Growing at own pace

Tuesday, Dec. 12, 2006 | 7:11 a.m.

Station Casinos owns a half-dozen casino sites around town waiting for the right time to be turned into big gaming houses for locals. Now that Station is considering going private, that right time may be further off.

The reason: If it sheds itself of public stockholders, it can put long-term strategies ahead of quick, Wall Street-pleasing profits.

As a result, a number of Station-controlled casino sites may not be developed as quickly as previously thought.

When Station on Dec. 4 disclosed a deal from top management to buy the company, it had not yet unveiled a long-anticipated timeline for developing its sites-in-waiting - at the former Castaways on Fremont Street; at Durango Drive and Las Vegas Beltway; at Cactus Avenue and Las Vegas Boulevard, south of South Point; near West Flamingo Road and Town Center Drive; and at Losee Road and the Las Vegas Beltway. Station also has expressed interest - but has offered no timetable - in developing a high-rise resort at its existing Wild Wild West casino at Flamingo Road and Interstate 15.

Station previously said it would break ground early next year on Aliante Station in North Las Vegas, to be built in partnership with the Greenspun Corporation , owned by the family that owns the Las Vegas Sun.

Beyond Las Vegas, Station has two Reno casinos in the pipeline with no stated construction schedules, as well as plans to build up to four casinos for Indian tribes in California and Michigan.

Like other publicly traded casino companies, Station is under intense pressure to grow. Boosting profit is difficult at mature casinos, which generally produce the same amount of revenue each year. That forces companies to build new properties, add onto existing ones or significantly upgrade them, as Station has done around town.

As a private company, executives can operate at a more comfortable speed - waiting for economic conditions to improve before plowing hundreds of millions dollars into something new.

"You can pace yourself more slowly and build casinos where and when they're needed rather than every two years" to pump up earnings, said Robert LaFleur, a gaming stock analyst with Susquehanna Financial Group in Connecticut.

The Station offer is more the result of available private equity money rather than any specific strategy to slow down the building cycle, insiders say.

But, analysts say it's clear that Station management chafed under investor pressure. The company's stock didn't adequately reflect the value of land Station owned around town, in part because of the difficulty of pricing casinos that haven't yet been built. Also, Station's stock - which was running in the $61 range - fell by a few dollars early last month when the company reported third-quarter earnings that were much lower than Wall Street expected and also warned of lowered expectations for next year. Since the buyout offer, Station stock has traded at more than $81 per share.

Because the company's ownership future is in play, Station officials are legally bound to silence on the offer or how it would affect development plans. A special committee of outside directors is considering merits of the $82-per-share offer from family members including Chief Executive Officer Frank Fertitta III and President Lorenzo Fertitta.

While the company's expensive Red Rock Resort in Summerlin is on track to generate more revenue in its first year than did its other upscale property, Green Valley Ranch Station in Henderson, Red Rock isn't yet turning the kind of profit that investors had hoped for. Costs associated with Red Rock and reduced customer spending at other properties dampened Station's third-quarter earnings.

Red Rock's performance has been affected by factors beyond Station's control. Station opened Red Rock at a time when competitor Boyd Gaming Corp. opened another big property, South Point, at the south end of the valley and at a time when customers are spending a bit less, LaFleur said.

Among the reasons: Housing sales have slipped and prices have stabilized, creating less equity for homeowners than the go-go days a couple of years ago, and chilling their appetite to gamble. Also, fewer people have been moving to Las Vegas in recent months, affecting the growth of Station's customer base that drives its profits.

"Red Rock might take longer to stabilize than they originally thought," LaFleur said. "But when you're a private company, you really don't care whether it's three years or five years."

Going private may delay future casinos until Red Rock and South Point have had more time to mature and demand once again outstrips supply, experts say.

One economist is bullish on the local economy in spite of some lower indicators.

"Home sales are just one component of the economy," said Keith Schwer, director of UNLV's Center for Business and Economic Research. "The long-term trend is still positive and that's probably the relevant time horizon for buying securities. The national economy is doing well and so is the local economy, though we're not getting as many people moving here from other areas as when the economy is slow."

A little more than 6,000 people moved to Clark County in November, based on driver's license registrations, 5 percent more than a year ago but nearly 6 percent below the previous month. About two-thirds of those who move here stay, yielding steady population growth over time, Schwer said.

While Wall Street is obsessed with lackluster quarterly results, long-term trends look better, LaFleur said.

"Over time am I going to bet against the Las Vegas locals economy? Absolutely not," he said. "The big macro trends ... are very much intact: There are still plenty of jobs, there are still a lot of people moving to that area and it doesn't seem to have slowed down materially in the past year."