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Pinnacle halts Indiana project

9 May 2007

INDIANA -- Plans by Indiana lawmakers to install slot machines at two racetracks near Indianapolis didn't sit well with Las Vegas-based Pinnacle Entertainment.

The casino operator announced Tuesday during its first-quarter earnings report it was indefinitely postponing construction of a $45 million, 250-room hotel expansion at its Belterra casino due to the increased competition. Pinnacle executives said they would put the money into other company ventures.

Belterra, which is Pinnacle's second-largest revenue producer behind the company's L'Auberge du Lac hotel-casino in Lake Charles, La., is located about two hours from Indianapolis, which is considered the property's third-largest feeder market behind Cincinnati and Louisville, Ky.

Indiana is making plans to add 4,000 slot machines at the two Indianapolis racetracks.

"We think the decision is prudent given the likelihood of increased competition in one of Belterra's key feeder markets, and that Pinnacle will find another use for the $45 million in capital investment planned for the project," Bear Stearns gaming analyst Joe Greff said in a note to investors.

It's not that Pinnacle is at a loss for projects that can use the $45 million. During its conference call with analysts and investors, Pinnacle executives outlined the company's booming expansion plans, including two casinos in St. Louis, an addition to L'Auberge and development of a resort in Atlantic City.

During the quarter, which ended March 31, Pinnacle said its net income fell 78 percent as competition on the Gulf Coast, shut down a year ago by two hurricanes, returned to reclaim some of the lost business.

Pinnacle said its net income was $2.9 million, or 5 cents per share, down from $13.5 million, or 28 cents per share, earned a year ago. Analysts polled by Thomson Financial expected Pinnacle's net income to be 12 cents per share

Company revenue fell 0.6 percent, to $232.8 million from $234.1 million.

Pinnacle's earnings were affected by decreased business at Boomtown New Orleans, which remained open while several competitors were closed following the aftermath of Hurricane Katrina in August 2005. The casino's revenues were $41.7 million in the quarter, well off the inflated $63.2 million in the first quarter of 2006.

Meanwhile, Pinnacle added revenues from the President Casino in St. Louis, which was purchased in December. The riverboat casino, which is near the company's under-construction $495 million Lumiere Place, had revenues of $16.5 million in the quarter.

Lumiere Place, located near the Gateway Arch in downtown St. Louis, is expected to open by early December. Pinnacle is building a second $400 million hotel-casino in St. Louis County that is expected to open in 2008.

"Our properties are continuing to perform well and posted solid overall results in the quarter," Pinnacle Chairman Dan Lee said. "Just as important, we've made significant progress on our development pipeline."

L'Auberge du Lac, which is expected to top-off next week on construction of $45 million, 250-room hotel expansion, continued to be the company's flagship property, with revenues of $77.8 million in the quarter.

"Overall, Pinnacle's results came in above our expectations," Deutsche Bank gaming analyst Elizabeth McNellis said in an investors note. "We anticipate that 2007 remains a transition year, and investors should focus on the company's extensive growth pipeline.

Pinnacle shares rose $1.08, or 3.88 percent, Tuesday to close at $28.90 on the New York Stock Exchange.