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spk01: Good afternoon, and welcome to Red Rock Resort's fourth quarter and full year 2023 conference call. All participants will be in a listen-only mode. Please note, this conference is being recorded. I would now like to turn the conference over to Stephen Cootie, Executive Vice President, Chief Financial Officer, and Treasurer of Red Rock Resort. Please go ahead.
spk15: Thank you, Operator, and good afternoon, everyone. Thank you for joining us today for Red Rock Resort's fourth quarter and full year 2023 earnings conference call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Krieger, and our executive management team. I'd like to remind everyone that our call today will include forward-looking statements under the safe harbor provisions of the United States federal securities laws. Developments and results may differ from those projected. During this call, we will also discuss non-GAAP financial measures. definitions and complete reconciliation for these figures to GAAP, please refer to the financial tables in our earnings press release, Form 8K, and investor deck, which were filed this afternoon prior to the call. Also, please note that this call is being recorded. Before we get into any of the details, we are proud to say that the fourth quarter represented another strong quarter for the company by any measure. In terms of adjusted EBITDA, our Las Vegas operations had the best fourth quarter in the history of our company, And in terms of net revenue and adjusted EBITDA margin, our Las Vegas operations experienced second best fourth quarter ever. As we look at our results for the full year, our Las Vegas operations experienced near record net revenue and adjusted EBITDA margin, while achieving our best adjusted EBITDA in the history of our company. In addition to showing strong financial results, 2023 was a year in which we continued to validate our long-term growth strategy across the Las Vegas Valley by welcoming our Durango and Wildfire Fremont properties to the Red Rock family. The successful openings of these properties not only validates our long-term growth strategy within the Las Vegas Valley, it also demonstrates the power of our own development pipeline and real estate bank, which now consists of over 441 acres of developable land positioned in highly favorable areas across the Las Vegas Valley. Not only do we expand our physical footprint across the Valley in 2023, we continue to execute on our core strategy of reinvesting in our existing properties to deliver fresh and relevant amenities to our guests. all while remaining focused on best-in-class customer service. In executing this strategy, the team delivered another strong quarter across all business lines, with this quarter marking the 14th consecutive quarter that the Las Vegas operations delivered adjusted EBITDA margins in excess of 45%. Now let's take a look at our fourth quarter and full year results. With respect to our Las Vegas operations and with our Durango resort only open 27 days in the quarter, Our fourth quarter net revenue was $459.4 million, up 9.5% from the prior year's fourth quarter. Our adjusted EBITDA was $220.3 million, up 6.5% from the prior year's fourth quarter. Our adjusted EBITDA margin was 48%, a decrease of 134 basis points from the prior year's fourth quarter. On a consolidated basis, excluding a one-time benefit received in the fourth quarter last year from Grayton, Our fourth quarter net revenue was 462.7 million, up 9.3% from the prior year's fourth quarter. Our adjusted EBITDA was 201.3 million, up 6.1% from the prior year's fourth quarter. Our adjusted EBITDA margin was 43.5% for the quarter, a decrease of 133 basis points from the prior year's fourth quarter. Let's turn to our full year performance. With respect to our Las Vegas operations, Our full year net revenue was $1.7 billion, up 3.6% from the prior year. Our full year adjusted EBITDA was $818.8 million, up 1% from the prior year. And our full year adjusted EBITDA margin was 47.9%, a decrease of 134 basis points from the prior year. On a consolidated basis, excluding the one-time benefit we received last year from Graydon, our full year net revenue was $1.7 billion, up 3.8% from the prior year. Our full-year adjusted EBITDA was $746 million, up 0.4% from the prior year. Our full-year adjusted EBITDA margin was 43.3%, a decrease of 143 basis points from the prior year. In the quarter, we converted 73% of our adjusted EBITDA to operating free cash flow, generating $147.1 million, or $1.41 per share. When looking at our 2023 cumulative free cash flow, we converted 59% of our adjusted EBITDA to operating cash flow, generating $437.6 million, or $4.18 per share. This significant level of free cash flow was either reinvested in our long-term growth strategy, including our Durango and Wildfire Fremont projects, existing property investments, or returned to our stakeholders via debt paydown and dividends. As in past quarters, we continue to remain operationally disciplined and focused on our core local guests, as well as continue to grow our regional and national segments. When comparing our results to last year's fourth quarter, we continue to see upside from strong visitation and play in our local, regional, and national segments. The strength coupled with strong spend per visit across the majority of our carded play allowed us to enjoy record fourth quarter revenue and profitability across our gaming segments. Turning to the non-gaming segments, both hotel and food and