After several “Are we there yet?” quarters as the Palms and Palace Station makeovers progressed, Las Vegas locals casino giant Red Rock Resorts can finally say,“We’re there.”
Buoyed by a 10.4 percent revenue surge in its core Las Vegas business, Station Casinos’ parent on Tuesday reported higher fourth-quarter revenue and earnings before interest, taxes, depreciation and amortization than a year earlier.
“The positive performance was spread across the entire portfolio,” Red Rock Resorts CEO Frank Fertitta III told analysts on a conference call.
The news sent Red Rock Resorts shares up 35 cents, or 1.32 percent, to reach $26.85 by 5 p.m. PST in after-hours Tuesday trading on the Nasdaq. The shares rose 29 cents, or 1.11 percent, to close at $26.50 in regular trading.
Red Rock Resorts officials, who discussed results in a conference call with analysts and reporters after stock markets closed, said the $191 million Palace Station project was finished on time and on budget, capped by the December opening of a nine-screen luxury cineplex.
The renovations added 178,000 square feet of gambling and entertainment space and refreshed the hotel-casino’s exterior with two new light-emitting-diode marquees, 300 more parking spaces and improved access.
Meanwhile, officials said, the second phase of the $690 million Palms renovations will finish by the end of June and a third phase completed by the time fall rolls around.
Palms upgrades during the October-through-December quarter included new restaurants, Vetri, an Italian restaurant from James Beard Award-winning chef Marc Vetri, and Mabel’s an American barbecue restaurant from celebrity Chef Michael Symon.
“We don’t have all the amenities online yet, but the light is at the end of the tunnel,” Fertitta said. “All these new amenities are going to be coming online first week of April. So I think we’ll get a much clearer picture on the ability to drive room rates based on all the amenities that are coming online.”
The Palms also added an additional 15,000 square feet of renovated meeting-convention space. Unfinished makeovers of rooms and luxury suites in the Fantasy Tower should finish by the end of March.
“As we complete this redevelopment cycle at Palace Station and the Palms, we expect to begin generating significant free cash flow in the fourth quarter,” Chief Financial Officer Steven Cootey said during the conference call. “And, as we shift into harvest mode, our focus moving forward would be on maximizing the financial performance of our existing properties.”
In a statement, Red Rock Resorts said net income was $13.2 million, or 11 cents per diluted share, for the three months ended Dec. 31, down from net income of $46 million, or 35 cents per diluted share, a year earlier.
Adjusted for nonrecurring items, net income was 30 cents per share, lower than 33 cents per share in net income a year earlier, but better than the 29 cents-per-share Zacks Consensus Estimate.
A $23.9 million after-tax decrease in the fair value of derivative instruments and a corporate office building lease obligation, which boosted interest expense by $9.3 million, dampened the latest quarterly results, Red Rock Resorts said.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that excludes nonrecurring expenses, rose 10 percent in the fourth quarter to $135.1 million from $122.7 million a year earlier.
“While we downgraded shares in April, given leverage, lack of synergies and increased competition on the Strip, we are becoming more constructive given fourth quarter revenue results and the overall demand for Red Rock’s legacy assets and Palms,” Macquarie Securities gaming analyst Chad Beynon told investors.
Red Rock Resorts’ revenue for fourth-quarter Las Vegas operations, which include 17 hotel-casinos, rose to $409.5 million from $370.1 million. That helped offset a 2.7 percent drop in Native American management fees with the company’s deal to manage the Gun Lake casino in southwestern Michigan expired.
Fourth-quarter revenue rose 7.8 percent to $431.5 million from $400.3 million to top the $404 million in revenue Zacks-polled analysts had forecast
“As we begin 2019, the fundamental economic data for Las Vegas remains supportive of continued growth,” Cootey said. “Population is at an all-time high and Las Vegas is now the second fastest-growing (metropolitan statistical area) in the nation.”
Perhaps eying more Las Vegas growth, Station Casinos bought roughly 40 acres of land in northwest Las Vegas’ Skye Canyon community for $36 million on Nov. 13. Analysts asked about the Skye Canyon site, along with other undeveloped sites the company owns in the Las Vegas Valley and Reno.
“We want to be in control of our own destiny, and we see (Skye Canyon) as potential area for growth in the future,” Cootey said. “Our first and foremost priority is to make sure we maximize the profitability, our existing properties including the Palms and the Palace. And I can’t say that enough on this call that is our first focus.”
Fertitta said Red Rock Resorts would move forward on an American Indian casino in California near Fresno if its partner, the North Fork Tribe, gains approval from the state’s Supreme Court to build.
“If we get a positive decision on North Fork, we will move forward to develop that,” Fertitta said.
Full-year revenue for Red Rock Resorts rose 2.4 percent to $1.68 billion from $1.64 billion. Although hampered by disruptive construction at the Palms and Palace Station, full-year Las Vegas portfolio net revenue rose 4.6 percent to $1.59 billion.
Follow Matthew Crowley on Twitter @copyjockey
