Red Rock Resorts, Inc. Q4 FY2022 Earnings Call

Good afternoon, and welcome to Red Rock Resorts Fourth Quarter and Full Year 2022 Conference Call. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Stephen Cootey, Executive Vice President, Chief Financial Officer and Treasurer of Red Rock Resorts. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Red Rock Resorts' fourth quarter and full year 2022 earnings conference call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Kreeger 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. For definitions and complete reconciliation of these figures to GAAP, please refer to the financial tables in our earnings press release, Form 8-K 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 details, we are pleased and proud to say that our fourth quarter represented another strong quarter for the company by any measure. In terms of same store net revenue, we had the best fourth quarter in the history of our company, and in terms of adjusted EBITDA and adjusted EBITDA margin, this quarter represented our second best fourth quarter ever, only surpassed by last year's strong quarter. As we look at our results for the year in terms of same store revenue and adjusted EBITDA, we had the best year in the history of our company, while also achieving our second best adjusted EBITDA margin, only surpassed by last year's record high margin. To sum things up, despite facing challenges such as COVID-19 restrictions, historically high inflation and the disrupted supply chain, the company was able to generate record financial performance. This demonstrates the resilience of our business model, the sustainability of our margins and the ability of our management team to execute on our strategy even in extremely challenging macro environments. Now let's take a look at our fourth quarter and full year results. On a consolidated basis, our fourth quarter net revenue was $425.5 million, up $3.1 million from $422.4 million in the prior year's fourth quarter. Our adjusted EBITDA was $194.4 million, up 2.5% from $189.7 million in the prior year's fourth quarter. Our adjusted EBITDA margin was 45.7% for the quarter, an increase of 78 basis points from the prior year's fourth quarter. With respect to our Las Vegas operations, excluding the impact from our closed properties, our fourth quarter net revenue was $419.7 million, up 1.9% from $411.7 million in the prior year's fourth quarter. Our adjusted EBITDA was $206.9 million, down 1.1% from $209.3 million in the prior year's fourth quarter, and our adjusted EBITDA margin increased to 44.7%, up 2.8% from $1.6 billion in the prior year. Our full year adjusted EBITDA was $743.9 million, up $2.9 million from $741 million in the prior year. Our full year adjusted EBITDA margin was 44.7%, a decrease of 109 basis points from the prior year. With respect to our Las Vegas operations, excluding the impact from our foreclosed properties, our full year 2022 net revenue was $1.64 billion, up 4.7% from $1.57 billion in the prior year. Our full year 2022 adjusted EBITDA margin was $813.4 million, up 1% from $805.9 million in the prior year, and our full year adjusted EBITDA margin was 49.7%, a decrease of 184 basis points from the prior year. As always, we continue to prioritize free cash flow, converting 55% of our adjusted EBITDA to operating free cash flow, generating $106.6 million or $1.03 per share. This brings our 2022 cumulative free cash flow generated by the company to $448.2 million or $4.31 per share with virtually every dollar either being reinvested into our long-term growth strategy or returned to our stakeholders. Throughout the year and in the quarter, we remained operationally disciplined and focused on our core local customers as well as continued to grow our regional and out-of-town customer base. When comparing our results to last year, we continue to see benefits from strong visitation in our regional and out-of-town customer segments. This strength, coupled with strong spend per visit across our entire portfolio, allowed us to enjoy near record revenue and profits across our gaming segments. The trends in the fourth quarter were similar to those we saw in our recent quarters and have remained consistent so far this year. Turning to the non-gaming segments, we saw continued growth in food and beverage and hotel, as both segments delivered near record revenue and profitability in the fourth quarter driven by higher occupancy in ADR across our hotel portfolio and higher average check across our food and beverage outlets. Regarding group sales and catering business segments, the recovery of these business lines continued as we saw the fourth quarter represent the sixth consecutive quarter of double-digit year-over-year growth in this business line, and