Friday, February 04, 2005
Copyright © Las Vegas Review-Journal

Shares of Tropicana parent battered, fall nearly 12 percent

One Wall Street analyst on Thursday downgraded Aztar's stock to "underperform," saying he was also skeptical the company will announce any plans for the Tropicana site -- seen here in 2003 -- in the fall. Photo by Craig L. Moran.REVIEW-JOURNAL FILE PHOTO

The day after reporting disappointing earnings, the Tropicana's parent corporation felt lingering effects Thursday as shares in Phoenix-based Aztar Corp. lost almost 12 percent of their value in trading.

Meanwhile, negative comments by Wall Street gaming analysts appeared to pile on as investors seemed to shun the company's future.

On an average day, about 356,000 shares of Aztar change hands. On Thursday, 4.5 million shares of Aztar were traded with the price closing at $29.10, down $3.79, or 11.52 percent.

Analysts were disappointed Aztar, which also operates the Ramada Express in Laughlin, postponed announcing redevelopment plans for the Tropicana's 34-acre parcel, one of the Strip's older properties that industry observers have noted is a prime candidate for renovation.

Aztar executives said the company wants to study Las Vegas' skyrocketing land values and the effects of several newly announced residential high-rises along the Strip to determine how to get the best return on the Tropicana.

Susquehanna Financial Group analyst Eric Hausler said any plans Aztar has had in Las Vegas have been affected by the development of other gaming projects, which could drive construction costs higher than the company had hoped.

"The delayed Las Vegas decision is a disappointment, but not a surprise," Hausler said in his note to investors. "We think construction cost estimates have probably escalated relative to (Aztar's) original $700 million expectations. The buildout of the Palazzo, Wynn Las Vegas, the new tower at Caesars, Red Rock Station, South Coast, and all the condo towers seem to be strapping construction resources in Las Vegas and driving up construction costs. Additionally, we question what can Aztar build that will be competitive (with a high return on investment) compared to new product coming into the market at a reasonable price."

Bear Stearns analyst Joe Greff downgraded Aztar's stock to "underperform," saying he was also skeptical the company will announce any plans for the Tropicana site in the fall.

"While we attribute significant real estate value to the parcel (approximately $12 per share) we feel that a postponement of redevelopment plans will be viewed negatively by investors, especially given management's stated unwillingness to sell the company, thereby hindering a new management team from unlocking the value in the real estate," Greff wrote.

Greff termed Aztar's opening of its $275 million retail and restaurant expansion at the Tropicana Atlantic City, as "poorly executed." The Boardwalk casino only produced $7.9 million in cash flow during the fourth quarter, well below analysts' expectations.

Aztar President Bob Haddock told listeners to the company's conference call that management wanted to let the Atlantic City expansion project settle in before making any plans for Las Vegas.

Deutsche Bank analyst Marc Falcone lowered his earnings per share estimates for Aztar because he is somewhat unconvinced of the company's plans in Atlantic City.

"Management decided to postpone the decision to develop its Las Vegas site until the fall, after the expansion in Atlantic City has ramped up," Falcone wrote. "The company noted it would like to fully evaluate its options for the planning of both sites before moving ahead with final development plans. While disappointing, we believe this decision is representative of management's focus on driving shareholder returns. While we remain confident in the long-term story, near-term uncertainty in Atlantic City offsets some of the long-term benefits to the Aztar story."