Now that Red Rock Resorts is private jet-free, do its executives simply fly commercial as they try to look for growth opportunities outside Las Vegas, even around the world (e.g., Brazil)? And should billionaire owners of super yachts continue to be subsidized by Red Rock Resorts outside shareholders, who have been paying the Fertittas’ income tax with cash “tax distributions”?
Outside shareholders of Red Rock Resorts demonstrated their dissatisfaction with the company’s directors at its July 6th meeting of stockholders, with the most opposition shown toward the independent directors.
In this report we argue that it is necessary for Red Rock Resorts’ shareholders to withhold votes from the company’s three independent directors – James E. Nave, D.V.M., Robert E. Lewis, and Robert A. Cashell, Jr. – on their proxies for the company’s July 6, 2017 annual stockholders meeting.
On June 8, 2017, we sent a letter to the SEC regarding Red Rock Resorts proxy statement filed on May 1, 2017 and its amended proxy statement filed on May 26, 2017. We noticed that Red Rock did not provide shareholders with the ability to withhold votes on its director elections even though the company uses a plurality voting system.
Red Rock’s $120-million related-party land purchase on April 27 reduced the company’s equity value by approximately 2%. Investors should ask why management thought this was a smart thing to do and whether the company’s independent directors reviewed and approved the costly related-party transaction.
Red Rock Resorts is heavily dependent on the health of the Las Vegas locals gaming market. In this report, we examine key gaming metrics in the Las Vegas locals market – going beyond simple measures of gaming revenue – in order to gauge the company’s potential to grow back up to the peak levels of 2007.
The company bought out two long-term land leases it had with a related party for $120 million at a price of approximately $1.62 per acre. The company paid about 17 times annual rent to terminate the two leases. It is unclear whether an independent appraisal was performed or if the audit committee of the board reviewed and approved the transaction.
Under a tax distribution agreement, Station Casinos spent $43.6 million in 2016 to cover some of the federal income tax obligations of the Fertitta family and other owners of the company. Should Red Rock shareholders continue to let Station Casinos, of which they own 57%, spend cash on covering the income tax liabilities of pre-IPO owners like the Fertittas?
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.