beverage continue to grow year over year and deliver record revenue and profitability in the fourth quarter. Our hotel division experiences highest quarterly revenue and profit in our company's history, driven by our team's success on continuing to drive higher occupancy and ADR across our hotel portfolio. Food and beverage experiences highest quarterly revenue and profit in our company's history, driven by higher average check and cover accounts across our food and beverage outlets, and the continued strength of our catering business. Our catering revenue continues to remain strong as this quarter represented the 10th consecutive quarter of double-digit year-over-year growth in this business line. With regard to our group sales, despite a difficult year-over-year comparison, we continue to see positive momentum in this business driven by growth in both room nights and ADR as our pipeline continues to grow into 2024. As we begin the new year, we remain confident in our business, particularly with the addition of our Durango property, though we will continue to face challenging year-over-year comparisons throughout 2024, as well as face continuing disruption in our Palace Station property due to ongoing traffic work around the property during the first half of 2024. On the expense and labor side, we remain operationally disciplined and continue to look for ways to become more efficient while continuing to provide best-in-class customer service to our guests, and remaining the top employer of choice in the Las Vegas Valley. Despite a tougher year-over-year comparable, the company continues to manage its expenses, generate record financial performance, and return capital to our shareholders. These results demonstrate the resilience of our business model, the sustainability of our operating margins, and the ability of our management team to execute our long-term growth strategy while taking a balanced approach to returning capital to our shareholders. Also during the quarter, we successfully opened our Durango Casino Resort on December 5th to rave reviews from our customers. Our newest destination is located off the 215 Expressway in Durango Drive in the southwest Las Vegas Valley, within the fastest growing area in the Las Vegas Valley, with a very variable demographic profile and no unrestricted gaming compared to the five-mile radius. While we are still in early days, we are extremely pleased with the resort's opening, as the property thus far has grown the surrounding market has attracted new customers to our brand, and has been profitable since day one. As we have stated on past earnings calls, we expected to experience and have experienced some cannibalization across our core portfolio through the Durango opening, but this has been largely in line with our expectations and is expected to backfill given the strong long-term demographic growth profile of the Las Vegas Valley and our proximity of our properties to those high-growth areas within the Valley. Now let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the fourth quarter was 137.6 million, and the total principal amount of debt outstanding was 3.3 billion, resulting in a net debt of 3.2 billion. As of the end of the fourth quarter, the company's net debt to EBITDA and interest coverage ratios was 4.3 times and 4.7 times, respectively. As we stated on our previous earnings calls, our leverage is peaking as we wrap up our Durango project, and is expected to ramp down as we look to deliver to our long-term net leverage target of three times. Capital spent in the fourth quarter was $187 million, which includes approximately $168.7 million in investment capital, inclusive of Durango, as well as $18.3 million in maintenance capital. For the full year 2023, capital spent was $699.5 million, which includes approximately $615.4 million in investment capital, inclusive of Durango, as well as $84.1 million in maintenance capital. As we look into our capital spending for 2024, we expect to spend between $140 and $180 million spread between maintenance and investment capital. During the quarter, along with the opening of Durango, we remain committed to strategically investing in our core strategy of offering new amenities to our guests at our existing locations. Over the past several months, we have successfully opened a new high-limit table room at our Green Valley Ranch property. We are pleased with the early results from this room as well as all the other amenities we have opened up in 2023. We expect to continue to invest in our existing properties in 2024, including a new high-limit slot room, as well as two new restaurant offerings at Green Valley Ranch, and an upgraded race and sports book, a partial casino remodel, and a new yard house restaurant at Sunset Station. We are very excited to move beyond the challenges created by the construction of these properties and introduce these new amenities to our customers later this year. Like our other more recently introduced amenities, we expect these to be solid investments over the medium and long term. Consistent with our balanced approach to investing in our long-term growth strategy and returning capital to our shareholders, we are pleased to announce that the company's Board of Directors has declared a special cash dividend of $1 per Class A share. The special dividend will be payable on March 4th to all shareholders of record as of the close of business on February 22nd. The dividend reflects our board and management team's continued competence in the resilience of our business model