Station spending $110 million to expand Henderson resort

By Liz Benston

Thursday, Oct. 30, 2003 | 11:13 a.m.

Strong returns at Green Valley Ranch Station in Henderson and a new tribal casino contract in Sacramento helped Station Casinos Inc. of Las Vegas more than triple its profit in the third quarter compared to the same period last year.

The company earned $19.8 million or 32 cents per share in the third quarter compared to $5.7 million or 9 cents per share a year ago.

Also today, Station announced it would begin construction this quarter on a $110 million expansion that will add 296 rooms for a total of 497 rooms as well as 25,500 square feet of additional meeting space and a bigger spa at Green Valley Ranch. The project is expected to be complete by the end of next year, before any of the company's other anticipated casino plans come to fruition.

The expansion will result in about $4 million to $5 million in incremental profit per year. The rooms would be added on to the property's north side between the Whiskey Beach lawn and pool area and its parking garage. The company will be expanding its existing spa on the opposite side of Whiskey Beach and facing the pool.

The Greenspun family, owner of the Las Vegas Sun, is Station's partner in Green Valley Ranch. The Greenspuns' American Nevada Company is building a 400,000-square-foot shopping center, office and apartment development east of the casino-resort.

The company also said it expects to earn 38 to 41 cents per share in the fourth quarter, ahead of analysts' expectations of 43 cents per share, and expects cash flow for the period to be $81 million to $84 million.

It also said earnings per share would be $1.68 to $1.78 for 2004, assuming 64 million shares outstanding. That compares to analysts' estimate of $1.68 per share. Cash flow would total about $340 million to $350 million.

Station also said it expects to add slot machines at Thunder Valley Casino, a property it manages near Sacramento for a California Indian tribe. The property opened in June with about 1,900 slot machines but has the capacity for 3,000 machines, officials said. The company hopes to add traditional slot machines through a renegotiated casino compact with California Gov.-elect Arnold Schwarzenegger but is also exploring the option of adding electronic bingo machines as well. The federal Indian casino regulatory agency recently indicated its intention to regulate so-called Class II devices, which are bingo-like devices that resemble slot machines. Unlike slots, tribes can theoretically offer an unlimited number of such machines without state compacts.

"This recall and election is still very fresh," Station Casinos Chief Executive Frank Fertitta III said in a conference call today. "It's too hard to know what the timing would be. Ultimately it's up to the tribe."

The company's upcoming Las Vegas hotel-casino, Red Rock Station in Summerlin, could have from 300 to 500 rooms in its first phase of construction but would likely be built out over time, similar to Green Valley Ranch, he said.

The company has held recent public meetings to hash out residents' complaints about the potential height of the hotel tower, now planned at about 23 stories, and its proximity to the Red Rock Canyon National Conservation Area.

Station executives said they hope to finalize those discussions by the end of the year, which would determine the scope and potential cost of the project, and finish it by the end of 2005 or early 2006. A second contract with a California Indian tribe to build a casino in Sonoma County, Calif., is proceeding as planned despite resistance from local residents and is expected to open in 2006 or 2007, they said.

"Our Las Vegas locals' franchise is solid and we're very excited about the organic growth opportunities" at the company, Station Casinos Chief Financial Officer Glenn Christenson said.

Station Casinos also said today it has signed an agreement with slot maker International Game Technology to speed up the purchase up to 5,000 "cashless" machines that dispense paper vouchers instead of coins. The company expects to complete the transition to a completely cashless slot floor within two years, ahead of what officials had initially predicted. Station Casinos expects to spend about $11 million in 2003, $22 million in 2004 and $14 million in 2005 on the machines.

Excluding certain items, profit more than tripled in the third quarter to $21.9 million compared to $7.2 million in same quarter of last year. The items mainly included $2.9 million in costs to develop tribal casino management opportunities, including the company's planned tribal casino in Sonoma County.

On a per share basis, adjusted earnings rose to 35 cents from 12 cents, meeting analysts' expectations.

Revenue climbed 14 percent to about $218.7 million. Cash flow jumped 39 percent to $76.4 million.

Same store revenue at properties open at least a year, including results from Green Valley Ranch Station, increased 5 percent to $226 million. That doesn't include results from the company's 50 percent owned Barley's restaurant and bar in Henderson, Wild Wild West hotel-casino and the Wildfire casino. Same store cash flow at these properties jumped 7 percent to $73.5 million.

Station Casinos' profit from Green Valley Ranch was $5.9 million in the third quarter, including $1.6 million in management fees and $4.3 million in the company's share of operating income. That's up from $3.7 million for the same period last year.

Strong results at Green Valley Ranch and better than expected management fees from Thunder Valley partially offset lower than expected cash flow at the company's seven major Las Vegas properties, Lehman Brothers analyst Joyce Minor said in a research note to investors today.

Shares of Station Casinos fell about 46 cents to $30.64 in early trading today.