Las Vegas Sun

October 21, 2018

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Station raises earnings guidance, shares jump

Station Casinos Inc. shares soared by more than 10 percent in midday trading today on news that the strong Las Vegas economy lifted profit higher than expected in the first quarter. As a result, the company announced plans to expand its upcoming Red Rock Station hotel and casino before the property opens next year, a move that will boost the cost of the property to $800 million.

Shares rose about 10 percent, or $6.21 per share, to $67.75 this morning. The news also boosted shares of Boyd Gaming Corp., which controls a significant chunk of the local casino market through its Coast Casinos subsidiary. Boyd shares rose more than 8 percent this morning, or $4.31 per share, to $57.91.

Station Casinos, on track to open Red Rock Station in the first quarter of next year, said it would begin construction of the property's second phase late this year and open the expansion by the end of next year.

Station officials said the expansion, plus increased construction costs, would bring the cost of Red Rock Station to $800 million. It's at least the second time the company has increased cost estimates for the property, which would become the most expensive locals casino ever built in Las Vegas.

"While we are confident that (Station) can achieve its historical returns on invested capital, particularly with Red Rock given the strong demographics of the Summerlin area, we are a bit surprised at the overall price tag," Deutsche Bank Securities stock analyst Marc Falcone responded in a research note to investors today.

Station Casinos' most expensive and lavish property to date, Green Valley Ranch Station Casino, cost about $425 million to build including a $125 million expansion completed in December that added 300 rooms, an events center and meeting space.

With the expansion, Red Rock Station will have about 850 hotel rooms, more than 2,800 slot machines, 94,000 square feet of meeting and convention space, a 35,000-square-foot spa, nine restaurants, a 16-screen movie theater, indoor and outdoor entertainment venues, a nightclub and private pool club and parking for nearly 5,500 vehicles. Red Rock also will feature 15 poker tables and a bingo room.

The company received county approval to build 1,000 rooms and initially planned to open Red Rock with 400 rooms.

By contrast, Green Valley Ranch has 496 rooms, 2,192 slots and 66,337 square feet of meeting space.

The growth of the Las Vegas economy has boosted earnings more than anticipated, while Green Valley Ranch -- a prototype of sorts for Red Rock Station -- also surpassed estimates, officials said.

The company said it expects to earn from 66 to 68 cents per share in the first quarter compared with previous expectations of 56 to 62 cents.

Green Valley Ranch, already the company's most profitable casino, is expected to generate from $26 million to $27 million in first-quarter earnings before interest, taxes, depreciation and amortization -- a key indicator of casino performance. The property is on track to exceed $100 million in that category this year and approach a 25 percent return on investment, officials said. The property reported $77.6 million in earnings before certain items last year.

Green Valley Ranch is half owned by the Greenspun family, which also owns the Las Vegas Sun.

The company has previously identified return on investment goals of 20 percent for its properties, which is generally higher than many projects on the Strip.

The average daily room rate at Green Valley Ranch so far this year is $183 with an 88 percent occupancy rate compared with a rate of $161 and a 94 percent occupancy rate a year ago.

"These outstanding results combined with the favorable supply-demand dynamics in the Las Vegas locals market and the quality of the product we are building at Red Rock gives us confidence to begin the phase II expansion of Red Rock," Station Casinos President Lorenzo Fertitta said in a statement.

Also today, Station Casinos boosted earnings projections for Red Rock Station.

That property is expected to report from $65 million to $75 million in earnings before interest, taxes, depreciation and amortization. The company initially projected up to $65 million. Red Rock should eventually produce more than $120 million in that category by its third or fourth year, officials said.

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