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Best of Liz Benston

Gaming Guru

Liz Benston

Decision on Tropicana Delayed

3 February 2005

LAS VEGAS -- The owner of the Tropicana in Las Vegas said Wednesday it will postpone until fall a decision on whether the company will redevelop the aging resort.

Shares of Aztar Corp. of Phoenix fell 13 percent, or more than four dollars per share, in midday trading today after the company reported an 81-percent decline in profit and analysts expressed disappointment about the delay.

During a conference call to discuss the company's fourth quarter performance, Aztar Corp. executives also said they wouldn't sell the valuable Strip property and dismissed talk that the company could be a potential takeover target.

"You should not think of it as a company for sale," Aztar President and Chief Financial Officer Robert Haddock said.

The company, which planned to make a decision on the future of its south Strip resort by March 31, needs more time to digest skyrocketing land prices on the Strip as well as the emergence of new development opportunities, Haddock said.

"The dynamic Las Vegas market has witnessed significant interest in a variety of new development uses from high-end residential to luxury mixed-use," he said.

The company also wants to wait until it can generate higher seasonal revenue from a recently opened expansion at its sister casino resort in Atlantic City. The expansion at the Atlantic City Tropicana opened in late November after several months of delays stemming from an accident at a parking garage under construction.

Haddock said the company will likely consider buying casinos that could be up for sale in the coming months as a string of big casino mergers move toward completion.

He declined to reveal what assets or markets the company would consider.

Two analysts downgraded shares of Aztar Corp. after the company disclosed that profit plummeted 81 percent in the fourth quarter compared with the same period a year ago.

The company blamed the bad results in part on the delayed opening of its Tropicana Atlantic City expansion related to an October 2003 construction accident that killed four people and injured others.

The company has so far received about $5 million of an estimated $30 million in business interruption claims filed with insurers, officials said. Litigation related to more than $85 million in total insurance claims filed by the company is pending in Arizona and New Jersey and may not be resolved until next year, they said.

A contentious strike by members of the UNITE HERE union at Atlantic City casinos in October cost the company about $3 million in the fourth quarter.

That the company's fiscal fourth quarter didn't include the New Year's holiday and the 2003 quarter did probably cost the company another $3 million, officials said. Winter storms over the Christmas holiday also hurt results, they said.

Aztar reported a $2.3 million profit in the fourth quarter ended Dec. 30 compared with a profit of $11.7 million over the same period last year. On a per share basis, earnings were 5 cents in the fourth quarter compared with earnings of 32 cents a year ago. The 2003 quarter included 19 cents from an Internal Revenue Service settlement.

Analysts had expected the company to earn 28 cents per share in the 2004 fourth quarter.

Revenue rose 4 percent to $192.7 million and casino revenue rose 4 percent to $150.3 million.

The company said earnings before interest, taxes, depreciation and amortization -- a key indicator of casino performance -- fell 15 percent to $25.6 million in the fourth quarter.

Southern Nevada was a bright spot for the company, where its casinos benefited from overall strength in Las Vegas and Laughlin and customers paid more for rooms.

Revenue at Tropicana Las Vegas rose 5 percent to $39.3 million and revenue at the Ramada Express in Laughlin rose 6 percent to $23.2 million.

Aztar Corp. Chairman and Chief Executive Paul Rubeli also bid a goodbye of sorts to investors and analysts Wednesday. Haddock will succeed Rubeli, who will retire from the company March 1.

Rubeli became CEO of the company in 1990 when Aztar traded for around $2.50 per share. The company fell $4.18 per share today to $28.71 in midday trading.

"It's been a wonderful run and I have no regrets," Rubeli said. "I am proud of our shareholder results to date and believe strongly that additional value from our assets is still to be generated in the next six to 12 months and in the immediate years ahead."

Analysts said investors were hoping to witness the redevelopment of the Tropicana sooner but said the value of the land at the Tropicana will likely increase over time.

In a research note to investors today, Susquehanna Financial Group analyst Eric Hausler also questioned what Aztar would be able to build at a reasonable price that would also be competitive with the new projects being built on the Strip such as Wynn Las Vegas, Venetian's Palazzo resort and the upcoming hotel tower at Caesars Palace.