Caesars Palace Delays Completion of Octavius Tower

LAS VEGAS, Nevada -- The months-long drop in local visitor numbers has caused Harrah's Entertainment to delay the completion of Caesars Palace's sixth hotel tower.

The world's largest casino company
Artist's projections of Caesars Palace with new Octavius Tower.  confirmed Monday it is postponing opening nearly 660 rooms in the new Octavius Tower from its scheduled mid-summer completion "until a period of stronger demand."

Construction on the exterior of the hotel tower, however, will continue, according to Jonathan Halkyard, Harrah's chief financial officer.

Once customer demand improves, Caesars will be able to bring the rooms online in a matter of months, he added.

Bill Lerner, a gaming analyst for Deutsche Bank, said the decision makes sense given the current downward trend in tourists visiting Las Vegas.

Las Vegas occupancy numbers were 79.2 percent in November, a 7.7 point drop from the same time last year, according to numbers released Friday by the Las Vegas Convention and Visitors Authority. Midweek occupancy dropped nearly eight points to 75.9 percent.

For the first 11 months of 2008, visitation has declined 3.8 percent to about 34.7 million people. Visitation fell in nine of the 11 months of 2008.

"Waiting makes sense," Lerner said about Harrah's decision. "Strategically speaking, especially what we've seen with the downward pressure in pricing, it makes sense to delay."

Other parts of the $1 billion expansion project, including the 110,000-square-foot meeting and convention space, will open on schedule this summer, according to a company statement.

Three 10,000-square-foot villas and an expansion of the Garden of the Gods pool and garden area will also open during the summer.

Caesars completed a remodeling of the 500-room Forum Tower three months ago, including its two penthouse suites.

Harrah's insisted the decision has to do with decreased room demand for its current inventory of nearly 3,350 rooms, and is not a move to improve liquidity for the debt-heavy company.

Harrah's announced the expansion of the 42-year-old Caesars in July 2007 as a way to keep the property competitive in the Strip's high-end market.

Las Vegas Sands Corp.'s opening of the 3,068-room Palazzo in December 2007, followed by Wynn Resorts Ltd.'s opening of the 2,034-room Encore last month, added inventory to an already struggling market.

"Right now is particularly tough and there isn't a lot of visibility on any segment of the business," Lerner said.

Room rates will continue to decrease, with Strip rates expected to drop 18 percent for the week beginning Feb. 1, according to a weekly room rate survey report issued on Monday by J.P. Morgan.

High-end property rates are projected to be down 33 percent Jan. 1 through Feb. 7, according to the report.

Harrah's, which also owns the Rio, Paris Las Vegas, Bally's, Flamingo Las Vegas, Imperial Palace, Harrah's Las Vegas and Bill's Gamblin' Hall & Saloon, is expected to drop its room rates 32 percent during that time, according to J.P. Morgan.