10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

Commission File Number 000-50689

BH/RE, L.L.C.

(Exact Name of Registrant as Specified in its Charter)

NEVADA	84-1622334
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
3667 Las Vegas Boulevard South
Las Vegas, Nevada	89109
(Address of Principal Executive Offices)	(Zip Code)

(702) 785-5555

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

VOTING MEMBERSHIP INTERESTS

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YesoNox

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YesxoNoo

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o            Accelerated filer o            Non-accelerated filer x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).YesoNox

The aggregate market value of voting stock held by nonaffiliates of the Registrant as of June 30, 2005 was $0. As of March 31, 2006, 50% of the Registrant’s voting membership interests were held by each of Robert Earl and Douglas P. Teitelbaum, and 40.75% of the Registrant’s equity membership interests were held by each of BH Casino and Hospitality LLC I and OCS Consultants, Inc., with the remaining 18.50% of equity membership interests held by BH Casino and Hospitality LLC II.

TABLE OF CONTENTS

PART I
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	15
ITEM 1B.	UNRESOLVED STAFF COMMENTS	22
ITEM 2.	PROPERTIES	23
ITEM 3.	LEGAL PROCEEDINGS	23
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	23
ITEM 6.	SELECTED FINANCIAL DATA	24
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	40
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	64
ITEM 9A.	CONTROLS AND PROCEDURES	64
ITEM 9B.	OTHER INFORMATION	64
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	65
ITEM 11.	EXECUTIVE COMPENSATION	68
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	72
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	73
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	74
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	75
SIGNATURES		79

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PART I

ITEM 1.BUSINESS

Unless the context indicates otherwise, all references to “BH/RE”, the “Company”, “we”, “us”, “our” and “ours” refer to BH/RE, L.L.C. and its consolidated subsidiaries.

Forward-looking Statements

When used in this report and elsewhere by management from time to time, the words “believes”, “anticipates” and “expects” and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our planned and possible expansion plans, legal proceedings and employee matters. Certain important factors, including but not limited to, competition from other gaming operations, factors affecting our ability to complete acquisitions and dispositions of gaming properties, leverage, construction risks, the inherent uncertainty and costs associated with litigation and governmental and regulatory investigations, and licensing and other regulatory risks, could cause our actual results to differ materially from those expressed in our forward-looking statements. Further information on potential factors which could affect our financial condition, results of operations and business including, without limitation, the expansion, development and acquisition projects, legal proceedings and employee matters are included in “Item 1A—Risk Factors” of this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof.

Organization

BH/RE is a holding company that owns 85% of EquityCo, L.L.C. (“EquityCo”). The remaining 15% of EquityCo is owned by a subsidiary of Starwood Hotels and Resorts Worldwide, Inc. (“Starwood”). MezzCo, L.L.C. (“MezzCo”) is a wholly owned subsidiary of EquityCo, and OpBiz, L.L.C. (“OpBiz”) is a wholly owned subsidiary of MezzCo. As of March 31, 2006, 50% of BH/RE’s voting membership interests were held by each of Robert Earl and Douglas P. Teitelbaum, and BH/RE’s equity membership interests were held 40.75% by BH Casino and Hospitality LLC I (“BHCH I”), 18.50% by BH Casino and Hospitality LLC II (“BHCH II”) (together, “BHCH”) and 40.75% by OCS Consultants, Inc. (“OCS”).

BH/RE and its subsidiaries were formed to acquire, operate and renovate the Aladdin Resort and Casino (the “Aladdin”) located in Las Vegas, Nevada. OpBiz, an indirect subsidiary of BH/RE, completed the acquisition of the Aladdin on September 1, 2004 and has begun a renovation project which, when complete, will transform the Aladdin into the Planet Hollywood Resort and Casino (the “PH Resort”). In connection with the renovation of the Aladdin, OpBiz has entered into an agreement with Planet Hollywood International, Inc. (“Planet Hollywood”) and certain of its subsidiaries to, among other things, license Planet Hollywood’s trademarks, memorabilia and other intellectual property. OpBiz has also entered into an agreement with Sheraton Operating Corporation (“Sheraton”), a subsidiary of Starwood, pursuant to which Sheraton provides hotel management, marketing and reservation services for the hotel (the “Hotel”) that comprises a portion of the PH Resort.

BH/RE is a Nevada limited liability company and was organized on March 31, 2003. BH/RE was formed by BHCH and OCS. BHCH is controlled by Douglas P. Teitelbaum, a managing principal of Bay Harbour Management, L.C. (“Bay Harbour Management”). BHCH was formed by Mr. Teitelbaum for the purpose of holding investments in BH/RE by funds managed by Bay Harbour Management. Bay Harbour Management is an investment management firm. OCS is wholly owned and controlled by Robert Earl and holds Mr. Earl’s investment in BH/RE. Mr. Earl is the founder, chairman and chief executive officer of Planet Hollywood and Mr. Teitelbaum is a director of Planet Hollywood. Collectively, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the

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equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership of any equity of Planet Hollywood owned by the trust.

Acquisition of the Aladdin

Aladdin Gaming, L.L.C. (“Aladdin Gaming”), which was a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code, commenced its bankruptcy case in the United States Bankruptcy Court for the District of Nevada, Southern Division on September 28, 2001. On April 23, 2003, OpBiz and Aladdin Gaming entered into a purchase agreement pursuant to which OpBiz agreed to acquire the Aladdin. Under the purchase agreement and pursuant to an order of the Bankruptcy Court, Aladdin Gaming conducted an auction to sell the Aladdin. On June 20, 2003, the Bankruptcy Court declared OpBiz the winner of that auction and, on August 29, 2003, the Bankruptcy Court entered an order confirming Aladdin Gaming’s plan of reorganization and authorizing Aladdin Gaming to complete the sale of the Aladdin to OpBiz under the purchase agreement. On September 1, 2004, OpBiz acquired substantially all of the real and personal property owned or used by Aladdin Gaming to operate the Aladdin, and received $15 million of working capital from Aladdin Gaming, including $25.7 million of cash. The acquisition was accounted for as a purchase and, accordingly, the purchase price and working capital adjustments have been allocated to the underlying assets acquired and liabilities assumed. The working capital adjustment was determined based on the closing balance sheet on August 31, 2004. OpBiz paid the purchase price for the Aladdin by issuing new secured notes to Aladdin Gaming’s secured creditors and assumed various contracts and leases entered into by Aladdin Gaming in connection with its operation of the Aladdin and certain of Aladdin Gaming’s liabilities, including Aladdin Gaming’s energy service obligation to the third party owner of the central utility plant that supplies hot and cold water and emergency power to the Aladdin. At the time of purchase, the energy service obligation was $34.0 million. Upon the completion of the Aladdin acquisition, OpBiz issued $510 million of new secured notes to Aladdin Gaming’s secured creditors under an Amended and Restated Loan and Facilities Agreement (the “Credit Agreement”) with a group of lenders and The Bank of New York, Asset Solutions Division, as administrative and collateral agent. OpBiz also simultaneously made a $14 million cash payment to those secured creditors, which reduced the principal amount of the notes to $496 million and obtained a release of the lien on a four-acre parcel of undeveloped property that OpBiz also acquired from Aladdin Gaming (the “Timeshare Land”). On December 10, 2004, OpBiz entered into a Timeshare Purchase Agreement with Westgate Resorts, LTD. (“Westgate”), whereby OpBiz agreed to sell approximately four acres of the Timeshare Land to Westgate, who plans to develop, market, manage and sell timeshare units on the land. The Credit Agreement also requires that OpBiz provide either cash or a letter of credit in the aggregate amount of $90 million to fund the costs of the planned renovations to the Aladdin. In August 2004, MezzCo issued $87 million of senior secured notes to a group of purchasers. The net proceeds of this financing were used to make the $14 million payment described above, to pay certain costs and expenses of BH/RE and its subsidiaries and affiliates related to the acquisition of the Aladdin, and to provide OpBiz with a portion of the funds necessary to meet its obligations regarding the planned renovations to the Aladdin.

The purchase agreement also provided that OpBiz assume substantially all of Aladdin Gaming’s pre-petition contracts and leases and any post-petition contracts or leases to which OpBiz does not object. In addition, the purchase agreement provided that OpBiz offer employment to all of Aladdin Gaming’s employees, other than executive management, on terms and conditions substantially similar to their previous employment terms and conditions.

Plan of Operations

We are currently conducting a renovation project which, when complete, will transform the Aladdin into the PH Resort. In connection with the renovation of the Aladdin, OpBiz has entered into an agreement with Planet Hollywood and certain of its subsidiaries to, among other things, license Planet

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Hollywood’s trademarks, memorabilia and other intellectual property. OpBiz has also entered into an agreement with Sheraton, a subsidiary of Starwood, pursuant to which Sheraton provides hotel management, marketing and reservation services for the Hotel that comprises a portion of the PH Resort.

The Aladdin Resort and Casino

The Aladdin is located at 3667 Las Vegas Boulevard South in Las Vegas,  Nevada, in the area commonly referred to as the Las Vegas Strip. The Aladdin is part of a resort, casino and entertainment complex (the “Complex”) that occupies a 35-acre site located on the northeast corner of Las Vegas Boulevard (the “Strip”) and Harmon Avenue in Las Vegas, Nevada.

The Aladdin includes a 2,567-room hotel (the “Hotel”), which offers deluxe guestrooms, resort guestrooms, suites, luxury rooms and mega suites. In addition, the hotel has an outdoor pool area and an approximately 32,000-square foot spa that is leased to a third party.

Aladdin’s 116,000-square foot casino (the “Casino”) currently offers approximately 1,475 slot machines, 50 table games, a poker room and a race-and sports-book facility on its main floor and includes a 15,000-square foot luxury gaming section on its mezzanine level with 14 high denomination table games and 93 high denomination slot machines.

The Aladdin currently has seven restaurants, including a Chinese restaurant leased to P.F. Chang’s, a buffet, a sushi bar, a 24-hour casual dining facility, an Italian restaurant, a steak and seafood restaurant and a poolside snack bar, as well as a nightclub and several lounges. In addition, we operate a Starbucks Coffee franchise under an agreement with Starbucks Corporation. The Aladdin also has gift and merchandise shops operated by a third party.

The Aladdin also has over 75,000 square feet of convention, trade show and meeting facilities, including a 37,000-square foot main ballroom, 10,000 square feet of pre-function space and 16,000 square feet of breakout space in 18 separate rooms.

The 7,500-seat Theater for the Performing Arts (the “TPA”) is part of the Complex described below, but is not directly connected to the Hotel and the Casino. Hotel and Casino customers and the general public can enter the TPA through the adjacent shopping mall, which is known as the Desert Passage and is described below, or through entrances leading directly into the TPA. The TPA is used for award shows, live music events and theatrical performances. The Aladdin also has unfinished space for an approximately 1,300-seat theater on a mezzanine level above the Casino (the “Showroom”). Effective December 16, 2004, OpBiz entered into a long-term lease agreement whereby CC Entertainment Theatrical-LV, LLC, successor-in-interest to SFX Entertainment, Inc. pursuant to an assignment dated September 26, 2005 (“CCE”) will be renovating and leasing the TPA and Showroom and related areas located at the PH Resort. The renovation projects on both the TPA and the Showroom are expected to be completed by the end of 2006. CCE will have the exclusive right to use, reconfigure, adapt, change and operate the leased premises.

In conjunction with the purchase of the Aladdin, we acquired a four-acre parcel of vacant land from Aladdin Gaming. This parcel is adjacent to the Desert Passage. For further discussion about our plans for this vacant land, see below under “Business Strategy—Develop Vacant Property.”

In addition to the Hotel, Casino and TPA, the Complex includes the Desert Passage, which is a themed entertainment shopping mall with approximately 435,000 square feet of retail space, and an approximately 4,800-space parking facility jointly used by the Aladdin and the Desert Passage.

The Desert Passage and the parking facility are owned by Boulevard Invest, LLC (“Boulevard Invest”), an unaffiliated third party. The Desert Passage, which is directly connected to the Casino, contains an array of stores, boutiques, restaurants, cafes and other entertainment offerings. We are a party

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to reciprocal use easements and agreements governing the operation and maintenance of the Hotel, Casino, TPA, Desert Passage and parking facility. The theme and design of the Desert Passage are consistent with the current theme and design of the Aladdin, but are not currently consistent with our planned renovations to the Aladdin, as described below under “Business Strategy—Renovate the Aladdin.”

The reciprocal easement and use agreements that govern the joint operation of the Aladdin, the Desert Passage and the parking facility contain provisions that could have impacted our planned renovations. In particular, Boulevard Invest may have limited approval rights over a portion of our planned physical renovations. However, under an agreement between OpBiz and Aladdin Gaming, Boulevard Invest has already consented to the re-theming and re-naming of the Aladdin, and for the development of the vacant property adjacent to the Desert Passage, and has agreed to amend the reciprocal easement and use agreements accordingly.

The central utility plant, which provides hot and cold water and emergency power to the Complex, is owned by Northwind Aladdin (“Northwind”), an unaffiliated third party. We lease the land on which the central utility plant is located to Northwind for a nominal yearly rent.

Business Strategy

Our strategy is to improve profitability by:

·renovating the Aladdin;

·implementing a new marketing program to capitalize on the Planet Hollywood, Starwood and Sheraton brand names;

·upgrading and expanding gaming and non-gaming attractions; and

·entering into agreements with third parties, such as the recent Timeshare Land sale.

Renovate the Aladdin

We have created a design and construction plan with an estimated cost of $100 million to renovate the Aladdin into the PH Resort. In addition, we have entered into an agreement with CCE to fund, develop and operate the TPA and Showroom, and may enter into additional agreements with other third parties to develop and/or operate a television studio, additional restaurants, attractions, lounges and nightclubs at the PH Resort, thereby increasing the number of entertainment venues at the PH Resort without increasing renovation costs. Construction on the renovation project began in October 2005, and we currently expect to complete the renovation of the Aladdin into the PH Resort sometime during the fourth quarter of 2006.

The key elements of our plan to renovate the Aladdin are:

Redesign entrance and traffic flow.   We intend to construct a new main entrance to the PH Resort that will improve access to the Casino from Las Vegas Boulevard by creating a large main entrance and several well-identified secondary entrances including joint common entries with the Desert Passage shopping mall. We also plan to level the current plaza, which we expect will improve pedestrian traffic into the Casino from Las Vegas Boulevard and to make improvements to the Casino that will direct those customers across the Casino floor to reach our restaurants, shops and entertainment attractions. In addition, we will redesign the façade of the building and create an attraction with that façade, as well as add a large marquee to the front of the PH Resort. We anticipate that these improvements will result in more walk-in visitors to the Casino and our other planned attractions and amenities.

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Renovate and expand Casino.   We intend to renovate the Casino and, subject to approval of applicable Nevada gaming authorities, expand the Casino into a portion of the Desert Passage that we are currently leasing. In addition, we intend to remove or modify existing structures on the Casino floor so that the Casino will appear larger and more inviting, to redesign the Casino floor to better use the available space for gaming and to add new gaming equipment.

Implement a New Marketing Program

We intend to focus our marketing efforts on attracting middle market gaming customers and establishing celebrity marketing agreements. We believe the general quality of the Hotel rooms is very competitive for the middle market segment. The new marketing program will feature:

·the entry of the Planet Hollywood brand name into the Las Vegas casino market; and

·Starwood’s reservation system and marketing and loyalty programs and the Sheraton brand name.

Planet Hollywood Brand Name.   We believe the Planet Hollywood brand name is well-known and internationally recognized. As a result, we expect that we will be able to spend more of our advertising budget on direct customer marketing rather than brand awareness. In addition, we expect that the PH Resort will host movie premieres, live television productions and similar entertainment industry events, with the goal of attracting Las Vegas tourists, including customers of other properties on the Las Vegas Strip, to the PH Resort.

Relationship with Starwood and Sheraton.   We believe our relationship with Starwood and Sheraton presents a number of advantages for the PH Resort. We expect that including the PH Resort in the Starwood reservation system and marketing and loyalty programs will result in higher average daily room rates at the Hotel. We also anticipate Starwood’s convention bookings database will generate more profitable convention and meeting business for the PH Resort, improving both mid-week occupancy levels and average daily room rates. The Starwood preferred guest program has approximately three million active members and approximately 14 million total members. We expect Starwood preferred guest program members to utilize the PH Resort as an award-redeeming destination.

Upgrade and Expand Gaming and Non-Gaming Attractions

Improve Mix and Layout of Casino Slot Machines.   We intend to improve our gaming operations by expanding the Casino and by continuing to provide our customers with newer and more attractive slot machine options. Our slot floor is currently 100% equipped with the ticket-in/ticket-out technology. We also intend to reduce the number of participatory slot machines as a percentage of our total slot machines. Participatory slot machines are slot machines that require the casino operator to pay a percentage of its winnings to the manufacturer.

Expand Race-and Sports-Book Facility and Poker Parlor.   We intend to expand and remodel the Aladdin’s race-and sports-book facility and the poker parlor to keep more of our Hotel guests in the Casino and to attract more non-Hotel customers to the Casino. We believe that a race-and sports-book facility is important because it serves as a gathering and relaxation point for hotel and other customers. Virtually all of our major competitors have larger race-and sports-book facilities than we currently offer. We expect to remodel the race-and sports-book facility and incorporate sports memorabilia from Planet Hollywood’s extensive collection. In addition, because of the popularity of poker, we intend to expand and relocate the poker parlor adjacent to the expanded race-and sports-book facility.

Expand Amenities.   When we complete the planned renovations to the Aladdin, the PH Resort will offer a variety of non-gaming amenities that we believe will be unique among Las Vegas Strip properties. Our plans include entering into third party agreements to fund, develop and operate various entertainment facilities. Effective December 16, 2004, we entered into a long-term lease agreement whereby CCE will be

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renovating and leasing the TPA and Showroom. CCE will have the exclusive right to use, reconfigure and operate the leased premises. We will also be able to use the TPA and Showroom for casino and convention needs during certain periods. CCE’s renovation of the Showroom is currently underway. We believe that increasing the number, variety and desirability of non-gaming amenities at the PH Resort will attract more customers and, as a result, increase revenues and profits, including those from our gaming operations.

Upgrade and Expand Restaurant Choices.Although the Aladdin currently has two upscale restaurants and a large buffet with a wide variety of food choices, none of the dining options at the Aladdin are affiliated with a well-known restaurant or chef from a major U.S. metropolitan area. We believe that most Las Vegas Strip properties currently include these types of dining options and that having one or more of these dining options presents opportunities to attract customers to the Casino and to other non-gaming attractions and amenities at the PH Resort. We intend to enter into agreements with well-known restaurant operators and chefs to offer customers of the PH Resort more dining options.

Develop Vacant Property

On December 10, 2004, OpBiz entered into a Timeshare Purchase Agreement with Westgate Resorts, LTD. (“Westgate”), a Florida limited partnership, whereby OpBiz sold approximately 4 acres of land adjacent to the PH Resort to Westgate, who plans to develop, market, manage and sell timeshare units on the land. Under the Timeshare Purchase Agreement, OpBiz will receive fees each year based on sales of timeshare units until the timeshare units are one hundred percent sold out. We expect that development of the vacant property will also benefit us by providing additional revenues by increasing the number of potential customers for the PH Resort, as the new towers will not have gaming or certain amenities so those guests will be directed to our Complex for gaming, entertainment and food and beverage facilities.

Markets

We believe that Las Vegas is one of the fastest growing leisure, hotel and entertainment markets in the country. Las Vegas hotel occupancy rates are among the highest of any major market in the United States. According to the Las Vegas Convention and Visitors Authority, the number of visitors traveling to Las Vegas has continued to increase. The number of visitors increased from approximately 30.5 million in the year ended December 31, 1997 to approximately 38.6 million visitors in the year ended December 31, 2005, and is expected to reach 40.0 million visitors in 2006. There is no guarantee that Las Vegas will have this many visitors in 2006, or that the number of visitors will increase at all.

According to the American Gaming Association, Las Vegas has the highest casino gaming revenues in the United States. A number of major hotel casinos have opened in the past ten years on the Las Vegas Strip, including Bellagio, Mandalay Bay Resort & Casino, New York-New York Hotel and Casino, Paris Las Vegas and The Venetian Casino Resort. In addition, a number of existing properties on the Las Vegas Strip have expanded during this period, including MGM Grand Hotel and Casino, Luxor Hotel and Casino, Circus Circus Hotel, Casino and Theme Park, Bellagio and Caesars Palace. Despite this significant increase in the supply of rooms in Las Vegas, hotel total occupancy rates exceeded on average 90.6% for the years 1990 to 1999, averaged 92.5% in 2000, 88.9% in 2001, 88.8% in 2002, 85.0% in 2003, 88.6% in 2004 and 89.2% in 2005. There is no guarantee that these occupancy rates will remain high or will not decrease in the future.

According to the Las Vegas Convention and Visitors Authority, gross gaming revenues for properties on the Las Vegas Strip have increased from approximately $3.8billion in the year ended December 31, 1997 to approximately $6.0billion in the year ended December 31, 2005. As a result of the increased popularity of gaming, Las Vegas has sought to increase its popularity as an overall vacation resort destination. There is no guarantee that Las Vegas will continue to grow in popularity. The number of hotel rooms in Las Vegas has increased from 105,347 at December 31, 1997 to 133,186 at December 31,2005.

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The Las Vegas market continues to evolve from its historical gaming focus to broader entertainment and leisure offerings, such as retail, fine dining, sporting activities and major concerts. This diversification has contributed to the growth of the market and broadened the universe of individuals who would consider Las Vegas as a vacation destination. The more diversified entertainment and leisure offerings present significant growth opportunities. In particular, the newer, large theme-destination resorts have been designed to capitalize on this development by providing better quality hotel rooms at higher rates and by providing expanded shopping, dining and entertainment opportunities to their patrons, in addition to gaming.

Competition

The hotel casino industry is highly competitive. The Aladdin competes, and the PH Resort will compete, on the basis of overall atmosphere, range of amenities, level of service, price, location, entertainment offered, theme and size. The Aladdin competes, and the PH Resort will compete, with other high-quality resorts and hotel casinos on the Las Vegas Strip and in downtown Las Vegas, as well as a large number of hotels in and near Las Vegas.

Many competing properties, such as Bellagio, Caesars Palace, Luxor Hotel and Casino, Mandalay Bay Resort & Casino, the MGM Grand Hotel and Casino, The Mirage, Monte Carlo Hotel and Casino, New York-New York Hotel and Casino, Paris Las Vegas, Rio All-Suite Hotel & Casino, Treasure Island at The Mirage, The Venetian Casino Resort, the Hard Rock Hotel and Casino and Wynn Las Vegas, have themes and attractions which draw a significant number of visitors and compete with the Aladdin for hotel and gaming customers and conventions and trade shows. Some of these properties are operated by companies that have more than one location and may have greater name recognition and financial and marketing resources than we have and will target the same demographic group as the Aladdin and the PH Resort. We will seek to differentiate the PH Resort from other major Las Vegas hotel casino resorts by concentrating on the design, atmosphere, personal service and amenities that we will provide and the added value of our arrangements with Planet Hollywood, Starwood and Sheraton.

A number of properties in the Las Vegas market have recently expanded or are expanding their facilities. MGM Mirage has constructed a 928-room “spa tower” addition to Bellagio, as well as an expansion of Bellagio’s spa and salon, meeting space and retail space. Wynn Las Vegas opened in April 2005,  on the 192-acre site of the former Desert Inn Resort & Casino on the Las Vegas Strip . Harrah’s (formerly Caesars Entertainment) has completed construction of a 949-room hotel tower and additional convention and meeting facilities at Caesars Palace, which includes additional retail space and restaurant facilities. The Venetian Casino Resort is constructing a new all-suites hotel tower with approximately 3,000-rooms that is expected to open in the summer of 2007. The Cosmopolitan Resort & Casino, which will be located directly across Las Vegas Boulevard from the PH Resort, will have approximately 2,200 rooms comprised of condo hotel units and hotel rooms and is expected to be completed in late 2007 or early 2008. MGM Mirage is building a 66-acre development currently called Project City Center, which will also be located across Las Vegas Boulevard from the PH Resort. The initial phase of the project is expected to be completed in 2010 and includes a 4,000-room hotel and casino, as well as three 400-room boutique hotels. According to the Las Vegas Convention and Visitors Authority, the number of hotel rooms in Las Vegas is expected to increase by 2,769 in 2006, 8,284 in 2007, 17,136 in 2008 and 6,450 in 2009.

Las Vegas casinos also compete with other hotel casino facilities elsewhere in Nevada and in Atlantic City, riverboat and Native American gaming facilities in other states, hotel casino facilities elsewhere in the world, Internet gaming and other forms of gaming. In addition, certain states recently have legalized, and others may legalize, casino gaming in specific areas. Passage of the Tribal Government Gaming and Economic Self-Sufficiency Act in 1988 has led to rapid increases in Native American gaming operations. In March 2000, California voters approved an amendment to the California Constitution allowing federally

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recognized Native American tribes to conduct and operate slot machines, lottery games and banked and percentage card games on Native American land in California. As a result, casino-style gaming on tribal lands is growing and has become a significant competitive force. The proliferation of Native American gaming in California and gaming activities in other areas could have a negative impact on our operations. In particular, the legalization of casino gaming in or near metropolitan areas, such as New York, Los Angeles, San Francisco and Boston, from which we intend to attract customers, could have a substantial negative effect on our business. In addition, new or renovated casinos in Asia could reduce the number of Asian customers who would otherwise visit Las Vegas. We also compete with other forms of gaming on both a local and national level, including state lotteries, on-and off-track wagering and card parlors. The expansion of legalized gaming into new jurisdictions throughout the United States will also increase competition.

Intellectual Property

We have entered into agreements with Planet Hollywood and Sheraton which, among other things, grant us the right to use certain of their respective intellectual property in connection with the operation of the PH Resort. These licensing arrangements are described below under “Item 13. Certain Relationships and Related Transactions—Transactions with Planet Hollywood.”

