Sports fans understand that smaller market teams with fewer resources must take a different approach than their well-heeled rivals.
The New York Yankees don't have to carefully develop young prospects through their farm system. They can simply let other teams do that and buy those players when they become free agents.
Small market teams like Oakland Athletics (the team that made "Moneyball" famous) and the Miami Marlins have to take a different approach than their larger rivals. They have to build carefully and create assets that the big boys might overlook. But, if they do that, success can happen, including winning a world championship (Miami has two).
That's sort of the approach Red Rock Resorts (RRR) has taken in its battle with Caesars Entertainment (CZR), MGM Resorts International (MGM), Wynn Resorts (WYNN), and other large Las Vegas Strip casino operators. The company has taken a do things differently approach by working hard to build a local clientele instead of relying on tourists.
Now, Red Rock, which uses the Station Casinos name (among others) on its properties has big plans for expansion. That includes a bold Strip-like property (albeit off the Strip) and the potential for much more.
Image source: Daniel Kline/TheStreet.
Red Rock Gets Smaller to Get Bigger
The company recently closed three of its properties permanently -- Texas Station, Fiesta Rancho and Fiesta Henderson. Those casinos had been shut down during the pandemic and the company believes those customers migrated to some of its other properties, making the closures financially prudent.
Red Rock owns a number of pieces of land around Las Vegas giving it strategic flexibility to adjust its casino/hotel portfolio as needed. It's doing that now by taking some of the money saved by closing the three properties mentioned above to open an ambitious new casino, the Durango, which is being built on a 71-acre site located off the 215 Expressway and Durango Drive in the Southwest Las Vegas Valley.
"The project is located within the fastest-growing area of the Las Vegas Valley with a very favorable demographic profile and no unrestricted gaming competitors within the 5-mile radius of the project site. The project is progressing nicely, and we expect to top out later this fall. The project continues to remain on schedule with an anticipated opening in the fall of 2023," CFO Stephen Cootey said during his company's second-quarter earnings call.
It's a major project for the company, but Red Rock has significant experience developing properties while carefully managing costs, which Cootey elaborated on.
We expect to spend approximately $750 million, which includes all design costs, construction hard and soft costs, preopening expenses, and any financing costs associated with the project and are currently operating under a guaranteed maximum price contract which represents approximately 70% of the total project cost. As the project stands now, approximately 77% of the project, including the purchase of long-lead FF&E has been secured. We will continue to execute on our early procurement strategy in a manner which seeks to minimize supply chain and inflation-related issues.
The CFO expects the "return profile for this project to be consistent with past greenfield projects within our portfolio."
Even More Projects Are Planned
Cootey spoke about how painful it was to close the three properties the company had to shut down, but noted that it was the right decision for the company. He said that the move would allow the company to "move more quickly to develop and deliver the next generation of Station Casinos resorts to the residents of and visitors to North Las Vegas, Henderson and the rest of Las Vegas Valley."
Red Rock's next projects are already coming into focus.
To that end, we are proud to announce that we have closed on 127.7 acres of additional land south of our existing parcel on Cactus Avenue and Las Vegas Boulevard South for $172 million. We are excited about the potential of this site as a local and regional destination casino resort and look forward to sharing our plans for this parcel in the future. We've also signed a purchase and sale agreement and are conducting due diligence on a 67-acre gaming site that is master planned for Casino Resort in North Las Vegas.
The CFO wasn't overly specific about when the company would build new casinos or what they would actually look like, but he made it clear that new projects were being heavily considered.
"These two acquisitions are a continuation of our 46-year history of growth through the purchase of gaming sites located in high-growth areas with superior ingress and egress among the major beltways in the Las Vegas Valley" he explained. "We are currently working through the planning entitlement and zoning processes for these properties, which would be strong additions to the robust development pipeline, which will fuel the next chapter of growth at Station Casinos."
