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 an extremely challenging -- even in an extremely challenging macro environment. 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 [Technical Difficulty] [Technical Difficulty] up 2.8% from $1.6 billion in the prior year. Our 2022 and -- 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 being returned to our stakeholders.

Throughout the year and in the quarter, we remained operationally disciplined and stayed 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 benefit 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 -- in our most 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.

With regard to group sales the -- and catering business segments, the recovery of these business lines continued as we saw the fourth quarter represents 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 of 2020.

And 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 the strategy to 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 to 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 was $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 covered 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 the completion of Durango, we expect leverage to begin to 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 as we -- and our commitment to returning capital to our shareholders in addition to executing on 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, which included 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, which includes $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 in 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, as we topped out in nearly 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. And 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 the next quarter -- 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 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. And 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 under contract on 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 common -- Class A common share payable to 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 after time.

We would again like to thank them for voting us top casino employer in the Las Vegas Valley for the second year in a row, and making us the employer of choice in 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. [Operator Instructions] 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 digit 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. And 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, solon and spa, all of them are up double digit, and we're really encouraged by that.

And 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 [as far as] (ph) 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?.

Think we want to see continued stability in the Las Vegas market. Everything we see right now continues to back up with our long-term thesis of the macro environment with population migrating into Las Vegas, continue to grow limitations on supply where all the rooftops are being built, which is part of the thesis. Inspirato fits right into that.

And basically, what we're doing is 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. And once we believe that we have stability, whether it be over two, three, 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. And to echo, Joe, what Frank said, I mean, we're moving forward the entitlement process across all of our development properties with the goal to have these all shovel-ready.

And this just gives the team -- the management team maximum optionality [indiscernible] moving into, let's call it, the stability point of Durango to assess the macro environment, assess the balance sheet and our ability to generate return for our shareholders to determine the next project. And as Frank mentioned, the balance sheet is in good shape.

We have a low -- very low cost of capital, no long-term maturities, we have plenty of liquidity to go around. So, we feel we can execute that strategy. And as I also mentioned in the remarks, the leverage will be trending upward as we go through Durango. This has been expected and I think well communicated to the Street.

But as Frank alluded to, once Durango hits, 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, everybody. Thank you. Guys -- Steve, you kind of outlined the CapEx. I thought you said $256 million or something like that, that had been spent on Durango this year, and then, obviously, the bulk will be spent in 2023.

I guess, my question is, it looks like embedded within the $550 million-$600 million growth CapEx seems to be $100-or-so-odd-million of other.

I was just wondering how much of that relates to development activity of new stuff versus core reinvestment, new amenities at existing assets?.

Yes, I think if you just -- if you break that out and -- so, yes, Durango was probably about $230 million, let's call it, life-to-date. We have about $518 million to $520 million left to spend on Durango.

We still have about $9 million of -- related to the opening of Fremont, which was -- is obviously committed, the project is opening up literally this week. The rest of the CapEx is related to strategic investments, mostly in our same store to improve the amenities and offerings to our existing 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 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. So, 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. And so, 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. And then, we have what's called small non-restricted. And these 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 kind of our new benchmark for these assets..

This is a neighborhood casino..

Yes..

It's a true neighborhood casino..

Yes. So, the quality is quite far the best on the Boulder Strip. And it does sit relatively close to Downtown. But we do think that it's going to be predominantly for folks in that neighborhood and we think that 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 pretty excited about the opening..

Thank you very much..

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

Hey, guys. Good afternoon.

So, 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, second part of that question is going to be, did you see any kinds of changes in that customer base in January? And 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..

Pardon me?.

Yeah.

Hello?.

I believe we might have lost our speakers. One moment while we reconnect. We've reconnected with our speakers, and thank you for your patience. Up for questions, we have Steve Wieczynski with Stifel..

Hey, Steve. If you could -- and it's not that we didn't like question, if you could just repeat the question and we'll roll back on. We had just little technical difficulty here..

Sure. Yes, I thought you didn't like and just hung up on me. But -- so, thanks guys.

So, I wanted to ask about your older demographic and if you saw any material changes in that customer over the past couple of months? And the second part of that question is, did you see any kinds of material changes in that customer base in January given the fact that, I think, a lot of those folks got a 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. And 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.

