Las Vegas based Red Rock Resorts pre-announced fourth quarter results Thursday when it unveiled plans to raise $500 million in new debt.
Analysts focused their attention, however, on preliminary figures surrounding the challenged off-Strip Palms Casino.
The company, through its Station Casinos subsidiary, said in a filing with the Securities and Exchange Commission it expects total revenues for the quarter that ended Dec. 31 will come in higher than the 2018’s three-month period, but it’s unclear if cash flow will exceed or fall below the previous year’s figures.
Red Rock said in a statement it intendeds to use the $500 million to repay portions of its current $3.095 billion debt and for “general corporate purposes.” The new debt with mature in 2028.
The company estimated total revenues for the quarter would be approximately $447.4 million to $474.2 million – well above $431.5 million the previous year.
“We believe the results will be viewed as very encouraging, given the strong flow through on the core,” said Deutsche Bank gaming analyst Carlo Santarelli.
However, the Palms grabbed everyone’s attention. Red Rock spent $690 million to redevelop the property. The makeover included new high-end restaurants and entertainment venues, a casino remodel and the addition of high-priced artwork.
Red Rock said Thursday that Palms’ net revenues were expected to be approximately $57.2 million to $60.6 million for the last three months of the year, but cash flow would be a loss of up to $4.3 million.
“Palms (cash flow), while still negative, was better than feared which could show we are potentially nearing an inflection point at the ramping property,” said SunTrust Bank gaming analyst Barry Jonas.
In November, Red Rock said it lost $26.8 million in the third quarter due to the Palms.
The property’s high-priced Kaos dayclub/nightclub was shut down and the company paid $28.2 million in the quarter to end the long-term agreements with several artists who performed at the flashy 73,000-square-foot indoor-outdoor venue that took up the pool area.
Red Rock said it expected to pay one-time charges of between $16 million and $22 million over the next two quarters for issues associated with the Palms.
“The property likely continues to rationalize their cost structure following the recent opening and decision to close the KAOS nightclub,” Jonas told investors. He added the company’s commentary that the Palms would break-even by 2020 first quarter “is still achievable based on fourth quarter results.”
Added Santarelli, “(We) continue to believe the concerns around the Palms ramp have peaked within the investment community, with smoother trends forthcoming in 2020.”
#exclusive – Red Rock seeking $500M in new debt, says Palms Casino still losing money. –@howardstutz, CDC Gaming Reports. https://t.co/vlgejFUPBs @Palms #CDCgaming
— CDC Gaming Reports (@CDCNewswire) January 24, 2020
Red Rock Resorts estimated its Las Vegas operations, excluding the Palms, would have revenues of $368.0 million to $390.1 million – compared to revenues of $364.7 in the 2018 fourth quarter. Cash flows of $125.8 million to $133.4 million would be above the $118.5 million reported in the prior year.
However, operating income and earnings from Red Rock’s joint ventures – notably the Graton Resort in Northern California – would be approximately $58.8 million to $62.3 million, down from $72.5 million for the 2018 fourth quarter.
Shares of Red Rock Resorts closed at $24.70 on the Nasdaq Friday, up 18 cents or 0.18%.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
