Red Rock Resources (RRR) Q1 2019 Earnings Call Transcript

Red Rock Resources (RRR 0.30%)
Q1 2019 Earnings Call
April 30, 2019 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Red Rock Resorts first-quarter 2019 conference call. [Operator instructions] Please note, this conference 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.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Thank you, operator. Good afternoon, everyone, and welcome to Red Rock Resorts first-quarter 2019 earnings call. Joining me on the call today from Red Rock Resorts are Frank Fertitta, chairman and chief executive officer; Richard Haskins, president; and Bob Finch, executive vice president and chief operating officer. 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. The risks and uncertainties related to these statements are detailed in our filings with the SEC. During this call, we will also discuss non-GAAP financial measurements. For definitions and complete reconciliation of these figures to GAAP, please refer to the financial tables in our earnings press release and Form 8-K, which were filed this afternoon prior to the call.

Also, please note this call is be recorded. Let's turn now to our solid financial results. On a consolidated basis, net revenues increased 6.2% to $447 million. Adjusted EBITDA increased 3.6% to $145.1 million, and margins decreased 80 basis points to 32.5%.

With respect to our Las Vegas operations, net revenues for the quarter increased 6.9% to $422.4 million. Adjusted EBITDA increased 3.7% to $130.5 million, and margins decreased 100 basis points to 30.9%. Despite these results being negatively impacted by substantial construction disruption at the Palms throughout the quarter, we achieved our highest first-quarter net revenue and adjusted EBITDA performance on a same-store basis in over a decade. Notably, ex our two redevelopment properties, flow-through was within our targeted range of 50% to 70%.

Because the Palace Station redevelopment is now fully complete and the Palms redevelopment is rapidly nearing completion, we will no longer be in a position to discuss financial performance of our Las Vegas operations on a disrupted versus non-disrupted basis. We will, however, provide additional color with respect to both those properties later in the call. These solid first-quarter numbers were driven by growth across both gaming and non-gaming segments of our business. As for the overall strength of Las Vegas locals market, we have now seen gaming revenues in this market grow on a trailing 12-month basis at its fastest rate at any regional market in the United States on a same-store sales basis, with our gaming revenues growing at more than twice the rate of the remainder of the market during that same period.

Let's take a look now at some key metrics related to the Las Vegas economy, which remains very robust and supportive of future growth. Population is at an all-time high, and Las Vegas is now the second fastest-growing MSA in the nation. Additionally, Las Vegas is currently forecasted to add nearly 200,000 new residents by 2022, an increase of almost 10% from today. Employment is also at record levels, and we have now seen 94 consecutive months of broad-based employment growth.

March employment, which was up an impressive 2.8%, led by a 10.8% increase in construction job growth. Wage growth, as measured by weekly earnings, is also robust, with Las Vegas reporting an increase of 3.6% for the trailing 12 months ended March. In addition, discretionary spending has accelerated, as evidenced by a 7% increase in taxable sales for the trailing 12 months ended in January. Housing remains very solid as median home prices were up 9.6% in March, well above the national average.

More importantly, over 95% of homeowners now have a positive home equity, compared to a low of 22% during the downturn. Since that time, more than 64 billion of home equity value has been created in the Las Vegas market. In addition, there are now over 18 billion in new capital investments planned or under way in Las Vegas, led by the new Raiders stadium, Project NEON, the convention center expansion, and multiple strip developments, all of which will further expand the local economy. This impressive economic backdrop, combined with very favorable supply/demand dynamics, a stable regulatory environment, and the lowest gaming tax rate in the nation explain why we view the Las Vegas locals market is the most attractive gaming market in the United States.

And with our best-in-class assets and locations, unparalleled distribution and scale, and deep organic development pipeline, we remain uniquely positioned to take advantage of the ongoing growth in this extremely vibrant market. Turning now to our technology initiatives. The new IGT slot system continued to play a pivotal role in accelerating the gaming revenue growth, and we continue to see meaningful increases in key slot metrics such as carded slot win, time on device, and spend per visit. Back in December, we introduced the latest system enhancement in the form of personalized on-device marketing and messaging, which has been extremely well received by our guests.

