Q4 2019 Earnings Call

We are also pleased with the progress. We saw the Palms this quarter in particular we experienced growth in a number of key volume metrics at the property and incompetence that we were still significant upside on both of Revenue and expense Side Of The Ledger and I believe that the pause now reaching inflection point to be expected to generate positive. Even in the first quarter of this year. Additionally, we have taking one time charges of fifteen point five million in the fourth quarter of the way to the back of certain artists performance agreements employment Arrangements at the Palms as well. As other one-time items. These charges were below the 16 to 22 million range. We discussed on our last call. I mean off with any substantial charges related to the Past day Club nightclub going forward as a 2020 overall. These numbers reflect are sharpened focus on their Core Business and were driven in large part by solid growth across all gaming segments, including slots table Sports and answering games. In addition. We saw is very meaningful ramp up the Palace Station in the quarter as our revenue and cost initiatives at the property gain traction. Let's log

our full-year performance consolidate

What is for the year increased 10.4% to 1.6 billion primarily driven by a $222 increase in revenues at the Palms? It's all adjusted ebitda for the full year remained flat at 5 or nine million a solid ebitda growth in the remainder of our Las Vegas operations was offset by a negative ebitda of 27.7 million at the Pops.

Respectable. Operations net revenue increased 10.8% to 1.76 billion over that same. Adjusted ebitda was essentially flat at $455 million and margins 2290 basis points to 25.9% as both ibadah and Mars were adversely impacted by The Palms negative ebitda performance for the full year.

Much like the fourth quarter when viewing our full-year Las Vegas performance excluding The Palms the underlying power of the Las Vegas locals market and our Core Business. Once again becomes clear when measured on that basis wage is increased 3.4% adjusted ebitda decreased 5.3% and margins increase 57 basis points at 32.6% full year top-line and bottom-line a machine across virtually all of our you hire Las Vegas portfolio with nearly all of our large properties recording their highest net revenue ebitda levels and in the in the last ten years.

Three Palms for

Your results in that revenues were 278.8 million and adjusted ebitda with -27.7 million importantly when excluding costs and expenses related to the chaos day Club nightclub or one-time items related to age is opening and adjusted for normalize hold that Revenue at the property was 232.3 million and adjusted ebitda was fifteen million.

Let's take a look now at some of the leading indicators economic indicators in Las Vegas. As we begin 20/20 is apparent that the local economy remains extremely sound it's a quarter of a future growth population is at an all-time high and Rising that's Las Vegas Remains the third fastest growing MSA in the nation women also remains at record levels, and we've now seen a hundred two consecutive months of broad-based employment growth wage growth has affected by weekly earnings is also robust with Las Vegas reporting an increase of 2.3% for the year in addition total earnings, which takes into account both employment and wages increased 4.8% over that same. May experience a hundred and two consecutive months of growth and total earnings the same time unemployment was down 3.5% as of year-end its lowest level in nearly twenty years.

Housing was also solid as medium.

Sales prices were up 5.7% December lastly there is over over 20 billion a new capital investment projects planned underway a recently competed in Las Vegas led by the new Raiders stadium project neon the conventions Convention Center expansion and multiple strip developments all of which are expanding the local economy. Be strong economic fundamentals along with extremely favorable supply-demand wage Dynamic stable regulatory environment and attractive gaming tax rate only served to confirm that the Los Vegas locals Market is the best gaming Market in the United States as a proven leader with best-in-class assets and locations offer unparalleled distribution scale and a deep development pipeline route name uniquely positioned to outperform in this market moving forward.

Turning to our Native American segment. We've reported management fees for the quarter of nineteen point nine million an increase of 3.9% over the prior-year driven by another excellent quarter at Graton Casino birth with respect to the North Fork project and it's previously noted the California Supreme Court has granted the petition for review regarding key lower-court decision involving the project but it's the third taking any further action in that matter. It was ruled on a very similar case involving the Enterprise Drive which received a favorable ruling of the Appellate Court level the Enterprise tribes case Remains the oldest civil case on the supreme Supreme Court docket and we continue anticipate that the court will schedule hearing on that case in the near future.

