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Best of Howard Stutz

Gaming Guru

Howard Stutz

No Decision, No Thanks; Riviera Stock Sinks

9 November 2005

Wall Street was unkind to Riviera Holdings on Tuesday after management told investors the company had reviewed alternatives for its flagship Riviera Hotel but reached no conclusions.

So on the same day the Las Vegas-based Riviera reported its third-quarter loss had decreased from a year ago, the company's stock price was hammered to its lowest levels in seven months.

Shares in the gaming company, which also operates a casino in Black Hawk, Colo., fell 22 percent initially after announcing it had finished assessing alternatives for the 2,070-room Riviera, including a redevelopment of the 26-acre Strip location, joint ventures and refinancing the debt.

"It did not produce the appropriate strategy and we saw nothing that we thought would help our shareholders recognize fair market value," said Riviera President Bill Westerman during the company's half-hour conference call with investors and analysts.

"Although this process has been concluded, Riviera will continue to consider strategic opportunities as they arise, and as the board of directors considers them to be in the best interests of Riviera and its shareholders," Westerman added.

After an initial drop of $4, the share price recovered briefly but continued down in trading on the American Stock Exchange, ending the day at $13.42, down $4.48, or 25.03 percent. Almost 900,000 shares were traded.

One gaming analyst thought the market overreacted to the company's news.

"The short answer is, yes, it was an overreaction," said Steven Ruggiero of CRT Capital Group. "If you go back 15, 16 months ago, the stock price is up 300 percent even after today. I think the expectations of some investors were perhaps a bit unrealistic."

The news overshadowed Riviera's third-quarter earnings, in which the company cut its losses from a year ago. Riviera reported a third-quarter loss of $1.3 million, or 11 cents a share, compared with a loss of $2 million, or 19 cents a share during the same period a year ago.

Company revenue fell 0.6 percent, to $50.3 million from $50.6 million. However, revenue at the Riviera was $37.1 million, a 0.8 percent increase from $36.8 million a year ago. Cash flow, defined as earnings before interest, taxes, depreciation and amortization, was up 1.8 percent to $5.8 million, compared with $5.7 million last year.

Riviera President Robert Vannucci said the quarter was the casino's best since 2000.

Good news at the Riviera was offset by trouble at the company's casino in Black Hawk, where revenue fell 4.4 percent, from $13.8 million to $13.2 million. The company blamed a rock slide in June that closed Highway 6, one of the main routes into Black Hawk, until early September. Last week, Ameristar Casinos said its earnings in Black Hawk were also hurt by the road closure.

Ruggiero said management is doing a good job operating the Riviera, despite the aging property's limitations.

"What happened today had nothing to do with earnings," Ruggiero said. "They've done a good job with a property in Las Vegas that needs a lot of work."

Vannucci said he thought the Riviera, with its low-priced rooms, would benefit from the recent closures of other midpriced rooms in Las Vegas, such as the Bourbon Street and Westward Ho and the expected January closure of the Boardwalk.

Westerman tried to buoy investors' spirits, saying the Riviera would benefit from the construction of seven condominium and time share projects with 4,000 rooms within walking distance of the Strip casino.

Also, the company has booked the value of the Riviera site at $21 million, well below $1 million an acre. He thought the site could fetch well above $1 million an acre based on recent Strip land acquisitions, including Harrah's purchase of the Imperial Palace for $20 million an acre.

"We're going to be doing the same thing we have been doing, focusing on the value of our property," Westerman said.