we continue to see our lead pipeline grow into 2023. On the expense side, we remain operationally disciplined and continue to look for ways to become more efficient, providing best-in-class wages and benefits to our team members and delivering best-in-class customer service to our guests. While 2022 posed certain economic challenges, such as inflation and higher interest rates, our constant focus on our core operations and our actions taken over the past two years have allowed us to generate strong adjusted EBITDA, maintain adjusted EBITDA margin, and return over $1.1 billion in capital, over $10 per share to our shareholders since we reopened in June 2020. While we remain vigilant to macroeconomic trends, we will continue to stay disciplined and focused on executing and investing in our core strategy, including strategically expanding our footprint across the Las Vegas Valley and offering new amenities to our guests at existing locations. Last quarter, we saw the successful execution of our strategy for the openings of our high-limit slot room and Lotus of Siam at our Red Rock property. These amenities at Red Rock will soon be joined by the highly anticipated opening later this quarter of Naxos Taverna, a new restaurant concept focusing on coastal Greek seafood cuisine, and the Rouge Room, a sophisticated European-inspired cocktail lounge. Additionally, this quarter, we will be strategically expanding our company's footprint in the Downtown Las Vegas area with the opening of our Wildfire property on Fremont later this week. 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 were $117.3 million. The total principal amount of debt outstanding at quarter-end was $3 billion, resulting in net debt of $2.9 billion. As of the end of the fourth quarter, the company's net debt to EBITDA and interest coverage ratios were 3.9x and 6.6x, respectively. As we have discussed on previous earnings calls, our leverage is expected to continue to trend upward as we complete the construction of our Durango project. Upon completion of Durango, we expect leverage to begin trending down towards our long-term leverage target of 3x net debt. On November 14, 2022, the company announced that its Board of Directors had declared a special cash dividend of $1.00 per Class A share. The special dividend was payable to shareholders of record on November 30 and was paid on December 9. The dividend reflects our Board and management team's continued confidence in our business model and our commitment to returning capital to our shareholders in addition to executing our long-term growth strategy. When we combine our special dividend with our regularly declared fourth quarter dividend, we returned approximately $130 million to our shareholders in the fourth quarter and over $353 million for the full year of 2022. Also, during the fourth quarter, we made distributions of approximately $22.8 million to the LLC unitholders of Station Holdco, including a distribution of approximately $13.1 million to Red Rock Resorts. The company used the distribution to make its fourth quarter estimated tax payment and to pay a portion of its previously declared special dividend of $1.00 per Class A common share. Capital spend for the fourth quarter was $130 million, which included approximately $108.4 million in investment capital, inclusive of our Durango project, as well as $21.6 million in maintenance capital. For the full year 2022, our capital spend was approximately $328.6 million, including $258.1 million in investment capital inclusive of our Durango project, as well as $70.5 million in maintenance capital. For the full year 2023, we currently expect to spend between $70 million and $90 million in maintenance capital, and an additional $550 million to $600 million in growth capital inclusive of our Durango project. Now let's provide an update on our development pipeline. Starting with our Durango development, as we mentioned before, we are extremely excited about this project, which is situated on a 50-acre site ideally located off the 215 Expressway in Durango Drive in the Southwest Las Vegas Valley. The project is located in the fastest-growing area of the Las Vegas Valley, with a very favorable demographic profile and no unrestricted gaming competitors within the five-mile radius of the project site. The project is progressing nicely; we topped out in early October and expect to have the structure fully enclosed by mid-April. The project continues to remain on schedule with an anticipated opening in the fourth quarter of 2023. As mentioned on our prior earnings calls, we expect to spend approximately $750 million, which includes all design costs, construction, hard and soft costs, pre-open expenses, and any financing costs associated with the project, and are