Starwood, Crescent earnings jump

Two real estate investment trusts with Las Vegas gaming ties reported sharply higher second-quarter earnings today.

The gains for Starwood Hotels & Resorts Worldwide Inc., owner of Caesars Palace and the Desert Inn, and Crescent Real Estate Equities Co., which is attempting to buy Station Casinos Inc., were enhanced by about $20 billion in acquisitions over the past year.

Starwood said its funds from operations (FFO) jumped to $259 million, or $1.21 per diluted share, from $52 million, or 86 cents a share, in the 1997 second period. Revenue rose to $2.3 billion from $244 million.

Crescent said second-quarter FFO rose to $87.3 million, or 64 cents a diluted share, from $44.9 million, or 42 cents a share, in the year-earlier quarter. Revenue rose to $169.1 million from $99.1 million.

FFO, or net income plus depreciation before extraordinary items, is used to calculate dividends for REITs, which are exempt from corporate income tax if they pay at least 95 percent of earnings to their shareholders.

The results for Starwood, one of four "paired-share" REITs in the midst of a restructuring due to new legislation, benefited from its $14.6 billion purchase of ITT Corp. and $1.57 billion buyout of Westin Hotels last year.

The company said its gaming revenue climbed 10 percent for the quarter, to $296 million, aided by the addition of 1,100 rooms at the new Caesars Palace tower in Las Vegas.

Starwood said slot win at Caesars rose 19 percent, to $24 million, and table game drop was higher despite a decline in baccarat business.

The improved results in Las Vegas and Caesars Atlantic City resulted in a 14 percent rise in gaming earnings before interest, taxes, depreciation and amortization to $80 million for the quarter. That excludes the negative cash flow results of the Desert Inn, which Starwood is trying to sell.

Starwood Chairman Barry Sternlicht said he will disclose the company's restructuring plans, necessitated by tax reform legislation that targeted paired-share REITs, sometime next month.

Richard Nanula, Starwood president, said the gaming division is considering several gaming management contracts around the world, and noted it has opened a Caesars casino in Manila and plans one in South Africa.

"At Caesars in Las Vegas, we're seeing a really strong booking pace at good rates for the remainder of this year and into next year, despite all the new properties coming on line," he said.

Nanula said the Asian economic downturn "is definitely impacting our business, especially in baccarat play, although that was overcome somewhat by higher domestic play."

"We're filling in with good slot play in Atlantic City and good domestic (baccarat) play in Las Vegas," he said.

Unlike Starwood, whose explosive growth over the past few years was fueled primarily by the acquisition of upscale hotel and gaming properties, Crescent has expanded through a more eclectic mix of purchases.

It has spent more than $3 billion since 1996 buying office complexes, storage warehouses, psychiatric hospitals and shopping centers.

Its $1.5 billion bid to buy Las Vegas-based Station Casinos, which has four big Southern Nevada hotel-casinos and two in the Midwest, has been delayed due to objections by holders of Station's preferred stock over the price offered for their shares.

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