Red Rock Resorts, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report; the supplied filing does not provide standalone fourth-quarter results. Red Rock is a holding company whose casino operations are conducted through Station Casinos LLC, primarily in the Las Vegas area.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net revenue | $1.182 billion | $1.857 billion | Down 36.3% |
| Operating income | $88.6 million | $186.0 million | Down 52.4% |
| Net loss attributable to Red Rock | $150.4 million | $3.4 million | Loss widened |
| Adjusted EBITDA | $368.5 million | $509.0 million | Down 27.6% |
| Cash from operating activities | $212.8 million | $316.6 million | Down 32.8% |
| Capital expenditures | $58.5 million | $353.3 million | Down materially |
Casino revenue declined 22.4%, while casino expenses fell 33.6%; reported casino margin increased to 69.5% from 64.3%. Food and beverage revenue fell 59.9%, and the department recorded a negative 1.6% margin versus 3.3% in 2019. Room revenue fell 54.7%; occupancy was 65.4% versus 88.1%, average daily rate was $118.01 versus $128.51, and revenue per available room was $77.17 versus $113.15. The consolidated net loss was $174.5 million; the portion attributable to noncontrolling interests was $24.1 million.
Interest expense, net, was $128.5 million, down from $156.7 million. Income tax expense was $114.1 million, mainly reflecting a full valuation allowance against deferred tax assets. Red Rock ended the year with $121.2 million cash and cash equivalents and $2.902 billion in reported long-term debt, including current maturities. Station LLC had $1.0 billion of revolver availability, net of letters of credit. Total equity was $604.6 million, down from $782.6 million.
Material changes and operating context
- All Las Vegas properties closed on March 17, 2020 under state orders. Most reopened June 4 subject to operating restrictions; Texas Station, Fiesta Rancho, Fiesta Henderson and Palms remained closed at year-end, with no plans to reopen them during 2021.
- Slot handle declined 32.8%, table-game drop 35.5%, and race and sports write 22.5% year over year. Management cited closures, travel and demand weakness, occupancy limits, social-distancing rules and reduced amenities.
- Management reported favorable post-reopening trends in the second half, including increased spend per visit and returning core customers, but cautioned that their durability was uncertain.
- Operating cost reductions included staffing cuts affecting approximately 39% of the full-time workforce. The company recognized $38.2 million of CARES Act payroll retention credits.
- Capital expenditures were far below 2019, when spending included the Palms redevelopment. 2020 write-downs and other charges were $36.5 million, including severance, asset disposals and technology write-offs; 2019 included substantial Palms redevelopment, preopening and performance-contract termination costs.
Debt, liquidity, outlook and contingencies
- Management expected cash, operating cash flow and available revolver borrowings to fund operations and obligations for the next 12 months. Its 2021 estimates included $22.8 million required principal payments, $115.3 million interest payments and $65 million to $75 million of maintenance and investment capital expenditures.
- On February 22, 2021, after year-end, Station LLC redeemed $250 million principal amount of 5.00% Senior Notes using revolver borrowings and cash on hand. During 2020, it issued $750 million of 4.50% Senior Notes and repurchased $96.6 million of outstanding debt.
- Station LLC was reported in compliance with debt covenants at December 31, 2020. Covenants include minimum interest coverage and maximum leverage ratios; continued compliance and refinancing capacity remain exposed to pandemic and economic conditions.
- The Graton Resort management agreement ended February 5, 2021 after the tribe terminated Red Rock’s role. The company disputes whether the agreement could be extended. Graton generated $77.4 million of management fees in 2020, compared with $85.6 million in 2019; the termination removes a significant fee stream.
- The North Fork tribal casino project remains subject to NIGC approval, litigation, financing and other conditions. Red Rock reported $22.1 million of capitalized development costs at year-end and said repayment is not assured. Management estimated a 75% to 85% likelihood of successful completion, but timing and recovery remain uncertain.
- Interest-rate swaps with $1.25 billion notional value were due to expire in July 2021. The company estimated that a 1 percentage-point increase in variable rates would raise annual interest cost by approximately $4.3 million after swaps. LIBOR discontinuation was another transition risk.
- Dividends were suspended for the remainder of 2020 and remained suspended until further notice. The $150 million share repurchase authorization was extended through December 31, 2022; no program repurchases had been made through year-end 2020.
Key investor verification points
- Track reopening decisions, operating restrictions, customer trends and cash generation at the operating properties; confirm whether the four closed casinos remain closed.
- Assess post-Graton earnings and cash-flow effects, and monitor resolution of the management-contract dispute.
- Review debt maturities, revolver usage after the February 2021 note redemption, covenant headroom and the cost of variable-rate debt.
- Follow North Fork approvals, litigation, financing and the recoverability of the company’s advances.
- Evaluate the assumptions underlying the full deferred-tax-asset valuation allowance and long-lived-asset impairment tests. No impairment was recorded for the four closed properties, but the auditor identified their valuation as a critical audit matter.
- Consider Red Rock’s concentrated Las Vegas exposure, substantial debt, regulatory and competitive risks, and controlling stockholder structure. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.