A mixed bag for Red Rock Casino following IPO

A mixed bag for Red Rock Casino following IPO

Monday, August 22, 2016 Posted by Andy McCarron
Las Vegas locals operator produces first results since IPO

Red Rock Casino mildly disappointed last week after it announced its first full-quarter of results since the company raised $541m in an over-subscribed initial public offering (IPO) back in April.

The company, comprising the Red Rock Casino Resort, the recently acquired Palms Casino Resort, the storied Station Casinos business and a number of tribal casino management contracts saw net revenues rise for the thirteenth quarter in succession, up 4% to $351.5m.

However, an increase in income tax provision and a loss sustained on a modified debt deal meant that net income fell back nearly 23% to $21.7m.

The company suggested the quarter had been a mixed bag in terms of trading, with a strong April and June partially offset by a poor May which, in line with other Las Vegas operators, had been up against a tough comparative last year when the city enjoyed the benefit of the Mayweather/Pacquiao fight.

“Key economic indicators in Las Vegas remain robust and we believe we will continue to benefit from these positive trends going forward,” said Marc Falcone, chief financial officer and executive vice-president.

Adjusted EDITDA rose 6.8% to $117.4m while adjusted EBITDA margin was up to 33.4%. In its Las Vegas operation, gaming revenues were up 1.8% led by strong results in slots and table games but a poor sports hold. Non-gaming revenues rose 3.8%.

The Palms acquisition suggests Red Rock Casino will be looking to breakout of the locals market that constitutes the Station Casinos business. The IPO prospectus said the company was hoping to capitalise on the general improvement in the Las Vegas market. Said the prospectus: “The Las Vegas economy has begun to recover from the economic downturn and recent trends indicate that the recovery is ongoing.”

The Red Rock and Station Casinos match up was masterminded by the owners, brothers Frank and Lorenzo Fertitta who took Station private back in 2007 in a $9.1bn leveraged buyout that couldn’t have been more poorly timed. Two years and one financial crash later, Station filed for bankruptcy. However, the Fertittas remained in control despite an opportunistic takeover attempt from Boyd Gaming and after managing to weather the storm the company emerged from Chapter 11 protection in 2011.

As a legacy from its previous bankruptcy, Red Rock Casino still has a debt pile of $2bn. Its revenues in 2015 totalled $1.35bn while adjusted EBITDA came in at $451.4bn

Despite the new share sale, the Fertittas still hold the reins of power at Red Rock Casino with an 87% stake in the business. However, those that signed up for the minority shares clearly agree with the statement in the prospectus that stated that the company believed the “owner-operator dynamic” of the Fertitta ownership results in a “high degree of alignment with our shareholders”. As a part of the IPO, the proceeds largely went on the acquisition of the Fertittas’ casino management business.

Totally Gaming Says: The Red Rock share sale wasn’t the only windfall that came the Fertittas way in recent months. Just last week the pair completed the sale of their wholly-owned Ultimate Fighting Championship (UFC) business to WME/IMG for $4bn. The IPO didn’t come without its controversies. The float took place against the background of a labour dispute with unions demanding representation among the Red Rock Casino workforce.

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