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Gaming Guru

Howard Stutz

Aztar Releases Tropicana Plans

16 February 2006

LAS VEGAS -- Aztar Corp. spelled out in basic detail Wednesday plans for a $1.2 billion hotel-casino that would replace the Tropicana.

The only question left unanswered is if the company will actually build the development.

Phoenix-based Aztar wants banks to finance the proposed project. The company has also contracted with Las Vegas builder Marnell Corrao Associates to manage construction and keep the planned resort at its set budget.

"There has really been no decision made by management and our board of directors whether or not to proceed," Aztar Chairman Robert Haddock told analysts and investors during the company's fourth-quarter earnings conference call in which it reported increased revenues for the company and the Strip resort.

He said Marnell Corrao has sent portions of the project out to bid with subcontractors and those results are being evaluated.

"In several cases, the subcontractor bids came back higher," Haddock said. "We're right now doing a review and cost analysis."

During the conference call, Haddock presented more details than the company has ever divulged about what it envisions for half of the Tropicana's 34-acre site. Aztar said previously it wants to divide the parcel into two 17-acre developments for two hotel-casinos.

Haddock said the company has nearly completed its architectural plans for what it calls the "north site," which would encompass a 2,725-room hotel, 100,000-square-foot casino, 200,000 square feet of retail and restaurants, a 3,800-space parking garage, and a four-acre rooftop recreation deck.

Construction would run 30 months and the project would result in Tropicana's closure and demolition.

"We believe this is an exciting concept, but that's all we can really say at this time," Haddock said.

The Tropicana is not taking hotel room reservations past April 15, although Haddock said that date has always been a moving target.

"We've been through this before. We've stopped and started many times," Haddock said.

Gaming analysts thought Aztar is now so far along in the redevelopment plans that the company will eventually proceed with the Tropicana reconstruction.

"The banks could require them to put up some cash, but they seem pretty set on that price," CRT Capital Group gaming analyst Steven Ruggiero said. "For (Aztar), that was a lot of detail to give out (about the Tropicana redevelopment). What they've talked about sounds like their going after the right segment of the market. They've got a great location."

Ruggiero estimated the value of Tropicana site is between $340 million and $500 million.

Aztar wants banks to finance the project so the company can use its resources on lower-cost development opportunities. The company is bidding on a location in Allentown, Pa., which it said would cost $325 million for a 250-room hotel and 3,000 slot machine casino.

Deutsche Bank gaming analyst Marc Falcone said its seems inevitable the company would proceed with the Tropicana project.

"I have a hard time believing they would turn away if the project were to come in at, say $1.3 billion," Falcone said.

In the company's fourth quarter-earning statement, Aztar didn't even mention the Tropicana, focusing on the Tropicana Atlantic City, which has been the company's primary revenue driver.

During the fourth quarter, Aztar, which also operates casinos in Laughlin, Evansville, Ind., and Caruthersville, Mo., said its earnings per share was 30 cents, compared with 6 cents per share during the fourth quarter of 2004. Analysts polled by Thomson First Call had predicted the company would earn 27 cents per share in the quarter.

Aztar's fourth-quarter revenue rose 18.7 percent to $222.8 million from $187.7 million a year ago.

Twelve-month revenue rose 15.9 percent to $915.4 million from $789.9 million.

At the Tropicana, revenue was up slightly during the quarter, $39.7 million compared with $38.8 million a year ago. For the year, revenues at the Tropicana were $163.8 million, compared with $162 million in 2004.

The Tropicana Atlantic City reported $118.1 million in revenue during the quarter, compared with $90 million a year ago. For the year, the casino had $490.1 million in revenue, compared with $384.6 million in 2004.

"All of our properties posted solid results during the fourth quarter, but we are particularly pleased by the performance of Tropicana Atlantic City," Haddock said. "The continuing operating improvement at the Tropicana is manifest in its year-long growth in slot revenue, which has accelerated each and every quarter during the 2005 calendar year."

Aztar shares rose 70 cents, or 2.23 percent, Wednesday to close at $32.05 on the New York Stock Exchange.