Station Casinos stock soars

David Strow

Tuesday, March 14, 2000 | 11:15 a.m.

Shares of Station Casinos Inc. soared nearly 20 percent this morning on news that the company would substantially beat analyst expectations for the first quarter -- and that the locals casino operator is already eyeing its sixth hotel-casino in the Las Vegas Valley.

In a release issued after markets closed Monday, Las Vegas-based Station said it expects to beat Wall Street estimates by more than 30 percent. The consensus estimate for the quarter ending March 31 is 33 cents per share.

The earnings surprise followed Monday morning news that Station plans to jointly develop an upscale, $260 million to $275 million resort casino with American Nevada Corp. in Green Valley. Completion of the casino -- Station's fifth in the area -- is slated for late 2001.

In response, Station shares roared upward -- in mid-morning trading, Station traded at $22.75, up $3.56.

Glenn Christenson, chief financial officer of Station, said the greater-than-expected earnings are being driven by substantial same-store growth at all of Station's properties in Las Vegas and Missouri. He said it couldn't be attributed to just one property, or to a particular program.

"We're seeing strength in operations across the board," Christenson said. "The Las Vegas locals market is doing exceptionally well, but so are Kansas City and St. Charles (Mo.)."

Christenson said the increased free cash flow would first be used to fund two pending Station projects -- the $55 million expansion of Texas Station in North Las Vegas, and the Green Valley Ranch resort announced Monday, which will cost Station about $40 million.

Following that, Station would look at continuing share repurchases, Christenson said.

Buoyed by these stronger earnings, Station also announced Monday it is already eyeing its sixth locals property in Las Vegas -- and has acquired a land parcel that would allow it to build a seventh.

The land parcel being eyed for expansion in the next few years is a 51-acre plot at the intersection of I-215 and Durango Drive. Until Monday, Station said it didn't have any short-term plans to develop that land. That attitude has apparently changed.

"Development is not expected for several years, at which time the company intends to expand and complement its existing brand with a facility that is consistent with market conditions at the time," Station's release stated.

Station has an option to purchase an additional 32 acres at the site.

The parcel, located in the Rhodes Ranch development, is about 3 miles south from a Triple Five land parcel that Boyd Gaming plans to use to construct a 300-room hotel-casino project. Station officials have been publicly attacking these plans, complaining that Triple Five is circumventing zoning laws by trying to change its parcel's designation from commercial to gaming.

But Christenson said Station wasn't being motivated by Triple Five in its Rhodes Ranch plans.

"We've looked at that site long before Triple Five came up," Christenson said. "We will develop a facility there, dependent on business conditions. It could be four to five years before we develop anything there. Essentially, we have to let the population catch up to that area."

Station also left the door open for yet more expansion, announcing the possible purchase of a 68-acre site at Tropicana Avenue and the Boulder Strip, about 3 miles south of its Boulder Station hotel-casino. Station is currently leasing 34 acres at the site, and has an option to buy an adjacent 34-acre land parcel. However, Station said it has no immediate plans to develop this site.

Excluding the land received from American Nevada, Station paid $30.2 million for the land parcels, and will make lease and option payments of $1.6 million per year.

Station also holds a 27-acre land parcel on Boulder Highway across from Sam's Town, and said it could, at some point, develop a new property at the 19-acre site of the Wild Wild West hotel-casino at Interstate 15 and Tropicana Avenue.

The strategy, Christenson said, is to snare parcels from the rapidly dwindling pool of land zoned for new gaming developments.

"Our understanding is that under Senate Bill 208 (limiting locals' casinos), there will be fewer and fewer parcels for gaming development in the future," Christenson said. "Acquiring these pieces of property solidifies our position as the (locals) market leader for the forseeable future, so we aren't dependent on acquisitions and new emerging jurisdictions for the future growth of our company."

However, Christenson said Station's future land purchases might not be confined to gaming-zoned properties if the Boyd Gaming proposal is approved. Triple Five is currently attempting to change the designation of the land parcel from commercial to gaming.

"Our position is that these hearings are very important, and if the zoning is changed, then we see it as a precedent-setting situation," Christenson said. "We'll therefore be forced to look at other pieces of property located closer to the population base."