- Station Casinos is in the planning process for a new property near the intersection of Durango Drive and the 215 Beltway in Southwest Las Vegas.
- Four of Station Casinos’ properties in Southern Nevada have not reopened following the March shutdown due to the COVID-19 pandemic.
- The permanent closing of these four properties is looking more and more likely.
The Las Vegas Review-Journal is reporting that Stations Casinos is in the process of ‘design and development’ for a gaming property on Durango Drive in Southwest Las Vegas. An article by LVRJ business reporter Bailey Schulz quotes a note from JPMorgan based on conversations with executives of Red Rock Resorts’ (Station’s managing corporate entity) indicating that the property will be built on a piece of property they’ve owned for a long time. The Durango Drive area is viewed as ‘the most underserved’ area in the Las Vegas locals market.
Frank and Lorenzo Fertitta built Stations Casinos into an empire by focusing on the Las Vegas locals market and that is still the primary focus of Red Rock Resorts. In a report issued to investors earlier this month, JPMorgan analyst Joseph Greff praised the management of RRR along with their simple but effective business model:
“We come away impressed with RRR’s resolve in maximizing free cash flow at its simple business model, a focus on one major gaming market, the LV Locals, whose economic underpinnings are driven by population growth and less dependency on the health of the LV Strip versus 12 to 15 years ago, when the correlation was relatively high.”
JPMorgan maintains RRR at an ‘Overweight’ rating with a year end 2021 price target of $24. The memo also gave RRR credit for managing their business well during a challenging time for the gaming industry and the Las Vegas market:
“We like how RRR is managing the business (improved marketing efficiency, shifting from closed properties to open ones in an EBITDA and margin accretive way) and focusing on converting a higher proportion of EBITDA into FCF, deploying this to reduce its balance sheet leverage.”
STATIONS MOVING FROM AGING PROPERTIES IN LESS DESIRABLE AREAS TO THE BOOMING SOUTHWEST VALLEY
The report of a new Stations property at Durango and the 215 Beltway (Durango Station?) comes as four of the company’s Las Vegas casinos remain closed from the March gaming industry shutdown due to the COVID-19 pandemic. Earlier this year, Stations put these four properties into ‘temporary closure’ status:
More specifically, the company has been granted temporary closure status by the Nevada Gaming Control Board through June 30, 2021. Simply put, the Palms, Texas Station, Fiesta Rancho and Fiesta Henderson will remain closed for at least a year.
At the time, I speculated on the future of these four properties:
So what is the future of these properties? It wouldn’t be a shock if some of them never reopened. Stations could decide that there’s too much capacity and too little demand in North Las Vegas and/or Henderson and close/unload the two Fiesta properties and Texas Station. They’re all pushing 25 years old and despite renovations along the way that’s ‘long in the tooth’ by Las Vegas standards.
Given the Palms’ proximity to The Strip and I-15 you have to think it’ll reopen at some point. The Palms was in the midst of a comprehensive renovation anyway and they could be taking this opportunity to rework the property for the post COVID-19 era. On the other hand, Stations could decide that the Palms isn’t a good fit for their locals oriented property portfolio and sell it. Time is on their side–it doesn’t make sense to sell it now when they can easily get more value out of it by waiting.
The LVRJ article provides some more clarity on how the company is viewing these closed properties:
It’s unclear when the company will bring the four properties online again, but a recent filing with the SEC last month said it does not expect to do so this year.
“We will continue to assess the performance of the reopened properties, as well as the recovery of the Las Vegas market and the economy as a whole, before considering whether to reopen some or all of the remaining properties,” the document reads, adding that casino closures and the pandemic have had “adverse effects” on the business.
Greff’s note said Red Rock is “highly unlikely” to sell any of the properties to another gaming company, and would sooner look to sell the real estate with a deed restriction to highest and best use.
The article quoted an interesting tidbit from the JPMorgan investors note:
“The Fertittas were clear that Palms is not personal to them, and they do not view it as core to their portfolio.”
The Palms always seemed like a poor fit in the Stations’ portfolio and the sum total of this information–combined with the planned ‘Durango Station’ project–increases the likelihood that none of the four properties will reopen, at least under current ownership.
‘DURANGO STATION’ COULD DOMINATE A GROWING AND ‘UNDERSERVED’ PART OF THE LAS VEGAS VALLEY
Stations has owned the 71 acres of land at the intersection of Durango and the 215 Beltway since 2000. They had a property on the drawing board set to open in 2008 but these plans were undone by the implosion of the Southern Nevada real estate market. The company owns a number of parcels throughout Southern Nevada but none with the immediate potential of the Durango area.
Here’s what Brendan Bussmann, director of government affairs for Las Vegas-based Global Market Advisors, had to say about the Durango area:
“The area continues to grow in an underserved portion of the gaming market. The anchor of a facility in the southwest Las Vegas market will be a strong addition to the area, the overall market, and a positive that may come out of the Great Shutdown.”
Stations has always been ‘ahead of the curve’ at finding underserved and in some cases yet to mature locals markets either by building their own properties (Red Rock Resort, Sunset Station) or acquiring underperforming properties (Santa Fe Station). They could end up doing the proverbial ‘taking lemons and making lemonade’ if they’re able to leverage the COVID-19 shutdown to rotate out of their currently closed properties and into a new location in a booming part of the Las Vegas valley.
