Station Casinos sold for $1.7 billion

Friday, Jan. 16, 1998 | 10:05 a.m.

A Texas real estate company is buying Station Casinos Inc. for $1.7 billion.

Crescent Real Estate Equities Inc. of Fort Worth, a company headed by billionaire investor Richard Rainwater, today announced the acquisition of Las Vegas' dominant locals casino operator, which has about 10,000 slot machines at four properties scattered around Southern Nevada.

Operations at Palace Station, Boulder Station, North Las Vegas' Texas Station and Henderson's Sunset Station are not expected to change as a result of the acquisition, since Crescent announced that Station's management team, headed by Chief Executive Officer Frank Feritta III, will continue to operate the properties as a tenant and profits will be shared equally by Station management and Crescent Operating Inc., a holding company.

The transaction values Station's shares at $18 each, a 58 percent premium to Thursday's closing price of 11 3/8.

Under the terms of the agreement, Crescent will swap 0.466 of its shares for each Station share, assume $919 million of debt, and issue $103.5 million in convertible preferred shares.

The purchase is expected to boost Crescent's earnings by 17 percent, the companies said.

Trading was halted on both companies' stock this morning in the wake of the transaction.

The company just announced its third-quarter earnings Thursday, posting a major increase in revenues thanks to the opening of Station Casino Kansas City and Sunset Station, but a decrease in earnings per share. The company posted earnings per share of 5 cents, compared with 20 cents a year earlier, based on revenues of $197.2 million, a 47 percent increase over the previous year.

"We view (Station's) concentrated investment in the Las Vegas locals' market as being an opportunistic play much like our initial office investments in 1994 ad 1995 in submarkets around Dallas, that is buying in front of significant population migration patterns," said Gerald Haddock, president and chief executive of Crescent in a release issued this morning.

The transaction represents a change in philosophy for Station, which announced in December it was planning to split into two companies, one a real estate investment trust that would own its properties and another to manage them.

Station had said it planned to become a real estate investment trust, hoping a REIT's tax advantages may help the company sell stock to cut debt and fuel growth by acquiring or developing more casino properties.

Station was set to become the first gaming company to convert to a REIT and was planning to make the switch official in March. Station officials were unavailable this morning to explain what prompted the decision to change.

The REIT move was described as an attempt to jump start its flagging stock price, which was down more than 23 percent for the year.

Now, it appears the move is part of a strategy by Rainwater to use the real estate investment trust to make big bets on real estate markets he thinks are just starting to turn around.

For Crescent, the purchase extends a buying spree that saw it invest $2.7 billion in real estate and real estate related businesses in 1997.

It owns, or has agreed to buy, 83 office properties, about 90 psychiatric hospitals, a 40 percent stake in the two largest cold-storage companies, seven shopping centers, six hotels and stakes in five residential developments.

These properties, which include the Canyon Ranch-Tucson and Canyon Ranch-Lenox spas, are mainly located in Texas, with others in Colorado, Arizona and New Mexico.

By leasing properties to Crescent Operating Inc., the company maintains the REIT tax advantage. The move is necessary so as to not violate REIT rules that say at least 75 percent of revenue must come from rents.

Rainwater brought Crescent public in early-1994. His stake in the business is worth more than $450 million, according to the company's Securities and Exchange Commission filings.

He is best known for directing the investments of the Bass family of Texas, for whom he turned $50 million into a $5 billion family fortune between 1970 and 1986.

Since then, he built a fortune of his own, valued at about $1.1 billion by Forbes magazine in the real estate, health-care, telecommunications and oil services industries.

BLOOMBERG BUSINESS NEWS contributed to this report.