We own several registered trademarks utilizing “Aladdin” for use in connection with casinos and casino entertainment services and hotel and restaurant services and will use the Aladdin trademarks until we commence operations as the PH Resort. We do not consider the Aladdin trademarks to be material to our business once we complete the renovation of the Aladdin into the PH Resort.

Regulation and Licensing

Nevada Gaming Regulations

Introduction

The ownership and operation of casino gaming facilities in Clark County, Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the “Nevada Act”); and (ii) various local ordinances and regulations. Our operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (“Nevada Commission”), the Nevada State Gaming Control Board (“Nevada Board”) and the Clark County Liquor and Gaming License Board (collectively, the “Nevada Gaming Authorities”).

Policy Concerns of Gaming Laws

The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy. These public policy concerns include, among other things:

·preventing unsavory or unsuitable persons from being directly or indirectly involved with gaming at any time or in any capacity;

·establishing and maintaining responsible accounting practices and procedures;

·maintaining effective controls over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs, and safeguarding assets and revenues, providing reliable recordkeeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;

·preventing cheating and fraudulent practices; and

·providing a source of state and local revenues through taxation and licensing fees.

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Changes in these laws, regulations and procedures could have significant negative effects on our gaming operations and our financial condition and results of operations.

Owner and Operator Licensing Requirements

As the owner and operator of the Aladdin, OpBiz, as a registered company, is required to be licensed by the Nevada Gaming Authorities as a limited liability company licensee, referred to as a company licensee. This gaming license requires us to pay periodic fees and taxes and is not transferable. We are required periodically to submit detailed financial and operating reports to the Nevada Commission and the Nevada Board and furnish any other information, which the Nevada Commission or the Nevada Board may require. No person may become a stockholder or holder of an interest of, or receive any percentage of profits from the Aladdin or PH Resort without first obtaining licenses and approvals from the Nevada Gaming Authorities. We have obtained from the Nevada Gaming Authorities the various registrations, findings of suitability, approvals, permits and licenses required in order to engage in gaming activities in Nevada.

Individual Licensing Requirements

The Nevada Gaming Authorities may investigate any individual who has a material relationship to or material involvement with OpBiz to determine whether the individual is suitable or should be licensed as a business associate of a gaming licensee. The officers, directors and certain key employees of OpBiz, MezzCo, EquityCo and BH/RE are required to file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or an applicant for a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove a change in a corporate position. Messrs. Teitelbaum and Earl, along with Michael V. Mecca, President and Chief Executive Officer of BH/RE and OpBiz, Mark S. Helm, General Counsel and Secretary of OpBiz, Theodore W. Darnall, Manager of EquityCo and OpBiz and Michael Belletire and Jess M. Ravich, both Managers of OpBiz have been licensed by the Nevada Gaming Authorities. Applications for Donna Lehmann, Chief Financial Officer of OpBiz and Treasurer of BH/RE and Thomas M. Smith, Manager of OpBiz, are pending approval by the Nevada Gaming Authorities.

If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with OpBiz, OpBiz would have to terminate all relationships with that person. In addition, the Nevada Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada.

We are required to submit detailed financial and operating reports to the Nevada Commission and provide any other information that the Nevada Commission may require. Substantially all of the material loans, leases, sales of securities and similar financing transactions of OpBiz, MezzCo, EquityCo and BH/RE must be reported to, or approved by, the Nevada Commission and/or the Nevada Board.

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Consequences of Being Found Unsuitable

Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or by the chairman of the Nevada Board, or who refuses or fails to pay the investigative costs incurred by the Nevada Gaming Authorities in connection with the investigation of its application, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of any voting security or debt security of a registered company beyond the period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to hold an equity interest or to have any other relationship with, we:

·pay that person any dividend or interest upon any voting or debt securities;

·allow that person to exercise, directly or indirectly, any voting right held by that person relating to BH/RE, EquityCo, MezzCo or OpBiz;

·pay remuneration in any form to that person for services rendered or otherwise; or

·fail to pursue all lawful efforts to require the unsuitable person to relinquish such person’s voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value.

Consequences of Violating Gaming Laws

If the Nevada Commission decides that we have violated the Nevada Act or any of its regulations, it could limit, condition, suspend or revoke our registrations and gaming license. In addition, we and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act, or of the regulations of the Nevada Commission, at the discretion of the Nevada Commission. Further, the Nevada Commission could appoint a supervisor to operate the Aladdin (or the PH Resort) and, under specified circumstances, earnings generated during the supervisor’s appointment (except for the reasonable rental value of the premises) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any of our gaming licenses and the appointment of a supervisor could, and revocation of any gaming license would, have a significant negative effect on our gaming operations.

Requirements for Beneficial Securities Holders

Regardless of the number of shares held, any beneficial holder of BH/RE’s voting securities may be required to file an application, be investigated and have that person’s suitability as a beneficial holder of voting securities determined if the Nevada Commission has reason to believe that the ownership would otherwise be inconsistent with the policies of the State of Nevada. If the beneficial holder of the voting securities of BH/RE who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information including a list of its beneficial owners. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting any investigation.

The Nevada Act requires any person who acquires more than 5% of the voting securities of a registered company to report the acquisition to the Nevada Commission. The Nevada Act requires beneficial owners of more than 10% of a registered company’s voting securities to apply to the Nevada Commission for a finding of suitability within 30 days after the chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an “institutional investor,” as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the registered company’s voting securities may apply to the Nevada Commission for a waiver of a finding of suitability if the

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institutional investor holds the voting securities for investment purposes only. In certain circumstances, an institutional investor that has obtained a waiver can hold up to 19% of a registered company’s voting securities for a limited period of time and maintain the waiver. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the registered company, a change in the corporate charter, bylaws, management, policies or operations of the registered company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the registered company’s voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

·voting on all matters voted on by stockholders or interest holders;

·making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and

·other activities that the Nevada Commission may determine to be consistent with such investment intent.

The articles of organization of BH/RE include provisions intended to help it implement the above restrictions.

Gaming Laws Relating to Securities Ownership

The Nevada Commission may, in its discretion, require the holder of any debt or similar securities of a registered company to file applications, be investigated and be found suitable to own the debt or other security of the registered company if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the Nevada Commission decides that a person is unsuitable to own the security, then under the Nevada Act, the registered company can be sanctioned, including the loss of its approvals if, without the prior approval of the Nevada Commission, it:

·pays to the unsuitable person any dividend, interest or any distribution whatsoever;

·recognizes any voting right by the unsuitable person in connection with the securities;

·pays the unsuitable person remuneration in any form; or

·makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.

BH/RE is required to maintain a current ownership ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make the disclosure may be grounds for finding the record holder unsuitable. We will be required to render maximum assistance in determining the identity of the beneficial owner of any of BH/RE’s voting securities. The Nevada Commission has the power to require the certificates representing equity interests of any registered company to bear a legend indicating that the securities are subject to the Nevada Act. We do not know whether this requirement will be imposed on us. However, the certificates representing BH/RE’s membership interests note that the membership interests are subject to a right of redemption and other restrictions set forth in BH/RE’s articles of organization and bylaws and that the membership interests are, or may become, subject to restrictions imposed by applicable gaming laws.

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Approval of Public Offerings

Neither BH/RE nor any of its affiliates may make a public offering of its debt or equity securities without the prior approval of the Nevada Commission if the proceeds from the offering are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for those purposes or for similar transactions, unless, upon a written request for a ruling, the chairman of the Nevada Board has ruled that it is not necessary to submit an application for approval. Any approval that we might receive in the future relating to future offerings will not constitute a finding, recommendation or approval by any of the Nevada Gaming Authorities as to the accuracy or adequacy of the offering memorandum or the investment merits of the securities. Any representation to the contrary is unlawful.

Approval of Changes in Control

As a registered company, BH/RE must obtain prior approval of the Nevada Commission with respect to a change in control through:

·merger;

·consolidation;

·stock or asset acquisitions;

·management or consulting agreements; or

·any act or conduct by a person by which the person obtains control of us.

Entities seeking to acquire control of a registered company must satisfy the Nevada Board and Nevada Commission with respect to a variety of stringent standards before assuming control of the registered company. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction.

Approval of Defensive Tactics

The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licenses or affecting registered companies that are affiliated with the operations permitted by Nevada gaming licenses may be harmful to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to reduce the potentially adverse effects of these business practices upon Nevada’s gaming industry and to further Nevada’s policy to:

·assure the financial stability of corporate gaming operators and their affiliates;

·preserve the beneficial aspects of conducting business in the corporate form; and

·promote a neutral environment for the orderly governance of corporate affairs.

We may be required to obtain approval from the Nevada Commission before we can make exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by a registered company’s board of directors in response to a tender offer made directly to its stockholders for the purpose of acquiring control.

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Fees and Taxes

License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the licensed operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon:

·a percentage of the gross revenues received;

·the number of gaming devices operated; or

·the number of table games operated.

A live entertainment tax is also paid by casino operators where entertainment is furnished in connection with an admission charge or the selling or serving of food or refreshments or the selling of merchandise.

License for Conduct of Gaming and Sale of Alcoholic Beverages

The conduct of gaming activities and the service and sale of alcoholic beverages at the Aladdin and the PH Resort are subject to licensing, control and regulation by the Clark County Liquor and Gaming License Board. In addition to approving OpBiz, the Clark County Liquor and Gaming License Board has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. All licenses are revocable and are not transferable. The county agency has full power to limit, condition, suspend or revoke any license. Any disciplinary action could, and revocation would, have a substantial negative impact upon our operations.

Employees

Under the terms of the purchase agreement, in connection with the acquisition of the Aladdin, OpBiz was obligated to make offers of employment to all non-management employees of Aladdin Gaming upon completion of the Aladdin acquisition and has hired all employees who accepted the offers of employment. OpBiz currently has approximately 3,100 employees. Aladdin Gaming had entered into a collective bargaining agreement that covers less than 20 employees who work on the Aladdin loading docks. OpBiz has assumed this agreement in connection with the Aladdin acquisition. Negotiations with the Culinary Workers’ Union Local 226, Las Vegas, related to a collective bargaining agreement were completed on October 1, 2005. Approximately 1,200 employees (52%) are now covered by this agreement which expires on May 31, 2007.

ITEM 1A.RISK FACTORS

Our plans and business are subject to the following risks:

Risks Related to the Aladdin Renovation

Our renovation budget is only an estimate and actual costs may exceed the budget.

The final plans and specifications for the renovation of the Aladdin have not been finalized. We currently estimate that renovation costs will be about $100 million. While we believe that the budget is reasonable, the costs are an estimate and actual costs may be higher than expected. Construction projects like the proposed renovations to the Aladdin entail significant risks, including:

·unanticipated cost increases;

·unforeseen engineering, environmental and/or geographical problems;

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·shortages of materials or skilled labor;

·work stoppages; and

·weather interference.

Construction, equipment or staffing problems or difficulties in obtaining any of the requisite licenses, permits and authorizations from regulatory authorities could increase the total cost of the renovations, delay or prevent the renovations or otherwise affect the design and features of the PH Resort. We cannot assure you that the actual renovation costs will not exceed the budgeted amounts. Failure to complete the renovations within our budget may negatively affect our financial condition and results of operations.

We may not be able to fund cost overruns.

We do not have commitments for funding in excess of $100 million and we cannot assure you that such funding, if necessary, will be available on acceptable terms and conditions. In addition, substantially all of our internally generated funds, other than cash reserves permitted under the Credit Agreement, will be used to pay interest and principal under the Credit Agreement. The terms of the Credit Agreement do not allow us to use our cash reserves to fund the planned renovations. If we experience cost overruns or other events or circumstances that would cause us to require funding in excess of the existing capital commitments, we might not be able to complete the renovations or execute the business plans for the PH Resort.

Renovations to the Aladdin may disrupt our operations.

We intend to operate the Hotel and Casino under the Aladdin name during renovations. We intend to conduct the renovations in phases and otherwise attempt to reduce disruption to our business to the extent practicable. However, we cannot assure you that the renovation process will not result in a decrease in Hotel occupancy or use of the Casino, either of which would have a negative impact on our results of operations.

The Planet Hollywood brand has not historically been associated with hotels or casinos.

Planet Hollywood is a franchisor of themed restaurants and related retail shops. In the past, the Planet Hollywood brand has not been associated with hotels or casinos. We cannot assure you that customers will be attracted to a Planet Hollywood-themed resort such as the PH Resort. In addition, Planet Hollywood filed for Chapter 11 bankruptcy protection in October 1999 and emerged in May 2000. Planet Hollywood subsequently filed for Chapter 11 bankruptcy protection in October 2001 and emerged in March 2003. We do not believe that Planet Hollywood’s bankruptcy proceedings have a negative impact on the general perception of the Planet Hollywood brand or will have a negative impact to the PH Resort, but we can provide no assurances in that regard.

OpBiz may need limited approvals from Boulevard Invest to carry out certain of the planned renovations.

Boulevard Invest has agreed to allow OpBiz to change the name of the Aladdin to the PH Resort, to re-theme the Aladdin from its current Arabian-based theme to a Planet Hollywood theme and to develop the vacant property adjacent to the Desert Passage. Boulevard Invest has also agreed to amend the reciprocal use agreements governing the operation and maintenance of the Hotel, Casino, TPA, Showroom, Desert Passage and parking facility accordingly. Boulevard Invest may, however, have limited approval rights to portions of the renovation plans that involve changes to the physical structure of the Desert Passage, changes to the physical structure of the Hotel, Casino or TPA that could affect the Desert Passage and other changes that could adversely affect the Desert Passage. We cannot assure you that Boulevard Invest will approve of such portions of our final plans and specifications, if any. Failure of

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Boulevard Invest to give any required approvals might cause us to delay or modify our planned renovations.

Risks Related to Our Substantial Indebtedness

Our substantial indebtedness could adversely affect our financial results.

We have $496.9 million of indebtedness under the Credit Agreement, approximately $32.3 million of indebtedness under the Energy Service Agreement and approximately $104.0 million of indebtedness incurred by MezzCo. The indebtedness under the Credit Agreement is secured by a first lien on all of the assets of OpBiz and a pledge of MezzCo’s equity interest in OpBiz.

The Credit Agreement provides that substantially all of our excess cash flow (as defined in the Credit Agreement) will be used to pay down indebtedness of OpBiz after OpBiz establishes a $30 million cash reserve from operating cash flow. Therefore, we will have limited cash flow available to fund working capital, capital expenditures permitted under the Credit Agreement and other general corporate activities and to make distributions to our owners, other than limited distributions to pay interest and principal on indebtedness of MezzCo, and distributions to pay income taxes. Our substantial indebtedness could also have the following additional consequences:

·limit our ability to obtain additional financing in the future;

·increase our vulnerability to general adverse economic and industry conditions;

·limit flexibility in planning for, or reacting to, changes in our business and industry; and

·place us at a disadvantage compared to less leveraged competitors.

The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations or prospects.

Our future cash flows may not be sufficient to meet our debt obligations.

Our ability to make payments on our indebtedness depends on our ability to generate sufficient cash flow in the future. Our ability to generate cash flow will depend upon many factors, some of which are beyond our control, including:

·demand for our services;

·economic conditions generally, as well as in Nevada and within the casino industry;

·competition in the hotel and casino industries;

·legislative and regulatory factors affecting our operations and business; and

·our ability to hire and retain employees at a reasonable cost.

We cannot assure you that we will generate cash flow from operations in an amount sufficient to make payments on our indebtedness or to fund other liquidity needs. Our inability to generate sufficient cash flow would have a material adverse effect on our financial condition and results of operations. In addition, if we are not able to generate sufficient cash flow to service our indebtedness, we may need to refinance or restructure our indebtedness, sell assets, reduce or delay capital investment, or seek to raise additional capital. If we cannot implement one or more of these alternatives, we may not be able to meet our payment obligations under our indebtedness.

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The Credit Agreement imposes restrictions on our operations.

The Credit Agreement imposes operating and financial restrictions on us. These restrictions include, among other things, limitations on our ability to:

·incur additional debt or refinance existing debt;

·create liens or other encumbrances;

·make distributions with respect to our, or our subsidiaries’, equity (other than distributions for tax obligations) or make other restricted payments;

·make investments, capital expenditures, loans or other guarantees;

·sell or otherwise dispose of our assets; and

·merge or consolidate with another entity.

The Credit Agreement contains certain financial covenants, including minimum levels of earnings before interest, tax, depreciation and amortization, which we refer to as EBITDA, a minimum ratio of EBITDA to cash interest expense and a maximum ratio of indebtedness to EBITDA.

Our failure to comply with the covenants contained in the Credit Agreement, including as a result of events beyond our control, could result in an event of default.

If there were an event of default under one of our debt instruments, the holders of the indebtedness under the Credit Agreement could cause all amounts outstanding with respect to that debt to be due and payable immediately. In addition, any event of default or declaration of acceleration under one debt instrument could result in an event of default under one or more of our other debt instruments. It is likely that, if the defaulted debt is accelerated, our assets and cash flow will not be sufficient to fully repay borrowings under our outstanding debt instruments and we cannot assure you that we would be able to refinance or restructure the payments on those debt securities. Further, if we are unable to repay, refinance or restructure our indebtedness under the Credit Agreement, the lenders under the Credit Agreement could proceed against the collateral securing that indebtedness.

Risks Related to Our Business

We have a limited operating history.

We were formed to acquire, operate and renovate the Aladdin. While the Aladdin has a history of operations, we have only operated the Hotel and Casino since September 2004. Consequently, we cannot assure you that our planned renovations to the Aladdin and transformation of the Aladdin into the PH Resort will attract the number and type of Hotel and Casino customers and other visitors we desire or whether we will be able to achieve our objective to improve the profitability of the Aladdin.

We will be subject to the significant business, economic, regulatory and competitive uncertainties and contingencies frequently encountered by new businesses in competitive environments, many of which are beyond our control. Because we have a limited operating history, it may be more difficult for us to prepare for and respond to these types of risks, and the other risks described in this Annual Report on Form 10-K, as compared to a company with an established business. If we are not able to manage these risks successfully, our results of operations could be negatively affected.

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We are dependent upon Planet Hollywood’s entertainment industry relationships and the efforts and skills of the senior management of OpBiz.

Our ability to maintain our competitive position will be dependent to a large degree on our ability to leverage Planet Hollywood’s celebrity and entertainment industry relationships and to hire and retain experienced senior management, including marketing and operating personnel. Whether the PH Resort becomes a venue for entertainment industry events will be highly dependent on Planet Hollywood’s entertainment industry relationships and the efforts and skill of our marketing personnel in brand management and their ability to attract celebrities and entertainment industry personalities to the PH Resort. If we are unable to leverage Planet Hollywood’s relationships within the entertainment industry or to hire and retain experienced senior management, our business may be significantly impaired.

We may not be able to retain qualified senior management.

We believe that the pool of experienced gaming and other personnel is limited and competition to recruit and retain gaming and other personnel is intense. We cannot assure you that we will be able to retain a sufficient number of qualified senior managers for our planned operations.

Our managers, officers and key employees may not obtain applicable gaming licenses.

Our managers, officers and certain key employees are required to file applications with the Nevada Gaming Authorities and may be required to be approved by the Nevada Gaming Authorities. If the Nevada Gaming Authorities were to find an officer, manager or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, the Nevada Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could adversely affect our gaming operations.

We will face intense competition from other hotel casino resorts in Las Vegas.

There is intense competition in the gaming industry. Competition in the Las Vegas area has increased over the last several years as the result of significant increases in hotel rooms, casino size and convention, trade show and meeting facilities. Moreover, this growth is presently continuing and is expected to continue.

Resorts located on or near the Las Vegas Strip compete with other Las Vegas Strip hotels and with other hotel casinos in Las Vegas on the basis of overall atmosphere, range of amenities, level of service, price, location, entertainment offered, theme and size. We compete with a large number of other hotels and motels located in and near Las Vegas, as well as other resort destinations. Many of our competitors have established gaming operations and may have greater financial and other resources than we do.

We cannot assure you that the Las Vegas market will continue to grow or that hotel casino resorts will continue to be popular. A decline or leveling off of the growth or popularity of hotel casino resorts or the appeal of the features offered by the Aladdin, and to be offered by the PH Resort, could impair our financial condition and results of operations. Further, the design and amenities of the PH Resort may not appeal to customers. Customer preferences and trends can change, often without warning, and we may not be able to predict or respond to changes in customer preferences in time to adapt the attractions and amenities offered at the PH Resort to address these new trends.

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We face competition from gaming operations outside Las Vegas.

We compete with other hotel casino facilities elsewhere in Nevada and in Atlantic City, riverboat gaming facilities in other states, hotel casino facilities elsewhere in the world, Internet gaming, state lotteries and other forms of gaming. Certain states recently have legalized, and others may legalize, casino gaming in specific areas, and casino-style gaming on Native American tribal lands is growing and could become a significant competitive force. In particular, the expansion of Native American gaming in California could have a negative impact on our results of operations.

Expansion of gaming activities in other areas could significantly harm our business. In particular, the legalization of casino gaming in or near areas from which we intend to attract customers could have a substantial negative effect on our business. In addition, new or renovated casinos in Asia could reduce the number of Asian customers who would otherwise visit Las Vegas.

We are entirely dependent upon OpBiz for all of our cash flow.

We do not currently expect to have material assets or operations other than our investment in OpBiz. OpBiz conducts substantially all of our operations and owns substantially all of our assets. Consequently, our cash flow depends on the cash flow of OpBiz and the payment of funds to us by OpBiz in the form of loans, distributions or otherwise, which payments are either restricted or prohibited without the consent of OpBiz’s lenders. Given that our operations only focus on one property in Las Vegas, we are subject to greater degrees of risk than a gaming company with multiple operating properties. Material risks include:

·a decrease in gaming and non-gaming activities at the PH Resort;

·a decline in the number of visitors to Las Vegas;

·local economic and competitive conditions;

·an increase in the cost of electrical power as a result of, among other things, power shortages in California or other western states with which Nevada shares a single regional power grid;

·changes in local and state governmental laws and regulations, including gaming laws and regulations; and

·natural and other disasters.

Any of the factors outlined above could negatively affect our ability to generate sufficient cash flow to make payments on our indebtedness and to make distributions to our owners.

The gaming industry is highly regulated and we are required to adhere to various regulations and maintain our licenses to continue operations.

The operation of the PH Resort is contingent upon the receipt and maintenance of various regulatory licenses, permits, approvals, registrations, findings of suitability, orders and authorizations. The laws, regulations and ordinances requiring these licenses, permits and other approvals generally relate to the responsibility, financial stability and character of the owners and managers of gaming operations, as well as persons financially interested or involved in gaming operations. The scope of the approvals required to acquire and operate a facility is extensive. Failure to obtain or maintain the necessary approvals could prevent or delay all or part of the renovations to the Aladdin or otherwise affect the design and features of the PH Resort.

Nevada regulatory authorities have broad powers to request detailed financial and other information, to limit, condition, suspend or revoke a registration, gaming license or related approval and to approve changes in the operations of the Aladdin or the PH Resort. Substantial fines or forfeiture of assets for violations of gaming laws or regulations may be levied. The suspension or revocation of any license which

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may be granted to us or the levy of substantial fines or forfeiture of assets could significantly harm our business, financial condition and results of operations. Furthermore, compliance costs associated with gaming laws, regulations and licenses are significant. Any change in the laws, regulations or licenses applicable to our business or a violation of any current or future laws or regulations applicable to our business or gaming license could require us to make substantial expenditures or could otherwise negatively affect our gaming operations.

Our employees have joined unions.

In December 2004, a majority of the employees of the Aladdin who could be represented by the culinary union, requested union representation. Negotiations between management of OpBiz and the culinary union commenced on March 1, 2005 and a final collective bargaining agreement was completed effective October 1, 2005 and expires on May 31, 2007. We believe that the collective bargaining agreement will not have a material impact on OpBiz’s results of operations or financial position.

Because we own real property, we are subject to environmental regulation.

We may incur costs and expend funds to comply with environmental requirements, such as those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. Under these and other environmental requirements, OpBiz, as the owner of the property on which the PH Resort will be situated, may be required to investigate and clean up hazardous or toxic substances or chemical releases at that property. As an owner or operator, OpBiz could also be held responsible to a governmental entity or third parties for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any contamination.

These laws typically impose cleanup responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. The liability under those laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use the property.

Energy price increases could adversely affect our costs of operations and our revenues.

We use significant amounts of electricity, natural gas and other forms of energy. While Las Vegas Strip properties have not recently experienced significant energy shortages, substantial increases in the cost of electricity in the western United States would negatively affect our operating results. The extent of the impact is subject to the magnitude and duration of any energy price increase, but this impact could be material. In addition, higher energy and gasoline prices may result in reduced visits to Las Vegas.

Acts of terrorism, as well as other factors affecting discretionary consumer spending, have impacted our industry and may harm our operating results and our ability to insure against certain risks.

The terrorist attacks of September 11, 2001 had an immediate negative impact on travel and leisure expenditures, including lodging, gaming and tourism, and ongoing terrorist and war activities have occasionally had a negative effect on our industry. As a destination whose primary customers arrive by air, Las Vegas is vulnerable to consumer concerns about travel in general, and particularly flying. We cannot predict the extent to which ongoing terrorist and war activities may affect us. These events, the potential for future terrorist attacks, the national and international responses to terrorist attacks and other acts of war or hostility have created many economic and political uncertainties which could adversely affect our business and results of operations. Future acts of terror in the United States or an outbreak of hostilities

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involving the United States may reduce a willingness on the part of the general public to travel with the result that our operations will suffer.

In addition to fears of war and future acts of terrorism, other factors affecting discretionary consumer spending, including general economic conditions, disposable consumer income, fears of recession and consumer confidence in the economy, may negatively impact our business. Adverse changes in factors affecting discretionary spending could reduce customer demand for the gaming, dining and entertainment activities we will offer, thus imposing practical limits on pricing and harming our operations.

