Good afternoon, everyone, and welcome to the Red Rock Resorts Second Quarter 2024 Conference Call. All participants will be in a listen-only mode. Please note, this conference is being recorded. At this time, I'd 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 Second Quarter 2024 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. Let's start off by stating that the second quarter represented another strong quarter for the company by any measure. In terms of net revenue and adjusted EBITDA, our Las Vegas operations had its best second quarter in our history. In addition, our Las Vegas operations achieved near-record adjusted EBITDA margin. In addition to showing strong financial results in the quarter, we continue to be pleased with the financial performance of our Durango Casino Resort. The team at Durango continues to execute and improve the property's operational performance while at the same time driving incremental play from our existing customers and attracting new customers to our brand. With two full quarters under our belt, the property increased visitation and net theoretical win in the surrounding Durango area by approximately 90% and 88%, respectively, while signing up over 55,000 new customers to our database over the same time period. While it's still early days, Durango continues to ramp and remains on track to become one of our highest margin properties over the medium and long-term as well as generate a return consistent with or in excess of our prior greenfield developments. That said, and as stated on past earnings calls, we continue to experience cannibalization in line with our expectations primarily at our Red Rock property due to the Durango opening. But consistent with our past performance history, we expect to backfill this revenue given the strong long-term demographic growth profile of the Las Vegas Valley and the proximity of our properties to those high-growth areas within the valley. Based on our success at Durango, we are pleased to announce an expansion of the property. Our current plans for the next phase of Durango will add over 25,000 square feet of additional casino space, including a new high-limit slot and bar area. In total, the expansion will add to the Durango casino floor an additional 230 slot machines, including 120 slot machines dedicated to our new high-limit room. In addition to the expanded casino space, we will be adding an additional covered parking garage with almost 2,000 convenient parking spots, significantly improving customer access to the property or providing us flexibility for future expansions at Durango. While we are still in the planning and budgeting stages of the expansion, we currently expect construction to start later this year. We'll provide more information on this expansion on future earnings calls. With regard to the rest of our portfolio, 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. With the disruption we experienced at Palace Station from the roadwork that impacted the ingress and egress to the property, and the disruption we experienced at the Sunset Station from a major renovation upgrading the racing sportsbook and casino both tailing off in the middle of the quarter, the team delivered another strong quarter across all business lines. With this quarter marking the 16th consecutive quarter that the Las Vegas operations delivered adjusted EBITDA margins in excess of 45%. Now let's take a closer look at our second quarter. With respect to our Las Vegas operations, our second quarter net revenue was $483.2 million, up 17.1% from the prior year's second quarter. Our adjusted EBITDA was $223.1 million, up 15.6% from the prior year's second quarter. Our adjusted EBITDA margin was 46.2%, a decrease of 61 basis points from the prior year’s second quarter. On a consolidated basis, our second quarter net revenue was $486.4 million, up 16.9% from the prior year's second quarter. Our adjusted EBITDA was $201.7 million, up 15% from the prior year's second quarter. Our adjusted EBITDA margin was 41.5% for the quarter, a decrease of 67 basis points from the prior year's second quarter. In the quarter, we converted 58% of our adjusted EBITDA to operating free cash flow, generating $117.6 million or $1.11 per share. This brings our year-to-date cumulative free cash flow to $246.2 million or $2.33 per share. The significant level of free cash flow was either reinvested in our long-term growth strategy, reinvested into our existing properties, or returned to our stakeholders via debt paydown, share repurchases, and dividends. As we finish up the second quarter, we remain focused on our core local guests as we continue to grow our regional and national segments across our portfolio. When comparing our results to last year's second quarter, we continue to see upside from strong visitation and carded slot play across the majority of our database, including our regional national segments. This strength, coupled with strong spend per visit across the database, allowed us to enjoy record second quarter revenue and profitability across our gaming segments in the quarter. Turning to the non-gaming segments, both hotel and food and beverage continue to grow year-over-year and delivered record revenue and profitability in the second quarter. Our hotel division experienced its highest ever second quarter revenue and profit in our history, driven by our team's success on continuing to drive higher occupancy and ADR across our hotel portfolio. Not to be outdone, our food and beverage division also experienced its highest ever second quarter revenue and profit, driven by higher average check and cover counts across our food and beverage outlets. With regard to our group sales and catering businesses, as mentioned on our last earnings call, we faced a tough second quarter comparable and expect to face tough comparables for the remainder of the year, mainly because of COVID sales that were postponed and rebooked into 2023. That said, we are seeing positive momentum in both of these business lines as we continue to build our pipeline into 2025. As we look ahead into the third quarter, we are seeing stability in the locals market and across our card database, and remain confident in our business prospects moving forward. 