Introduction
Red Rock Resorts, Inc. (“we,” “our,” “us,” “Red Rock” or the “Company”) is a holding company that manages and owns an equity interest in Station Casinos LLC (“Station LLC”), through which the Company conducts all of its operations. Station LLC is a gaming, development and management company established in 1976 that develops and operates strategically-located casino and entertainment properties. Station LLC currently owns and operates ten major gaming and entertainment facilities and ten smaller casinos (three of which are 50% owned), offering approximately 20,133 slot machines, 338 table games and 4,754 hotel rooms in the Las Vegas regional market. In addition, Station LLC also manages Graton Resort & Casino in Sonoma County, California and Gun Lake Casino in Allegan County, Michigan, both on behalf of Native American tribes.
We hold an indirect equity interest in Station LLC through our ownership interest in Station Holdco LLC (“Station Holdco”), which holds all of the economic interests in Station LLC. At December 31, 2016, we hold approximately 57% of the equity interests in Station Holdco. We operate and control all of the business and affairs of Station LLC and Station Holdco through our ownership of 100% of the voting interests in Station LLC and our designation as the sole managing member of both Station LLC and Station Holdco. We have no assets other than our ownership interests in Station LLC and Station Holdco, and we have no operations outside of our management of Station LLC.
Red Rock was incorporated in Delaware in September 2015 and in May 2016, we completed an initial public offering (“IPO”) of approximately 29.5 million shares of Class A common stock, $0.01 par value per share (“Class A common stock”) at an offering price to the public of $19.50 per share. We received net proceeds from the IPO of approximately $541 million, which was used to purchase newly issued limited liability company interests in Station Holdco (“LLC Units”) and outstanding LLC Units from existing members of Station Holdco.
Station Holdco used the proceeds from the newly issued LLC Units to pay the majority of the purchase price of Fertitta Entertainment LLC (“Fertitta Entertainment,” and such purchase, the “Fertitta Entertainment Acquisition”). Prior to the Fertitta Entertainment Acquisition, subsidiaries of Fertitta Entertainment managed Station LLC through long-term management agreements and such management agreements were terminated in connection with the Fertitta Entertainment Acquisition.
Our Consolidated Financial Statements reflect the consolidation of Station LLC and its consolidated subsidiaries, including the retrospective consolidation of Fertitta Entertainment, and Station Holdco for all periods presented. The financial position and results of operations attributable to LLC Units we do not own are reported separately as noncontrolling interest. Station Holdco, as combined with Fertitta Entertainment, is our predecessor for accounting purposes and accordingly, for all periods prior to May 2, 2016, the financial information presented herein represents the information of the predecessor.
We offer convenience and a wide variety of gaming and non-gaming entertainment options to attract guests to our properties. Our casino properties are conveniently located throughout the Las Vegas valley and provide our customers a wide variety of entertainment and dining options. Over 90% of the Las Vegas population is located within five miles of one of our gaming facilities. We provide friendly service and exceptional value in a comfortable environment. We believe we surpass our competitors in offering casino patrons the newest and most popular slot and video games featuring the latest technology. We also believe the high-quality entertainment experience we provide our customers differentiates us from our competitors.
Most of our major properties are master-planned for expansion, enabling us to incrementally expand our facilities as demand dictates. We also control seven highly desirable gaming-entitled development sites in Las Vegas and Reno, Nevada.
Our principal source of revenue and operating income is gaming, and our non-gaming offerings include restaurants, hotels and other entertainment amenities. Approximately 80% to 85% of our casino revenue is generated from slot play. The majority of our revenue is cash-based and as a result, fluctuations in our revenues have a direct impact on our cash flows from operations. Because our business is capital intensive, we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing and fund capital expenditures.