Partly as a consequence of the events of September 11, 2001 and the threat of similar events in the future, premiums for a variety of insurance products have increased sharply, and some types of insurance coverage are no longer available. Although we will endeavor to obtain and maintain insurance covering extraordinary events that could affect our operations, conditions in the marketplace have made it prohibitive for us to maintain insurance against losses and interruptions caused by terrorist acts and acts of war. If any such event were to affect the Aladdin, or following our planned renovations, the PH Resort, we would likely suffer a substantial loss.

A downturn in general economic conditions may adversely affect our results of operations.

Our business operations will be affected by international, national and local economic conditions. A recession or downturn in the general economy, or in a region constituting a significant source of our customers, could result in fewer customers visiting the Aladdin or, following our planned renovations, the PH Resort, which would adversely affect our revenues.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.PROPERTIES

Substantially all of our assets have been pledged as collateral for our Credit Facility. The outstanding balance under the Credit Facility was approximately $496.9 million at December 31, 2005. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Description of Certain Indebtedness”.

The Complex occupies a 35-acre site located on the northeast corner of  the Strip and Harmon Avenue in Las Vegas, Nevada. We own approximately 21.8 acres, which consists of the Aladdin, the TPA, the Showroom, Hotel, Casino, various restaurants and bars and the central utility plant. Approximately 0.62 acres are leased to the owner and operator of the central utility plant.

ITEM 3.LEGAL PROCEEDINGS

As of December 31, 2005, neither BH/RE nor any of its subsidiaries is a party to any material litigation.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of 2005.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for BH/RE’s membership interests and we do not presently expect that a trading market in BH/RE’s membership interests will develop. There are no outstanding options or warrants to purchase, or securities convertible into, any of BH/RE’s membership interests.

As of December 31, 2005, there were two holders of record of BH/RE’s voting membership interests and three holders of record of BH/RE’s equity membership interests.

BH/RE does not pay, and does not anticipate paying, any distributions to the holders of its membership interests, other than distributions in respect of income taxes payable by such members resulting from their ownership of membership interests.

There were no sales or repurchases of securities of BH/RE during the year ended December 31, 2005.

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ITEM 6.SELECTED FINANCIAL DATA

The selected financial data presented below are qualified in their entirety by, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements, the notes thereto and other financial and statistical information included elsewhere in this Annual Report on Form 10-K.

	For the years ended December 31,
										Predecessor Information
	2005			2004(a)			2003(b)			2004(c)			2003			2002			2001
	(in thousands)
Operating Results:
Net revenues	$	306,258		$	96,141		$	—		$	190,889		$	266,540		$	236,384		$	260,387
Operating costs and expenses, excluding the following items	284,602			85,465			—			146,791			255,111			263,052			294,455
Pre-opening expenses(c)	—			1,684			1,283			—			—			—			—
Impairment of long-lived assets(d)	—			—			—			1,732			29,478			—			—
Loss on disposition of assets	1,787			—			—			—			—			—			—
Operating income (loss)	19,869			8,992			(1,283		)	42,366			(18,049		)	(26,668		)	(34,068		)
Other income (expense), net	(49,730		)	(15,648		)	52			(2,541		)	(9,953		)	(11,883		)	(74,383		)
Income (loss) before income taxes, cumulative effect of change in accounting principal and reorganization items	(29,861		)	(6,656		)	(1,231		)	39,825			(28,002		)	(38,551		)	(108,451		)
Income tax provision	(15		)	—			—			—			—			—			—
Cumulative effect of change in accounting principal	—			—			—			—			—			—			(10,709		)
Reorganization items	—			—			—			(6,647		)	(12,103		)	(10,604		)	(25,756		)
Net income (loss)	$	(29,876	)	$	(6,656	)	$	(1,231	)	$	33,178		$	(40,105	)	$	(49,155	)	$	(144,916	)
Balance Sheet Data:
Total assets	$	654,495		$	663,383		$	13		$	548,634		$	564,198		$	621,057		$	677,287
Long-term debt	604,877			584,814			—			33,958			34,690			35,664			1,750
Member’s equity (deficit)	(16,263		)	13,613			(1,231		)	(20,194		)	(53,372		)	(13,267		)	35,888

(a)Includes the operations of BH/RE and its subsidiaries for the twelve months ended December 31, 2004, which includes the operations of the Aladdin for four months beginning on September 1, 2004.

(b)Including the operations of BH/RE and its subsidiaries from the date of formation (March 31, 2003) through December 31, 2003.

(c)Includes the operations of the Aladdin by Aladdin Gaming for the eight months ended August 31, 2004.

(d)Pre-opening expenses for the year ended December 31, 2004 were approximately $1.7 million, which included costs incurred prior to the acquisition of the Aladdin by BH/RE on September 1, 2004. Pre-opening expenses for the year ended December 31, 2003 were approximately $1.3 million.

(e)On August 31, 2004, Aladdin Gaming recorded an impairment loss of approximately $1.7 million based on the purchase price of assets sold to OpBiz on September 1, 2004. On August 29, 2003, the Bankruptcy Court confirmed Aladdin Gaming’s plan of reorganization and approved the Purchase Agreement with OpBiz. As a result, Aladdin Gaming classified substantially all of its assets as “assets held for sale” and performed an impairment review in accordance with SFAS 144. An impairment loss of approximately $29.5 million was recognized based on a discounted cash flow analysis and allocated to the individual assets based on their relative fair values for the year ended December 31, 2003.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview of Management’s Discussion and Analysis of Financial Condition and Results of Operations

Set forth below is a discussion of the financial condition and results of operations of BH/RE and our subsidiaries for the periods covered in the report. The discussion of operations herein focuses on events and the revenues and expenses during the year ended December 31, 2005 as compared to the year ended December 31, 2004, and the year ended December 31, 2004 as compared to the year ended December 31, 2003, as if there was no change in ownership of the Aladdin.

The following discussion and analysis should be read in conjunction with “Item 6. Selected Financial Data” and the financial statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Significant Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with U.S generally accepted accounting principles. Certain policies, including the determination of bad debt reserves, the estimated useful lives assigned to assets, asset impairment, insurance reserves and the calculation of liabilities, require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on historical experience, terms of existing contracts, observance of trends in the gaming industry and information available from other outside sources. There can be no assurance that actual results will not differ from our estimates. To provide an understanding of the methodology we apply, our significant accounting policies and basis of presentation are discussed below, as well as where appropriate in the notes to the consolidated financial statements.

Property and Equipment

Property and equipment are stated at cost. Recurring repairs and maintenance costs, including items that are replaced routinely in the casino, hotel and food and beverage departments which do not meet the Company’s capitalization policy of $10,000, are expensed as incurred. The Company has established its capital expense policy to be reflective of its individual ongoing repairs and maintenance programs. Gains or losses on dispositions of property and equipment are included in the determination of income. Property and equipment are generally depreciated over the following estimated useful lives on a straight-line basis:

Buildings	40 years
Building improvements	15 to 40 years
Furniture, fixtures and equipment	3 to 7 years

Property and equipment and other long-lived assets are evaluated for impairment in accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” For assets to be disposed of, the asset to be sold is recognized at the lower of carrying value or fair value less costs of disposal. Fair value for assets to be disposed of is estimated based on comparable asset sales, solicited offers or a discounted cash flow model.

Property and equipment are reviewed for impairment whenever indicators of impairment exist. If an indicator of impairment exists, the estimated future cash flows of the asset, on an undiscounted basis, are compared to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no

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impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model.

The property and equipment and other long-lived assets that BH/RE obtained in the acquisition of the Aladdin were appraised by an independent third party. Property and equipment and the related accumulated depreciation amounts, as well as certain intangible assets recorded in the Company’s consolidated balance sheet as of December 31, 2005, are based on the independent third party appraisal.

Derivative Instruments and Hedging Activities

As further consideration to the lenders under the Credit Agreement, BH/RE has issued warrants to purchase membership interests held by BH/RE in EquityCo. BH/RE accounts for the outstanding warrants in EquityCo as embedded derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133”.

In conjunction with the Mezzanine Financing, MezzCo issued warrants to purchase membership interests in the fully diluted equity of MezzCo which contain a net cash settlement, and therefore are accounted for in accordance with Emerging Issues Task Force (“EITF”) 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. Both SFAS No. 133 and EITF 00-19 require that the warrants be recognized as liabilities, with changes in fair value affecting net income. See “Note 7. Long-Term Debt—Mezzanine Financing”.

Promotional Allowances

Casino revenues are recognized as the net win from gaming activities, which is the difference between gaming wins and losses. All other revenues are recognized as the service is provided. Revenues include the retail value of food, beverage, rooms, entertainment, and merchandise provided on a complimentary basis to customers. Such complimentary amounts are then deducted from revenues as promotional allowances on our consolidated statements of operations. The estimated departmental costs of providing such promotional allowances are included in casino costs and expenses.

Hotel and Food and Beverage Revenues

Hotel revenue recognition criteria are generally met at the time of occupancy. Food and beverage revenue recognition criteria are generally met at the time of service. Deposits for future hotel occupancy or food and beverage services are recorded as deferred income until revenue recognition criteria are met. Cancellation fees for hotel and food and beverage services are recognized upon cancellation by the customer as defined by a written contract entered into with the customer.

Players’ Club Program

Players’ club members earn points based on gaming activity, which can be redeemed for cash. We accrue expense related to this program as the points are earned based on historical redemption percentages.

Allowance for Doubtful Accounts Reserves

Our receivables balances relate primarily to our hotel and casino operations. We reserve an estimated amount for receivables that may not be collected. We estimate the allowance for doubtful accounts by applying standard reserve percentages to aged account balances under a specific dollar amount and specifically analyzing the collectibility of each account with a balance over the specified dollar amount,

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based on the age of the account, the customers’ financial condition, collection history and any other known information.

The allowance for doubtful accounts as a percentage of receivables at December 31, 2005 increased when compared to December 31, 2004 primarily as a result of the increase in casino receivables. The increase in casino receviables is commensurate with the increase in marker play throughout 2005. We maintain strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to pay their markers timely. Markers are generally legally enforceable instruments in the United States and at December 31, 2005, all of our casino receivables were owed by customers in the United States.

The following table summarizes our receivable balances (in thousands):

	December 31,
	2005			2004
Casino	$	12,173		$	5,712
Hotel	8,470			7,735
Other	3,593			1,433
	24,236			14,880
Allowance for doubtful accounts	(4,443		)	(2,254		)
Receivables, net	$	19,793		$	12,626

Self-Insurance Accruals

We are self-insured, up to certain limits, for costs associated with employee medical coverage. We accrue for the estimated expense of known claims, as well as estimates for claims incurred but not yet reported.

Income Taxes

The consolidated financial statements include the operations of BH/RE and its controlled subsidiaries: EquityCo, MezzCo, and OpBiz. BH/RE and EquityCo are limited liability companies and are taxed as partnerships for federal income tax purposes. MezzCo has elected to be taxed as a corporation for federal income tax purposes. OpBiz, a wholly-owned subsidiary of MezzCo, will be treated as a division of MezzCo for federal income tax purposes, and accordingly, will also be subject to federal income taxes.

MezzCo and OpBiz account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS 109 requires the recognition of deferred income tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.

Preopening Costs

We account for costs incurred during the preopening and start-up phases of operations in accordance with Statement of Position 98-5, “Reporting on the Costs of Start-up Activities”. Preopening and start-up costs include, but are not limited to, salary related expenses for new employees, travel and entertainment expenses. Preopening costs are expensed as incurred.

Membership Interests

As of December 31, 2005, our membership interests had not been unitized and our members do not presently intend to unitize these membership interests. Accordingly, we have excluded earnings per

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membership unit data required pursuant to SFAS No. 128, “Earnings Per Share,” because we believe that such disclosures would not be meaningful to the financial statement presentation.

The Company has entered into various employment agreements, as amended, with several executives. The employment agreements have initial terms of two to five years. The employment agreements provide that the executives will receive a base salary with either mandatory increases or annual adjustments and annual bonus payments. In addition, depending on the terms of the employment agreements, these executives are entitiled to options to purchase between 0.2% and 5% of the equity of MezzCo. The options were granted with an exercise price equal to or greater than the fair value at the date of grant.

The Company accounts for stock-based compensation, including employee stock option plans, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and the Financial Accounting Standards Board’s Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25.” Had the Company accounted for these plans under the fair value method allowed by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), the Company’s net loss would have been as follows on a pro forma basis:

BH/RE, L.L.C. and Subsidiaries
For the Year Ended December 31,

	2005			2004
Net-loss	$	(29,876	)	$	(6,656	)
Stock-based compensation cost	(178		)	(121		)
Pro-forma net loss	$	(30,054	)	$	(6,777	)

The estimated fair value of options granted during 2004 was $830,000 and was computed using a Black-Scholes valuation model with the following assumptions: risk free interest rate of 3.79%; no expected dividend yields; a 36% volatity rate; and expected lives of 84 months.

Sheraton Hotel Management Contract

OpBiz and Sheraton have entered into a management contract pursuant to which Sheraton provides hotel management services to the Hotel, assists OpBiz in the management, operation and promotion of the Hotel and permits OpBiz to use the Sheraton brand and trademarks in the promotion of the Hotel. OpBiz pays Sheraton a monthly fee of 4% of gross Hotel revenue and certain food and beverage outlet revenues and 2% of rental income from third-party leases in the Hotel. The management contract has a 20-year term that commenced on the completion of the Aladdin acquisition and is subject to certain termination provisions by either OpBiz or Sheraton. Sheraton is a wholly owned subsidiary of Starwood, which has a 15% equity interest in EquityCo and has the right to appoint two members to the EquityCo board of managers.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment”, which requires that the compensation costs relating to share-based payments transactions be recognized in financial statements based on alternative fair value models. The share-based compensation cost will be measured on fair value models of the equity or liability instruments issued. The Company currently disclosed pro-forma compensation expense annually by calculating the membership unit option grants’ fair value using the Black-Scholes or other valuation model and disclosing the impact on net loss in a note to the financial statements. Upon adoption, pro forma disclosure will no longer be an alternative. The table above reflects the estimated impact that such a change in accounting treatment

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would have had on our net loss if it had been in effect during the years ended December 31, 2005, 2004 and 2003. The Company will begin to apply FSAS No. 123(R) using the modified prospective method as of the interim reporting period ending March 31, 2006 as provided by the Securities Exchange Commission announcement on April 14, 2005 which amended the effective date.  Based on membership unit options outstanding as December 31, 2005, the Company estimates approximately $0.3 million in expense to be recorded during 2006, $0.1 million in 2007, and $0 thereafter.

In March 2005, the SEC issued Staff Accounting Bulleting (“SAB”) No. 107, “Share-Based Payment” to provide interpretive guidance on SFAS No. 123(R) valuation methods, assumptions used in valuation models, and the interaction of SFAS No. 123(R) with existing SEC guidance. SAB No. 107 also requires the classification of stock compensation expense in the same financial statement line items as cash compensation, and will therefore impact our departmental expenses (and related operating margins), pre-opening costs and construction in progress for our development projects, and our general and administrative expenses.

Results of Operations

The following table highlights the results of operations of the Aladdin. The amounts for the year ended December 31, 2004 include the eight months of operations by Aladdin Gaming and the four months of operations by OpBiz.

	Year Ended December 31,
	2005		Percent Change		2004		Percent Change			2003
	(In thousands)
Net revenues	$	306,258	6.7	%	$	287,030		7.7	%	$	266,540
Operating expenses:
Casino	75,016		7.8	%	69,590			11.1	%	62,626
Hotel	45,123		37.8	%	32,751			13.3	%	28,913
Food and beverage	51,373		14.4	%	44,896			2.0	%	44,032
Other	10,146		(16.2	)%	12,110			(15.6	)%	14,344
Selling, general and administrative	79,352		21.9	%	65,095			5.5	%	61,701
Depreciation and amortization	23,592		201.9	%	7,814			(82.0	)%	43,495
Preopening expenses	—		(100.0	)%	1,684			31.3	%	1,283
Impairment of long-lived assets	—		(100.0	)%	1,732			(94.1	)%	29,478
Loss on disposition of assets	1,787		100.0	%	—			0.0	%	—
Operating income (loss)	$	19,869	(61.3	)%	$	51,358		365.7	%	$	(19,332	)

Net revenues for the year ended December 31, 2005, improved over that of the year ended December 31, 2004. We experienced improvement consistent with the Las Vegas Strip market with increases in both gaming and non-gaming revenues. The decrease in operating income was primarily due to increased SG&A expenses including management bonuses and legal and professional fees, which were included as re-organizational costs and not SG&A by Aladdin Gaming in 2004, as well as the increase in depreciation which was not recorded during the first eight months of 2004 while Aladdin Gaming was undergoing bankruptcy proceedings and assets were classified as “held for sale”. Management fees paid to Starwood under the Sheraton Hotel Management Contract and repair and maintenance expense in the hotel division also significantly contributed to the decline in operating income.

Net revenues and overall operating results for the year ended December 31, 2004 improved over that of the year ended December 31, 2003 due to improvements in general economic conditions throughout 2004. The increase in operating income was primarily due to depreciation not being recorded during the first eight months of 2004 while Aladdin Gaming was undergoing bankruptcy proceedings and assets were classified as “held for sale”.

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The following table highlights the various sources of our revenues and expenses as compared to the prior years. The amounts for the year ended December 31, 2004 include both the eight months of operations by Aladdin Gaming and the four months of operations by OpBiz.

	Year Ended December 31,
	2005			Percent Change			2004			Percent Change			2003
	(In thousands)
Casino revenues	$	130,083			9.5	%	$	118,842			7.4	%	$	110,642
Casino expenses	75,016				7.8	%	69,590				11.1	%	62,626
Margin	42.3		%				41.4		%				43.4		%
Hotel revenues	$	110,443			4.1	%	$	106,112			10.7	%	$	95,836
Hotel expenses	45,123				37.8	%	32,751				13.3	%	28,913
Margin	59.1		%				69.1		%				69.8		%
Food and beverage revenues	$	74,594			2.9	%	$	72,473			6.4	%	$	68,084
Food and beverage expenses	51,373				14.4	%	44,896				2.0	%	44,032
Margin	31.1		%				38.1		%				35.3		%
Other revenues	$	17,511			4.4	%	$	16,775			(8.7	)%	$	18,378
Other expenses	10,146				(16.2	)%	12,110				(15.6	)%	14,344
Selling, general and administrative expenses	$	79,352			21.9	%	$	65,095			5.5	%	$	61,701
Percent of net revenues	25.9		%				22.7		%				23.1		%

Casino

Casino revenue is derived primarily from patrons wagering on slot machines, table games and other gaming activities. Table games generally include Blackjack or Twenty One, Craps, Baccarat and Roulette. Other gaming activities include the Race and Sports Books, Poker and Keno. Casino revenue is defined as the win from gaming activities, computed as the difference between gaming wins and losses.

Casino revenues vary from time-to-time due to general economic conditions, competition, popularity of entertainment offerings, table game hold, slot machine hold and occupancy percentages in the hotel. Casino revenues also vary depending upon the amount of gaming activity, as well as variations in the odds for different games of chance. Casino revenue is recognized at the end of each gaming day.

2005 compared with 2004

Casino revenues increased 9.5% to $130.1 million for the year ended December 31, 2005 as compared to $118.8 million for the year ended December 31, 2004. Table games revenue for the year ended December 31, 2005, increased by approximately $8.1 million or 18.4% as compared to the year ended December 31, 2004. The increase in table games revenue was due to an increase in table drop of $23.3 million, as well as an increase in win percentage to 18.1% in 2005 from 16.6% in 2004. Slot revenue for the year ended December 31, 2005, decreased by approximately $1.5 million or 1.7% as compared to the year ended December 31, 2004. The decrease in slot revenue was the result of a decrease in slot handle of approximately $20.2 million, which resulted from the elimination of several marketing initiatives that were in place in 2004, including promotional play offers that were included in slot handle. The elimination of promotional and other expenses associated with these initiatives assisted in the improved casino operating margin. Combined revenues from other gaming activities increased by $3.2 million or 156.1% for the year ended December 31, 2005 as compared to the year ended December 31, 2004 primarily due to the addition of poker in October 2004 and Keno in April 2005, as well as improved results in the race and sports book.

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Casino expenses increased 7.8% to $75.0 million for the year ended December 31, 2005 as compared to $69.6 million for the year ended December 31, 2004. The casino profit margin increased 0.9 percentage points in comparing the same twelve-month periods. The increase in casino expenses was mainly due to the addition of certain promotional expenses related to marketing initiatives that have been put in place to maintain casino revenue levels throughout the renovation period, as well as increases in payroll and the casino allowance for doubtful accounts over the prior year.

2004 compared with 2003

Casino revenues increased 7.4% to $118.8 million for the year ended December 31, 2004 as compared to $110.6 million for the year ended December 31, 2003. The increase in casino revenues was primarily driven by improvement in slot revenue due to the addition of new and more popular gaming devices and the conversion of a significant amount of our gaming devices to “ticket-in, ticket-out” technology. Table games revenues also increased by $1.1 million over the same twelve-month period.

Casino expenses increased 11.1% to $69.6 million for the year ended December 31, 2004 as compared to $62.6 million for the year ended December 31, 2003. The casino profit margin decreased 2.0 percentage points in comparing the same twelve-month periods. The increase in casino expenses was mainly the result of increased employee benefit expenses, as well as an increase in the base gaming tax rate in August 2003.

Hotel

Hotel revenue is derived from rooms and suites rented to guests. “Average daily rate” is an industry specific term used to define the average amount of revenue per occupied room per day. “Occupancy percentage” defines the total percentage of rooms occupied and is computed by dividing the number of rooms occupied by the total number of rooms available. Hotel revenue is recognized at the time the room is provided to the guest.

2005 compared with 2004

Hotel revenues increased 4.1% to $110.4 million for the year ended December 31, 2005 as compared to $106.1 million for the year ended December 31, 2004. Hotel occupancy percentages for the year ended December 31, 2005, remained consistent with the year ended December 31, 2004 at 97%. Average daily room rates increased to $121 as compared to $117 for the same twelve-month periods, resulting in increased Hotel revenues. The increase in Hotel revenues and average daily room rates are primarily due to an improvement in general economic conditions during 2005, a higher demand for rooms in Las Vegas in general and the improved channels of marketing through Starwood.

Hotel expenses increased 37.8% to $45.1 million for the year ended December 31, 2005 as compared to $32.8 million for the year ended December 31, 2004. The Hotel profit margin decreased 10.0 percentage points over the same twelve-month period. The decrease in Hotel profit margin was primarily due to repairs and maintenance expenses related to upgrades and amenities in the Hotel rooms, management fees paid to Starwood under the management contract beginning in September 2004 and an increase in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective October 1, 2005. The payroll and related benefit increases incurred as a result of the union agreement and the management fees under the Starwood management contract will be on-going. We do not expect the magnitude of the on-going repair and maintenance expense to be as large as the current year, which accounted for 13% of the operating expense increase.

2004 compared with 2003

Hotel revenues increased 10.7% to $106.1 million for the year ended December 31, 2004 as compared to $95.8 million for the year ended December 31, 2003. The hotel occupancy percentage for the year ended

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December 31, 2004 was 97% as compared to 98% for the year ended December 31, 2003. Average daily room rates increased to $117 for the year ended December 31, 2004 as compared to $105 for the year ended December 31, 2003, resulting in the increase in hotel revenues. The increase in hotel revenues and average daily room rates was primarily due to an improvement in general economic conditions throughout 2004 and a higher demand for rooms in Las Vegas in general.

Hotel expenses increased 13.3% to $32.8 million for the year ended December 31, 2004 as compared to $28.9 million for the year ended December 31, 2003. Hotel profit margin decreased 0.7 percentage points over the same twelve-month period. The decrease in hotel profit margin was primarily due to increased employee benefit expenses and the addition of management fees paid to Starwood under the management contract beginning in September 2004.

Food and Beverage

Food and beverage revenues are derived from food and beverage sales in the restaurants, bars, room service, banquets and entertainment outlets. Food and beverage revenue is recognized at the time the food and/or beverage are provided to the guest.

2005 compared with 2004

Combined food and beverage revenues increased 2.9% to $74.6 million for the year ended December 31, 2005 as compared to $72.5 million for the year ended December 31, 2004. Food revenues increased $2.2 million or 3.9% over the same twelve-month period, while beverage revenues remained consistent with the prior year. The increase in food revenues was primarily due to the addition of the new menus in the café and high-end restaurants in 2005.

Combined food and beverage expenses increased 14.4% to $51.4 million for the year ended December 31, 2005 as compared to $44.9 million for the year ended December 31, 2004. Food and beverage profit margin decreased 7.0 percentage points in comparing the same twelve-month period. The increase in food and beverage expenses and the resulting decrease in food and beverage margins were primarily due to management fees paid to Starwood under the management contract beginning in September 2004 and an increase in payroll and related benefits resulting from the collective bargaining agreement with the culinary union which became effective October 1, 2005. As the management fees under the Starwood agreement and the payroll and benefit increases related to the union are permanent additions to the expense structure, we expect the decline in profit margin for owned food and beverage outlets to be on-going.

2004 compared with 2003

Combined food and beverage revenues increased 6.4% to $72.5 million for the year ended December 31, 2004 as compared to $68.1 million for the year ended December 31, 2003. Food revenues increased $3.8 million or 7.2% and beverage revenues increased $0.9 million or 4.5% over the same twelve-month periods. The increase in revenue was primarily due to selected price increases, particularly in the buffet.

Combined food and beverage expenses increased 2.0% to $44.9 million for the year ended December 31, 2004 as compared to $44.0 million for the year ended December 31, 2003. Expense increases were commensurate with revenue increases. Food and beverage profit margin increased 2.8 percentage points over the same twelve-month period.

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Other

Other revenue includes entertainment sales, retail sales, telephone and other miscellaneous income and is recognized at the time the goods or services are provided to the guest.

