Tuesday, March 30, 2004
Copyright © Las Vegas Review-Journal

Station says it will buy two casinos

Station Casinos on Monday announced plans to buy two small casinos in Henderson for an undisclosed price, a move analysts said was designed to further lock up the locals gaming market and guard against possible competition.

The company also declared a 40 percent increase in its quarterly cash dividend to 17.5 cents a share, up from its previous dividend of 12.5 cents a share, payable June 4 to shareholders of record May 14.

Station Chief Financial Officer Glenn Christenson said his company is generating strong and reliable cash flow, and decided it was appropriate to return more of that cash to investors.

"What's really important about the dividend hike is it reflects their confidence in the growth of the locals market over the next few years (at least)," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

He said the dividend move also reflects management's confidence in its ability to wrap up deals and win regulatory approval for its previously announced plans to manage added tribal casinos in California and Michigan.

Station reached an agreement in November to develop and manage a casino for the Pottawatomi Indians in western Michigan.

It also has agreements with the Federated Indians of the Graton Rancheria for a gaming and entertainment facility in Sonoma County, the Mechoopda Indian Tribe of Chico Rancheria for a similar facility in Chico, and the Northfork Rancheria of Mono Indians for a facility near Madera, all in California, in addition to its highly successful management of the Thunder Valley casino outside Sacramento, Calif.

Eric Hausler, an analyst with Susquehanna Financial Group in New York, said Wall Street is very receptive now to companies that are paying and increasing dividends.

Liberal dividend policies are taken as a sign management is confident in future growth prospects and is disciplined in cash management, he said.

Deutsche Bank analyst Marc Falcone said even with the 40 percent boost in dividends, Station will have sufficient cash flow to finance expansion opportunities since the quarterly payouts represent less than 35 percent of the company's free cash flow.

Analysts said moves to boost dividends often are made to protect companies' prospects to raise added capital if they have major expansion plans in sight, regardless of their recent earnings records.

"In the case of Station, however, (the dividend) is icing on the cake for a company that's growing revenue by leaps and bounds," Hausler said.

Station's planned acquisition of the Gold Rush Casino and Magic Star Casino fits into that growth picture as both an offensive and defensive ploy, he said.

Falcone said the announcement surprised investors. But he said it fits with Station's strategy of capitalizing on limited supply and surging demand in the Las Vegas locals casino market.

"It's (mostly) a real estate deal. (The Gold Rush) is next to Sunset Station. The deal locks them into two gaming-entitled parcels that could otherwise be acquired by someone else, so it helps lock down real estate in the locals market," Hausler said.

Greff said the only way a new competitor could enter the market or bolster operations is with the acquisition of Boyd Gaming Corp. and Coast Casinos, which are merging, or by buying small casino operations such as the two in Henderson and building a new base, he said, something Station is evidently moving to forestall.

And Falcone predicted Station will be making more acquisitions shortly as it aggressively pursues opportunities in the locals market.

The Henderson acquisitions will require approval from Nevada gaming regulators and the city of Henderson.

The purchases will help Station better service the locals market, Chief Operating Officer Steve Cavallaro said.

Station made a similar point when it bought the Wildfire Casino in North Las Vegas even though it was near both Texas Station and the Fiesta.

The 11,000-square-foot Magic Star Casino is on Boulder Highway and features 191 slot machines, a sports book and the Starved Valley restaurant.

The 8,600-square-foot Gold Rush is on the corner of Sunset Road and Marks Street and has 179 slot machines, a sports book and is home to Digger Dan's restaurant.

Together, they have about 200 employees.

Station shares closed Monday $43.80, up 89 cents or 2.1 percent, on 522,600 shares traded.