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Rod Smith

Icahn Casino Reshuffle Ending

26 May 2004

American Real Estate Partners, billionaire Carl Icahn's holding company, is expected to today complete the reorganization and financial restructuring of its Nevada and New Jersey casinos, including the Stratosphere in Las Vegas.

Richard Brown, president of American Entertainment Properties, Icahn's new gaming company, said the transfer-of-control transactions would streamline operations, boost morale, cut costs and provide a foundation for expansion of the previously distressed properties.

"First of all, we get huge economies of scale operating as one company instead of three separate companies. We have leveraged the savings to turn the companies around," he said.

In addition, uniting operations under one brand will help employees understand the company's mission, Brown said.

"(And) the new umbrella company will also help us attract better talent and help us when we start to talk about acquisitions," he said.

David Arrajj, who represented the company before state regulators this month, said the multiple transfers of ownership emanated from an internal financial restructuring involving the private placement of a $215 million bond offering.

The six-step transaction, approved by the Nevada Gaming Commission last week and filed with the federal Securities and Exchange Commission, will result in Icahn's holdings being consolidated under unified corporate ownership, he said.

An organization chart will now show the two Arizona Charlie's in Nevada next to the Stratosphere where Icahn's New Jersey's holdings used to be, and the New Jersey holdings where Arizona Charlie's used to be, Nevada Gaming Control Board Chairman Dennis Neilander said.

"The financing is complicated when you look at it on paper, but it makes sense from a balance sheet and corporate organization sense," said Neilander, whose agency approved licenses under the new control structure in early May.

Deutsche Bank analyst Andrew Zarnett said creating a platform for expansion may be the most important benefit from the restructuring, although he said the morale boost also could be important.

Still, Brown said no particular acquisitions are on the horizon, partly because the industry is doing so well. The company has built a strong reputation since Icahn's management team took over the distressed companies four years ago and turned them around successfully.

The Stratosphere is refurbishing its marquee, porte cochere, and valet area. It is also planning to add 80,000 square feet to its 110,000-square-foot retail space and a new, and final, ride at the top of the tower. The company has also refurbished the two Arizona Charlie's properties and opened an added 1,000-room tower at the base of the Stratosphere landmark.

Despite the improvements, industry experts said the property's location is still a shortcoming.

"They need to somehow link the Stratosphere to the Strip. They need to get people to think of it as being on the Strip, not north of it," University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said.

In particular, he said a monorail stop with a shot to the Strip and to downtown, would do wonders for the property.

Brown said he is extremely confident, based on conversations with the Regional Transportation Commission and monorail planners, that the Stratosphere will nail an agreement to locate a stop on its property.

"It seems to make a lot of sense. We think a monorail stop here will be very valuable," he said.

Zarnett said the Stratosphere is benefiting from the surging demand for Las Vegas as a destination and new investor interest in the area. But, he added that in the long run the monorail will help the property take advantage of increasing demand coupled with the limited supply of hotel-casinos coming on line.

Brown and Thompson each said the monorail stop not only should improve visitor traffic and business to the Stratosphere, but should also help position the 108-floor tower as a major attraction for Las Vegas, much like the space needles in Seattle and San Antonio.