2005 compared with 2004

Other revenues increased 4.4% to $17.5 million for the year ended December 31, 2005 as compared to $16.8 million for the year ended December 31, 2004. The increase in other revenues is primarily due to the restructuring of shared telephone revenue from a 15% revenue share to the Aladdin to 100% beginning in January 2005 and a 24.7% increase in rental income. The increase in other revenue was partially offset by a decrease in entertainment revenue resulting from the closing of the Steve Wyrick showroom in April 2005 for remodeling under the Clear Channel agreement.

Other expenses decreased 16.2% to $10.1 million for the year ended December 31, 2005 as compared to $12.1 million for the year ended December 31, 2004. The decrease in other expenses was directly related to the closing of the Showroom for remodel in April 2005.

2004 compared with 2003

Other revenues decreased 8.7% to $16.8 million for the year ended December 31, 2004 as compared to $18.4 million for the year ended December 31, 2003. Other expenses decreased 15.6% to $12.1 million for the year ended December 31, 2004 as compared to $14.3 million for the year ended December 31, 2003. The decrease in other revenues and other expenses was primarily due to fewer performances in the TPA during 2004 resulting in decreased revenue and expenses.

Selling, General and Administrative (“SG&A”)

SG&A expenses increased 21.9% to $79.4 million for the year ended December 31, 2005 as compared to $65.1 million for the year ended December 31, 2004. SG&A expenses as a percentage of net revenues increased 3.2 percentage points in comparing the same twelve-month periods. The increase in SG&A expenses was primarily due to repair and maintenance expenses incurred in the fourth quarter and included painting the building and additional administrative office space. The addition of management bonuses and legal and professional fees, which were included in reorganization costs reported below the operating income line and not in SG&A by Aladdin Gaming in 2004, also contributed to the increase in SG&A expenses when compared to prior year.

SG&A expenses increased 5.5% to $65.1 million for the year ended December 31, 2004 as compared to $61.7 million for the year ended December 31, 2003. SG&A expenses as a percentage of net revenues decreased 0.4 percentage points in comparing the same twelve-month periods. The increase in SG&A expenses was primarily due to an increase in payroll and related expenses, as well as the addition of management and centralized services fees incurred under the Starwood Management Agreement beginning in September 2004.

Depreciation and Amortization

Aladdin Gaming did not record depreciation expense during 2004, as the assets were classified as “held for sale”. As a result, depreciation expense for the year ended December 31, 2005, was significantly greater than the same period in the prior year. Depreciation and amortization expense was approximately $23.6 million for the year ended December 31, 2005 as compared to $7.8 million for the year ended December 31, 2004.

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Depreciation and amortization expense decreased 82.0% to $7.8 million for the year ended December 31, 2004 as compared to $43.5 million for the year ended December 31, 2003. Aladdin Gaming was not recording depreciation expense during 2004, as the assets were classified as “held for sale”. As a result, the depreciation expense for the year ended December 31, 2004 was significantly less than in the prior year.

Net Interest Expense

Net interest expense increased to $55.0 million for the year ended December 31, 2005 as compared to $19.1 million for the year ended December 31, 2004. The increase in net interest expense is directly related to the addition of the Credit Agreement we entered into upon the completion of the acquisition of the Aladdin on September 1, 2004. See “Description of Certain Indebtedness” below.

Net interest expense increased 92.7% to $19.1 million for the year ended December 31, 2004 as compared to $9.9 million for the year ended December 31, 2003. The increase in net interest expense is directly related to the addition of the Credit Agreement we entered into upon the completion of the acquisition of the Aladdin on September 1, 2004.

Interest expense under the Credit Agreement is calculated quarterly and is based on the London Inter-Bank Offered Rate, or LIBOR, plus an applicable margin. LIBOR increased approximately  150 basis points throughout 2005 thereby increasing our average borrowing rate and related interest expense. The increases in LIBOR resulted in approximately $3.7 million in additional interest expense for the year ended December 31, 2005.

Financial Impact of Renovation of the Aladdin

As discussed in“Item 1A.—Risks Related to the Aladdin Renovation”, we have embarked upon a renovation plan that will transition the Aladdin into the PH Resort. The renovation project was substantially underway in January 2006 and is being conducted in phases to attempt to reduce disruption to our business to the extent practicable. Our operating projections for 2006 assumed certain business level declines as a result of the renovation project. Although the declines in Hotel and Casino operations have not been as great as anticipated, we have experienced greater declines than anticipated in other operating areas, particularly food and beverage.  We believe that cost savings measures implemented to date will allow us to offset the noted declines and that we will operate within the parameters of the originally established operating projections throughout the renovation period in 2006. We can provide no assurance that we have accurately estimated our operating projections and that we will not experience additional unforeseen events that will adversely impact our operating results during the renovation period.

Liquidity and Capital Resources

During the year ended December 31, 2005, the Aladdin utilized cash flows from operating activities of approximately $4.6 million and had a balance of $41.4 million in cash and cash equivalents as of December 31, 2005, which was a $4.4 million increase over the balance as of December 31, 2004. We also had restricted cash and cash equivalents of approximately $87.8 million, which is designated to be used for costs associated with the renovation of the Aladdin to the PH Resort.

Our primary cash requirements for 2006 are expected to include (i) up to approximately $100 million in capital expenditures related to the renovation project, (ii) approximately $21.2 million for maintenance capital expenditures and (iii) up to approximately $31.8 million in interest payments on our debt.

We believe that cash generated from operations, the capital invested in OpBiz at the closing and the working capital, including the cash, we acquired from Aladdin Gaming under the purchase agreement will be adequate to meet the anticipated working capital, capital expenditure, renovation and debt service

34

obligations of OpBiz for the period that the Aladdin is under renovation. We may have other liquidity needs, such as tax distributions to the members of EquityCo and BH/RE. The Credit Agreement provides that OpBiz will be permitted to make tax distributions.

There can be no assurance that we have accurately estimated our liquidity needs, or that we will not experience unforeseen events that may materially increase our need for liquidity to fund our operations or capital expenditure programs or decrease the amount of cash generated from our operations. We expect to experience a reduction in cash generated by our operations during our planned renovations to the Aladdin and have negotiated the terms of the Credit Agreement to address those anticipated reductions. For example, the covenant in the Credit Agreement requiring OpBiz to achieve specified levels of earnings before interest, taxes, depreciation and amortization (“EBITDA”), during the first two years of the Credit Agreement is significantly below the Aladdin’s current EBITDA levels. Also, the interest rate during the first three years of the Credit Agreement is lower than the interest rate in the last three years.

Off Balance Sheet Arrangements

As of December 31, 2005, we did not have any off balance sheet arrangements. We have not entered into any transactions with special purposes entities, nor have we engaged in any derivative transactions other than the warrants attached to the Senior Notes and Mezzanine Financing described above (see “Critical Accounting Policies and Estimates—Derivative Instruments and Hedging Activities”).

Commitments and Contractual Obligations

The following table summarizes our scheduled commitments and contractual obligations as of December 31, 2005:

	2006		2007		2008		2009		2010		Thereafter
	(In thousands)
Long-term debt(a)	$	2,671	$	9,092	$	18,035	$	23,251	$	458,461	$	278,698
Sheraton hotel management contract(b)	9,673		10,462		10,458		10,815		11,155		214,112
Planet Hollywood licensing agreement(c)	—		2,333		3,360		3,785		3,904		74,939
Energy service consumption charges	1,140		1,140		1,140		1,140		1,140		10,260
Operating leases(d)	2,076		2,083		1,988		—		—		—
Employment agreements	3,779		3,602		2,140		—		—		—
Common Parking Area Use agreement(e)	5,120		5,120		5,120		5,120		5,376		726,179
Total	$	24,459	$	33,832	$	42,241	$	44,111	$	480,036	$	1,304,188

(a)See Note 7 to the Consolidated Financial Statements in this Annual Report on Form 10-K.

(b)We pay management fees to Sheraton under the hotel management contract. These management fees are generally based on various percentages of our non-gaming revenues. See Note 9 to the Consolidated Financial Statements in this Annual Report on Form 10-K. We will also pay Sheraton a centralized service fee, a portion of which is fixed and which is shown in the table above, and other de minimis charges which are included in the table above. Amounts are based on internal projections made by management.

(c)Fees under the Planet Hollywood licensing agreement generally commence when we begin operating as the PH Resort and are based on a percentage of our non-gaming revenues. See “Item 1. Business—Material Agreements—Planet Hollywood Licensing Agreement.” Amounts are based on internal projections made by management.

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(d)Consists of leases for certain office and casino equipment.

(e)Includes amounts paid for parking charges, as well as common area maintenance charges, which are estimates made by management based on current year expenses. The base fee is subject to a maximum 5% increase every five years.

Description of Certain Indebtedness

Credit Agreement

The Aladdin acquisition and the planned renovations were funded by the issuance of $510 million of secured notes to Aladdin Gaming’s secured creditors pursuant to a Credit Agreement. OpBiz’s obligations under the Credit Agreement are secured by liens on all of its assets, including a mortgage on its real property, the Hotel, the Casino and the TPA, and security interests in our accounts receivable, inventory, equipment and intangible assets, excluding the Timeshare Land. The Credit Agreement is guaranteed by MezzCo and MezzCo secured its guarantee by pledging its membership interests in OpBiz to the lenders. The Credit Agreement matures on August 31, 2010.

The loans under the Credit Agreement are evidenced by $500 million of Term Loan A notes and $10 million of Term Loan B notes. Upon issuance of the notes, BH/RE simultaneously made a $14 million cash payment to the holders of the Term Loan A notes to reduce the principal amount of the Term Loan A notes to $486 million and obtained a release of their lien on the Timeshare Land.

The scheduled principal payments on the Term Loan A notes are as follows:

·$1.25 million on the first day of each fiscal quarter during the period beginning on August 31, 2006 and ending on August 31, 2007;

·$3.75 million on the first day of each fiscal quarter during the period beginning on August 31, 2007 and ending on August 31, 2008;

·$5.0 million on the first day of each fiscal quarter during the period beginning on August 31, 2008 and ending on August 31, 2009;

·$6.25 million on the first day of each fiscal quarter during the period beginning on August 31, 2009 and ending on August 31, 2010; and

·the then unpaid balance amount of Term Loan A notes on August 31, 2010.

OpBiz pays interest on the outstanding Term Loan A notes quarterly, in cash, at the London Inter-Bank Offered Rate, or LIBOR, plus an applicable margin that increases over time. Until the earlier of August 31, 2007 or OpBiz’s accumulation of certain permitted cash reserves, OpBiz’s interest payment will not exceed its quarterly EBITDA, reduced by certain permitted deductions (as defined in the Credit Agreement), divided by a factor of 1.20. Interest on the Term Loan B notes will accrue at a rate of LIBOR plus 4% and will be added quarterly to the outstanding principal amount of the Term Loan B notes and will be paid when OpBiz pays off the Term Loan B notes. OpBiz is also required to pay an annual administrative fee and certain other fees and expenses of the lender under the Credit Agreement.

OpBiz is required to prepay amounts outstanding under the Credit Agreement:

·with excess cash flow (as defined in the Credit Agreement) after certain permitted cash reserves are accumulated;

·in scheduled quarterly amounts beginning after August, 31, 2006;

·with certain amounts received in connection with the development of the Timeshare Land adjacent to the Desert Passage (as defined in the underlying agreement);

36

·with an amount equal to the difference between what should have been spent on renovation capital expenditures and what was actually spent thereon if (i) an aggregate amount of $72.0 million is not spent on renovation capital expenditures by August 31, 2006, or (ii) an aggregate amount of $81.0 million is not spent on renovation capital expenditures by February 28, 2007 or (iii) an aggregate amount of $90.0 million is not spent on renovation capital expenditures by August 31, 2007; and

·with the proceeds of certain asset sales.

In particular, after OpBiz accumulates certain permitted cash reserves, OpBiz is required to pay 100% of its excess cash flow (as defined in the Credit Agreement) from operations to the lenders under the Credit Agreement. That percentage decreases to 75%, then 50%, if OpBiz meets certain targeted ratios of total debt to EBITDA, or certain leverage ratios, for any two consecutive fiscal quarters. As of December 31, 2005, OpBiz did not reach the permitted cash reserve levels and has therefore not made any excess cash flow payments under the Credit Agreement.

The Credit Agreement includes covenants that, among other things, restrict OpBiz’s ability to sell assets, make distributions to its owners, other than distributions for taxes, incur or prepay additional indebtedness, enter into transactions with affiliates, incur liens, make investments, make capital expenditures,develop the Timeshare Land adjacent to the Desert Passage and enter into material contracts. In addition, OpBiz is required to maintain certain levels of EBITDA that increase over time and, beginning August 31, 2007, maintain certain ratios of EBITDA to interest expense that increase over time and maintain certain leverage ratios that decrease over time.

The Credit Agreement contains customary events of default, including a change of control of OpBiz, the occurrence of a default under the terms of any indebtedness of MezzCo, a default by OpBiz under the Hotel management contract or termination of Sheraton as the manager of the Hotel (unless OpBiz replaces Sheraton with another approved manager within 30 days of such termination), a default or termination of the Planet Hollywood license agreement and certain defaults under the agreements with Boulevard Invest or Northwind Aladdin.

BH/RE has issued warrants to purchase 2.94% of its ownership interest in EquityCo to the lenders under the Credit Agreement. The warrants can only be exercised upon the occurrence of  (i) a liquidity event or distribution (such as through the sale of the hotel/casino); (ii) a public sale of equity securities of EquityCo, MezzCo or OpBiz; or (iii) payment in full of the obligations under the Credit Agreement. The warrants can either be settled in cash or in membership interests upon exercise. The estimated fair value of the warrants was approximately $0.1 million as of December 31, 2005. These warrants are recorded separately from the related debt within other long-term liabilities.

Mezzanine Financing

In August 2004, MezzCo entered into the Mezzanine Financing with a group of purchasers. Pursuant to the Mezzanine Financing, MezzCo issued $87 million of 16% Senior Secured Subordinated Notes and warrants to purchase 17,500 of its units representing membership interests equal to 17.5% of the fully diluted equity of MezzCo. The gross offering proceeds of the Mezzanine Financing were deposited into an escrow account and, in conjunction with the closing of the Aladdin acquisition, were used to (i) pay approximately $16.1 million of fees and expenses related to the acquisition of the Aladdin, (ii) fund the $14 million lien release payment required under the Credit Agreement, and (iii) fund a portion of the planned renovations to the Aladdin. The notes mature in August 2011 and accrue interest at a rate of 16% per annum. Interest on the notes is payable-in-kind or, at the option of MezzCo, in cash.

The warrants are exercisable at any time, subject to the approval of the Nevada gaming authorities, at a purchase price of $0.01 per unit. Subject to the approval of the Nevada gaming authorities, the warrants may be exercised to purchase either voting or non-voting membership interests of MezzCo or a

37

combination thereof. Currently, all of MezzCo’s voting membership interests are represented by units owned by EquityCo. In addition to customary anti-dilution protections, the number of units representing MezzCo membership interests issuable upon exercise of the warrants may be increased from time-to-time upon the occurrence of certain events as described in the warrants. The maximum aggregate increase is 24%, following which the warrants would represent rights to purchase 41.5% of the units representing the fully diluted equity of MezzCo. Holders of the warrants and any securities issued upon exercise of the warrants may require MezzCo to redeem such securities commencing in August 2011 at a redemption price based upon a formula set forth in the warrants. Starting in August 2008, in the event the Company fails to achieve certain operational thresholds, the holders of the MezzCo warrants, and securities issued upon exercise thereof, have the right to assume control of MezzCo and OpBiz and conduct a sale of the equity of, or all or substantially all of the assets of, either MezzCo or OpBiz provided that all Control Conditions (as defined in the Investor Rights Agreement) are met. These rights are subject to (i) repayment in full of all indebtedness that is senior to the notes (including all indebtedness of OpBiz under the Credit Agreement), (ii) certain covenants related to OpBiz’s ability to achieve targeted levels of EBITDA and (iii) the prior approval of the Nevada gaming authorities. These rights expire upon completion of a public offering by MezzCo or OpBiz. In connection with the Mezzanine Financing, our obligation to make expenditures on renovations to the Aladdin was increased from $90 million, as required under the Credit Agreement, to $100 million.

As of December 31, 2005, the MezzCo financing was recorded net of the unamortized balance of the warrants of approximately $3.9 million. The estimated fair value of the warrants was approximately $4.1 million at December 31, 2005 and December 31, 2004, and is recorded separately from the related debt within other long-term liabilities.

Energy Services Agreement

Northwind, a third party, owns and operates a central utility plant on land leased from us. The plant supplies hot and cold water and emergency power to the Aladdin under a contract between Aladdin Gaming and Northwind. We have assumed the energy service agreement, which expires in 2018. Under the agreement, we are required to pay Northwind a monthly consumption charge, a monthly operational charge, a monthly debt service payment and a monthly return on equity payment. Payments under the Northwind agreement total approximately $0.4 million per month.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. We pay interest on the outstanding Term Loan A notes quarterly, in cash, at the London Inter-Bank Offered Rate, or LIBOR, plus an applicable margin that increases over time. Interest on the Term Loan B notes will accrue at a rate of LIBOR plus 4% and will be added quarterly to the outstanding principal amount of the Term Loan B notes and will be paid when we pay off the Term Loan B notes. An increase of one percentage point in the average interest rate applicable to the variable rate debt outstanding at December 31, 2005 would increase the annual interest cost by approximately $2.9 million.

The following table provides information about our long-term debt at December 31, 2005 (see also “Description of Certain Indebtedness” above):

	Maturity Date	Face Amount		Carrying Value		Estimated Fair Value
	(In thousands)
Term Loan A notes	August 2010	$	500,000	$	460,293	$	481,065
Term Loan B notes	August 2010	10,000		10,985		10,985
Mezzanine Financing	August 2011	87,000		103,956		107,836
Energy Services Agreement	March 2018	33,862		32,314		32,314
Total long-term debt		$	630,862	$	607,548	$	632,200

We currently do not utilize any hedging instruments, interest rate swaps or other forms of derivatives to manage interest rate risk.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	41
Report of Independent Registered Public Accounting Firm	42
Consolidated Balance Sheets	43
Consolidated Statements of Operations	44
Consolidated Statements of Members’ Equity (Deficit)	45
Consolidated Statements of Cash Flows	46
Notes to Consolidated Financial Statements	47

40

Report of Independent Registered Public Accounting Firm

To the Board of Managers of BH/RE, L.L.C.

We have audited the accompanying consolidated balance sheets of BH/RE, L.L.C. and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, members’ equity (deficit), and cash flows for the years ended December 31, 2005 and 2004 and for the period from March 31, 2003 (date of formation) through December 31, 2003. Our audit also included the financial statement schedule in the Index of Item 15 (a)(2). These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BH/RE, L.L.C. and subsidiaries as of December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for the years ended December 31, 2005 and 2004 and for the period from March 31, 2003 (date of formation) through December 31, 2003, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

	/s/ ERNST & YOUNG LLP
Las Vegas, Nevada
March 29, 2006

41

Report of Independent Registered Public Accounting Firm

To Reorganized Aladdin Gaming, LLC

We have audited the accompanying consolidated statements of operations and cash flows of Aladdin Gaming, LLC (a Nevada limited liability company) and subsidiaries (the “Predecessor”) for the eight months ended August 31, 2004 and the year ended December 31, 2003. These financial statements are the responsibility of the Predecessor’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Aladdin Gaming, LLC and subsidiaries for the eight months ended August 31, 2004 and the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

	/s/ ERNST & YOUNG LLP
Las Vegas, Nevada
January  31, 2005

42

BH/RE, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)

	December 31,				December 31,
	2005				2004
ASSETS
Current assets:
Cash and cash equivalents		$	41,419			$	37,016
Receivables, net		19,793				12,626
Inventories		2,165				2,489
Prepaid expenses		4,913				5,253
Deposits and other current assets		3,058				3,258
Total current assets		71,348				60,642
Property and equipment, net		485,746				494,781
Restricted cash and cash equivalents		87,787				96,199
Other assets, net		9,614				11,761
Total assets		$	654,495			$	663,383
LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt		$	2,671			$	1,268
Accounts payable		3,359				2,095
Accrued payroll and related		13,373				10,652
Accrued interest payable		6,896				6,498
Accrued taxes		2,994				2,500
Accrued expenses		6,183				8,123
Deposits		4,563				4,040
Other current liabilities		6,159				4,386
Due to affiliates		1,591				1,887
Total current liabilities		47,789				41,449
Long-term debt, less current portion		604,877				584,814
Other long-term liabilities		4,229				4,375
Total liabilities		656,895				630,638
Commitments and contingencies
Minority interest		13,863				19,132
Members’ equity:
Member’s equity (deficit)		21,500				21,500
Accumulated deficit		(37,763		)		(7,887		)
Total members’ equity (deficit)		(16,263		)		13,613
Total liabilities and members’ equity (deficit)		$	654,495			$	663,383

The accompanying notes are an integral part of these consolidated financial statements.

43

BH/RE, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)

									For the period
									from March 31,
									2003
									(Date of
									Formation)				Predecessor Information
	Year Ended				Year Ended				through				Eight Months Ended				Year Ended
	December 31,				December 31,				December 31,				August 31,				December 31,
	2005				2004				2003				2004				2003
Operating revenues:
Casino		$	130,083			$	41,068			$	—			$	77,774			$	110,642
Hotel		110,443				34,407				—				71,705				95,836
Food and beverage		74,594				23,242				—				49,231				68,084
Other		17,511				5,813				—				10,962				18,378
Gross revenues		332,631				104,530				—				209,672				292,940
Promotional allowances		(26,373		)		(8,389		)		—				(18,783		)		(26,400		)
Net revenues		306,258				96,141				—				190,889				266,540
Operating costs and expenses:
Casino		75,016				22,333				—				47,257				62,626
Hotel		45,123				11,741				—				21,010				28,913
Food and beverage		51,373				16,433				—				28,463				44,032
Other		10,146				2,982				—				9,128				14,344
Selling, general and administrative		79,352				24,162				—				40,933				61,701
Depreciation and amortization		23,592				7,814				—				—				43,495
Preopening expenses		—				1,684				1,283				—				—
Impairment of long-lived assets		—				—				—				1,732				29,478
Loss on disposition of assets		1,787				—				—				—				—
		286,389				87,149				1,283				148,523				284,589
Operating income (loss)		19,869				8,992				(1,283		)		42,366				(18,049		)
Other income (expense):
Interest expense, net		(54,964		)		(16,525		)		61				(2,541		)		(9,953		)
Minority interest in (income) loss		5,269				877				(9		)		—				—
Loss on warrant valuation		(35		)		—				—				—				—
Reorganization costs		—				—				—				(6,647		)		(12,103		)
		(49,730		)		(15,648		)		52				(9,188		)		(22,056		)
Pre-tax income (loss)		(29,861		)		(6,656		)		(1,231		)		33,178				(40,105		)
Provision for income taxes		(15		)		—				—				—				—
Net income (loss)		$	(29,876	)		$	(6,656	)		$	(1,231	)		$	33,178			$	(40,105	)

The accompanying notes are an integral part of these consolidated financial statements.

44

BH/RE, L.L.C. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY (DEFICIT)

For the period from March 31, 2003 (Date of Formation)

through December 31, 2005

(amounts in thousands)

								Total
								Member’s
	Equity			Accumulated				Equity
	Contributions			Deficit				(Deficit)
Balances, March 31, 2003		$	—		$	—		$	—
Net loss		—			(1,231		)	(1,231		)
Balances, December 31, 2003		—			(1,231		)	(1,231		)
Member contributions		21,500			—			21,500
Net loss		—			(6,656		)	(6,656		)
Balances, December 31, 2004		21,500			(7,887		)	13,613
Member contributions		—			—			—
Net loss		—			(29,876		)	(29,876		)
Balances, December 31, 2005		$	21,500		$	(37,763	)	$	(16,263	)

The accompanying notes are an integral part of these consolidated financial statements.

