California Indian casino built and managed by Station Casinos rising to the top of class

The Graton Resort near Santa Rosa, Calif., has not yet celebrated its first anniversary.

But one analyst hinted recently the Indian casino — which was built by Station Casinos and is being operated by the locals gaming giant — is quickly rising to the top of the class in tribal gaming-rich California.

The casino cost $800 million and is owned by the Federated Indians of Graton Rancheria. The property, 45 minutes north of downtown San Francisco, took 10 years to get through the various federal and state regulatory approvals.

Station Casinos helped finance the development and has a seven-year contract to operate the resort, which has 144 table games, an 18-table poker room, 3,000 slot machines, four full-service restaurants and a 500-seat food court, dubbed The Marketplace.

Graton does not have a hotel, although the location is slated for a 200-room hotel in the future. Instead, the casino has deals with neighboring hotels in the Santa Rosa area.

The initial quarterly results lead some to believe Station Casinos will earn back its investment quickly.

In the quarter that ended March 31, Graton generated $101 million in revenue and $57 million, cash flow. Station Casinos earned $7.4 million in management fees.

Credit Suisse gaming analyst Joel Simkins told investors the Graton numbers make the resort one of the most profitable and highest margin regional casinos around.

“Given an easily accessible location and deep feeder markets, Graton has put up big numbers out of the box,” Simkins said.

Graton is driving a significant amount of the business from the Bay Area’s large Asian population, which has been predominately all-cash play and minimal credit, he added.

“Management described strong bus traffic from Chinatown areas in San Francisco and Oakland and neighboring communities,” he said.

California is the behemoth of the nation’s Indian gaming market.

According to the most-recent Casino City’s Indian Gaming Industry Report, California’s 68 Indian casinos produced $6.96 billion in gaming revenue in 2012 — nearly one-quarter of the total produced by all 28 Indian gaming states.

Graton opened last November and immediately took away business from Cache Creek and other neighboring Northern California casinos, including the River Rock in Sonoma County, which is 30 miles to the north.

There also are several large Indian casinos in the Sacramento region.

Station Casinos opened the Thunder Valley Casino near Sacramento in 2003 and ran the property until 2010 when it was considered one of the most profitable Indian casinos in California.

During Station Casinos first quarter earnings conference call in May, Chief Financial Officer Marc Falcone said Graton’s customer database collected more than 500,000 names in its first four months of operation.

“To date, we are very pleased with the performance of the property,” Falcone said. “We believe there is additional upside to the business as we further grow the database and employ our database marketing strategies.”

Station Casinos fronted the Graton tribe $200 million to help pay for predevelopment work.

On the earnings call, Tom Freil, who serves as Station’s CFO for Graton, said the tribe still owes the company $48 million. But he expects the figure to be paid back in full this year.

Simkins told investors Graton is built for the gambling customer. The casino has six premium gaming areas for high-end baccarat players. Graton is seeing spillover demand from nearby Sonoma and Napa Valley wine country visitors and customers from the technology industry that populates California’s Bay Area, he said.

“The current product stands out in our view as one of the most attractive in the Northern California market,” Simkins said. “From an aesthetic perspective, Graton reminds us of a more modern Red Rock. The fit and finish of the property was done at a very high level.”

Graton also has a potential advantage should California legalize Internet poker.

The casino can partner with Station Casinos-owned Ultimate Gaming. The company operates Ultimate Poker in Nevada and is the online gaming provider for the Trump Taj Mahal in Atlantic City.

Station Casinos is not finished in California. The company has a development agreement and management contract to build and operate a casino in central California, about 25 miles north of Fresno, for the North Fork Rancheria of Mono Indians.