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Mark L Schemper

Friday, May 25, 2007

Speculating on Some Less-than-Glamorous Casinos

Back in February, while celebrating my birthday in Vegas, my girlfriend and I took a stroll through the Riviera Hotel and Casino. The place was huge and empty, and it was a Saturday night. Empty. To illustrate this point, when I used the restroom, I was the only person in there. I've never seen an empty restroom in a casino, not even on Christmas night (then again, I've never been to a Trump casino, but that's another story). Unbelievable, especially since the Rivi was the top casino on the entire planet just fifteen years ago. Sure, fifteen years is plenty of time for markets to change, but this isn't Polaroid or VCRs we're talking about. This experience compelled me to check out the stock upon returning home. It was sitting stagnant at $20. A month later - immediately after my March Madness Vegas trip, where I checked up on the place to see if business had improved; it hadn't - volume and price popped on no news. A few days later, it came out that there was a bid for the property.

Since the North Strip is the future of Vegas, I used the approximate figures from the sale of the nearby Sahara to estimate a value on RIV. This came out to around $30/share. I didn't make a move, stopped paying attention, and missed the boat. A bidding war has started for RIV, with the latest offer coming in at $34/share. The stock is at $37.40 today, up about 85% since my last trip to this dilapidated giant.

Last week, the New Frontier, another North Strip dump with even less going for it than the Rivi, was purchased by Elad Group for $1.2 Billion. Yeah, you read that correctly: One point Two Billion Dollars. It comes as no surprise this sum set a Vegas buyout record at $33 Million per acre. Plans for the New Frontier have been disclosed. It will close in July, be imploded in early 2008, and will be replaced with another mega-resort - the Plaza Las Vegas (not to be confused with the downtown Plaza) - set to open in 2011.

The Riviera is about one block north of the New Frontier. If RIV is eventually sold for $33 Million an acre, that comes out to about $70 per share. Whether RIV will go $33MM per acre will be decided by the interested parties. What is certain, however, is RIV is worth at least as much as the New Frontier. Both are past their prime, and both are sitting on some of the hottest property on The Strip.

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