Gaming analysts this week issued bullish reports for Las Vegas casinos and one even made a bold prediction about the Mirage shuttering for renovations once its sale closes.
The Strip hotel supply could be cut back by 3,000 rooms; the Mirage “is likely to be shut down for a period of time” after Hard Rock International completes the acquisition by the end of 2022. The new product, which the company said will include a guitar-shaped hotel tower, is likely to debut in 2025, according to Deutsche Bank analyst Carlo Santarelli.
Analysts were buoyed about the casino industry after meeting with casino executives in Las Vegas. It’s no wonder – after the Strip on Thursday set an April record for gaming revenues and all-time record for average room rates.
Gaming revenues rose 23% on the Strip in April compared to April 2021. International visitors came to Las Vegas in the greatest numbers since the pandemic began. The city reported its highest monthly occupancy rate (84%) in more than two years. Revenue per available room approached $149 for the month, well ahead of April 2021 (+107.4%) and 25.4% over April 2019.
Santarelli said demand in Las Vegas remains strong, from tourists to group business. Las Vegas hosted the EDC Festival last weekend and operators noted that late demand for room nights exceeded expectations. Gas prices and rising costs haven’t slowed spontaneous demand from markets driving to Las Vegas, he said.
“The strength in Las Vegas continues, despite some demand channels just starting to come online, with international high-end business still below prior levels, travel from Canada, a strong feeder market, just starting to accelerate, and group business still in the early stages of its recovery,” Santarelli said.
The strong April came as Santarelli said the NFL Draft in April didn’t meet expectations with the NFL forecasting 600,000 attendees.
“We believe the ultimate turnout was under 300,000,” Santatelli said. “Given the nature of the draft and the fact that it’s free to attend, we do not believe it drew a crowd with high gaming spend propensity, and we would also note that Strip room rates on the Thursday night of draft weekend were low. Accordingly, we don’t believe the draft was a meaningful needle mover for Strip operators.”
Analyst Joseph Greff with J.P. Morgan said that during their two-plus days of meetings with major casino operators in Las Vegas, it was difficult not to notice long lines at hotel check-in and for taxis, along with convention visitors and packed restaurants even on weekdays. He noted how much menu prices have risen and referenced higher room rates. Las Vegas had its highly monthly average room rates in history in April at $177.
“We didn’t hear of any Las Vegas Strip or regional gaming market softening, certainly at the higher end of the spend spectrum,” Greff said. “What may be underappreciated by investors is that the recent higher spend per visit across U.S. gaming is not necessarily consumers spending more per trip. Much of this, 50% or so in some gaming portfolios, relates to intentionally reducing exposure to the lower-spend tier.”
That mix is aiding higher than pre-pandemic spending per occupied room and alleviates concerns about the pace moderating in the future, Greff said.
“We see lots of value within the gaming sector, given the broader consumer discretionary risk of selling off equities,” Greff said.
Santarelli said one concern is attendance at conventions. He’s confident large-scale shows will return with a few exceptions, but is skeptical about how many people will attend.
“While somewhat anecdotal, given the lack of comparable shows, we believe the attrition and burn rate (expected group rooms less booked group rooms) has been far better than expected, as MGM noted that it had planned for attrition as high as 25%, and experienced attrition in March and April that was in the 5-10% range,” Santarelli said. “We believe aggregate group sizes have been roughly 80%-90% of 2019 levels, when comparing like for like events.
“While the return of groups has been better than expected from an attendance perspective, management teams remain somewhat concerned about the potential for groups to offer a virtual option to prospective attendees,” Santarelli said. “To date, there has been no sign of this, though we believe it is more likely a 2023 dynamic, should it play out, given the pent-up demand to travel for business purposes that exists at present.”
J.P. Morgan analysts met with executives from Boyd Gaming, Wynn Resorts, MGM Resorts International, Red Rock Resorts, and Las Vegas Sands.
In terms of the opportunity for Empire City Resorts in New York to become a full-fledged casino, MGM indicated that the request for proposals is due in July, Greff said. Las Vegas Sands said it’s too early to discuss and expect it to be a competitive process, he said.
