Las Vegas Sun

March 28, 2024

Palms owner reports strong start for resort

Three months after the $265 million Palms hotel-casino opened its doors, the property's president says he's happy with the early results.

George Maloof points to rising occupancies and room rates as evidence, and said the property turned its first monthly profit in January.

"We're experiencing the same thing I experienced when I opened the Fiesta (in North Las Vegas in 1994), but we didn't start making money at the Fiesta until the fourth month (of operations)," Maloof said. "We're making very good cash flow. Customers love the property, and they're coming back."

But observers, analysts and the Palms' competitors have been suggesting otherwise in recent weeks.

"It's never really that crowded, and customers tell me that it's hard to mix a local slot player with a Hard Rock-style customer," said Jason Ader, gaming analyst with Bear Stearns. "Our (customer) traffic indicators and our anecdotal research from surveying customers indicates there is a problem."

Existing casinos often take a hit when a new casino opens, but executives with two competing casino operators said on January conference calls that they'd seen no loss in business from the Palms.

Glenn Christenson, chief financial officer of Station Casinos Inc., told investors that road construction in front of Palace Station was a far greater issue than competition from the Palms. And Gary Loveman, president of Harrah's Entertainment Inc., said "the Palms has had no significant impact, one way or the other" on the nearby Rio.

Station and the Greenspun family, owner of the Las Vegas Sun, each own nearly 7 percent of the Palms.

"It's not like Suncoast, where there was no gaming supply," Station Chief Executive Frank Fertitta III said on the conference call. "This is a casino that opened in (the middle of) a bunch of other casinos people could go to anyway."

But had the Palms opened strongly, would these properties see a dip in business? "You would assume that," said William Schmitt, gaming analyst with CIBC World Markets.

"But it's not that big of a facility, so if they were able to pull from (competing properties), I don't know if you'd see much," Schmitt said.

But Maloof sees such comments as evidence that the Palms is growing the west Flamingo Road market.

"I never thought we'd have a (negative) effect on Rio or Gold Coast, because we're bringing more people to the destination," Maloof said. "I think we've played off each other really well."

Michael Morton, co-owner of three of the Palms' venues -- Ghostbar, the Rain nightclub and the Nine steakhouse -- agreed with Maloof's assessment.

"It's certainly exceeded our highest expectations ... it's well exceeded our high scenario," Morton said. "It's a brand new property, and when you look at when this hotel opened, during a recession and a war, it's been very busy."

Since the Palms has neither publicly traded stock nor debt, it does not have to file financial reports with the Securities and Exchange Commission. As a result, its financial performance is not publicly reported. Maloof says revenues are very strong, but "we've got to work on the expense side, which is natural when you open a place."

Another challenge, he said, is building up a customer database, since the Fiesta's customer list went to Station with the Fiesta sale.

The Palms opened Nov. 15 to an unusually high amount of hype, at least for an off-Strip property. The target audience was a wide one, encompassing both local players and young, trendy tourists.

When the Palms opened, many local players expected more of the same type of casino action they'd grown used to at the Fiesta, said Anthony Curtis, publisher of the Las Vegas Advisor newsletter.

"They were expecting another Fiesta, but this is a different property," Curtis said. "I think the expectations of locals were way too high, and were not fulfilled. They came out of the box shaky."

Local customers complained about a variety of issues, Curtis said, including a shortage of "full-pay" video poker machines, cramped aisles and loud music.

"Everyone went there, and no one came back," Curtis said.

Many tourists also shied from the property, Ader said.

"(Customers) felt it was a confusing mix to have slot players interact with the types of restaurants and nightclubs they have at that facility," Ader said. "You can't be everything to everyone. You can't take a Fiesta customer and merge them with a Hard Rock customer."

Shortly after, Maloof launched a series of efforts designed to entice the local player to return. More full-pay video poker machines -- the staple of the Fiesta under the Maloofs' reign -- began appearing on the casino floor. Machines were removed to loosen up aisles. And the Maloofs began flooding the market with promotions.

It was enough to convert Curtis back into a fan of the Palms -- and he says other locals are following.

"Their mailers are unbelievable," Curtis said. "They came back very strong, and I think it's a great place for locals now. My best guess is that business is picking up to a fair degree."

The Palms' casino results seem to suggest that business is building; average daily win per slot rose from $72 in January to $85 in February.

Morton knows about the young, hip customer -- after all, his brother, Peter Morton, owns the Hard Rock. And Morton says the buzz outside of Las Vegas is building. "We're seeing a lot of celebrities, a lot of rock stars," Morton said.

"I think the L.A. scene is really enjoying the property," Morton said.

Performance numbers at the 455-room hotel are also rising -- January's occupancy averaged 75 percent at an average daily rate of $109, but that rose to 90 percent occupancy and an average rate of $125 in February.

No matter how the Palms is doing now, it does have a unique luxury. Since it's completely privately held, there are no investors to placate. And with minimal debt, the property isn't under pressure to meet crushing interest payments.

"This is not, underscored, not the Aladdin," Ader said. "I think George will figure it out."

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