currently operating under a guaranteed maximum price contract, which represents approximately 70% of the total project costs. As the project stands now, approximately 88% of the project, including the purchase of long-lead FF&E items has been secured. As stated in previous calls, the company expects the return profile for this project to be consistent with past greenfield projects within our portfolio. As we've already mentioned, we are also very excited about the opening of Wildfire Fremont on February 10. This 21,000 square foot casino is the newest addition to our Wildfire gaming family that is conveniently located in the Downtown Las Vegas area. The casino will offer over 200 slot machines, STN Sports as well as two restaurant options to our guests. We're excited to be bringing our best-in-class service and amenities to the downtown area of Las Vegas and look forward to welcoming our first customer in the coming days. Turning now to North Fork. As we noted last quarter, after favorably resolving all its other litigation, the tribe has only one pending case in the California courts. As we have also noted last quarter, we do not believe that any decision by a California State Court could deprive North Fork of its ability to game on federal trust land. We continue to work with the tribe to progress our efforts with respect to this very attractive project, including working toward approval on a management agreement, continuing our work on development and design and having preliminary talks with prospective lending partners. We will continue to provide updates on this at the next quarterly earnings call. Lastly, this quarter, you have seen our long-term development plan in action as we've been very busy upgrading our real estate portfolio. We purchased a 67-acre gaming site at Losee in the 215 Expressway in North Las Vegas for $55 million, and funded the purchase using a tax-efficient 1031 exchange as a result of successfully closing on our sale of a 56.6-acre site north of Cactus and Las Vegas Boulevard for $60.8 million. Additionally, we sold 21 acres of excess land on our Durango project site for $23.8 million to a group of multifamily developers, which will bring additional visitation to our project at Durango. Lastly, we successfully completed the sale of our 35.3-acre site of our former Fiesta Henderson property for almost $33 million. In total, we sold approximately 113 acres for $118 million in proceeds in 2022. With the purchase of our Losee site and our earlier purchase south of Cactus and the Las Vegas Boulevard, we've substantially upgraded our pipeline of land held for development. With the completion of these transactions, our strategic landholdings amount to over 522 acres, a bulk of which will serve as the foundation for the future growth of the company. We are actively looking to divest or have under contract almost 120 acres of land as we continue to reposition and upgrade our real estate portfolios for the next chapter of growth at Station Casinos. Lastly, on February 7, 2022, the company announced that its Board of Directors had declared a cash dividend of $0.25 per Class A common share payable for the first quarter of 2023. The dividend will be payable on March 31 to all shareholders of record as of the close of business on March 15. With our current best-in-class assets and locations, coupled with our development pipeline of seven owned development 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 position us to capitalize on the very favorable long-term demographic trends and high barriers to entry that characterize the Las Vegas locals market. While the macroeconomic environment through the year was challenging, our disciplined approach to running our business resulted in record high EBITDA and near record high EBITDA margin for 2022. As we begin 2023, we will remain vigilant to macroeconomic trends. We are confident in the resilience of our business model and our management team's ability to execute our long-term growth strategy and take a balanced approach to returning capital to our shareholders. As we do every quarter, we'd like to recognize and extend our thanks to all of our team members for their hard work. 2022 was a very challenging year, and our team members rose to the occasion, as they always do. Our success starts with them, and because of them, our guests come back time and again. We would again like to thank them for voting us as the top casino employer in the Las Vegas Valley for the second year in a row, making us the employer of choice in the Las Vegas Valley. And finally, special thanks goes out to all of our guests for their loyal support over the past 46 years. Operator, this concludes our prepared remarks today, and we are ready to take questions from participants on the call.

