Friday, April 18, 2003 | 11:39 a.m.
Coast Casinos Inc. executives said Thursday the company expects to break ground next year on its planned Southcoast resort on South Las Vegas Boulevard, confirming a schedule reported in the company's recent annual report.
The company expects to begin construction on its fifth Las Vegas casino in the second quarter of next year, the report said. The expected completion date is mid 2005, Coast Casinos Chief Executive Officer Michael Gaughan said.
The previously announced project would mark the first major casino resort to sprout on largely vacant land between the Silverton hotel-casino near I-15 and Las Vegas Boulevard and St. Rose Parkway to the south.
It also gives Coast Casinos its first foothold in the growing southwest quadrant of the Las Vegas valley and a competitive leg up in that area on Station Casinos Inc., Coast's dominant competitor in the locals' gambling market.
"We view the next significant growth area in Las Vegas to be to the south," company President Harlan Braaten said. "There's already a lot of (residential) growth going on on the south side of Las Vegas and there's not a lot of gaming (zoned) sites available out there."
In the fourth quarter of 2001 and the first quarter of 2002, the company bought about 60 acres of land for the Southcoast at the southwest corner of Silverado Ranch and Las Vegas boulevards.
The Southcoast would be the company's first casino after building its popular Suncoast property in Summerlin in 2000 and the off-Strip Orleans casino on Tropicana Avenue in 1996. The privately held company also owns the Gold Coast property on Flamingo Road and the Barbary Coast on the Strip.
The company has recently capped off more than a year of construction projects, including the August debut of 586 new rooms at the Orleans and next month's opening of the Orleans Arena, home of the new Las Vegas Wranglers minor league hockey team.
Though the company has been short of details about the project, Gaughan said Thursday that it will be similar to the Suncoast in that it will primarily cater to locals.
While the Suncoast serves an older demographic in Summerlin, the Southcoast would be aimed at a younger audience compatible with the surrounding development to the south, however, he added.
The company hasn't yet determined the cost or the size of the project, though it will likely be bigger than the Suncoast but smaller than the Orleans, he said.
The Orleans' casino floor is second only to the MGM Grand, Bellagio and Caesars Palace casinos in size, according to company records.
Separately, the company last week announced in a securities filing that it had formally withdrawn its registration for an initial public offering of stock. Coast, which has publicly-traded bonds, filed for an IPO on May 24.
The slumping stock market prompted the company to hold off on the IPO, he said, though other factors played a role in the decision to pull the registration. The filing -- which left out nearly a year of the company's financial performance and included projects that have since been completed -- had become too out of date to be of any value to potential shareholders. Securities regulations governing the IPO process had also hampered the company's ability to discuss projects in public, he said.
The company still hasn't ruled out an IPO at some point in the future, he said.
"That's not the first time we considered going public," he said. "Things change over time and the reasons for going public could return again.
"We were only thinking about it because of how hot gaming stocks were at the time. But we have other ways of raising capital."
The company's balance sheet is strong and can support another major casino project in the near term, analysts say.
Even after completing an aggressive capital expenditure program, Coast Casinos' ratio of debt to cash flow is lower than competitor Station Casinos, for example, casino bond analyst John Mulkey of Bear Stearns & Co. said.
"They are more conservatively leveraged," Mulkey said.
The new project will give the company a premier presence in a growing region of the valley, though the starting date is "a bit aggressive" based on projected housing growth, he said.
"It's growing, from a locals' perspective. And I think you can also attract some tourists, especially if you can build more hotel rooms," said Andrew Susser, a bond analyst with Banc of America Securities.
While it may not look like much today, the region is poised to become a large tourist market, attracting passing cars from I-15 and I-215, said Carlton Geer, director of CB Richard Ellis' global gaming division in Las Vegas.
Commercial broker CB Richard Ellis brokered the sale of the land to Coast.
An interchange is proposed for Silverado Ranch Boulevard and I-15, as is an eight-lane widening project for St. Rose Parkway, Geer said.
Laws restricting land for casino development and a lack of large parcels on South Las Vegas Boulevard make the region even more desirable, he added.
"By 2005, that's going to be a superb site."
Station Casinos thought so, too.
The company last year acquired an option to buy a $26 million parcel of land east of I-15 and west of Las Vegas Boulevard South. The roughly 60-acre parcel was south of Cactus Avenue and north of Starr Avenue.
The company let the option expire and has since been tied up in litigation with the parcel's owners about an option payment, spokeswoman Lesley Pittman said.
For now, Station Casinos is focused on Red Rock Station, a new locals' casino planned at Charleston Avenue and I-215 in Summerlin.
The details of that project also are under development, though the company expects to break ground around this time next year, Pittman said.
Coast Casinos didn't decide to buy land for the Southcoast specifically to pre-empt Station, Braaten said.
"I think we've always had the goal of being the first ones to develop out there," regardless of whether Station or a major Strip operator came into the picture, he said.
Gaughan said he doesn't anticipate either Station or a Strip company making such a move in the near future.
"I don't think 10 years from now you'll find another major hotel south of the airport," he said. "This will sit among a lot of homes."
Coast Casinos reported a 5.2 percent increase in 2002 net revenue from the year before, to $545.1 million. But profit was down 12.9 percent, to $31.7 million, due to the combined effect of a weak economy, construction disruption, increased competition and a slowdown in business from the Sept. 11 terrorist attacks, the company said.
The Suncoast, at Alta Drive near Rampart Boulevard, was the company's strongest performer last year.
The Summerlin casino hotel was primarily responsible for a 4.8 percent increase in casino revenue in 2002, to $406.2 million. Gambling revenue at Suncoast rose 15.2 percent last year as the property tapped customers from the growing, affluent community and other areas of West Las Vegas.
It also helped boost hotel revenue by 8.7 percent, to $41.8 million. The Orleans' room addition also helped this category, the company said.
The property opened in 2000 with 419 rooms and added 216 rooms in August 2001.