and the strength of the Las Vegas locals market. Lastly, in November 2023, we successfully completed the sale of approximately 73 acres at our former Fiesta Rancho and Texas Station properties for approximately $58 million. Proceeds from this transaction were used to pay down debt and represent the continued execution of our long-term real estate development strategy. as we look to reposition and upgrade our real estate portfolio for the next chapter of growth at Station 6. Turning now to North Fork, as you may be aware, our management agreement with the tribe was approved by the chairman of the National Indian Gaming Commission in early January, clearing one of the last hurdles to the development of this project, which will be located on the tribe's 305-acre parcel of trust land. The site is located north of Fresno, California, and offers convenient ingress and egress and excellent visibility from Highway 99. The design is near complete and we expect we are fully engaged in the process of retaining a general contractor and discussing the project with financiers. We are very excited to be making great progress on this project and we will continue to provide updates. In addition to our previously announced special dividend, on February 7th, the company announced that the board of its directors has declared a regular cash dividend of 25 cents per Class A common share payable for the first quarter of 2024. The regular dividend will be payable on March 29th to all shareholders of record as of the close of business on March 15th. When we combine our special dividend with our regularly declared first quarter dividend, we expect to return approximately $136.6 million to our shareholders during the first quarter of 2024. With our best in class assets and locations, coupled with our development pipeline of seven owned sites located in the most desirable locations in the Las Vegas Valley, We have an unparalleled growth story that will allow us to double the size of our portfolio and capitalize on the very favorable long-term demographic trends and high barriers to entry that characterize the Las Vegas locals market. We would like to recognize and extend our thanks to all of our team members for their hard work. Our success starts with them and they continue to be the primary reason why our guests return time after time. We'd like to thank them again for voting us the top casino employer in Las Vegas Valley for the third consecutive year. And finally, we'd like to thank our guests for their loyal support in each of the last six decades. Operator, this concludes our prepared remarks for today, and we are now ready to take questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, Please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Joe Greff with JP Morgan. Please go ahead.
spk06: Good afternoon, guys. Thanks for taking my questions. Obviously, the results were, you know, better than we had consensus. We're expecting from an EBITDA perspective. of EBITDA of a little over $13 million year over year. I'm assuming there is net cannibalization or cannibalization ex-Durango in there. I was hoping you could maybe sort of quantify maybe same-store EBITDA performance and then maybe also frame it with same-store EBITDA margin performance in the quarter or in December as we think about kind of modeling the ramp or the anticipation of a ramp throughout the balance of 2024 between Durango and the rest of the portfolio?
spk15: This is Steve. Before I hand over to Scott, we haven't broken out properties in the past, and so I don't think we're going to be doing so in the future. But just for the general note on cannibalization and how Durango is doing, I'll turn it back over to Scott.
spk11: Yeah, hi, Joe. As far as your angle goes, you know, we've opened up and the property is performing above our expectations. We're super happy with how we opened up the team's effort across the whole employee base of the company. We want to extend our thanks for all of the support. And things are going great. When we talk about cannibalization specifically, We're not experiencing any different levels of cannibalization than we forecasted in previous calls. So. You know, we think that it's back and I think that. It's important to note that we, we've always said that these properties ramp and that our focus in the early days with Durango is provide great quality service, quality product. And, you know, we're working through the efficiencies of Durango, and everything is really trending as we expected.
spk06: Great. Thanks. And I was hoping maybe you can give us some sort of perspective for the locals market and the benefits from, I guess, the festivities that have started around the Super Bowl and continuing through the weekend. How much of a lift? Do you think that is for the properties surrounding the strip?
spk12: This is Lorenzo. I think everybody around here is pretty positive and pretty excited about the Super Bowl event. It feels like it's shaping up to be one of the, if not maybe the biggest weekend from a big event standpoint that Las Vegas has seen, which is obviously quite a statement. We'll say that we're definitely feeling the impact from a regional standpoint, inbound from guests that are coming in. We're seeing it in the hotel side and also on the casino side relative to people wanting to come in for the game. So even more so, obviously Super Bowl is always a big weekend in Las Vegas, but I would say that this seems to be shaping up to be bigger than a normal Super Bowl weekend for the city and for us per se.
