Q4 2023 Red Rock Resorts Inc Earnings Call
Participants
Stephen Cootey; Executive Vice President, Chief Financial Officer and Treasurer; Red Rock Resorts Inc
Scott Kreeger; President; Red Rock Resorts Inc
Lorenzo Fertitta; Manager; Red Rock Resorts Inc
Joseph Greff; Analyst; JPMorgan
Carlo Santarelli; Analyst; Deutsche Bank
Shaun Kelley; Analyst; BofA Global Research
Jordan Bender; Analyst; Citizens JMP Securities
Steven Wieczynski; Analyst; Stifel Europe
Barry Jonas; Analyst; Truist Securities
Daniel Politzer; Analyst; Wells Fargo Securities, LLC
Stephen Grambling; Analyst; Morgan Stanley
Chad Beynon; Analyst; Macquarie Research
Joseph Stauff; Analyst; Susquehanna International Group
John DeCree; Analyst; CBRE
Presentation
Operator
Good afternoon, and welcome to Red Rock Resorts fourth-quarter and full year 2023 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
Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Red Rock Resorts Fourth Quarter and Full Year 2023 earnings conference call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Krieger 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 definitions and complete reconciliation for these figures to GAAP, please refer to the financial tables in our earnings press release, Form eight K and investor deck, which were filed this afternoon. Prior to the call. Also, please note that this call is being recorded. And before we get into any details, we are proud to say that the fourth quarter represented another strong quarter for the Company by any measure in terms of adjusted EBITDA, our Las Vegas operations had the best fourth quarter in the history of our company. And in terms of net revenue and adjusted EBITDA margin. Our Las Vegas operations experienced second-best fourth quarter ever.
As we look at our results for the full year, our Las Vegas operations experienced near record net revenue and adjusted EBITDA margin while achieving our best adjusted EBITDA has come from.
In addition to showing strong financial results, 2023 was a year in which we continued to validate our long-term growth strategy across the Las Vegas Valley by welcoming our Durango and wildfire Fremont properties to the Redrock families. The successful openings of these properties not only validates our long-term growth strategy within the Las Vegas Valley. It also demonstrates the power of our owned development pipeline and real estate bank, which now consists of over 441 acres of developable land positions in highly favorable areas across the Las Vegas Valley. Not only did we expand our physical footprint across the valley in 2023, we continued to execute on our core strategy of reinvesting in our existing properties to deliver fresh and relevant amenities to our guests, all while remaining focused on best-in-class customer service and executing this strategy the team delivered another strong quarter across all business lines, but this quarter marks the 14th consecutive quarter that the Las Vegas operations delivered adjusted EBITDA margins in excess of 45%.
Now let's take a look at our fourth quarter and full year results with respect to our Las Vegas operations and with our Durango resort only open 27 days in the quarter. Our fourth quarter net revenue was $459.4 million, up 9.5% from the prior year's fourth quarter. Our adjusted EBITDA was $220.3 million, up 6.5% from the prior year's fourth quarter. Our adjusted EBITDA margin was 48%, a decrease of 134 basis points from the prior year's fourth quarter. On a consolidated basis, excluding a one-time benefit received in the fourth quarter last year from greater Our fourth quarter net revenue was $462.7 million, up 9.3% from the prior year's fourth quarter. Our adjusted EBITDA was $201.3 million, up 6.1% from the prior year's fourth quarter. Our adjusted EBITDA margin was 43.5% for the quarter, a decrease of 133 basis points from the prior year's fourth quarter.
Let's turn to our full year performance. With respect to our Las Vegas operations of full year, net revenue was $1.7 billion, up 3.6% from the prior year. Our full year adjusted EBITDA was $818.8 million, up 1% from the prior year. And our full year adjusted EBITDA margin was 47.9%, a decrease of 134 basis points in the prior year. On a consolidated basis, excluding the one-time benefit we received last year from raising our full year net revenue was 1.7 billion, up 3.8% from the prior year. Our full year adjusted EBITDA was 746 million, up 0.4% from the prior year. Our full year adjusted EBITDA margin was 43.3%, a decrease of 143 basis points from the prior year. In the quarter, we converted 73% of our adjusted EBITDA to operating free cash flow, generating $147.1 million or $1.41 per share. When looking at our 2023 cumulative free cash flow, we converted 59% of our adjusted EBITDA to operating cash flow generating $437.6 million or $4.18 per share. Significant level of free cash flow was either reinvest in our long-term growth strategy, including our Durango and wildfire Fremont projects, existing property investments or return to our stakeholders via debt paydown and dividends. As in past quarters, we continue to remain operationally disciplined and focused on our core local guests as well as continue to grow our regional and national segments.
