Analysts cheer Station’s expansion in Kansas City

David Strow

Tuesday, Sept. 14, 1999 | 11:12 a.m.

Analysts and investors cheered Station Casinos Inc.'s acquisition of the Flamingo Hilton Riverboat Casino on Monday, as a once cash-strapped company moved to grab a dominant position in the Kansas City market.

In snaring Flamingo, Station will control two of the market's four casinos, giving it nearly 50 percent market share. Station Kansas City and the Flamingo recorded combined revenues of $21.44 million, about 48 percent of the Kansas City's total gaming revenues. Station will pay $22.5 million.

"When it's built out, you're looking at four times cash flow (with the acquisition)," said Lehman Bros. gaming analyst Stuart Linde. "Any time you can buy a property at that low of a multiple, I would say go for it.

"It was definitely somewhat surprising. I thought they would look toward Las Vegas, but this makes a lot of sense for them. One, they get a solid purchase at a reasonable price. Two, they're not permitting another competitor to come into the market."

Trump Hotels & Casino Resorts had signed an agreement to acquire the property from Hilton Hotels Corp. in January for $15 million. Trump's attempts to get licensed in Missouri bogged down, however, and the deal unraveled after the Aug. 31 closing deadline passed. It would have been Trump's first property in the Kansas City market.

Trump officials could not be reached for comment.

Station appears to be coming along at just the right time. Regulators will allow "open boarding" at Kansas City casinos starting in October, a move that should boost revenues significantly.

"That's very good for that market, spectacular for that market," said Dave Ehlers, chairman of Las Vegas Investment Advisors. "Admissions are up over 50 percent in eastern Missouri, where they suspended cruising requirements."

Linde noted that many players, upon missing the boarding window at Flamingo, would simply drive on to a competing casino.

"Now, you can just stop (at Flamingo)," Linde said. That means better market share."

Flamingo reported a win of $5.32 million to the Missouri Gaming Commission in July, up 8.6 percent from a year before. That translates to a 12.9 percent share of the Kansas City market.

Under current rules, Kansas City riverboat casinos don't have to cruise the Missouri River, but they must enforce a procedure known as "simulated cruising." Under this provision, a casino is only allowed to admit customers during a boarding window, which can only be offered every other hour. This rule will be suspended in early October.

In the last quarter, Station reported $77.02 million in revenues at its casinos near Kansas City and St. Louis, an 11 percent increase. But at $17.19 million, cash flow in Missouri rose 46.5 percent.

Linde expects that the Flamingo purchase will boost Station's earnings by four to five cents a share in 2000.

It's a deal that Station couldn't have pulled off in the past with its heavy debt burden, Ehlers said. As of June 30, the company had $886.5 million in long-term debt, down from $946.3 million just six months before, as the company focuses on using it cash flow to reduce debt. Station reported operating income of $41.6 million in the quarter ended June 30, up from $29.2 million a year before.

"I give Station a lot of credit," Ehlers said. "There was a time I didn't know if they'd get the debt paid back, but now, I think it's just a matter of time.

"They might make a small (acquisition) in the future, but I think their primarily interest right now is generating cash flow and paying that loan down."