spk06: And then one final question, if I may. Steve, you mentioned about some disruption in the first half of this year at Palace Station. Can you sort of help us understand and maybe think about an impact there? And was there anything that commenced in the fourth quarter that generated some disruption that obviously we couldn't see in the aggregated reported results?
spk11: This is Scott again. We'll break it down by property. Powers is undergoing around its perimeter road work that rubber was expected to be done by the end of the year is now been extended into all the way to May based on complications of underground and different scheduling issues. So we continue to try to mitigate the impact the powers that it is you know pretty disruptive getting in and out of the property. On another note. As we see this is positive. We continue to reinvest in the properties. We've seen great success with our new high limit rooms and new amenities. And GBR has a slight impact when it comes to the slot high limit room, the table high limit room, which we've opened up the table high limit room. We're a couple weeks away from opening up the slot high limit room and then offering two new restaurants. So While there is some short-term disruption, the upside is we've been very successful with this formula in other properties like Red Rock. So we look forward to the upside of that. Same token at Sunset. We basically have gone in and we're finding huge success in the race and sports book being reformatted to more of a viewer-style format than the traditional race and sports book were about over-the-counter wagering. And so reconfiguring our race and sports books to be more experiential has been a huge success.
spk10: Yeah, and the great success we've seen at Durango with what we did there and trying to bring sunset up to that level.
spk11: Yeah, so we're investing in a new race and sports book, a new casino bar, and a new high-limit room area for sunset. So in the interim... through the remainder of the spring will be under construction there. We also are adding a yard house restaurant in that expansion and remodel. So once we get through that, it's going to be a great add to the property.
spk06: Thank you, guys.
spk01: The next question comes from Carlos Santorelli with Deutsche Bank. Please go ahead.
spk03: Hey, guys. understanding you don't want to get into property level metrics. I guess my question was less around numbers and more maybe around experience, so to speak. If you kind of look at your margin profile throughout 2023 from the same store basis, your margins were kind of down in that 100 to 200 basis point range over the 2Q and the 3Q. 4Q actually improved despite the opening. So is it fair to assume at this stage that kind of in those 27 days that that property, Durango specifically, did not necessarily have a meaningful drag on your margins? And is there anything perhaps one time in nature that we need to be cognizant of as we look out to 2024 as it pertains to the margin profile of that asset?
spk10: Look, at Durango, I have to say it's one of the best openings ever. you know, that I've seen in terms of the guest experience. And again, like Scott said, special thanks to the other six properties and their executive teams and team members that filled in, you know, anywhere and everywhere that needed to make that, you know, as great an experience for the customer as possible. You know, it's very difficult at the beginning when we opened Durango, the visitation was off the charts. I mean, it's very hard to, you know, keep up and make it a good experience. I think our team did that while no opening is perfect. This is as close as I've seen to a perfect one. So take that initial three weeks. You have to realize everybody's coming. Everybody wants to see it. There's a tremendous amount of trial. And just like we've seen with every other property that we've opened, after that initial wave of the opening, you're going to find out where your natural market is. settles into, right? And that's the stage that we're in right now. I think we're settling into what is going to be like a base level of business. And then over the next couple of quarters, we're going to start working to get more efficiencies out of that property. But the first focus for us there was to have a smooth opening, have good word of mouth on the street, have people want to go there. And we'll worry about getting the efficiencies over the course of the next two to three quarters. Do you have anything else to add?
spk11: Yeah, I would just say I'll go back to Frank said it well with Durango. I'll just go back to the fundamentals, the kind of the key fundamentals of acquisition costs being very stable in the market. Our cost of goods sold year over year in the quarter actually went down. Our labor as a percentage of revenue went down. So the teams out there at the properties are doing a super job of managing costs. some of the key expense areas. We do still struggle a bit with energy costs. We're up about a million bucks in electrical costs for the quarter. But otherwise, as we go forward, absent what Frank said, the base of our expenses looks pretty stable.
spk03: And just a quick follow-up on that. Previously, you guys had talked about, given the demographic and the location of the assets, you anticipated the table game side to be a little bit greater of the mix relative to slots than most other properties. Has kind of that held true thus far?
