Earlier this month, Red Rock Resorts announced that it would be selling one of Station’s assets, The Palms Casino, in Las Vegas for $650 million. The venue is being bought by the San Manuel Band of Mission Indians and has ended the rumours and speculations that have been circulating about the casino since last year. The move is currently being lauded by Moody’s Investors service.
The announcement that Red Rock had agreed to sell the Palms Casino came almost exactly five years after Red Rock revealed that it was purchasing a gaming venue just off the strip. The Palms Casino will be sold to the San Manuel Band of Mission Indians, ending a year of speculation surrounding the property that was closed last year. Red Rock is selling its integrated casino venue at a loss if the initial price of the property and renovations are considered. However, Moody, a research firm, sees the sale as something beneficial for the operator.
According to a report issued by Moody, the sale of the Palms casino has left Station in a credit positive position that will balance the company’s sheet and allow for more focus and resources to go to its main assets in the Las Vegas market. In addition to this, it will reduce the company’s costs associated with carrying a closed venue.
While Moody has praised Red Rock’s decision to sell the Palms, it noted that the operator’s B2 credit has remained fixed as it was. The grade is currently in junk territory, considered to be speculative and is subject to higher crediting risks.
Industry analysts have commented on the sale of Red Rock’s Las Vegas gaming asset taking place when the valuations are lower due to the events of last year. While selling off property for less than it was worth is not ideal, the deal is still welcome by the operator.
The confirmation of the sale has prompted speculation regarding how the money received from this sale will be used. Many have guessed that it will be used to focus on a project in Las Vegas called Durango whereas others believe that the funds will be used to restore the company’s suspended dividends and reduce debts.
Once again, Moody’s has shed some light on the question. According to a note, the cash proceeds from The Palms sale would balance Station’s sheets, providing funds that could be used to deleverage and also provide capital for the development of a new gaming resort facility that has been in the pipeline for some time.
Red Rock expects that construction on the Durango project will begin next year. The sale will allow the operator to develop the new property without generating significant debt and would eventually be in a positive credit situation. The Palms Casino sale has come as Red Rock’s finances are slowly improving. The company recently posted its Q1 results and shared that there is a free cash flow of $350 million.
In addition to all of the benefits listed above, Red Rock will be decreasing its costs by selling a casino venue that has been shuttered for more than 12 months. Moody’s highlighted this advantage by noting that Red Rock has essentially reduced its costs for carrying a closed property. The Palms Casino had been closed since March last year and has not generated EBITDA or revenue during this time. Station was doling out cash for these carrying costs over this period.
Parting with the Palms will allow the company to save around $9,5 million every year. These significant costs have been affecting the company’s margins since operations resumed. There are three more Station casinos that are currently closed until the end of June. However, the operator has not indicated that these assets will face the same fate as the Palms.