When comparing our results to last year's fourth quarter, we continue to see upside from strong visitation and play in our local, regional and national segments. Strength, coupled with strong spend per visit across the majority of our carded play, allowed us to enjoy record fourth quarter revenue profitability across our gaming segments.
Turning to the non-gaming segments, both hotel and food and beverage continued to grow year over year and deliver record revenue and profitability. In the fourth quarter, our hotel division experienced its highest quarterly revenue and profit in our company's history, driven by our team's success on continuing to drive higher occupancy and ADR across our hotel portfolio, food and beverage experiences, highest quarterly revenue and profit in our company's history, driven by higher average check and cover counts across our food and beverage outlets and the continued strength of our catering business. Our catering revenue continues to remain strong as this quarter represented the 10th consecutive quarter of double-digit year-over-year growth in this business line.
With regard to our group sales. Despite a difficult year-over-year comparison, we continue to see positive momentum in this business, driven by growth in both room nights and ADR as our pipeline continues to grow into 2024. As we begin the new year, we remain confident in our business, particularly with the addition of our Durango property. So we will continue to face challenging year-over-year comparisons through that throughout 2024, as well as face continuing disruption in our Palace Station property due to ongoing traffic work around the property during the first half of 2024.
On the expense and labor side, we remain operationally disciplined and continue to look for ways to become more efficient while continuing to provide best-in-class customer service to our guests and remaining the top employer of choice in the Las Vegas Valley fight a tougher year-over-year comparable. The Company continues to manage its expenses, generate record financial performance and return capital to our shareholders. These results demonstrate the resilience of our business model, the sustainability of our operating margins and the ability of our management team to execute for our long-term growth strategy while taking a balanced approach to returning capital to our shareholders.
Also, during the quarter, we successfully opened our Durango casino resort on December fifth to rave reviews from our customers. Our newest destination is located off the two 15 expressway and Durango drive in the Southwest Las Vegas Valley within the fastest growing area in the Las Vegas Valley. Very favorable demographic profile and no unrestricted gaming capacity by mile. While we are still in early days, we are extremely pleased with the results of resorts opening. The property thus far has grown the surrounding market has attracted new customers to our brand has been profitable since day one. As we've stated on past earnings calls, we expect to experience and have experienced some cannibalization across our core portfolio through the Durango opening, but this has been largely in line with our expectations and is expected to backfill given the strong long-term demographic growth profile of the Las Vegas Valley and our proximity of our properties to those high growth areas within the Valley.
Now let's cover a few balance sheet and capital items. Company's cash and cash equivalents at the end of the fourth quarter was $137.6 million, and the total principal amount of debt outstanding was $3.3 billion, resulting in a net debt of 3.2 billion. As of the end of the fourth quarter, the Company's net debt to EBITDA interest coverage ratio was 4.3 times and 4.7 times, respectively. As we stated on our previous earnings calls, our leverage is peaking as we wrap up our Durango project as expected to ramp down. If you look to delever to our long-term net leverage target of three times.
Capital spend in the fourth quarter was 187 million, which includes approximately 168.7 million of investment capital, inclusive of Durango was $18.3 million and maintenance capital for the full year 2023 capital spend was $699.5 million, which includes approximately 615.4 million in investment capital, inclusive of Durango. It was $84.1 million in maintenance costs as we look into our capital spending for 2024, we expect to spend between 140 and $100 million spread between maintenance and investment capital during the quarter. Along with the opening of Durango, remain committed to strategically investing in our core strategy of offering new amenities to our guests, our existing locations. Over the past several months, we've successfully opened a new high-limit table room at our Green Valley Ranch property. We are pleased with the early results from this room as well as all the other amenities we have opened up in 2023. We expect to continue to invest in our existing properties in 2024, including a new high limit slot room suites of new high limit slot room as well as two new restaurant offerings that at Green Valley Ranch and upgraded race and sports book, a partial casino remodel and a new Yard House restaurant at Sunset Station we are very excited to move beyond the challenges created by the construction of these properties and introduce these new amenities to our customers later this year. Like our other more recently increased amenities. We expect these solid investments over the medium and long term, consistent with our balanced approach to investing in our long-term growth strategy and returning capital to our shareholders. We are pleased to announce the Company's Board of Directors has declared a special cash dividend of $1 per Class A. share. Special dividend will be payable on March fourth to all shareholders of record as of the close of business on February 22nd. The dividend reflects our Board and management team's continued confidence in the resilience of our business model and the strength of the Las Vegas locals market.