So, we're really encouraged by that. And if you look at Las Vegas demographics and Las Vegas inbound resident profile, that age group profile not only is coming in at a greater capacity than other age groups to the tune of about 3.8 times the average, but also their average income is increasing quite a bit.

So, 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. And so, 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 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 with -- you would help us with corporate or interest side of things?.

Well, the interest, I mean, the interest is going to depend. The interest costs are up. I would say that we're about 43% fixed. What that just means is every bump in interest 1% is about $17 million in interest expense. And 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. And so, 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..

Hey, guys. Actually, just following up, corporate was nicely ahead of us, G&A as well.

Just curious if there are any call outs there? And how -- it sounds like that -- is that sustainable whatever you're doing?.

Yes. I think G&A, if you kind of dig in deep into G&A, we made -- our marketing and advertising is much more efficient year-over-year, as well as part of managing the -- as we say controllables, we were able to reduce costs in consulting and outside services for the quarter, which resulted in lower G&A, and we do feel that's sustainable..

Got it. And then, just for my follow-up. Red Rock is obviously be 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. And if it's something that we think makes sense for the company, for the shareholders, we would take a look at that..

Great. Thanks so much..

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. I think let's address ramp. Each property has its unique demographic profile and economic profile, but we expect Durango to ramp [Technical Difficulty] two-year period, if we look at historical ramps in the Valley. And we do find that we grow markets.

So, 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. And then, I think past that, we look at other opportunities in the Valley to grow once we get Durango up and operate.

[Multiple Speakers]..

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

And with the highest income?.

That's right..

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] (ph) 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?.

Well, 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. And then, when we look at the catering revenue that's 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 in 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..

Hey, good afternoon, and thanks for taking my questions.

I was hoping to get just some color on kind of the real-time trends that you're seeing in the residential real estate market? And to what extent does that -- helps that market impact the consumer psyche versus other metrics such as unemployment or income levels?.

In terms of the impact of the housing market, obviously, I mean, you're hard back to the 2007, 2008 kind of impact of the housing market.

I just wanted to -- what's going on here from an economic perspective while you're seeing some prices down, you're also seeing transactions down, which is kind of -- and the housing market is actually fairly stable. And it's not a reiteration of what 2007, 2008 is.

You have a lot of folks that are in fixed loans as opposed to variable rate loans like they were in the recession. And for the most folks, even despite maybe a slight priced downward, they're all positive equity. So, there's no reason to sell.

And then, I think as Frank has always reiterated, from a housing perspective that we love the long-term demographic profile of Las Vegas and people continue to walk here, which drives demand for housing. So, I think, arguably from a housing perspective, it's -- we're undersupplied from actually the actual demand that is in need of housing..

Got it. And then, just the Native American....

Although housing prices are down from where they were, they were really what I would consider to be an unsustainable peak.

And so, what you've had as you guys talked about with increases in interest rates and things like that, you've just had 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 I think in 2008, we were like 74% of the homes were underwater in equity.

This is not what we're seeing right now. We're seeing a healthy slowdown or reduction from what I think was unsustainable..

And people now valuing the loan as an asset, which allows them to have kind of 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 [indiscernible] closed, I think it was in the -- or 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? And 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..

Got it. Thank you..

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. And 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. So, it is very consistent with what we've reported in the past and it remains so..

Great, thanks. And then, one, I guess, 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. And we've seen some of those markets actually lose 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 are getting just higher frequency and more kind of 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. So, while there may be some people that are looking to go get a value weekend down in Laughlin, I don't believe that that's our core customer.

I mean, our customers typically live within a three to a five-mile radius of our properties and they visit multiple times a week. And again, it's based on the quality of the facilities we have, the convenience of the facilities, the amenities, the team members, the service, recognition of the customer.

So, I don't think we really see Laughlin as a competitor of ours..

And 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. So, the difference between five years ago and now is we're providing amenities that give -- that remove the reason for you to need to go to the Strip if you're a local resident..

That's great. Thank you very much..

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

Hey, everyone. Thanks for taking my questions. Wanted to ask about a smaller piece of your kind of capital allocation that is on your kind of same store amenity upgrades across the portfolio that are pretty much been a pretty good core piece of your business.

