Pinnacle to develop Vietnamese resort

27 May 2011

HO CHI MINH CITY, Vietnam -- Pinnacle Entertainment, known for its hotel-casinos in Louisiana and St. Louis, surprised investors Thursday by becoming involved in a resort development in Vietnam.

Las Vegas-based Pinnacle said it would spend $95 million to acquire a 26 percent interest in the company developing the Ho Tram Strip project, approximately 80 miles southeast of Ho Chi Minh City. Pinnacle will build a hotel-casino on the site.

The complex includes a hotel-casino being developed by MGM Resorts International.

Pinnacle, which operates seven casinos in riverboat markets such as Missouri, Louisiana, and Indiana, and owns Boomtown Casino & Hotel Reno near Reno, didn't give Wall Street a hint it was moving into Southeast Asia.

The company's shares, traded on the New York Stock Exchange, didn't have much of a reaction, closing at $14.55, down 11 cents, or 0.75 percent, Thursday. The news was announced before the markets opened.

"To be perfectly honest, this deal has come out of left field, and we think that most investors may be a bit surprised," Credit Suisse gaming analyst Joel Simkins wrote in a research note. "With that said, as more details come to light, we think investors could ultimately get comfortable with this investment as it is relatively modest, could offer significant long-term upside, and could lift Pinnacle's overall valuation."

JP Morgan gaming analyst Joe Greff said the investment was not large by comparative standards.

"We don't view this as a 'bet the ranch' investment for a potentially high return on invested capital," Greff said.

The Ho Tram Strip is being developed by a Canadian company, Asian Coast Development. The 400-acre project is a beachfront complex of destination resorts and residential developments in southern Vietnam. Plans call for five large-scale luxury resorts, two with casinos marketed to non-locals.

MGM Resorts International is building the 541-room MGM Grand Ho Tram, which will include a casino with 90 table games and 500 slot machines. The property is expected to open in 2013.

Pinnacle will develop a hotel-casino of similar size and scope to the MGM site in the development's second phase. A time frame wasn't given for the project, and Pinnacle's management agreement runs through 2058.

"While this morning's announcement came as a bit of a surprise to us, we believe the deal presents compelling return prospects for Pinnacle's modest $95 million investment," Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski told investors. "Management could use its Ho Tram Strip management agreement to test the waters in Asia."

Pinnacle CEO Anthony Sanfilippo said in a statement that the move gives the company a potential Asian base of operations. Pinnacle also owns a race track in Cincinnati and is building a $357 million hotel-casino in Baton Rouge, La.

"Our investment and long-term management agreement bring meaningful strategic benefits to Pinnacle, including further diversification and potentially very significant returns on invested capital," Sanfilippo said. "The phenomenal success and continued strong growth of destination integrated resort and gaming facilities in Asian markets are indicative of the demand for quality gaming entertainment options in Asia."

Ho Chi Minh City is Vietnam's largest city and attracts the bulk of Vietnam's 5 million annual tourists.

Philip Falcone, whose New York-based Harbinger Capital is the largest shareholder in Asian Coast, said Vietnam can mirror the financial success of Macau and Singapore with large resorts that include casinos.

Morgan Joseph analyst Justin Sebastiano said Vietnam is centrally located in Southeast Asia and is within three hours by air from Bangkok, Singapore, Manila, and Hong Kong, and within six hours from Seoul, South Korea; Shanghai; and Tokyo.

"The investment provides Pinnacle with an entry into Asia, which has been a booming gaming market," he said.

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