Boyd Gaming owns and operates 16 gambling properties including nine in the Las Vegas Valley--six locals' casinos and three Downtown properties. Echelon, its first property on the Las Vegas Strip, was scheduled to open in late 2010 with 5,000 rooms in five hotels, 750,000 square feet of convention and meeting space, 300,000 square feet of retail, two live entertainment venues, 30 dining and nightlife venues, a 140,000-square-foot casino and parking for 8,000 cars.

Work on Echelon officially got underway in June 2007. The company halted construction at the beginning of August 2008 due to the credit crunch and the ensuing recession, saying it hoped to resume construction in nine to 12 months. In November, Boyd acknowledged that it was "unlikely" to resume construction in 2009 but remained "committed to having a meaningful presence on the Las Vegas Strip," and that it would spend this year preparing alternative development options for the site.

The options it said were likely to be considered included developing the project in phases, alternative capital structures for the project, scope modifications to the project, and additional strategic partnerships. Smith on Tuesday proffered no update on the company's deliberations in that regard, possibly because, as MGM Mirage is seeing with the for-sale residential at CityCenter, it's difficult to accurately predict what will work five to seven years from now.

"We do not know when construction will resume, but our present expectation is that Echelon will not resume development for three to five years," Smith told analysts on this week's conference call.

What's different now than 12 months ago that has it not thinking about construction in 2010 or 2011? First, Smith said neither he nor anyone else in the industry anticipated the recession would continue for as long as it has, or have as deep an effect on the economy as it has. In addition, he says consumers have become much more conservative with their dollars, which is lowering hotel occupancy and room rates and reducing the amount tourists spend concurrent with a rapid expansion of hotel rooms, casinos, restaurants and retail on the Las Vegas Strip. Add in the fact that financing for this type of development simply is not available in the current marketplace and you get an indefinite, multi-year delay.

Smith told analysts "it will take time to fully understand the longer term implications of these changes in consumer behavior" and that while the "new supply has been anticipated for some time…the recession has significantly depressed demand levels. As a result, it will take longer than originally anticipated for this new supply to be fully absorbed."

That having been said, Smith added that the company's long-term strategy with respect to Vegas has not changed. "We have tremendous confidence in the future of Las Vegas," he said, "and we continue to view our site on the strip as an important strategic asset for the company."

The discussion with analysts followed the company's third quarter earnings report, which showed a 27% drop in profit on a 6.6% decline in overall revenue. Net income for the quarter was $6.3 million, or $0.07 per share, which compares to $8.7 million or $0.10 per share in the same year-earlier period. At its Las Vegas properties, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell approximately 4.5%.

As a consequence of the uncertainty surrounding Echelon, Boyd recorded an impairment charge of $13.5 million in the third quarter related to the joint venture at Echelon with Morgans Hotel Group. In addition, Echelon and Shangri-La Hotels and Resorts mutually agreed to terminate Shangri-La's management and technical services agreements related to the development. Excluding one-time items, Boyd earned $0.09 per share.

Instant Insights /

Echelon On Ice for Three to Five Years

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