I will now cover a few.

Balance sheet and capital items company's cash and cash equivalents end of the fourth quarter was 128.8 million and total principal amount of debt outstanding as the quarter-end was 3.076 billion month at the end of the fourth quarter our net debt-to-ebitda and interest coverage ratios were nine six times and for like three seven times respectively since the close of the fourth quarter of the company's Consolidated Service Station Casino has launched to refinancing transactions, which are expected to close on this Friday February 7th, which will further strengthen our balance sheet increase our financial flexibility the first transaction a 750 million our note offering by Station Casinos.

I do 20 28 an interest rate of 4.5% per year. The proceeds of this offering will be used to pay down a portion of its senior credit facilities and for General Corporate purposes. The second transaction involved in amendment of of the stations casinos senior secured credit facilities pursuant to which various lenders will provide an undrawn revolving credit facility of approximately 1.03 billion month loan a loan facility of $198, 89 million each maturing and twenty twenty-five each bearing interest rate at 1.75% over Libor and a Term Loan be facade of 1.53 billion maturing a 2027 at varying interest rate at 2.25% over Libor a great proceeds of this amendment will be used to refinance the revolving revolving loans loans outstanding under its existing credit facility. The closing of each transaction is subject to customary closing conditions Capital spend for the fourth-quarter and full-year 2019 was 28.8 million and 5 a.m.

353.3 million

Actively inclusive of the Palms Redevelopment project in 2020. We still anticipate spending approximately 90 to 110 million and maintenance and other Capital which includes costs related home of the ongoing Red Rock room and model, which is expected to be complete in March of this year.

Snowden our last call to the palm tree development in September 2019. We have reached the key inflection point as a company and we now expect to generate significant and accelerating free cash flow as we enter this harvesting Thursday the intently focused on maximizing financial performance of existing properties reducing our net leverage ratio to a targeted level of four times or less or a combination of paying down debt and increasing yourself off of this deleveraging effort. We are also actively seeking to monetize a number of our non-core landholdings and expect to fly any proceeds generated there from to further reduce our debt.

Finally the company announced that its board of directors has declared a cash dividend of ten cents per share payable for the first quarter twenty-twenty. The dividend will be payable on March 27th 2020 to shareholders of record on March thirteenth 25.

in some weird

Very pleased how we ended the year and respectful to our Core Business and the palms and look forward to continuing that momentum and for 2020 and Beyond operator. This concludes our prepared remarks today, and we are now going to take questions from the from the call. We will now begin the question-and-answer session to ask a question. You may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Carlos center with Deutsche Bank, please go please go ahead. Hey guys. Thank you Steve. Thanks for all the color. As you guys looked at the Palms over the course of the the fourth quarter and and now obviously into the one Q since the closure of chaos, what are some of the things obviously the the inflection deposit money down and adjusted basis is very encouraging but what what are some of the things you're seeing and how that that closure has may be impacted other elements of the the business positive and or negative.

drawl start then

Anyone else jump in on the call. So I think overall I think we've been very pleased with the forms of the palms and again expectations haven't really changed since our last quarter. What we've seen is a couple of things from a gaming perspective since the club closure is actually seemed like uptick in both slot handle and table volume has just people appreciate the assets and not so much the chaos of chaos. So to speak from a hotel perspective. He's also seen an uplift an uptick in the office sets again net-positive since the closing of chaos where it's a mixed bag is probably the restaurants when you look at the the core restaurants a cafe and the buffet is generally seen experienced Positive Growth since the the optic in a sense of closure of chaos, when it comes to the fine dining restaurants. It really comes down to how we activate Apex in Pearl and some of the other assets that we have in the in the Palms got it. Got it. Thank you and then just in terms of the the land and obviously you guys do have some excess land. How should we be thinking about your project?

s with whether it's it's wild west some of the excess land at Derango the inspirato parcel and and within the context of that that four times leverage goal how much are land sales kind of driving that that Target

I don't think they're driving the Target but I think you know everything's on the table to get to where we want to be and while we have an unbelievable pipeline of I think it's 8 locations with nearly five hundred acres. We're going to keep the core Holdings and look at monetising, you know properties that we probably wouldn't get two for a long long time.