At the beginning of the second quarter, we are introducing our newly developed time-based bonusing engine, which will allow us to more effectively personalize companywide bonusing programs for individual guests. In addition, we will be introducing a number of other system enhancements, including new companywide bonusing programs throughout the remainder of the year. We are confident that these system enhancements, along with the additional branding relationships such as Wheel of Fortune and Monopoly, will provide an even more engaging, rewarding, and convenient customer experience that will, in turn, further accelerate gaming revenue growth. Turning next to our Palace Station and Palms redevelopment projects.

We remain very bullish on both of these opportunities based on their hybrid ability to appeal to both residents and tourists alike and expect them to generate significant returns for the company upon completion. With respect to Palace Station redevelopment, as noted on our last call, the $191 million project was completed on time and on budget in December. That redevelopment added nearly 180,000 square feet of exciting new gaming and non-gaming amenities to Palace Station along with a number of exterior improvements. The guest response to this propertywide enhancements has been very enthusiastic, and we are already experiencing double-digit revenue growth at the property as a result of these changes.

With respect to the Palms redevelopment, our $690 million plan to completely reimage and reposition the property remains on time and on budget. And in early April, we debuted several key elements of Phases 2 and 3 of that plan as part of our grand reopening weekend, including Shark, a high-energy seafood restaurant with James Beard award-winning celebrity chef Bobby Flay; Green Street Kitchen, a New York-inspired eatery developed in partnership with Clique Hospitality, a leader in West Coast hospitality and nightlife; KAOS, a spectacular entertainment experience consisting of a fully integrated 73,000-square-foot day club and a 29,000-square-foot nightclub, which is already redefining the daylife and nightlife experience in Las Vegas. Notably, combined, the venue is going to accommodate up to 8,000 guests, making it the largest club in the city. And with its seasonal dome cover, the day club will be the only one in Las Vegas to be open on a year-round basis.

Completion of the final ultra-luxury suites in the Fantasy Tower, including the critically acclaimed Damien Hirst-inspired Empathy Suite; a casino floor expansion that adds approximately 300 new slot machines; and we'll also add 16 table games in connection with the opening of the Michelin-starred dim sum restaurant, Tim Ho Wan, from Hong Kong in late Q3; a casino connector seamlessly integrating the adjacent 599-room Palms Place Tower directly into the property's newly expanded casino floor; an indoor connector to the preexisting self-park garage with ingress directly into the newly expanded casino floor; and a state-of-the-art 270-foot tall LED sign spanning the entire east side of the Ivory Tower exterior, which is visible across the Las Vegas Strip. At the same time, we unveiled to rave reviews on status quo our nationwide rebranding and marketing campaign designed to drive further trial and awareness of the completely transformed property. Initial feedback on the completed components of this project from both locals and tourists alike has been extremely positive as the property's unique and differentiating offers are clearly appealing to both of these key customer segments. As noted earlier, the project is rapidly nearing completion with the final components of Phase 2, a world-class wellness spa and salon, expected to be complete in late Q2 and the final component of Phase 3, Tim Ho Wan, expected to be completed in late Q3.

Once fully complete, this once-at-a-time reinvestment will touch nearly every aspect of the iconic property, and we are confident that it will become a must-see gaming entertainment destination in Las Vegas. Turning to our Native American segment, we reported management fees for the quarter of $21.5 million, down 2.8% from the prior year, primarily driven by the exploration of the Gun Lake management agreement in February of last year. That negative impact was partially offset by a 14.3% increase in fees from the Graton management agreement as the property's performance remains robust. With respect to the North Fork project, we continue to progress with the few remaining pieces of litigation related to the project.

