Hotel Online Special Report
Bellagio's Opening Marks New Direction for Las Vegas
Bear Stearns Cites Concerns on 
Room Supply, Asia and Cannibalization
NEW YORK, NEW YORK - October 15, 1998-- The opening of the Bellagio property of Mirage Resorts Inc. (NYSE: MIR) in Las Vegas this evening may be the most anticipated event in the history of gaming in the United States, according to a new analysis from Bear, Stearns Co. Inc. But despite the excitement associated with the debut of the lavish, 3,005-room hotel and casino dotted with some of the world's best art and most exclusive shops, restaurants and attractions, the Bellagio's return on investment appears likely to fall short of other Mirage Resorts Inc. properties located on the Las Vegas Strip.

"The Bellagio property takes Las Vegas into a new era of attracting highest-end visitors, those who can meet or vacation anywhere in the world they choose," Bear Stearns senior managing director Jason Ader said today from Las Vegas. "Because of its truly exceptional appointments and attractions, we anticipate near-full occupancy levels at the Bellagio for the foreseeable future. We also anticipate room pricing levels that will lead the Vegas market -- although pricing could change with 7,000 additional luxury room openings in Vegas post-Bellagio," he adds.

Ader expects Bellagio to generate revenues of approximately $1.0 billion in 1999, with cash flow of $290 million, implying an approximately 29 percent margin. Gaming operations are expected to generate approximately 55 percent of gross revenues at the property, according to Bear Stearns. Non-gaming activities are expected to account for 45 percent of gross revenues - and will play an important role in drawing visitors to the property, Ader notes.

"We believe `O', Bellagio's featured show, with an average ticket price of $95 per seat, is capable of generating annual revenues of $85 to $90 million," Ader says.

Despite those many positives, Bear Stearns estimates a year-one 13.2 percent net cash-on-cash return on investment for the Bellagio. That's significantly lower than the approximately 20 percent year-one net cash-on-cash return Mirage Resorts Inc. Chairman Steve Wynn achieved for his prior Vegas properties, The Mirage and Treasure Island, Ader observes. But offsetting this drop, Ader says, is a significantly lower cost of borrowing for the company.

Ader said his estimate for Bellagio's return on investment was based on year-one cash flow projected at approximately $290 million (including a $5 million annual lease payment to Steve Wynn for fine art in the Bellagio), a project cost of $1.8 billion (including land and owned art) and $53 million in lost - or cannibalized - business from The Mirage.

"One must remember there are some continuing pressures on the Vegas market overall," Ader explained. "Inadequate long-haul aviation service continues to bedevil the city, as does the absence of high-rolling Asian gamblers and the addition of massive new room supply, which totals more than 18,800 rooms post-Bellagio." These factors combine to squeeze margins and limit growth in revenue per available room (RevPAR) for companies with major exposure to the Strip, Ader says.

Also of concern is what Ader calls "rather generous consumer-oriented promotions" by several Las Vegas lodging and gaming entities this autumn, typically a busy time for Las Vegas. But Ader predicted the Bellagio will generate a national sensation. "There has never before been a property like the Bellagio," Ader said. "It is a visionary achievement."

Bear, Stearns Co. Inc., a leading worldwide investment banking and securities trading and brokerage firm, is a major subsidiary of The Bear Stearns Companies Inc. (NYSE: BSC). With approximately $17.9 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, asset management, correspondent clearing, securities lending and custody services. Headquartered in New York City, the company has approximately 9,400 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles and San Francisco; and an international presence in Beijing, Buenos Aires, Dublin, Geneva, Hong Kong, London, Lugano, Paris, Sao Paulo, Shanghai, Singapore and Tokyo.

Mary Flounders Green
Bear, Stearns  Co. Inc.
(212) 272-4356
Also See:
Bellagio Bookings Substantially Ahead of Expectations / Mirage Resorts Reports Second Quarter Earnings / Aug 1998 
U.S. Gaming Revenue Growth to Drop by More Than 5O Percent This Year, Bear Stearns / April 1998 

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