Lagging revenues raise worries about Atlantic City's Revel

So long in the making, so lavishly expensive, so critical to Atlantic City's future. Revel is finding that the stakes are high, and some are already concerned that the casino, open just three months, won't be able to meet them.

Revel generated $14.9 million in total gambling revenue in June - about half of the $25 million to $30 million that Wall Street projected it needs to stay solvent. The performance ranks Revel eighth among the city's dozen gambling halls, the same place it landed in April and May.

The casino was built with hopes it could convert Atlantic City into a vacation destination, not just a quick stop for gamblers. It was viewed as a critical piece in that strategy, which has the well-demonstrated support of Gov. Christie, who provided $261 million in state tax credits in 2011 to spur Revel's development.

But Revel cost $2.4 billion to build, so it has big bills to pay, and some analysts are nervous that it will not generate the cash flow needed to meet its debt service. Three people who represent nervous bondholders invested in Revel expressed concerns but declined to comment on the record about the casino's latest revenue report.

Others are more sanguine, contending that three months is hardly time enough to create a financial track record and that June's numbers contained promising glimpses.

"We were not surprised by the June number," said John Kempf, of RBC Capital Markets L.L.C. "There is still a lot of work to do here, but trends are moving in the right direction."

Revel chairman and chief executive Kevin DeSanctis released a statement defending the casino's performance, saying that it had reached full operational status after three months and that non-gaming metrics were improved significantly.

Visitors totaling 618,593 in June represented a 33 percent increase from May. Select non-gaming revenue (food, beverage, and room payments) in June was $8.5 million, up 25 percent from May. And average hotel occupancy was 58 percent vs. 47 percent in May.

By comparison, longtime market leader Borgata, something of a high-end rival for Revel, pulled in $53.3 million in June. Pennsylvania's top casino, the $500 million Parx in Bensalem, pulled in $31.9 million in gross slots revenue; June table-games revenue will be made public next week. Maryland's third casino, Maryland Live!, which opened its doors June 6 and also cost $500 million to build, generated $28.5 million during the month - nearly double Revel's performance.

Before its April 2 soft opening, Revel - which measures 6.3 million square feet and spans 20 beachfront acres - was being heralded as what Atlantic City required if it wanted to become a mecca for both gaming and non-gaming attractions.

"With 90 days behind us, we are encouraged by the significant improvements we have seen across all major business segments: group, leisure, and gaming," DeSanctis said. "It is clear our economic model is working, allowing us to generate high-margin non-gaming revenue and operate at a significantly lower cost vs. the traditional gaming-dependent model.

"We are excited about what we have delivered from a product and experience perspective," he said, "and remain confident our strategy will result in significant value creation for our stakeholders."

But with gaming revenue, which pays the bills and the bonds, Revel finished ahead of only the Atlantic Club, Resorts, Golden Nugget, and Trump Plaza - all much smaller and less-leveraged properties.

The Atlantic City market overall declined 0.6 percent in June, to $274.7 million, compared with $276.4 million a year ago.

DeSanctis had likened the buildup to the casino's Memorial Day grand opening to a Broadway show. Yet some patrons interviewed last week faulted the casino for its nonsmoking environment and its lack of buffets. Those two features make Revel different from its Atlantic City rivals.

Revel had a history of financial problems before it even opened. Morgan Stanley originally owned the casino and invested $1.2 billion, starting in 2007. It sold the project, post-economic collapse, to the Revel group, led by DeSanctis, for essentially zero and took a total loss. DeSanctis raised $1.2 billion early in 2011 to finish it.

Of the $14.9 million Revel made in June, $9.9 million came from slots and $5 million from table games. It ranked ninth in slots revenue and sixth in table-games revenue.

"We're very early in the game," said gaming analyst Greg Roselli, of UBS Securities L.L.C. "In saturated markets in a tough economy, it takes time to build up a core gaming customer.

"The visitation at the property has been strong, and based on the July press release, gaming and non-gaming trends and revenue are moving in the right direction."

But, added Roselli, "It's a much different world in gaming than when the Borgata opened."

Borgata, which had the most to lose to Revel given that they are going after essentially the same clientele, generated $47 million in its opening month, July 2003.

That's why Revel has to step up its game, said John McGuigan, of Phoenixville, who is director of sales operations for a New York-based software company. McGuigan said he recently tried booking a location for his company's quarterly sales meeting for the end of the month at Revel. He said his calls and e-mails were ignored for two weeks.

"Revel forces you through this automated RFP [request for proposals] system, and you don't talk to anyone," McGuigan said Tuesday. "In the meantime, their competition e-mailed me right back.

"If they want to be known for customer service, then they have to live it," he said. "Revel has to step up to the plate, and right now it has not."

McGuigan said he booked the sales meeting at the Borgata.