Lastly, in November 2023, we successfully completed the sale of approximately 73 acres at our former Fiesta, Rancho and Texas station properties for approximately $58 million. Proceeds from this transaction were used to pay down debt and represent the continued execution of our long-term real estate development strategy.
As we look to reposition and upgrade our real estate portfolio for the next chapter of growth station.
Turning now to North Fork. As you may be aware, our management agreement with the tribe was approved by the chairman of the National Indian Gaming Commission in early January, clearing one of the last hurdles to the development of this project, which will be located on the Tribe's 305 acre parcel trust plant. The site is located north of Fresno, California and offers convenient ingress and egress and excellent visibility from Highway 99. The design is near complete and we expect we are fully engaged in the process of retaining a general contractor and discussing the project project with financiers. We are very excited to be making great progress on this project, and we will continue to provide updates on our growth program.
In addition to our previously announced special dividend on February seventh, the Company announced that the Board of Directors has declared a regular cash dividend of $0.25 per Class A. common share payable for the first quarter of 2024. The regular dividend will be payable on March 29th to all shareholders of record as of the close of business on March 15th. When we combine our special dividend with our regular declared first quarter dividend, we expect to return approximately 136.6 million to our shareholders during the first quarter of 2024. With our best-in-class assets and locations, coupled with our development pipeline of seven homesites located the most desirable locations in Las Vegas Valley. We have an unparalleled growth story that will allow us to double the size of our portfolio and capitalize on the very favorable long-term demographic trends and high barriers to entry that characterize the Las Vegas locals market. We would like to recognize and extend our thanks to all of our team members for their hard work. Our success starts with them, and they continue to be the primary reason why our guests return time after time, I'd like to thank them for again.
For voting us the top casino floor in Las Vegas Valley for the third consecutive year. And finally, we'd like to thank our guests for their loyal support in each of the last six decades.
Operator, this concludes our prepared remarks for today, and we are now ready to take questions.
Question and Answer Session
Operator
We will now begin the question-and-answer session. (Operator Instructions)
Joe Greff, JPMorgan.
Joseph Greff
Good afternoon, guys. Thanks for taking my questions. And obviously, the results were better than we had the consensus we're expecting from an EBITDA perspective, EBITDA up 13, a little over $13 million year over year. I'm assuming there is net cannibalization or cannibalization ex Durango. And there I was hoping you can maybe sort of quantify and maybe same store EBITDA performance and then maybe also frame it with same-store EBITDA margin performance in the quarter or in December as we think about kind of modeling the ramp, what are the anticipation of a ramp throughout the balance of 2024 between Durango and the rest of the portfolio?
Stephen Cootey
Yes, this is Steve. So I mean, I'm a bit before I hand over to Scott, is that we haven't broken out properties in the past, and so I don't think we're going to be doing so in the future. But Tom, just for general note on cannibalization and Durango is doing. I'll turn it back over to Scott.
Scott Kreeger
Yes, Joe, as far as drilling goes, we've opened up and the property is performing above our expectations. We're super happy with how we opened up the team's effort across the whole employee base of the Company. We want to extend our thanks for all of the support Tom and if things are going great, when we talk about cannibalization specifically, we're not experiencing any differ levels of cannibalization than we forecasted in previous calls. So and we think that I can. I think that it's important to note that we've kind of always says as these properties ramp and that our focus in the early days with Durango is provide great quality service quality product and work we're working through the efficiencies of Durango and everything is really trending as we expected.
Joseph Greff
Great.
Thanks.
And I was hoping maybe you can give us some sort of perspective for the locals market and the benefits from and just the festivity festivities that have started around the Super Bowl and continuing through through the weekend, how much of a lift. Do you think that is for the properties surrounding this?
