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Rod Smith

Casino Business Trends: Strip Hotel Revenues Surge

18 February 2004

LAS VEGAS -- Hotel operations, seeing a return of leisure travelers and limited expansion, set a record in January and are on track to set new marks in succeeding months, operators and analysts said Monday.

Revenues from hotel rooms, food and beverages at the top nine hotel-casinos in Las Vegas increased almost 10 percent compared with an increase of only 2.4 percent in total hotel-casino operation revenues in 2003, data released Monday by Applied Analysis show.

"(The city) is in the middle of a secular trend that is giving hotel operators the gumption to pass rates on to leisure travelers," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

Deutsche Bank analyst Andrew Zarnett said that as convention business grows and becomes the focus of local operations, visitors are spending less time in casinos and gaming revenues are shrinking.

Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm, said industry results released last week by the Nevada Gaming Control Board showed only half of the industry's total revenues came from gaming operations, confirming the trend away from casino business.

Zarnett said the surging importance of hotel operations is simple economics.

"There continues to be a demand imbalance with demand increasing faster than supply," he said. "As a result, Las Vegas operators can garner higher room rates, which leads to increasing (hotel) revenues."

The trend is accelerating in 2004, with each month through May likely to hit records for hotel operations, even as casino operations flag, operators and analysts agreed. Greff said hotel operations in January were the best for that month in Las Vegas' history, and he said February will follow, as will March, April and May.

He said casino business, which started returning with the Super Bowl and Chinese New Year is increasing, but that it is not growing as fast as hotel operations.

Venetian President Rob Goldstein, whose hotel leads casino operators in terms of hotel revenues, said he believes his operation set the pace worldwide for most revenues from room, food and beverage operations for 2003.

In addition, Goldstein said his operation grossed more than $30 million in room revenue in January, up $10 million from a year earlier.

Goldstein agreed the trend is likely to continue and possibly accelerate through the spring.

"Our belief is this hotel worked beyond what even we thought it would do and it keeps on getting better," he said, explaining that with returning Asian visitors and growing business travel, The Venetian is attracting more hotel guests than it can accommodate at its own two towers.

Caesars Entertainment spokesman Robert Stewart said the trend in Las Vegas has been toward an increasing emphasis on hotel operations rather than casino operations.

"Clearly, we're getting a larger revenue share from hotel operations than we did 10 years ago, and really even two years ago. That's why we made the decision to add another 1,000-room tower at Caesars Palace," he said.

Greff also said that incremental additions to room inventory do not explain the increased revenues, with the supply of rooms increasing only about 1.5 percent last year, this year and next year.

"There are some targeted hotel towers coming on line (such as the Venezia at The Venetian), but the only new, new property is Wynn (Las Vegas). Beyond that, you have whatever The Venetian finally decides to do with its new resort, but we believe this trend will hold up through this year and next," Greff said.

Bill Weidner, president of Las Vegas Sands, which owns The Venetian, said his company will break ground for a new resort at the Strip and Sands Avenue this year because of the added demand for added rooms.

It will feature more than 3,000 suites, so combined Sands properties will house 7,200 rooms and 15 million square feet under one roof. That will give the destination resort complex the largest hotel capacity in the world.


Hotel-casino Hotel revenues

(est.) % Increase vs. 2002 % Total Revenue

The Venetian $251.4 mil. 11.5 39.2

Bellagio 241.0 16.4 24.9

Paris/Bally's 215.0 4.4 32.7

MGM Grand 198.2 8.0 26.3

The Mirage 145.5 4.1 25.1

Caesars Palace 121.2 9.0 24.3

Treasure Island 105.2 5.0 29.9

Flamingo 96.2 11.6 32.1

New York-New York 70.4 9.5 26.3