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Red Rock Resorts (Class A) (NASDAQ:RRR)
Q4 2019 Earnings Call
Feb 04, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, and welcome to the Red Rock Resorts fourth-quarter and year-ending 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 and 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 the Red Rock Resorts fourth-quarter and year-end 2019 earnings conference call. Joining me on the call today from Red Rock Resorts are Frank Fertitta, chairman and chief executive officer; Rich Haskins, president; Bob Finch, executive vice president and chief operating officer; and Rod Atamian, executive vice president of development and strategy. Please note that our call today will include forward-looking statements under the safe harbor provision 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 measures. For the 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 that this call is now being recorded. Let's take a look now at our fourth-quarter results as we close out the year with a very solid quarter. On a consolidated basis, fourth-quarter net revenues increased 6.8% to $460.8 million, adjusted EBITDA increased 1.8% to $137.6 million. And margins increased 145 basis points to 29.9%.

With respect to our fourth-quarter Las Vegas operations, net revenues for the quarter increased 6.9% to $437.9 million, adjusted EBITDA increased 3.7% to $125.5 million, and margins decreased 89 basis points to 28.6%. When viewing our fourth-quarter Las Vegas performance, excluding the Palms, the results are very impressive and reflect the ongoing strength and stability of both the Las Vegas locals market and our core business. Measured on that basis, net revenues increased 3.9%, adjusted EBITDA increased 9.4%, margins increased 171 basis points to 34.2%, and flow-through was at the high end of our historical range. This represents our highest same-store fourth-quarter net revenue, adjusted EBITDA and margins since 2007.

When looking at the Palms fourth-quarter results, net revenues were $58.9 million, and adjusted EBITDA was negative $4.1 million for the quarter. Notably, when excluding costs and expenses related to the KAOS day club/nightclub and adjusted for normalized hold, adjusted EBITDA for the property was positive $3.2 million and what has historically been the Palms slowest quarter of the year. We are also pleased with the progress we saw at the Palms this quarter, in particular, we experienced growth in a number of key volume metrics at the property and are confident that there is still significant upside on both the revenue and expense side of the ledger. Importantly, we believe that the Palms has now reached an inflection point.

And we expect to generate positive EBITDA in the first quarter of this year. Additionally, we have taken onetime charges of $15.5 million in the fourth quarter related to the termination of certain artist performance agreements and employment arrangements at the Palms, as well as other onetime items. These charges were below the $16 million to $22 million range we discussed on our last call, and we do not anticipate any substantial charges related to the KAOS day club/nightclub going forward into 2020. Overall, these robust fourth-quarter numbers reflect our sharpened focus on the core business and were driven in large part by solid growth across all gaming segments, including slots, tables, sports, and ancillary games.

In addition, we saw a very meaningful ramp-up of the Palace Station in the quarter as our revenue and cost initiatives at the property gained traction. Let's look now at our full-year performance. Consolidated net revenues for the year increased 10.4% to $1.86 billion, primarily driven by a $122 million increase in revenues at the Palms. Consolidated adjusted EBITDA for the full year remained flat at $509 million as solid EBITDA growth in the remainder of our Las Vegas operations was offset by a negative EBITDA of $27.7 million at the Palms.

With respect to our full-year Las Vegas operations, net revenue increased 10.8% to $1.76 billion. Over that same period, adjusted EBITDA was essentially flat at $455 million and margins decreased 290 basis points to 25.9% as both EBITDA and margins were adversely impacted by the Palms negative EBITDA performance for the full year. Much like the fourth quarter, when viewing our full-year Las Vegas performance, excluding the Palms, the underlying power of the Las Vegas locals market, and our core business once again becomes clear. When measured on that basis, net revenues increased 3.4%, adjusted EBITDA increased 5.3%, and margins increased 57 basis points to 32.6%.