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 employer of choice in the Las Vegas Valley. Within the quarter, the company continued to manage our expenses, generate record financial performance near record margins, reinvest in our properties, and return capital to our shareholders. Our continued success demonstrates the resilience of our business model, the sustainability of our operating margins, and the ability of our management team to execute on our long-term growth strategy while taking a balanced approach in returning capital to our shareholders. Now let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the second quarter stood at $136.4 million, and the total principal amount of debt outstanding was $3.47 billion, resulting in net debt of $3.34 billion. As of the end of the second quarter, the company's net debt-to-EBITDA ratio is 4.2x. As we stated on previous earnings calls, our leverage has plateaued and is beginning to ramp down as we look to delever to our long-term net leverage target of 3x. Also during the second quarter, we made a distribution of approximately $53.5 million to the LLC unitholders of Station Holdco, which included the distribution of approximately $31.1 million to Red Rock Resorts. The company used the distribution to make its second quarter estimated tax payment, pay its previously declared dividend of $0.25 per Class A common share, as well as fund the purchase of 75,000 Class A common shares at an average price of $52.29 per share under its previously disclosed $600 million share repurchase program. The second quarter purchases bring the total number of shares purchased under the program and through our 2021 tender to approximately 14.3 million Class A common shares at an average price of $45.32 per share, reducing our share count at quarter end to approximately 105.5 million shares. Capital spend in the second quarter was $78.6 million, which includes approximately $35.9 million in investment capital, inclusive of the Durango project retainage, as well as $42.7 million in maintenance capital. For the full year 2024, not including the spend to close our Durango project, we still expect capital spend to be between $140 million and $180 million spread between maintenance and investment capital. During the quarter, we remained committed to strategically investing and offering new amenities to our guests at our existing locations in order to drive incremental visitation and spend on our properties. During the quarter, we successfully opened Ortikia Mediterranean Grill at our Green Valley property, and opened Lindo Michoacan restaurant at our Palace Station property, and completed an upgrade to our Race & Sports Book and partial casino remodel at Sunset Station. We are pleased with the guest response and the early results from these new amenities. We expect to continue to invest in our existing properties throughout 2024, including adding additional restaurant offerings at our Palace Station property as well as a new Yard House restaurant at our Sunset Station property. Like our other recently introduced amenities, we expect these to be solid investments over the medium and long term and look forward to moving beyond the disruption challenges of these properties as we introduce these new amenities to our customers later this year. Turning now to North Fork. We continue to move forward with the project. But we are finalizing the design and continue to work through the project budgeting process. We expect to be in preparatory site work on the project next month with construction soon to follow in the fourth quarter of this year. The total construction time for the project is currently anticipated to be between 18 and 20 months, putting the opening of the resort into 2026. We are very excited to be making progress on this project, and we will continue to provide updates on our quarterly earnings calls. Lastly, the company's Board of Directors has declared a cash dividend of $0.25 per Class A common share payable on September 30 to Class A shareholders of record as of September 16. When we combine our recent share repurchases with our special and regularly declared dividends, we've returned approximately $168.5 million to our shareholders in 2024. The company continues to have a strong year, and Durango continues to validate our long-term growth strategy and demonstrate the power of our development pipeline and real estate bank, which consists of over 445 acres of developable land, positioned in highly favorable areas across the Las Vegas Valley. This pipeline, coupled with our best-in-class assets and locations, gives us 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 the high barriers to entry that characterize the Las Vegas locals market. We'd 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 would again like to thank them recently for voting us top casino employer in the Las Vegas Valley for the fourth consecutive year. And finally, we thank our guests for their loyal support each of the last six decades. Operator, this concludes our prepared remarks today, and we are ready to take questions.