spk12: This is Lorenzo. Carlo, yes. I mean, I think if you kind of take a look around the property, I mean, obviously we said we're super happy with the way things are going. If you ask us what are we not necessarily surprised about, but maybe a little bit, but the table games business has been, the drop has been better than we certainly projected. I would say that in addition to that, the customers' kind of reaction to overall food and beverage, particularly the food hall, has just been a smash, grand slam hit so far, doing big volumes, big numbers, as well as people's reaction to the sportsbook connected to the George restaurant with the indoor-outdoor feature and restaurant basically inside of the sportsbook. People have reacted nicely to the different amenities, but yes, given the demographic in the area, table drop is stronger than we expected initially.
spk15: Carl, you can refer to the December market share report to kind of give you an indication on that. That data is never perfect, just given the schedule of drops. You saw that tables outperformed in December.
spk03: Yeah, no, for sure. It's just with that data sometimes, especially around New Year's, it's seed. have to be kind of careful what you're looking at. But I appreciate that, guys. Thank you very much.
spk01: The next question comes from Sean Kelly with Bank of America. Please go ahead.
spk07: Hi, good afternoon. Thanks for taking my question. Just, you know, just hoping, you know, as you kind of think a little bit forward about, you know, the natural maturation curve here. Yeah, I'm just struggling a little bit to kind of get a sense of, you know, did this open, you know, better than sort of run rate expectation or, you know, typically we would, we would expect the property to build and stabilize over time. And it may be a combination of both, but I guess trajectory wise, I'm getting, I'm just getting a few mixed signals and I'm trying to kind of get my arms around, you know, it was both the revenue and the EBITDA contribution of what we're seeing so far, you know, you know, way better. And we expect that to normalize a little bit down or, you know, Actually, is there just an implied ramp up, which I think many of us would expect having looked at casino openings in the past? Just any directional help, just given, again, the headline results here were excellent and clearly imply some great numbers for the property or the portfolio.
spk15: Sean, I think I'll start and I'll hand it over to the team. But I think the opening, as Frank said, was pretty damn near close to perfect. I mean, but we also said our focus was on guest service. Our focus was on execution. And we, you know, the property was overwhelmed at times. And again, as Frank said, the team did a fantastic job. We view this as a 40-year asset. And so right now, as we're starting to find our footing in terms of what's our normal business, you know, we're going to be in there, you know, fine-tuning Durango to make this the most efficient property that we can. In addition, you know, any of the cannibalization we're expecting to backfill at the core properties, you know, just given the favorable long-term demographic profile in Las Vegas but we've always said this is a several-year ramp to get to stabilization, and so we think we're well on track to hit that target.
spk07: Great. Thanks, Stephen. And maybe just one smaller one, but just sort of like a tactical one around the way pre-opening works here. Can you just give us a sense, was there some loaded costs in terms of when you typically bring employees on the line, but before the actual opening, did you incur some of those expenses, or... Is the expense base really reflective of really just from December 5th on, or was, again, there some expenses incurred in the quarter prior to opening that might have just been the way that this happened? I think I've seen a little bit of both over the years. I'm just kind of curious on how you did it.
spk15: We incurred about $20 million of pre-opening expenses in Q4, and that was a little bit larger than we anticipated due to the delay. If you recall, we moved the opening from late November to December 5th, and so we had to, you know, incur additional pre-opening expenses. But those are, you know, below the line, and we wouldn't expect any going forward with regard to Durango.
spk07: But just to be clear, were there any staff costs in that kind of period of buildup as employees are joining in that period that aren't in pre-opening? Is there some just, you know, just that initial few weeks beforehand? Everything is captured in pre-opening. Everything is captured in pre-opening. Okay. Thank you very much. Appreciate that.
spk01: The next question comes from Jordan Bender with CitizenJMP. Please go ahead.
spk09: Great. Thanks for taking my question. Steve, you kind of alluded to it in some of the prepared remarks, but with free cash flow ramping, you're turning to the special dividend in the first quarter, but you've also talked about, you know, debt reduction kind of following the opening of Durango. Assuming that you do turn to debt reduction using that free cash flow, can you maybe give us a perspective of the potential cadence of the reduction until we do hear something further on incremental projects coming from the company? Thank you.