“Several of the operators with whom we met are interested in the New York process, with a long list of entities likely to vie for the third downstate license,” Santarelli said. “It is our view that of the three downstate licenses, only one is truly up for grabs, with Resorts World and Empire Resort likely to convert to casinos and one new property to come to the market. It would not surprise us if the process for the third license is drawn out, with several curveballs along the way, given the numerous complexities and varying constituents in the New York City area that will need to be satisfied.”
Boyd Gaming management called their gaming consumers “‘amazingly consistent,” with its higher-end segments performing at a strong level. Unrated play is described as consistent. Management indicated that its lower-end consumer is not softening, but they may not be seeing it directly in the rated-play segments of its database, since Boyd is intentionally reducing its marketing and rewards to this segment, Greff said.
“The value of its new-player sign-ups is double that of its 2019 levels, given its focus on the higher end,” Greff said. “In the Las Vegas locals market, the Orleans is seeing the most positive sequentially improving trends, mirroring a strong Las Vegas Strip.”
In its Midwest and South regional properties, the revenue-recovery trajectory is described as “more mature,” as reflected in monthly gross-gaming-revenue reports. Boyd expects Las Vegas locals capacity to remain below 2019 levels until Durango Station opens up in 2024, he said.
For Las Vegas Sands, Greff noted a divergent tone from executives, who spoke encouragingly about Singapore, while Macau is more difficult. The company is buoyed by visitation to Singapore, with the strength continuing into May.
As far as Macau, market-wide gross gaming revenue for the second quarter suggests a step back from first-quarter levels, given Mainland China lockdowns and continued travel restrictions, Greff said.
“Las Vegas Sands views the Macau government potentially reviewing the current tax rate as a way to help market participants, inevitably helping the locals there,” Greff said. “In terms of restoring some sort of dividend, LVS would most likely have to see recovery in Macau and not just Singapore, lest it face ratings downgrades.”
In terms of potential integrated-resort and market opportunities regarding New York City and Thailand, executives said it’s still early and in the case of New York, LVS expects it to be a competitive process, Greff said.
Red Rock Resorts previously indicated it saw softness at the lowest tier of its database in March, Greff said. It was this lower segment (3.5% of total win, historically) that saw weakness in March, but picked up in April; May has demonstrated the same trend. This lower segment doesn’t get marketed to with rewards, he said.
“The higher-end segment is (more than) offsetting this, while Red Rock’s younger demographic is described as ‘hanging in there,’ with new-player sign-ups growing in some part due to population growth and migration from California,” Greff said.
J.P. Morgan said it doesn’t see an economic reason for Red Rock to reopen its three currently closed properties anytime soon. It has done a great job of capturing those revenues at its nearby properties.
Greff said they wouldn’t be surprised to see Red Rock monetize some of its land bank without gaming-entitlement rights. The value of the real estate it owns is not lost on management, he added. “It’s different from many of the operators we follow and isn’t reflected in its stock, particularly after this pullback,” Greff said.
Wynn executives have been encouraged by trends in Las Vegas, where its performance has exceeded market-wide strength, Greff said. Wynn’s spending per room and rated play are described as strong, with a sense of gaining wallet share, because hotel occupants aren’t splitting trips as much. They’re spending more at Wynn properties and less at others while staying at Wynn or Encore, he said.
“Resorts World opening last year has helped with walk-in traffic from that part of its property as well,” Greff said. “Wynn attributes this to new programming and recent and ongoing investment in the property with restaurant repositioning, new bars, room renovations, and its theater.”
Those capital expenditures are also helping grow its younger demographic relative to historical levels, Greff said.
Encore Boston Harbor continues to benefit from recent enhancements to its tiered loyalty-card program and sees opportunity to grow both table and slot volumes and benefit from recently repositioned food and beverage offerings, Greff said.
MGM management said that based on what they’re seeing, good convention business will continue through October. Executives also said they were buoyed by drive-in traffic from southern California being stronger than expected despite higher gas prices.
MGM’s higher-end properties in Las Vegas are continuing to lead the growth, Greff said. Revenue per occupied room has been growing, thanks to higher prices and a better mix of higher-spend customers, Greff said.
In terms of the opportunity for Empire City Resorts in New York to become a full-fledged casino, MGM indicated that the request for proposals is due in July. The sale of the Mirage to Hard Rock is expected to close in the second half of this year.
“We anticipate that MGM will still be very active in share buybacks, given its high domestic cash balance, and would expect a more opportunistic approach, given the current share-price levels,” Greff said.