And our first question today comes from Joe Greff from JPMorgan. Please go ahead with your question.

Steve or Frank, Lorenzo, I was hoping maybe you can give us some sort of sense of a range of CapEx associated with the Durango expansion. And particularly with respect to the expansion of the casino floor and adding some slot areas in the bar, do you anticipate any of this construction to result in disruption at all? And then I have the quick follow-up.

I'll take the first part of it, Joe. Right now, we're still going through the design and planning process. So we expect to have a budget in the next month or so, and we'll be announcing that on our next earnings call. In terms of disruption expected to be minimal disruption to the property.

Okay. And then you mentioned earlier, Steve, in your prepared remarks that the Red Rock cannibalization was in line with your expectations. If we look at your performance in the 2Q year-over-year, and they exclude whatever the contribution is from the incremental EBITDA generated from Durango and the cannibalization impact at Red Rock the property, does that imply that the rest of the portfolio was up year-over-year on an EBITDA basis? Is that the implied math.

Yes. I mean it's actually, if you kind of strip away exactly what you talked about. The core portfolio is probably flat. But it should be noted that with Durango, we've grown LBO EBITDA over $30 million, which is pretty much the majority of the Las Vegas growth story over the last quarter.

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

Steve, you talked about starting Durango kind of later this year obviously, in the slide deck and previously, you guys have talked about kind of the next legs of unit growth. Is there a scenario where you could basically get started with the next project while Phase 2, so to speak, at Durango is ongoing?

Yes, Carlo, this is Scott. Maybe I can take that one. As we said in past calls, one, we like the optionality of our development portfolio. We have several options that we can entertain, and we're driving all of those projects through their entitlement process. We've mentioned Inspirada as a potential project that's on the forefront. And really, we'll just have to see how we manage capital, but there is the possibility of doing joint development as we go forward.

Great. Thank you. And then just a quick follow-up. If you guys could comment at all in terms of what you're seeing across the locals market. I mean, as you know, we all see state-reported GGRs and there's only so much you can take from them. But in terms of the relative health of the market, spend levels, etc., as well as kind of the promotional environment. Is there anything that you guys would identify as being a notable change in the 2Q relative to say the 1Q?

Carl, this is Scott again. Let's take it from a database perspective, first. One, we see stability and consistency in Q2 performance. And as we're kind of going through July, we're seeing that trend continue. When you look at the individual segments of our database in Q2, all of our segments had positive growth year-on-year, with specifically high performance in our VIP section, which is attributed to our shift towards a higher network customer and also in our regional and national segments as well. So we saw a strong growth in our new member sign-ups. We were up about 23% in new member sign-ups. Our overall active database grew double digits. And if you look at our uncarded segment of our business, it was stable, while in aggregate, growing up over 11%. So when we look at all of our database trends and our customer measurement metrics, we're very optimistic about where we're at and what we're seeing going into Q3.

I think, Carl, your second part was the promotional environment. I think what we're seeing is rational and consistent and really no change systematically from what we've seen in the past.

Our question comes from Shaun Kelley from Bank of America. Please go ahead with your question.

Steve or team just wanted to ask about sort of the implications of Durango on margins. Obviously, when you open a property, you tend to overstaff and want to get all the service requirements right. Where are we at in that kind of balance as we sit here and look at the results in the second quarter and just sort of trying to square that with the kind of down 60 this quarter and then obviously you have slightly different comps year-on-year on the margins, too. So just kind of where do we sit right now in terms of margin and cost stabilization at Durango?

Yes, this is Frank. Remember, it's only the second full quarter we've had this property open. This was a long-term asset in a market that is continuing to grow month-by-month with new population. We're extremely happy with the results so far. But we've always said that it takes at least 3 or 4 quarters really to get everything fine-tuned. I think we're on our way, and we're super pleased with results.

