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Red Rock Resorts is a Second-Class Gaming IPO

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

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Questions about the Audited Financial Statements of Red Rock Resorts

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?

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“Too-Big-To-Regulate”

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.”

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The $460-Million Fertitta Entertainment “Internalization Fee”

The $460-million Fertitta Entertainment internalization fee is much higher compared to historical REIT internalization fee figures from a Sept. 2014 Duff & Phelps study. Some REITs have internalized external managers with no fee. The non-insider cost for acquiring Fertitta Entertainment should be closer to $50 million, not $460 million, based on termination provisions in the casino management agreements

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The IPO Is Postponed, Per Deutsche Bank

Deutsche Bank announced last Thursday that the Station Casinos (Red Rock Resorts) IPO had been postponed. Will the Fertitta family and other insiders seek other ways to fund the $460-million Fertitta Entertainment deal even before the IPO goes to market? Will the terms of the IPO be modified?

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The IPO and the Fertitta Entertainment Airplane

According to Red Rock Resorts, Inc.’s Jan. 14, 2016, S-1/A filing, “an airplane will be transferred by Fertitta Entertainment to one or more of its members or their affiliates prior to the consummation of the Fertitta Entertainment Acquisition.” No further details about this transfer are disclosed in the company’s IPO filings.

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What is the Red Rock Resorts IPO?

As currently proposed, the Red Rock Resorts IPO will result in the Fertitta family taking substantial sums from the company, retaining control for the long term through super voting rights, and shifting risks in its current structure to new public investors. The complicated IPO thus presents prospective investors with an unappealing proposition.

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