Red Rock Resorts, the parent company of Station Casinos, reported a strong third quarter and growth of its market share in Las Vegas in a conference call Tuesday morning, despite heavy construction at its flagship Palace Station property and the Palms.
A previously announced $76 million renovation to Palace Station and a $146 million improvement to the Palms, which it acquired in October 2016, further established the company’s position in the Las Vegas locals market, but weighed on its overall earnings for the quarter as net income fell by $11.1 million to $22.3 million.
Inclusive of the Palms, the company grew net revenues during the quarter by 15.3 percent year-over-year to $400.4 million and adjusted EBITDA by 8.5 percent to $118.3 million.
Same-store revenues across the enterprise grew an average of 6.2 percent.
“Notably, when viewing our performance on a same-store basis excluding the Palms, we recorded our highest third quarter consolidated net revenue, highest adjusted EBITDA, and highest adjusted EBITDA margins since 2008, even while experiencing significant construction disruption at Palace Station,” said Daniel Foley, vice president of finance and investor relations.
The company pegged the negative impact of construction disruption at Palace Station at the ”high end of our previously estimated $10 million to $15 million annual disruption range.”
“With respect to Palms, the construction disruption is very expensive right now and is expected to continue to the completion of the property redevelopment plan,” Foley continued.
Importantly, the company was still able to grow market share in spite of all of the construction.
“Red Rock Resorts was expected to lose share in the third quarter alongside major disruptions at both Palace Station and Palms. Instead, the operator gained over 100 basis points of Las Vegas locals gross gaming revenue share, and noted floor disruptions shouldn’t get worse from here on out,” said Chad Beynon, an analyst with Macquarie Research.
“As investors reassess Red Rock Resorts’ share dominance, we expect EBITDA estimates to increase for the fourth quarter and beyond,” he continued.
Red Rock also announced the second phase of its remodeling of the Palms, which is expected to be completed by late 2018 at a price tag of $485 million.
This second iteration will include 282 redesigned and renovated hotel rooms and luxury suites, a 29,000 square foot nightclub in partnership with TAO Group, 15,000 square feet of meeting and convention space, and a 20,000 square foot health and wellness spa.
While the renovations are disruptive and capital-intensive, Red Rock believes they position the company for continued strength in what remains a fast-growing southern Nevada economy.
“I think we’re very confident with what we’re doing at both Palace Station and the Palms, given their location on the I-15 corridor in the middle of Las Vegas (and)… what’s going on at the Las Vegas convention center and the new Raiders stadium,” said Frank Fertitta, chairman and chief executive officer.
“These two properties are basically going to be redone from head to toe going into 2019 with greater [economic growth] and a growing population.”
Red Rock’s net revenues from Las Vegas operations grew 16.1 percent year-over-year to $369.5 million during the quarter and adjusted EBITDA by 7.9 percent to $101.8 million. These figures were driven both by same-store growth and by the addition of the Palms.
Red Rock’s Native American management segment posted revenue growth of 17.2 percent to $25.3 million with sound performances at Graton and Gun Lake.
On its balance sheet, the company had $222.4 million in cash on September 30 against total debt of $2.69 billion.
On November 3, Red Rock announced a $0.10 dividend to be paid out to shareholders on November 30.