Yes, Shaun, I think also we should kind of revisit Q2 of '23. If you recall, last year was the first time we became a self-insured plan. And the plan has run exceptionally well last year. So we were able to take a benefit with almost a $3 million accrual benefit in Q3. So when you take that out, margins while we reflect and reported down 60 basis points, they are flat to slightly up.

And Steve, I guess kind of a follow-up on that last point. Is it too much of a reach then? And maybe help me factor in that adjustment to think of the same-store portfolio if we have a little bit of drag net for Durango, could the same-store portfolio have been flat in the quarter? Are we there on a margin basis? Or is that too aggressive?

You do have a little bit of labor effect in there. So as we mentioned in the first quarter around February, we did do a proactive labor increase across the board to kind of mark-to-market on labor. So right now, we've been able to absorb that labor increase. Teams are doing a really nice job of managing their labor and our labor increases are really at market right now when you look at the rest of the valley's increases.

I was going to say it's slightly below flat; it's darn close.

Our next question comes from Jordan Bender from JMP. Please go ahead with your question.

Great. Thanks, as your operating leverage continued to improve here into the second quarter, would you expect to get back to that 50-plus percent, which I believe you've targeted historically, just given what you see in the business today?

Are you referring to flow through or you're referring to margin because I don't think we've ever put forward a 50% margin target.

Flow through.

Yes. Flow through right now, we're roughly about 37.5%. And that is our target, and I think we'll eventually be able to get there. You just have to fight for some of the cannibalization that we've talked about in your earnings remarks. It usually takes about 2 to 3 years for the backfill of Red Rock to fill in, and that's when you really start getting the benefit of that leverage and flow through.

Okay. And just on the follow-up, when you think about your capital allocation, at the right price, would you look at an asset or assets coming up for sale in the Las Vegas market? Thank you.

Yes. I think we've said this in the past, we will look at everything. But I think as Scott articulated, we have a great owned pipeline of growth that we're currently working on and so the bar is incredibly high.

Yes, it would have to be very high. I would tell you that all of our development opportunities are where all the growth is taking place in the suburbs. And we think those are far better than looking at older assets, maybe in areas that are not growing as fast.

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

Congratulations on the quarter here. So Steve or Scott, I think it's Slide 37 in your deck. Can you just kind of walk me through some of the assumptions that are kind of going on here with that graph? I'm just trying to understand better, maybe some of the assumptions that need to happen in order to move Durango from that you're showing that 20% ROI to the property got what, 180 of EBITDA, that would be what 23% somewhere in that range. Just trying to understand that a little bit better and maybe how you kind of came up with that.

Sure. No problem. This slide here is really not so much focused on Durango, but really focused on the 445 acres of real estate and how we view the real estate as opposed to a per acre price. But what you're seeing is on the left-hand of the chart, for those of you who can't follow at home, we originally purchased the Durango site for $30.8 million. And then we sold off a piece of the Durango land for 23.8, so your net cost of your land is roughly $7 million. The project has come in around $800 million. And then the chart on the left, the $128 million was just really EBITDA analyst consensus that we were able to pull from your research reports. And then what we've stated was that within 3 years, we would be at a 20% ROI. So that's how we came up with the $160 million. And then the $180 million long-term growth platform is just to outline that these properties don't stop growing after 3 years; they continue to grow. If you look at Red Rock, it's open in 2005 and has continued to grow ever since.

Okay. That's perfect. Thanks, Stephen. And then second question, more of a high-level question, but obviously, there's been a lot of kind of rumors going around about M&A across the gaming space over the last call it, 6 weeks or so. Just wondering if you could help us think about your current appetite for M&A. And I'm guessing you probably don't have much of an appetite for buying versus building given your large land bank. But just wanted to hear if anything has kind of changed on that front?

No. I think we touched on it maybe a little bit earlier so that we will look at everything because it's the right thing to do as a public company. But Scott, I think, articulated we have an owned growth platform that we are busy executing on right now.

Our next question comes from Barry Jonas from Truist Securities. Please go ahead with your question.

I know it's been pretty hot in Vegas, curious if that impacted the top line? Or should we be modeling maybe a meaningful increase in energy costs for Q3? Thanks.