The full-year top-line and bottom-line growth were seen across virtually all of our entire Las Vegas portfolio, with nearly all of our large properties recording their highest net revenue and EBITDA levels in the last 10 years. Turning to the Palms full-year results, net revenues were $278.8 million and adjusted EBITDA was negative $27.7 million. Importantly, when excluding costs and expenses related to the KAOS dayclub/nightclub, onetime items related to the Palms opening and adjusted for normalized hold, net revenue at the property was $232.3 million, and adjusted EBITDA was $15 million. Let's take a look now at some of the leading economic indicators in Las Vegas.

As we begin 2020, it is apparent that the local economy remains extremely sound and supportive of future growth. The population is at an all-time high and rising as Las Vegas remains the third fastest-growing MSA in the nation. Employment also remains at record levels, and we have now seen 102 consecutive months of broad-based employment growth. Wage growth as measured by weekly earnings is also robust with Las Vegas reporting an increase of 2.3% for the year.

In addition, total earnings, which takes into account both employment and wages, increased 4.8% over that same period. And we have now experienced 102 consecutive months of growth in total earnings. At the same time, unemployment was down 3.5% as of year end, its lowest level in nearly 20 years. Housing was also solid as medium home sale prices were up 5.7% in December.

Lastly, there are over $20 billion in new capital investment projects planned under way or recently completed in Las Vegas, led by the new Raiders stadium, Project NEON, the convention center expansion, and multiple Strip developments, all of which are expanding the local economy. These strong economic fundamentals, along with extremely favorable supply demand dynamics, stable regulatory environment and attractive gaming tax rate only serve to confirm that the Las Vegas locals market is the best gaming market in the United States. As a proven leader with best-in-class assets and locations, unparalleled distribution scale, and a deep development pipeline remain uniquely positioned to outperform in this market moving forward. Turning to our Native American segment, we've reported management fees for the quarter of $19.9 million, an increase of 3.9% over the prior year driven by another excellent quarter at Graton Casino & Resort.

With respect to the North Fork project, and as previously noted, the California Supreme Court has granted the Tribe petition for review regarding key lower court decision involving the project, but has deferred taking any further action in that matter until as ruled on a very similar case involving the Enterprise Tribe, which received a favorable ruling at the appellate court level. The Enterprise Tribe's case remains the oldest civil case on the California Supreme Court docket, and we continue to anticipate that the court will schedule hearing on that case in the near future. I will now cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the fourth quarter were $128.8 million, and the total principal amount of debt outstanding at the quarter end was $3.076 billion.

At the end of the fourth quarter, our net debt to EBITDA and interest coverage ratios were 4.96 times and 4.27 times, respectively. Since the close of the fourth quarter, the company's consolidated subsidiary Station Casino has launched two refinancing transactions, which are expected to close this Friday, February 7, and which will further strengthen our balance sheet, increase our financial flexibility. The first transaction involves a $750 million note offering by Station Casinos due 2028 at an interest rate of 4.5% per year. The proceeds of this offering will be used to pay down a portion of its senior credit facilities and for general corporate purposes.

The second transaction involves an amendment of the Station Casino's senior secured credit facilities pursuant to which various lenders will provide an undrawn revolving credit facility of approximately $1.03 billion, a term loan A loan facility of $189 million, each maturing in 2025 and each bearing interest rate at 1.75% over LIBOR, and a term loan B facility of $1.53 billion maturing in 2027 and bearing interest rate at 2.25% over LIBOR. Aggregate proceeds of this amendment will be used to refinance the revolving loans and term loans outstanding under its existing credit facility. The closing of each transaction is subject to customary closing conditions. Capital spend for the fourth-quarter and full-year 2019 were $28.8 million and $353.3 million, respectively, inclusive of the Palms redevelopment project.

In 2020, we still anticipate spending approximately $90 million to $110 million in maintenance and other capital, which includes costs related to the completion of the ongoing Red Rock room remodel, which is expected to be complete March of this year. As noted on our last call, after completion of the Palms redevelopment in September 2019, we have reached a key inflection point as a company and we now expect to generate significant and accelerating free cash flow. As we enter this harvesting phase, we intently focus on maximizing financial performance of existing properties, reducing our net leverage ratio to a target level of four times or less through a combination of paying down debt and increasing EBITDA. As part of this deleveraging effort, we are also actively seeking to monetize a number of our noncore land holdings and expect to apply any proceeds generated there from to further reduce our debt.

