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Harrah's Entertainment Chairman Phil Satre is congratulated by another board member during Thursday's company's shareholders meeting at Harrah's Las Vegas. Photo by Jeff Scheid.

Friday, May 04, 2001
Copyright © Las Vegas Review-Journal

Expansion on horizon for Rio

CEO announces preliminary plans following annual shareholders meeting

Harrah's Entertainment is planning to add a new hotel tower at its off-Strip Rio property, the company's top executive said Thursday.

Harrah's Chairman and Chief Executive Officer Phil Satre said the company prefers to add to the Rio rather than create a third Las Vegas property.

Satre announced the very preliminary plans following the company's annual meeting of stockholders at Harrah's Las Vegas.

"When we bought the Rio, we liked the property's infrastructure and that it had a sufficient amount of land for expansion," Satre said.

Harrah's hasn't decided when to begin building the tower, or its size or cost.

"We're in the early planning stage, and it's too early to speculate on when we may begin," he explained.

Bill Schmitt, a CIBC World Markets casino industry analyst, said he has mixed feelings about hotel tower expansions.

"Historically, new hotel towers don't generate as much return on investment or interest in the city as do new resorts," Schmitt said, citing the Luxor's 2,000-room addition in 1997. "But if it's timed with the opening of another major resort, it could be a good thing for the Rio."

The Rio opened in 1990 as a locals property but has evolved into a tourist-driven operation.

"We recognize the importance of the locals market, but we want to capitalize on the Rio's restaurant and entertainment offerings with (tourists)," said Jay Sevigny, president of Harrah's Rio division.

About two-thirds of the Rio's business is generated from tourists, Sevigny said, with locals providing the rest.

In 1997, the Rio added a $200 million, 41-story hotel tower, giving the property 2,548 hotel rooms and a 110,000-square-foot casino, and followed with a $200-million conference center and retail expansion in 1998. Harrah's bought the Rio that same year for $766 million.

Satre's comments about the Rio's expansion plan followed Harrah's 40-minute annual meeting, during which he responded to a shareholder who questioned why the Rio has seen declining profits since Harrah's acquired it.

Last year, the Rio sustained a 12 percent decline in revenue and 20 percent drop in cash flow.

"After a good first year, we've seen a lot of people take aim at the Rio's market position," Satre noted.

Satre cited The Venetian, which followed the Rio with an all-suite hotel room inventory, and referred to Mandalay Bay and the Hard Rock Hotel, which targeted the Rio's younger market with energetic entertainment and restaurants.

"The increased competition for the Rio's market, plus a horrendous streak of bad luck was the problem," he said, referring to four-quarter run of bad table games luck during the past year.

Another shareholder asked about competition from George Maloof's $265 million Palms casino, which is under construction across Flamingo Road from the Rio and Gold Coast and is slated to open in December.

"It's never been a concern having more rooms across the street," Satre said. "We've found that with The Venetian (next to Harrah's on the Strip), and I look at the Palms as an opportunity."

The shareholder meeting was relatively low-tech, with a short promotional video interrupting Satre and the few shareholders who asked questions.

Satre told the shareholders that Harrah's stock price was up 37 percent this year, 81 percent since June, and the hundred-or-so stock owners clapped loudly.

Harrah's Entertainment shares fell 18 cents Thursday to close at $35.43 in trading on the New York Stock Exchange.