In the first quarter of 2017, Red Rock Resorts’ Class A share price declined by 7% while the S&P 500 index went up by 4.65%. What explains this significant underperformance of RRR stock? We believe investors are likely concerned with the Palms acquisition and the uncertainty in the company’s growth pipeline.
Red Rock Resorts has been talking up its Las Vegas development sites and master-planned expansions in its presentations to investors and SEC filings. However, after a review of local real estate listings and planning agency documents, we found development sites for sale and no approvals on file for some of the company’s master-planned expansions.
Deutsche Bank sold off its ownership stake on Nov. 10. Deutsche Bank is in dire need of additional capital, so we expected them to sell off its Red Rock Resorts stake as soon as it could. Deutsche Bank investors should certainly welcome the cash infusion and capital boost that can come from selling and exiting the casino assets.
The decision by Boulder Station workers to unionize comes less than a year after workers at a Station Casinos-managed tribal casino in Northern California ratified their first union contract. Boulder Station is the first of Station Casinos’ properties in Nevada to unionize with the Culinary and Bartenders Unions.
Red Rock Resorts announced its acquisition of the Palms on May 10. We believe investors and analysts should ask the following questions: When will Red Rock disclose the Palms purchase agreement? What will Red Rock have to do to bump Palms’ EBITDA up by 25% in one year? Will “Palms Station” cannibalize Palace Station?
The flip side of Station Casinos’ saturation of the locals market means growth in its core Las Vegas business would have to come from significant increases in (1) the population of Las Vegas and/or (2) customer spending per capita. Facing low population growth and a decline in locals’ gaming behaviors, the company is unlikely to experience much, if any, upside in its core Las Vegas locals business.