Mohegans seek partner to finish hotel tower
By Patricia Daddona
Published 12/04/2009 12:00
The Mohegan tribe is looking for a partner to help it finish the Project Horizon luxury hotel at Mohegan Sun.
The Mohegan Tribal Gaming Authority said Thursday it is seeking partners for a couple of key projects besides the suspended Project Horizon, including a $500 million casino in Palmer, Mass., and a hotel at Mohegan Sun at Pocono Downs in Pennsylvania.
Partnering for future growth is part of an effort to incur less debt, Mitchell Etess, the president and chief executive officer for the casino, said Thursday following a Webcast presentation at the Bank of America Merrill Lynch 2009 Credit Conference in New York City for people in the financial and investment industry.
Demand is high for more hotel rooms to complement Mohegan Sun's existing hotel, but the economy is not out of the woods yet and it's not clear when the expansion, which was halted in the fall of 2008, could resume, said Etess, who represented the gaming authority at the conference.
Adding a hotel partner, possibly one with a brand name, is being pursued aggressively, he said.
"The most important thing right now is to improve our balance sheet," he said, "and the lopping on of additional debt for our hotel tower wouldn't necessarily be the first thing we would do. However, if someone else could build that tower, and we could get additional rooms, that would generate significant additional cash flow, which would allow us to improve our financial position."
Tribal Chairwoman Lynn Malerba confirmed that intent later in the day.
"We are committed to reduce our overall debt, and one way to do that is to enhance the overall property and revenues without putting a lot of our own capital in," she said.
The Mohegans are also keeping track of the possible legalization of casinos in Massachusetts, where Etess said they hope to find a partner to help develop a resort-style casino smaller than Mohegan Sun but larger than the Mohegan Sun at Pocono Downs in Pennsylvania. He said a casino there could include 3,000 slot machines, 100 table games, a hotel, retail operations and branded restaurants.
Project Horizon started out in 2007 as a $740 million project that escalated to $925 million. The "Earth Hotel Tower," a 39-story edifice intended to be the tallest building in Connecticut, was the centerpiece.
Etess said that partnering on the hotel tower doesn't signal any change in direction for the proposed expansion, which would add 920 rooms and include a House of Blues music hall. The featured restaurant, Margaritaville, and new gaming hall called Casino of the Wind, have already opened.
"Exactly how that tower turns out will depend very much on who we end up partnering with," Etess said.
Branding a hotel at the tribal gaming property is risky, said Jane Pedreira, a gaming analyst with Rye, N.Y.,-based Clear Sights Research.
"I would be somewhat skeptical of that working, unless they were going to run it as a convention business where people actually go there not to gamble," she said. "I don't know what percentage of their rooms are cash versus (complimentary), but the industry standard is to 'comp' your big gaming guests."
At the conference, Etess and Peter J. Roberti, the casino's vice president of finance, reviewed this year's casino operating results and acknowledged that while there's no sign the declining trend for gaming revenue has reversed course, the casino balance sheet is strong. Net revenues were down 12 percent year over year and overall revenues are down 7.5 percent, they said.
"We're hoping we will flatten out this next year," Etess said. "We think one day the economy will get better and people will start spending again."
In the meantime, Roberti said, a "disciplined approach" to capital spending and reducing full-time positions through attrition rather than layoffs have helped contain costs. Malerba later noted that reductions to tribal government costs, although not to individual stipends, have helped curb expenses.
Etess called that a "prudent" way of managing distributions.
He sought to differentiate Mohegan Sun from Foxwoods Resort Casino and MGM Grand at Foxwoods, which are owned and operated by the Mashantucket Pequot Tribal Nation on the reservation in nearby Ledyard.
"We've been very cautious, especially lately, to make sure everybody realizes we're not Foxwoods," Etess said. "We operate completely differently than Foxwoods in every aspect of operations, and we also have better market share."
For the 12 months ending Sept. 30, Mohegan Sun operated with an average daily slot win per machine of $316, versus $240 at Foxwoods, Roberti said.
The Mashantuckets are struggling to restructure a debt load of more than $2 billion and could default on loans. Tribal members recently ousted Chairman Michael Thomas, whose promise to keep tribal stipends intact before lenders were paid sent shockwaves through the global financial community.
Pedreira, who listened later in the day to a recording of the conference call, said the Mohegans and their casino managers "have got the gaming industry down to a science."
"I definitely feel they're great operators," she said. "They have great upside in Pennsylvania. They've done a great job of trying to diversify, probably better than any other Indian tribe. What impresses me about them is they're so progressive, they're ahead of the curve - running the property, getting out ahead of Massachusetts