Red Rock Resorts Palms Sale Credit positive but no rating upgrade yet, says Moody's
Publication date: May 10, 2021, 06: 29 h.
Last updated: May 10, 2021, 06: 29 h.
Last week, Red Rock Resorts, Inc. (NASDAQ: RRR) announced the $ 650 million sale of Palms Casino Resort in Las Vegas to the San Manuel Band of Mission Indians - a move praised by Moody's Investors Service.
The deal announcement came nearly five years to the day after Red Rock revealed it was acquiring the property off the Strip, ending long speculation about the property's fate. While the operator is selling the integrated resort at a loss while scouring the original purchase price and improvements, Moody's sees the move as positive.
The sale of the station has a positive impact on creditworthiness as it will strengthen its balance sheet, allow the company to focus on and streamline its core assets in the local Las Vegas market, and reduce the cost of running foreclosed properties for the company, "the research firm said.
While Moody's applauds Red Rock's decision to part ways with Palms, it said the gambling company's B2 credit rating remains in place for now . The genre fits well into junk territory, is considered speculative and "high credit risk".
Red Rock cash plans
While Las Vegas real estate sales at a time when valuations are down due to the coronavirus pandemic are not ideal, the cash inflow is still positive for Red Rock.
It's also spurring speculation among analysts about how that capital will be spent, as most of the talk is focused on the Durango project in southwest Las Vegas. Other analysts say Red Rock can restore its suspended dividend with the proceeds from the sale of Palms and reduce debt.
"The cash proceeds from the sale would strengthen Station's balance sheet, providing funds to potentially accelerate deleveraging while providing capital for the expected development of a new gaming resort on the company's 71 acres of owned land at the intersection of Durango Road and Interstate 215 in the southwest Las Vegas Valley, " Moody's noted. "The company expects construction to begin in 2022. The proceeds from the sale would enable the company to develop the property without adding debt or leverage to its balance sheet, which is a positive credit. "
The Palms sale is coming as Red Rock's balance sheet continues to improve. During the company's recent earnings conference call, CFO Stephen Cootey said it generated $350 million in free cash flow from the June 2020 reopening through the end of March 2021.
Another benefit for Red Rock
By selling Palms, which has been closed for over a year, Red Rock is also reducing costs .
"The sale of Palms would also reduce the transportation costs of a property closed to stations. The Palms location has been closed since March 17, 2020 and has not generated any revenue or EBITDA for over a year. The station has been paying transportation costs for the location during that time," Moody's said. "Divesting the location will reduce these costs by $9.5 million annually. These costs have squeezed the company's margins since reopening. "
Red Rock's Fiesta Henderson, Fiesta Rancho and Texas Station remain closed until at least the end of June. In announcing Palm's sale, the operator did not comment on the fate of those locations.