spk15: I think the way the board views this, it's quarter by quarter. Like we've always said, we're going to have a peak leverage when Durango wraps up, which is around this time, and then we're going to slowly march down toward our long-term target to three times net. You know, that said, you know, we always said we're going to take a balanced view of returning capital. So we spent the last two years investing in Durango, and it's off to a great start. And, you know, given the confidence in the business model and the way Durango's going, we felt now was the time to issue a special dividend and balance that.
spk10: I think maybe your question was more towards new or additional projects coming online. You know, I think our thoughts are to basically take 24, get Durango fine-tuned, de-lever the company. And we're going to be in a position then in 25 to evaluate which new projects we should be bringing online.
spk09: Understood. Thanks. And then just on the follow-up, your free cash flow conversion, just about 60% for the year. Is that kind of the right level to think about moving forward?
spk15: Yes, it is, because that's fully loaded. I think 4Q is a little bit skewed to the higher end because it wasn't any tax payments or estimated tax payments at that quarter.
spk05: Thank you.
spk02: You have mandatory debt pay. We have mandatory debt pay and maintenance capital.
spk01: The next question comes from Steve Wycinski with Stifel. Please go ahead.
spk13: Hey, guys. Good afternoon. So Steve or Scott, if I could maybe ask, I mean, Durango has been kind of beat dead here a little bit. But, you know, if I could ask one more on Durango, just wondering maybe what new signups, you know, for your loyalty program look like relative to your expectations. And I'm just trying to get an idea of how, you know, the property, you know, has been helping to bring new customers into your ecosystem, if, you know, if all that makes sense.
spk11: It's splendid for the quarter. Our new sign-ups are up high single digits for the quarter. And Durango, in the limited time it was open for the quarter, did have a definite impact.
spk13: Okay. Thanks, Scott. Appreciate that. And then, Steve, look, we fully understand you guys don't provide formal guidance for the year. But as we think about 2024, is there anything we need to be thinking about whether it's in terms of headwinds or tailwinds for this year or anything that would disrupt the normal cadence for how the year should normally play out. And then maybe also just wondering what you're thinking about for corporate expenses this year.
spk15: So to kind of address that, I mean, as Scott kind of walked us through some of the construction disruption, both due to the new amenities at Sunset and Green Valley as well as NDOT's work at Palace, which will affect us during the first half of the year. And then we obviously, Durango, we expect to continue to ramp up. As far as corporate, I think roughly around $19 million where we ended up in Q4 is right where I think we'll be the rest of the year per quarter.
spk13: Okay, perfect. Thanks, guys. Appreciate it.
spk01: The next question comes from Barry Jonas with Truist Securities. Please go ahead.
spk04: Hey, guys. The culinary union contract renewal saw pretty large increases across the strip. Wondering if that's having any impact on your revenues, and should we expect any indirect pressures on your labor costs? Thanks.
spk11: This is Scott. I'll take it, and maybe someone else can jump in. Let's start by just saying and reiterate what we've said in the past. We think we're an employer of choice for a lot of reasons. One, because of our culture, and two, because of our benefits package. We think it's very competitive in the marketplace. We had a very successful hiring process for Durango, so we tested that in the market, and we found that our compensation package and benefits was very competitive. That being said, we want to remain competitive. And with the increases that will come with the new contracts, we're definitely going to have to look and make sure that we're competitive. And so there will be some consideration there. But as Steve likes to say all the time, you know, all of those 60,000 plus culinary workers that Scott raises are also, a lot of them are our customers. So there's a... Waterfall effect there that benefits us on the other side.
spk04: Got it. Got it. And then just for a follow-up, can you talk a little bit about your tavern strategy here and how you're thinking about organic growth versus M&A?
spk11: Yeah. So patterns are an interesting new segment that we're looking at. It's a very micro local segment. It's a neighborhood segment. It has a different customer profile that we find attractive. And we find that the investment returns on taverns is pretty attractive. We have a strategy where we'd like to create penetration in high network, high growth areas of the valley, kind of akin to our large site development strategy. And look, we look at everything, whether that's an acquisition or a ground-up or a build-to-suit situation, but we always find that Having our own footprint to design a project the way we want it designed in a new emerging area is probably our method of choice. But we'll look at everything that makes sense.
