Red Rock to unveil Durango Station plans in upcoming earnings call; LV Sands and Penn bullish Buck Wargo, CDC Gaming Reports · September 14, 2021 at 8:07 pm An executive at Red Rock Resorts said it’s on track to detail a budget for its planned resort in the southwest Las Vegas valley during its third-quarter earnings call. However, the company still has no plans to reopen its three closed casinos. Red Rock Resorts CFO Steve Cootey outlined the latest Monday while participating in the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum. Red Rock also expects to close on its $650 million cash sale of the Palms Casino Resort and Palms Place to the San Manuel Band of Mission Indians by the end of 2021, Cootey said. As for the planned Durango Station, to be located on a 71-acre site at the 215 Beltway and Durango Drive, Red Rock executives have previously said they expect the project to start construction in the first quarter of 2022 and that it would take 18 to 24 months to complete the 100,000 square-foot casino. “From a development standpoint, the property should resemble Red Rock Resort’s (RRR) core culture, as opposed to the Palms, which is better aligned with the company’s strengths,” said J.P. Morgan gaming analyst Joseph Greff. “RRR expects the sale of Palms to close by year-end, which should help deleveraging, with year-end net-leverage at two to two-and-a-half times. RRR emphasized the desire for a strong balance sheet for investment opportunities. Looking ahead, there is no significant desire for large-scale mergers and acquisitions and management sees ample organic opportunities in its portfolio.” Red Rock still has three closed properties: Texas Station, Fiesta Rancho, and Fiesta Henderson. Management has no immediate plans to reopen any of them, Greff said. The company has been able to drive operating leverage by pushing these customers to its open properties. Importantly, he added, the customers being redirected are also the most profitable (typically gaming) customers. Greff said the takeaway from the forum is that “spend-per-guest is tracking nicely above pre-COVID levels at Red Rock properties,” which management attributed to a more gaming-centric customer coming through the doors. “RRR has been able to sign up, and retain, first-time typically younger customers at a nice pace, with these customers being two times as valuable as the pre-COVID level,” Greff said. “As for the older demographic, the recovery began when new case trends slowed and vaccinations improved.” In the marketing realm, enhancements that began pre-COVID accelerated over the past 18 months, Greff said. Red Rock delayed marketing promotions and slowly reintroduced select programs, enabling the company to better analyze their effectiveness, he said. “Consolidation in the industry has only helped keep spend/offerings moderate, and management noted it doesn’t seem like anyone has a desire to return back to prior levels,” Greff said. Las Vegas Sands Senior Vice President of Investor Relations Daniel Briggs participated in the forum and spoke extensively about Asia, since the company is selling its Las Vegas assets in the Venetian, Palazzo, and the newly named Venetian Expo. “Proceeds from the sale of Las Vegas assets will bring in $4.3 to $4.4 billion after tax upon closing,” Greff said. “Outside of Macau and Singapore, management noted Texas and other digital opportunities as priorities.” The recovery in Macau remains dictated by travel restrictions, driven by new COVID-19 case trends. To the extent that China desires zero case counts to keep borders and travel open, it’s difficult to project a recovery timeline for the market, Greff said in his notes. “Vaccination rates are tracking in the right direction, with 80% of the Macau population expected to be vaccinated by year-end,” Greff said. “Longer term, LVS’s shift toward mass/premium mass in recent years positions it well when travel reopens, enabling the company to be a market-share gainer. The recovery trajectory in mass/premium mass is relatively more transparent than the VIP segment, which has more headwinds from China regulatory headlines.” Las Vegas Sands was clear that they continue to view investment in Macau favorably in the long term, Greff said. There has been no clear communication from the government on concession renewals, though management noted there is some expectation for an extension, to enable more time for a recovery and subsequent additional (likely non-gaming) investment in the market, which LVS would welcome, he added. Singapore’s vaccination rate sits at 90% today, positioning it better than most markets across the world, Greff said. Management noted, however, that there is still a higher risk for the older population that is not yet vaccinated, thus contributing some uptick in cases and hospitalizations, and, in turn, some restrictions, he said. In Singapore, Las Vegas Sands continues to make progress on its $3.3 billion investment at Marina Bay Sands, which will add 1,000 suites, an arena, and meeting and convention space. “Notably, with this investment, LVS was able to prevent additional competitors from entering the market, keeping the market at just two operators,” Greff said. “Longer term (once COVID-disruptions subside), LVS expects to yield a 20% return on invested capital on this investment.” Penn National Gaming CEO Jay Snowden also participated in the forum to talk about his properties. Demand at land-based properties “remains very strong, with impressive spend/visitor trends across most regions,” Greff said. Penn noted some disruption from Hurricane Ida, specifically in New Orleans, Baton Rouge, and Mississippi. As for COVID-19, “Consumer sensitivity to new cases is lower than earlier this year, due in some part to vaccinations and perhaps some fatigue on the consumer front,” Greff said. “On margins, management is cautiously optimistic on the level of sustainability, given that the core customer hasn’t returned back to pre-COVID-19,” Greff said. “Labor/staffing remains a challenge, though management remains disciplined in hiring, with the current landscape viewed as more transient in nature.” Penn is live in nine states for online sports betting, an expansion from only Pennsylvania at this time last year, Greff said. Looking ahead, management expects to be live in another five to six states over the next few months, targeting 10%+ market share in each state. “Strategically, the acquisitions of Barstool and theScore give Penn 100% ownership of its own brand, enabling it to more efficiently acquire and equally important, retain eyeballs,” Greff said. “In the U.S., Barstool will be the leading online sports betting brand and in Canada, theScore will lead. TheScore is viewed as a faster way to launch and acquire market share in Canada, given its home-field advantage, specifically in Ontario, which is expected to launch soon.” Regarding New York, Penn has partnered with Fanatics in a bid for a license and management expects to have more color on the bid process toward year-end, Greff said. Market proximity should help build scale by operating in both New York and New Jersey.