Buoyed by pent-up demand from a younger demographic and Las Vegas population growth that’s fueled a rise in VIP business, Red Rock Resorts reported its best quarter ever for its six open properties (out of 10). Executives also confirmed that the company is financially positioned to proceed with its Durango Station casino in the southwest valley in early 2022.
Red Rock Resorts reported adjusted earnings of $210.2 million, up 82.4% from the $116.2 million in the second quarter of 2019. It reported a margin of 49.1% compared to 2019, according to Stephen Cooley, the executive vice president and chief financial officer.
“The customer trends we saw in the second quarter are consistent with the trends we’ve seen since our reopening in June 2020,” Cooley said. “We continue to see strong and consistent visitation from our younger demographic, increased spend per visit, more time on device, and the continued return of our core customer.”
Board member Lorenzo Fertitta said they’re benefiting from the growth in population, with more newcomers to VIP and higher-end segments.
The state’s reimposing a mask mandate, effective Friday, isn’t likely to have any long-term impact, executives said, because they didn’t see a change in customers when masks were removed in May. Any impact would be short term.
“It’s hard to predict the effect it’s going to have,” Lorenzo Fertitta said. “Anytime you have new headlines and people talking about COVID and restrictions is not a positive. But we’ve navigated more difficult situations than we currently have in front of us. I will say that when the mask mandate came off, we didn’t see any change in our business, meaning there was no significant upside when people didn’t have to wear masks.”
Cooley noted that as all government-mandated restrictions on capacity and mask wearing ended by June 1, Red Rock began to see a return of its non-gaming segments of hotel and food and beverage revenue to pre-COVID levels. In addition, it’s counting on more revenue when people return to movie theaters in greater numbers.
“Our sales and catering business continues to ramp up as we continue to build on our book the back half of this year and into 2022,” Cooley said.
Cooley said because Red Rock Resorts had reduced its debt level, has solid balance sheets, and expects to close on its $650 million cash sale of the Palms Casino Resort and Palms Place to the San Manuel Band of Mission Indians by the end of 2021, it’s positioned on its long-term growth, which includes Durango Station, a 71-acre site at the 215 Beltway and South Durango Drive.
“We’re extremely excited about this project,” Cooley said. “It’s located in the fastest growing area of the Las Vegas valley with no unrestricted gaming competition in a five-mile radius.”
Red Rock is working on the planning and budgeting phases, with the expectation of starting construction in the first quarter of 2022, Cooley said. It will take 18 to 24 months to complete the 100,000-square-foot casino with more than 2,000 slots, 40 table games, four food and beverage outlets, and more than 200 hotel rooms.
“With six strategic locations, we’re uniquely positioned to capitalize on the very favorable long-term demographics and high barrier to entry that characterize the Las Vegas locals market,” Cooley said.
In its note to investors, J.P. Morgan said they’re positive about Red Rock Resorts, given its favorable position in the Las Vegas locals market. It has benefited from traffic of closed properties flowing to open ones and the migration of high-income Californians, two trends expected to continue. Those trends will be complemented with the development of Duragno station, J.P Morgan said.
“The area is fast growing, with a high-income population base, large gaming demographic, and zero competition for five miles,” the note said. “It will likely not require the full 71 acres, so some may be sold or used for alternative purposes.”
J.P. Morgan estimates Red Rock will spend about $150 million next year on the Durango development, with the total project of about $400 million. Red Rock executives said it will have more information by the third-quarter earnings call, but suggested some of that 71 acres could be sold to bring its cost down.
In addition to the Palms, Texas Station, Fiesta Rancho, and Fiesta Henderson remained closed during the second quarter.
CEO and Chairman Frank Fertitta III said they want to have a more conservative balance sheet to have flexibility to take advantage of high-return development opportunities in Las Vegas.
“We continue to evaluate the three closed properties and come to no conclusion at this time,” Fertitta said. “Our primary focus right now has been on Durango, which we think is a great development opportunity in the most underserved part of the Las Vegas valley. But we will continue to evaluate the closed properties and if they can add to the profitability to the company going forward.”
Red Rock also updated its planned development of a tribal-owned casino near Fresno after a California state appellate court delivered an unfavorable ruling in June.
Truist Securities, in its note to investors, said Red Rock management sounds confident that it will proceed and expects to provide an update at or prior to third-quarter earnings. Management continues development/design work on the project for the North Fork Rancheria of Mono Indians while working on the potential financing, Truist said.
