Tuesday, Dec. 23, 1997 | 10:10 a.m.
Mirage Resorts Inc. offered its vote of confidence in the long-term future of Las Vegas with its purchase of Boardwalk Casino Inc.
But Mirage will probably wait at least a year after next October's scheduled opening of Bellagio, the $1.8 billion mega-resort it's building north of the 654-room Boardwalk, before deciding whether to construct a new resort on the Las Vegas Strip site.
That waiting period will allow Mirage executives to judge whether the next round of themed resorts has fueled a new round of tourist expansion similar to the increases experienced in the early years of this decade.
The openings of Mirage and Excalibur in 1989 and 1990 sparked a 30 percent jump in annual visitor volume, while the Luxor, MGM Grand and Treasure Island contributed to a 20 percent increase in tourism three years later.
Yet the 1996 and 1997 openings of Monte Carlo, Stratosphere, New York-New York and expansions at Luxor and Circus Circus Las Vegas haven't generated similar numbers. Through September, visitor volume was up only 3.2 percent this year, despite a 9.9 percent increase in room inventories.
As a result, occupancy rates and average daily room rates have slipped, and daily gaming win per room at big Strip resorts has fallen about 15 percent this year.
If the openings of Bellagio, Paris, Project Paradise and The Venetian and expansions including the just-completed addition of 1,150 rooms at Caesars Palace don't reverse those recent trends, Mirage may decide the expected return on investment wouldn't justify razing the Boardwalk and raising a new resort in its place.
Yet if, as many analysts expect, the new resorts stimulate demand and more tourists can get here, Mirage will be positioned to capitalize on another prime piece of Strip property.
With the Boardwalk acquisition, Mirage will have assembled 12 acres fronting the Strip and already owns 30 more behind the Boardwalk hotel-casino.
The Boardwalk sits on a 5-acre site between Bellagio and Monte Carlo and across the Strip from Hilton Hotels Corp.'s new Paris-themed resort and the Aladdin, which closed earlier this year to make room for a new mega-resort.
Mirage is paying $5 for each Boardwalk share, or about $39 million including common and preferred stock, and $56 million for mortgage and other debt associated with Boardwalk. It's also buying three other properties for about $39 million.
"It sounds like a good real-estate transaction for them," said Bear Sterns analyst Jason Ader. "It gives them land for another leg of growth in Las Vegas."
The ability to grow in Las Vegas -- the world's premier gaming destination locale -- is key to convincing Wall Street that the industry's halcyon days of double-digit earnings growth and cash-flow margins aren't a thing of the past.
With new domestic gaming opportunities growing scarcer, casino operators are concentrating on growth potential in Las Vegas, Atlantic City and Mississippi because the best managed companies can't squeeze much more profit out of their existing operations.
Mirage, widely acknowledged as the best managed company in gaming, is building the $600 million Beau Rivage in Biloxi, Miss., and hopes to start construction next year on an $800 million resort in Atlantic City.
"This series of acquisitions demonstrates our continued confidence in and enthusiasm for Las Vegas," Mirage Chairman Steve Wynn said in a statement.
For the time being, Mirage will continue to operate the Boardwalk Holiday Inn as a moderately priced alternative to its high-end properties along the Strip.
Mirage hopes to improve Boardwalk's financial results by connecting it by monorail to Bellagio and the Monte Carlo, a Mirage joint venture with Circus Circus Enterprises Inc.
For the nine months ended June 30, Boardwalk reported net revenue of $30.8 million, up 69 percent from the year-earlier period, and said its net loss had narrowed to $2.1 million.
Boardwalk shares rose 40.625 cents, closing at $4.5625, in Nasdaq trading Monday, while Mirage climbed 75 cents, to $22.25, on trading of nearly two million shares on the New York Stock Exchange.
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