Station Casinos official calls Palms a ‘compelling strategic addition’ to casino empire

An exterior view of the Palms Casino Resort, June 6, 2013.

The parent company of Station Casinos, which runs 19 large and small casinos in Southern Nevada, reported its first-quarter earnings today.

Company: Red Rock Resorts Inc. (NASDAQ: RRR)

Revenue: $359.2 million, up 4.8 percent from the first quarter of 2015.

Earnings: $57.6 million, up 30.7 percent from the same time period one year earlier.

What it means: Station’s first-quarter results come on the heels of two significant transactions: an initial public offering that raised more than $531 million and its recently announced deal to buy the Palms for $312.5 million.

Chief Financial Officer Marc Falcone said on a conference call with analysts today that the company was “extremely focused” on providing value to shareholders and long-term growth. He said the Palms acquisition was the first step in enacting that strategy.

“With this acquisition, we gain a leading gaming asset in Las Vegas with key strategic benefits in the Las Vegas locals market and close proximity to the Las Vegas Strip — all at a very attractive price,” Falcone said.

Falcone said the Palms was a “hybrid gaming property” that appealed both to tourists and locals, making it “uniquely positioned” to benefit from a stronger Southern Nevada economy and record tourism levels. He called the resort a “compelling strategic addition” to Station’s collection of resorts.

The company anticipates the Palms will generate some $35 million in earnings before interest, taxes, depreciation and amortization during the first year it owns the property.

The Palms’ “run rate” of earnings before such costs remained about 60 percent below its peak level, Falcone said, giving the company confidence that there would be “significant upside from current business levels” there.

The Palms is located in one of the most “underpenetrated” areas in the valley for membership in Station’s loyalty program, according to Falcone.

He also spoke of a “number of opportunities to invest targeted, strategic capital” at the Palms, which he said the company would evaluate in a “disciplined manner over the next several quarters.” The Palms deal is expected to close in the third quarter this year.

As for the company’s existing business, Station said the first quarter marked its 12th straight quarter of year-over-year net revenue growth. The company reported strong performances both in Las Vegas, and at the two casinos it manages for Native American tribes in Michigan and northern California.

Net revenue from Las Vegas operations was $331.5 million, an increase of 3.1 percent from the year before. Native American management revenue, meanwhile, grew 33.8 percent year over year to $26.5 million.

Station had $2 billion in long-term debt at the end of the quarter.

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