45

BH/RE, L.L.C. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

									For the period
									from March 31,
									2003
									(Date of
									Formation)				Predecessor Information
	Year Ended				Year Ended				through				Eight Months Ended				Year Ended
	December 31,				December 31,				December 31,				August 31,				December 31,
	2005				2004				2003				2004				2003
Cash flows from operating activities:
Net income (loss)		$	(29,876	)		$	(6,656	)		$	(1,231	)		$	33,178			$	(40,105	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		23,592				7,814				—				—				43,496
Amortization of debt discount and issuance costs		7,038				503				—				—				—
Minority interest in income (loss)		(5,269		)		17,623				1,509				—				—
Change in value of warrants		159				—				—				—				—
Impairment of long-lived assets		—				—				—				1,732				29,478
Loss on disposition of assets		1,787				—				—				—				—
Reorganization items:
Professional fees		—				—				—				2,433				10,576
Management retention expense		—				—				—				2,139				1,925
Loss on extinguishment of pre-petition debt		—				—				—				—				(20		)
Interest earned on accumulated cash during Chapter 11 proceedings		—				—				—				(111		)		(876		)
Changes in assets and liabilities:
Receivables, net		(7,167		)		(12,626		)		—				2,216				1,449
Inventories and prepaid expenses		664				(7,742		)		—				2,686				603
Other assets		(493		)		(6,928		)		—				951				(434		)
Accounts payable		1,264				2,095				—				(3,729		)		(6,312		)
Accrued expenses and other current liabilities		3,673				38,086				—				(5,830		)		(281		)
Net cash (used in) provided by operating activities before cash payments for reorganization items		(4,628		)		32,169				278				35,665				39,499
Cash payments for reorganization items:
Professional fees paid		—				—				—				(4,572		)		(11,464		)
Loss on extinguishment of pre-petition debt		—				—				—				—				20
Interest earned on accumulated cash during Chapter 11 proceedings		—				—				—				111				875
Cash payments for reorganization items		—				—				—				(4,461		)		(10,569		)
Net cash (used in) provided by operating activities		(4,628		)		32,169				278				31,204				28,930
Cash flows from investing activities:
Acquisition of Aladdin Resort and Casino, net of cash acquired		—				(466,409		)		—				—				—
Construction contracts payable		—				—				—				—				(48		)
Purchases of property and equipment		(15,060		)		(1,787		)		—				(988		)		(3,061		)
Proceeds from sale of assets		49				—				—				—				—
Restricted cash and cash equivalents		8,412				(86,138		)		(10,061		)		76				1,187
Net cash used in investing activities		(6,599		)		(554,334		)		(10,061		)		(912		)		(1,922		)
Cash flows from financing activities:
Payable-in-kind interest added to debt principal		16,886				4,936				—				—				—
Payments under CUP financing		(1,256		)		(388		)		—				—				—
Member contributions		—				21,500				—				—				—
Borrowings under bank facilities		—				561,576				—				—				—
Payments under bank facility		—				(14,000		)		—				(732		)		(11,199		)
Issuance of warrants		—				4,375				—				—				—
Debt issuance costs		—				(9,035		)		—				—				—
Advances from affiliates		—				(13,008		)		13,008				—				—
Deferred acquisition costs		—				3,225				(3,225		)		—				—
Adequate protection payments - secured lenders		—				—				—				(33,450		)		—
Adequate protection payments - GECC		—				—				—				(5,000		)		—
Other, net		—				—				—				—				—
Net cash provided by (used in) financing activities		15,630				559,181				9,783				(39,182		)		(11,199		)
Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents		4,403				37,016				—				(8,890		)		15,809
Balance, beginning of period		37,016				—				—				38,240				22,431
Balance, end of period		$	41,419			$	37,016			$	—			$	29,350			$	38,240
Supplemental cash flow disclosures:
Cash paid for interest		$	32,189			$	2,914			$	—			$	2,573			$	9,007
Assumption of Central Utility Plant obligation		$	—			$	33,958			$	—			$	—			$	—
Non-cash preferred dividends		$	—			$	—			$	—			$	—			$	7,392

On September 1, 2004, BH/RE acquired substantially all of the real and personal property of the Aladdin. In conjunction with the purchase, the assets and liabilities acquired were as follows:

Fair value of assets acquired	$	545,114
Cash paid and debt assumed	518,354
Liabilities assumed	$	26,760

The accompanying notes are an integral part of these consolidated financial statements.

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BH/RE, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.ORGANIZATION AND BASIS OF PRESENTATION

Organization

BH/RE, L.L.C. (“BH/RE” or the “Company”) is a holding company that owns 85% of EquityCo, L.L.C. (“EquityCo”). The remaining 15% of EquityCo is owned by a subsidiary of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”). MezzCo, L.L.C. (“MezzCo”) is a wholly owned subsidiary of EquityCo, and OpBiz, L.L.C. (“OpBiz”) is a wholly owned subsidiary of MezzCo. 50% of BH/RE’s voting membership interests are held by each of Robert Earl and Douglas P. Teitelbaum, and BH/RE’s equity membership interests are held 40.75% by BH Casino and Hospitality LLC I (“BHCH I”), 18.50% by BH Casino and Hospitality LLC II (“BHCH II”) (together, “BHCH”) and 40.75% by OCS Consultants, Inc. (“OCS”).

BH/RE and its subsidiaries were formed to acquire, operate and renovate the Aladdin Resort and Casino (the “Aladdin”) located in Las Vegas, Nevada. OpBiz, an indirect subsidiary of BH/RE, completed the acquisition of the Aladdin on September 1, 2004 and has begun a renovation project which, when complete, will transform the Aladdin into the Planet Hollywood Resort and Casino (the “PH Resort”). In connection with the renovation of the Aladdin, OpBiz has entered into an agreement with Planet Hollywood International, Inc. (“Planet Hollywood”) and certain of its subsidiaries to, among other things, license Planet Hollywood’s trademarks, memorabilia and other intellectual property. OpBiz has also entered into an agreement with Sheraton Operating Corporation (“Sheraton”), a subsidiary of Starwood, pursuant to which Sheraton provides hotel management, marketing and reservation services for the hotel (the “Hotel”) that comprises a portion of the PH Resort.

BH/RE is a Nevada limited liability company and was organized on March 31, 2003. BH/RE was formed by BHCH and OCS. BHCH is controlled by Douglas P. Teitelbaum, a managing principal of Bay Harbour Management, L.C. (“Bay Harbour Management”). BHCH was formed by Mr. Teitelbaum for the purpose of holding investments in BH/RE by funds managed by Bay Harbour Management. Bay Harbour Management is an investment management firm. OCS is wholly owned and controlled by Robert Earl and holds Mr. Earl’s investment in BH/RE. Mr. Earl is the founder, chairman and chief executive officer of Planet Hollywood and Mr. Teitelbaum is a director of Planet Hollywood. Collectively, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership of any equity of Planet Hollywood owned by the trust.

Acquisition of the Aladdin

Aladdin Gaming, L.L.C. (“Aladdin Gaming”), which was a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code, commenced its bankruptcy case in the United States Bankruptcy Court for the District of Nevada, Southern Division on September 28, 2001. On April 23, 2003, OpBiz and Aladdin Gaming entered into a purchase agreement pursuant to which OpBiz agreed to acquire the Aladdin. Under the purchase agreement and pursuant to an order of the Bankruptcy Court, Aladdin Gaming conducted an auction to sell the Aladdin. On June 20, 2003, the Bankruptcy Court declared OpBiz the winner of that auction and, on August 29, 2003, the Bankruptcy Court entered an order confirming Aladdin Gaming’s plan of reorganization and authorizing Aladdin Gaming to complete the sale of the Aladdin to OpBiz under the purchase agreement. On September 1, 2004, OpBiz acquired substantially all of the real and personal property owned or used by Aladdin Gaming to operate the Aladdin, and received $15 million of working capital from Aladdin Gaming, including $25.7 million of cash. The acquisition was

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accounted for as a purchase and, accordingly, the purchase price and working capital adjustments have been allocated to the underlying assets acquired and liabilities assumed. The working capital adjustment was determined based on the closing balance sheet on August 31, 2004. OpBiz paid the purchase price for the Aladdin by issuing new secured notes to Aladdin Gaming’s secured creditors and assumed various contracts and leases entered into by Aladdin Gaming in connection with its operation of the Aladdin and certain of Aladdin Gaming’s liabilities, including Aladdin Gaming’s energy service obligation to the third party owner of the central utility plant that supplies hot and cold water and emergency power to the Aladdin. At the time of purchase, the energy service obligation was $34.0 million. Upon the completion of the Aladdin acquisition, OpBiz issued $510 million of new secured notes to Aladdin Gaming’s secured creditors under an Amended and Restated Loan and Facilities Agreement (the “Credit Agreement”) with a group of lenders and The Bank of New York, Asset Solutions Division, as administrative and collateral agent. OpBiz also simultaneously made a $14 million cash payment to those secured creditors, which reduced the principal amount of the notes to $496 million and obtained a release of the lien on a four-acre parcel of undeveloped property that OpBiz also acquired from Aladdin Gaming (the “Timeshare Land”). On December 10, 2004, OpBiz entered into a Timeshare Purchase Agreement with Westgate Resorts, LTD. (“Westgate”), whereby OpBiz agreed to sell approximately four acres of the Timeshare Land to Westgate, who plans to develop, market, manage and sell timeshare units on the land. The Credit Agreement also requires that OpBiz provide either cash or a letter of credit in the aggregate amount of $90 million to fund the costs of the planned renovations to the Aladdin. In August 2004, MezzCo issued $87 million of senior secured notes to a group of purchasers. The net proceeds of this financing were used to make the $14 million payment described above, to pay certain costs and expenses of BH/RE and its subsidiaries and affiliates related to the acquisition of the Aladdin, and to provide OpBiz with a portion of the funds necessary to meet its obligations regarding the planned renovations to the Aladdin.

The purchase agreement also provided that OpBiz assume substantially all of Aladdin Gaming’s pre-petition contracts and leases and any post-petition contracts or leases to which OpBiz does not object. In addition, the purchase agreement provided that OpBiz offer employment to all of Aladdin Gaming’s employees, other than executive management, on terms and conditions substantially similar to their previous employment terms and conditions.

The following is a summary of the total consideration in the Aladdin acquisition (amounts in thousands):

Issuance of long-term debt, net of discount	$	477,000
Assumption of energy service obligation	33,958
Transaction costs	7,396
Total purchase consideration	$	518,354

In order to assist us in assigning values of assets acquired and liabilities assumed in the transaction, we obtained a third party valuation of significant identifiable intangible assets acquired, as well as other assets acquired and liabilities assumed.

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The following is a summary of the estimated fair values of the assets acquired and liabilities assumed as of September 1, 2004 (amounts in thousands):

Current assets	$	41,015
Property and equipment	499,686
Intangible assets	3,670
Other assets	743
Total assets acquired	545,114
Current liabilities	26,760
Purchase price	$	518,354

The total intangible assets of $3.7 million are being amortized over their respective remaining useful lives and include a customer list valued at $2.7 million with a useful life at September 1, 2004 of approximately 4 years and a trade name valued at approximately $1.0 million with a useful life at September 1, 2004 of 1.5 years.

Plan of Operations

OpBiz is currently conducting a renovation project which, when complete, will transform the Aladdin into the PH Resort. In connection with the proposed renovation of the Aladdin, OpBiz has entered into an agreement with Planet Hollywood and certain of its subsidiaries to, among other things, license Planet Hollywood’s trademarks, memorabilia and other intellectual property. OpBiz has also entered into an agreement with Sheraton, a subsidiary of Starwood, pursuant to which Sheraton provides hotel management, marketing and reservation services for the hotel that comprise a portion of the pre-renovation PH Resort.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies and Estimates

The consolidated financial statements are prepared in conformity with United States generally accepted accounting principles. Certain policies, including the determination of bad debt reserves, the estimated useful lives assigned to assets, asset impairment, insurance reserves and the calculation of liabilities, require that management apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Management’s judgments are based on historical experience, terms of existing contracts, observance of trends in the gaming industry and information available from other outside sources. There can be no assurance that actual results will not differ from our estimates. To provide an understanding of the methodology management applies, BH/RE’s significant accounting policies and basis of presentation are discussed below.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, as well as short-term investments with original maturities not in excess of 90 days.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents consist of approximately $87.8 million and $96.2 million at December 31, 2005 and 2004, respectively, the majority of which will be applied toward the remaining cash commitments for the planned renovations to the Aladdin.

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Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. An estimated allowance for doubtful accounts is maintained to reduce the receivables to their carrying amount, which approximates fair value. BH/RE estimates the allowance for doubtful accounts by applying standard reserve percentages to aged account balances under a specific dollar amount and specifically analyzes the collectibility of each account with a balance over the specified dollar amount, based on the age of the account, the customer’s financial condition, collection history and any other known information. The allowance for doubtful accounts totaled approximately $4.4 million and $2.3 million as of December 31, 2005 and 2004, respectively.

Inventories

Inventories consist of food and beverage, retail merchandise and operating supplies, and are stated at the lower of cost or market. Cost is determined by the first-in, first-out and specific identification methods.

Property and Equipment

Property and equipment are stated at cost. Recurring repairs and maintenance costs, including items that are replaced routinely in the casino, hotel and food and beverage departments which do not meet the Company’s capitalization policy of $10,000, are expensed as incurred. The Company has established its capital expense policy to be reflective of its individual ongoing repairs and maintenance programs. Gains or losses on dispositions of property and equipment are included in the determination of income. Property and equipment are generally depreciated over the following estimated useful lives on a straight-line basis:

Buildings	40 years
Building improvements	15 to 40 years
Furniture, fixtures and equipment	3 to 7 years

Property and equipment and other long-lived assets are evaluated for impairment in accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” For assets to be disposed of, the asset to be sold is recognized at the lower of carrying value or fair value less costs of disposal. Fair value for assets to be disposed of is estimated based on comparable asset sales, solicited offers or a discounted cash flows model.

Property and equipment are reviewed for impairment whenever indicators of impairment exist. If an indicator of impairment exists, the estimated future cash flows of the asset, on an undiscounted basis, are compared to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flows model.

The property and equipment and other long-lived assets that BH/RE obtained in the acquisition of the Aladdin were appraised by an independent third party. Property and equipment and the related accumulated depreciation amounts, as well as certain intangible assets recorded in the Company’s consolidated balance sheets as of December 31, 2005 and 2004, are based on the independent third party appraisal.

Debt Issuance Costs

Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the expected terms of the related debt agreements using the effective

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interest method and are included in other assets on BH/RE’s consolidated balance sheets. Debt issuance costs, net of the related amortization totaled approximately $7.0 million and $8.5 million as of December 31, 2005 and 2004, respectively.

Intangible Assets

In connection with the purchase of the Aladdin and as a result of an independent appraisal of the assets purchased, BH/RE recorded intangible assets, which consist of a customer list and trade name, on its consolidated balance sheets at December 31, 2005 and 2004. The customer list was valued at approximately $2.7 million at the time of purchase and at December 31, 2005 and 2004, had a net book value of approximately $1.8 million and $2.5 million, respectively. The trade name was valued at approximately $1.0 million at the time of purchase and at December 31, 2005 and 2004, had a net book value of approximately $0.1 million and $0.8 million, respectively. The customer list and trade name are being amortized using the straight-line method over a useful life of 4 years and 1.5 years, respectively. The amortization expense related to the customer list and trade name for the years ended December 31, 2005 and 2004, totaled approximately $1.3 million and $0.4 million, respectively.

Derivative Instruments and Hedging Activities

As further consideration to the lenders under the Credit Agreement, BH/RE has issued warrants to purchase membership interests held by BH/RE in EquityCo. BH/RE accounts for the outstanding warrants in EquityCo as embedded derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133.”

In conjunction with the Mezzanine Financing, MezzCo issued warrants to purchase membership interests in the fully diluted equity of MezzCo which contain a net cash settlement, and therefore are accounted for in accordance with Emerging Issues Task Force (“EITF”) 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. Both SFAS No. 133 and EITF 00-19 require that the warrants be recognized as liabilities, with changes in fair value affecting net income. See “Note 7. Long-Term Debt—Mezzanine Financing.”

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Revenue Recognition and Promotional Allowances

Casino revenues are recognized as the net win from gaming activities, which is the difference between gaming wins and losses. Hotel revenue recognition criteria are generally met at the time of occupancy. Food and beverage revenue recognition criteria are generally met at the time of service. Deposits for future hotel occupancy or food and beverage services are recorded as deferred income until revenue recognition criteria are met. Cancellation fees for hotel and food and beverage services are recognized upon cancellation by the customer as defined by a written contract entered into with the customer. All other revenues are recognized as the service is provided. Revenues include the retail value of food, beverage, rooms, entertainment, and merchandise provided on a complimentary basis to customers. Such complimentary amounts are then deducted from revenues as promotional allowances on BH/RE’s consolidated statements of operations. The estimated departmental costs of providing such promotional allowances are included in casino costs and expenses and are listed in the table below. The year ended December 31, 2004 for BH/RE includes the four months of operating results since the Aladdin acquisition by OpBiz on August 31, 2004 and should be read in conjunction with the predecessor information for the eight-month performance ended August 31, 2004:

					For the period
					from March 31,
					2003
					(Date of			Predecessor Information
					Formation)			Eight months			Year
	Year ended				through			ended			ended
	December 31,				December 31,			August 31,			December 31,
	2005		2004		2003			2004			2003
	(amounts in thousands)
Rooms	$	3,779	$	1,151		$	—		$	2,208		$	3,476
Food and beverage	10,610		3,447			—			10,251			10,051
Other	1,370		440			—			579			1,806
Total cost of promotional allowances	$	15,759	$	5,038		$	—		$	13,038		$	15,333

Players’ Club Program

Players’ club members earn points based on gaming activity, which can be redeemed for cash. OpBiz accrues expense related to this program as the points are earned based on historical redemption percentages. The total accrued liability related to the players’ club was $1.7 million at December 31, 2005, compared to $1.9 million at December 31, 2004.

Self-Insurance Accruals

BH/RE is self-insured, up to certain limits, for costs associated with employee medical coverage. The Company accrues for the estimated expense of known claims, as well as estimates for claims incurred but not yet reported and totaled approximately $2.7 million as of December 31, 2005 and 2004.

Advertising Costs

Advertising costs are expensed as incurred and included in selling, general and administrative costs and expenses. Advertising costs totaled approximately $4.9 million, $1.2 million and $0 for the years ended December 31, 2005 and 2004 and the period from March 31, 2003 (Date of Formation) through December 31, 2003, respectively.

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Income Taxes

The consolidated financial statements include the operations of BH/RE and its majority-owned subsidiaries: EquityCo, MezzCo, and OpBiz. BH/RE and EquityCo are limited liability companies and are taxed as partnerships for federal income tax purposes. However, MezzCo has elected to be taxed as a corporation for federal income tax purposes. OpBiz, a wholly-owned subsidiary of MezzCo, will be treated as a division of MezzCo for federal income tax purposes, and accordingly, will also be subject to federal income taxes.

MezzCo and OpBiz account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS 109 requires the recognition of deferred income tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.

Preopening Costs

BH/RE accounts for costs incurred during the preopening and start-up phases of operations in accordance with Statement of Position 98-5, “Reporting on the Costs of Start-up Activities”. Preopening and start-up costs include, but are not limited to, salary related expenses for new employees, travel and entertainment expenses. Preopening costs are expensed as incurred.

Membership Interests

As of December 31, 2005, BH/RE’s membership interests had not been unitized and BH/RE’s members do not presently intend to unitize these membership interests. Accordingly, management of BH/RE has excluded earnings per share data required pursuant to SFAS No. 128 “Earnings Per Share” because management believes that such disclosures would not be meaningful to the financial statement presentation.

The Company has entered into various employment agreements, as amended, with several executives. The employment agreements have initial terms of two to five years. The employment agreements provide that the executives will receive a base salary with either mandatory increases or annual adjustments and annual bonus payments. In addition, depending on the terms of the employment agreements, these executives are entitiled to options to purchase between 0.2% and 5% of the equity of MezzCo. 

The Company accounts for stock-based compensation, including employee stock option plans, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and the Financial Accounting Standards Board’s Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25.” Had the Company accounted for these plans under the fair value method allowed by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), the Company’s net loss would have been as follows on a pro forma basis:

BH/RE, L.L.C. and Subsidiaries
For the Year Ended December 31,

	2005			2004
Net-loss	$	(29,876	)	$	(6,656	)
Stock-based compensation cost	(178		)	(121		)
Pro-forma net loss	$	(30,054	)	$	(6,777	)

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The estimated fair value of options granted during 2004 was $830,000 and was computed using a Black-Scholes valuation model with the following assumptions:  risk free interest rate of 3.79%; no expected dividend yields; a 36% volatity rate; and expected lives of 84 months.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment”, which requires that the compensation costs relating to share-based payments transactions be recognized in financial statements based on alternative fair value models. The share-based compensation cost will be measured on fair value models of the equity or liability instruments issued. The Company currently disclosed pro-forma compensation expense annually by calculating the membership unit option grants’ fair value using the Black-Scholes or other valuation model and disclosing the impact on net loss in a note to the financial statements. Upon adoption, pro forma disclosure will no longer be an alternative. The table above reflects the estimated impact that such a change in accounting treatment would have had on our net loss if it had been in effect during the years ended December 31, 2005, 2004 and 2003. The Company will begin to apply FSAS No. 123(R) using the modified prospective method as of the interim reporting period ending March 31, 2006 as provided by the Securities Exchange Commission announcement on April 14, 2005 which amended the effective date. Based on membership unit options outstanding as December 31, 2005, the Company estimates approximately $0.3 million in expense to be recorded during 2006, $0.1 million in 2007, and $0 thereafter.

In March 2005, the SEC issued Staff Accounting Bulleting (“SAB”) No. 107, “Share-Based Payment” to provide interpretive guidance on SFAS No. 123(R) valuation methods, assumptions used in valuation models, and the interaction of SFAS No. 123(R) with existing SEC guidance. SAB No. 107 also requires the classification of stock compensation expense in the same financial statement line items as cash compensation, and will therefore impact our departmental expenses (and related operating margins), pre-opening costs and construction in progress for our development projects, and our general and administrative expenses.

Reclassifications

Certain amounts in the Deember 31, 2004 and 2003 consolidated financial statements have been reclassified to conform to the December 31, 2005 presentation. These reclassifications had no effect on the previously reported net income.

3.RECEIVABLES

Accounts receivable consist of the following (in thousands):

	December 31,
	2005			2004
Casino	$	12,173		$	5,712
Hotel	8,470			7,735
Other	3,593			1,433
	24,236			14,880
Allowance for doubtful accounts	(4,443		)	(2,254		)
Receivables, net	$	19,793		$	12,626

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4.PROPERTY AND EQUIPMENT

Property and equipment and the related accumulated depreciation consist of the following (in thousands):

	December 31,
	2005			2004
Land	$	97,979		$	97,979
Building and improvements	367,234			367,234
Furniture, fixtures and equipment	34,194			35,172
Construction in progress	14,685			1,787
	514,092			502,172
Accumulated depreciation	(28,346		)	(7,391		)
Property and equipment, net	$	485,746		$	494,781

Of the $98.0 million in land value, $29.5 million has been allocated to the Timeshare Land.

Depreciation expense was approximately $22.3 million and $7.4 million for the years ended December 31, 2005 and 2004, respectively. BH/RE recorded no depreciation expense for the period from March 31, 2003 (Date of Formation) through December 31, 2003.

5.ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

	December 31,
	2005		2004
Accrued slot club points	$	1,688	$	1,900
Accrued accounts payable	1,314		460
Accrued progressive reserve	731		277
Accrued utilities	477		540
Accrued legal fees	462		701
Accrued slot participation fees	440		643
Accrued commissions	289		432
Accrued Central Utility Plant charges	271		1,287
Accrued advertising	226		354
Accrued acquisition costs	—		796
Other accrued expenses	285		733
Accrued expenses	$	6,183	$	8,123

6.OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):

	December 31,
	2005		2004
Outstanding chips	$	1,981	$	1,852
Advance ticket sales	1,439		421
Gaming and related	1,276		710
Advance commissions	880		1,245
Other current liabilities	583		158
Other current liabilities	$	6,159	$	4,386

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7.LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

	December 31,
	2005			2004
Term Loan A—$500 million senior notes, net of unamortized discount of $25,632 and $31,162	$	460,293		$	454,838
Term Loan B—$10 million senior notes	10,985			10,202
Mezzanine senior secured subordinated notes, net of unamortized discount of $3,880 and $4,262	103,956			87,472
Northwind Aladdin obligation under capital lease	32,314			33,570
Total long-term debt	607,548			586,082
Current portion of long-term debt	(2,671		)	(1,268		)
Total long-term debt, net	$	604,877		$	584,814

Credit Agreement

The Aladdin acquisition and the planned renovations were funded by the issuance of $510 million of secured notes to Aladdin Gaming’s secured creditors pursuant to a Credit Agreement. OpBiz’s obligations under the Credit Agreement are secured by liens on all of its assets, including a mortgage on its real property, the Hotel, the Casino and the Theater for the Performing Arts (“TPA”), and security interests in its accounts receivable, inventory, equipment and intangible assets, excluding the Timeshare Land. The Credit Agreement is guaranteed by MezzCo and MezzCo secured its guarantee by pledging its membership interests in OpBiz to the lenders. The Credit Agreement matures on August 31, 2010.

The loans under the Credit Agreement are evidenced by $500 million of Term Loan A notes and $10 million of Term Loan B notes. Upon issuance of the notes, BH/RE simultaneously made a $14 million cash payment to the holders of the Term Loan A notes to reduce the principal amount of the Term Loan A notes to $486 million and obtained a release of the lien on the Timeshare Land.

The scheduled principal payments on the Term Loan A notes are as follows:

·$1.25 million on the first day of each fiscal quarter during the period beginning on August 31, 2006 and ending on August 31, 2007;

·$3.75 million on the first day of each fiscal quarter during the period beginning on August 31, 2007 and ending on August 31, 2008;

·$5.0 million on the first day of each fiscal quarter during the period beginning on August 31, 2008 and ending on August 31, 2009;

·$6.25 million on the first day of each fiscal quarter during the period beginning on August 31, 2009 and ending on August 31, 2010;

·the then unpaid balance amount of Term Loan A notes on August 31, 2010.

OpBiz pays interest on the outstanding Term Loan A notes quarterly, in cash, at the London Inter-Bank Offered Rate, or LIBOR, plus an applicable margin that increases over time. Until the earlier of August 31, 2007 or OpBiz’s accumulation of certain permitted cash reserves, OpBiz’s interest payment will not exceed its quarterly earnings before interest, taxes, depreciation and amortization (“EBITDA”), reduced by certain permitted reductions (as defined in the Credit Agreement), divided by a factor of 1.20. Interest on the Term Loan B notes will accrue at a rate of LIBOR plus 4% and will be added quarterly to the outstanding principal amount of the Term Loan B notes and will be paid when OpBiz pays off the

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Term Loan B notes. OpBiz is also required to pay an annual administrative fee and certain other fees and expenses of the lender under the Credit Agreement.

OpBiz is required to prepay amounts outstanding under the Credit Agreement:

·with excess cash flow (as defined in the Credit Agreement) after certain permitted cash reserves are accumulated;

·in scheduled quarterly amounts beginning after August, 31, 2006;

·with certain amounts received in connection with the development of the Timeshare Land adjacent to the Desert Passage (as defined in the underlying agreement);

·with an amount equal to the difference between what should have been spent on renovation capital expenditures and what was actually spent thereon if (i) an aggregate amount of $72.0 million is not spent on renovation capital expenditures by August 31, 2006, or (ii) an aggregate amount of $81.0 million is not spent on renovation capital expenditures by February 28, 2007 or (iii) an aggregate amount of $90.0 million is not spent on renovation capital expenditures by August 31, 2007; and

·with the proceeds of certain asset sales.

