$250 million expansion of Bellagio could get under way this summer

Mirage Resorts Inc. reported fourth-quarter operating earnings today that were in line with analysts' expectations despite a dismal performance at its Beau Rivage resort in Mississippi.

The company also said it's still studying a proposed expansion of Bellagio, the $1.6 billion Strip resort that opened 15 months ago.

"The company is in the early design phase of a proposed expansion project at Bellagio," Mirage said. "The project would consist of a new hotel tower with approximately 1,300 guestrooms, additional meeting and convention facilities and a new restaurant.

"If the project proceeds as planned, construction would begin in mid-summer of this year and take approximately 24 months to complete at total cost of approximately $250 million."

"There's mixed feelings about the expansion of Bellagio," said gaming analyst Jason Ader of Bear Stearns & Co. "Long-time shareholders are excited about the prospect because they understand the business potential of adding rooms to the resort.

"But the naysayers are concerned about adding new supply to a market they don't believe should have new supply."

Meanwhile, Mirage stock plunged 9.8 percent by early afternoon -- to $14.9375 down $1.5625 a share -- as investors reacted to higher-than-anticipated operating costs at the company's properties.

"A lot of short-term traders who bid the stock price up to $16 thinking fourth-quarter operating net would be about 25 cents a share are selling today," Ader said.

Mirage said fourth-quarter net income was $63.4 million, or 32 cents a share, compared with a net loss of $20.1 million in the 1998 period. Revenue rose to $640.3 million from $513.2 million.

For all 1999, net income rose to $110.4 million, or 55 cents a share, from $81.7 million, or 43 cents a share, in 1998. Revenue jumped to $2.4 billion from $1.5 billion.

Per-share net for the latest quarter was above analysts' consensus estimate of 19 cents. But it included a net $15.9 million, or 8 cent-a-share, payment from Starwood Hotels & Resorts Worldwide for backing out of an agreement to sell Caesars Palace to Mirage. Starwood ultimately sold Caesars World Inc.'s hotel-casinos to Park Place Entertainment.

The 1999 fourth-quarter earnings also included $12 million of pre-tax income -- $7.8 million, or 4 cents a share after taxes -- from a business-interruption insurance settlement related to a hurricane's impact on Beau Rivage.

The latest quarter's net income also included a $2 million, or 1-cent-a-share, charge for pre-opening expenses related to Mirage's plans to build resorts in Atlantic City. Thus, operating earnings were about 21 cents a share.

The 1998 quarter's loss included $57.5 million, or 31-cent-a-share, charge for pre-opening costs related to Bellagio, the Las Vegas resort that debuted in October 1998.

"The most confusing number for me concerns Beau Rivage," said gaming analyst Joe Coccimiglio of Prudential Securities.

Mirage said Beau Rivage's fourth quarter results included $87.8 million of revenue and $16.6 million of operating cash flow -- $12 million of that from the insurance settlement. For its 9.5 months of operation, Beau Rivage posted revenue of $278.1 million and operating cash flow of $45.1 million.

"If I read the fourth-quarter numbers correctly, that's terrible," said Coccimiglio. "For a $700 million property to do $4.6 million of cash flow a quarter is horrible. They were supposed to do $80 million a year or $20 million a quarter. We'll have to wait for the conference call later today to see what happened."

Mirage Chief Financial Officer Bobby Baldwin was scheduled to explain the results during a conference call with analysts this afternoon, after the Sun's deadline.

"We were disappointed with the same-store cash-flow comparisons, except for Bellagio," said Harry Curtis of BancBoston Robertson Stephens.

While Mirage didn't break out results for its Mirage, Treasure Island and Golden Nuggets in Las Vegas and Laughlin, it reported revenue and cash flow from those operations slipped slightly in the fourth quarter and were off 9 percent and 14 percent respectively for the full year.

Mirage said room renovations at Treasure Island on the Strip and the Golden Nugget in Laughlin impacted results at those properties.

"It also appears that in their efforts to capture market share in Mississippi, they are encountering higher-than-expected marketing costs," Curtis said. "They've been giving away automobiles and other items to stimulate customer trial."

Mirage said Bellagio generated $300.8 million of revenue and operating cash flow of $87.3 million in the 1999 fourth quarter. In the 1998 final quarter -- when the resort was open for just 77 days -- Bellagio had $244.1 million of revenue and $53 million of cash flow.

For all 1999, Bellagio had $1.1 billion of revenue and $260.2 million of cash flow.

Company-wide, Mirage said, fourth-quarter non-casino revenue totaled $368.9 million, exceeding casino revenue of $337.7 million. Both numbers were up from the year-ago period.

The company-wide room occupancy rate slipped to 93 percent in the latest quarter from 95 percent in the 1999 fourth period, though the average daily rate rose to $108 from $105.

Casino revenue was bolstered by a strong 22.3 percent win percentage, up from 19.8 percent in the 1998 quarter.

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