Red Rock Could Realize Margin Benefit by Closing Three Station Casinos

Red Rock Resorts’ (NASDAQ:RRR) decision to permanently close Fiesta Henderson, Fiesta Rancho, and Texas Station could provide ballast to the operator’s margins.

Fiesta Rancho and Texas Station, two of three Station Casinos being closed for good. Red Rock could realize margin benefits from that move. (Image: Jeff Scheid/Nevada Independent)

The operator’s decision to permanently shutter the three Station casinos wasn’t surprising given that the venues were closed for more than two years, but Deutsche Bank analyst Carlo Santarelli said there are benefits in cutting those properties from the company’s roster.

While the news was somewhat expected, we believe most are overlooking the impact these permanent closures will have on the margin floor for Red Rock Resorts moving forward, as well as the benefit to margins these closures have had on the balance of the locals portfolio,” he said in a note to clients.

The Deutsche Bank analyst has a “buy” rating on Red Rock stock, though last week he lowered his price target on the name to $45 from $54.

New Casinos Won’t Replace Old Ones

Red Rock will ultimately demolish Fiesta Henderson, Fiesta Rancho and Texas Station and when the land is eventually sold, it’s unlikely it will be used for new casinos.

Santarelli says Red Rock will likely remove the gaming entitlements from those properties prior to selling the land to non-gaming companies. Local media reports indicate that some North Las Vegas residents have affinity for Fiesta Rancho and Texas Henderson, and would like to see the casinos reopened or turned into something else that benefits the public. Whether that’s housing, retail or mixed use remains to be seen.

Red Rock, one of the dominant operators in the Las Vegas locals, has a reputation for buying up assets in the Las Vegas Valley to keep competitors away. When the company sells land from its vast property holdings, it’s usually under terms that the buyer cannot open casinos on the purchased acres.

In addition to its namesake venue in Summerlin and Green Valley Ranch in Henderson, Red Rock operates multiple gaming properties under the Station brand throughout the Las Vegas area. The company also runs 10 Wildfire casinos, including seven in Henderson, according to its website.

Uses for Station Casinos Cash

How much Red Rock can command for the land on which Fiesta Henderson, Fiesta Rancho, and Texas Station sit hasn’t been publicly discussed. Owing to the fact that the venues aren’t on the Strip or in downtown Las Vegas, price tags shouldn’t be exorbitant.

Whatever the proceeds are, Red Rock could direct that capital to various irons it currently has in the fire, including the $750 million Durango project in Southwest Las Vegas and a new Wildfire Casino in downtown. Analysts believe the company’s expansion plans in its home market will pay dividends over the long-term.

“RRR is on much better footing than most consumer companies — its core customers are confined to a single, high population growth market, and their wealth determined mostly by real estate wealth,” according to Hedgeye analysts Todd Jordan and Sean Jenkins.

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