In particular, after OpBiz accumulates certain permitted cash reserves, OpBiz is required to pay 100% of its excess cash flow (as defined in the Credit Agreement) from operations to the lenders under the Credit Agreement. That percentage decreases to 75%, then 50%, if OpBiz meets certain targeted ratios of total debt to EBITDA, or certain leverage ratios, for any two consecutive fiscal quarters.

The Credit Agreement includes covenants that, among other things, restrict OpBiz’s ability to sell assets, make distributions to its owners, other than distributions for taxes, incur or prepay additional indebtedness, enter into transactions with affiliates, incur liens, make investments, make capital expenditures,develop the Timeshare Land adjacent to the Desert Passage and enter into material contracts. In addition, OpBiz is required to maintain certain levels of EBITDA that increase over time and, beginning August 31, 2007, maintain certain ratios of EBITDA to interest expense that increase over time and maintain certain leverage ratios that decrease over time.

The Credit Agreement contains customary events of default, including a change of control of OpBiz, the occurrence of a default under the terms of any indebtedness of MezzCo, a default by OpBiz under the Hotel management contract or termination of Sheraton as the manager of the Hotel (unless OpBiz replaces Sheraton with another approved manager within 30 days of such termination), a default or termination of the Planet Hollywood license agreement and certain defaults under the agreements with Boulevard Invest or Northwind Aladdin.

BH/RE has issued warrants to purchase 2.94% of its ownership interest in EquityCo to the lenders under the Credit Agreement. The warrants can only be exercised upon the occurrence of (i) a liquidity event or distribution (such as through the sale of the hotel/casino); (ii) a public sale of equity securities of EquityCo, MezzCo or OpBiz; or (iii) payment in full of the obligations under the Credit Agreement. The warrants can either be settled in cash or in other membership interests upon exercise. The estimated fair value of the warrants was approximately $0.1 million as of December 31, 2005 and 2004. These warrants are recorded separately from the related debt within other long-term liabilities.

Mezzanine Financing

In August 2004, MezzCo entered into a mezzanine financing transaction (the “Mezzanine Financing”) with a group of purchasers. Pursuant to the Mezzanine Financing, MezzCo issued $87 million of 16% Senior Secured Subordinated Notes and warrants to purchase 17,500 of its units representing membership interests equal to 17.5% of the fully diluted equity of MezzCo. The gross offering proceeds of the

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Mezzanine Financing were deposited into an escrow account and, in conjunction with the closing of the Aladdin acquisition, were used to (i) pay approximately $16.1 million of fees and expenses related to the acquisition of the Aladdin, (ii) fund the $14 million lien release payment required under the Credit Agreement, and (iii) fund a portion of the planned renovations to the Aladdin. The notes mature in August 2011 and accrue interest at a rate of 16% per annum. Interest on the notes is payable-in-kind or, at the option of MezzCo, in cash. The warrants are exercisable at any time, subject to the approval of the Nevada gaming authorities, at a purchase price of $0.01 per unit. Subject to the approval of the Nevada gaming authorities, the warrants may be exercised to purchase either voting or non-voting membership interests of MezzCo or a combination thereof. Currently, all of MezzCo’s voting membership interests are represented by units owned by EquityCo. In addition to customary anti-dilution protections, the number of units representing MezzCo membership interests issuable upon exercise of the warrants may be increased from time-to-time upon the occurrence of certain events as described in the warrants. The maximum aggregate increase is 24%, following which the warrants would represent rights to purchase 41.5% of the units representing the fully diluted equity of MezzCo. Holders of the warrants and any securities issued upon exercise of the warrants may require MezzCo to redeem such securities commencing in August 2011 at a redemption price based upon a formula set forth in the warrants. Starting in August 2008, in the event the Company fails to achieve certain operational thresholds, the holders of the MezzCo warrants, and securities issued upon exercise thereof, have the right to assume control of MezzCo and OpBiz and conduct a sale of the equity of, or all or substantially all of the assets of, either MezzCo or OpBiz provided that all Control Conditions (as defined in the Investor Rights Agreement) are met. These rights are subject to (i) repayment in full of all indebtedness that is senior to the notes (including all indebtedness of OpBiz under the Credit Agreement), (ii) certain covenants related to OpBiz’s ability to achieve targeted levels of EBITDA and (iii) the prior approval of the Nevada gaming authorities. These rights expire upon completion of a public offering by MezzCo or OpBiz. In connection with the Mezzanine Financing, OpBiz’s obligation to make expenditures on renovations to the Aladdin was increased from $90 million, as required under the Credit Agreement, to $100 million.

As of December 31, 2005 and 2004, the MezzCo financing was recorded net of the unamortized balance of the put warrants of approximately $3.9 million and $4.3 million, respectively. The estimated fair value of the warrants was approximately $4.1 million at December 31, 2005 and 2004, and is recorded separately from the related debt within other long-term liabilities.

Energy Services Agreement

Northwind Aladdin (“Northwind”), a third party, owns and operates a central utility plant on land leased from OpBiz. The plant supplies hot and cold water and emergency power to the Aladdin under a contract between Aladdin Gaming and Northwind. OpBiz has assumed the energy service agreement, which expires in 2018. Under the agreement, OpBiz is required to pay Northwind a monthly consumption charge, a monthly operational charge, a monthly debt service payment and a monthly return on equity payment. Payments under the Northwind agreement total approximately $0.4 million per month.

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Scheduled Maturities of Long-Term Debt

Scheduled maturities of BH/RE’s long-term debt are as follows (in thousands):

Years ending December 31,
2006	$	2,671
2007	9,092
2008	18,035
2009	23,251
2010	458,461
Thereafter	278,698
	790,208
Term A debt discount, net	(25,632		)
Put warrants, net	(3,880		)
Total	$	760,696

Fair Value of Long-Term Debt

The estimated fair value of BH/RE’s long-term debt at December 31, 2005 was approximately $632.2 million, compared to the carrying value of approximately $607.5 million, based on the quoted market price of the Term Loan A notes.

8.MEMBERSHIP INTERESTS

The non-voting interests in BH/RE are owned 40.75% by BHCH I, 18.50% by BHCH II and 40.75% by OCS and the voting interests are owned 50% by Douglas P. Teitelbaum and 50% by Robert Earl. BHCH is controlled by Mr. Teitelbaum, managing principal of Bay Harbour Management, an investment management firm. BHCH was formed by Mr. Teitelbaum for the purpose of holding investments in BH/RE by funds managed by Bay Harbour Management. OCS is wholly-owned and controlled by Mr. Earl and holds Mr. Earl’s investment in BH/RE. Mr. Earl is the founder, chairman and chief executive officer of Planet Hollywood and Mr. Teitelbaum is a director of Planet Hollywood. Collectively, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood.

BH/RE owns 85% of the membership interests in EquityCo and Starwood owns 15%. OpBiz is a wholly owned subsidiary of EquityCo. BH/RE and Starwood made total equity contributions of $20 million each in EquityCo to fund the costs of the planned renovations to the Aladdin. Starwood’s equity interest in EquityCo is reflected as minority interest in the accompanying consolidated financial statements.

BH/RE has the option to purchase all of Starwood’s membership interests in EquityCo if OpBiz is entitled to terminate the hotel management contract between OpBiz and Sheraton (see Note 9) as a result of a breach by Sheraton. Starwood can require EquityCo to purchase all of its membership interests in EquityCo if the hotel management contract is terminated for any reason other than in accordance with its terms or as the result of a breach by Sheraton. In addition, BH/RE and Starwood entered into a registration rights agreement with respect to their membership interests in EquityCo.

9.RELATED PARTY TRANSACTIONS

Due to Affiliates

Since its formation, certain members or affiliates of BH/RE have paid expenses totaling approximately $20.0 million related to the Aladdin acquisition and funded deposits under the purchase agreement on behalf of BH/RE and its subsidiaries. On September 1, 2004, $4.25 million of advances from

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each of BHCH and OCS, which were used to fund the deposit required under the purchase agreement, were contributed to BH/RE as capital. Additionally, on September 1, 2004, the advances made by BHCH and Planet Hollywood to pay transaction fees and deposits were repaid.

Mr. Jess Ravich

Jess Ravich, a Manager of OpBiz, is CEO and indirect controlling shareholder of Libra Securities, LLC, an investment banking firm (“Libra Securities”). Libra Securities acted as placement agent for MezzCo, L.L.C. in the placement of the Mezzanine Financing and was paid a placement fee of $4,350,000.

Mr. Ravich holds a note convertible into 25% of the equity in PDS Gaming, a leasing and finance company specializing in gaming equipment.  Conversion of the note is subject to approval of appropriate gaming regulators in the jurisdictions in which PDS Gaming does business.  PDS Gaming entered into a gaming equipment lease with OpBiz on December 22, 2004, for a 48 month term with payments of approximately $137,500 per month.  Libra Securities raised financing for PDS Gaming to allow it to purchase the equipment underlying the lease and received a placement fee for its services.

Planet Hollywood Licensing Agreement

OpBiz, Planet Hollywood and certain of Planet Hollywood’s subsidiaries have entered into a licensing agreement pursuant to which OpBiz received a non-exclusive, irrevocable license to use various “Planet Hollywood” trademarks and service marks. Under the licensing agreement, OpBiz also has the right, but not the obligation, to open a Planet Hollywood restaurant and one or more Planet Hollywood retail shops under a separate restaurant agreement with Planet Hollywood. OpBiz will pay Planet Hollywood a quarterly licensing fee of 1.75% of OpBiz’s non-casino revenues. If OpBiz opens an attraction with paid admission using the Planet Hollywood marks or memorabilia prior to beginning operations as the PH Resort, it will pay Planet Hollywood a quarterly licensing fee of 1.75% of the revenues of the attraction until OpBiz begins operating as the PH Resort. The initial term of the licensing agreement will expire in 2028. OpBiz can renew the licensing agreement for three successive 10-year terms. As of December 31, 2005, no licensing fees have been paid to Planet Hollywood for the use of its trademarks and service marks.

In addition to being a manager of BH/RE, Mr. Earl is the chief executive officer and chairman of the board of directors of Planet Hollywood. Similarly, Mr. Teitelbaum is a manager of BH/RE and a director of Planet Hollywood. Together, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership of any equity of Planet Hollywood owned by the trust.

Sheraton Hotel Management Contract

OpBiz and Sheraton have entered into a management contract pursuant to which Sheraton provides hotel management services to OpBiz, assists OpBiz in the management, operation and promotion of the Hotel and permits OpBiz to use the Sheraton brand and trademarks in the promotion of the Hotel. OpBiz pays Sheraton a monthly fee of 4% of gross hotel revenue and certain food and beverage outlet revenues and 2% of rental income from third-party leases in the hotel. The management contract has a 20-year term commencing on the completion of the Aladdin acquisition and is subject to certain termination provisions by either OpBiz or Sheraton. Sheraton is a wholly owned subsidiary of Starwood, which has a 15% equity interest in EquityCo and has the right to appoint two members to the EquityCo board of managers. Management fees paid to Starwood totaled approximately $10.8 million and $2.5 million for the years ended December 31, 2005 and 2004, respectively. No such fees were incurred prior to 2004.

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10.   INCOME TAXES

The consolidated financial statements include the operations of BH/RE and its majority-owned subsidiaries: EquityCo, MezzCo, and OpBiz. BH/RE and EquityCo are limited liability companies taxed as partnerships for federal income tax purposes. MezzCo has elected to be taxed as a corporation for federal income tax purposes. OpBiz, a wholly-owned subsidiary of MezzCo, will be treated as a division of MezzCo for federal income tax purposes, and accordingly, will also be subject to federal income taxes.

MezzCo and OpBiz account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS 109 requires the recognition of deferred income tax assets, net of applicable reserves, related to net operating loss (“NOL”) carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.

Management believes it is more likely than not that its net deferred tax asset will not be realized and has therefore recorded a valuation allowance against this net deferred tax asset.

The payable in-kind interest associated with the Mezzanine Financing is subject to the provisions of Internal Revenue Code Section 163(e)(5) as a high yield debt obligation with disqualified OID. As a result, a portion of the interest expense associated with the Mezzanine Financing is permanently non-deductible for tax purposes and the balance of the interest expense is only deductible when paid in cash. The deferred tax asset associated with the Mezzanine Financing remains fully reserved.

The income tax provision (benefit) from continuing operations consists of the following (amounts in thousands):

	December 31,
	2005			2004
Current	$	149			$	—
Deferred	(134		)		—
Total income tax provision (benefit)	$	15			$	—

The income tax provision (benefit) differs from that computed at the federal statutory corporate tax rate as follows (amounts in thousands):

	December 31,
	2005						2004
	Amount			Percent			Amount			Percent
Pre-tax income at U.S. statutory rate	$	(10,451	)		35.0	%	$	(2,329	)		35.0	%
Tax attributable to pass-through entities	1,844				(6.2	)	282				(4.2	)
Non-deductible interest expense	2,388				(8.0	)	—				—
Tax credits, net of current addback	(340		)		1.1		(106		)		1.6
Other	103				(0.1	)	57				(0.9	)
Valuation allowance	6,471				(21.9	)	2,096				(31.5	)
Effective tax rate	$	15			(0.1	)%	$	—			—	%

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The tax effects of significant temporary differences representing net deferred tax assets and liabilities are as follows (amounts in thousands):

	December 31,
	2005		2004
Deferred tax assets:
NOL carryforward	$ 5,322		$      —
Mezzanine interest OID	4,376		—
Accruals	1,953		1,392
Reserves for doubtful accounts	1,555		789
Amortization	1,175		126
Tax credits	835		146
Other	1,851		152
Depreciation	—		729
Total deferred tax assets	$ 17,067		$ 3,334
Deferred tax liabilities:
Depreciation	$ 6,646		$      —
Prepaid expenses	1,720		1,238
Total deferred tax liabilities	$ 8,366		$ 1,238
Valuation allowance	(8,567	)	(2,096	)
Net deferred tax assets and liabilities	$    134		$      —

At December 31, 2005, OpBiz had a general business credit carryforward of approximately $686,000 that expires in 2025 and a minimum tax credit carryforward of approximately $149,000. MezzCo and OpBiz have a valuation allowance at December 31, 2005 and 2004 recorded against tax benefits that are more likely than not unrealizable. The net deferred tax asset of $134 at December 31, 2005 represents recoverable taxes paid in a carryback period.

11.   COMMITMENTS AND CONTINGENCIES

Litigation

In the normal course of business, BH/RE is subject to various litigation, claims and assessments. The Company is not currently a party to any material litigation and, it is not aware of any action, suit or proceedings against it that has been threatened by any person.

Employment Agreements

The Company has entered into various employment agreements, as amended, with several executives.  The employment agreements have initial terms of two to five years.  The employment agreements provide that the executives will receive a base salary with either mandatory increases or annual adjustments and annual bonus payments.  In addition, depending on the terms of the employment agreements, these executives are entitiled to options to purchase between 0.2% and 5% of the equity of MezzCo (see Note 2).

Leases

OpBiz leases certain real property, furniture and equipment. The leases are accounted for as operating or capital leases in accordance with SFAS No. 13, “Accounting for Leases.”

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At December 31, 2005, aggregate minimum rental commitments under noncancelable operating leases and capital leases with initial or remaining terms of one year or more consisted of the following (in thousands):

	Operating Leases		Capital Leases
Years ending December 31,
2006		$ 2,076	$   4,954
2007		2,083	4,973
2008		1,988	4,962
2009		—	4,965
2010		—	4,965
Thereafter		—	33,417
Total minimum lease payments		$ 6,147	$ 58,236
Less: Amounts representing interest			(26,032	)
Total obligations under capital leases			32,204
Less: Amounts due within one year			(1,421	)
Amounts due after one year			$ 30,783

The current and long-term obligations under capital leases are included in “Current portion of long-term debt” and “Long-term debt, less current portion,” respectively, in the accompanying consolidated balance sheets. Rental expense amounted to approximately $3.4 million and $0.4 million for the years ended December 31, 2005 and 2004, respectively, and $0 for the period from March 31, 2003 (Date of Formation) through December 31, 2003.

Timeshare Purchase Agreement

On December 10, 2004, OpBiz entered into a Timeshare Purchase Agreement with Westgate Resorts, LTD. (“Westgate”), a Florida limited partnership, whereby OpBiz has agreed to sell approximately 4 acres of land adjacent to the Aladdin to Westgate, who plans to develop, market, manage and sell timeshare units on the land. Under the Timeshare Purchase Agreement, OpBiz will receive fees each year based on sales of timeshare units until the timeshare units are one hundred percent sold out.

Theater Lease

On December 16, 2004, OpBiz entered into a long-term lease agreement whereby CC Entertainment Theatrical-LV, LLC, succesor-in-interest to SFX Entertainment, Inc. pursuant to an assignment dated September 26, 2005 (“CCE”) will be renovating and leasing certain theaters and related areas located at the Aladdin. CCE will have the exclusive right to use, reconfigure, adapt, change and operate the leased premises.

12.EMPLOYEE BENEFIT PLANS

401K Plan

OpBiz has a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its employees, which it assumed from Aladdin Gaming on September 1, 2004. The plan allows employees to defer, within prescribed limits, up to 15% of their income on a pre-tax basis through contributions to the plan. OpBiz currently matches, within prescribed limits, 50% of all employees’ contributions up to 6% of their individual earnings on an annual basis. The amount of the company match paid to the eligible plan participants was approximately $1.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.

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Health Insurance Plan and Self-Funded Employee Health Care Insurance Program

OpBiz maintains a qualified employee health insurance plan covering all employees who work in a full-time capacity. The plan, which is self-funded by OpBiz with respect to claims below a certain maximum amount, requires contributions from eligible employees and their dependents.

OpBiz’s employee health care benefits program is self-funded up to a maximum amount per claim. Claims in excess of this maximum amount are fully insured through a stop-loss insurance policy. Accruals are based on claims filed and estimates of claims incurred but not reported.

At December 31, 2005 and 2004, OpBiz’s estimated liabilities for all unpaid and incurred but not reported claims totaled approximately $2.7 million.

13.SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

	Net revenues	Operating income (loss)			Pre-tax income (loss)			Net income (loss)
	(In thousands)
Year ended December 31, 2005:
First Quarter(b)	$ 79,219		$ 14,054			$      356			$      356
Second Quarter(b)	75,373		6,448			(6,139	)		(7,105	)
Third Quarter(b)	74,373		4,978			(7,971	)		(7,053	)
Fourth Quarter(b)	77,293		(3,824	)		(16,107	)		(16,074	)
Year ended December 31, 2004:
First Quarter(a)	$ 73,357		$ 18,615			$ 16,119			$ 16,119
Second Quarter(a)	71,262		17,304			13,757			13,757
Third Quarter(a)	69,229		8,167			1,406			1,406
Fourth Quarter(b)	73,182		7,272			(4,760	)		(4,760	)

(a)Includes the combined operating results of BH/RE, LLC and its subsidiaries and Aladdin Gaming, LLC. (predecessor).

(b)Includes the operating results of BH/RE, L.L.C. and its subsidiaries.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

BH/RE’s management evaluated, with the participation of BH/RE’s principal executive and principal financial officers, the effectiveness of BH/RE’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2005. Based on their evaluation, BH/RE’s principal executive and principal financial officers concluded that our disclosure controls and procedures were effective as of December 31, 2005.

There has been no change in BH/RE’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during BH/RE’s fiscal quarter ended December 31, 2005, that has materially affected, or is reasonably likely to materially affect, BH/RE’s internal control over financial reporting.

ITEM 9B.OTHER INFORMATION

None.

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PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The members of the board of managers and executive officers of BH/RE and its subsidiaries are as follows:

Name	Age	Position
Robert Earl	54	Manager of BH/RE and EquityCo, Co-Chairman of OpBiz
Douglas P. Teitelbaum	40	Manager of BH/RE and EquityCo , Co-Chairman of OpBiz
Michael V. Mecca	57	President and Chief Executive Officer of BH/RE and OpBiz
Donna Lehmann	36	Chief Financial Officer of OpBiz and Treasurer of BH/RE
Mark S. Helm	35	Senior Vice President, General Counsel and Secretary of OpBiz
Darby Davies	55	Senior Vice President of Casino Marketing of OpBiz
Michael A. Belletire	59	Manager of OpBiz
Jess M.Ravich	48	Manager of OpBiz
Theodore W. Darnall	48	Manager of EquityCo and OpBiz
Thomas M. Smith	53	Manager of OpBiz

Robert Earl.Mr. Earl has been a manager of BH/RE since its formation in March 2003. Mr. Earl has over 30 years experience in the restaurant industry. Mr. Earl is the founder of Planet Hollywood and has been the chief executive officer and a member of the board of directors of Planet Hollywood and its predecessors since 1991. In November 1998, Mr. Earl was elected chairman of the board of directors of Planet Hollywood. Planet Hollywood filed voluntary petitions for relief under the Bankruptcy Code in October 1999 and October 2001.

Douglas P. Teitelbaum.Mr. Teitelbaum has been a manager of BH/RE since its formation in March 2003. Mr. Teitelbaum is the co-owner and a managing principal of Bay Harbour Management, an SEC-registered investment management firm focusing on investments in distressed securities, as well as acquiring and restructuring distressed companies. Mr. Teitelbaum joined Bay Harbour Management in 1996 as a principal and co-portfolio manager. Prior to joining Bay Harbour Management, Mr. Teitelbaum was a managing director at Bear, Stearns & Co. Inc. in the high yield and distressed securities department. Mr. Teitelbaum currently serves on the board of directors of Planet Hollywood, Telcove and the American Jewish Congress.

Michael V. Mecca.Mr. Mecca was appointed president and chief executive officer of BH/RE on March 6, 2006 and has been president and chief executive officer of OpBiz since May 2003. Mr. Mecca has over 30 years of experience in the hotel and gaming industries, including 13 years in various management positions with the predecessor to Caesars Entertainment, Inc. From April 2001 to April 2003, he was the vice president and general manager of Green Valley Ranch Resort Casino in Henderson, Nevada. From February 1999 to April 2001, Mr. Mecca served as the chief operating officer of Greektown Casino in Detroit, Michigan. From December 1997 to January 1999, Mr. Mecca held the positions of chief operating officer of Ramparts International and vice president and general manager of Mandalay Bay Resort & Casino in Las Vegas, Nevada. From March 1994 to December 1997, Mr. Mecca managed the development of the Crown Casino in Melbourne, Australia, one of the largest casinos in the world.

Donna Lehmann.Ms. Lehmann has been the chief financial officer of OpBiz and treasurer of BH/RE since the purchase of the Aladdin on September 1, 2004. She was the vice president of finance for Aladdin Gaming, LLC from July 2001 until August 31, 2004. Prior to joining the Aladdin, Ms. Lehmann was Controller for Ethel M. Chocolates (a subsidiary of M&M Mars, Inc.) from June 2000 until July 2001. She was a senior auditor with Arthur Andersen LLP from January 1998 to June 2000 and is a Certified Public Accountant in Nevada.

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Mark S. Helm.   Mr. Helm has been the senior vice president, general counsel and secretary of OpBiz since November 2004. Prior to joining OpBiz, Mr. Helm was in-house counsel for Planet Hollywood and its subsidiaries from 1995 until October of 2004 and served as vice president, general counsel and secretary of Planet Hollywood from January 2000 until October of 2004. Mr. Helm is a member of the Florida Bar and maintains an In-House Counsel designation with the Nevada Bar.

Darby Davies.Ms. Davies has served as senior vice president, casino marketing of OpBiz since January 2, 2006. Ms. Davies has over 32 years of experience in the gaming industry. Prior to joining OpBiz, Ms. Davies was vice president of casino marketing at Mandalay Bay Resort & Casino, Las Vegas, Nevada from November of 1998 to April of 2005. From June of 1995 to October of 1998, she was director of player development at Bally’s Hotel & Casino in Las Vegas, Nevada. From March, 1993 to November 1994 she was vice president of casino marketing at the Desert Inn Hotel & Casino in Las Vegas, Nevada. Prior to 1993, Ms. Davies was employed at Caesars Tahoe for 15 years in various positions including associate vice president of Caesars World Branch Office Marketing (CWBOM).

Michael A. Belletire.Mr. Belletire has served as manager of OpBiz since October 2004. Mr. Belletire owns and operates his own management services firm, BMA Consulting, where he served as gaming regulatory and financial advisor to the secured Senior Lender Group to Aladdin Gaming until September 2004. From 1995 through 1999, he was the chief executive/staff director of the Illinois Gaming Board. Prior to 1995, Mr. Belletire served in several executive management positions with the State of Illinois.

Jess M. Ravich.Mr. Ravich has served as a manager of EquityCo and OpBiz since October 2004. Mr. Ravich is the chairman and chief executive officer of Libra Securities, LLC (“Libra”), a Los Angeles based investment banking firm that focuses on capital raising and financial advisory services for middle market corporate clients and the sales and trading of debt and equity securities for institutional investors. Prior to founding Libra in 1991, Mr. Ravich was an executive vice president at Jefferies & Co., Inc. and a senior vice president at Drexel Burnham Lambert. He also serves on the board of directors of Cherokee Inc. and Continental AFA Dispensing Company. Mr. Ravich is on the undergraduate executive board of the Wharton School and the board of trustees of the Archer School for Girls.

Theodore W. Darnall.Mr. Darnall has served as manager of EquityCo and OpBiz since October 2004. Mr. Darnall has 30 years of experience in the hotel industry, including serving as president, Starwood Real Estate for Starwood Hotels & Resorts Worldwide since his appointment to that position in August 2002. Mr. Darnall has also served as president, North America Division and executive vice president, Operations, North America since joining Starwood Lodging Corp. in 1996 as Chief Operating Officer. Prior to joining Starwood, Mr. Darnall was with Interstate Hotels Corporation for more than 14 years.

Thomas M. Smith.Mr. Smith was appointed to the board of managers of OpBiz in March 2005. Mr. Smith has more than ten years of senior level management experience in hotel operations. He is a senior vice president of Starwood Hotels and Resorts Worldwide (HOT) Real Estate Group. Prior to joining Starwood in 1998, Mr. Smith was a managing director with CIGNA Corporation’s Real Estate Investment Division, where he was responsible for hotel real estate investments for eleven years.