Finally, the company announced that its board of directors has declared a cash dividend of $0.10 per share payable for the first quarter of 2020. The dividend will be payable on March 27, 2020, to shareholders of record on March 13, 2020. In sum, we are very pleased how we ended the year with respect to our core business and the Palms and look forward to continuing that momentum into 2020 and beyond. Operator, this concludes our prepared remarks today, and we are now ready to take questions with the participants on the call.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Carlo Santarelli with Deutsche Bank. Please, go ahead.

Carlo Santarelli -- Deutsche Bank -- Analyst

Hey, guys. Thank you, Steve. Thanks for all the color. As you guys looked at the Palms over the course of the fourth quarter, and now, obviously, into the 1Q, since the closure of KAOS, what are some of the things -- obviously, the inflection to positive EBITDA on an adjusted basis is very encouraging.

But what are some of the things you are seeing? And how that closure has maybe impacted other elements of the business positive and/or negative?

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

Sure. I'll start and then anyone else jump in on the call. So I think overall -- I think we've been very pleased with the performance of the Palms. Again, expectations hadn't really changed since our last quarter.

What we've seen is a couple of things from a gaming perspective since the club closure. We've actually seen a slight uptick in both slot handle and table volume as people appreciate the assets and not so much the chaos of KAOS, so to speak. From a hotel perspective, we've also seen an uplift and an uptick in the use of the assets, again, a net positive since the closing of KAOS. Where it's a mixed bag is probably the restaurants.

When you look at the core restaurants, the cafe, and the buffet, we've generally experienced positive growth since the uptick since the closure of KAOS. When it comes to the fine dining restaurants, it really comes down to how we activate Apex, some of the -- and Pearl and some of the other assets that we have at the Palms.

Carlo Santarelli -- Deutsche Bank -- Analyst

Got it. Thank you. And then just in terms of the land, and obviously, you guys do have some excess land. How should we be thinking about your progress with whether it's Wild West, some of the excess lands at Durango, the Inspirada parcel? And within the context of that four times leverage goal, how much are land sales kind of driving that target?

Frank Fertitta -- Chairman and Chief Executive Officer

I don't think they're driving the target, but I think everything is on the table to get to where we want to be. And while we have an unbelievable pipeline of, I think, it's eight locations with nearly 500 acres, we are going to keep the core holdings and look at monetizing properties that we probably wouldn't get to for a long, long time.

Rich Haskins -- President

So we're not saying that we're going to liquidate our entire land portfolio here. I think the point is that the effort is under way to monetize some of these assets. And we're evaluating each parcel to determine the highest and best use of each of those parcels, how we extract value out of the nonincome-producing assets. And which assets do we want to continue to hold, which do we want to sell to help pay down debt? So when we look at those excess parcels, we're looking at excess parcels at our existing casino properties, as well as excess that may be attached to these Greenfield opportunities as well that can be sold off.

I think the good news is that when we look at the land values here in Las Vegas, land values and rents continue to appreciate in Vegas to where we can now market these excess pieces to a variety of nongaming uses and that spread between what we may have paid for these assets as casino land, and that spread is now narrowed between casino-entitled land and the nongaming uses today.

Carlo Santarelli -- Deutsche Bank -- Analyst

That's very helpful. Thank you very much.

Operator

Our next question comes from Joseph Greff with JP Morgan. Please go ahead.

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

Good morning.

Frank Fertitta -- Chairman and Chief Executive Officer

Good morning.

Joseph Greff -- J.P. Morgan -- Analyst

Good afternoon, everybody. Just, Steve, going back to the Palms. You mentioned if we exclude KAOS and low table hold and the writedown, I think I heard you correctly that last year, the Palms generated $15 million in EBITDA. I would imagine that you guys would at least do that in '20 and consensus is somewhere around $20 million for this year.

Do you think we're right on sort of the near-term expectations for Palms? And then maybe, Frank, could you talk about what you think longer-term this property could do following these changes at KAOS?

