Deutsche Bank sold off its ownership stake on Nov. 10. Deutsche Bank is in dire need of additional capital, so we expected them to sell off its Red Rock Resorts stake as soon as it could. Deutsche Bank investors should certainly welcome the cash infusion and capital boost that can come from selling and exiting the casino assets.
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Entries by Ken Liu
The decision by Boulder Station workers to unionize comes less than a year after workers at a Station Casinos-managed tribal casino in Northern California ratified their first union contract. Boulder Station is the first of Station Casinos’ properties in Nevada to unionize with the Culinary and Bartenders Unions.
Red Rock Resorts announced its acquisition of the Palms on May 10. We believe investors and analysts should ask the following questions: When will Red Rock disclose the Palms purchase agreement? What will Red Rock have to do to bump Palms’ EBITDA up by 25% in one year? Will “Palms Station” cannibalize Palace Station?
The flip side of Station Casinos’ saturation of the locals market means growth in its core Las Vegas business would have to come from significant increases in (1) the population of Las Vegas and/or (2) customer spending per capita. Facing low population growth and a decline in locals’ gaming behaviors, the company is unlikely to experience much, if any, upside in its core Las Vegas locals business.
If Fidelity bond funds valued at Station Casinos at an estimated $9.19 per share at the end of January, what will Fidelity equity funds value the company at if they decide to participate in the upcoming Red Rock Resorts IPO? Will Fidelity ask itself, internally, how Station Casinos could have doubled in value in less than three months?
Economic data from federal agencies and gaming data from the Gaming Control Board suggest the current recovery in the Las Vegas area is moving slower than a previous post-recession recovery. Furthermore, we identify a potential limit to the current recovery in terms of the slot win percentage. Growing casino revenue through tighter slots has its limits.
According to a 2/17/15 Deutsche Bank analyst report, Station Casinos LLC, as of 12/31/2014, was estimated to have an enterprise value to be $2.59 billion with an implied an equity valuation of $624.6 million. Investors should ask Deutsche Bank how, in its opinion, the value of Station Casinos could have more than tripled in little over a year.
With questionable prospects for growth and poor corporate governance, investors in the Red Rock IPO might want to look to dividends for a reason to invest in Red Rock. But, as a result of its other obligations, there is no certainty the company will be able to pay dividends at a level that satisfies public shareholders.
Investors who buy Red Rock’s second-class shares on offer will gain a minority (33%) stake in the once-bankrupt Las Vegas casino and tavern operator, Station Casinos. The terms of the offering beg questions about company insiders’ confidence in its long-term prospects. Prospective investors should ask management the following questions
A key feature of the Red Rock IPO is the use of proceeds, plus additional debt, to acquire Fertitta Entertainment for $460 million in a related-party transaction. Investors should ask the company how it arrived at and agreed to this price.