As we've previously noted, the California Supreme Court has granted the tribe's petition for review with respect to a key lower-court decision involving the project but is deferred, taking further action until that -- on that matter until it's ruled in a very similar case before involving the Enterprise tribe, which received a favorable court ruling at the appellate court level. We continue to anticipate that the court will schedule a hearing on the Enterprise case in the near future. I will now cover a few balance sheet and capital items. The company's cash and cash equivalents at quarter-end were $109.2 million, and total principal amount of debt outstanding at the end of the first quarter was $3 billion.

At the end of the first quarter, net debt-to-EBITDA and interest coverage ratios were 5.1 times and 4.3 times, respectively. Cap spend in the first quarter was $160 million. For the full-year 2019, we anticipate capital expenditures will be between $350 million and $400 million, inclusive of the Palms redevelopment project. Following the completion of the Palms redevelopment project, we expect to be a significant -- generate a significant amount of free cash flow beginning in Q4 this year.

As we exit this development cycle, our focus as a company moving forward will be on maximizing the financial performance of our existing properties and deleveraging the balance sheet with a target leverage ratio 4 times or less. Lastly, on April 30, 2019, the company announced that its board of directors had declared a cash dividend of $0.10 per share payable for the second quarter of 2019. The dividend will be payable on June 28, 2019, to shareholders of record on June 14, 2019. Operator, this concludes our prepared remarks for today, and we are now ready to take questions from the participants on the call. 

Questions and Answers:

Operator

[Operator instructions] Our first question will come from Joe Greff of JP Morgan.

Joe Greff -- J.P. Morgan -- Analyst

Good afternoon, everybody. Thanks for taking my question. I know it's early days here with the latest phase opening at the Palms. But maybe you can just talk a little bit about the mix between locals and nonlocals.

And again, realizing it's super early here, can you talk about maybe what, if any, impacts you have experienced at some of your other properties, notably Red Rock and GVR? Thank you.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes, sure. Well, Joe, you're right. We are within -- I mean we're less than 30 days into the project. I'll try to address the last question first.

From a cannibalization perspective, we've actually seen no cannibalization on any property. In fact, we've seen an increasing crossover play in the last quarter, which is very promising. And the second -- I forgot. The first question was? Not that I'm ignoring you, Joe.

Joe Greff -- J.P. Morgan -- Analyst

Just in terms of, I guess, the last four weeks, the mix between tourists and, say, locals?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

I mean, on this one, it's completely too early to tell. So give me another six to nine months.

Unknown speaker

Both segments are up considerably.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes.

Joe Greff -- J.P. Morgan -- Analyst

I totally get it. And then just with respect to the 1Q, just given, I guess, some of the costs hitting the Palms that may have been included in capex, was there -- do we see the Palms maybe retrenching in profitability 1Q versus 4Q, knowing that both relative contributions are small?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

I didn't -- sorry, so you broke up a little bit there, Joe. So if you could maybe repeat the question.

Joe Greff -- J.P. Morgan -- Analyst

Did the Palms in 1Q retrench a little bit on EBITDA versus whatever it contributed in the 4Q?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Actually -- and Joe, I mean, you understand both projects are ramping up. I mean, again, we take a very long-term view on these projects. It's very, very much at the beginning stages. So both the Palace and Palms were a little bit of a drag on margin.

The core business margins are actually up, but from a profitability standpoint, I don't think there was any retrenching at all.

Joe Greff -- J.P. Morgan -- Analyst

Got it. Great. Good job. Thanks, guys.

Operator

The next question comes from Carlo Santarelli of Deutsche Bank.

Carlo Santarelli -- Deutsche Bank -- Analyst

Hey, guys, thanks. Good afternoon. So my question is kind of along the same lines as Joe's, but thinking more about -- it's a little bit easier when you're doing a greenfield development to have a better sense of how to think about both the revenue and the margin ramps. But I guess with Palms, and acknowledging it's kind of unique from both aspects, how should we think about kind of your ability to get Palms to the margins that you guys believe it will stabilize, wherever that may be, in terms of the time line from completion? And when do you expect to kind of achieve the run-rate revenue level, as well as kind of run-rate margins for the property?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes. I think, Carlo, that's a good question. We've actually treated this as a completely new project, whether greenfield or not. I mean we've completely touched every aspect of this project.

