Vegas Continues to Hurt Riviera Holdings

Riviera owns and operates the 2,075-room Riviera Hotel and Casino on the Las Vegas Strip and the Riviera Black Hawk Casino in Black Hawk, CO, which has no hotel rooms. The company began questioning its own ability to continue as a going concern at the end of March, when it announced a fourth quarter loss of $12.7 million and said that, in order to maintain liquidity, it would default on its $227-million (outstanding) credit facility by not making a required $4-million interest payment.

Riviera says its cash flow is enough to operate its properties but not enough right now to cover its debt payments. Riviera had $16.3 million in cash and cash equivalents as of the end of March. Company executives say they are working to refinance or restructure its debt but that Riviera may still have to file for Chapter 11 bankruptcy protection. Riviera's share price closed trading Friday at $2.04, up $0.24 on the day; in the past 52 weeks it has ranged from $18.12 to $0.79.

Income from operation of the Riviera Las Vegas fell 86.6% ($4.8 million) to $743,000. Operating margins fell to 3% from 15.2%. The company says it spent $4 million providing complimentary services to its guests, and that the amount didn't decrease in proportion with revenues "due to continued efforts to aggressively promote the casino and hotel."

Net revenue from the Riviera fell 33% ($12 million) in the first quarter to $24.5 million. Casino revenue fell 19.5% ($2.4 million) to $10.3 million, on a 32.3% decrease in table game revenue and a 15.5% drop in slot revenue. Food and beverage revenues fell 36.1% ($2.4 million) to $4.3 million and entertainment revenue fell 39.5% ($1.4 million) to $2 million due to lower occupancy and "the strategic closure" of select food and beverage outlets and entertainment venues during low hotel occupancy periods.

Room revenues from the Riviera fell 34.9% ($5.6 million) to $10.3 million due primarily to a 30.4% ($30.33) drop in the average daily room rate to $69.30. The decrease in ADR was caused primarily by a 45.4% ($37.60) drop in the average room rate for the leisure segment to $45.24. RevPAR fell 39.5% ($34.63) to $53.06 on the decrease in ADR and a 480 basis-point decrease in occupancy to 76.8%.

At the end of March 2009, during the company's fourth quarter 2008 conference call, Westerman said the deteriorating trends in revenue and earnings experienced during the first three quarters of 2008, continued into the fourth quarter, and accelerated during the first quarter three months of 2009.

"We expect this situation to continue as long as competitors in the Las Vegas market follow a strategy of sacrificing ADR to maximize room occupancy and the decline in convention business is unabated," he says. "We expect to emerge through a restructuring with a capital structure which will enable the company not only to survive, but to grow as the economy recovers and the competitive situation in Las Vegas returns to a more rational environment."