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Best of Liz Benston

Gaming Guru

Liz Benston

Reno Plans, Vegas Power Drive Station Casinos Stock

19 July 2005

Just when investors thought they knew all about the multitude of casinos locals powerhouse Station Casinos Inc. expects to build over the next decade, the company threw a curveball.

Station Casinos recently announced plans to build at least three casinos on more than 120 acres of land the company has accumulated in Reno.

That's on top of owning five casino sites for development in Las Vegas and plans to build four more casinos with Indian tribes in California and Michigan.

Combined with exceptionally strong gambling data reported by the Gaming Control Board in May, the news helped push Station stock to a new high Friday.

Station Casinos Inc. achieved the high even after some analysts, several months ago, had previously called Station stock too expensive. After little change to Wall Street recommendations since last summer, most analysts who follow Station began changing more lackluster ratings to "buy" after the Reno announcement and in the weeks leading up to Friday.

Station Casinos Chief Financial Officer Glenn Christenson said the company hasn't been keeping its interest in Reno under wraps and only seriously considered the market more recently.

"We feel we have a responsibility to look at any opportunities that come to our attention," he said. "We have looked at other jurisdictions over the last six months of this year. This opportunity became available in Reno and the better we understood it the more excited we became."

Reno's historic downtown casino district has been losing business to the proliferation of Indian casinos across the border in Northern California. But Christenson said Reno casinos could be helped, not further hurt, by Station's entry.

"How you grow markets is to build quality facilities," Christenson said. "The size of the market is dictated by the quality there. Ultimately, we intend to expand the size of the (Reno) market."

Station expects to draw locals as well as visitors from further afield to its upcoming Reno properties, he said. One casino site, 50 acres south of Reno near U.S. Highway 395, is part of a multi-use retail and commercial district that will have wider appeal, he said.

The company intends to develop the 50-acre site first, as soon as next year. Following that would be development on two other sites, 96 acres at Geiger Grade Road and South Virginia Street and eight acres across from the Reno-Sparks Convention Center.

Meanwhile, Christenson said the company still hasn't decided in what order it expects to develop its numerous casino sites after Red Rock Station opens early next year.

In 1997, when the company was much smaller, Station built Sunset Station in Henderson while it was developing two other casinos in Missouri.

"We have the capacity" to build multiple properties at once, Christenson said.

"It's a matter of how many of these projects can you develop at one time and how quickly you could develop them," he said. "You also want to maintain some dry powder just in case something else comes up."

The growth potential of the upscale Summerlin neighborhood -- reflected in the tremendous profits at the Suncoast casino over the past five years -- led Station to build Red Rock Station ahead of other potential projects around town.

"We only bought that land about four years ago," Christenson said. "I'm not sure we could have done it much faster than we did."

Christenson said he doesn't think the company has lost ground to the competition. Summerlin is much more developed than it was just a couple of years ago, he said.

"Summerlin continues to grow and add retail," he said. "I think we're catching it at the sweet spot."

Station's jump in stock price also follows last week's strong May casino revenue report from the Gaming Control Board. The report said off-Strip casinos -- where Station has Las Vegas' dominant market share -- bested even the Strip's 15 percent revenue increase versus a year ago.

Specifically, North Las Vegas casinos won 42 percent more from gamblers in May than a year ago, with slot win up 40 percent and table games up 59 percent. Boulder Strip casinos won 19 percent more, with slots up 21 percent and tables up 4 percent. In unincorporated Clark County, which includes casinos not covered elsewhere in the report, casinos won 24 percent more than a year ago.

In a research note issued in March, Calyon Securities analyst Maria Rickert said the Las Vegas locals casino market is expected to grow by 13 percent this year, driven by population growth and a strong economy.

Expansion projects at some Station casinos and the opening of Red Rock Station next year will help the company grow its share of the locals market to about 38 percent in 2006 from last year's 34 percent, Rickert said. Red Rock will help grow the customer base for locals casinos by about 12 percent next year, she said.

After hitting a 12-month high of $71.91 per share Friday, Station stock landed 8 cents lower at $71.59 by the end of the day. Boyd Gaming Corp., which has the No. 2 position in the locals gambling market, hit its 12-month high in April. Boyd shares rose 9 cents Friday to $51.94 per share.

Reno Plans, Vegas Power Drive Station Casinos Stock is republished from