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Howard Stutz

Station Focus Away From Strip

1 February 2006

Construction continues Tuesday on Red Rock Resort, a Station Casinos project. Station said the $925 million hotel-casino will open April 18, about three weeks later than originally expected.

With gaming operators planning an estimated $25 billion in development along the Strip over the next decade, Station Casinos will turn its full attention toward expanding its already dominant local casino base to capitalize on the expected economic upturn fueled by the growth.

That means construction plans for the company-owned 67 acres near the Strip would be shelved in favor of building casinos in North Las Vegas, along the expanding Interstate 215 corridor and in Reno, Station Casinos executives said Tuesday during a fourth-quarter and year-end earnings announcement.

In addition, the company announced the first phase of $925 million Red Rock Resort will open April 18, about three weeks later than originally anticipated. "We only have one chance to make the best impression possible, so if it takes a couple of extra weeks to train the staff and make sure everything is ready, then we're willing to do that," Station Casinos Chief Financial Officer Glenn Christenson said following the company's quarterly conference call with analysts and investors.

In announcing earnings, the company said its net income was $41.7 million in the quarter ended Dec. 31, a 9 percent increase compared with $38 million a year ago. For 2005, the company's net income was $161.9 million, a 59 percent increase compared with $66.6 million in 2004.

Station Casinos' basic earnings per share in the fourth quarter were 63 cents. While analysts polled by Thomson First Call predicted the company would earn 64 cents per share in the quarter, Station Casinos officials said when its earnings were adjusted to accommodate interest charges for vacant company-owned land awaiting development and construction expenses, the diluted earnings per share were 69 cents in the quarter.

For all of 2005, the company said its basic earnings per share was $2.46, up from $1.03 earnings per share in 2004.

The company said its fourth-quarter net revenues were $285.1 million, a 7 percent increase compared with $264.7 million a year ago. For the year, net revenues climbed above $1.1 billion, an increase of 11 percent compared with $986.7 million in 2004.

Station Casinos said its cash flow -- defined as earnings before interest, taxes, depreciation and amortization -- was $123.9 million in the fourth quarter, an increase of 16 percent compared with $107.1 million a year ago, and $480.9 million for 2005, a 25 percent increase compared with $385.4 million in 2004.

When it is unveiled in less than 12 weeks, Red Rock Resort will be the company's 15th Southern Nevada casino. Red Rock will open with 400 hotel rooms, nine restaurants and other entertainment offerings, as well as a casino with 3,000 slot machines, about 500 more than previously anticipated. Red Rock Resort's second phase, another 450 hotel rooms, is expected to open by the end of the year.

Once Red Rock Resort is up and running, attention will be directed toward building a planned $400 million to $450 million hotel-casino in the North Las Vegas master-planned community of Aliante that Station Casino's will co-own with an affiliate of the Greenspun Corp. The companies have a similar 50-50 relationship in the Green Valley Ranch Resort.

Christenson said the partnership wants to put Aliante Station at the head of the development curve.

"(Aliante Station is in) a tremendous location in a rapidly growing part of the valley," Christenson said. "We have a lot on our development plate."

Including Red Rock Resort, Station Casinos now has more than $1.2 billion in development projects. Three in-progress construction projects are parking structure expansions at the Santa Fe Station, Green Valley Ranch and Fiesta Henderson.

While Aliante Station is expected to break ground by early 2007, the company's other development opportunities -- at Durango Road and Interstate 215; at Cactus Boulevard and the Strip's southern end; and on the 33-acre site on the Boulder Highway where the Castaways was imploded last month -- will all be planned without any development timetable. The company also plans to develop two casino sites in Reno, which will also figure into the mix.

"It allows us to make a decision based on the economic market," Christenson said. "The key thing is flexibility. We can do the project that will provide the most shareholder value and we can pull the trigger when business conditions are appropriate."

The company's major change in plans was to delay development of a 67-acre parcel west of Interstate 15 near Tropicana Boulevard and Industrial Road, dubbed Project W by the company, that houses the Wild Wild West.

With Las Vegas economic analysts predicting widespread economic growth over the next few years, jump-started by Strip casino development projects, Station Casinos said building more local casino properties catering to an expected residential population boom makes the most sense.

"Whether it's one year or five years, Wild Wild West will always be there," Christenson said. "It's going to be very difficult for someone else to assemble 67 acres that close to the Strip in the near term."

Gaming analysts said they supported the company's decision to focus on new local-themed properties.

"We remain fans of the local Las Vegas gaming market, which we believe is the best risk-adjusted market in gaming today, and we can't fault the company for deploying capital in these markets," John Mulkey of Wachovia Securities said in a note to investors.

Christenson added that the company has a $2 billion credit line to fund capital improvements.

Station Focus Away From Strip is republished from