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Station Advances Sacramento Casino Opening

LAS VEGAS--Improved performance at its major Las Vegas Valley locals casinos powered Station Casinos to third-quarter increases in income and cash flow, the company reported Wednesday.

The company also announced that it began construction Saturday on the Sacramento, Calif.-area casino the company has an agreement to operate for the United Auburn Indian Community.

The planned Thunder Valley Casino will now open several months earlier than expected.

Station Casinos income jumped to $7.3 million, or 12 cents per share, during the quarter ended Sept. 30, from $3.4 million, or 6 cents per share.

Cash flow, defined as earnings before interest, taxes, depreciation and amortization, was up 16 percent to $55.1 million. Cash flow is a widely used barometer of casino-industry profitability.

Station Casinos Chairman and Chief Executive Officer Frank Fertitta III told investors and industry analysts on a Wednesday conference call that performance validated the company's strategy of betting on the continued growth of Las Vegas.

"The whole portfolio is performing well," Fertitta said. "Cash flow is up, the bottom line's are up, and that's what we're focused on. Putting money in the bank. (These results confirm) our overall thesis: Growing demand and limited supply (in the Las Vegas locals market.)"

Las Vegas' dominant locals casino operator reported the improvement despite declining revenue at its core properties, crediting reduced customer promotions and other cost cutting for the positive results.

Same-store revenue declined 7 percent to $186.1 million at the property's major Las Vegas casinos, excluding Green Valley Ranch, which is equally owned by Station and a subsidiary of the Greenspun family's real estate development business.

Much of the property-by-property revenue decline resulted from the late 2001 opening of Green Valley Ranch, particularly at nearby Sunset Station, Station Casinos executives said.

Including Green Valley Ranch in the comparison with last year's third-quarter numbers, revenues were up 7 percent, executives said.

"The Las Vegas locals market is still one of the most resilient in the country," said Glenn Christenson, Station's chief financial officer. "(This year) 5,000 to 8,000 people have moved to Las Vegas each month. The number of visits (per customer) is increasing, and their spend per visit is flat. Bottom line: The local market has stabilized."

JP Morgan casino industry analyst Harry Curtis said that Station's earnings announcement was positive for two different reasons.

First, it demonstrates that Station's Las Vegas business has bounced back to pre-Sept. 11, 2001, levels.

But the biggest plus was the decision to open the Sacramento-area casino in the second quarter of 2003, Curtis said.

The new Thunder Valley Casino's gambling hall is now slated to open by June 25, earlier than the fourth quarter target the company had previously announced. The change in dates was made so that the Auburn Indians wouldn't have to apply for new slot machine allotments from California gaming regulators; the first machine allotment expires June 25.

"Opening earlier is a significant positive from a shareholder's perspective," Curtis said. "The casino has the region's best location, and has demographics even stronger than Foxwoods and Mohegan Sun (in Connecticut)."

Station Casinos executives said they expect to finish building the noncasino elements of the United Auburn Indian Community's $215 million hotel-casino by the end of 2003.

The casino is expected to have 1,906 slot machines, 100 table games and a private casino, as well as entertainment, restaurants and parking for 3,000 vehicles.

"This is the best site in America for Native American gaming," Christenson said. "Thunder Valley is positioned to take advantage of one of the best markets in the country."

Station shares closed at $17.90, up 65 cents in Wednesday trading on the New York Stock Exchange.

Christenson said that, as of Sept. 30, the company had $1.155 billion in debt, a number expected to drop to $1.14 billion by year's end.

The company's debt-to-cash flow ratio is currently about 5 to 1, Christenson said, with this year's cash flow expected to be $240 million, up from last year's $220 million.

He said the its debt-to-cash flow ratio needs to drop to 4.5 to 1 before the company invests the $300 million or more it's expected to sink into a planned locals casino in Summerlin adjacent to the interchange where Charleston Boulevard meets the beltway.

Station cash flow is expected to be about $270 million to $280 million next year, Christenson said.

The company doesn't expect to begin construction on Charleston Station, the name executives is using for the planned Summerlin property, before the first quarter of 2004.

"This is the premier site in the Las Vegas locals market," Christenson said, noting that the company earlier this month exercised its option to acquire the 72-acre site for $65 million.

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