Despite the constant denial of the Palms Casino being up for sale by Red Rock, the announcement that Red Rock Resorts will be selling the Palms Casino to the San Manuel Band of Mission Indians indicates that something has changed. The announcement has also ended almost a year of speculation for the venue which has been shuttered since 2020. Officials from Red Rock have indicated that it will be selling the Palms Casino Resort from it’s Station Casinos unit for a total of $650 million. This announcement follows rumours that surfaced earlier in the month involving the two involved parties and the Las Vegas venue.
The rumours that were shared earlier this month served as the first sign of activity for the Palms Casino since it was shuttered last year. According to the Nevada Gaming Control Board, Station Casinos filed a request to keep the Palms Casino, and three others in Las Vegas, to remain shuttered until the 30th of June this year. While the sale of the Palms has been confirmed, the three other properties included in the request, Texas Station, Fiesta Henderson and Fiesta Rancho, were not mentioned. These three station venues are currently still shuttered.
While this transaction is a great opportunity for the San Manuel tribe, Red Rock is willing taking a significant loss from the same of the Palms. This transaction serves as a testament to the challenges that sellers in the gaming environment are facing in the wake of the disastrous events of 2020. In 2016, Red Rock purchased the Palms casino location from the Maloof family for around $312 million. While this was a small amount as far as gaming assets go, Red Rock proceeded to spend a further $690 million in giving the venue a face-lift and transforming it into the venue that many tourists and residents of Las Vegas enjoyed up until last year. The statement confirming the sale did not confirm when the transaction is set to close.
While it is not an ideal time to be selling gaming assets, it is a great time to purchase them. This has been highlighted by another sale on the Las Vegas strip that took place recently. However, the news is not all good for buyers. Real estate industry experts, with extensive knowledge of the gaming and business sectors, have likened the purchase of a gaming property to that of buying a yacht. According to a senior managing director at Helmsley Spear, James Harris, buying a casino in the vegas market today is like buying a yacht. Those that opt to purchase these properties must do so knowing that they will likely have to dump at least 10% of it’s cost price into the ocean for every year that the turn does not take place.
The term “turn’ referred to here is defined as the return of convention and traditional casino business to Las Vegas, the largest gaming center in the US. Unfortunately, this is something that many experts do not see happening until at least 2023.
Over the course of 2020, what can easily be called one of the most confusing and stressful years in recent history, there was ongoing speculation regarding the Psalms venue. However, Red Rock executives denied that the property was for sale. The company has not shared what resulted in its change of heart thus far.
As mentioned, the sale of the Palms location to the San Manuel tribe for $650 million is below the venue’s book value. While this means that the tribe has gotten a good deal, there are some advantages for Red Rock’s investors as well. An analyst has pointed out that the operator has several options for the proceeds from the sale of the Palms. Red Rock could opt to revisit a project that it touted before it’s 2016 purchase of the Palms, called Durango, or the company could use the funds to reduce its debt.
In addition to this, Red Rock could also become one of the first gaming operator companies to bring back dividends. Operators were forced to suspend and cut payouts last year in order to reserve cash. It was also noted that Red Rock stock had received an outperform rating and a target price of $36.