- The Palms Casino Resort will remain closed indefinitely due to continued weakness in the Las Vegas travel and tourism market.
- The property is now part of the Stations Casinos polio.
- The Palms closed last March when the Nevada gaming industry was forced to shut down due to the COVID-19 pandemic.
Not a huge surprise, but on the Red Rock Resorts’ Q4 earnings call (NASDAQ: RRR) Station Casinos CEO Frank Fertitta III make it official–The Palms Casino Resort won’t be reopening any time soon.
Fertitta did offer more details about when The Palms would reopen though nothing he said was unexpected. With the Las Vegas tourism market still extremely weak–and the convention business completely nonexistent–he won’t be rushing to reopen the off strip property. The adjacent Palms Place condo development is accepting guests at this time–presumably since there are residents that own their units they have to be open so they might as well bring in some additional revenue.
Barry Jonas of Truist Securities posed a question to Frank Fertitta who was joined on the call by his brother, Lorenzo Fertitta who is the Vice Chairman of the Board and Execuctive VP, CFO & Treasurer Stephen Cootey:
BARRY JONAS: Hey, guys. How are you thinking about the closed properties here? Whether that’s timing on reopening them or any other options. Thanks.
FRANK FERTITTA: Look, I think we have tried to take a very disciplined approach to this since we reopened in June. The reality is we have more restrictions on our capacity now than we did when we reopened on June 4. And so we’re going to continue to be very disciplined and we want to be in a position that when we reopen any additional properties that we’re going to know that it’s going to be positive and accretive to our overall cash flow. And we really break that down into two buckets.
I think the Palms is very oriented towards the tourist market visitation to Las Vegas, getting that business to return to normal. And in the local properties we’re going to continue to look at how the older demographic response given the vaccine and get business back to normal before we do anything unless we’re certain that we can be cash flow positive.
The ‘local properties’ that Fertitta referred to are Texas Station, Fiesta Rancho and Fiesta Henderson. These properties as well as the Palms are currently in ‘temporary closure’ status with the Nevada Gaming Control Board through June 30, 2021.
Jonas had a follow up asking about plans to sell any existing Stations properties or parcels from their holdings of unused acreage in Northern and Southern Nevada. Cootey and Fertitta didn’t give any specifics other than the obligatory disclaimer about how they’re always ‘looking at how to monetize things and create shareholder value’ meaning that ‘everything is on the table it’s all value related’. Cootey did mention that the company’s primary focus moving forward will be the new property they’re developing at Durango Drive and the 215 Beltway in Southwest Las Vegas.
Nothing that came out in the call dispelled the notion of Stations looking to sell any of the closed properties. Here’s what I speculated last year at the time Stations put the four closed properties into dormant status:
So what is the future of these properties? It wouldn’t be a shock if some of them never reopened. Stations could decide that there’s too much capacity and too little demand in North Las Vegas and/or Henderson and close/unload the two Fiesta properties and Texas Station. They’re all pushing 25 years old and despite renovations along the way that’s ‘long in the tooth’ by Las Vegas standards.
Given the Palms’ proximity to The Strip and I-15 you have to think it’ll reopen at some point. The Palms was in the midst of a comprehensive renovation anyway and they could be taking this opportunity to rework the property for the post COVID-19 era. On the other hand, Stations could decide that the Palms isn’t a good fit for their locals oriented property portfolio and sell it. Time is on their side–it doesn’t make sense to sell it now when they can easily get more value out of it by waiting.
In November 2020, JPMorgan analyst Joseph Greff wrote a report to investors maintaining his overweight status for RRR. He praised RRR’s management for how they’ve handled the challenges of the pandemic as well as the changing demographics of the Las Vegas locals market. In that note, Greff indicated a) that RRR would be ‘highly unlikely’ to sell the properties to another gaming company and that their preference would be to sell the real estate with a deed restriction to the highest and best use and b) that the Palms is ‘not personal’ to the Fertittas and they don’t view it as a core component of their Southern Nevada property portfolio. That sounds as if they just planted a big ‘FOR SALE’ sign in the ground at 4321 West Flamingo Road.
The potential sales strategy for all four properties reflects not only what is best for RRR’s business model but the realities of the marketplace. The Palms was in the midst of a major renovation at the time of the shutdown and is located in a very desirable area immediately off The Strip and I-15. It’s a property that another gaming company could step in and immediately take over which gives RRR several options including selling The Palms or leasing the operations to a third party. The remaining properties would almost certainly fetch more money for a non-gaming use–particularly the Fiesta Henderson.
Frank Fertitta noted that he was guardedly optimistic about the COVID-19 vaccine and the return to some degree of normalcy which would hopeful portent a return to a more vibrant travel and tourism market in Las Vegas.