Red Rock Resorts, Inc. (NYSE:RRR) priced its IPO of 27.25 million shares at $19.50, the midpoint of the anticipated range, raising $531 million in proceeds. The company will have a market capitalization of approximately $2.26 billion and an enterprise value of approx $4.32 billion. The lead managers for the offering are Deutsche Bank, JPMorgan, BofA Merrill Lynch, and Goldman Sachs & Co. The proceeds of the offering will be used to acquire LLC units in Station Holdco, which will be used primarily to pay for the acquisition of Fertitta Entertainment and for LLC units from existing owners.
Red Rock operates 21 casino and entertainment properties in 3 states (19 in Nevada, 1 in Michigan and 1 in California). The company began operations in 1976 with Station Casino, focusing on the locals of the Las Vegas market with a 500-square foot casino and 100 slot machines. Its Las Vegas portfolio consists of 9 major gaming and entertainment facilities and 10 smaller casinos.
The company is primarily owned by the Fertitta brothers, who took Station Casinos (founded by their father) private in 2007. Station Casinos filed for bankruptcy in 2009, and the Fertitta brothers held off a takeover and emerged as controlling shareholders in 2011. The IPO proceeds will go largely to the Fertitta family, including the sale of the casino management unit and annual payments linked to tax benefits of becoming a public company. An affiliate of Deutsche Bank (GACC) also owns approx 24.5% of the company prior to the offering.
The company has grown revenue from $1.35 billion in 2013 to $1.45 billion in 2015. Adjusted EBITDA over the same period grew from $362 million to $451 million. Pro forma, the company will have approximately $116 million in cash and $2.18 billion in debt. Its EV/EBITDA on a TTM basis stands at roughly 9.6x.
The Red Rock Resorts IPO is coming on the heels of a successful offering from MGM Growth Properties (NYSE:MGP) last week. However, this latest offering is not of the same caliber as that of MGP. MGP was a REIT that had over 3x revenue coverage from the parental guarantee and a 6.8% dividend. RRR, on the other hand, has second-tier properties catering to locals versus tourists. The structure of the offering is very owner-friendly, versus shareholder-friendly. And at the midpoint of the range, the valuation is, for the most part, in line with or at a slight discount to the peers.
The offering was said to be well oversubscribed. However, there were a lot of mixed messages coming on this deal. While many are looking for a continuation based on the strength of the MGP offering, we believe this has a little more hair than that offering. While the offering is looking to signal the recovery of the Las Vegas market, we feel the reality is it only signals how vulnerable it is to that market in general.
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