Frank Fertitta -- Chairman and Chief Executive Officer

I think we still believe in the initial underwriting case. I think it's going to take longer to get there than we originally anticipated. I think closing the club in hindsight was definitely the right thing to do. And we're seeing positive traction at the property, but it is going to take us longer than we originally anticipated.

Cootey?

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

No. I mean, I think I agree with what Frank is saying. I mean, I think we're seeing positive growth across all the major lines of business at the Palms. And so as we talked about the last call, and we talked about during the remarks here, we've reached that inflection point.

The onetime charge is behind us, so we expect to be positive EBITDA in Q1 and beyond.

Frank Fertitta -- Chairman and Chief Executive Officer

Look, we're focused on programming deferral the right way. We see good crossover and pick up when that is programmed properly across the property. We're focused on more trials, growing revenue, and hotel slots, tables. And we're also focused on rightsizing the expenses at the property.

And again, we're seeing positive traction, but it's going to take longer than we originally thought.

Joseph Greff -- J.P. Morgan -- Analyst

OK. Great. Thank you. And then two follow-ups.

Steve, corporate expenses were a bit lower in the 4Q. How are you thinking about run rate in 2020 for corporate overhead? And then going back to the topic of monetizing land and non-EBITDA producing assets to help get your leverage ratio down. Can you talk about the timing of that? I mean, I guess my question is how theoretical is that and how many active engagements are you presently involved in with divesting some of these land parcels? And that's all for me. Thank you.

Bob Finch -- Executive Vice President and Chief Operating Officer

I'll take the real estate one first. I think as far as timing, a lot of these do take some time to go to the market. And then if there's any sort of entitlement period attached to that for the end user, that can take several months also. So I think you really will start to see more of that impact late 2020 and into 2021.

As far as active listings, there are two active listings that we have through national brokerage firms. There's the 56-acre assemblage at Cactus and I-15, which is just south of the South Point Casino and that is on the market currently, as well as the 88-acre parcel in Reno, which is in South Reno at Mt. Rose Highway and the 395. So those two are actively listed, and we are evaluating other opportunities to get those to market also.

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

And Joe, could you just repeat the first part of the question? I just want to make sure I get it right.

Joseph Greff -- J.P. Morgan -- Analyst

Corporate expenses came in lower than what we are modeling for the 4Q. So my question to you is how are you thinking about that corporate overhead in 2020. I would expect some lift there just because you don't have the Palms may be serving as a direct or indirect drag on the corporate expense line.

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

Right. I'm probably going to answer this in kind of 2 parts. So you're completely spot on. So run rate for corporate is probably around $30 million.

But what we've done has gone through the exercise of taking a look at some of our, let's call it, enterprisewide projects that were overburdening the properties with, and you're going to start seeing it basically moving from the -- expenses moving from the property to unallocated expense tab to really truly reflect what the properties are doing from the EBITDA perspective. So you probably see an increase in corporate for that exercise to probably about $20 million, add $20 million on to the $30 million. That said, on a consolidated basis, there's no change with that $20 million. I'm just moving it from taking out of the properties so that you can accurately see what the properties are doing and moving it to unallocated corporate to where it belongs given the enterprise nature of the projects.

Joseph Greff -- J.P. Morgan -- Analyst

Got it. OK. So we should really think of that $30 million not adjusting for the shifting from property to unallocated?

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

Correct. That's correct.

Operator

Our next question comes from Barry Jonas with SunTrust Robinson Humphrey. Please, go ahead.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Thank you. Maybe just expanding on the costs. If you think more at a higher level, do you see more opportunities to pull costs out either at the corporate or the property level? And with that, how should we be thinking about the labor market dynamic right now? Thanks.

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

We'll start with the labor market. I mean, I kind of talked to you about that the unemployment growth rate is at 3.5%, its lowest it's been in quite some time. So structurally, we're at fully employed. So it's a very tight labor market.

That said, and we are experiencing growth in wage inflation probably about 2% to 3%. The good thing about wage inflation and the values that there are more of them than there are of us. So again, when we like employees -- we like when employees experience wage growth because they tend to spend more at our casinos. And your second point, we're actively managing labor.