Yes. This is Scott. Actually, if you look at our energy costs for the quarter, the only increase in energy cost is a kind of a pro rata increase of that in Durango. If you look at our core six properties, energy costs are actually flat to down. So these energy costs are starting to come down slightly, plus it's our team's efforts to continue to look for ways to conserve energy during this time. But no, I wouldn't anticipate that it goes up any more than what it's been trending at.

Got it. Okay. And then I appreciate the comments about the health or the stability of the consumer. Just curious if you could maybe talk a little bit about the low end. I know that was something where you had seen, I think, previously, some growth while others had seen a little more contraction. So curious how that's trending.

I think you just nailed it. So we had reported in the past that there was some slight growth, and that's stable and consistent into this quarter as well. So we're slightly up in our lowest end customer segment, which by the way, as we've said in the past, it's really not our core focus. Our core focus is to go after these customers that are high net worth in the high-growth areas of the valley, and so we're encouraged by the fact that even our lowest end of the database is showing positive growth.

And as Scott mentioned earlier on, card handle is up, which is another positive view.

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

So it looks like you already have the 15% plus return on Durango, and a continued ramp gets you to 20% plus returns. I realize you haven't given the CapEx for the expansion project, but how do you typically think about the returns and spend on expansion projects like what you're thinking about Durango versus a typical greenfield build?

I think we look at the returns in the same manner that we expect that 20% ROI net of any cannibalization. I think what you're really thinking about is on the exit with the Durango. I think the risk is just much lower because we know the demographic profile, and we know the needs of the resort.

And then similarly, I know it's early, but when you look at the future ground-up development projects you've got out there. Is there anything that may make those different from Durango in terms of targeted returns? Or does this initial out-of-the-gate execution give you more confidence in the potential to build in those markets?

Well, look, I think we're probably more specifically thinking around the Inspirada area as a next step. When we look at the demographic profile out there, it's one of the fastest-growing areas and the highest network area of the valley. If we do our math, the project could sustain those returns in the near future; it really is just a matter of capital allocation and opportunity as we weigh those opportunities as time goes on. That area is filling in more and more, and that will just bolster our view on the return there.

Yes. And I think our thesis is still the same on new greenfield projects that our target is to, in year one, get a low double-digit return, growing over time to 20-plus percent return.

That's not a cannibalization.

Yes. That's right.

Great. And if I can just sneak one other one in that's changing directions a little bit. I think last quarter, you called out ingress egress around Palace Station. Has that subsided or are there still any kind of one-offs to think about in, call it, the core portfolio that could still be weighing on trends?

Well, the project that was affecting Palace Station is complete at this point. But I'll let Scott address for you guys, a lot of the interstates and everything around Las Vegas. Over the next several years, there's a lot of projects coming up and so the current project is over with.

Yes. So things are back to normal at Palace. We had quite a bit of traffic disruption, now that's all freed up, and our customers are finding their way back to convenient locations. And we're seeing that start to come through in the financial performance. The other disruption that we talked about Sunset, so we completed that Race & Sports Book remodel. And then the other big piece of that is a new Yard House restaurant that will come online in the fall. And so we're super excited about football season over at Sunset and start to look at the true benefit of the spend there. And what Frank mentioned relative to traffic is that there are a lot of federal dollars coming into Las Vegas, and part of the great thing about Las Vegas being one of the fastest-growing cities in the country is you have to keep up with infrastructure. So while we will see some major arterial freeway improvements in the long run, it just makes it easier for people to get to and from our properties that are mostly located on that beltway.

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

I had a question in terms of the margins and maybe asking it in a different way. I think this is the first quarter in maybe 7 or 8 quarters where gaming revenues have actually outgrown non-gaming. And I think a piece of that, to your point, was the group piece and in the comps there. So I guess the question is, as we think about the back of this year, should we expect that dynamic to continue where gaming revenues maybe outgrow those non-gaming revenues?

Well, I can tell you, when you kind of look at the gaming revenue, and I think you touched on it before, like food. So food and beverage, as we mentioned, we had a tough comp with catering and we mentioned those tough comps will kind of continue to 2024, with green shoots appearing in 2025. On the room side, there were some winning expenses that we had to overcome as well as some group cancellations. And again, same along with the catering, while we're facing tougher comps in the back half of '24, we expect some green shoots to happen in 2025.