spk02: Perfect. Thank you.
spk00: The next question comes from Dan Collitzer with Wells Fargo.
spk01: Please go ahead.
spk05: Hey, good afternoon, everyone. Thanks for taking my questions. I was more curious just in general in the market, you know, obviously a big new property opening, you're going to see a pickup in promotional spend. I guess any detail on what you saw over the course of the quarter and into, you know, January and maybe over the past week or so in terms of, you know, the market and, you know, remaining rational?
spk11: This is Scott. It's really a lot more of the same. So it's stable and you have a pretty rational market. You do have the one-off outliers that have been promotional and remain promotional as a strategy. There's not been any noticeable change in the market that has affected us.
spk05: Got it. And then just for my follow-up, I think you guys have talked about that 20% return on capital, you know, getting there for Durango over, I believe, the course of three years. But given the strength of the opening and the momentum out of the gate, I mean, is there any difference in cadence of how you're thinking about that? And then just along those lines, is there any nuance here in terms of gaming versus non-gaming mixes? That property I just noticed overall for the portfolio, it was a little different than typical seasonality.
spk15: Steve, I think we're, you know, the ramping profiles remain the same. These are very early days. We're very happy with the opening, but there's still a lot of work. Still settling in. Still settling in. In terms of the mix, it should follow, you know, it should match our system, you know, our current system mix. Maybe a little higher gaming. Higher gaming, just given, you know, given.
spk02: Limited hotel rooms. Understood. Thanks so much.
spk01: The next question comes from Steven Grambling with Morgan Stanley. Please go ahead.
spk17: Hey, everyone. I'm just going to re-ask a bit on the cannibalization comment. I guess, any sense for how quickly you think you could backfill, and did you take any actions or feel like you needed to take any actions to offset any of the cannibalization in any of your other properties from an expense standpoint, or was it just too small?
spk11: I think it might be just a little too early. So we want there to be trials. We want everybody in the Valley to come and try out or hang on and see it. What you see typically from our previous openings is you see a very early, strong visitation from in-brand customers. But then you tend to see a dip where they go back to their neighborhood property that they're familiar with. we're in the throes of kind of understanding what that period is. And then over time, what we've seen in our previous openings is twofold. One, you see the existing property backfill and grow, and we're talking predominantly Red Rock, which is in one of the highest growth areas in the valley, in the Summerlin area. master plan development is the fourth best master plan development in the country this year. So Red Rock has its own backfill story. And then the other thing you see is Durango being in a new market that was under-penetrated and lacks additional competition. You're going to see Durango continue to grow its database and the surrounding area over the next three years. And really, it never will stop.
spk10: I mean, yeah, there's a tremendous amount of new rooftops that will be coming online out there over the next year to three years. Lots of apartments and everything else. So we'll see where Durango settles in, you know, after a great opening. And then we'd expect it to be a growth asset, you know, for decades to come just to get better. But, you know, we're early days right now.
spk17: That's helpful. And one other just clarification, you were talking about labor inflation a little bit earlier. I guess when we put it all together and you think about core OPEX growth next year, how would you characterize where you're thinking kind of core OPEX growth X, the kind of moving parts around Durango would be?
spk11: I think it's always looking for efficiency, right? It's being relentless about how we run our business and looking at these core areas. We don't expect to have any real increases in the acquisition cost area. We think we're doing a great job on cost of goods sold, but that's really a daily fight, you know. And then probably the biggest one is just us being very diligent about labor.
spk10: And energy costs.
spk11: Yeah, and energy costs. Making sure that we're competitive so that we get the best employees in the market, but at the same time, making sure that where we deploy those employees and at what level is efficient for our business.
spk02: Great. Thanks so much.
spk01: The next question comes from Chad Bainon with Macquarie. Please go ahead.
spk14: Afternoon. Thanks for taking my question, and congrats on the strong opening. I wanted to ask, Scott, maybe one for you just in terms of pacing for 24 for that meeting and banquet space. And now that Durango is open and, you know, groups can kind of rent that out, how that's looking in terms of what's on the books for 24 overall versus prior periods. Thanks.
