Do Station Casinos execs really want to double their footprint in seven years? Yesterday they reported flat 3Q22 revenues of $414.5 million, all but $3 million of which were Vegas-derived, unwittingly highlighting the company’s exposure to a single market. Company leadership promised better times ahead—and soon. CFO Stephen Cootey spun the disappointing first blush by pointing out that, on a same-store basis, it was the best third quarter in the company’s history. Although foot traffic was flat with 2Q22, Cootey said spending trends are strong, with F&B recording its best third quarter ever. While pledging not to look into his crystal ball, CEO Frank Fertitta III said, “We don’t see anything that would suggest that it will be any different than it has been historically, other than the last third quarter, when we had a bunch of stimulus money in the economy that may have made things a little harder to read.” In other words, comparisons to to 3Q21 don’t count.
Leadership is looking at a fall 2023 opening of Durango Station and a firm cost of $750 million. (We can remember when locals casinos cost a small fraction of that.) The 630-acre land bank is in flux, with some land being peddled (non-core acreage and three defunct casino sites = 188 acres) and much of it being repositioned for development. Wrote one analyst, management said “despite some weakening in the market since last quarter there still remains active buyer interest,” although that has yet to translate into sales. Cootey stuck to the “double the size of our portfolio” strategy but gave no timeline for that heady goal. And if he gloated a bit about “high barriers to entry that characterize the Las Vegas locals’ market,” well, he’s allowed, as helped put them there.
Don’t forget Station’s Fremont Street pocket casino: $24 million to build and 200 slots strong. The company plans to augment it with two eateries and open it on the night before the Super Bowl, which should be auspicious. It will be Wildfire-branded and is expected to exemplify the best of the chain.
Wall Street analysts certainly liked what they heard on the earnings call. J.P. Morgan‘s Joseph Greff predicted that Sin City locals would be a “relative outperformer” next year. Station’s results were higher than what he had forecast “performing better than what historical seasonality would otherwise imply.” He added, “Trends within its high and low-end databases as well as SoCal drive-in traffic segments remain solid and fairly consistent, with management pointing out that October-to-date is similar to the 3Q22,” much as Boyd Gaming had reported earlier.
Greff also appreciated the supply/demand (i.e., fewer casinos, more residents) in Clark County, writing, “All in all, fundamentals remain sound in the LV Locals market.” He agreed with Fertitta that the fourth quarter would be better and stuck by his prediction that 2023 would see 10% revenue decline. Durango Station, he (and we) believe will be a hit, generating $760 million cash flow by 2025 and an approximately 15% ROI overall.
Truist Securities analyst Barry Jonas anticipated a bit more from Station than it delivered but emphasized the schedule- and cost-containment of the Durango project as a positive. Given consumer spending trends, he suggested that Wall Street was “too bearish” at present. He also noted that what of free cash flow ($99 million) wasn’t being plowed into Durango Station was being dedicated to dividends. The company, which just got bad news about the Boulder Strip market, is of the belief that it’s “outpacing” Boyd there, though Jonas observed that Station “has roughly half of the gaming supply in the Boulder market, and while Nevada regulators’ slot accounting does impact the comparison, we note this is a lower income market more hit by inflation.”
Utility costs are leaping 20%, due to rates, not usage, and payroll is up a bit (2.5%) too. Station bosses “highlighted current wage/benefit packages are among the strongest in the market, and increased competitive wage pressure won’t necessarily result in an immediate uptick in wages.” Sticking to his “Buy” rating, Deutsche Bank analyst Carlo Santarelli called 3Q22 “solid” and better than he expected. He cautioned, “while we believe the same-store growth trajectory is largely out of the locals market, trends remain stable, with promotions remaining rational, and margins remaining largely firm.” Unlike his brethren, he doesn’t think Durango Station will open until New Year’s Day of 2024.
