Coast Cruises Through Las Vegas Slowdown

13 March 2002

LAS VEGAS -- The post-Sept. 11 slowdown might have put the pinch on most of Coast Hotels and Casinos Inc.'s Las Vegas properties, but it didn't slow continued growth in the Las Vegas casino operator's Suncoast hotel-casino.

Coast on Monday reported preliminary net income of $10.1 million for the quarter ending Dec. 31, a 63 percent increase over the year-ago period. Cash flow rose 26 percent to $34.8 million, while revenues were up 10 percent to $135.6 million.

Three of Coast's properties -- the Orleans, Gold Coast and Barbary Coast -- experienced declines during the quarter, the company indicated. But these were more than offset by growth at the Suncoast, which opened near Summerlin in September 2000. That means the year-ago quarter would have also included a full three months of contributions from the Suncoast.

"With the Suncoast being the only property to report a year-over-year gain, we believe successful cost savings implemented during the quarter also contributed to the strong improvement in cash flow," wrote gaming analyst Andrew Zarnett of Deutsche Banc Alex. Brown in a research note.

The filing provided no detailed information about the quarterly results, such as the individual performance of each property. But in a research note issued Tuesday, Standard & Poor's gaming analyst Craig Parmelee attributed the declines to additional competition in the Las Vegas locals market and disruption from construction projects at the Orleans and Gold Coast.

Parmelee said he expects both properties to stabilize revenues in 2002, followed by growth in 2003.

Coast also reported it expects to spend $107 million on the ongoing expansions of the Orleans and Gold Coast properties. The $130 million Orleans expansion, targeted for completion in March 2003, will add a 620-room hotel tower, a 9,000-seat arena, a parking garage, new restaurants, movie theaters and bars, and 40,000 square feet of additional gaming space. This expansion began in early 2001, but most of the construction activity, including the hotel tower and the arena, will occur this year.

The $51 million Gold Coast project will add a new parking garage, 30,000 square feet of gaming space, 10,000 square feet of meeting space, refurbishment of hotel rooms, the redesign of the public areas and new restaurants and bars. This project should be complete this fall.

Coast said it amended its credit facilities earlier this month to assist with these expansion projects. It is now permitted to spend up to $210 million from January 2002 to September 2004 on expansion projects.

Separately, S&P assigned a single-B rating to a $100 million offering of senior subordinated notes issued by the company. The reasons for the bond offering are not known, as Coast has not confirmed the offering. The notes, due in 2009, yield 9.5 percent.

Company officials could not comment, as the bond offering was still ongoing. In his research note, Zarnett said the offering was "to accommodate expected capital expenditures."

S&P also confirmed its double-B-minus corporate credit rating for Coast. Both ratings are considered below investment grade. S&P's outlook is stable.

"Management has established a good operating track record with its successful development of the Suncoast and the Orleans," Parmelee wrote. "The ratings incorporate Coast's potential expansion plans over the intermediate term and Standard & Poor's expectation that any expansion-related construction disruption at the Orleans during 2002 will be modest."