Red Rock Resorts will survive the massive cash drain the Palms Casino-Resort’s $690 million renovation had on the Las Vegas-based company’s bottom line.
Still, the almost $34 million in one-time charges and payments the company was forced to make over the last few months of last year to shut down the debacle surrounding the appropriately named KAOS nightclub was a bitter pill for investors to swallow. Red Rock reported a net loss of $6.7 million for all of 2019.
The company will also outlast the mountain of bad publicity and negative sentiment from the investment community that the Palms brought to the story.
Red Rock and its operating subsidiary Station Casinos have endured worse.
Anyone remember Station Casinos’ departure from Missouri in 2000? The company sold its casinos in Kansas City and St. Louis to Ameristar for $495 million and paid a $1 million penalty to state gaming regulators after its St. Louis-based attorney pleaded guilty to three felony counts of fraud.
How about the nearly two-year-long bankruptcy reorganization that ended in 2011 with the company shedding $4 billion of its $5.9 billion debt and giving up the Aliante Resort in North Las Vegas to investors?
Lorenzo Fertitta, left, and Frank Fertitta III
No matter how the story unfolds, the company headed by brothers Frank Fertitta III and Lorenzo Fertitta seems to land on top of the pack.
Deutsche Bank gaming analyst Carlo Santarelli used a golfing analogy to describe the difference between Red Rock’s third quarter, which suffered a $28.6 million loss due to the Palms, and the fourth quarter’s $4.8 million in net income.
“The best parallel (is a) golfer who snap hooks (a) tee shot into the deep woods and follows it by splitting the fairway with his best drive of the day, before muttering some iteration of ‘same guy,’” Santarelli said.
Translation: Red Rock is working to take a mulligan on the Palms.
Last week, Red Rock closed on its $750 million note offering to help restructure a portion of its $3.076 billion in total corporate debt.
The company also plans to sell some of the 477 acres of vacant land holdings it’s accumulated over the past 20 years, land that was initially viewed as prime terrain for potential casino development opportunities. Proceeds from any sales would be used in debt reduction
SunTrust Bank gaming analyst Barry Jonas upgraded Red Rock Resorts stock from a Hold to a Buy last week with a $30 per share price target. In the research note to investors, Jonas estimated the company’s vacant land holdings had a combined value of roughly $571 million.
Red Rock has eight parcels in Southern Nevada and two in Reno. Two of the Las Vegas-area sites were planned for hotel-casino projects before the recession decimated Southern Nevada’s economy. Around the same time, the company filed for bankruptcy reorganization, mothballing any new development.
The most unique parcel includes the aging motel-style Wild Wild West Casino opposite the Strip and west of Interstate 15 on Tropicana Boulevard. Station Casinos acquired dozens of parcels adjacent to the casino in the mid-2000s, creating a 105-acre site. In 2008, the company announced the $10 billion Viva project, which would have rivaled the size and scale of MGM Resorts’ CityCenter development.
Viva never happened, and Wild Wild West became best known for its cameo in the 2009 film, The Hangover, when one of the motel rooms served as the “apartment” for Heather Graham’s call girl character, Jade.
Inside of the Wild Wild West Casino/ Photo from property website
In 2016, the acreage was briefly considered as a location for the planned Raiders football stadium. But the idea faded, and the $2 billion Allegiant Stadium will open in July less than a mile south of Wild Wild West.
So the question is could the site – which Jonas estimated to have the highest value of any Red Rock Resorts/Station Casinos property – be sold?
Red Rock CEO Frank Fertitta III told analysts he wasn’t going to “liquidate our entire land portfolio.” The goal, he said, is to monetize certain sites.
“We’re evaluating each parcel to determine the highest and best use of each … and how we extract value out of these non-income producing assets,” Fertitta said. “I think the good news is that when we looked … land values and rents continue to appreciate in Vegas to where we can now market these excess pieces to a variety of non-gaming uses.”
Meanwhile, Union Gaming Group analyst John DeCree said the aforementioned Palms could be a cash flow contributor this year as overflow demand from Strip’s busy convention and event calendar – such as April’s NFL Draft – could fill the property’s rooms.
Jonas also believes the Palms’ troubles are behind it.
It appears Red Rock Resorts and the Fertittas are once again displaying an uncanny knack for survival.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