Thank you, you know we're not saying that we're going to liquidate our our entire land portfolio. I think the point is that the effort is underway to monetize some of these assets and we're evaluating each parcel to determine the highest and best use of each of those Parcels. You know, how we extract value out of these non income-producing assets. So Monday which assets we want to continue to hold which do we want to sell to help pay down debt. So when we look at those excess Parcels, we're looking at excess Parcels that are existing Casino properties as well as excess that maybe attached to these Greenfield opportunities as well. That can be sold off. I think the good news is that that Thursday when we look at the land values here in Las Vegas land values and rents continue to appreciate in Vegas to where we can now Market these excess pieces to a variety of non gaming usage.

And that's spread between what we may have paid for these.

Such as Casino was Casino land. I'm not spread it now narrowed between casino and title and the non-game uses today.

That's very helpful. Thank you very much.

Our next question comes from Josef Graf with JPMorgan, please go ahead.

Good morning. Good morning. Good afternoon. Everybody. Just just going back to the Palm you mentioned if we exclude, you know, chaos and low table hold and the right down. I think I heard you correctly that last year the Palms generated 15 million dollars in in Eva. I would imagine that you guys would at least do that in 20 and and I went to somewhere around twenty million for this year. Do we do you think we're right on sort of the near-term expectations for palms? And then maybe Frank could you talk about what you think longer-term? This is property could do, you know following these changes at chaos?

What I I think we still believe.

In the initial underwriting case. I think it's going to take longer to get there than we originally anticipated. I think closing the club in hindsight was definitely the right thing to do and you know, we're seeing positive traction at the property, but it is going to take us longer than we originally anticipated.

I mean, I think I mean what what Frank is saying, I mean, I think we we're seeing Positive Growth across all the major lines of business at the Palms. And so as we talked about last call back and we talked about the remarks here, you know, we've reached that inflection point the one-time charges behind us. So, you know, we expect to be positive ebitda q1 and Beyond but we're focused on programming the parole wage the right way. We we see good cross over and pick up when that is programmed properly across the property. We're focused on more trial growing revenue and hotel a lot of tables and we're also focused on right-sizing the expenses of the property and you know, again, we're seeing positive traction, but it's going to take longer than we originally thought.

Okay, great. Thank you. And then to follow up see if corporate expenses were.

We're a bit lower in the four Q. How are you thinking about, you know run rate and in 2024 corporate overhead and and then going back to the topic of of monetizing, you know landing page and I needed that producing assets to help get your leverage ratio down. Can you talk about the the timing of that and I mean, I guess my question is how theoretical is that and you know, how many, you know active engagements off, you know, are are you presently involved in with with investing some of these these land parcels and that's all for me. Thank you. I think as far as timing, you know, a lot of these dudes they take some time to go to market and then if there's any sort of entitlement. Attached to that or the end-user, you know that can take six months also, so I think you'll you'll really will start to see more of that impact of late 2020 and into twenty Twenty-One as far as active listener.

Is there are two active listings that we have through National brokerage firms. There's the 56 acre assemblage and Cactus and I fifteen which is just south of the South Point. You know, that's that is on the market currently as well as the eighty-eight acre parcel and Reno, which is in South Reno at Mount Rose Highway in the 395. So those two are actively listed and we are evaluated other opportunities to get those two Market also a job just to repeat the first part of the question. That's want to make sure I get it right off.

