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Gaming Guru

Richard N. Velotta

American Casino & Entertainment Sees Profit Increase

3 December 2004

LAS VEGAS -- The operator of the Stratosphere Casino Hotel and the Arizona Charlie's franchise of locals casinos has reported increases in casino and retail revenue for the company's third quarter. In a filing with the U.S. Securities and Exchange Commission, American Casino & Entertainment Properties LLC on Wednesday reported net income of $4.2 million on net revenue of $75.1 million for its quarter ended Sept. 30. That compares with net income of $3.5 million on revenue of $67 million for the same period a year earlier.

The company, owned by financier Carl Icahn, is privately held, but is funded in part by public debt. Gaming analyst John Mulkey of Bear Stearns maintained his "buy" recommendation on the company's bonds in a report issued Thursday that compared ratings with Connecticut tribal casino Mohegan Sun.

"We believe American is a better credit than Mohegan on many levels, including credit metrics, free cash flow profile, development risk, diversification, competitive landscape and positioning in the capital structure," the report said.

Mulkey noted that the Stratosphere posted net revenue growth of 8.1 percent, driven primarily by increases in non-gaming revenue, while Arizona Charlie's Decatur generated net revenue of $19.3 million, up 14 percent from the same quarter in the previous year.

"The performance of Arizona Charlie's Boulder is the third quarter was most impressive in our view," Mulkey said. "We believe that the property is now performing like its stronger competitors (Station Casinos Inc.'s Boulder Station and Boyd Gaming Corp.'s Sam's Town) on the Boulder Highway. Slot win per unit was $117 per day in the third quarter, a 52 percent increase over the prior year ($77)."

The company reported to the SEC that the casino revenue at the Stratosphere wasn't as strong, increasing only 2.2 percent to $17.5 million. But hotel revenue, food and beverage and tower retail sales helped bolster the property near the Strip.

The company also said hotel occupancy at the Stratosphere improved from 91.8 percent to 92.7 percent for the quarter and the average daily rate increased from $49.85 to $52.40 from last year. That resulted in an 8.3 percent increase in hotel revenue for the quarter.

Tower retail was up 14.3 percent over last year to $8.3 million, thanks primarily to the opening of a new thrill ride on the top of the Stratosphere.