We will now begin the question-and-answer session. The first question today comes from Joe Greff with J.P. Morgan. Please go ahead.

Hi, everybody. Looking back at the 4Q, casino revenues were down a little bit year-over-year and the non-casino revenues were up mid-single digits year-over-year. It's sort of similar to the 3Q. Can you talk about how your Las Vegas locals consumer is spending? What's driving that? And then, what are you seeing in the 1Q to-date?

Well, thanks, Joe. Let's kind of take it from the top and look at casino revenues first. We continue to look at casino revenues as stable and healthy. When you look at the database, we see good signs of stability across the database. That's everything from the low end to the higher-end customer. We also see growth in the out-of-town market as well. So, we continue to offer good products in the slot machine realm and then also work on our table games. We think that what you're seeing in casino revenues is stability and the opportunity to grow. When we switch gears and look at the non-gaming food and beverage and hotel revenues, we're seeing outsized growth from regional and out-of-town. So, when you look at all metrics, whether that's food and beverage, hotel, ancillary, entertainment options like bowling, salon and spa, all of them are up double digits, and we're really encouraged by that. So, when we look forward into this year, we're seeing strength in all of those areas, specifically the return of convention guests and also strong catering revenues as we go forward.

And what you're seeing in 1Q to date, how would you characterize that?

Very stable.

It's stable and consistent, Joe. I mean, as we talked about in the remarks. So, we like the position at this point.

Great. And then, my follow-up question is, maybe can you talk a little bit about how you're thinking about development, following Durango, how are you thinking about the timing of Inspirato, Skye Canyon and others? Specifically, I guess, what do you need to see in the locals market? What do you need to see in the ramp of Durango? And how do you factor in balance sheet considerations?

I think we want to see continued stability in the Las Vegas market. Everything we see right now continues to back up our long-term thesis of the macro environment with population migrating into Las Vegas, continued growth limitations on supply where all the rooftops are being built, which is part of the thesis. Inspirato fits right into that. Basically, we're working on being in a position to have a ready-to-go project. But to green light the project, we're going to have to prove out Durango before we would green light it. That being said, we're very confident in Durango, its location, the product that we're going to build there. I think the market is going to really, really like what we're doing. So, we're excited about it. Once we believe that we have stability, whether it be over two, three, or four quarters, we'll decide that based on the strength of the business. And Steve, you can address kind of where we are relative to the balance sheet, but we would expect with Durango opening to rapidly be deleveraging on the balance sheet.

Yes. To echo, Joe, what Frank said, I mean, we're moving forward with the entitlement process across all of our development properties with the goal to have these all shovel-ready. This gives the management team maximum optionality to assess the macro environment, the balance sheet, and our ability to generate returns for our shareholders to determine the next project. As Frank mentioned, the balance sheet is in good shape. We have very low cost of capital, no long-term maturities, and plenty of liquidity to go around. We feel that we can execute that strategy. As I also mentioned in the remarks, leverage will be trending upward as we go through Durango. This has been expected and is well communicated. However, as Frank alluded to, once Durango opens, we expect that leverage to come down and start moving slowly toward our long-term leverage target of 3x net.

Thank you very much.

The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Hi, everyone. Thank you. Steve, you mentioned that approximately $256 million has been spent on Durango this year, with most of the funding to be allocated in 2023. My question is about the $550 million to $600 million in growth capital expenditures, which seems to include around $100 million for other expenses. I was curious about how much of that is related to the development of new projects versus reinvesting in existing assets and new amenities.

Durango has likely totaled around $230 million so far. We have approximately $518 million to $520 million remaining for Durango. Additionally, there is about $9 million dedicated to the opening of Fremont, which is set to open this week. The remainder of the capital expenditures will focus on strategic investments, primarily aimed at enhancing amenities and offerings for our current customers.

Got it. And then, just a follow-up. Historically speaking, if I'm correct or I should say the model I'm looking at is accurate, 1Q has historically been seasonally better in the locals market than 4Q from a revenue and EBITDA perspective. Is there anything different about the seasonality now or as we look into 2023 throughout the year that you would expect to see or anything that we need to be mindful of in terms of changing patterns or habits?

No. I mean, you're spot on. Generally, Q1 is the strongest of the quarters in Las Vegas. I think last quarter, we saw probably a little bit flatter, if flatter in terms of what you'd expect in seasonality, but there's nothing in 2023 that would tell us that seasonality is not going to return.

Great. Thanks, Steve.

The next question comes from Shaun Kelley with Bank of America. Please go ahead.

Hi, good afternoon, everyone. Thanks for taking my question. Just high level, you all have great insights on the broader commercial real estate market and clearly with some of the land deals you guys have been pretty active there. Was kind of hoping for a little bit of color on just what you're seeing from maybe on the buy and sell side of some of that activity? Is there still meaningful continued interest in the Valley? Any changes in behavior from developers or how they're kind of looking at underwriting Las Vegas in the future?

