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Rod Smith

Stardust's New Glow

9 November 2005

Recent record profits out of the aging Stardust, Boyd Gaming Corp.'s hotel-casino at the north end of the Strip, enhance its redevelopment prospects, industry experts agree.

But the newfound success of the 50-year-old property may not be a harbinger for other properties north of Spring Mountain Road on Las Vegas Boulevard, they said this week.

The resort has been ringing in new levels of profits lately, with cash flow, a key measure of profitability, up 60 percent in the third quarter.

That skunked its own performance over the past decade and all of its neighbors.

The quarter brought the Stardust's cash flow -- earnings before interest, taxes, depreciation and amortization -- for the 12 months ending Sept. 30, to $22.6 million.

Boyd Chief Financial Officer Ellis Landau said the Stardust's success gratifies his company even though some of its success comes from comparisons with its recent lackluster performance.

"Even though it's an older property, we work hard to maintain and enhance its position and marketing prowess," he said.

The marketing is made easier by the legendary Stardust theme, Landau said.

"It's very respected by a lot of people who visit Las Vegas," he said.

Its profile has been raised in recent months by a host of big-name entertainers, including Steve Lawrence and Eydie Gorme, Tim Conway and Harvey Korman, and Rick Thomas, he said.

"The Stardust and the whole north end (of the Strip) have been helped by the Wynn (Las Vegas) opening. That's the first new property north of Spring Mountain Road in memory," Landau said.

BMO Financial Group analyst Harris Nesbitt said in a recent investor advisory that the Stardust's shining performance stems largely from the rising tide of business on the Strip, since so little growth capital has been invested in the Boyd property.

Also, while the financial performance of properties such as the Sahara and the New Frontier are not public because they are privately owned, Landau said they must all be getting a bump in performance from Wynn Las Vegas.

University of Nevada, Las Vegas history professor Hal Rothman said that while the Stardust historically has been a second-tier property, its value has increased because of its proximity to Wynn Las Vegas.

"People are likely to stay at the Stardust and spend time at Wynn (Las Vegas)," he said. "It's less intimidating as well, and, with low overhead, it's perfectly positioned to capitalize on the energy and excitement around Wynn."

Boyd Gaming recently announced it would unveil redevelopment plans for the 63-acre Stardust site before the end of the year. Analysts said redevelopment enhances the potential for the company as well as for the Stardust and the Stardust brand.

Dori Prowda, senior analyst at Wachovia Securities, estimated that the land value of the Stardust site alone adds $7 a share to the value of Boyd Gaming stock.

Boyd President Keith Smith has said his company is evaluating options, including the development of a fourth major Las Vegas convention center with accompanying hotels and an "urban village" along the lines of MGM Mirage's CityCenter project.

JP Morgan analyst Harry Curtis said a convention-based resort would be logical given its nearness to Wynn Las Vegas and two of the Strip's biggest convention centers.

But Rothman is skeptical that any benefits from the Wynn Las Vegas will spill out over the north end of the Strip much beyond the Stardust.

"For the past 20 years, these properties have been bypassed by the greatest economic revolution in the history of world leisure. There's no reason to think that because the one closest to the action is thriving, the rest will," he said.

University of Nevada, Las Vegas, professor Bill Thompson, who specializes in gaming studies, agreed that the boost in business from Wynn Las Vegas has been unique for the Stardust.

"The other properties up there are sort of run down and they do not have strong companies behind them, or at least not relatively as strong as Boyd," he said. "I strongly suspect that Wynn has directly helped Stardust because it's the closest, low-cost per room place and the closest walk to Wynn."

Landau said the most recent quarter launched a trend that began shortly after Wynn Las Vegas' April 28 opening.

"The summer quarter, when you'd expect slower business activity, stayed strong. That's a tribute to the overall Las Vegas economy and the tourism draw," he said.

Susquehanna Financial Group gaming analyst Brian McGill said in an investor advisory that Boyd Gaming's announcement later this year about redeveloping the Stardust site will catalyze investor interest in the company.

Nesbitt warned that Wall Street could construe any further delay in the development negatively.

"The company has taken time to evaluate the nearby Wynn Las Vegas and can gauge the potential for a new property on the north end of the Las Vegas Strip," he said. "Although a partner could be brought in if it made strategic sense, we believe Boyd has ample financial capacity to go this one alone and now appears to be readying the market for a solo move."

Thompson said a new Stardust costing $2 billion to $4 billion will greatly enhance the northern Strip, especially the value of condominium projects planned in the area.

But he urged caution to Las Vegas boosters.

"Even a Boyd megaresort, like Wynn's, will be more at the mercy of the national economy than our locals market, which is an important part of the business the Stardust has been enjoying," he said. "It's not a sure thing."