Lorenzo Fertitta
This Lorenzo and I think everybody around here is pretty positive and pretty excited about the Super Bowl event. On it feels like it's shaping up to be one of the, if not maybe the best weekend biggest weekend from Events segment standpoint that Las Vegas has seen, which is obviously quite a statement. We'll say that we're definitely feeling the impact on from a regional standpoint, inbound from home guests that are coming in. We're seeing it in the hotel side and also on the casino side relative to people wanting to come in for the game. So on even more. So obviously, Super Bowl is always a bit weak in the Las Vegas but I would say that this seems to be shaping up to be bigger than a normal Super Bowl weekend for the city and for us per se.
Joseph Greff
And then one final question, if I may. You mentioned about some disruption in the first half this year at Palace Station. Can you sort of help us understand and maybe think about an impact there and was there anything that commenced in the fourth quarter that generated some disruption that obviously we couldn't see in the aggregated reported results.
Scott Kreeger
As I was describing our own, we'll break it down by property Palace is undergoing around it. So perimeter road work, that Rover was expected to be done by the end of the year and is now been extended into all the way to May based on complications of underground and different scheduling issues. So we continue to trying to mitigate the impacts to towers, but it is pretty disruptive getting in and out of the property.
On another note, as we see this as positive, we continue to reinvest in the properties. We've seen great success with our new Highland rooms and new amenities and GVR has a slight impact when it comes to the slot island that rules the table Island room, which we've opened up the table and are aware a couple of weeks away from opening up the slot high-limit room and then offering two new restaurants. So while there's some short-term disruption, the upside is we've been very successful with this formula in other properties like Red Rock. So we look forward to the upside of that.
Same token at Sunset, we basically have gone in and finding huge success in duration, sportsbook being reformatted to more of a viewer style format than the traditional race and sports book were about over-the-counter wagering.
And so reconfiguring our race and sports books to be more experiential has been a huge success so far and the great success we've seen at Durango, what we did there and trying to bring sunset up to that level.
Yes.
So we're investing in a new race and sports book, a new casino bar and new high-limit room, our area for sunset. So in the interim, through the remainder of the spring will be under construction that we also are adding a Yard House restaurants in that expansion and remodel. So once we get through that, it's going to be a great add to the property.
Joseph Greff
Thank you, guys.
Operator
Carlo Santarelli, Deutsche Bank.
Carlo Santarelli
Our 82 guys on whose understanding you don't want to get into property level metrics. I guess my question was less around numbers and more maybe around experience, so to speak on if you kind of look at your margin profile throughout 2023 on a same-store basis, your margins were kind of down in that 100 to 200 basis point range over the 2Q and the 3Q 4Q actually improved on despite the opening. So is it is it fair to assume that at this stage that that kind of in those 27 days that that property Durango specifically did not necessarily have a meaningful drag on your margins and is there anything perhaps one-time in nature that we need to be cognizant of as we look out to 2024 as it pertains to the margin profile of that asset but in Durango, I have to say it's one of the best openings.
Scott Kreeger
You know that I've seen in terms of the guest experience. And again, like Scott said, special thanks to the other six properties and their executive teams and team members that still then, you know, anywhere and everywhere that needed to make that as great an experience for the customer as possible. You know, it's very difficult at the beginning when we opened Durango, the visitation was off the charts. I mean, it's very hard to, you know, keep up and make it a good experience. I think our team did that while no opening is perfect. This is as close as I've seen to a perfect one. So take that initial three weeks, you have to realize everybody's calm and everybody wants to see it. There's a tremendous amount of trial. And just like we've seen with other every other property that we've opened after that initial wave of the opening, you're going to find out where your natural market settles into, right? And that's the stage that we're in right now. I think we're settling into what is going to be like a base level of business. And then over the next couple of quarters, we're going to start working to get more efficiencies out of that property. But the first focus for us, there was to have a smooth opening, have good word-of-mouth on the street, how people want to go there, and we'll worry about getting the efficiencies over the course of the next two to three quarters. Do you have anything else to add?
Stephen Cootey
I would just say I'll go back to Frank said it well with Durango. I'll just go back to the fundamentals that kind of the key fundamentals of acquisition cost being very stable in the market. Our cost of goods sold year over year and quarter actually went down our labor as a percentage of revenue went down. So the teams out there at the properties are doing a super job of managing some of the key expense areas we do still struggle a bit with energy costs are up about 1 million bucks in electrical costs for the quarter. But otherwise, as we go forward, absent what Frank said, the base of our expenses looks pretty stable.
