredients, as well as a special Lobster Bar offering Oyster & Lobster Shooters, a smooth Lobster-Smoked Tomato Bisque and spicy Lobster & Crispy Squid Salad with hot pepper dressing. As a nod to Borgata's close proximity to the City of Brotherly Love, Flay has created a Philadelphia-Style Cheese Steak, a perfectly grilled rib-eye, hanger steak, New York strip or filet mignon with provolone cheese sauce and roasted mushrooms and onions.

Wolfgang Puck American Grille

Wolfgang Puck, America's culinary legend (Spago in Beverly Hills, Las Vegas, Maui and Palo Alto; Postrio in Las Vegas and San Francisco; Chinois in Las Vegas and Santa Monica; Trattoria del Lupo in Las Vegas; and the Wolfgang Puck Bar & Grill in Las Vegas), brings his innovative California cuisine to Borgata with his restaurant the Wolfgang Puck American Grille, his first venture on the East Coast. The restaurant reflects his signature comfort food featuring salads, sandwiches, steaks, seafood, pasta, pizzas and desserts.

Tony Chi of Tonychi and Associates (Asiate in New York, Azul in Miami, Spoon in Hong Kong, and the Wolfgang Puck Bar & Grill in Las Vegas) has crafted a design that is a celebration of autumn -- the most colorful and warming of seasons -- combined with the cheerful and casual California lifestyle that is so much a part of the Wolfgang Puck image. There is a sensual palette of colors and textures that is predominantly East Coast, with the colors of fall inspiring the dramatic "falling leaves" feature of the ceiling in the front of the restaurant. The theme is continued through the etched nickel surrounding the wood-burning pizza oven in the patio kitchen, the warm glow of the open fireplace in the dining room and the wooden logs featured in the overall design.

Wolfgang Puck American Grille offers two distinctive dining experiences, each with a different menu and price point. Guests enter the restaurant upon an elevated terrace "patio" (120 seats), which overlooks Borgata's pedestrian walkway creating a great place to people watch in a casual, informal setting. The main dining room (100 seats) is more formal yet still comfortable and is separated by a magnificent bar and small exhibition kitchen. There are also two multifunctional, private dining rooms (50 seats), which can open onto Puck's first-ever Chef's Table in the kitchen, an excellent space for parties and private gatherings.

SEABLUE, A Michael Mina Restaurant

Celebrated chef Michael Mina (MICHAEL MINA in San Francisco and at Bellagio in Las Vegas; NOBHILL and SEABLUE at MGM Grand Las Vegas; ARCADIA in San Jose, CA; and STONEHILL TAVERN in Dana Point, CA) also makes his East Coast and Atlantic City debut with SEABLUE. Designed by Adam Tihany, president of Tihany Design (Per Se, Cravings, Aureole and The Park in New York), the restaurant combines cutting-edge technology and design elements with Mina's signature and acclaimed approach to seafood.

SEABLUE will showcase seasonal and pristinely fresh fish from all over the world cooked over a wood-burning grill as well as whimsical versions of classic American dishes. Some of these signature favorites include the Two-pound Maine Lobster Pot Pie with truffled lobster cream and seasonal vegetables, playful Lobster Corn Dogs with whole grain mustard, and desserts reminiscent of childhood indulgences like Lemon Pudding Cake with creamsicle float and Chocolate Molten Cake with rootbeer float.

Guests are welcomed to SEABLUE through the lounge, which has a blue color scheme and a breath-taking blue-veined marble bar that seats 14-20 people. Past the lounge area, the space opens up onto a dramatic dining room. Ten LED screens projecting a continuous looped video of animated aquatic life encircle the burnt sienna and orange colored dining room. The video work was created by computer artist Bram Tihany. A large contemporary chandelier composed of a metal sculpture of three interlocking inverted drums, adorns the 16-foot dining room ceiling.

About Borgata

Borgata is a joint venture of Boyd Gaming Corporation (NYSE:BYD - News) and MGM MIRAGE (NYSE:MGM - News). Located at Renaissance Pointe in Atlantic City, it features 2,000 guest rooms and suites, 125,000 square feet of gaming, 163 gaming tables, 3,600 slot machines, 11 destination restaurants, 11 retail boutiques, a 54,000 square foot spa, 70,000 square feet of event space, and parking for 7,100 cars.

Kevin James

Danny Gans Theatre: Comedy "King" from the hit sitcom, The King of Queens will be performing at The Mirage's Danny Gans Theatre on March 10th and 11th.

Dates: March 10-11, 2006

Time: 10:30 p.m.

Ticket Price: $82.50

For more information: (866) 80-SHOWS

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