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Best of Howard Stutz

Gaming Guru

Howard Stutz

The Strip: Riviera Shares Rising Fast

28 December 2004

Those who bought stock in the parent company of the Riviera back in January and held onto the shares through Monday aren't disappointed.

Duane Krohn, chief financial officer of Riviera Holdings Corp., said he's fielded very few shareholder complaints in 2004, a fact he couldn't boast previously.

Since the beginning of the year, shares in Riviera Holdings, traded on the American Stock Exchange, have increased nearly eight times in value.

On Jan. 8, the stock hit a 52-week low of $5.40; on Wednesday, the share price was a 52-week high of $44.70. Shares in Riviera Holdings closed Monday at $41.35, down 10 cents, or less than 1 percent.

A spokesman for the stock exchange, which trades more than 800 equity issues, said Riviera Holdings is among the market's top five gainers to date.

Krohn said the company normally doesn't comment on stock price, but Riviera officials aren't griping about their treatment by the exchange.

"We let the market dictate itself and obviously we're not disappointed with the stock price, and neither are our shareholders," Krohn said.

Riviera Holdings operates the Riviera, one of the Strip's oldest resorts, and the Riviera Casino in Blackhawk, Colo. The company has been the target of takeover bids, some credible and some speculative, over the past few years. In 2003, the stock price decreased considerably and the American Stock Exchange threatened to de-list the company.

The rise in Riviera's share price has once again fueled debate among gaming analysts on the future of the company.

Many observers believe that investors, guessing on the worth of the 26-acre Riviera Las Vegas site, have driven up the stock price believing a redevelopment project could increase the land's value dramatically.

With Strip development heading northward, following the trail blazed by the planned April opening of the $2.5 billion Wynn Las Vegas, the Riviera site becomes another commodity.

"If you believe what some people speculate, that Strip land could be valued at anywhere from $15 million to $20 million an acre, then the Riviera's stock price is reflective of that discussion," said Deutsche Bank gaming analyst Marc Falcone. "Real estate on the Strip and its value is going to drive up the target prices of many companies."

Brian Gordon, an analyst with Applied Analysis, said luxury condominium development around the Riviera, such as the nearby Turnberry towers and the neighboring Krystle Sands, increases the casino's land value.

In addition, whatever the intentions Boyd Gaming has for the 63-acre site housing the Stardust across the street also has a positive effect on the Riviera.

"The Riviera Las Vegas site has tremendous potential, and that's the true value of the company," Gordon said. "The location is going to be developed, either by the company or through an acquisition."

Opened in 1955, the Riviera was designated as the first Las Vegas high-rise hotel with its original nine-story tower. It now houses 2,070 rooms and suites through a mishmash of four tower designs that signifies its numerous ownership changes and re-modeling adventures, and Riviera Holdings officials acknowledge the site is the company's future.

"Strip land value has increased, and that is significant for our company," Krohn said. "From our standpoint, the location of the Riviera Las Vegas a strong asset."

In a financial presentation to gaming analysts last fall, company executives said the Riviera Las Vegas is surrounded by development projects while the resort would benefit from the building of a 50-story multiple-use tower and other enhancements to the current configuration. The presentation also included a rendering showing the new tower located along Riviera Drive.

A cost was not associated with the expansion idea, which also included more convention space and parking structures. Some believe, however, a partnership or outright sale would be needed to make good on the promise.

In October, Riviera Holdings reported that net income and revenues increased in the third quarter both companywide and at the Riviera Las Vegas.

One analyst said suitors for Riviera Holdings could surface in early 2005, with the most likely buyer being a gaming operator looking to move northward on the Strip.