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Rod Smith

Station Casinos Plans High-Rise Resort

20 May 2004

LAS VEGAS --Station Casinos has set its sights on developing a high-rise destination resort that will rival the Rio and the Palms as soon as work wraps up on its new Red Rock Station.

The locals casino giant will build its new flagship hotel-casino, including at least 1,000 rooms, at the 50-acre Wild Wild West casino site on Tropicana just west of the Strip, although project plans have not been completed, company executives said Wednesday.

Station Casinos Chairman Frank Fertitta III, speaking at the annual shareholders' meeting at Green Valley Ranch, said the $475 million Red Rock Station will open in two years, and the company's goal is to break ground on the Wild Wild West project in the first half of 2006, with completion expected in 2008.

"We'll be going vertical, hopefully very similar to the Rio or the Palms. We want to build something very creative, an icon for Las Vegas," he said.

With more than 250 acres of casino-designated land at five sites around the valley under its control, Wall Street sources said Station Casinos is likely to complete more than $1 billion in Las Vegas casino developments before the end of the decade.

Eric Hausler, gaming analyst for Susquehanna Financial Group, said Station Casinos "will trickle new supply into the market for the next decade and just bang earnings upward.

"That's why this is the highest-quality growth story for gaming operators and why investors will buy the stock," he said.

Deutsche Bank analyst Andrew Zarnett said Station Casinos has answered the persistent investor question of where the company's future growth will come from.

"Clearly, they have enough inventory to last 10 years, and that's more imbedded plant than any other gaming company," he said.

Company President Lorenzo Fertitta told shareholders that a large share of the company's prospects stem from its success since 1999 in locking up all undeveloped, casino-designated land in the Las Vegas Valley.

In addition to the Red Rock Station site, it has an option to buy the 19-acre parcel on which Wild Wild West stands for up to $36 million. Company officials plan to exercise that option next year. It has also bought just more than 30 additional, adjacent acres.

It also owns 67 acres at Rhodes Ranch where Durango Drive intersects Interstate 215 and 49 acres at its so-called Summerlin South site at Flamingo Road and I-215. The company said it will start developing one of the two sites soon after it breaks ground on the new Wild Wild West resort complex.

Frank Fertitta said one of those two projects should open by 2010 and it is likely the Summerlin South project will be built first, although the timing of the two projects depends on how fast and just where population growth takes place and the likely returns each casino would generate.

In addition, Station Casinos owns 27 acres on Boulder Highway and Nellis Boulevard and 34 acres at Boulder Highway and Tropicana Avenue, but Lorenzo Fertitta said because of the properties already operating on the east side, those developments will probably not get off the drawing boards until after 2010.

Hausler said control of these casino-designated sites underlies the premise that Station Casinos can control the supply of new locals casinos.

The state Legislature adopted legislation in 1997 that limited the areas in the Las Vegas Valley in which hotel-casinos could be located.

Hausler said the big question for gaming companies is always where their growth will come from.

"Gaming companies have never been good at same store growth, except for Stations because of this supply-demand dynamic. They build the boxes, fill them up, expand and build more. As Las Vegas continues to be a fast-growing city, Station will be a prime beneficiary of it," he said.

Same-store growth refers to increased revenue at properties the company has owned at least a year.

Station Casinos also has a $110 million expansion of Green Valley Ranch and $50 million improvement of Santa Fe Station under way.

Deutsche Bank analyst Marc Falcone said there is no better investment opportunity in the country than the Las Vegas locals market, and Station "has positioned itself for another decade of growth."

In 2003, company revenues increased 8 percent; cash flow, a key measure of profitability, increased 24 percent; and net income increased 90 percent, Frank Fertitta said. Cash flow is defined as earnings before interest, taxes, depreciation and amortization.

Station Casinos closed Wednesday at $43.34, down 46 cents or 1.05 percent on normal volume of 400,000 shares traded. Station Casinos shares, however, are up 108 percent over a year earlier and 311 percent over the past decade, by far the fastest appreciation of any of the major gaming operators.

Chief Financial Officer Glenn Christensen told attendees at the annual shareholders meeting that in the end, perhaps, the increased stock prices were all that mattered.

Shareholders then approved without discussion the re-election of three current board members, the proposed executive bonus plan and the selection of Ernst & Young as independent auditor for fiscal 2004.

The shareholders' meeting elicited no controversy such as the debate over executive bonuses that was precipitated last year by Culinary Local 226.

Station Casinos Plans High-Rise Resort is republished from