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Analysts Optimistic about Vegas

15 August 2003

LAS VEGAS – The second half of 2003 is shaping up to be a blockbuster for the Las Vegas gaming and tourism industries, several Wall Street analysts said Thursday.

Surging disposable income, rebounding demand following the war with Iraq, strong room rate performance and record-breaking convention business deserve most of the credit, Merrill Lynch analyst Dave Anders said.

Merrill Lynch economists found that the $30 billion tax stimulus in the third quarter and the continuing mortgage refinancing boom should add $40 billion in liquidity nationwide, he said.

That should translate into $70 billion in extra household cash flow during the quarter, or $280 billion on an annual basis, Anders said.

The increased disposable income nationwide is sure to stimulate demand for leisure travel and Las Vegas vacations at least through the end of 2003, he said.

In addition, the rebound in business following the end of the Iraq war drove leisure travel and gaming company earnings upward in the second quarter and the positive trends are continuing into the second half of the year, Anders said.

He cited Merrill Lynch's proprietary room rate survey, which shows Las Vegas room rates up nearly 19 percent in the third quarter-to-date at higher end Strip properties compared with the same period and properties a year earlier.

Similar surveys by Fulcrum Global Partners, an independent Wall Street investment research firm, show room rates in the third quarter-to-date are up 21 percent at MGM Mirage properties, 16 percent at Park Place Entertainment Corp., and 11 percent at Mandalay Resort Group.

In addition, Anders said vacationers are staying closer to home this year and travel to Europe has been dramatically curtailed following the Sept. 11 terror attacks, the Iraq war and the devaluation of the dollar, which is also helping the Las Vegas economy and gaming operators.

Analysts said increasing convention business is also driving the local economy and casino business.

"We anticipate that an increase in conventions will drive room rates in the fall of this year as conventioneers typically pay higher rates than the leisure travelers," Anders said.

Specifically, Merrill Lynch estimated that convention attendance will increase by 4 percent in the second half of 2003 compared with a year earlier.

Fulcrum gaming analyst Joe Greff said casino business is looking stronger for September than last year and convention business is expected to be noticeably stronger in October and November.

Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting company, said convention business is up in the third quarter compared with the previous year and with the previous quarter.

"This tends to drive room rates even higher, which obviously bodes well for hotel-casinos," Gordon said.

In addition, there are preliminary indications additional flights -- some international as well as domestic -- may be scheduled to fly into McCarran International Airport, which is a strong indicator of increased visitation in Las Vegas, Gordon said.

These developments will mean higher revenue per available room (RevPAR) and "higher levels of discretionary spending for Las Vegas properties and will have a meaningful impact on the overall Las Vegas economy," Anders said.

Hotel RevPAR increased 2.8 percent in July compared with declines of 10.4 percent, 3 percent, and 1.8 percent in April, May and June, respectively, Anders said.

Not all analysts are as optimistic about the second half of the year, however.

"We're somewhat cautiously optimistic that Vegas will be able to get through the rest of the summer (in reasonably good shape) before the convention season starts back up, and the back half of the year will show some nice signs of growth," Bear, Stearns & Co. analyst John Mulkey said.

"We still think travel budgets are constrained and convention (business) will be a little constrained for the rest of the year," he said. "Consumer confidence is starting to improve, led by retail sales. Hopefully, it will translate to (Las) Vegas."

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