So this is going to take no different than the same ramp as a new project, about 18 months.

Carlo Santarelli -- Deutsche Bank -- Analyst

OK. Great. Thank you. And then if I could, just one follow-up.

Have you guys seen -- obviously, there's been some -- it seems like some pressure on strip trends and granted more so in different higher-end segments of the business, which will be less impactful. But have you guys seen any evidence at all in your locals portfolio of maybe some of the softness that we're seeing on the strip spilling over into some of your locals customers' spend habits?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

No, actually. No, we haven't -- we've actually seen it pretty much at every property with the exception of one, positive revenue growth; and two, our two properties closest to the strip, we've seen extraordinary growth. So we've seen no change in our customer behavior.

Carlo Santarelli -- Deutsche Bank -- Analyst

Great. Thank you, Steve. That's helpful. That's it for me.

Operator

The next question comes from Shaun Kelley of Bank of America.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Good afternoon, everyone. Steve, from the prepared remarks, it sounds like you kind of want to move away from the same-store metric or some -- or as you start to include, I think, Palace pretty much for the full quarter here. But can you just give us a sense on this [Inaudible]? You said sort of no cannibalization that was identifiable. But just directionally versus the market, I think you characterized, on a trailing basis, Steve, that you guys are down almost 2x the market.

Did you continue in the 1Q, excluding Palace, to outperform what we see overall for the kind of market revenues? Or how would you characterize the broader portfolio ex Palace at a high level, if you don't want to give out the numbers?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

That's all right. I mean I think growth in the core business moderated a little bit after the exceptional Q4. I think we've seen the same trends as all the other operators, and then we had a weaker January. But we saw a sequentially meaningful improvement in both February and March, and we -- and then we expect -- and we continue to perform in line with the market.

That said, growth is never going to be linear here. Some quarters are going to be exceptional. You're going to have exceptional growth like we saw in Q4. Others, the growth is going to be a little bit more modest.

But as I mentioned in the prepared remarks, as we look at our core business over the past 12 months, which is the way we kind of view things as growth tends to normalize, we've significantly outperformed the market, and we expect to continue to do that going forward.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. And then just one -- sort of a little bit more detail on the Palms as we start to move forward on the ramp-up here. Can you just talk a little bit about the marketing progression? And is there anything specifically outside of, I think, the area you've highlighted, which is primarily the -- some of the Asian baccarat areas that you're sort of left to turn on or market? Or like just what's going to be the cadence as we move through second and third quarters here in terms of -- any amenities that sort of aren't online, take a little bit longer to market, or how do you expect a little bit of the kind of the marketing cadence to work from here?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

I mean I think you're going to see in Q2 because we have the opening weekend and the launch of on status quo some significant marketing expenses, as you'd see with any project. We've put $690 million into this project, so we want to make sure that it's rebranded correctly. But that -- once we go forward, you'll see kind of a steady cadence of marketing as we go throughout the year. And then, yes, as we start launching into our more Asian-centric theme with Tim Ho Wan, I would expect some additional spend to happen -- occur there.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Did any of that get in the way of sort of at least some sort of modest sequential improvement as we move quarter to quarter throughout the year? Anything we should be aware of?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Again, I'd go back to what I answered with Carlo. This is a long -- we're going to take this long-term view, right? So I think an 18-month view of getting this to stabilization. So there's no doubt there's going to be some bumps in the road, but I don't think the marketing programs are going to get in a way of sequential improvement.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

And I'll point them out.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

OK. Great. Thanks.

Operator

The next question comes from Harry Curtis of Nomura Instinet.

