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Best of Howard Stutz

Gaming Guru

Howard Stutz

Pinnacle to sell Atlantic City site

8 February 2010

LAS VEGAS, Nevada -- Regional casino operator Pinnacle Entertainment is putting its vacant 19-acre Atlantic City Boardwalk casino site on the market and may look at selling other nonrevenue-producing assets.

The Las Vegas-based company, which doesn't operate a casino in Southern Nevada, is also exploring additional cost-saving measures after reporting a $242 million net loss in the fourth quarter Friday.

Pinnacle interim Chief Executive Officer John Giovenco said it would take about $3 billion to build a viable project in Atlantic City, where competition from gambling in nearby states and the sour economy have torpedoed gaming revenues in the market over the last two years.

"That's not our cup of tea. We're a regional casino operator," Giovenco said following Pinnacle's quarterly earnings conference call, his first since taking over the company following the departure of former CEO Dan Lee in November.

Also, Giovenco, the former president of Hilton Gaming who came out of retirement to join Pinnacle's board of directors, was noncommittal on whether he wanted the CEO position on a permanent basis.

"There are a number of internal candidates who are qualified to do this job," Giovenco said. "The search is well under way, and we will announce a resolution at the appropriate time."

When asked if he was one of the internal candidates, Giovenco said, "I have a great staff that makes it fun to be here. I'll leave it at that."

Pinnacle said it took a $207 million noncash charge to earnings for the quarter that ended Dec. 31, with about $160 million coming for the Atlantic City site, which had housed the Sands Casino. Pinnacle purchased the closed casino for $272 million from Carl Icahn in 2007, imploded the building and started plans for developing a $2 billion Boardwalk project.

National economic woes and lack of available financing put Pinnacle's plans on hold.

Giovenco said the site was only placed on the market recently.

"We don't think it's a strategic fit for the company," Giovenco said. "Atlantic City has deteriorated in the past couple of years and we're not in the position to make the investment required."

Giovenco said Pinnacle may look at selling other vacant land parcels within the company's holdings. He did not say if any currently operating casinos would be part of the selling spree.

Pinnacle is focused on opening a third casino in St. Louis on March 4 that will market toward a predominately locals audience in the suburbs. Pinnacle also operates two casinos in downtown St. Louis, one of which may be closed by Missouri gaming regulators. In the fourth quarter, Pinnacle said the noncash charges, costs and declining revenues contributed to a net loss of $4.03 per share. A year ago, Pinnacle recorded a fourth-quarter net loss of $298 million, or $4.97 per share.

Revenues in the 2009 fourth quarter were $245 million, a 5.4 percent decline compared with $259 million in the same quarter last year.

"The fourth quarter was a tough one for us, and we're disappointed," Giovenco said. "While the first half of the year was solid, the continuing deterioration of the economy resulted in less visitation and lower play per customer."

In addition, the company recorded $5 million in severance costs because of the November departure of Lee and other corporate staff. Additional cuts include selling a corporate jet and consolidating the Las Vegas corporate offices from three buildings into one. Giovenco did not say how many layoffs would take place.

"These are positive steps that will provide the company with liquidity to weather the continued softness in regional markets," Deutsche Bank gaming analyst Andrew Zarnett told investors.

After the opening of River City in St. Louis, Pinnacle plans on adding a casino expansion to its flagship L'Auberge du Lac resort in Lake Charles, La., and building a casino in Baton Rouge, La.

The primary focus, however, is on operations, Giovenco said.

"That's what's in the best interests of our shareholders," he said.