Yes, let's kind of take it through steps. So, we had quite a bit of landholding activity over the last year. We divested about 118 acres of land. We have about roughly 47 acres, 48 acres of land under contract, and we have about 120 acres of land that is active. We feel that the market still has steam and power to it. We still have expressions of interest and we are actively under contract on a majority of our land holdings that are up for sale. We still think that the price per acre in the Valley is strong and accretive to us continuing our strategy to improve our placement around the Valley.

Great. Thanks very much. And maybe just as my follow-up, could you just touch on Wildfire Downtown a little bit more? I mean, that's sort of a unique submarket. Kind of curious on how you're expecting it to look and feel relative to similar core local properties. Is it a little bit of a different customer base, or you're going to be pulling from a little bit more of the tourist base that ends up down there? Kind of how are you thinking about positioning that?

I think first it's probably good to categorize the products that we have. So, we have big box products that are your typical products like Green Valley Ranch and Red Rock. Then we have what's called small non-restricted, which are a bit of a different format. They're a little bit more local in their radius of customer catchment. They're a little more convenient getting in and out, and they offer a little bit more of a personalized service than our big box operations. If we characterize the Wildfire Fremont, this is our new benchmark for these assets.

This is a neighborhood casino.

Yes. So, the quality is quite far the best on the Boulder Strip. It does sit relatively close to Downtown. We believe it's going to be predominantly for folks in that neighborhood, and we think it's going to be something that's fresh and new on the Boulder Strip that we haven't seen in years. So, we're excited about the opening.

Thank you very much.

The next question comes from Steve Wieczynski with Stifel. Please go ahead.

Hey, guys. Good afternoon. I wanted to ask about your older demographic and maybe if you saw any material changes in that customer over the past couple of months? And then, the second part of that question is, did you see any kinds of changes in that customer base in January? The reason I ask is just given the fact that a lot of those folks got a somewhat decent bump in their Social Security checks at the beginning of the year.

Yes. Hi, Steve. This is Scott. Yes, specifically with the, let's call it, 55, 65-plus demographic, we're very encouraged. We're seeing good growth in that demographic. I know we've talked in previous calls about them coming back into the fold. I think we can say with confidence that they are back and producing positive gains for us. If you look at Las Vegas demographics and inbound resident profile, that age group profile is coming in at a greater capacity than other age groups to the tune of about 3.8 times the average, and also their average income is increasing quite a bit. We're encouraged by all of those and we're seeing that come through in the database.

Okay, thanks for that, Scott. And then, Steve, as we think about margins for this year, anything you would call out there in terms of headwinds or tailwinds to the margin structure that we should be thinking about? And I don't know if you can help us with maybe how corporate costs will look this year and maybe interest as well?

Yes. So, I mean, listen, I think, as you've seen, we've been pretty consistent with the margins, right? It's our tenth quarter in a row generating exceptional margin. While we expect headwinds such as utilities, it has been consistent on our side, and we expect that to be consistent on our side as we move into 2023. That said, the team is executing through all sorts of challenging macroeconomic environments, and there's nothing that would give us reason to believe we cannot maintain our margin into 2023.

And anything you could assist us with regarding corporate or interest matters?

Well, the interest, I mean, the interest costs are up. I would say that we're about 43% fixed. Every bump in interest of 1% is about $17 million in interest expense. As I mentioned, our interest expense should go up as we've alluded to before. I will be leveraging up as we go into Durango, but then interest expense is going to fall right down as we start deleveraging. Corporate, what you're seeing right now is pretty much a good run rate. We'd expect that to remain consistent.

Okay, great. Thanks guys. Appreciate it.

The next question comes from Barry Jonas of Truist Securities. Please go ahead.

Hi everyone. I just wanted to follow up; corporate performance was strong compared to ours, and so was G&A. Are there any notable points regarding that? Also, do you believe this performance is sustainable?

