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Best of Howard Stutz

Gaming Guru

Howard Stutz

Analysts pleased with Pinnacle

20 April 2009

LAS VEGAS, Nevada -- Compared to the competition, regional casino operator Pinnacle Entertainment looks like a relatively safe wager.

The Las Vegas-based company won praise last week from two Wall Street analysts whose opinions were based on results from L'Auberge du Lac in Lake Charles, La., and Lumiere Place in St. Louis.

"One can think of Pinnacle as a two-trick pony," JP Morgan gaming analyst Joe Greff told investors.

The 1,000-room L'Auberge grew revenues 6 percent in 2008 to $342.6 million. Lumiere, in downtown St. Louis near the city's two sports stadiums, completed its first full year with revenues of $194.5 million, second to L'Auberge in Pinnacle's stable of eight resorts.

Pinnacle Chief Executive Officer Dan Lee didn't want to slight the company's other markets, especially southern Indiana, where Belterra held its own despite competition from two new racinos in the Indianapolis area.

"I think we're a little more diverse than that," Lee said.

Pinnacle operates three casinos in Louisiana, where the economy has remained strong due partly to the oil industry. The same holds true for neighboring Texas, where Houston, San Antonio and Austin are prime feeder markets for L'Auberge.

Lumiere benefited when Missouri voters ended the state's $500-per-session loss-limit restriction. Lumiere also shook off opening bugs, cut costs and is attracting fans attending St. Louis Cardinals baseball games and St. Louis Rams football contests.

"Pinnacle has been able to generate gaming revenues in the market above its fair share of capacity," Macquarie Securities gaming analyst Joel Simkins said.

As a company, Pinnacle had more than $1 billion in revenues in 2008, a 13 percent increase. Simkins estimates revenues could grow 3 percent this year, 13 percent in 2010 and 18 percent in 2011, some of which is based on the company's development pipeline continuing.

Lee, who was chief financial officer for Mirage Resorts in the 1990s, runs Pinnacle under several truisms, one being not to start building something without the money to finish.

That's why the company's $380 million casino in suburban St. Louis will open in early 2010. Meanwhile, two Louisiana ventures, a $407 million sister resort to L'Auberge and a $250 million resort in Baton Rouge, have slowed with the blessing of state gaming authorities.

Pinnacle has debt of $900 million. The company also has a $625 million credit facility, of which $150 million has been drawn, and $116 million cash on the balance sheet.

"We believe that lenders are starting to warm up to certain companies, primarily those with modest leverage and respectable interest coverage ratios," Simkins said.

Lee said early construction is happening in Lake Charles.

"We're inching forward, if you will," Lee said.