Red Rock Resorts said Tuesday its solid second quarter operating results were partially offset by construction disruptions at both the Palace Station and the Palms properties in Las Vegas.
But CEO Frank Fertitta III said any revenue and cash flow lost now will be worth the sacrifice in the long run.
“We see the light at the end of the tunnel,” Fertitta said on a conference call with analysts to discuss Red Rock’s financial performance in the quarter that ended June 30.
Fertitta talked in glowing terms about the Palms’ renovations, saying the remodeled hotel rooms and suites “will rank among the best in the city” and that its new restaurants will bring several celebrity chefs to Las Vegas for the first time. Construction, however, will continue into 2019.
Fertitta asked the investment community for patience.
“It’s way easier to open a resort all at once,” he said.
Much of the focus during the question and answer session was on the Palms, the off-Strip property the company acquired in 2016 for $312.5 million. Red Rock is now spending $620 million to renovate, upgrade and expand the boutique resort.
“We’re missing a lot of amenities,” Fertitta said. “But if you go to the property and walk around, the reviews we are getting are that people want to be there. We know what’s lacking, but we will be adding restaurants and amenities in the third and fourth quarter, with a big push in the first quarter of 2019.”
Red Rock Resorts, the parent company of Station Casinos, said its total net revenues grew 1.5 percent to $416.2 million in the quarter. The company’s Las Vegas operations saw revenue grow 4.1 percent, but management fees from the company’s Native American casino operations declined 31.2 percent to $21 million, due largely to the expiration in February of the firm’s contract with the Gun Lake Casino in Michigan.
Net income was $82.7 million in the quarter for Red Rock, which took into account discontinued operations. The figure reversed a net loss of $25.7 million for the same quarter in 2017.
Red Rock’s adjusted cash flow for the second quarter was $124.6 million, an increase of 4 percent, due primarily to the company’s Las Vegas resort operations.
“If you look at our history since we went public in 1993, other than 2008 to 2011, we have always out-performed the market,” Fertitta said.
In addition to work on the Palms, Red Rock expects to complete a $191 million renovation and expansion to Palace Station, the company’s historic first property, by the end of the year.
Red Rock CFO Stephen Cootey said construction disruption has begun to taper off at Palace Station. The company is adding 178,000 square feet of new gaming and non-gaming amenities to Palace Station, which, like the Palms will “appeal to both residents and tourists” and “generate significant returns” for Red Rock Resorts, Cootey said.
The Palms, which has already completed one phase of the renovation, is adding more parking, restaurants, a new pool deck with a day club, a night club, and other features.
“We are confident that this redevelopment will create one of the most exciting and vibrant gaming and entertainment destinations in town,” Cootey said. “And (we) look forward to returning the Palms to its iconic status as the place to see and be seen in Las Vegas.”
Deutsche Bank gaming analyst Carlo Santarelli, in a note to investors, said he expects cash flow from the Palms to be “relatively negligible” through the fall. However he said the third quarter is typically a slow period in the locals market.
Red Rock Resorts announced quarterly results after the markets closed Tuesday. Shares of the company closed at $35.34, up 84 cents or 2.43 percent on the Nasdaq.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
