Station Casinos hewed to the basics in its presentation to the J.P. Morgan Gaming & Lodging Forum this week.
Station CFO Stephen Cootey met with Morgan lead analyst Joseph Greff and emphasized sustaining margins, “as well as driving organic growth across the portfolio.”
Station plans to achieve the latter ambition via the opening, now moved forward a few months to this autumn, of Durango Resort, then by subsequent rollouts of as-yet-undeveloped assets in the Las Vegas Valley.
From Cootey’s standpoint, the Las Vegas locals market is the best in the U.S., given constraints on supply, no state income tax, a low privilege-tax rate on gambling revenue, and a near oligopoly (along with Boyd Gaming) on the Vegas area. “For Durango, demographics are attractive and the market has no competition within a five-mile radius.”
Despite considerable speculation about where Station will break ground next, Cootey told Greff that nothing is likely until Durango Resort is up to speed operationally. He hinted that the company might even expand Durango before looking elsewhere. Station, Greff reported, “will let demographics, population trends, and residential-development trends drive its future growth decisions.”
Compared to the Great Recession of 2008, which dealt Station a severe blow, the locals market is reported to be “significantly healthier” now. Drivers of this are homeowners who have fewer adjustable-rate mortgages and more built-up equity in their houses. Should this macro trend continue, Station has “an ample land bank” for plunging into a burgeoning market.
In light of the Durango investment, Cootey believes that 2023 will be a year in which Station sees its leverage increase, “though the business should naturally delever as the property ramps and contributes EBITDA/free cash flow.”
Cootey’s long-term goal is a three-times-cash-flow leverage level, “which management feels gives it enough optionality — future M&A, development, capital return to shareholders.” In light of the Durango and Wildfire Fremont investments, Greff believes share repurchases or dividends would be the most prudent outcome.
In addition to having two purchase agreements in hand for real estate, Station is also shopping the Texas Station and Fiesta Rancho sites in North Las Vegas. Beyond using the land bank to build new casinos, Station management is also reported to be unloading some of its raw acreage as a means of underwriting new development.