Expenses came in lower than what we were remodeling for the four Q. So my question to you is you know, how are you thinking about about corporate overhead in 2020? I would expect some left there just because you don't have waged Palms may be serving as a direct or indirect drag on the corporate fence line for this kind of to parts. So you're completely spot-on. So run rate for corporate probably around $30, but we've done is gone through the exercise of taking a look at some of our enterprise-wide projects that were overburdening the properties with and you're going to start seeing some basically moving from the office expenses moving from the property to unallocated expense to to really truly reflect what the properties are doing from the ebitda perspective. So you probably see an increase in corporate for that exercise deprived or add $20 down to the 30 that said on a Consolidated basis. There's no there's no change with that twenty. I'm just moving it from taking out of the properties so that you can accurately see what the properties are doing and Ed.

Unallocated corporate to where it belongs given the Enterprise.

Which are the projects?

Got it. Okay, so so we should really think of it Thirty million not adjusting for the shifting from property to credit. That's correct. Next question comes from Barry Jonas with SunTrust Robinson Humphrey, please go ahead.

Thank you. Maybe just expanding on the costs, you know, if if you think more at a higher level, do you see more opportunities to pull costs. Either at the corporate or the property level and with that? How should we be thinking about Dynamic right now? Thanks.

WellStar the labor market, I mean talk to you about the unemployment rate is three and a half percent its lowest. It's been in quite some time. So structurally here at fully employed. So it's a very tight labor market wage that's you know, and we are experiencing we're experiencing growth in wage inflation private to to 3% good thing about wage inflation in the values that there are more of them than there are of us. So again, when you know, we like employees you like you like what employees experience wage growth cuz they tend to spend more of our casinos. But and your second point, you know, we were actively managing labor. It's about the floors correctly both in the slots the tables as well as food and beverage. We think there's a lot of opportunities there to fine-tune labor.

and then obviously we're

Looking to you know, continue the optimize our marketing programs, which you'll see, you know that the result of that as we go through 2020.

Great and the next just relative to the Palace the renovations there what sort of ram should we expect from here to get to sort of Target are oh, I well I think we're very wage continuing to make progress the the palace, you know revenues and and you know outpacing the core properties overall and margins and continue with improve but that said, you know, I think we're going to still need some time. The progress is going to slow, you know slower and slower than we expected and there's still a lot of room to make on both of the revenue side particularly the group business the hotel business and on the cost side really kind of fine-tuning our f&b mix which is, you know, sequentially improving but can get a lot better.

Great, and then the last one for me, you know Steve you certainly outlined the strength and the locals market and and a lot of the Tailwind there, but the strip really has a lot of Tailwinds on the convention side and not encounter. I'm just wondering how we should think about what might flow from the strip to the locals market and Red Rock in terms of the strip this year. I mean, I mean with the help the strip, I mean we're definitely a second derivative again, their employees are our customers. So, you know having a healthy strip is incredibly positive for Red Rock and then from a group business particularly somewhere at the Palms. You are seeing an uptick in group that your CEO as one you're seeing the first time, you know, are we have to go through a 12 to 18-month sales cycle? We're now through it. We're Meeting Planners can actually touch the assets of the Palms. So it's been very well received two are seeing an uptick in the group business which again has a lot to do about the palms and the nature of the assets, but also to your point the Tailwinds with a pretty decent convention Market in 2020.

Great. Thanks so much.

Our next question comes from Steve and Grambling with Goldman Sachs, please go ahead. Hey, thanks for taking the questions. You mentioned the strength.

Of Palace Station. Is there any way to quantify some of the benefits that you're seeing there reminding us of what you might be lapping and then as a follow-up are there opportunities for renovations at other properties that are currently underway or underway? Thanks.

I think the the renovations here is is our Focus moves from I'll answer the first the second part first. So from a reservation stamp. I were really focused on the delivery point. So we've just completed what I would call a life cycle putting in $191 in the palace $600 million dollars in the palms and we're currently going through a red rock rumah model, which should be complete by March so dead on the completion of the Red Rock room and model. We don't foresee any substantial catbacks. That's the one great thing about the assets is, you know, they're in great shape. There's really no deferred maintenance and that's really odd Advantage we're using and you know, we were growing above Market. Here's your first question again, I should start the first time you think about what what quantifying the benefits that you're seeing at palpation. You kind of call that out as having particularly strong ramp up.

