Red Rock Resorts and Boyd Gaming reported fourth quarter performances that show the Nevada locals casino business is back.
A good portion of Red Rock’s outlook is company specific, such as focus on high-end locals, ownership of eight properties that can be sold or developed, development of a $750 million casino on Durango Boulevard, which is surrounded by twice the number of adults per gaming position as its highly successful Green Valley Ranch and Red Rock Resort casinos.
Red Rock’s leaders also boast of a balance sheet with debt at just 3.5 times EBITDA and an average 3.5 percent interest rate, which allow for both investment in growth and returning capital to shareholders. The company recently has done that to the tune of $700 million in share repurchases and a special dividend.
Likewise, Boyd’s locals’ EBITDAR soared 76 percent and produced margins of 52.3 percent compared to the upper 30s in Downtown Las Vegas and at its regional casinos; and its leverage ratio has been reduced to 2.5 times.
The results and its outlook were enough for Boyd to join in the return to capital game, announcing a resumption of quarterly dividends at 15 cents a share, more than double the seven cents paid pre-pandemic.
One dynamic shared by all in the southern Nevada locals business is population growth, and the right segment of population at that. According to RRR executives, households in Las Vegas Valley with annual incomes above $100,000 should grow at a compounded annual rate of 6 percent through 2026.
Another dynamic is cost control both in the face of inflation and in the return of customers who must be marketed to and served.
Red Rock’s EBITDA margins once again ran around 45 percent, a performance that would have been astounding pre-COVID but now may be the standard for locals operators.
We’ll see what others report, but there is no reason to believe that Golden Entertainment can’t continue to maintain similar results in southern Nevada, and that Monarch Casino and Full House Resorts can’t do the same further north in the fast-growing Silver State.
Then there is the Las Vegas Strip. Las Vegas Sands is the only Strip operator so far to report its fourth quarter. The results were strong and there’s no reason to believe the same won’t hold true for Caesars and the most Strip-focused of all major operators, MGM Resorts.
The down note for the Strip is that the group and convention business is well off. The biggest of all events, the Consumer Electronics Show, suffered a 75 percent decline in attendance last month, for example. No matter how optimistic casino executives sound off about future bookings, the proof is in the actual numbers and they aren’t there yet.
On the more bullish side, Omicron is fading fast and there seems to be a growing consensus that Covid will be endemic and we’ll learn to live with it. Further, with all of the focus on vaccinations and masks, relatively little attention is being given to the medicines rolling out to treat Covid and make a return to normal more likely.
Yet another bullish note for casino operators: With costs structurally lower, the flow through of additional revenue to the bottom line should remain high as older customers and group business return.