Got it. And just in terms of the overall environment, it looks like weekly earnings have actually started to tick higher just in the most recent months versus the first quarter, even the fourth quarter. So to what extent would you say if you look back the last couple of months versus the last 6 or 9 months, do you think maybe feel like they're starting to get a little bit better in the market?

I mean from a labor perspective, right? I mean, Scott touched on that we're one of the fastest-growing demographics in the United States, and that's supported by an incredibly diverse job market, which right now is growing about 2.3 times faster than the United States average. And last month marked the 38th consecutive year-over-year employment growth number. And to your point, you did comment on earnings growth. It was up 5.1% year-over-year starting in June. And we overall expect aggregate household income to continue even to grow over 11.7% over the next 5 years. So things feel good from an economic standpoint.

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

Just in terms of the Durango 2.0, I think you mentioned 230 slot machines, which would add about 10% capacity, 25,000 square feet. That's significantly more in terms of space. So it sounds like there'll be more spaced out for high limit, etc. But why was this the right number? And do you think there will be cannibalization at the property, or this will be additive to what you're currently generating on the slide floor? Thanks.

No, we expect it to be additive. Otherwise, we wouldn't be doing it. And I think the additional parking and everything sets us up long-term at Durango for Phase 3 and the ability to bring more amenities and more reasons to come to Durango long-term. This is what we've done historically at all of our properties. We get Phase 1 open, and then we continue to do master planned expansions as we see the demand and as we see the amenities that our customers are looking for.

And I'll just add to that. The addition of a new slot higher living room is just a testament to our strategy to invest in higher net worth customers, and we're seeing that in our highest database segment in our out-of-town and regional, and the more we invest in high-limit experiences and VIP.

The returns have been really good.

Yes, been great returns. And so we're just leaning into that.

Great. Thank you. And then on the Tavern business. I believe last quarter, you said first opening could be sometime around September. Has anything changed in terms of the target number of units, the timing of that, and kind of how that should look over the next year?

No, you got it right. So the first one will come online in September, the second one in January, and the third in June of next year. So we have contracted seven units. We're always out there looking and trying to cut deals on new development opportunities. So that's an ongoing effort, but that's the timing of the first three.

Our next question comes from Brandt Montour from Barclays. Please go ahead with your question.

So on Durango Phase 2, I realize that you're in the design phase, so it's probably a little bit early, but I was curious if you could talk a little bit more about the non-gaming aspect and maybe just high level, the different avenues that you could take the build-out, assuming that there would be non-gaming that is in Phase 2, if it doesn't flip to Phase 3. But would that skew more, or are you thinking it could skew more group perhaps, more leisure in terms of the product? And sort of what would be the risk-return differentials between the sort of various avenues you could take that?

This is Scott. Let me take this in a couple of different directions. One, when we look at the Durango zone growth, it's the fastest area of growth in the Valley, and we've grown the market with our opening. There's 2 expansion opportunities. They cater to different aspects of the business. So a fully integrated resort like Red Rock has day parts in the weekday day parts and the weekend that serve different purposes. The first, what we would call the North Phase expansion would be more entertainment-focused and day trip focused for the weekends. So things like movie theaters, things like potentially a country western dance hall, these types of things tend to drive weekend visitation type of programming. On the other side of the property, it's more resort-driven and drives midweek visitation for the property, things like a resort hotel expansion, spa, meeting space. And so what you end up with after all of these phases is a truly integrated resort that has different activities and different dayparts during the week.

That's really helpful. And maybe just a quick follow-up. I think the comment earlier was that it was possible to do a joint development with a greenfield. Maybe you could just talk high level about the different factors that would go into that macro and/or micro, whether it's a Fed rate cut or if it's the health of the local consumer. What would be the primary things that would factor into that?