As OpBiz is our operating subsidiary, the information provided below discusses the board of managers of OpBiz (the “Board”).

Meetings of the Board of Managers

The Board met four times between January 1, 2005 and December 31, 2005. The Board has a standing Audit Committee, Compensation Committee, Compliance/Credit Committee, Executive Committee and a Renovation Committee. During 2005, none of the members of the Board attended less than 75% of the

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meetings held by the Board, or the total number of meetings held by all committees of the Board on which various members served. The current members of each of the Board’s standing committees are listed below.

The Audit Committee

The Board has a separately designated standing Audit Committee, whose current members are Jess M. Ravich and Michael A. Belletire. Mr. Ravich serves as Chairman of the Audit Committee. The Board has considered the independence of our Audit Committee members and determined that all members of the Audit Committee are independent for purposes of serving on the Audit Committee.

The Audit Committee meets periodically with BH/RE’s independent auditors, management, internal auditors and legal counsel to discuss accounting principles, financial and accounting controls, the scope of the annual audit, internal controls, regulatory compliance and other matters. The Audit Committee also advises the Board on matters related to accounting and auditing and selects the independent auditors. The independent auditors and internal auditors have complete access to the Audit Committee without management present to discuss results of their audit and their opinions on adequacy of internal controls, quality of financial reporting and other accounting and auditing matters. The Audit Committee operates under a formal charter, which is filed as an exhibit to this Annual Report on Form 10-K.

The Board has determined that all Audit Committee members are financially literate and has also determined that Michael A. Belletire qualifies as an audit committee financial expert.

The Compensation Committee

The current members of the Compensation Committee are Douglas P. Teitelbaum, Robert Earl and Theodore W. Darnall. Each member of the Compensation Committee is a non-employee director. Mr. Teitelbaum serves as Chairman of the Compensation Committee.

The Compensation Committee reviews and takes action regarding terms of compensation, employment contracts and pension matters that concern officers and key employees. The responsibilities of the Compensation Committee are outlined in a written charter, which is filed as an exhibit to this Annual Report on Form 10-K.

The Compliance/Credit Committee

The current members of the Compliance/Credit Committee are Douglas P. Teitelbaum and Robert Earl. The Compliance/Credit Committee has the responsibility and authority to set policies for the establishment of the Gaming Compliance Program and the Credit Extension Program. The Gaming Compliance Program establishes policies and procedures to ensure that OpBiz remains in compliance with any and all gaming regulations. The Credit Extension Program establishes policies and procedures for extending credit to OpBiz’s gaming customers.

The Executive Committee

The current members of the Executive Committee are Douglas P. Teitelbaum and Robert Earl. The Executive Committee has the full power and authority to act for the Board between meetings in all matters on which the Board is authorized to act and where specific actions shall not have previously been taken by the Board unless (i) the Board has taken action restricting the authority of the Executive Committee to act; (ii) the action is the final approval of BH/RE’s annual budget or (iii) such action would require the consent of Starwood Nevada Holdings, LLC (as defined in the Second Amended and Restated Operating Agreement of EquityCo, LLC).

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The Renovation Committee

The current members of the Renovation Committee are Douglas P. Teitelbaum and Robert Earl. The Renovation Committee has the authority to develop and implement the renovation capital expenditure budget for presentation and approval by the Board and, upon such approval, shall be further authorized to enter into and monitor any and all contracts, agreements or arrangements and payments made in connection with the renovation of the Aladdin.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 (a) of the Exchange Act requires our managers, executive officers and certain beneficial owners (collectively, “Section 16 Persons”) to file reports of beneficial ownership on Form 3 and reports of changes in ownership on Form 4 or 5 with the Securities and Exchange Commission. Copies of all such reports are required to be furnished to us. To our knowledge, based solely on a review of the copies of Section 16(a) reports furnished to us for fiscal year 2005, and other information, all filing requirements for the Section 16 Persons have been complied with during or with respect to fiscal year 2005, except Initial Statements of Beneficial Ownership on Form 3 were filed late on behalf of Messrs. Mecca, Helm, Belletire, Ravich, Darnall and Smith and for Ms. Lehmann and Ms. Davies.

Code of Ethics

BH/RE’s Code of Ethics, which is filed as an exhibit to this Annual Report on Form 10-K, has been approved by its Board and applies to all of its managers and executive officers, including its principal executive officer, principal financial officer and principal accounting officer. BH/RE’s Code of Ethics covers all areas of professional conduct including, but not limited to, conflicts of interests, disclosure obligations, insider trading, confidential information, as well as compliance with all laws and rules and regulations applicable to its business.

BH/RE undertakes to provide without charge to any person, upon request, a copy of this Code of Ethics. Requests should be directed in writing to BH/RE, L.L.C., Attention: General Counsel, 3667 Las Vegas Boulevard South, Las Vegas, Nevada 89109.

ITEM 11.EXECUTIVE COMPENSATION

BH/RE currently pays no compensation to any of its managers who are directly or indirectly affiliated with BH/RE or Starwood. As BH/RE has no executive officers, the compensation of certain executive officers of OpBiz, our operating subsidiary, is set forth below.

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Summary Compensation Table

The following table sets forth the compensation paid to the chief executive officer of OpBiz and other highly compensated executive officers during the fiscal years ended December 31, 2005, 2004 and 2003 to the extent that such persons were employed by OpBiz during such years.

SUMMARY COMPENSATION TABLE

	Annual Compensation								Securities
Name and						Other Annual			Underlying			All Other
Principal Position	Year	Salary		Bonus		Compensation			Options			Compensation
Michael V. Mecca	2005	$	481,753	$	450,000		$	28,741		$	—		$	—
President and Chief Executive	2004	468,407		250,000			54,443			—			—
Officer of BH/RE and OpBiz(1)(2)	2003	277,444		—			—			—			—
Donna Lehmann	2005	$	258,878	$	41,663		$	—		$	—		$	—
Treasurer of BH/RE and	2004	81,572		75,000			—			—			—
Chief Financial Officer
of OpBiz(3)
Mark S. Helm	2005	$	218,392	$	35,830		$	—		$	—		$	—
Senior Vice President, General	2004	81,599		35,000			—			—			—
Counsel and Secretary of OpBiz(4)
Bruce B. Himelfarb(5)	2005	$	183,867	$	41,663		$	—		$	—		$	250,000
Senior Vice President of	2004	81,599		35,000			—			—			—
Casino Marketing of OpBiz

(1)Other annual compensation for Mr. Mecca consisted of an automobile allowance.

(2)Mr. Mecca began employment with OpBiz in May 2003. Mr. Mecca’s employment agreement grants him an option to purchase up to 3% of the equity of MezzCo, vesting one-third annually beginning in April 2004. The exercise price for Mr. Mecca’s options is based on a current subscription valuation. Mr. Mecca has not exercised any options as of December 31, 2005.

(3)Ms. Lehmann began employment with OpBiz in September 2004. Ms. Lehmann’s employment agreement grants her with an option to purchase 0.3% of the equity of MezzCo, vesting one-third annually beginning September 1, 2005. Ms. Lehmann’s options carry a strike price based on a $100 million equity value.

(4)Mr. Helm began employment with OpBiz in November 2004. Mr. Helm’s employment agreement grants him an option to purchase up to 0.2% of the equity of MezzCo, vesting one-third annually beginning November 2, 2005. Mr. Helm’s options carry a strike price based on a $100 million equity value.

(5)Mr. Himelfarb began employment with OpBiz in September 2004 under an employment agreement with a three-year term that commenced on August 23, 2004. His employment with OpBiz was terminated in August 2005. Under the terms of his employment agreement, OpBiz paid Mr. Himelfarb $250,000, as severance compensation, representing 12 months of his salary upon his termination of employment.

Compensation of Board

Members of the Board who are not directly or indirectly affiliated with BH/RE or Starwood receive annual compensation of $75,000, which is paid in quarterly installments. All managers are reimbursed for expenses connected with attendance at meetings of the Board.

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Option/SAR Grants

BH/RE has not issued options or appreciation rights to any of its managers or executive officers. There were no options or SAR grants during the fiscal year ended December 31, 2005. Notwithstanding the foregoing, certain of our subsidiaries have issued options to our executive officers.

Aggregated Option/SAR Exercises in 2005 and Option/SAR Values at December 31, 2005

The following table sets forth certain information regarding options to acquire equity interests in MezzCo held by the executive officers of OpBiz at December 31, 2005.

AGGREGATED OPTION/SAR EXERCISES IN 2005
AND OPTION/SAR VALUES AT DECEMBER 31, 2005

Name	Number of Securities Underlying Options/SARs Exercised(1)		Value Realized(1)			Number of Securities Underlying Unexercised Options/SARs at December 31, 2005 Exercisable/ Unexercisable(1)		Value of Unexercised In-The-Money Options/SARs at December 31, 2005 Exercisable/ Unexercisable(1)
Michael V. Mecca		—		$	—		—/—		$	—/$—
Donna Lehmann		—		$	—		—/—		$	—/$—
Mark S. Helm		—		$	—		—/—		$	—/$—

(1)See descriptions of options set forth in summaries of employment agreements below. Because MezzCo ownership interest has not been unitized as of 12/31/05, options have not been issued and no amounts are reflected in the above table.

Michael V. Mecca Employment Agreement

Mr.  Mecca serves as president and chief executive officer of BH/RE and OpBiz under an employment agreement that expires in May 2008. The employment agreement automatically renews for successive five-year terms unless either party elects not to renew at least 90 days prior to the end of a term. OpBiz paid Mr. Mecca a base salary of $495,000 in 2005, which is subject to annual upward adjustments. OpBiz pays Mr. Mecca a performance bonus determined by OpBiz’s board of managers based on OpBiz’s financial performance and certain other factors. If OpBiz terminates the employment agreement other than for cause, Mr. Mecca will be entitled to receive 12 months of his then-base salary. In addition, if the employment agreement is terminated for any reason other than by OpBiz for cause, Mr. Mecca will be entitled to receive all accrued but unpaid bonuses through the date of termination. The agreement provides Mr. Mecca with an option to purchase up to 3% of the equity of MezzCo at an exercise price based on a current subscription valuation, vesting one-third annually beginning on April 11, 2004. Mr. Mecca has granted OpBiz a right of first refusal with respect to any proposed sales of his equity interests in MezzCo.

Donna Lehmann Employment Agreement

Ms.  Lehmann serves as the treasurer of BH/RE and chief financial officer of OpBiz under an employment agreement that expires on September 1, 2007. OpBiz may terminate Ms. Lehmann’s employment any time upon 15 days’ prior written notice, in which case she will be entitled to receive severance pay equal to one year of her then base salary plus any earned but not paid bonus. Ms. Lehmann may terminate her employment at any time upon 30 days’ prior written notice. If Ms. Lehmann remains employed by OpBiz after her employment agreement expires, any such employment will be on an at-will basis unless she and OpBiz agree in writing to extend the terms of her agreement. OpBiz paid

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Ms. Lehmann a base salary of $275,000 in 2005, which is subject to annual upward adjustments at a minimum of 5% per annum. Ms. Lehmann was paid a one-time transition bonus of $75,000 in 2004 for her transition from vice president of finance for Aladdin Gaming to her current position with OpBiz. She will receive an annual discretionary bonus of up to 50% of her annual compensation determined by OpBiz’s board of managers based on OpBiz’s financial performance and certain other factors. The agreement provides that Ms. Lehmann is eligible to receive an option to purchase up to 0.3% of the equity of MezzCo at an exercise price based on a $100 million equity value, vesting one-third annually beginning on September 1, 2005. The option is subject to adoption by the Company of an option plan which plan may be subject to the approval of the Nevada Gaming Commission. As of March 31, 2006, no such option plan has been adopted by the Company.

Mark S. Helm Employment Agreement

Mr.  Helm serves as senior vice president, general counsel and secretary of OpBiz under an employment agreement that expires on November 2, 2007. OpBiz may terminate Mr. Helm’s employment any time upon 15 days’ prior written notice, in which case he will be entitled to receive severance pay equal to one year of his then base salary plus any earned but not paid bonus. Mr. Helm may terminate his employment at any time upon 30 days’ prior written notice. If Mr. Helm remains employed by OpBiz after his employment agreement expires, any such employment will be on an at-will basis unless he and OpBiz agree in writing to extend the terms of his agreement. OpBiz paid Mr. Helm a base salary of $236,000 in 2005, which is subject to annual upward adjustments. He will receive an annual discretionary bonus of up to 50% of his annual compensation determined by OpBiz’s board of managers based on OpBiz’s financial performance and certain other factors. The agreement provides that Mr. Helm is eligible to receive an option to purchase up to 0.2% of the equity of MezzCo at an exercise price based on a $100 million equity value, vesting one-third annually beginning on November 2, 2005. The option is subject to adoption by the Company of an option plan which plan may be subject to the approval of the Nevada Gaming Commission. As of March 31, 2006, no such option plan has been adopted by the Company.

Darby Davies Employment Agreement

Ms.  Davies serves as senior vice president of casino marketing of OpBiz under an employment agreement effective as of January 2, 2006. The term of the agreement is for three (3) years, terminating on December 31, 2008. OpBiz may terminate Ms. Davies’s employment at any time upon 15 days’ prior written notice, in which case she will be entitled to receive severance pay equal to eighteen months’ salary plus any earned but not paid bonus. Ms. Davies may terminate her employment at any time upon 30 days’ prior written notice. OpBiz pays Ms. Davies a salary of $250,000 per year, which is subject to annual upward adjustments, and she is eligible to participate in OpBiz’s bonus program. She will receive a minimum bonus of $50,000 on January 2, 2007, $75,000 on January 2, 2008 and $100,000 on December 31, 2008. The agreement also provides Ms. Davies with an option to purchase up to 0.25% of the equity of MezzCo at an exercise price based on a $100 million equity value, vesting 40% on January 2, 2007, 40% on January 2, 2008 and 20% on December 31, 2008. The option is subject to adoption by the Company of an option plan which plan may be subject to the approval of the Nevada Gaming Commission. As of March 31, 2006, no such option plan has been adopted by the Company.

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The table below sets forth the beneficial ownership of BH/RE’s voting and equity membership interests and OpBiz’s membership interests as of March 31, 2006 by:

·each member of the board of managers of BH/RE;

·Starwood Nevada Holdings, LLC; and

·BH/RE’s board of managers and executive officers as a group.

In addition, the table below sets forth, as of March 31, 2006, the beneficial ownership of each person known by BH/RE to be the beneficial owner of more than five percent of its voting membership interests, which is the only class of voting securities of BH/RE.

Unless otherwise indicated, each person listed in the table below has sole voting and investment power over the percentage of voting and equity membership interests listed opposite such person’s name.

	BH/RE						OpBiz
Name	Percent of Voting Membership Interests			Percent of Equity Membership Interests			Percent of Economic Membership Interests(2)
Douglas P. Teitelbaum (1),(2)		50.00	%		—			—
Robert Earl (2),(3)		50.00	%		—			—
Starwood Nevada Holdings, LLC (2),(4)		—			—			15.00	%
BH Casino and Hospitality LLC I (1)		—			40.75	%		34.64	%
BH Casino and Hospitality LLC II (1)		—			18.50	%		15.72	%
OCS Consultants, Inc (3)		—			40.75	%		34.64	%
All members of the BH/RE board of managers and BH/RE executive officers as a group (2 persons)		100.00	%		100.00	%		85.00	%

(1)The address for Mr. Teitelbaum, BH Casino and Hospitality LLC I and BH Casino and Hospitality LLC II is 885 Third Avenue, 34th Floor, New York, New York 10022. Mr. Teitelbaum beneficially owns all of the equity membership interests beneficially owned by BH Casino and Hospitality I and II because Mr. Teitelbaum is the sole manager of BH Casino and Hospitality I and II. Mr. Teitelbaum disclaims beneficial ownership of such equity membership interests, except to the extent of his pecuniary interest therein.

(2)All of the outstanding membership interests of OpBiz are held by MezzCo and, in turn, all of the outstanding membership interests of MezzCo are held by EquityCo. EquityCo is owned 85% by BH/RE and 15% by Starwood. Because OpBiz and MezzCo are both single member limited liability companies and their respective operating agreements provide that the sole member of each entity has full, exclusive and complete discretion in the management and control of the entity, the board of managers of EquityCo directly or indirectly controls the management and affairs of MezzCo and OpBiz. Under its operating agreement, EquityCo is managed by a three-member board of managers, which includes two BH/RE appointees, Mr. Teitelbaum and Mr. Earl, and one Starwood appointee, Mr. Darnall. Because all actions of the EquityCo board of managers must be approved by majority vote, except certain actions which require unanimous approval, BH/RE can direct the voting and disposition of the membership interests of MezzCo owned by EquityCo and, in turn, the membership interests of OpBiz owned by MezzCo. Mr. Teitelbaum and Mr. Earl, individually and through their respective affiliates, own 100% of BH/RE. All actions of BH/RE require the approval of both Mr. Teitelbaum and Mr. Earl. Consequently, Mr. Teitelbaum and Mr. Earl share voting and investment power over the membership interests of MezzCo owned by EquityCo and, in turn, the

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membership interests of OpBiz owned by MezzCo, and therefore are deemed to beneficially own such membership interests. Mr. Teitelbaum and Mr. Earl both disclaim beneficial ownership of the membership interests of EquityCo owned by Starwood.

(3)The address for Mr. Earl is 7598 West Sand Lake Road, Orlando, Florida 32819. Mr. Earl beneficially owns all of the equity membership interests beneficially owned by OCS because OCS is wholly owned and controlled by Mr. Earl.

(4)The address for Starwood Nevada Holdings, LLC is c/o Starwood Hotels & Resorts Worldwide, Inc., 1111 Westchester Avenue, White Plains, New York 10604.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Due to Affiliates

Since its formation, certain members or affiliates of BH/RE have paid expenses totaling approximately $20.0 million related to the Aladdin acquisition and funded deposits under the purchase agreement on behalf of BH/RE and its subsidiaries. On September 1, 2004, $4.25 million of advances from each of BHCH and OCS, which were used to fund the deposit required under the purchase agreement, were contributed to BH/RE as capital. Additionally, on September 1, 2004, the advances made by BHCH and Planet Hollywood to pay transaction fees and deposits were repaid.

Mr. Jess Ravich

Jess Ravich, a Manager of OpBiz, is CEO and indirect controlling shareholder of Libra Securities, LLC, an investment banking firm (“Libra Securities”). Libra Securities acted as placement agent for MezzCo, L.L.C. in the placement of the Mezzanine Financing and was paid a placement fee of $4,350,000.

Mr. Ravich holds a  note convertible into 25% of the equity in PDS Gaming, a leasing and finance company specializing in gaming equipment.  Conversion of the note is subjet to approval of appropriate gaming regulators in the jurisdictions in which PDS Gaming does business.  PDS Gaming entered into a gaming equipment lease with OpBiz on December 22, 2004, for a 48 month term with payments of approximately $137,500 per month.  Libra Securities raised financing for PDS Gaming to allow it to purchase the equipment underlying the lease and received a placement fee for its services.

Transactions with Planet Hollywood

OpBiz, Planet Hollywood and certain of Planet Hollywood’s subsidiaries have entered into a licensing agreement pursuant to which OpBiz received a non-exclusive, irrevocable license to use various “Planet Hollywood” trademarks and service marks. Under the licensing agreement, OpBiz also has the right, but not the obligation, to open a Planet Hollywood restaurant and one or more Planet Hollywood retail shops under a separate restaurant agreement with Planet Hollywood. OpBiz will pay Planet Hollywood a quarterly licensing fee of 1.75% of OpBiz’s non-casino revenues. If OpBiz opens an attraction with paid admission using the Planet Hollywood marks or memorabilia prior to beginning operations as the PH Resort, it will pay Planet Hollywood a quarterly licensing fee of 1.75% of the revenues of the attraction until OpBiz begins operating as the PH Resort. The initial term of the licensing agreement will expire in 2028. OpBiz can renew the licensing agreement for three successive 10-year terms.

In addition to being a manager of BH/RE, Mr. Earl is the chief executive officer and chairman of the board of directors of Planet Hollywood. Similarly, Mr. Teitelbaum is a manager of BH/RE and a director of Planet Hollywood. Collectively, Mr. Earl, a trust for the benefit of Mr. Earl’s children and affiliates of Bay Harbour Management, own substantially all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership of any equity of Planet Hollywood owned by the trust.

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Transactions with Starwood

OpBiz and Sheraton have entered into a management contract pursuant to which Sheraton provides hotel management services to OpBiz, assists OpBiz in the management, operation and promotion of the Hotel and permits OpBiz to use the Sheraton brand and trademarks in the promotion of the Hotel. OpBiz pays Sheraton a monthly fee of 4% of gross hotel revenue and certain food and beverage outlet revenues and 2% of rental income from third-party leases in the hotel. The management contract has a 20-year term commencing on the completion of the Aladdin acquisition and is subject to certain termination provisions by either OpBiz or Sheraton. Sheraton is a wholly owned subsidiary of Starwood, which has a 15% equity interest in EquityCo and has the right to appoint two members to the EquityCo board of managers.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth fees paid to Ernst & Young LLP, our principal independent auditors, for audit and non-audit services:

	December 31,
	2005		2004
Audit Fees Current	$	223,132	$	156,800
Audit-Related Fees	61,330		257,700
Tax Fees	48,000		—
Total	$	332,462	$	414,500

“Audit Fees” include fees incurred for the annual audits and the reviews of our Quarterly Reports on Form 10-Q. “Audit-Related Fees” include fees paid for costs related to the acquisition of the Aladdin and review of gaming regulations and controls. “Tax Fees” include fees incurred for the preparation of the income tax returns for BH/RE and its consolidated subsidiaries.

The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent auditor. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. The Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. If the pre-approval authority is delegated to one or more members of the Audit Committee, such pre-approval must be presented to the Audit Committee at its next scheduled meeting for ratification.

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PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1)Financial statements (including related notes to Consolidated Financial Statements) filed as Item 8 in Part II of this report are listed below:

Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2005 and 2004
Years ended December 31, 2005, 2004, and 2003—
   Consolidated Statements of Operations
   Consolidated Statements of Members’ Equity (Deficit)
   Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

(a) (2)

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

					Additions				Deductions
Description	Balance at  beginning of period				Charge to  costs and expense				Accounts written off (recovered)			Balance at end of period
Allowance for doubtful accounts:
Year ended December 31,:
2003		$	—			$	—			$	—		$	—
2004		$	—			$	(3,575	)		$	1,321		$	(2,254	)
2005		$	(2,254	)		$	(3,207	)		$	1,018		$	(4,443	)

We have omitted schedules other than the ones listed above because they are not required or not applicable or the required information is shown in the consolidated financial statements or the notes to the consolidated financial statements.