“Given the results in the locals market, it is hard to conclude that the housing market declines or inflation are having an impact at present,” Santarelli continued, adding that there are “several differences” that will redound to Station’s benefit this time around. He emphasized a dearth (1%) of negative equity in the Vegas home market and a comparable paucity (2%) of adjustable-rate mortgages. “Most importantly, the housing boom in Las Vegas was driven by population growth, as opposed to speculation. Regarding inflation, we believe the higher household income in Las Vegas, as well as the higher end skew of the [Station] portfolio, should provide more of a buffer for results, should consumer conditions worsen.” Let’s hope they don’t but Station is better prepared for a crisis than it was in 2008.
Covid-19, and its deleterious effects on Macao‘s economy, are putting a hurt on the wealth of the richest gaming moguls. The only one in the top five to see his lucre increase in the last year is exiled Steve Wynn, who accrued a few hundred million. Dr. Miriam Adelson‘s plentitude tumbled 31% to a still-considerable $26.2 billion. Galaxy Entertainment Chairman Lui Che Woo lost $7.6 billion to be worth a mere $11.8 billion. Hey, at age 93 and going strong, he’s still got his health.
Selling out of Crown Resorts didn’t hurt bumbling billionaire James Packer, who clocked in at a net worth of $3.4 billion. He should count himself lucky to have bailed out of gaming without completely decimating Daddy’s fortune. Close behind was Wynn at $3.2 billion, having gotten richer by literally sitting on his assets. Finally, there’s MGM China‘s sugar momma Pansy Ho (age 60, looks 40). Covid did a number on her wealth also, pulling it down from $4.6 billion to $3.1 billion.
Surprisingly, Las Vegas Sands International was not the top-earning casino company last year. That’d be MGM Resorts International with $9.7 billion. Fully half of that was made on the Las Vegas Strip alone. Sands fell back toward the pack with $4.2 billion, trailed by Wynn Resorts at $3.7 billion. Galaxy was fourth and Crown Resorts “severely underperformed,” bringing in but $966 million. Packer really stank the joint up, didn’t he?
With one damp finger carefully held up to see which way the political wind was blowing, California Gov. Gavin Newsom (D) finally came out against Proposition 27, saying, “It would hurt California’s Indian Tribes, increase the risks of underage gambling, and push billions of dollars out of California and into the pockets of out-of-state corporations.” He refrained, however, from endorsing Proposition 26, thereby preserving the maximum amount of political capital. Both initiatives are dead on arrival at the ballot box, with Prop 27 polling at a dismal 26%. Former Cali gaming regulator Richard Schuetz nailed Newsom’s timid stance perfectly: “Newsom storms onto the battlefield after the battle and shoots the mortally wounded.”
As though to remind us that Internet gambling and sports betting are no sure path to profitability, not only is Fubo Sportsbook going dark in New Jersey, so is e-sports betting purveyor Vie.gg. Vie, we never knew ye. You only have until Nov. 1 to collect any outstanding balances from them. Which is about what we’d expect with an online partner of Bally’s Atlantic City. At least Fubo isn’t slamming the wickets until Nov. 17. E-sports may be the Next Big Thing in betting but Vie’s fate strongly suggests that it’s not here yet.
Jottings: Good news from Caesars Entertainment. Its new, land-based Horseshoe Lake Charles will open Dec. 12, putting even more daylight between Lake Charles and the rest of Louisiana. In addition to 253 hotel rooms, the property will boast nearly 1,000 slots, a Caesars Sportsbook and a World Series of Poker-branded card room … Continuing its tradition of philanthropy, MGM Resorts International is donating $1 million to the Ackerman Center for autism. The money will go toward vocational training and job placement … Hard Rock Barcelona casino has been on ice for 10 years and isn’t going anywhere soon. The Catalonian Ministry of Climate Action, Food & Rural Agenda says the project lacks “environmental compensation” and “ecological connectivity.” Hard Rock hasn’t flunked the test but will have to undertake remedial work.
[…] Source link […]