spk11: Yeah, so I kind of use the benchmark at the same time as last year's comparison. We like where we're headed. We especially like where we're headed in the first quarter and the fourth quarter of 24 in both group room nights and catering. Summer's a bit soft. We've got some work to do in the summer, but with our booking window being pretty short, we've got time to make that up a bit. I will caution, they are super strong numbers, but they're not the numbers coming out of the pandemic that were 60 plus percent year over year increases, but they are still very robust for the brand and we like where we're headed.
spk14: Great. Thanks. And then I think you talked about strength across the loyalty database. Did you see any declining weakness for that low-end tier or the unrated business, or did that remain pretty consistent through the fourth quarter as well?
spk11: It's a consistent trend. So, you know, we still see very robust numbers in the mid to higher end, but that's partly our strategy. And we see consistent and stable trends in the lower end of the database.
spk14: Great. Thanks. Appreciate it.
spk01: The next question comes from Joe Stoff with Susquehanna. Please go ahead.
spk16: Good evening, everyone. Just a few follow-ups, you know, maybe on Durango. One is with the strong opening, I'm just trying to figure out essentially when you guys would expect visitation patterns to normalize. Would it be like a typical six months? Would you expect it to be earlier? And then would you expect this property in particular to be able to pull a certain amount of, say, consistent visitations from further away than, say, your corporate average?
spk10: Look, I think you have your peak at the opening where everyone in town wants to come and see it and you get trial. And I would imagine in Q1 and Q2, we will find out where the market is for Durango. We're settling in to not grand opening volumes anymore. And so it'll take a quarter or two. And then I think from there, we should start to be able to build new customers and visitation and start growing from there.
spk12: Yes, Lorenzo, but relative to your question as well, the second part of it, given the fact that it's right there on the freeway, it should naturally draw from a wider radius than maybe some of our other properties that don't quite have the amount of traffic that that freeway has. I mean, it's one of the busiest kind of loops in the valley because everybody either going to work or coming home from work that lives on the west side of town or from the airport back and forth, I mean, they have to drive right by Durango.
spk10: But I think if you look at our portfolio, that's one of the great things about our portfolio is location, location, location, right? Look at Red Rock, great location, right on the beltway. You look at Sunset Station, right on the beltway. Boulder Station, right on the beltway. So I think that's one of the long-term benefits as the town continues to grow is I think we have... probably the best traffic, ingress, egress, car counts of anyone in the market.
spk16: Thank you for that. And Steve, maybe just a quick clarification. On North Fork, that does not require any new capital from the company, correct?
spk15: No, we've invested the original capital, which is still sitting there. It's a $40 million note, but the current balance is about $110 million. we would anticipate raising non-force financing around the project.
spk10: Thanks, guys.
spk01: As a reminder, if you have a question, please press star then 1 to be joined into the question queue. The next question comes from John Decree with CBRE. Please go ahead.
spk08: Good afternoon, everyone. Most have been asked and answered, but maybe one more on Durango, and that is given the successful opening that you've talked about. Has that influenced or changed how you think about Phase 2 prospects there, either in scope or timing? I know it's still only been several weeks, but any thoughts on Phase 2 would be interesting to hear. Thank you.
spk12: Yes, Lorenzo, I mean, really consistent with what we've communicated before. We're going to get, obviously, we've got Durango open. We're going to continue to dial in the efficiencies of the property. We are certainly working diligently on a Phase 2 plan that we're actually pretty far along on, the programming and putting on the finer details of adding some entertainment, potentially adding to the number of hotel rooms, adding a couple more food and beverage options as well. And then we're also pretty far along as far as the initial planning for Inspirata, which is out in Green Valley. And North Fork. And actually we're fast and furious working on North Fork as well. So we've got plenty on our hands right now, actively being worked on from a development standpoint. But, you know, like I said, we're going to get Durango dialed in before we announce kind of what the next move is. But The good thing is the company has more optionality from a growth standpoint with deals and pieces of real estate that we control. And we can bring online, you know, whenever we think it fits. But really consistent where we've been in the past. So we're just more to come as we kind of have a little bit more time under our belt with Durango.
spk08: Perfect. Thanks so much, guys, and congratulations on the opening.
spk12: Thank you.
spk01: This concludes our question and answer session. I would like to turn the conference back over to Steve and Kuti for any closing remarks.
spk15: Thank you, everyone, for joining us, and we look forward to talking to you next quarter. Take care.
spk01: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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