I was wrong about Echelon

12 March 2013

LAS VEGAS -- I admit when I'm wrong.

It's not like I've never made a mistake.

My wife and daughter - primarily my daughter - remind me I'm wrong all the time. My brother Craig has his day made when he catches me in an error, especially when it comes to sports trivia.

But no one took more pleasure in correcting my judgment recently than Boyd Gaming Corporation CEO Keith Smith.

I can't really blame him.

In July, Boyd said it would spend $4 million to landscape and beautify the 87-acre Echelon on the Strip to hide the unfinished steel and concrete structures.

Boyd halted work on Echelon in 2008 and told the Clark County Commission it wouldn't revisit the project until 2018 at the earliest.

I wrote in this space that Boyd should just demolish the stalled development - the company was never going to finish Echelon. It seemed like a waste of almost $16 million a year to maintain the site.

I was only half right.

On Monday, Boyd Gaming sold the parcel for $350 million to the Malaysia-based Genting Group. The new owners said they would incorporate much of what Boyd created for Echelon in the $2 billion to $7 billion Resorts World Las Vegas.

"Do you still think we should have torn it down?" Smith gleefully asked Monday before I could even pose a question about the transaction.

Apparently, the incomplete structures, concrete foundations and half-finished parking garage appealed to Genting. Incorporating the Echelon remnants into Resorts World Las Vegas might expedite the construction timeline.

Paul Steelman, whose Las Vegas-based architectural firm is designing the Asian-themed Resorts World, estimated that 90 percent of Echelon could be salvaged.

"There is about 2.2 million square feet that was under construction," Steelman said. "The foundations are about 90 percent done. Boyd did a really good job on the master plan."

Boyd Gaming hadn't considered selling Echelon during the past five years, mainly because there weren't buyers for a large parcel with an unfinished building. The recession dried up development money.

Also, the site once housed the Stardust, which the Boyd family bought in 1985 and developed into a famous Strip resort. The parcel was the last piece of the Strip that Boyd Gaming owned.

It couldn't have been an easy conversation for Smith to have had with Bill Boyd and the Boyd family about selling the site once Genting emerged as a buyer late last year.

"This was the right course of action for the company to take," Smith said. "We have been saying for more than a year that we wanted to strengthen our financial position."

Genting met the criteria the company established. The deal was all-cash and negotiations went quickly. A week earlier, Boyd announced it sold a never-developed jai alai facility in South Florida for $65.5 million, adding more cash to the books.

"We found a way to monetize two noncore assets," Smith said. "We didn't expect it to happen 10 days apart."

Boyd plans to use the proceeds from both sales to pay down debt while focusing on other opportunities.

Wall Street agreed with the unexpected divestitures, especially the Echelon sale. The $16 million a year to maintain the site will now be used for other portions of the business.

"Developing a casino resort in this market would not be the best use of time, capital, and likely would have limited returns," Credit Suisse gaming analyst Joel Simkins told investors.

Janney Montgomery Scott gaming analyst Brian McGill called Echelon, "an overhang for the company" and said the sale underscored Boyd's commitment to improving its balance sheet.

Boyd Gaming has seemingly transformed itself into a regional casino operator during the past two years.

The IP Biloxi in Mississippi was purchased for $278 million in 2011. Last year, Boyd completed a $1.45 billion buyout of Peninsula Gaming, which gave the company casinos in two new markets, Iowa and Kansas, and added to its base in Louisiana.

Boyd now operates 22 casinos in eight states.

Rather than being termed a regional gaming company, Smith said Boyd was a "balanced" casino operator. There is still a commitment to Las Vegas, where Boyd has nine properties downtown and in the locals market through its Coast Casinos brand and Sam's Town.

The company's Southern Nevada casinos employ 9,000 workers.

Don't discount Boyd returning to the Strip, either.

"We're committed to Las Vegas, and longer term, we would like to get back on the Strip, but at the right point in time," Smith said. "Today, this was the right transaction for the company."

As for the now-Resorts World Las Vegas site, Steelman said Genting signed off on a plan to add landscaping, fencing, lighting and other decorative treatments to hide the structures along the Strip until construction gets started, possibly by the end of the year.

I'm not going to tell them they're wrong.

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