Carlo Santarelli
And just a quick follow-up on that. Previously you guys had talked about given the demographic and the location of the asset. You anticipated the table game side to be a little bit greater of the mix on relative to slots than most other properties has kind of that held through thus far additional rounds of call it yes.
Lorenzo Fertitta
I mean, I think if you kind of take a look around the property, I mean, obviously, we said we're super happy with the way things are going. If you asked us, what are we absolutely surprised about, but maybe a little bit the table games business has been the drop has been but better than we certainly projected. I would say that in addition to that, the food with customers kind of reaction to overall food and beverage, particularly the food hall, it's just been a smash Grand Slam hit. So for doing big volumes, big numbers as well as people's reaction to the Sportsbook connected to the George restaurant with the indoor outdoor feature and restaurant basically inside of the Sportsbook. So people have reacted nicely to the different amenities. But yes, given the demographic in the area table drop is stronger than we expected initially.
Stephen Cootey
Probably you can refer to the December volume market share report to kind of give you an indication that that is never perfect. Just given the scheduled drops to solve it in tables outperformed in December.
Yes.
No, for sure, for sure.
Carlo Santarelli
Just what that data sometime, especially around new year's season, that could be kind of careful what you're looking at.
But I appreciate that, guys.
Thank you very much.
Operator
Shaun Kelley, Bank of America. Please go ahead.
Shaun Kelley
Hi, good afternoon. Thanks for taking my question on. Just I was just hoping you guys could think a little bit forward about the natural maturation curve here on.
Yes.
Stephen Cootey
I guess I'm just struggling a little bit to kind of get a sense of did this open up better than sort of run rate expectation or typically we would expect that property to build and stabilize over time. And it may be a combination of both that, I guess trajectory wise of getting on. I'm just getting a few mixed signals, and I'm trying to kind of get my arms around on both the revenue and the EBITDA contribution of what we're seeing so far on your way of better, and we expect that to normalize a little bit down or actually is there just an implied ramp up, which I think many of us would expect having for the casino openings in the past. Just any directional help just given again, the headline results here were excellent and clearly imply some great numbers for the property or the portfolio and Sean Shannon.
I'll start and I'll hand over the team, but I think that the opening, as Frank, as you said, was was pretty damn near close to perfect. And but we also said, our focus was on guest service. Our focus was on execution and with the property was the times. And again, as Frank said, the team did a fantastic job. We view this as a 40 year asset. And so right now, as we're starting to find RCR footing in terms of what's our normal business, we're going to be in their retail refined tuning Durango to make this the most efficient property that we can. And in addition, you know, a the cannibalization we're expecting to backfill the core properties, just given the favorable long-term demographic profile in Las Vegas. But we've always said this is a several year ramp. We get the stabilization. And so we think we're well on track to hit that target Great.
Shaun Kelley
Thanks, Stephen. And maybe just one smaller one, but just sort of a tactical one around the way preopening works here. Can you just give us a sense, was there some loaded costs in terms of when you typically see or bringing employees on the line. But before the actual opening, are you did you incur some of those expenses or is the expense base really reflective of really just from December fifth, honor was again, there are some expenses incurred in the quarter prior to opening that might have just in the way that this happens. I think I've seen a little bit of both over the years. I'm just curious on how you did.
Stephen Cootey
We incurred about 20 million of preopening expenses in Q. one which is in Q4, and that was a little bit larger than we anticipated due to the delay. If you recall, we moved the opening from late November to December fifth and so we had to incur additional preopening expenses, but those are a little below the line and and we wouldn't expect any going forward with regard to Durango.
Shaun Kelley
But just to be clear, were there any staff costs and that was in that kind of period of buildup as employees are joining in that in that period of REO that aren't that are in pre-opening is there's just not that just that initial few weeks beforehand, everything Schaffer improved.
Stephen Cootey
Everything is captured improved.
Okay.
Shaun Kelley
Thank you very much. Appreciate it.
Operator
Jordan Bender, Citizen's GMP.
Jordan Bender
Great.
