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What is Red Rock Resorts, Inc.?

On Wednesday, the Nevada Gaming Control Board released the agenda for a special meeting to be held on January 21. A new company, Red Rock Resorts, Inc., will go before the board to seek approval for a public offering while becoming the sole manager and sole voting member of Station Casinos LLC. Yesterday, Red Rock Resorts, Inc. filed an S-1/A with the SEC.

Red Rock Resorts Inc. is the new name of Station Casinos Corp. and the vehicle for Station Casinos’ return to the public market. Station Casinos registered the domain nameredrockresortsinc.com”, but it does not currently direct to a live website. (The more obvious domain name for the company, “redrockresorts.com”, has been taken by someone else.)

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(Page image captured 1/15/2016)

In a related vein, Fertitta Entertainment LLC, which has managed Station Casinos properties since 2011, also seems lacking in terms of its online presence. Its website, at www.fertittaentertainment.com, which has been live since April, 2011, is still unfinished with dummy text on some pages. See herehere and here. Recall that Station Casinos LLC has agreed to buy the company for $460 million concurrent with the Station Casinos Corp. IPO. It is unclear from the related SEC filings so far whether the Fertitta Entertainment purchase will include the transfer of this website to Station Casinos.

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(Page image captured 1/15/2016)

See more of our analysis of the Red Rock Resorts/Station Casinos IPO:

Our Response to SEC Request for Comment on the Effectiveness of Financial Disclosures about Entities Other than the Registrant

Read our full letter to the SEC here.

On Nov. 30, we sent a letter to the SEC in response to the commission’s request for comment on “Effectiveness of Financial Disclosures About Entities Other Than the Registrant”. We ask the Commission to consider three specific amendments to Rule 3-05. We have arrived at our suggestions after reviewing recent filings by Station Casinos LLC and Station Casinos Corp.

An excerpt from our letter:

We think investors would find it difficult to evaluate the proposed $460-million purchase price of Fertitta Entertainment LLC as neither registrant has provided historical financials of the target. The purchase agreement filed in an 8-K by Station Casinos LLC on Oct. 13 does not include any exhibits showing historical financials of Fertitta Entertainment. And these are not disclosed in Station Casinos Corp.’s IPO filings, including an S-1 filed on Oct. 13 and an S-1/A filed on Nov. 24, either.

Investors are thus left in a quandary: they cannot know whether the Fertitta Entertainment acquisition is “significant” because they do not have the necessary information to check the significance of the purchase using the tests provided for under Rule 3-05. They therefore cannot assess and evaluate whether the purchase of an affiliate under common control is a good one for Station Casinos LLC and its proposed new parent Station Casinos Corp.

See more of our analysis of the Red Rock Resorts/Station Casinos IPO:

How much is Station Casinos worth?

Last week, news broke that Fidelity, the mutual fund giant, had lowered its valuation of Snapchat Inc., the video messaging app company, by 25%. (See, for example, here, here, and here.)

The story got us thinking about how much Fidelity values Station Casinos LLC, of which it owns 8.7%. Fidelity’s valuation would provide a useful baseline for prospective investors in the Station Casinos IPO.

Here is what we found: a Fidelity fund’s filing implies that it valued Station Casinos’ equity at approximately $1.12 billion at the end of August.

  • Station Casinos LLC’s last 10-K, filed on 3/10/15, shows that Fidelity affiliates owned a total of 26,613,550 of Station Holdco LLC units, which constituted 8.7% of ownership interest in the company. This means there were approximately 305,902,874 Holdco LLC units overall.
  • The N-CSR filing by Fidelity Puritan Trust, filed on 10/28/15, shows that the Fidelity Puritan Fund valued 1,194,419 Station Holdco LLC units at $4.384 million on 8/31/15. This implies a valuation of $3.67 per Station Holdco LLC unit.
  • Total value of Station Holdco LLC units is therefore: $3.67 * 305,902,874 = $1,122,787,062.

Station Holdco LLC holds 100% of the economic equity interest in Station Casinos LLC. Therefore, Fidelity’s filing implies that it valued Station Casinos’ equity at approximately $1.12 billion at the end of August.

This also means that Deutsche Bank’s indirectly-owned 25% stake in Station Casinos is worth about $280.7 million.

Will Station Casinos be able to raise enough money through the IPO to buy out Deutsche Bank, whose regulatory troubles could have implications for new investors in the highly regulated gaming business, and pay $460 million to insiders to buy the company’s exclusive management company? (We will take a closer look at the value of the management firm, Fertitta Entertainment LLC, in a coming report.)


See more of our analysis of the Red Rock Resorts/Station Casinos IPO: