A second fourth-quarter earnings loss, along with steep development costs and a weakening credit market, have prompted Pinnacle Entertainment Chairman Dan Lee to question the company’s billion-dollar investment in Atlantic City.
“I’ve been asked by a lot of people, ‘How the hell are you going to build in Atlantic City?'” Lee said during a conference call with investors. “The answer is, if credit markets don’t improve, we won’t build.”
He added that plans for a $1.5 billion casino resort on the site of the old Sands in Atlantic City have not been shelved, and he has no plans to sell the property, located along Atlantic City’s historic oceanfront.
“It’s a big part of this company’s future,” Lee said. “And we do think the credit markets will improve. And frankly, what we have designed for Atlantic City is pretty spectacular.”
The Las Vegas-based casino operator announced last month it lost $19.2 million, or 32 cents a share, in the quarter ending December 31, compared with a loss of $5 million, or 10 cents a share, in 2006. Throughout 2007, Pinnacle lost $1.4 million, or 2 cents a share, on revenues of $923.7 million.
Pinnacle bought the Sands Casino Hotel in 2006 for $270 million and imploded the structure last fall to make way for the new mega-resort. The company hoped to begin construction in 2008 and open in early 2011. Later, it revised the schedule to open in late 2011 or early 2012.
The plan is on hold again, but the latest move is almost certainly a pullback, not a pullout, says Deutsche Bank analyst Andrew Zarnett.
“The good news is that all the projects are in the pre-development stage, so there still is a window when they don’t need permanent financing,” Zarnett said. “But if this credit crisis doesn’t get solved soon, the timetable for development in Atlantic City will be postponed.”
In an indication of long-term confidence, CEO Kim Townsend of Pinnacle Atlantic City says the company will continue to acquire surrounding land to boost the size of its development site to about 25 acres.
“We would like to have a spectacular property on the largest canvas possible. The faster I buy up land, the faster the architects have their canvas,” Townsend said.