Thanks for taking my question. And Steve, you kind of alluded to it in some of the prepared remarks, but with free cash flow ramping you're turning to the special dividend in the first quarter, but you've also talked about your debt reduction kind of following the opening in Durango. Assuming that you do turn to debt reduction using that free cash flow, can you maybe give us a perspective of the potential cadence of the reduction until we do hear something further on incremental projects coming from the company.
Thank you.
Scott Kreeger
I think that the way the Board views this quarter by quarter, like we've always said, we're going to have a peak leverage window when Durango wraps up, which is around this time and then we're going to slowly march down toward our long-term target target to three times net. That said, we have always said we're going to take a balanced view of returning capital. So we spent the last two years investing in Durango, and it's off to a great start.
Stephen Cootey
And given the confidence in the business model and the way Durango is going, we felt now is the time to issue a special dividend and balance that I think maybe your question was more towards new or additional projects coming online I think our thoughts are to basically take 24 Durango, fine tuned on delever the company, and we're going to be in a position then in 25 to evaluate which new projects we should I'll be bringing online.
Jordan Bender
Understood, thanks. And then just on the follow-up, your free cash flow conversion, no, just about 60% for the year. Is that kind of the right level to think about moving forward?
Stephen Cootey
Yes, it is because that's fully loaded it. I think 4Q is a little bit skewed to the higher end because it wasn't a tax payments are estimated tax payments at that quarter, you think you have an inventory provision of 100 million of mandatory debt payments and maintenance.
Operator
Next question comes from Steve Wieczynski with Stifel. Please go ahead.
Steven Wieczynski
Hey, guys, good afternoon. So Steve or Scott, if I could maybe ask I mean, Durango has been kind of beat dead here a little bit but if I could ask one more on Durango, just wondering maybe what new sign-ups and for your loyalty program look like relative to your expectations. And I'm just trying to get an idea of how the property has been helping to bring new customers into your ecosystem if that makes sense.
Stephen Cootey
Yes, blended for the quarter, our new sign-ups are up high single digits for the quarter and joining data in the limited time it was open for the quarter did have a definite impact.
Steven Wieczynski
Okay. Thanks, guys. Appreciate that. And then, Steve, look, we fully understand you guys don't provide formal guidance for the year. But as we think about 2024, is there anything we need to be thinking about whether it's in terms of headwinds or tailwinds for this year or anything that would disrupt the normal cadence for how the year should normally play out? And then maybe also just wondering what you're thinking about for corporate expenses this year. So to kind of address that, I mean, as Scott kind of walk us through some of the construction disruption, both.
Stephen Cootey
Yes, I'll do the new amenities at Sunset and Green Valley as well as data work at Palace, which will affect us or affect us during the first half of the year. And then we've obviously Durango we expect to continue to ramp up as far as corporate, I think roughly around $19 million where we ended up in Q4 is right, right, where it would be the rest of the year per quarter.
Steven Wieczynski
Okay.
Perfect. Thanks, guys. Appreciate it.
Operator
Barry Jonas, Truist Securities.
Barry Jonas
Hey, guys.
The Culinary Union contract renewals saw pretty large increases across the strip.
Wondering if that's having any impact on your your revenues and should we expect any indirect pressures on your labor costs?
Scott Kreeger
Thanks.
So, Scott, I'll take that maybe someone else can jump in.
Let's start by just saying and reiterating what we've said in the past. We think we're kind of partner of choice for a variety of reasons, one because of our culture and two, because of our benefits package, we think very competitive in the marketplace. We had a very successful hiring process for Durango and so we tested that in the market and we found that our compensation package in benefits was very competitive. That being said, we want to remain competitive and with the increases that will come with the new contracts, we're definitely going to have to look and make sure that we're competitive and so there will be some consideration there. But as Steve likes to say, all the time, you know, all of those 60,000 plus Colony or nearly workers that Scott raises are also a lot of our customers. So there's a waterfall effect there that benefits us on the other side.
Barry Jonas
Got it.
Got it.
And then just for a follow-up, can you talk a little bit about your Tavern strategy here and how you're thinking about organic growth versus M&A?
Yes.
Scott Kreeger
So taverns are an interesting new segment that we're looking at. It's a very micro local segment. It's a neighborhood segment, has a different customer profile that we find attractive and we find that the investment returns on taverns is pretty attractive on. We have a strategy where we'd like to create a penetration in high net-worth, high growth areas of the valley kind of akin to our large site development strategy. And so what we we look at everything, whether that's an acquisition or a ground-up for a build to suit situation, but we always find that having our own footprint to design a project. The way we want it designed in a new emerging area is probably our method of choice but we'll look at everything.