Yes, if you take a closer look at G&A, our marketing and advertising have become significantly more efficient compared to last year. Additionally, by managing the controllable factors, we successfully reduced expenses in consulting and outside services for the quarter, leading to a decrease in G&A, which we believe is sustainable.

Got it. And then, just for my follow-up. Red Rock is obviously concentrated in the Las Vegas locals market. Recognizing North Fork and all your land holdings in the pipeline, are there any scenarios that would find you extending more beyond Las Vegas?

Look, we're always looking at opportunities evaluating them. If it's something that we think makes sense for the company, and for the shareholders, we would take a look at that.

The next question comes from Stephen Grambling with Morgan Stanley. Please go ahead.

Hi, thanks. A couple of follow-ups. First on Durango. I know you've talked about this a little bit, but as you see the market continue to evolve, how do you think about the ramp of the property? And where growth will come from, if we think about new customers are growing the market versus any kind of cannibalization of other properties versus taking share from competitors?

Yes. Hi, Steve, this is Scott. Each property has its unique demographic profile and economic profile, but we expect Durango to ramp over a two-year period if we look at historical ramps in the Valley. We find that we grow markets. What the demographics are today will grow as we bring those products online and bring those to the neighborhood. Also, as we look at new amenities and adjust the model of the property, we see upside there as well. Beyond that, we look at other opportunities in the Valley to grow once we get Durango up and operate.

Steve, we're talking about there's no competitor within the five-mile radius. That Southwest Vegas is part of the Valley is where the fastest-growing demographic in the Valley.

And with the highest income?

Fair enough. And then, second, just following up on the group and catering strength, clearly a very good calendar for the Strip in the year ahead with ConAg and Formula 1. Can you remind us what you typically see when ConAg hits and maybe even compare and contrast what that might look like for you all relative to what's going on with Formula 1 as you look ahead?

Let's take a step back and maybe talk more broadly about what we're seeing in hotel sales pace, meaning that those are hotel rooms coming from events or group. We're seeing pretty strong increases as we look at the fourth quarter and look forward into 2023. We're looking at room night bookings in the 20 percentile increases and revenue up quite substantially. When we look at the catering revenue on the books as a function of those hotel rooms, we're seeing quite substantial increases in catering revenue as well. So, when we look at our committed bookings throughout the rest of 2023, it's very encouraging.

Got it. Thanks so much.

The next question comes from Dan Politzer with Wells Fargo. Please go ahead.

Good afternoon, and thank you for answering my questions. I would like to get some insights on the real-time trends you are observing in the residential real estate market. How does this market's impact on consumer sentiment compare to other factors like unemployment or income levels?

In terms of the housing market's impact, it's important to note that the situation is not comparable to the 2007-2008 crisis. While prices and transactions are lower, the housing market remains quite stable. Many people currently have fixed-rate loans instead of variable ones, which were prevalent during the recession. Most homeowners still have positive equity despite slight price declines, so there is no strong incentive to sell. From a housing standpoint, we are optimistic about the long-term demographic trends in Las Vegas, as the population continues to grow, increasing the demand for housing. We may be undersupplied in relation to the actual housing demand.

Although housing prices are down from where they were, they were at what I consider to be an unsustainable peak. What you've had is you see increases in interest rates and a bit of a slowdown, but you still have a lot of people that have significant equity in their homes right now. It's not like in 2008, where about 74% of the homes were underwater in equity. This is not what we're seeing right now. We're observing a healthy slowdown or reduction from what I think was unsustainable.

People are valuing the loan as an asset, which allows for more discretionary spend, which is not a bad thing.

Right. Makes sense. And just for my follow-up, on the Native American fees, I think in the quarter, there's around $500 million of EBITDA. I mean since the management contract ended in the first quarter, I think this was the biggest kind of line item that hit. I mean, what exactly was that? Should we be anticipating anything like that in 2023 as it relates to North Fork?

No, that was a one-time settlement of an arbitration case, and we do not expect that EBITDA to return in 2023.