It's about yielding the floors correctly both on the slots, the tables, as well as food and beverage. We think there's a lot of opportunities there to fine-tune labor. And then, obviously, we're looking to continually optimize our marketing programs, which you'll see that the result of that as we go through 2020.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. And then next just relative to the Palace, the renovations there. What sort of ramp should we expect from here to get to sort of targeted ROI?

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

Well, I think we're continuing to make progress with the Palace, revenues, and EBITDA outpacing the core properties overall and margins are continuing to improve. But that said, I think we're going to still need some time. The progress is going slower than we expected, and there's still a lot of room to make on both of the revenue side, particularly the group business, the hotel business. And on the cost side, really kind of fine-tuning our F&B mix, which is sequentially improving, but can get a lot better.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. And then last one for me. Steve, you certainly outlined the strength in the locals market and a lot of the tailwinds there. But the Strip really has a lot of tailwinds on the convention side and the event calendar.

I'm just wondering how we should think about what might flow from the Strip to the locals market in Red Rock in terms of the Strip this year?

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

I mean, with the help of the Strip, I mean, we're definitely a second derivative. Again, their employees are our customers. So having a healthy Strip is incredibly positive for Red Rock. And then from a group business, particularly somewhere at the Palms, you are seeing an uptick in group business as you're seeing the first time, we have to go through a 12 to 18-month sales cycle.

We're now through it where meeting planners can actually touch the assets of the Palms. So it's been very well-received. We're seeing an uptick in the group business, which again, has a lot to do about the Palms and the nature of the assets. But also to your point, the tailwinds with a pretty decent convention market in 2020.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks so much.

Operator

Our next question comes from Stephen Grambling with Goldman Sachs. Please, go ahead.

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks for taking the questions. You mentioned the strength of Palace Station. Is there any way to quantify some of the benefits that you're seeing there reminding us of what you might be lapping? And then as a follow-up, are there opportunities for renovations at other properties that are currently under consideration or under way?

Rich Haskins -- President

I think the renovations here as our focus moves from -- I'll answer the first -- the second part first. So from a renovation standpoint, we're really focused on the delevering point. So we've just completed what I would call a massive CAPEX cycle, putting in $191 million in the Palace, $690 million in the Palms, and we're currently going through a Red Rock room remodel, which should be completed by March. So upon the completion of the Red Rock room remodel, we don't foresee any substantial CAPEX.

So the one great thing about the assets as you know --

Frank Fertitta -- Chairman and Chief Executive Officer

They're in great shape.

Rich Haskins -- President

They're in great shape. There's really no deferred maintenance, and that's really a competitive advantage we're using and we're growing above market. Your first question again? I should start with the first.

Stephen Grambling -- Goldman Sachs -- Analyst

Just help me think about quantifying the benefits that you're seeing at Palace Station. You kind of called that out as having particularly strong ramp-up.

Rich Haskins -- President

I mean, we've seen it across all areas of the business, right, particularly in the gaming side. And then going back to the prior question, where I think we can improve it as your out of town hotel business, we think we can get better at. And so that's one of the areas of focus. From an F&B perspective, we still need to generate more traffic in F&B.

We're getting traction and then really fine-tuning the cost side. As you know, F&B is a very tricky business, and so it's all about getting volume in the restaurants. So we're doing our best to manage F&B, but there's still a lot of wood to chop there.

Stephen Grambling -- Goldman Sachs -- Analyst

Makes sense. Helpful. And then one other quick follow-up. Is there any way to think about the tax base of the land that's in the market now or in general?

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

I think you guys have the advantage because the stakeholders currently probably weren't around when we purchased the assets, so consider the tax bases fairly well.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thanks so much. Nothing else I have here.

Operator

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

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

Hi. Good afternoon. Thank you for taking my question. Maybe just to continue on the Palms for a moment.

Just any thoughts about potentially reprogramming or activating that nightclub space? Is there anything on the docket there? I know it's probably -- is there anything that can be done to just sort of utilize that space better that's being contemplated?

Frank Fertitta -- Chairman and Chief Executive Officer

It's getting quite a bit of use right now through group business, sales, catering.

