Red Rock Resorts CEO Frank Fertitta III didn’t mince his words Tuesday.
The off-Strip Palms Casino, which recently underwent $690 million in renovations but won’t be included in Red Rock’s initial reopening plans in Las Vegas, is not for sale.
“We can dispel the rumors that the Palms is for sale. That is a rumor, it’s not correct,” Fertitta said during the Las Vegas-based company’s quarterly earnings conference call.
Rumors of the Palms’ potential sale began floating about earlier this month when the property was not included in the plans, which call for six of Red Rock’s major Las Vegas-area resorts and a chain of smaller casinos to reopen once the go-ahead is given by Nevada’s governor and state gaming regulators.
Red Rock Chief Financial Officer Steven Cootey said the six properties accounted for 80% of the company’s quarterly revenues and 90% of its cash flow.
The Palms, which was acquired almost four years ago for $360 million, would reopen “based on (the) demand” the company sees from the Las Vegas tourist market, Fertitta said. The Palms is located just west of the Strip.
“The Palms will be reopened based on what we see from initial demand with the six properties,” Fertitta said. “And then what we’re able to see in terms of tourists coming back to Las Vegas, how the Strip is doing and everything else. But our plan is to reopen the Palms, but it’s going to be dependent on what we see in the marketplace.”
He thought the company’s vast Las Vegas locals’ business, operated under the Station Casinos brand, would recover faster than the Strip.
“Our customers live within three miles of our properties,” Fertitta said.
Red Rock reported a net loss of $152.2 million in the quarter that ended March 31, which was heavily impacted by the closures of the company’s Las Vegas properties on March 17 due to the coronavirus pandemic.
Lorenzo Fertitta, left, and Frank Fertitta III
In the quarter, Red Rock said its net revenue fell 15.6% to $377.4 million, which included a 15.6% decline at its Las Vegas properties and a 16.2% decline in management fees from its tribal casino in Northern California, which also closed on March 17. Adjusted cash flow in the quarter fell 48.8% to $74.3 million.
Cootey said Red Rock’s core Las Vegas properties – absent the Palms – were having their best operating performances since 2008 in January and February before the COVID-19 closures wiped out results in March. Gaming was halted statewide, and a safe reopening date is still being determined.
Once the reopening is set, Red Rock will restart operations at Red Rock Resort, Green Valley Ranch Resort, Santa Fe Station, Boulder Station, Palace Station, and Sunset Station, along with its chain of small Wildfire casinos when permitted. On Monday, the company unveiled extensive health and safety guidelines in preparation for the reopenings, which include social distancing, enhanced cleaning, reduced occupancy and limitation to gaming, and other operating standards and protocols.
Among the health and safety guidelines spelled out in the plan include a requirement that all employees undergo FDA-authorized COVID-19 testing prior to returning to work. Employees will be tested at regular intervals thereafter.
Fertitta said on the conference call the company won’t reopen poker rooms – due to social distancing – nor its popular buffet restaurants because of health safety concerns, at least in the initial phase.
“(The buffets have) been loss leaders to get people in the door,” Fertitta said.
Macquarie Securities gaming analyst Chad Beynon said he expects Las Vegas casinos will begin reopening slowly after Memorial Day Weekend.
“Compared to regional gaming peers, Red Rock is in a better position than most given its target customer is not dependent on employment and lives within proximity of a casino,” Beynon told investors. “In addition, Red Rock owns all its assets and does not have an expensive rent cash burn like peers.”
Fertitta and Cootey didn’t give any specifics on the performance metrics that will be evaluated before the Palms and three other properties – Texas Station, Fiesta Henderson, and Fiesta Rancho – can reopen.
The Palms drew the most attention – and was the subject of rumors – because of the costs Red Rock Resorts undertook to redevelop the hotel-casino. The company ended up absorbing almost $34 million in one-time charges, shut down the much-maligned KAOS nightclub, and fired the property’s general manager.
Meanwhile, after closing its casinos in March, Red Rock continued to pay its full-time employees through the end of this month. Cootey said Red Rock incurred costs of $72 million to cover the salaries and benefits.
However, on May 1, the company announced it was laying off 39% of its 14,000 fulltime employees after the casino closures were extended to at least the end of May.
In addition to the staffing reductions, Cottey said Fertitta and his brother, Red Rock executive Lorenzo Fertitta, took 100% pay cuts through the pandemic closures. He said the company has reduced operating expenses by $150 million and could see another $175 million in reduced costs as long as the four casino closures last.
He said the company currently has $950 million on its balance sheet and a “cash burn rate” of $49 million a month.
The company’s management contract for the Graton Resort has remained in place during the shutdown. Graton, which is located 45 minutes north of San Francisco, will remain closed at least through June 15.
Shares of Red Rock Resort closed at $10.74 on the New York Stock Exchange Tuesday, up 65 cents or 6.44%.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
