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Benjamin Spillman

Golden Nugget reports first-quarter profit rise

15 June 2007

LAS VEGAS, Nevada -- In the stagnant sea of mediocrity that is downtown Las Vegas, the Golden Nugget is doing more than just staying afloat.

The largest casino downtown, along with a sister Golden Nugget in Laughlin, is managing to turn a profit for its corporate owners.

In a limited statement to investors Thursday, Houston-based Landry's, the Golden Nugget's corporate parent, reported the casinos made $21 million in profit in the first quarter of 2007 that ended March 31, compared to $16.3 million in the same period last year. Revenue was $70.7 million, up from $63.4 million in the first quarter of 2006.

The report also described a $545 million line of credit for the Golden Nugget subsidiary with Wachovia Capital Markets. The funds will be used to repay Landry's $187.5 million for what the parent company has already spent on the Golden Nugget, as well as to refinance other debt.

"They are putting forth the most effort right now," said Anthony Curtis, publisher of the Las Vegas Advisor, of the more than $100 million Landry's has spent upgrading the property despite its location in the struggling Fremont Street marketplace.

"The Golden Nugget stands out as the only thing that shines down there," he added.

In contrast, the overall downtown gaming market has been flat or in decline for more than a decade. An 8 percent increase in casino win in April ended 10 consecutive months of decline for the market. But a closer look at the numbers indicated the increase was due to a reporting anomaly. After adjusting the figures, one analyst estimated the market declined 3.3 percent during the month.

It isn't all smooth sailing for Landry's and the Golden Nugget, either.

The financial report issued Thursday is incomplete because Landry's is reviewing stock-option irregularities that have prevented management from doing a complete report for 2006 earnings and the first quarter of 2007.

"You lose clarity on what the actual operations are doing. So it probably weighs on the stock a little bit," Houston-based analyst William Hamilton said.

The delayed financial reports put the company at odds with terms of $400 million in debt. But debt holders have agreed not to seek accelerated repayment and Landry's has remained current on the debt service.

Nevertheless, Hamilton said the new line of credit could be an indication that Landry's has even bigger plans for the Golden Nugget. There has been discussion of adding a third hotel tower, but Landry's management hasn't mentioned the idea publicly.

Neither Tilman Fertitta, chairman, president and CEO, nor Rick Liem, executive vice president and CFO, returned calls for comment.

The company has already invested more in the 60-year-old property than any owner since 1984 when Steve Wynn spent $50 million to build an 18-story hotel tower.

Changes include a refurbished pool and two-story water slide that features a 200,000-gallon aquarium with several species of sharks and game fish.

The casino's interior is also refurbished with new bars and restaurants.

Other downtown properties haven't fared as well recently. The Four Queens and El Cortez each recently invested about $20 million to make improvements.

But Binion's owner MTR Gaming Group of Chester, W.Va., has reported growing losses at the once-proud home of the Binion family. And the Tamares Group, owners of the Plaza, Las Vegas Club, Gold Spike and Western Hotel, is yet to significantly change those properties since buying into downtown in 2004.

Owners of the closed Lady Luck are yet to deliver on promises of a major hotel operator to revive the property.

"There has been more talk than action in general," Curtis said of downtown. "The Nugget has actually put their money where their mouth is."