(a) (3)Exhibits

Exhibit Number	Description
2.1	Purchase and Sale Agreement dated April 23, 2003, by and between OpBiz, L.L.C. and Aladdin Gaming, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
2.2	First Amendment to Purchase and Sale Agreement dated August 31, 2004, by and between OpBiz, L.L.C. and Aladdin Gaming, LLC (Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on September 7, 2004)
3.1	Articles of Organization of BH/RE, L.L.C., as amended (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
3.2	Amended and Restated Operating Agreement of BH/RE, L.L.C. dated March 26, 2004 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004)
3.3	Amendment to Amended and Restated Operating Agreement of BH/RE, L.L.C. dated August 9, 2004 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004, attached to exhibit number 3.1 thereto)

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3.4	Amended and Restated Operating Agreement of EquityCo, L.L.C. dated April 23, 2003 (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
3.5	Second Amended and Restated Operating Agreement of EquityCo, L.L.C. dated August, 31, 2004 (Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on September 7, 2004)
4.1	Form of Amended and Restated Loan and Facilities Agreement by and among OpBiz, L.L.C., the lenders party thereto and BNY Asset Solutions LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
4.2	Amended and Restated Loan Facilities Agreement dated August 31, 2004, by and among OpBiz, L.L.C., the lenders party thereto and The Bank of New York, Asset Solutions Division (Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on September 7, 2004)
4.3	Form of Senior Secured Promissory Note (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004)
4.4	Form of Warrant to Purchase Membership Interests of MezzCo, L.L.C. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004)
10.1	Planet Hollywood Hotel & Casino Licensing Agreement dated May 3, 2003, by and among Planet Hollywood International, Inc., Planet Hollywood (Region IV), Inc., Planet Hollywood Memorabilia, Inc. and OpBiz, L.L.C. (Incorporated by reference to the Company’s Form 10/A filed on June 15, 2004)
10.2	Amended and Restated Planet Hollywood Hotel & Casino Licensing Agreement dated August 9, 2004, by and among Planet Hollywood International, Inc., Planet Hollywood (Region IV), Inc., Planet Hollywood Memorabilia, Inc. and OpBiz, L.L.C. (Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on September 7, 2004)
10.3	Management Contract dated April 23, 2003, by and between Sheraton Operating Corporation and OpBiz, L.L.C. (Incorporated by reference to the Company’s Form 10/A filed on June 15, 2004)
10.4	Agreement by and between Starwood Nevada Holding LLC, Sheraton Operating Corporation, BH/RE, L.L.C., EquityCo, L.L.C. and OpBiz, L.L.C. dated August 9, 2004 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004)
10.5	Securities Purchase Agreement among MezzCo, L.L.C. and the Purchasers named therein, dated August 9, 2004 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004)
10.6	Investor Rights Agreement by and among MezzCo, L.L.C., The Mezzanine Investors named therein and the other signatories thereto, dated August 9, 2004 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004)
10.7	Order Granting Motion to Approve Settlement Agreement with Aladdin Bazaar, LLC, filed August 6, 2003 (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.8	Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, by and among Aladdin Gaming, LLC, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC; (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.9	Amendment and Ratification of Construction, Operation and Reciprocal Easement Agreement, dated November 20, 2000, by and between Aladdin Gaming, LLC and Aladdin Bazaar, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004; attached to exhibit number 99.2 thereto)

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10.10	Second Amendment of Construction, Operation and Reciprocal Easement Agreement, effective March 31, 2003, by and between Aladdin Gaming, LLC and Aladdin Bazaar, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004; attached to exhibit number 99.2 thereto)
10.11	Memorandum of Amendment and Ratification of REA, dated November 20, 2000, by and between Aladdin Gaming, LLC and Aladdin Bazaar, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004; attached to exhibit number 99.2 thereto)
10.12	Findings of Fact and Conclusions of Law Re: Aladdin Bazaar, LLC’s Motion for Payment of Administrative Expense, or in the Alternative, for an Order Setting a Deadline for Debtor to Assume or Reject Common Area Parking Agreement, filed October 8, 2002 (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.13	Common Parking Area Use Agreement, dated February 26, 1998, by and between Aladdin Gaming, LLC and Aladdin Bazaar, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.14	Traffic Control Improvements Cost Participation Agreement Commercial Development, dated June 7, 2000, by and between Aladdin Gaming, LLC and Clark County, Nevada (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.15	Order Granting Motion to (i) Approve Settlement Agreement and Releases Respecting Central Utility Plant Litigation and (ii) Assume Certain Agreements Respecting the Central Utility Plant, filed December 10, 2002 (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.16	Energy Service Agreement, dated September 24, 1998, between Aladdin Gaming, LLC and Northwind Aladdin, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.17	Amendment and Agreement, dated September 25, 1998, between Northwind Aladdin, LLC and Aladdin Gaming, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004; attached to exhibit 99.8 thereto)
10.18	Second Amendment and Agreement, dated May 28, 1999, between Northwind Aladdin, LLC and Aladdin Gaming, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004; attached to exhibit 99.8 thereto)
10.19	Third Amendment and Agreement, dated May 28, 1999, between Northwind Aladdin, LLC and Aladdin Gaming, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004; attached to exhibit 99.8 thereto)
10.20	Energy Services Coordination Agreement, dated May 28, 1999, by and among Aladdin Gaming, LLC and Aladdin Bazaar, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.21	Timeshare Purchase Agreement, dated December 10, 2004, between Westgate Resorts, Ltd. and OpBiz, L.L.C. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 15, 2005)
10.22	Subordination, Non-Disturbance and Attornment Agreement and Consent, dated as of June 7, 1999, by and among The Bank of Nova Scotia, Northwind Aladdin, LLC, Aladdin Gaming, LLC, State Street Bank and Trust Company, Aladdin Music, LLC and Aladdin Music Holdings, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.23	Lease, dated December 3, 1997, by and between Aladdin Gaming, LLC and Northwind Aladdin, LLC (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)

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10.24	Employment Agreement dated April 11, 2003, by and among OpBiz, L.L.C., Michael Mecca, Robert Earl and Doug Teitelbaum (Incorporated by reference to the Company’s Form 10 filed on April 16, 2004)
10.25	Letter Agreement dated July 13, 2004, by and among MezzCo. L.L.C., OpBiz, L.L.C. and Michael V. Mecca (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2004)
10.26	Employment Agreement dated September 1, 2004, by and between OpBiz, L.L.C. and Donna Lehmann (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 15, 2005)
10.27	Amendment to Employment Agreement dated September 1, 2005, by and between OpBiz, L.L.C. and Donna Lehmann (Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 31, 2005)
10.28	Employment Agreement dated November 2, 2004, by and between OpBiz, L.L.C. and Mark S. Helm (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 15, 2005)
10.29	Employment Agreement dated August 9, 2004, by and between OpBiz, L.L.C. and Bruce B. Himelfarb (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 15, 2005)
10.30	Employment Agreement dated November 1, 2005, by and between OpBiz, L.L.C. and Darby Davies (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 9, 2006)
21.1	List of Subsidiaries of BH/RE, L.L.C.
31.1	Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002, Michael V. Mecca
31.2	Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002, Donna Lehmann
32.1	Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002, Michael V. Mecca
32.2	Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002, Donna Lehmann
99.1	OpBiz, L.L.C. Compensation Committee Charter (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 15, 2005)
99.2	OpBiz, L.L.C. Audit Committee Charter
99.3	BH/RE, L.L.C. Code of Ethics

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BH/RE, L.L.C.
March 31, 2006	By:	/s/ DONNA LEHMANN
	Donna Lehmann
	Treasurer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	Signature		Title		Date
/s/ ROBERT EARL		Manager of BH/RE and EquityCo		March 31, 2006
Robert Earl		and Co-Chairman of OpBiz
/s/ DOUGLAS P. TEITELBAUM		Manager of BH/RE and EquityCo		March 31, 2006
Douglas P. Teitelbaum		and Co-Chairman of OpBiz
/s/ MICHAEL V. MECCA		President and Chief Executive Officer of		March 31, 2006
Michael V. Mecca		BH/RE and OpBiz (Principal Executive Officer)
/s/ DONNA LEHMANN		Treasurer of BH/RE and Chief Financial Officer		March 31, 2006
Donna Lehmann		of OpBiz (Principal Financial and Accounting Officer)
/s/ MICHAEL A. BELLETIRE		Manager of OpBiz		March 31, 2006
Michael A. Belletire
		Manager of EquityCo andOpBiz
Theodore W. Darnall
/s/ JESS M. RAVICH		Manager of OpBiz		March 31, 2006
Jess M. Ravich
		Manager of OpBiz
Thomas M. Smith

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EX-21.1

Exhibit 21.1

List of Subsidiaries of BH/RE, L.L.C.

Name of Subsidiary	Jurisdiction of Organization
EquityCo, L.L.C.	Nevada
MezzCo, L.L.C.	Nevada
OpBiz, L.L.C.	Nevada

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael V. Mecca, President and Chief Executive Officer of BH/RE, L.L.C., a Nevada limited liability company, certify that:

1.I have reviewed this Annual Report on Form 10-K of BH/RE, L.L.C.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)    disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2006

/S/ Michael V. Mecca

Michael V. Mecca

President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Donna Lehmann, Treasurer of BH/RE, L.L.C., a Nevada limited liability company, certify that:

1.I have reviewed this Annual Report on Form 10-K of BH/RE, L.L.C.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)    disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 31, 2006

/S/ Donna Lehmann

Donna Lehmann

Treasurer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Michael V. Mecca, as President and Chief Executive Officer of BH/RE, L.L.C., a Nevada limited liability company (the “Company”), certify pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(A)  the accompanying Annual Report on Form 10-K for the period ended December 31, 2005, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(B)   the information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2006

/S/ Michael V. Mecca

Michael V. Mecca

President and Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Donna Lehmann, as Treasurer of BH/RE, L.L.C., a Nevada limited liability company (the “Company”) certify pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(A)  the accompanying Annual Report on Form 10-K for the period ended December 31, 2005, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(B)   the information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2006

/S/ Donna Lehmann

Donna Lehmann

Treasurer (Principal Financial and Accounting Officer)

EX-99.2

Exhibit 99.2

EXHIBIT A

AUDIT COMMITTEE CHARTER
OPBIZ, LLC

Purpose

The purpose of the Audit Committee (the “Committee”) is to oversee (a) the accounting and financial reporting processes of BH/RE, L.L.C. and its subsidiaries (the “Company”) and (b) the audits of the financial statements of the Company.

Composition of the Committee

Number.  The Committee shall consist of no fewer than two members.

Qualifications.

1)No Committee member shall have participated in the preparation of the financial statements of the Company at any time during the three years prior to the proposed appointment of such member to the Committee.

2)Each Committee member shall be able to read and understand fundamental financial statements, including a balance sheet, an income statement and a cash flow statement.  Additionally, at least one member of the Committee shall have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in such member’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.  The Board of Managers of OpBiz, L.L.C. (the “Board”) shall determine, in its business judgment, whether at least one member has such financial sophistication.  The designation or identification of a person as having such financial sophistication shall not (A) impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Committee and Board in the absence of such designation or identification or (B) affect the duties, obligations or liability of any other member of the Committee or Board.

3)Each Committee member shall receive as compensation from the Company only those forms of compensation as are not prohibited by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder by the SEC.  Permitted compensation includes manager’s fees (which includes all forms of compensation paid to managers of the Company for service as a manager or member of a committee of the Board).  Additional manager’s fees may be paid to members of the Committee to compensate them for the significant time and effort they expend in performing their duties as members of the Committee.

4) Each Committee member shall be independent in accordance with applicable rules of the SEC.

Appointment.  The Board will appoint the members and the Chairman of the Committee.  Committee members shall serve at the pleasure of the Board and for such term or terms as the Board may determine.

Duties and Responsibilities of the Committee

The Committee is responsible for overseeing the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company on behalf of the Board.  Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements and for the appropriateness of the accounting and reporting policies that are used by the Company.  The independent auditors are responsible for auditing the Company’s financial statements and for reviewing the Company’s interim financial statements.

The Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the Company’s independent auditors (including resolution of disagreements between management and the auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company.

In performing its responsibilities, the Committee shall:

1)Retain the Independent Auditors:  The Committee has the sole authority to (A) retain and terminate the Company’s independent auditors, (B) approve all audit engagement fees, terms and services and (C) approve any non-audit engagements with the Company’s independent auditors.  The Committee is to exercise this authority in a manner consistent with Sections 201, 202 and 301 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder by the SEC.  The Committee may delegate the authority to grant any pre-approvals of non-audit engagements required by such sections to one or more members of the Committee as it designates, subject to the delegated member or members reporting any such pre-approvals to the Committee at its next scheduled meeting.

2)Review and Discuss the Independence of the Auditors:  In connection with the retention of the Company’s independent auditors, the Committee is to review and discuss, at least annually, the information provided by management and the auditors relating to the independence of the audit firm, including, among other things, information related to the non-audit services provided and expected to be provided by the auditors.  The Committee is responsible for (A) ensuring that the independent auditors submit to the Committee at least annually a formal written statement delineating all relationships between the auditors and the Company consistent with applicable independence standards, including Independence Standards Board Standard 1, (B) actively engaging in a dialogue with the auditors with respect to any disclosed relationship or services that may impact the objectivity and independence of the auditors and (C) taking, or recommending that the Board take, appropriate action to oversee the independence of the auditor.  In connection with the Committee’s evaluation of the auditors’ independence, the Committee shall also take such steps as may be required by law with respect to

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the identification and regular rotation of the audit partners serving on the Company’s audit engagement team.

3)Set Hiring Policies:  The Committee is to set hiring policies for employees or former employees of the independent auditors, which include the restrictions set forth in Section 206 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC.

4)Review and Discuss the Audit Plan:  The Committee is to review and discuss with the independent auditors the plans for, and the scope of, the annual audit and other examinations.

5)Review and Discuss Conduct of the Audit:  The Committee is to review and discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, as well as any audit problems or difficulties and management’s response, including (A) any restriction on audit scope or on access to requested information, (B) any disagreements with managementand (C) significant issues discussed with the independent auditors’ national office.

6)Review and Discuss Financial Statements and Disclosures:  The Committee is to review and discuss with appropriate officers of the Company and the independent auditors the annual audited and quarterly financial statements of the Company, including (A) material related to the Company that will be included in disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in SEC filings made by BH/RE, L.L.C. and (B) the disclosures in SEC filings made by BH/RE, L.L.C. regarding the Company’s internal controls and other matters required by Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC.

7)Review and Discuss Earnings Press Releases:  The Committee is to review and discuss earnings and other financial press releases (including any use of “pro forma” or “adjusted” non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies (which review may occur after issuance and may be done generally as a review of the types of information to be disclosed and the form of presentation to be made).

8)Review and Discuss Internal Audit Plans:  The Committee is to review and discuss with the internal auditors the plans for and the scope of their ongoing audit activities.

9)Review and Discuss Internal Audit Reports:  The Committee is to review and discuss with the internal auditors the annual report of the audit activities, examinations and results thereof of the internal auditors.

10)Review and Discuss the Systems of Internal Accounting Controls:  The Committee is to review and discuss with the independent auditors, the internal auditors, the General Counsel and, if and to the extent deemed appropriate by the Chairman of the Committee, members of their respective staffs the adequacy of

3

the Company’s internal accounting controls, the Company’s financial, auditing and accounting organizations and personnel, and the Company’s policies and compliance procedures with respect to business practices which shall include (A) the disclosures in SEC filings made by BH/RE, L.L.C. regarding the Company’s internal controls and matters required by Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC and (B) a review with the independent auditors of their opinion on the effectiveness of management’s assessment of internal controls over financial reporting and the independent auditor’s analysis of matters requiring modification to certifications by BH/RE, L.L.C.’s management pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

11)Review and Discuss the Recommendations of Independent Auditors:  The Committee is to review and discuss with the internal auditors recommendations made by the independent auditors and the internal auditors, as well as such other matters, if any, as such persons or other officers of the Company may desire to bring to the attention of the Committee.

12)Review and Discuss the Audit Results:  The Committee is to review and discuss with the independent auditors (A) the report of their annual audit, or proposed report of their annual audit, (B) the accompanying management letter, if any, (C) the reports of their reviews of the Company’s interim financial statements conducted in accordance with Statement on Auditing Standards No. 100 and (D) the reports of the results of such other examinations outside of the course of the independent auditors’ normal audit procedures that the independent auditors may from time to time undertake.  The foregoing shall include the reports required by Section 204 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC and, as appropriate, a review of (A) major issues regarding (i) accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and (ii) the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies; (B) analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (C) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company.

13)Obtain Assurances under Section 10A(b) of the Exchange Act:  The Committee is to obtain assurance from the independent auditors that in the course of conducting the audit, there have been no acts detected or that have otherwise come to the attention of the audit firm that require disclosure to the Committee under Section 10A(b) of the Exchange Act.

14)Discuss Risk Management Policies:  The Committee is to discuss guidelines and policies with respect to risk assessment and risk management to assess and manage the Company’s exposure to risk (although credit extension and exposure

4

shall be the primary responsibility of the Company’s Compliance/Credit Committee).  The Committee should discuss the Company’s major financial risk exposures and the steps management has taken to monitor and control these exposures.

15)Obtain Reports Regarding Conformity With Legal Requirements and the Company’s Code of Conduct:  The Committee is to periodically obtain reports from management, the Company’s internal auditors and the independent auditors that the Company is in conformity with applicable legal requirements.  The Committee is to review and discuss reports and disclosures of insider and affiliated party transactions.  The Committee should advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations.

16)Related Party Transactions:  The Company’s management will discuss with the Committee the terms of any proposed related party transactions that are required to be disclosed in SEC filings by BH/RE, L.L.C. pursuant to Item 404 of Regulation S-K promulgated by the SEC.

17)Establish Procedures for Complaints Regarding Financial Statements or Accounting Policies:  The Committee is to establish procedures for (A) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (B) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters as required by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder by the SEC; and (C) the confidential receipt, retention and consideration of any report of evidence of a material violation (within the meaning of Rule 205 of the Rules of Practice of the SEC) (a “Material Violation”).

18)Discuss With General Counsel Matters Regarding Financial Statements or Compliance Policies:  The Committee should discuss with the Company’s General Counsel legal matters that may have a material impact on the financial statements or the Company’s compliance policies.

19)Review and Discuss Other Matters:  The Committee should review and discuss such other matters that relate to the accounting, auditing and financial reporting practices and procedures of the Company as the Committee may, in its own discretion, deem desirable in connection with the review functions described above.

20)Make Board Reports:  The Committee should report its activities regularly to the Board in such manner and at such times as the Committee and the Board deem appropriate, but in no event less than once a year.  Such report shall include a review of any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or

5

regulatory requirements, the performance and independence of the Company’s independent auditors or the performance of the internal audit function.

21)Maintain Flexibility.  The Committee, in carrying out its responsibilities, policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The Committee should take appropriate actions to set the overall corporate “tone” for quality financial reporting, sound business risk practices and ethical behavior.

22)Perform Functions of a Qualified Legal Compliance Committee.  The Committee shall also function as a qualified legal compliance committee (a “QLCC”) within the meaning of Rule 205 of the Rules of Practice of the SEC.  In its capacity as a QLCC, the Committee shall receive any reports of Material Violations governed by such rule from attorneys representing the Company, including in-house counsel (“QLCC Reports”).  The Committee shall take such actions as may be permitted or required of a QLCC under applicable law, which may include the making of inquiries and investigations in response to any QLCC Reports, making such reports and giving such notices to the Company’s officers and Board as may be necessary or appropriate, recommending that the Company take such remedial action as the Committee shall deem necessary or appropriate, and providing such notifications to the SEC as may be required by law.  The performance by the Committee of the functions of a QLCC shall not increase the liability of any member of this Committee under state law.

Meetings of the Committee

The Committee shall meet in person or telephonically at least quarterly, or more frequently as it may determine necessary, to comply with its responsibilities as set forth herein.  The Chairman of the Committee shall, in consultation with the other members of the Committee, the Company’s independent auditors and the appropriate officers of the Company, be responsible for calling meetings of the Committee, establishing agenda therefor and supervising the conduct thereof.  The Committee may also take any action permitted hereunder by unanimous written consent.

The Committee may request any officer or employee of the Company or the Company’s outside legal counsel or independent auditors to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.  The Committee shall meet with the Company’s management, the internal auditors and the independent auditors periodically in separate private sessions to discuss any matter that the Committee, management, the independent auditors or such other persons believe should be discussed privately.

Resources and Authority of the Committee

The Committee shall have the resources and authority appropriate to discharge its responsibilities as required by law, including the authority to engage independent counsel and other advisors as the Committee deems necessary to carry out its duties.  The Committee may also, to the extent it deems necessary or appropriate, meet with the Company’s investment bankers or financial analysts who follow the Company, if any.

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The Company will provide for appropriate funding, as determined by the Committee, for payment of (a) compensation to the Company’s independent auditors engaged for the purpose of rendering or issuing an audit report or related work or performing other audit, review or attest services for the Company, (b) compensation to independent counsel or any other advisors employed by the Committee and (c) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

Audit Committee Report

The Committee will prepare, with the assistance of management, the independent auditors and outside legal counsel, the Audit Committee Report to be included in any proxy statement filed by BH/RE, L.L.C.

Annual Review of Charter

The Committee will conduct and review with the Board annually an evaluation of the adequacy of this Charter and recommend any changes to the Board.  The Committee may conduct this charter evaluation in such manner as the Committee, in its business judgment, deems appropriate.

Annual Performance Evaluation

The Committee will conduct and review with the Board annually an evaluation of the Committee’s performance with respect to the requirements of this Charter.  The Committee may conduct this performance evaluation in such manner as the Committee, in its business judgment, deems appropriate.

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EX-99.3

Exhibit 99.3

BH/RE, LLC

CODE OF ETHICS FOR MANAGERS, OFFICERS AND EMPLOYEES

The Board of Managers of BH/RE, L.L.C. and its subsidiaries (the “Company”) has adopted this Code of Ethics (this “Code of Ethics”) as of the 15^th day of March 2006.  The Code of Ethics is applicable to the Company’s Board of Managers (“Managers”), officers (“Officers”) and employees (“Employees”).

The Code of Ethics is designed to serve as the foundation of the Company’s standards of behavior and to promote honest and ethical conduct, proper disclosure of financial information in the Company’s periodic reports, and compliance with applicable laws, rules, and regulations by the Company’s Managers, Officers and Employees.

I.PRINCIPLES AND PRACTICES

In performing his or her duties, each Manager, Officer or Employee must:

1.1.Maintain high standards of honest and ethical conduct and avoid any actual or apparent conflict of interest between personal and professional relationships as discussed in this Code of Ethics;

1.2.Report to the Audit Committee of the Board of Managers any conflict of interest that may arise and any material transaction or relationship that reasonably could be expected to give rise to a conflict;

1.3.Provide, or cause to be provided, full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with or submits to the Securities and Exchange Commission and in other public communications;

1.4.Take all reasonable actions to comply with applicable governmental laws, rules, and regulations; and

1.5.Promptly report violations of this Code of Ethics to the Audit Committee of the Board of Managers.

II.POLICIES AND PRACTICES

The Company and its employees are governed by numerous statutory, regulatory and administrative guidelines. Compliance with these laws and regulations is paramount to maintaining the Company’s reputation and ability to serve the markets in which it operates.  In order to ensure such compliance, the Company has instituted numerous policies and practices to ensure that its Managers, Officers and Employees act with the utmost integrity and ethics and avoid improprieties in the conduct of the Company’s business.

In performing his or her duties, each Manager, Officer or Employee must protect the Company against questionable associations and protect the integrity and reputation of the Company in the conduct of its business.

2.1.Conflicts of Interest

A conflict of interest may arise in any situation in which the loyalties of a Manager, Officer or Employee are divided between business interests that, to some degree, are incompatible with the interests of the Company. The Company demands absolute integrity from all its Managers, Officers and Employees and will not tolerate any conduct that falls short of that standard.  The Company expects that no Manager, Officer or Employee will knowingly place himself or herself in a position that would have the appearance of being, or could be construed to be, in conflict with the interests of the Company.  Some situations typically considered a conflict of interest for a Manager, Officer or Employee are, absent prior disclosure to the Board of Managers, engaging in the following:

•Having an interest in a firm that does business with the Company or engaging in a private business relationship with a person or firm doing business with the Company, particularly if the Manager, Officer or Employee supervises the Company’s relationship with that person or firm;

•Using the Company’s resources for personal benefit, such as using the Company’s staff or assets for personal business or the Company’s funds to purchase gifts for employees who have the ability to influence the Officer’s or Employee’s career;

•Soliciting gifts or other things of value from the Company’s employees, or accepting gifts of substantial value from employees whose careers the Manager, Officer or Employee has the ability to influence;

•Having an interest in or speculating in products or real estate whose value may be affected directly by the Company’s business; and

•Improperly divulging or using confidential information such as the Company’s plans, operating or financial data or computer programs.

Other than personal complimentaries in compliance with the Company’s Administrative Complimentary Policy as established from time to time.

2.2.Relationships with Public Officials

All Managers, Officers and Employees engaged in business with a governmental body or agency must know and abide by the specific rules and regulations covering relations with public agencies.  Such Manager, Officer or Employee must also conduct themselves in a manner that avoids any dealings that might be perceived as attempts to influence public officials in the performance of their official duties.  In order to promote and preserve public trust and confidence in the integrity of the gaming industry and to ensure conformity with the highest standards of conduct, free from the appearance of impropriety, the Company prohibits Managers, Officers and Employees from engaging in any activity inconsistent with those aims.

2.3.Bribery, Kickback and Fraud; Prohibited Receipts and Payments

No funds or assets of the Company shall be paid, loaned or otherwise disbursed as bribes, “kickbacks”, or other payments designed to influence or compromise the conduct of the recipient; and no Manager, Officer or Employee of the Company shall accept any funds or other assets (including those provided as preferential treatment to the Manager, Officer or Employee for fulfilling their

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responsibilities), for assisting in obtaining business or for securing special concessions from the Company.

The Company prohibits establishing or maintaining unrecorded funds or assets of the Company or any of its subsidiaries and the making of false or misleading entries in the books and records of the Company or any of its subsidiaries.  The Company also prohibits payments on its behalf or on behalf of any subsidiary without adequate supporting documentation or with the intention or understanding that any part of such payment is to be used for any purpose other than that described in the document supporting the payment.

2.4.Antitrust Laws

The federal government, most state governments, and many foreign governments have enacted antitrust or “competition” laws. These laws prohibit “restraints of trade”, which is certain conduct involving competitors, customers or suppliers in the marketplace. The purpose of such laws is to ensure that markets for goods and services operate competitively and efficiently, so that customers enjoy the benefit of open competition among their suppliers and sellers similarly benefit from competition among their purchasers.  Strict compliance with antitrust and competition laws around the world is essential. These laws are very complex.  Some types of conduct are always illegal under the antitrust laws of the United States and many other countries. To remain above suspicion, all Managers, Officers and Employees should avoid discussing the following subjects with competitors:

•Prices, terms or conditions of sale;

•Credit terms and discounts;

•Costs and profits;

•Market share, sales territories or sales volume;

•Distribution practices and deliveries;

•Selections, rejections or termination of customers;

•Production or sales volume; and

•Proposed markets, locations of proposed facilities.

Antitrust laws may be implicated in the Company’s relations with customers as well.  It may be unlawful to sell the same product to competing customers at different prices, and generally, competing customers should be treated on a proportionately equal basis when granting sales promotions, promotion discounts, advertising allowances or assistance in the form of services and facilities.

III.WAIVER

Any request for a waiver of any provision of this Code of Ethics must be in writing and addressed to the Audit Committee of the Board of Managers.  Any waiver of this Code of Ethics shall be disclosed promptly on Form 8-K or any other means approved by the Securities and Exchange Commission.

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IV.COMPLIANCE AND ACCOUNTABILITY

This Code of Ethics is not intended as a comprehensive review of laws related to the principles and practices regulating Managers, Officers and Employees and the policies and practices related to conflicts of interests, relationships with public officials, prohibited receipts and payments and antitrust laws.  This Code of Ethics is not a substitute for expert advice.  If any Manager, Officer or Employee has questions concerning a specific situation, the Manager, Officer or Employee should contact the Audit Committee of the Board of Managers or the Company’s general counsel or corporate counsel before taking action.

The Audit Committee of the Board of Managers will assess compliance with this Code of Ethics, report material violations to the Board of Managers and recommend appropriate action to the Board of Managers.

ACKNOWLEDGEMENT

The undersigned, a Manager, Officer or Employee of BH/RE, L.L.C. and its subsidiaries, has had the opportunity to review this Code of Ethics, fully understands the principles, practices and policies contained in this Code of Ethics, is in compliance with this Code of Ethics and is not aware of, nor suspects, any violation of this Code of Ethics by any other Manager, Officer or Employee of BH/RE, L.L.C. and its subsidiaries.

By:	/s/ Michael V. Mecca			Date:	March 15, 2006
Name:			Michael V. Mecca
Title:		President and Chief Executive Officer of BH/RE, L.L.C.

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