With the “the chaos of KAOS” in the rearview mirror, Red Rock Resorts management said the casino company is focused on strengthening its balance sheet through a previously announced debt offering and selling some of the company’s 500 acres of undeveloped land in Nevada.
Las Vegas-based Red Rock pre-announced fourth quarter earnings a week ago in conjunction with $750 million debt offering that closes Friday.
On Tuesday afternoon, the parent corporation of Station Casinos said its net revenues grew in the quarter that ended Dec. 31 to $460.8 million, a 6.8% increase from a year ago. For the full year, revenues increased 10.4% to $1.86 billion.
The company’s $690 million redevelopment of the off-Strip Palms Casino was Red Rock’s biggest headache on its balance sheet.
“When viewing our fourth quarter Las Vegas performance, excluding the Palms, the results were very impressive and reflect the ongoing strength and stability of both Las Vegas locals market and our core business,” Red Rock Chief Financial Officer Stephen Cootey said on a conference call with analysts.
Red Rock spent $690 million to redevelop the Palms over much of the last two years. The makeover included new high-end restaurants and entertainment venues, a casino remodel and the addition of high-priced artwork.
But the property’s high-priced Kaos dayclub/nightclub turned into a money-loser and was shut down. The company paid $28.2 million in the third quarter to end the long-term agreements with several artists who performed at the flashy 73,000-square-foot indoor-outdoor venue that took up the pool area.
In the fourth quarter, Red Rock took another one-time charge $15.5 million on the Palms’ nightclub, which Cootey said was below a range he discussed in November.
“We do not anticipate any substantial charges related have KAOS dayclub/nightclub going forward into 2020,” Cootey said.
The goal now is to make the Palms profitable with a positive influence on the company’s balance sheet.
“From a gaming perspective, since the club closure, we’ve actually seen a slight uptick in both slot handle and table volume as just people appreciate the assets and not so much the chaos of KAOS, so to speak,” Red Rock CEO Frank Fertitta III said on the conference call.
“From a hotel perspective, we’ve also seen an uplift and uptick in the use of the assets, again, a net positive since the closing of KAOS,” he added.
In the quarter, Red Rock said its net income $4.8 million, down 46.1% from a year ago, but an improvement over the third quarter’s $28.6 million net loss due to the Palms. Cash flow in the quarter was down 15%.
For the year, Red Rock had a net loss of $6.7 million, compared to net income of $219.5 million in 2018. Much of the loss was placed on the Palms.
Cootey pointed out that Red Rock’s core Las Vegas operations grew revenues 6.9% in the quarter and 10.8% for the year.
“Las Vegas Locals is one of the best gaming markets right now with favorable and improving macro indicators, including population growth, low unemployment, wage growth, and rising housing prices,” said Union Group analyst John DeCree. “This is coupled with virtually no supply growth expected over the next 12-24 months. This strong backdrop is evident in Red Rock’s same-store results, excluding the Palms.”
The money raised from the $750 million note offering will be used to pay down a portion of the company’s $3.076 billion in long-term debt and for other corporate purposes.
#exclusive – ‘Chaos’ in the past, Red Rock Resorts focusing on balance sheet improvement. –@howardstutz, CDC Gaming. https://t.co/ZyjvtyQVuX #CDCgaming
— CDC Gaming (@CDCNewswire) February 6, 2020
Also, the company will look to market up to eight “non-core landholdings.” Two parcels already on the market are 56 acres far south of the Las Vegas Strip and an 88-acre parcel in Reno at the Mount Rose Highway.
“We’re not saying that we’re going to liquidate our entire land portfolio,” Fertitta said. “I think the point is that the effort is underway to monetize some of these assets and we’re evaluating each parcel to determine the highest and best use … and how we extract value out of these non-income producing assets.”
Share of Red Rock Resorts closed Wednesday at $27.50 on the Nasdaq, up 79 cents or 2.96%.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