I mean, we've seen it across.

All areas of the business right particular in the gaming side and then going back to the prior question where I think we can improve it is you're out of town Hotel business that we think we can get better at and so that's one of the areas of focus from an ethical perspective. We still need to generate more traffic and have to be we're getting traction and then really fine-tuning the cost that is, you know, that can be very tricky business. And so it's all about getting back in the restaurants. So we're doing our best to manage S&B, but there's still a lot of wood to chop there.

Makes sense helpful and then one other quick follow-up. Is there any way to think about the tax base of the land that's in the market now or in general? Thanks.

I think you guys have the advantage of the you know, cuz the stakeholders currently probably didn't really weren't around when we purchased the assets. So consider the tax base is fairly well.

Great. Thanks so much. Best of luck this year.

Our next question comes from Sean Kelly with Bank of America, please. Go ahead. Hi. Good afternoon. Thank you for taking my question, you know, maybe just to continue on the palms for a moment, just any thoughts about potentially reprogramming or activating that nightclub space. Is there anything on the docket there? I know it's probably you know, is there anything that can be done to just sort of you know, utilize that space better off being contemplated? It's getting quite a bit of use right now through group business sales catering. Yeah, I think in the team over the Palms done an excellent job really got a you know, kind of Imaging and repurposing the nightclub into a very profitable catering and group space business.

Great, and then Steve, I think you mentioned it's in response to one of the the prior.

Questions, but maybe you could talk about a little bit more specifically just maybe starting to look at, you know, the the promotional or marketing side of the house just as you guys are beginning to kind of fine-tuned and refocus on a walk across the portfolio. Could you talk a little bit more about you know that opportunity and and I think the trend we have seen is possibly a slight change in the net revenue trajectory, but, you know, certainly more than offset by mom. Is that something we should you know, at least some sort of interchange we should think about as we move through 2020.

And I think the idea here, I mean for a competitive Reasons, I'm not going to go into program by program, but you could you can we are incredibly focused on you know marketing. It's our second largest cost in the system really trying to move toward more profitable profit-driven customers and profitable different growth which require you know, which was going to require us to optimize our marketing programs accordingly.

Okay, great and last question for me but a bit of a total sidebar would be you know, obviously I think the the one of the biggest focuses in the in the space of the last few weeks here has been what's going on on the money betting front. If I recall back in the memory banks here. I mean at one point, you know, many of the people, you know involved there with station and and Red Rock had significant experience in this and actually had sort of built a kind of an interactive product at one point which is fairly meaningful and scale. So kind of any thoughts about you know, the landscape as it's evolving or your strategic angle toward it would be great.

it's a growing business where I think we're probably the you know, the

Largest fish in the Las Vegas Moorhead then the Las Vegas Valley here and we like our position in the current market.

Great. Thank you very much.

Our next question comes from Harry Curtiss of instanet, please. Go ahead.

Afternoon, everybody. Most of my questions have been answered. I just had one follow-up question on the palace. The ramp is great. It's having a positive impact on the Las Vegas the overall August Las Vegas results Palm. So but if you but if you were to uh, two separate Palace out what the 9.54% increase in Eva. Have looked like do you think

Play separate the Palms out. I mean, excuse me the palace out it would be.

Right on the same level.

I mean, yes, so let me get back to you on that and they're generally not I'm not breaking up with house. Yeah, I I yeah that took a request. All right, and and if you have if you Hazard a guess, you know again XCOM. Do you think that the ebitda growth based on fact that you're seeing in 2020 should be in a similar high single-digit range for Las Vegas this year. It was I mean we've feel very often with the rejection. We've always stuck with right we think the market is is a solid Market the wind behind our back but we've always been very consistent in comfortable with the two to 3% market growth.

