Red Rock Resorts, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results, not standalone fourth-quarter results. Red Rock is a holding company whose operations are conducted through Station Casinos LLC. The business is concentrated in the Las Vegas market; gaming is its principal revenue source, and approximately 80%–85% of casino revenue comes from slot play.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Net revenues | $1.618 billion | $1.182 billion | Up 36.8% |
| Operating income | $401.5 million | $88.6 million | Up 353.3%; 2021 includes a $177.7 million loss on the Palms sale |
| Net income (loss) | $354.8 million | $(174.5) million | Consolidated results |
| Net income (loss) attributable to Red Rock | $241.9 million | $(150.4) million | Basic/diluted EPS: $3.50/$2.84 in 2021; loss per share of $2.13 in 2020 |
| Adjusted EBITDA | $741.0 million | $368.5 million | Non-GAAP measure; Las Vegas operations contributed $785.9 million in 2021 |
| Cash from operating activities | $610.0 million | $212.8 million | Higher gaming revenue, customer trends and cost actions supported improvement |
| Cash and cash equivalents | $275.3 million | $121.2 million | At December 31 |
| Long-term debt, carrying amount | $2.854 billion | $2.902 billion | Includes current portion; principal debt was approximately $2.89 billion |
| Revolver availability | $1.0 billion | Not stated here | Net of $29.4 million in letters of credit and similar obligations |
Casino revenue rose 49.5% to $1.143 billion; casino margin increased to 75.9% from 69.5%. Food and beverage revenue rose 27.2% to $245.4 million, with margin improving to 20.1% from negative 1.6%. Room revenue increased 65.4% to $143.9 million. Hotel occupancy was 75.0% versus 65.4%, average daily rate was $152.20 versus $118.01, and revenue per available room was $114.13 versus $77.17.
Net cash used in investing activities was $586.3 million provided, mainly reflecting Palms sale proceeds; net cash used in financing activities was $1.015 billion. The company reported total assets of $3.140 billion and total stockholders’ equity of $50.0 million at year-end. Interest expense, net, declined to $103.2 million from $128.5 million. A 1 percentage-point increase in variable rates was estimated to raise annual interest cost by approximately $16.6 million.
Material changes versus the prior year
- Results improved substantially as customer demand recovered and operating restrictions eased. Comparability is limited: all properties were closed from March 17 to June 3, 2020, and three properties remained closed at year-end 2021.
- Casino volume improved: slot handle rose 42.4%, table-game drop 33.1%, and race and sports write 60.8% versus 2020. Management reported consistent hold percentages.
- Management fee revenue fell 88.8%, primarily because Red Rock ceased managing Graton Resort on February 5, 2021.
- The company sold Palms for $650 million in December 2021 and recognized a $177.7 million loss on sale. Palms generated 2021 net revenue of $18.8 million and a pretax loss of $206.1 million, including the sale loss.
- Red Rock issued $500 million of 4.625% senior notes due 2031 and redeemed the remaining $530.3 million principal of its 5.00% senior notes, recognizing a $13.5 million debt-extinguishment loss.
- Capital returns included a $3.00-per-share special dividend paid in December and approximately $500.9 million of Class A share repurchases during 2021, including the $354.6 million tender offer. The regular quarterly dividend was reinstated after year-end at $0.25 per share, payable March 31, 2022.
- A $100.0 million net valuation-allowance release on deferred tax assets contributed to a 2021 income tax benefit of $69.3 million; 2020 included a $114.1 million tax expense.
Outlook, risks and unusual items
- 2022 capital plans: Management expected $300–$400 million of investment capital expenditures, including Durango, and $75–$100 million of maintenance capital expenditures. Expected 2022 principal and interest payments were $25.9 million and $99.2 million, respectively.
- Durango: Construction began in the first quarter of 2022. The company expected to spend approximately $750 million and projected completion 18–24 months after construction began. Funding was expected from cash, operating cash flow and revolver borrowings.
- Closed properties: Texas Station, Fiesta Rancho and Fiesta Henderson had not reopened at year-end. Management had no current plan to reopen any of them in 2022. Impairment testing recognized no charge, but depended on uncertain future cash flows and reopening assumptions.
- COVID-19 and operating conditions: Management cited favorable visitation and spending trends but cautioned they may not continue. Risks include renewed restrictions, labor shortages, supply-chain disruption, inflation and higher operating costs.
- North Fork project: The California tribal project remained subject to regulatory approvals, financing and ongoing litigation. Red Rock had $34.1 million of capitalized development costs at year-end, with approximately $49.2 million of advances made to the tribe. Recovery of the investment and project completion are uncertain.
- Debt and regulation: Substantial debt, variable-rate exposure, restrictive covenants and the transition from LIBOR pose risks. The company said it was in covenant compliance at year-end. A proposed Nevada gaming-tax ballot initiative, if not withdrawn and approved by voters, could increase the tax rate effective January 1, 2023.
- Other risks: The company is concentrated in Las Vegas and faces gaming competition, gaming-license and compliance risks, labor-organizing activity, construction-cost and schedule risks, cybersecurity threats, litigation, and potential climate, water and energy impacts. The filing reports no legal matter believed likely to materially affect financial condition or results, but outcomes remain uncertain.
- Accounting and audit: The auditor gave an unqualified opinion on the financial statements and internal controls. The critical audit matter concerned long-lived asset impairment assessments for the three closed properties and the judgment involved in projected reopening dates and cash flows.
Investor verification checklist
- Confirm the trajectory of Las Vegas customer demand, hotel metrics and gaming volumes, and whether favorable 2021 trends persisted.
- Track the operating and financial treatment of the three closed properties and any future reopening or impairment decisions.
- Verify Durango’s final cost, financing, construction timeline and opening progress against management’s estimates.
- Review debt maturities, variable-rate exposure, covenant headroom and available revolver capacity; assess the effect of interest-rate changes.
- Assess the Palms sale’s cash proceeds and reported loss, and the effects of 2021 debt issuance, redemption, dividends and buybacks on liquidity and equity.
- Monitor North Fork approvals, litigation, financing and recovery of development advances, as well as the status of the proposed gaming-tax initiative.
- Evaluate the assumptions behind the deferred-tax-asset valuation and the timing and potential acceleration of tax receivable agreement payments.
- Consider the company’s controlled-company structure: Fertitta Family Entities held 89.6% of combined voting power at year-end.