But I was wondering if you could kind of qualify or give some color on your kind of ROI expectations for those investments and where you see that stuff and some things have come online recently. And you've talked in your prepared remarks 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..

I mean, well, John, I'm going to keep this a little bit high level rather than going into the returns of every single asset that we focus on. Amenities are our most recent additions to the Red Rock, right, with high-level table room, high-level slot room, we put in the casino bar, we also put in Lotus as I alluded to.

We're also getting the Rouge Room and then our Greek restaurants opening up in the next couple of weeks. We're incredibly happy with the returns on those assets, which is why we've allocated that additional capital to strategic investments across the balance sheet. [indiscernible]..

Got it. That's fair. Maybe one on wages and we kind of talked about it a little bit throughout the call, I think specifically about sort of security increase. But private payrolls, wages in Las Vegas are certainly outpacing a lot of other markets and the folks that are moving from California coming from high-income jurisdictions.

At the same time, 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? And if you think that's one of the reasons that the spend per visit that we're seeing is sustainable? Just maybe your thoughts on private wage growth in Las Vegas and its impact on your business?.

Yes, I can start and Steve can direct you towards the page. But in the investor deck, we have couple of slides on the average income of Las Vegas workers and incoming average income. And over the next five years, that looks really strong.

And of course, the more money you make, the more discretionary income you have and we're starting to see those effects at the properties as well, bringing on new amenities that are incremental to just gaming and making our properties kind of local regional destination centers.

Steve, maybe you want to give them some more detail on the exact numbers?.

Yes, I mean, John, this is all in the investor deck, but we've kind of showed you that average minimum wages from basically year-over-year Las Vegas probably one of the top cities in the Western United States growing 6.7%. And then, as Scott alluded to, from a personal income per capita, we're expected to grow almost 17% over the next five years.

So, as migrants come in from wealthier areas of California, they're bringing with them higher disposable discretionary income. I think you're saying, our business model is built off people and disposable income. So that's a good thing for us..

On top of the fact, we have a less promotional environment and we have significantly less incentive business. I mean, this is just focusing on core customer that wants to come to our facilities, because of our location, our amenities and our team members. So, we've gotten out of that promotional business that we ran back in 2019.

So, you're naturally going to have a higher spend per visit, coupled along with people having more disposable income from higher ratio..

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

Thank you..

The next question comes from Cassandra Lee with Jefferies. Please go ahead..

Hi. Good afternoon. Thank you for taking my question. I wanted to first ask about ADR. I think looking at Las Vegas overall and your ADR in past few quarters, it's been significantly higher than pre-COVID levels.

How sustainable do you think those are? And how might that be impacted if we go into a recession?.

I think as it relates to ADR, that's kind of a market-driven factor. So, we're very competitive. We shop -- and yield our rates and we hope to see increased upside in ADR. I do think that there is opportunity for us to grow occupancy.

So, we're constantly looking at the mix of business between corporate [incentives] (ph) and sales rooms and casino room mix as well to maximize that occupancy.

And then, certainly in light of any type of headwind, which we really don't see or foresee any of that coming in the near term, we have lots of different variable expense levers that we can deploy to continue to stay at high margins and high revenue within the hotel..

Great. Thank you. And for my follow-up, I know in the past, you've said that you like owning your real estate versus renting.

But with interest rate becoming more expensive, can we get your updated thoughts on owning versus leasing?.

Yeah. I mean, I think we like owning the real estate. Again, it doesn't mean we're beholden to holding it forever.

We're going to what's right to the -- what's in the best interest of our shareholders over the long term, Cassandra, but keep looking back, owning the real estate provides max -- provide us maximum flexibility, including the ability to keep our employees through COVID....

And including the ability to quickly delever like when Durango opens, the company is going to have significant free cash flow to deleverage its balance sheet. And we like that flexibility..

That's right. And I think, as you know, we're also in the local business, where over 50% of our covers come more than 5 times a month. That means we've got to keep our amenities fresh. We've got to keep the places fresh. And owning that real estate allows Frank and Lorenzo and the team to focus long term on vacating those assets..

Great. Thank you very much..

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..