All right, very good. Thanks very much, everyone.

Our next question comes from Jared so giant with wolf research, please go ahead. Hi. Good afternoon everybody. Thanks for taking my question. So just going back to the Palm in the Improvement that you saw after closing chaos. Is that Improvement coming from new customers or existing customers staying and playing longer and if it's the former, which I think is the case. Where do you think that new customer is coming from it? I'm assuming it's market share gains. But you know, how did those demographics compared to what you were seeing earlier in the year? Thank you. I think it really depends on you know where that customers playing. So from a table games perspective.

You're looking at you're looking at primarily you're seeing growth in both out of town and local but probably mainly out of town from a sweet perspective you're seeing out of town growth from a slots perspective as to midweek. You're actually seeing, you know, you're seeing more of a local local activation as we're bringing the Palms back into the station marketing program in terms of where the strip is where the market share is coming from is you know Palms is not in the local market. It's in the strip market and so the out-of-town folks are you know particular on the PD side? We know they're coming from they're they're larger players. They're coming from the main competitors. You would think of when you consider that consideration set in the summer.

Right, that's helpful. Thank you. And then the Palms flow-through is a little bit better.

In Vegas, I don't recall you talking about why anything you can share on that?

I think we've made one, you know one change in our you know, our HR policy that one outstanding item, but for the most part this is really the result of us. It's refocusing on the core business.

Yeah, so we really refocused in the core business we've seen uptick in margin and slots and catering and hotel and all the higher-margin business. We're just making them better. We did have one class that we took and that was a two point 1 million dollar credit rate related around really we view as an employee employee hands benefit. We're giving them flexible time, you know flexible time off. And so that allowed us to take a two point 1 million dollar credit on benefits. Got it that that's helpful and one just one quick housekeeping. I assume the percentage of Chinese is quite small given the the locals Focus, but I imagine there may be some visitation at the Palms and in the like any sense on what percentage of your revenues coming from Chinese guests. We really haven't broken that out. But I think we're going to is that we really haven't seen any impact from the Coronavirus.

Got it. All right. Thank you very much.

our next question

Comes from John decree with Union gaming, please. Go ahead.

Thanks guys. I think all of my questions have been answered Steve maybe one housekeeping item in your prepared remarks. I think you mentioned ninety to a hundred million of Maintenance capex this year in club at Red Rock. Just wanted to confirm that and then after that remodel is done what's Baseline is 9200 still kind of Baseline capex. Given there's doesn't sound like there's any kind of keep projects lingering out there.

Yeah, I would say it's 80 to 100. So when you think of like a little bit of an awkward number because the Red Rock Room. The remnant of that spend was probably seven to eight million dollars kind of extending from 2019 to 2050. So going forward. You're really looking at $8,200 maintenance.

God thanks. Thanks for all the color.

Again, if you'd like to ask a question, please press * then 1 our next question comes from David Hogg, please go ahead.

I'm wondering if

Palace has any customer overlap with the Strat and if you're seeing anything from the remodels, they've done there and alternatively are you sensitive to Tavern activity in the office in the area?

I mean we have compared to the weird thing about Palace in all of Las Vegas is a competitor on every you know, better and every corner. So, you know, we're we're very sensitive to our what our competitors are doing. We do think the locals Club moves from place to place fortunately. I think you know, we were situated where we have the best assets and the best locations and you know, ninety percent of the population is located within five miles at one of our places and we've you know location is everything a great asset. So I'm just wondering do you think you overlap with strata at all?

I'm sure we overlap with a lot of properties. I would think it is very insignificant.

restricted payment capacity is currently

restrict a payment capacity is about $275 million dollars Baseline that does not include a visit carve up for a $50 annual dividend. That's the new credit facility. Excellent. Thank you so much.

This concludes our question-and-answer session. I would like to turn the conference back over to Stephen Curry for any closing remarks. Thanks everyone for joining the call when we look forward to talking to you age 90 days. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.