Casino / Resort Financing Report for Seaside Corporation

Running head: CASINO / RESORT FINANCING REPORT FOR SEASIDE CORPORATION

Casino / Resort Financing Report for Seaside Corporation

Prepared by LRGS Project Management Associates

Introduction

The following report is prepared by LRGS, Project Management Associates on behalf of Tom James, CFO for Seaside Corporation. Mr. Jones contracted with LRGS to provide an assessment of financing options available as well as recommendations for financing the $600 plus million, 2,000 room casino / resort that Seaside hopes to beginning building in Biloxi Mississippi early next year.

Background

Seaside Corporation has several other casino hotels that cater to middle income patrons, often families, that are budget oriented and looking for destination locations. Other Seaside casino / resort locations offer family oriented recreation facilities like pools, slides, game rooms and childcare in addition to multiple restaurants and gambling facilities. Typically, Seaside hotels have a higher number of smaller, budget oriented rooms compared to many other casino/hotels. This of high number, smaller and more affoardable rooms has helped Seaside create a niche market in the lower income brackets that most facilities fail to meet while remaining equally as profitable due to typical occupancy and turnover rates paired with the normal robust income of the casino. Because of past success, Seaside is targeting a similar facility in the Biloxi area. Biloxi is growing as a ‘gambling and entertainment’ destination. Costs are more reasonable and following Hurricane Katrina, there are additional incentives to bring new business to the area.

To help Seaside evaluate the best mix of capital necessary for building a new facility in Biloxi, LRGS has assessed capital valuation models, various debt and equity instruments, long-term financing options, sources of capital, cash management techniques and short term financing options. LRGS’s assessment of each option, along with recommendations to Seaside is detailed below.

In addition to the financing recommendations detailed in this report, LRGS also recommends that Seaside consider this new venture in two phases with staged implementation of all 2,000 rooms. LRGS’s believes that financing will be easier to raise and operating optimaization more likely to occur if Seaside targets opening with 1,000 to 1,500 rooms with the full casino and resort facilities. Future expansion then could occur for the remaining 500 to 1,000 rooms with five years of opening; after Seaside has established a place in the Biloxi market. Potentially, Seaside could draw on a more influential

market for the remaining rooms and scale them to meet those market needs; increaseing and spreading Seaside penetration and appeal. LRGS would still target the proposed $6 million in funding for the first phase as this is keeping with a hotel/casino resort of this size. All recommendations below are based on the two phase assumption.

Capital Valuation Models / Cost of Capital

Valuation in this case would be defined as the assessment of value or prospect of future earnings or value for the new hotel/casino business. Consideration should be given to the earning power of the business, potential business asset value and the useful life of those assets. The assessment information above is combined with a business forecast to determine the business’s overall valuation. According to bizpeponline.com, “The Business Valuation Model is designed to provide an economical, efficient and effective means to assess the value of a business” (Bizpep 2002-2004).

When assessing valuations models appropriate for this new Seaside venture, the forecast information will along with subjective analysis, will become a foundation form which quantifiable business values can be calculated. The valuation model should combine relative indicators for the future performance of the venture with some basic financial data that includes projected revenue, variable costs and fixed costs to calculate the value of the business. While little information in required for input, the end result will assist investors in completing forecasts, sensitivity analysis and investment returns.

The valuation of a business can be forecast several different ways. Expected valuation forecasts the expected average three-year return on the investment. Optimistic valuation represents an optimistic or