The next question comes from Chad Beynon with Macquarie. Please go ahead.

Good afternoon. Thanks for taking my question. Wanted to ask about the promotional environment, I guess, in the local region and then also for the out-of-towners. If you've seen anything exorbitant from, I guess, your legacy competitors or, I guess, the newest competitor that's currently running the Palms? Thanks.

Hi, Chad. It's Scott. Happy to report that marketing in the Valley remains rational and stable. It is very consistent with what we've reported in the past and remains so.

Great, thanks. And then, I guess, one nuance question. I think in the past, we had thought that there were some local customers that would maybe drive an hour, hour and a half for a more value option. Some of those markets have actually lost market share. I don't know if you have more value customers that historically left Clark County and kind of gone out to Laughlin. But do you have a sense just looking at your database if you're getting higher frequency and more allegiance to your product versus what you may have seen in the past?

Our business has always been location, location, location, convenience, value, and service. While some people may look for a value weekend in Laughlin, I don't believe that that's our core customer. Our customers typically live within a three to five-mile radius of our properties and visit multiple times a week. Again, it is based on the quality of our facilities, convenience, amenities, team members, and customer service. I don't think we see Laughlin as a competitor.

To add to that, Frank, I think you see that most Las Vegas locals are spending more time in their local neighborhood properties like ours versus going to the Strip. The difference between five years ago and now is we're providing amenities that remove the reason for locals to need to go to the Strip.

The next question comes from John DeCree with CBRE Securities. Please go ahead.

Hey, everyone. Thanks for taking my questions. I wanted to ask about a smaller piece of your capital allocation that is on your kind of same store amenity upgrades across the portfolio that have been a pretty good core piece of your business. I was wondering if you could kind of qualify or give some color on your ROI expectations for those investments and where you see that stuff? Some things have come online recently. You've talked about recovery in non-gaming. I don't know if you'd venture a guess as to how much is being driven by your recent investments versus just broader recovery in the market; that would be helpful.

Well, John, I'm going to keep this a little bit high level rather than going into the returns of every single asset we focus on. Amenities at Red Rock, right, high-level table room, high-limit slot room, casino bar, Lotus, and the opening of the Rouge Room and our Greek restaurant have all received strong returns. We're incredibly happy with the returns on those assets, hence our allocated additional capital to strategic investments across the balance sheet.

Got it. That's fair. Maybe one on wages; we've talked about it a little bit throughout the call, particularly about security increase. Private payrolls, wages in Las Vegas are certainly outpacing many other markets and folks moving from California are coming from high-income jurisdictions. While we still get the question about spend per visit being elevated relative to 2019, we talked about real estate. How important do you look at the wage growth side of things as a driver of the business? If you think that's one of the reasons that the spend per visit we're seeing is sustainable? Just your thoughts on private wage growth in Las Vegas and its impact on your business?

Yes, I can start and Steve can direct you toward the page. However, in the investor deck, we have couple of slides on the average income of Las Vegas workers and incoming average income. Over the next five years, that looks really strong. The more money you make, the more discretionary income you have, and we're starting to see those effects at properties as well, bringing on new amenities that are incremental to just gaming, making our properties regional destination centers.

Yes. This is all in the investor deck. We showed you that average minimum wages from basically year-over-year for Las Vegas grew by probably 6.7%. As Scott alluded to, from a per capita perspective, we expect to grow nearly 17% over the next five years. As migrants migrate from wealthier areas, they're bringing with them higher disposable income. Our business model is built off disposable income, which is beneficial for us.

In addition, we have a less promotional environment, and we have significantly fewer incentive business. We're focusing on a core customer that wants to come to our facilities because of our location, amenities, and team members. Thus, we are naturally going to have a higher spend per visit, coupled with people also having more disposable income due to higher ratios.

That's great. Thanks for all the color. Guys, congratulations on another great year.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Stephen Cootey for any closing remarks.

Thank you everyone for joining the call. I apologize for the technical glitch, and I look forward to seeing you in 90 days. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.