10/25/2002 12:00AM

La Reve offering an exception in industry's boom times


It was a banner week in Las Vegas. For the city's race players, who enjoyed the World Thoroughbred Championships Breeders' Cup with big parties in ballrooms from the Strip to the suburbs. And it was a good week for the business of gaming overall.

Surprisingly to some and not so surprisingly to others, gaming stocks have been outperforming the predictions of most Wall Street analysts. In the week leading up to Breeders' Cup, three gaming giants reported profits for the third-quarter that overshadowed expectations. Two posted record profits.

Harrah's Entertainment had record revenues and profits for the 2002 third quarter, attributed by company executives to customer service and same-store growth. Income during the period jumped 42.5 percent for a record $228.8 million, compared with $160.6 million in the year-ago quarter.

MGM Mirage reported record third-quarter net earnings of $69.6 million, or 43 cents per share. By contrast, MGM Mirage registered a loss of $14.4 million, or 9 cents per share in the same period last year. Prompted by a 13 percent increased slot machine revenue at its most profitable property - the Bellagio - MGM Mirage's net income jumped from $30.1 million a year ago to $81.8 million for the same quarter this year.

Park Place Entertainment Corporation became the third major Las Vegas casino company to compile dramatic increases with their third-quarter report released on Wednesday. This came after the company warned investors earlier in the month that they might see lower earnings as a result of weak returns at the Caesars Palace property, energy contract charges, and storm damage.

The company came in with operating earnings of 16 cents per share, compared with 10 cents per share a year ago. Wall Street expected earnings of 15 cents per share. Revenues for the third-quarter rose from $1.19 billion to $1.22 billion. Cash flow, a key indicator of performance in the casino industry, rose 12 percent from $259 million to $290 million for this quarter.

So then, why is Steve Wynn, the most successful casino developer in the city's history, having such a hard time with an initial public offering for his new mega-opulent $1.85 billion La Reve resort?

Shares of the IPO, which were set to go early last week, have been reduced in price twice since the initial figure was announced. Originally, the company had set shares at between $21 and $23 each, selling 20.45 million units. Then, amid rising uncertainty about prospects for completing the $450 million IPO, the shares were dropped to $18 to $20 a share with the number of units increased to 23.69 million. By Thursday, with the deal still in limbo, share prices were decreased a third time between $15 to $17 per share.

About $374 million of the $450 million IPO would be spent to build the 2,700-room resort that includes a man-made mountain and lake, an 18-hole golf course, and the Strip's first Ferrari and Maserati car dealerships. An additional $40 million is earmarked for development of a casino resort in Macau. The IPO, a $340 million junk bond, and a La Reve second mortgage would provide the working capital for the early stages of the project, which is scheduled to open in April 2005. An additional $1 billion bank-funded credit line, along with $118.5 million levied against the megaresort's furniture, fixtures, and equipment, would complete the financing.

Wall Street experts, however, say that the current IPO environment is as cold as it has been in a quarter-century. Although Wynn may not have foreseen the market conditions that presently exist and its chilly acceptance of his IPO, we wouldn't bet against the Magic Man.

Ralph Siraco is turf editor for the Las Vegas Sun and host of the Race Day Las Vegas radio show.