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Chris Jones

Hard Rock Considers Expansion

22 July 2004

LAS VEGAS -- Times weren't so hard for the Hard Rock Hotel during this year's second quarter, a period when business bounced back with such vigor executives there are reportedly eyeing significant growth opportunities both new and old.

The parent company of the trendy Las Vegas boutique hotel-casino reported solid earnings late Tuesday, and a source said Wednesday that Hard Rock might soon move to add more than 2,000 hotel rooms and amenities to its resort at the northwest corner of Paradise Road and Harmon Avenue.

In addition, Hard Rock executives hope Harrah's Entertainment's proposed acquisition of Caesars Entertainment could reopen last year's missed opportunity to develop a rock 'n' roll-themed casino on tribal land near San Diego.

Hard Rock late Tuesday reported quarterly earnings of $650,000 during the three-month period ended June 30. That figure was substantially better than a year ago, when a $4.2 million refinancing charge pushed the company to lose more than $2.9 million, Hard Rock Vice President and Chief Financial Officer Jim Bowen said.

Quarterly revenue improved to $41.2 million, up 18 percent from last year's $34.9 million. Cash flow jumped to more than $11 million compared with $8.9 million a year ago.

"It was just overall a great quarter, very busy," Bowen said.

Hard Rock bosses hopes they'll soon become busier, this time in the potentially lucrative Southern California gaming market.

In September, the Pauma Band of Mission Indians passed on Hard Rock's offer to build a $300 million to $350 million resort on 30 acres of tribal land near San Diego. The tribe instead picked a bid from Park Place Entertainment (now Caesars Entertainment), which offered to build a $250 million Caesars brand resort pending regulatory approval.

Now that Caesars is the subject of a $9.4 billion buyout offer from Harrah's, its Pauma deal could be in jeopardy. And the Hard Rock is waiting eagerly in the wings.

Harrah's is adding 460 rooms to a 58,000-square-foot casino, 190-room resort it operates near San Diego in conjunction with the Rincon Band of San Luiseno Mission Indians. In a conference call last week, Harrah's CFO Chuck Atwood said Caesars would continue to pursue its 2003 Pauma deal as the merger proceeds.

Still, Atwood cautioned should Harrah's acquire Caesars, it would re-evaluate the prospect of taking on a second American Indian casino so close to Rincon.

Hard Rock President Kevin Kelley said last fall the tribe confirmed his company finished second to Caesars' bid, beating out local rival Station Casinos in a vote among tribe members. Given that close finish last year, Bowen said Wednesday that Hard Rock recently recontacted tribal letters to tell them the company would like to step in should the Caesars deal falter.

Station Casinos has been an aggressive pursuer of California tribal deals thanks to the success of its Thunder Valley project, which opened last summer near Sacramento on land owned by the United Auburn Indians. But spokeswoman Lesley Pittman said Wednesday it's too soon to speculate on whether Station would resume its pursuit of a Pauma deal.

Efforts to reach Pauma tribal leaders were unsuccessful Wednesday.

The Hard Rock could also grow larger in Southern Nevada. A source with knowledge of the deal said the company has an option to acquire 23 acres that now house nearly 550 apartments west of the hotel-casino's current 17-acre site, though such a move is still at least 14 months away.

The additional acreage would be enough to support more than 2,000 new guest rooms, including some potential condominium units, in addition to added casino, restaurant, pool and meeting space. The Hard Rock now has about 650 hotel rooms.

Bowen declined comment on the potential Las Vegas expansion.

Such speculation seems to accompany success. Better luck at the tables pushed Hard Rock's quarterly casino revenue to nearly $16.5 million from $13.8 million a year ago. In addition, a citywide surge in demand for hotel rooms allowed Hard Rock to increase its average daily rate by $28; that in turn drove its quarterly lodging revenue to $9.4 million from $7.7 million in last year's second quarter.

Casino winnings can be influenced by the presence of a few big players or a few fateful flips of cards, and hotel rates are easily swayed by the power of the Las Vegas market. Because of that, Bowen said he's most pleased by the Hard Rock's food and beverage sales, which climbed to $13.7 million from $12.1 million despite the absence of a night club during two months of this year's quarter.

"Food prices don't really change, and no one comes in as a food high-roller buying $100,000 in food at a time," Bowen said. "Because each purchase comes in a little bit at a time, you know you're basically busy when you have additional food and beverage revenues."

Hard Rock's new Body English club opened Memorial Day weekend, in time to add one month's beverage sales to the property's bottom line.