Yes. I think the first step is really getting the garage down and set because that's going to help us with the laydown area and be able to go to either the north or south, as Scott said. But I think in terms of doing multiple projects, I think there are a couple of things to consider, and you touched on them. The economic health of Las Vegas is absolutely critical, making sure the health of our customers are there. The continued absorption of Durango as well as the backfill of Red Rock. And then lastly, really, the balance sheet, and it's about capital allocation. As we said in the past, we take a balanced approach to capital: long-term growth, reinvesting in our properties, but also returning capital to our shareholders. So we're causing that we need to make sure the balance sheet remains flexible.

Our next question comes from John DeCree from CBRE. Please go ahead with your question.

Maybe just one for me. I think we covered a lot of ground, but go back to a stat. I think I heard Steve, in your prepared remarks about 55,000 new customers signed up at Durango, that kind of stood out to us. I mean, we kind of think about almost everyone in the Valley probably is already a boarding pass member. So curious how that lined up at Durango with your expectations and kind of what it tells us about some of the untapped markets where you have development sites. Is that number something in line with your expectations? Or the starts kind of sound like maybe there's quite a bit more of untapped demand? So I was just curious your thoughts on new customer sign-ups and where you're seeing incremental demand and how that fits with your expectations?

This is Scott. I think Steve and I will both comment on it. One of the things I'll take a pivot a bit. The most impressive thing that I see is that the growth of our existing known customers in that zone is in the high 70 percentile. And then when you look at new-to-brand growth in the area, it's nearly 90%, so Frank talks about this a lot and so does Lorenzo that when we come into an area, we grow the market. So those stats, coupled with the 13% to 15% growth in the area over the next 5 years really kind of support that. And new members signing up is a piece of that.

Yes. It just kind of points to the importance of location and proximity to your customers, John. And so to add to what Scott was saying, the spend per visit, these are all positive trends or trends that can be improved upon and grown in near all of our development properties. And as Frank kind of talked about earlier on, these development areas tend to be in the highest growth areas within Las Vegas Valley.

Understood. Maybe one follow-up, guys on the similar topic on the cannibalization that you've expected and you've seen at Red Rock. Is that cannibalization? I don't know if you kind of have this granularity in front of you. But is that customers that are just looking at going to Durango more frequently than Red Rock? Is it Red Rock customers just maybe taking a trip or two at the new property? I guess how would you characterize; are you definitely seeing is it a proximity seeing those who live closer to Durango just going there more frequently, or are you seeing something else as it relates to the cannibalization that you expected and how the customer is behaving?

I think it's very similar to what we've seen over the last 30-plus years of developing new properties in Las Vegas. And that's where we gave guidance that we expected year 1 to be plus or minus 10% cannibalization of Red Rock given proximity to Durango. I think we're actually starting to see things may be getting a little bit better than our initial guidance. But yes, I think it's both things that you said. The people that are more proximate to Durango are number one, we're growing the visits that we got from that customer before the frequency of that customer. And there's people that still want to go over in the Red Rock zone and look at Durango, so it's a little bit of a combination of both. But the good news is the long-term strategy of where our properties are located is where all the new rooftops are. And that's why the guidance that we gave is what we've seen historically, where year one is down about 10%, and by year two and three, it's already backfilled and you're off to the races growing again.

Our next question comes from David Katz from Jefferies. Please go ahead with your questions.

I just want to double back on some of the discussion earlier about sort of that next project. I'm not sure if we named it specifically as Inspirada and whether you said anything about that one in particular. But do you necessarily have to get back to that 3x level before you would start to spend on it? Or is that more of a long-term leverage target specifically how you're thinking about leverage and all that context, please?

Hi, David, this is Steve. So it's a good question. We do not have to get to the 3x to start of next project.

And if I can just follow that up. I'm not sure if you talked about sort of where your collective mentalities are about Inspirada and how soon we could start to talk about that in a more substantive way.

Yes, this is Scott, David. I think as we always say, we've been actively entitling all of our development sites. We are in the process of entitling Inspirada. We would imagine that this process could be concluded in a little bit less than a year if we were to continue to push as we are. And that would give us optionality at that point to decide if it was the right time to pull the trigger.

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.

Well, thank you very much for joining the call, and we look forward to talking in about 90 days. Thank you. Take care.

Ladies and gentlemen, that does conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.