Harry Curtis -- Nomura Instinet -- Analyst

Good afternoon, everyone. If we could shift gears to the Palms, as you introduced this, the new -- the property, can you address how you're approaching your entertainment differently than others on the strip that tend to have a single-star focus? It's pretty expensive, but what's the ROI on it? And what sort of incremental or broader distribution advantages do you get by doing it your way?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

I mean it's a tough question to answer in terms of ROI in every single performer. I'm not sure I'm going to go into that level of detail as we don't really comment on individual deals. But the idea was we built on one -- kind of a venue that's unparalleled in the market. We had to come up with a talent profile or a group of people that actually helped perform there.

We wanted it to appeal to -- across all markets, and so that's why we went out pretty broad with -- you know, in terms of who we actually brought in. The idea here, Harry, is to -- not just to appeal to kind of the EDM crowd but to appeal to a wider music audience.

Harry Curtis -- Nomura Instinet -- Analyst

OK. And is this part of the initial marketing ramp and reintroduction of the Palms? Or is this a strategy that you intend to employ for some time?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

This is a continued strategy.

Unknown speaker

I mean we're in the early days, Harry. I mean we're just trying to reintroduce the property to both tourists and locals and get trial for the facility. So step one is the reintroduction, rebranding of the property, giving as much trial as we can. And then once we get through that initial launch, we'll start focusing on expenses and fine-tuning everything.

It's the same thing we do every time we open a new property.

Harry Curtis -- Nomura Instinet -- Analyst

Shifting gears, given the lift that Las Vegas locals population is enjoying, are you seeing a similar kind of lift in your frequent-player sign-ups?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

We are seeing increases of player sign-ups, along with -- I mean, listen, Harry, across all metrics within slot. I mean, you look at any of our metrics, hours played, spend per visit, new slot sign-ups, non-carded, carded slot win, all up. Is that what you're getting at?

Harry Curtis -- Nomura Instinet -- Analyst

Yes. What I'm trying to get at is your sense of new customers versus older ones that are just playing more.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes. No, we are seeing both.

Harry Curtis -- Nomura Instinet -- Analyst

All right. Thanks very much, guys.

Operator

The next question will come from Stephen Grambling of Goldman Sachs.

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks. This is maybe a broader question, but the overall strip GGR and revpar numbers have clearly been choppy and sluggish for a couple of years now, even as locals has been solid. What do you think has been the biggest challenge facing the strip? And can the locals market continue to outperform for a prolonged period of time or at some point to become correlated?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

I mean, listen. I mean we -- I think they're indirectly correlated, right? So from a strip perspective, our customers are their employees. Beyond that, our particular business is we're not as hotel-centric as most of the strip. We're more gaming-centric.

And I've kind of mentioned right about a dozen different economic indicators in local business and why we think we're going to continue to see the growth.

Unknown speaker

Yes. I think they're two totally different markets at the end of the day. The locals market is going to be focused on population growth, how the economy here is doing, wage growth, retirees coming into the market. And all the indicators for the Las Vegas economy are positive, and that's where our business primarily comes from, and we're very bullish in the Las Vegas locals market.

Stephen Grambling -- Goldman Sachs -- Analyst

Last one and maybe as a more micro follow-up. And you went through a little bit of this, but any additional color you can give on the magnitude of disruption either on a dollar basis and how we should be thinking about that both in the quarter and as the year progresses? And also, if there's any kind of hold or calendar shift that we should think about.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Are you talking -- I mean the Palms? I mean, it was -- I mean...

Stephen Grambling -- Goldman Sachs -- Analyst

No, just across the portfolio.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

No. I mean I think, as I mentioned, Palace, we're now beyond the disruption. Starting April, we are still -- we are at the Palms, we're pretty much beyond the disruption, though. There's going to be continued elevated expenses at the Palms as kind of we work through the opening process.

But from a calendar perspective, again, I don't see any holds there.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thanks.

