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.
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Entries by Ken Liu
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.
Did Fertitta Entertainment provide audited financial statements with an unqualified opinion by its auditor after it agreed to be acquired by Red Rock? If it did not provide audited financial statements, how did Red Rock’s auditor handle the inclusion of Fertitta Entertainment when it produced the audited consolidated financial statements of the Station Holdco holding company?
Investors should ask Red Rock Resorts/Station Casinos and its IPO underwriters: Why is the company selling valuable casino sites? Where will growth come from if the company is selling off future casino sites? Do the Fertittas and other executives of Red Rock have confidence in the company’s core Las Vegas locals business?
We sent a letter to Nevada Governor Brian Sandoval regarding the Station Casinos/Red Rock Resorts IPO to provide the governor with “specific examples of problems related to the approval of the Station Casinos/Red Rock Resorts IPO by the Nevada Gaming Commission on January 21, 2016 in order to illustrate the challenges Nevada faces in regulating a ‘too-big-to-regulate’ significant owner of one of the major gaming companies in Las Vegas.”