Gaming Index Up on Strength of One

"Overall the sector had a relatively soft performance during May; with some of first quarter earnings reports still rolling out by early May, there wasn't a lot of upward guidance for balance of 2006 for many operators," Gordon says. "That, along with concerns over discretionary spending patterns, declining consumer confidence levels and the overall economic climate directed some investors toward profit taking, having a sense that values have peaked out given the significant run-ups in the last several months."

The AAGI is a monthly gauge on equity valuations of nine major gaming related companies, comprised of six operators and three manufacturers of machines and equipment. The analysis examines 300 market variables and economic indicators, including the stock prices and market capitalizations. The index in May posted a value of 379.3, reaching new heights since it was launched in 1998 with a value of 100. The record-setting valuation represented a 1.8% increase over the preceding month, rising by 6.5 points.

The Sands traded at an average of $67.50 a share, up 8.4% from April. The only other companies to see their average share price rise during the month were the slot machine company International Gaming Technology and Harrah's, which were up 3.6% and 0.7% respectively. The other companies in the index posted percentage decreases ranging from 1.3% (MGM Mirage) to 6.7% (Boyd Gaming Corp.). Station Casinos saw its average daily stock price fall 3.7% despite strong market expectations for the recently opened Red Rock Casino Resort Spa.

"It appears that several gaming operators have been unsuccessful reaching back to their peak performance levels earlier this year," states Gordon in his report. "Softness in recent weeks remains for a large segment of the market, including Las Vegas Strip and local casino operators. On the other hand, operators with international expansion opportunities have been able to weather much of the storm. Companies with a greater share of their operations to be located abroad have welcomed increased interest in their equity."

Big news in the quarter included the announced $2.75-billion acquisition of Phoenix-based Aztar by Columbia Sussex and Morgan Hotel Group's planned $770-million purchase of the Hard Rock Hotel-casino and related assets---including a 23-acre development site--from Peter Morton. While the news did little to boost the stock prices, but it did help set a new price point for real estate. Pricing levels peg the 34-acre site upon which Aztar's Tropicana sits at approximately $30 million per acre.

Las Vegas Sands' first quarter report card included net revenues of $530.4 million, up 31.3% over the same period of the prior year. Adjusted EBITDA at the property level was $204.5 million, up 23%. The average daily room rate at the Venetian was $249 during the quarter with a 99.9% occupancy level. Revenue per Available Room was $248, up 4.6% over the same quarter one year earlier. LVS's Macao property posted revenues of $278.2 million, up 62.7%, with adjusted EBITDA of $103.4 million.

Wynn Resorts Ltd. reported $277.2 million in net revenues in the first quarter. Wynn Las Vegas posted $81.1 million of EBITDA, with a 29.2% margin and $126.5 million in net gaming revenues. The high-end property maintained a 95.5% occupancy level in its hotel and captured an ADR of $293. RevPAR was $279. The company continues to lead the market with average win per unit per day at the tables of $7,395 and at the slots with $260.

Station Casinos Inc., which caters mostly to Las Vegas locals, posted a 7% increase in revenues to $292.5 million, while EBITDA rose 10% to $132.6 million. The company also improved upon its healthy margins, reaching a 43.2% EBITDA margin at its major Las Vegas properties. "Guidance in the coming quarters remained stable, but did not increase at the top-end despite strong market expectations for the recently opened Red Rock Casino Resort Spa," Gordon says. "Despite a healthy financial performance, [Station's] stock valuation has softened following the Red Rock opening and likely investor profit-taking."