Operator

And next, we have a question from Barry Jonas of SunTrust.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Hey, guys. You've given some great color on how you see the strip versus the locals market. I'm just curious -- I mean how do you think about the -- any potential backlash around rising resort fees, parking fees? Has that driven any upside? I believe you recently offered some no-resort fee promotions at some of your properties. Thanks.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

I think there's -- I think that's an opportunity, particularly for our resorts near the strip. I mean we don't enforce our guests to pay for parking, and our resort fees are very manageable, particularly relative to the strip.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. And then I believe in February, the board authorized a $150 million share authorization. Just curious if you can give any color. Have you bought anything? And where do you prioritize share repurchases in terms of capital allocation?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

So no, we haven't bought anything just yet. This is really built on suspenders. This goes back to kind of the meltdown in December 24. We did not have [Inaudible] price.

We realized that that would -- possibly could have been an opportunity to buy stock at that point. But right now, our focus, as I mentioned on the call, is to pay -- one, focus on ramping up our properties; and two, paying down debt and deleveraging.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Sure. And then last for me. The Wild, Wild West land purchase, the 20 acres, is that still on target to close in June?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes, it is.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you so much.

Operator

And next, we have a question from Chad Beynon of Macquarie.

Chad Beynon -- Macquarie Research -- Analyst

Hi. Good afternoon. Thanks for taking my question. Regarding the Graton management fee growth, I think you said 14% up in your prepared remarks, and sequentially, that was up pretty significantly as well.

Should we assume that based on what's going on at that property now, you could continue to see improvement from that from a year-over-year perspective? I think that was one area that came in surprisingly above most expectations.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

I think that's -- I mean just to keep the explanation short, I think your assumption is fair. Yes.

Chad Beynon -- Macquarie Research -- Analyst

OK. Great. There's nothing special about the seasonality of those fees. That's just kind of improvement in the quarter, and they're distributed that way.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Correct.

Chad Beynon -- Macquarie Research -- Analyst

OK. The $23 million writedown, could you elaborate as to what that was attributable to?

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Well, you're talking -- yes, sequentially the $23 million writedown, I'm sorry, yes, it's weirdly put on my P&L. That's actually pretty open. So that's all related to the Palms.

Chad Beynon -- Macquarie Research -- Analyst

OK. Thank you very much. Appreciate it.

Operator

[Operator instructions] Our next question will come from John DeCree of Union Gaming.

John DeCree -- Union Gaming -- Analyst

Hey, everyone. Thanks for taking my question. Just one high-level for me. Steve, I think you've hit it directly on in your prepared remarks about focusing on deleveraging the balance sheet.

I think you mentioned the target leverage ratio of about 4 times. Looking at how these properties could ramp and the amount of cash flow that you'll generate, it might not take all that long to get there. So I was wondering if you could comment on how you think about capital allocation once you achieve your leverage target. And then just a quick question how you think about just EBITDA growth relative to actual principal pay-down in obtaining that target.

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Well, the last question is an easier one because you're going to get a little bit of both. As I think you rightfully said, the properties are expected to ramp. So we're going to get some natural deleveraging and not just from the core property growth but through the ramp-up of Palace and Palms. And then we'll complement that through -- you got your normal debt amortization and any -- as I've mentioned and you've alluded to, once you head to 2020, you'll expect to be a significant free cash generator.

And so the great thing is we're going to have a lot of options available to maximize value to our shareholders, which could include buying back shares, returning dividends, and potentially looking at new developments/M&A.

John DeCree -- Union Gaming -- Analyst

Thanks, Steve.

Operator

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

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Well, thank you, everyone, for joining, and I look forward to talking to you in 90 days. Bye-bye.

Operator

[Operator signoff]

Duration: 28 minutes

Call Participants:

Stephen Cootey -- Executive Vice President, Chief Financial Officer, and Treasurer

Joe Greff -- J.P. Morgan -- Analyst

Carlo Santarelli -- Deutsche Bank -- Analyst

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Harry Curtis -- Nomura Instinet -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Chad Beynon -- Macquarie Research -- Analyst

John DeCree -- Union Gaming -- Analyst

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