Rich Haskins -- President

Yes, I think Raul and the team over the Palms have done an excellent job, literally kind of reimaging and repurposing the nightclub into a very profitable catering and group space business.

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

Great. And then, Steve, I think you mentioned this in response to one of the prior questions. But maybe you could talk about a little bit more specifically. Just maybe starting to look at the promotional or marketing side of the house, just as you guys are beginning to kind of fine-tune and refocus on operations across the portfolio.

Could you talk a little bit more about that opportunity? And I think the trend we have seen is possibly a slight change in the net revenue trajectory, but certainly, more than offset by margins. Is that something we should -- at least some sort of interchange we should think about as we move through 2020?

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

Listen, I think the idea here -- I mean, for competitive reasons, I'm not going to go in a program by program, but we are incredibly focused on marketing. It's our second largest cost in the system. We're really trying to move toward more profitable, profit-driven customers and profitable-driven growth, which which are going to require us to optimize our marketing programs accordingly.

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

OK. Great. And the last question for me, but a bit of a total sidebar would be obviously -- I think one of the biggest focuses in the space over the last few weeks here has been what's going on on the sports betting front. If I recall back the memory banks here.

I mean, at one point, many of the people involved there with Station and Red Rock had significant experience in this, and actually had sort of built a kind of an interactive product at one point, which is fairly meaningful in scale. So kind of any thoughts about the landscape as it's evolving or your strategic angle toward it would be great.

Frank Fertitta -- Chairman and Chief Executive Officer

It's a growing business. So I think we're probably the largest fish in the Las Vegas Valley here. And we like our position in the current market.

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

Great thanks very much.

Operator

Our next question comes from Harry Curtis of Instinet. Please, go ahead.

Harry Curtis -- Nomura Instinet -- Analyst

Good afternoon, everybody. Most of my questions have been answered. I just had one follow-up question on the Palace. The ramp is great.

It's having a positive impact on Las Vegas, the overall Las Vegas results ex Palms. But if you were to separate Palace out, what would the 9.4% increase in EBITDA have looked like do you think?

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

By separating the Palms out -- I mean, excuse me, the Palace out, it would be right around the same level. I mean, listen -- yes. So let me get back to you on that, Harry. Generally, I just -- I'm not relatively breaking out the Palace.

Harry Curtis -- Nomura Instinet -- Analyst

Yes. Yes. That's a special request. All right.

And if you hazard a guess, again, ex Palms, do you think that the EBITDA growth based on everything that you're seeing in 2020 should be in the similar high single-digit range for Las Vegas this year?

Rich Haskins -- President

Listen, I mean, we feel very comfortable with the projections we've always stuck with. Right? We think the market is a solid market. The wind's been at our back, but we've always been very consistent and comfortable with the 2% to 3% market growth.

Harry Curtis -- Nomura Instinet -- Analyst

All right. Very good. Thanks very much, everyone.

Operator

Our next question comes from Jared Shojaian with Wolfe Research. Please, go ahead.

Jared Shojaian -- Wolfe Research -- Analyst

Hi. Good afternoon, everybody. Thanks for taking my question. So just going back to the Palms and the improvement that you saw after closing KAOS, is that improvement coming from new customers or existing customers staying and playing longer? And if it's the former, which I think is the case, where do you think that new customer is coming from? I'm assuming it's market share gains, but how do those demographics compare to what you were seeing earlier in the year? Thank you.

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

I think it really depends on where the customer is playing. So from a table games perspective, you are looking at primarily -- you're seeing growth in both out of town and local, but probably mainly out of town. From a suite perspective, you're seeing out of town growth. From a slots perspective, if it's going to be midweek, you're seeing more of a local activation as we're bringing the Palms back into the Station marketing program.

In terms of where the market share is coming from, as you know, Palms is not in the local market, it's in the Strip market. And so the out of town folks, particularly on the PD side, we know they're coming from -- they're larger players. They're coming from the main competitors you would think of when you consider that consideration set in the Strip.

Jared Shojaian -- Wolfe Research -- Analyst

Great. All right. That's helpful. Thank you.