A significant portion of our business is dependent upon customers who live and/or work in the Las Vegas metropolitan area. The Las Vegas economy, although severely impacted by the recession and housing crisis that spanned from 2008 to 2011, began to stabilize in 2012 and, based on population and employment growth, was one of the fastest growing economies in the United States from 2015 to 2016. Based on a recent U.S. Census Bureau release, Nevada was second among all states in
percentage growth of population from July 2015 to July 2016. In addition, based on preliminary data for December 2016 from the U.S. Bureau of Labor Statistics, Las Vegas experienced a 2.7% year-over-year increase in employment to 952,800, which is an all-time high. This resulted in an unemployment rate of 5.0% which has declined from 14.1% in July 2011. Businesses and consumers in Las Vegas continue to increase their spending as evidenced by 42 consecutive months of year-over-year increases in taxable retail sales from July 2013 to December 2016. Home values have also improved significantly over the past several years with the median price of an existing single family home in Las Vegas up approximately 99% at December 2016 compared to January 2012, as reported by the Greater Las Vegas Association of Realtors.
The Las Vegas economy has shown recent improvements in employment, taxable sales and home prices, and we believe the recent stabilization of the local economy, positive trends in many of the key economic indicators and future projects and infrastructure investments provide a foundation for future growth in our business. Although we experienced improved operating results over the past few years due, in part, to more favorable local economic conditions, we cannot be sure if, or how long, these favorable market conditions will persist or that they will continue to positively impact our results of operations.
Our principal executive offices are located at 1505 South Pavilion Center Drive, Las Vegas, Nevada 89135. The telephone number for our executive offices is (702) 495-3000. Our internet website is www.redrockresorts.com.
We have two reportable segments: Las Vegas operations and Native American management. For more information on our segments, see Note 24 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K (the “Consolidated Financial Statements”).
Business Strategy
Our primary operating strategy emphasizes attracting and retaining customers, primarily Las Vegas residents and, to a lesser extent, out-of-town visitors. Our properties attract customers through:
The Las Vegas regional market is very competitive, and we compete with both large hotel casinos in Las Vegas and smaller gaming-only establishments throughout the Las Vegas valley.
Provide a high quality, value-oriented gaming and entertainment experience. We are committed to providing a high-value entertainment experience for our guests, as our significant level of repeat visitors demand exceptional service, variety and quality in their overall experience. We offer a broad array of gaming options, including the most popular slot and video poker products, and the latest technological innovations in slots, table games and sports wagering. We believe that providing a wide variety of entertainment options is also a significant factor in attracting guests. In particular, we feature multiple dining options at all of our major properties, which is a primary motivation for casino visits. We are dedicated to ensuring a high level of guest satisfaction and loyalty by providing attentive guest service in a convenient, friendly and casual atmosphere. As part of our commitment to providing a high value entertainment experience and to stimulate visitation, we regularly refresh and enhance our gaming and non-gaming amenities.
Generate revenue growth through targeted marketing and promotional programs. Our significant advertising programs generate consistent brand awareness and promotional visibility. Our ability to advertise under a single brand across our portfolio also allows us to achieve material economies of scale. While we primarily advertise through traditional media such as television, radio and newspaper to reach our core guests, we continue to expand our focus and spend on social, digital and mobile platforms to respond to the evolving methods that guests receive information.
We employ an innovative marketing strategy that utilizes our frequent high-profile promotional programs to attract and retain guests, while also establishing and maintaining a high level of brand recognition. Our proprietary customer relationship management systems are highly attuned to how guests interact with our properties and products. This information allows us to focus on targeting guests based on their preferences. In 2016, we invested in technology that is being installed on all of our slot machines and will permit us to provide “on device” marketing, bonusing and guest communication, including real-time customized promotions and incentives.
We believe that our focused marketing allows us to create greater guest loyalty. In late 2016, we launched my|Rewards, an enhancement to our Boarding Pass loyalty program that rewards guests for their spend on non-gaming amenities as well as their gaming spend. This loyalty program provides us with a 360° view of the guest behavior on property. The program is expected to be expanded in 2017 to include a customized social casino experience with virtual currency, allowing our loyalty program to reward entertainment behavior while at home or on the go.
Maximize business profitability. During our 40-year history, we have developed a culture that focuses on operational excellence and cost management. We believe that this focus has contributed to adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) margins that compare favorably to our public peers over the past several years. Our internally developed proprietary systems and analytical tools provide us with the ability to closely monitor revenues and operational expenses and provide real-time information for management solutions. Benchmarking across our properties also allows us to create and take advantage of best practices in all functional areas of our business. We believe our existing cost structure, which has low variable costs, can support significant incremental revenue growth while maximizing the flow through of revenue to Adjusted EBITDA.