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Gaming Guru

Howard Stutz

Aztar Results Mixed

20 October 2005

LAS VEGAS – Another quarter, same results.

Aztar Corp. announced Wednesday the company had record cash flow in the third quarter and earnings per share increased 41.6 percent over the same time period a year ago.

But just as was reported during the company's second-quarter earnings, Aztar's aging Tropicana in Las Vegas was not a reason for the growth.

Phoenix-based Aztar reported $63.4 million in earnings before interest, taxes, depreciation and amortization for the quarter that ended Sept. 30, up 36.6 percent from $46.4 million a year ago. Earnings per share in the quarter were 51 cents, compared with 36 cents in the 2004 third quarter.

Analysts polled by Thomson First Call had estimated the company would earn 49 cents in the quarter.

While the Tropicana Atlantic City reported large increases in revenue and cash flow, the Tropicana Las Vegas had slight decreases in both areas. Company officials said during Aztar's conference call with investors and gaming analysts they once again weren't ready to divulge any redevelopment plans for the 34-acre Las Vegas site.

"We have nothing to add at this time," said Aztar Chairman Robert Haddock. "Architectural work is continuing on the north 17 acres and we've made good progress, but we're not yet ready to discuss the time frame."

Aztar officials had said the company would announce plans for a Tropicana redevelopment at the end of the year. But Haddock backed off that.

"We'll make an announcement when we're ready to make an announcement," Haddock said.

Aztar executives said the Tropicana was not booking hotel reservations beyond Feb. 15 but said that date could be extended.

"This has been done probably six or eight times in the last two years where we've stopped and then began again," Haddock said. "There's nothing unusual because we just don't want to commit to time periods we can't keep."

CRT Capital Group gaming analyst Steven Ruggiero said Aztar has employed a conservative strategy in figuring out what it wants to do with the Tropicana Las Vegas and hasn't implemented a development plan as quickly as some Wall Street analysts would like.

"The nice thing for Aztar is the value of the Tropicana land continues to be strong," Ruggiero said.

The Tropicana Las Vegas suffered a 3 percent decline in cash flow, from $8.8 million a year ago to $8.5 million in the 2005 third quarter, and a 1 percent drop in revenue, from $40.5 million to $40 million.

"Overall, our results were good even with a little softness from the Trop," Haddock said.

The Tropicana Atlantic City, once again, drove Aztar's earnings, reporting revenue of $137.7 million, a 29.4 percent increase from $106.4 million a year ago, and cash flow of $41.4 million, an increase of 58.6 percent compared with $26.1 million for the third quarter of 2004.

"The product is a winner and highly productive," Haddock said. "We're going to continue to spend some additional capital to continue to upgrade the casino and hotel products."

In the past year, Aztar completed an expansion at the Tropicana Atlantic City that included a new 502-room hotel tower and The Quarter at Tropicana, a 200,000-square-foot dining, entertainment and retail complex. The company added a 2,400-space parking garage and 20,000 square feet of meeting and conference space.

Haddock said on the conference call that Aztar will spend $20 million to $25 million to upgrade older hotel rooms and portions of the casino. The company is also planning additional upgrades that will take the overall development process into the spring of 2007.

"When done, the Tropicana Atlantic City will have the assets needed to be a top tier competitor in the market," Haddock said.

Aztar also reported modest increases in revenue and cash flow at its casinos in Laughlin, Indiana and Missouri. The company is spending $32 million to upgrade the Indiana casino.

Ruggiero said Aztar is banking its future growth on two properties, Tropicana Atlantic City and its Indiana casino.

"They're a conservatively managed company and both those projects provide a nice return," Ruggiero said.

Shares of Aztar closed at $30.50, up 37 cents or 1.23 percent, in trading Wednesday on the New York Stock Exchange.

Earlier this week, Bear Stearns gaming analyst Joe Greff thought Aztar's earnings in Atlantic City would drop in 2006 because of competition brought on by an expansion at the Borgata the opening of a retail and entertainment facility on the Pier across from Caesars Atlantic City.

However, Greff raised his estimated earnings per share for the company's second half of 2005.

He said the stock's current value reflects an improved outlook in Atlantic City as well as the possibility that Aztar will be taken over.

"Investors should not interpret this as our being more bullish on Aztar," Greff said. "While shares have pulled back 12 percent since ... July, we think shares are still no better than an even risk-reward. We believe investors still have hopes that Aztar will be (bought) out, a theory going back many years now and something that we have written about many times."