And then ex the Palms, flow-through was a little bit better in Vegas. I don't recall you talking about why. Anything you can share on that?

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

I think we've made one change in our HR policy, that's one outstanding item. But for the most part, this is really the result of us.

Frank Fertitta -- Chairman and Chief Executive Officer

It's refocusing on the core business.

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

Right. Yes. So we have really refocused on the core business. We've seen an uptick in margin and slots, in catering and hotel, and all the higher-margin business.

We're just making them better. We did have one credit we took, and that was a $2.1 million credit related around where we view as an employee-enhanced benefit. We're giving them flexible time off. And so that allowed us to take a $2.1 million credit on benefits.

Jared Shojaian -- Wolfe Research -- Analyst

Got it. That's helpful. And just one quick housekeeping. I assume the percentage of Chinese visitation is quite small given the locals' focus, but I imagine there may be some visitation at the Palms and the like.

Any sense on what percentage of your revenue is coming from Chinese guys?

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

We really haven't broken that out. But I think where you're going to is that we really haven't seen any impact from the coronavirus.

Jared Shojaian -- Wolfe Research -- Analyst

Got it. All right. Thank you very much.

Operator

Our next question comes from John DeCree with Union Gaming. Please, go ahead.

John DeCree -- Union Gaming -- Analyst

Thanks, guys. I think all of my questions have been answered. Steve, maybe one housekeeping item. In your prepared remarks, I think you mentioned $90 million to $100 million of maintenance CAPEX this year including the room remodel at Red Rock.

I just wanted to confirm that. And then after that remodel is done, what's the baseline? Is $90 million to $100 million still kind of baseline CAPEX given it doesn't sound like there's any other kind of key projects lingering out there?

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

Yes. I would say $80 million to $100 million. So when you think of, like, it's a little bit of an awkward number because the Red Rock room, the remnant of that spend was probably $7 million to $8 million, kind of extending from 2019 to 2020. So going forward, you're really looking at $80 million to $100 million maintenance.

John DeCree -- Union Gaming -- Analyst

Great. Thanks, guys. Thanks for all the color.

Operator

[Operator instructions] Our next question comes from David Hargreaves with Stifel. Please, go ahead.

David Hargreaves -- Stifel Financial Corp. -- Analyst

I'm wondering if Palace has any customer overlap with the strat. If you're seeing anything from the remodels they've done there. And alternatively, are you sensitive to tavern activity in the area?

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

I mean, we have competitor -- I mean, when you think about Palace and all of Las Vegas, there's a competitor in every corner. So we're very sensitive to what our competitors are doing. We do think the locals' customer moves from place to place. Fortunately, I think we are situated where we have the best assets in the best locations.

And 90% of the population is located within five miles of one of our places, and location is everything.

David Hargreaves -- Stifel Financial Corp. -- Analyst

Great assets. I'm just wondering, do you think you overlap with strat at all?

Frank Fertitta -- Chairman and Chief Executive Officer

Sure. We overlap with a lot of properties. I would think it is very insignificant.

David Hargreaves -- Stifel Financial Corp. -- Analyst

Fair enough. And could you tell us where your restricted payment capacity is currently?

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

Restricted payment capacity is about $275 million baseline. That does not include -- there's a carve-out for a $50 million annual dividend. That's the new credit facility.

David Hargreaves -- Stifel Financial Corp. -- Analyst

Excellent. Thank you so much.

Operator

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

Thanks everyone for joining the call, and we look forward to talking to you in about 90 days. Thank you.

Operator

[Operator signoff]

Duration: 35 minutes

Call participants:

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

Carlo Santarelli -- Deutsche Bank -- Analyst

Frank Fertitta -- Chairman and Chief Executive Officer

Rich Haskins -- President

Joseph Greff -- J.P. Morgan -- Analyst

Bob Finch -- Executive Vice President and Chief Operating Officer

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

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

Harry Curtis -- Nomura Instinet -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

John DeCree -- Union Gaming -- Analyst

David Hargreaves -- Stifel Financial Corp. -- Analyst

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