Barry Jonas
That makes sense.
Perfect. Thank you.
Operator
Dan Politzer, Wells Fargo.
Daniel Politzer
Hey, good afternoon, everyone, and thanks for taking my questions. I was more curious, just in general in the market, obviously a big new property opening, you're going to see a pickup in promotional spend. I guess any deep detail on what you saw over the course of the quarter and into January and maybe over the past week or so in terms of the market and remaining rational?
Scott Kreeger
This is Scott. Where you it's really a lot more of the same. So it's stable and you have a pretty rational market. You do have a lot of outliers that have been promotional and remain promotional strategy. There's not been any noticeable change in the market there. It has affected us.
Daniel Politzer
Got it.
And then just for my follow-up, I think you guys have talked about that 20% return on capital as you are getting there for Durango over or I believe the course of three years. But given the strength of the opening and the MMM. momentum out of the gate. I mean, is there any difference in cadence as to how you're thinking about that? And then just along those lines, is there any nuance here in terms of gaming versus nongaming mix at that property, I just noticed overall for the portfolio, it was a little different than typical seasonality.
Stephen Cootey
Thanks to Steve, I think we're in the process of ramping profiles remained sustained. And these are very early days. We're very happy with the opening, but there's still a lot of still settling in and still settling in in terms of the mix, it should follow?
Yes, it should match our system like our current system mix, maybe a little higher gaming or gaming, just given that you have given limited hotel rooms.
Understood.
Daniel Politzer
Thanks so much.
Operator
Stephen Grambling, Morgan Stanley.
Stephen Grambling
Everyone is going to reask a bit on the cannibalization comment. I guess any sense for how quickly you think you could backfill? And did you take any actions or feel like you needed to take any actions to offset any of the cannibalization in any of your other properties from an expense stand point?
Scott Kreeger
Or is it just too small, but I think it might be just oh two or so we want there to be truck. We want everybody and allow you to come and drive bigger NEO and see it. What you see typically from our previous openings is you see a very early strong visitation from in-branch customers, then you tend to see a dip where they go back to their neighborhood property that they're familiar with. So we're in the throes of kind of understanding what that period is. And then over time, what we've seen in our previous openings is twofold. One, you see the existing property, Paktel and grow and further that we're talking predominantly Red Rock, which is in one of the highest growth areas in the Valley of the summer, best fund development support a best match fund development in the country this year. So Red Rock has its own backfill story. And then the other thing you see is Durango being in a new market that was underpenetrated and flax additional competition, you're going to see Durango continue to grow its database and the surrounding area over the next three years. And really it never will stop.
I mean, investors know that there's a tremendous amount of new rooftops that will be coming online out there over the next year to three years, lots of apartments on and everything else. So we'll see where Durango settles in after a great opening. And then we expect it to be a growth asset for decades to come just to get better, but we're early days right now.
Stephen Grambling
So that's helpful. And one other just clarification, you were talking about labor inflation a little bit earlier. I guess when we put it all together and you think about core OpEx, our growth next year, how would you characterize where you're thinking kind of core OpEx growth ex the kind of moving parts around Durango would be, I think is always looking for efficiency, right?
Scott Kreeger
And it's being relentless about how we run our business and looking at these core areas, we don't expect to have any real increases in the acquisition cost area. We think we're doing a great job on cost of goods sold, but that's really a daily fight piano. And then probably the biggest one is just us being very diligent about labor and energy costs and energy costs making sure that we're competitive so that we get the best employees in the market, but at the same time, making sure that where we deploy those employees and what level is efficient for our business.
Stephen Grambling
Great.
Thanks so much.
Operator
Chad Beynon, Macquarie.
Chad Beynon
Afternoon and thanks for taking my question and congrats on the strong opening.
I wanted to ask Scott, maybe one for you just in terms of pacing for 24 for that meeting and banquet space and now that Durango is open and groups can kind of rent that out on how that's looking in terms of what's on the books for 24 overall versus prior periods?
Scott Kreeger
Yes.
So I'm going to use the benchmark at the same time as last year's comparison. We like where we're headed. We especially like where we're at in the first quarter and the fourth quarter of 24 in both group room nights and catering summer's a bit soft. We've got some work to do in the summer, but with our booking window being pretty short, we've got time to make that up a bit. And I will caution they are super strong numbers, but they're not the numbers that we coming out of the pandemic that were 60 plus percent year over year increases, but they are still very robust for the brand and we like where we're headed.
Chad Beynon
Great, thanks. And then I think you talked about strength across the loyalty database. Did you see any declining weakness for that low end tier or the unrated business or did that remain pretty consistent through the fourth quarter as well?
Scott Kreeger
It's a consistent trend, so we still see very robust numbers in the mid to higher end, but that's partly our strategy, and we see consistent and stable trends in the lower end of the database.
Chad Beynon
Great. Thanks. Appreciate it.
Operator
Next question comes from Joe Stauff with Susquehanna. Please go ahead.
Joseph Stauff
Good evening, everyone. Just a few follow-ups, maybe on Durango. One is with the strong opening. I'm just trying to Got it and essentially when you guys would expect visitation patterns normalize, would it be like a typical six months? Would you expect it to be earlier? And then would you expect U.S. property in particular to be able to pull a certain amount of, say consistent visitations from enough further away than, say, say, your corporate average.
Stephen Cootey
Look, I think you're going to have your peak at the opening where everyone in town wants to comment and see it and you get trial. And I would imagine in Q1 and Q2, we will find out where the market is for Durango. We're settling in in oh two of not grand opening volumes anymore. And so it'll take a quarter or two. And then I think from there, we should start to be able to build new customers and visitation and start growing from there?
Yes, words will.
Lorenzo Fertitta
But relative to your question as well as the second part of that, given the fact is right around the freeway. It should naturally draw from a wider radius than maybe some of our other properties that don't quite have the amount of traffic that that freeway has. I mean, it's one of the busiest kind of looks in the Valley because everybody either going to work or coming home from work the lives on the west side of town from airport back-and-forth. I mean, they have to drive right by the rankings.
Scott Kreeger
But I think if you look at our portfolio, that's one of the great things about our portfolio is location, location location, right. Look at Red Rock, great location, right. On the Beltway, you look at Sunset Station, right on the Beltway, you know, on Boulder Station, right on the Beltway. So I think that's one of the long-term benefits as the town continues to grow, as I think we have probably the best traffic ingress egress card counts of any one in the market.
Joseph Stauff
Thank you for that. And Steve, maybe just a quick clarification on on North Fork there that does not require any new capital from the Company and correct now we've invested the original capital, which is still sitting there and it's a $40 million now. But the current balance is about 110 million from we would anticipate raising on nonrecourse financing around the project.
Thanks, guys.
Stephen Cootey
That's probably on the financial markets.
Operator
(Operator Instructions) John DeCree, CBRE.
John DeCree
Good afternoon, everyone. Up Most have been asked and answered, but maybe one more on Durango and that is given the successful opening that you've talked about, has that influenced or change how you think about Phase two prospects there, either in scope or timing? I know it's still only been several weeks, but any thoughts on Phase two would be interesting to hear? Thank you.
Lorenzo Fertitta
Yes, Lorenzo, I mean, I really consistent with what we've communicated before. We're going to get obviously we got during open, we're going to continue to dial in the efficiency, the efficiencies of the property. We are certainly working diligently on a Phase two plan that we're actually pretty far along on the programming, and that's more loading on the finer details of adding some entertainment is potentially adding to the number of hotel rooms adding a couple more food and beverage options as well. And then we're also pretty far along as far as the initial planning for his for auto, which is out in in Green Valley and North Fork. And actually, we're fast and furious working on North Fork as well. So we got plenty on our hands right now actively being worked on from a development standpoint, but like I said we're going to we're going to get Durango dialed in before we announce kind of what the next move is. But the good thing is the Company has more optionality from a growth standpoint with deals in pieces of real estate that we control, we can bring online whenever we think it fits, but really consistent where we've been in the past so we're just more and more to come as we go kind of have a little bit more time under our belt with Durango.
John DeCree
Perfect.
Thanks so much, guys, and congratulations on the opening.
Thank you.
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
Thank you, everyone, for joining us, and we look forward to talking to you next quarter.
Operator
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Yes, and.
