Moody’s report: Las Vegas Strip recovery will accelerate in 2012

By Steve Green

Published Thursday, Feb. 24, 2011 | 10:53 a.m.

Updated Thursday, Feb. 24, 2011 | 12:07 p.m.

The gaming industry recovery on the Las Vegas Strip will continue this year and accelerate in 2012, Moody's Investors Service predicted in a market update Thursday.

The recovery may be dampened by higher airfares -- driven by rising oil prices -- as well as fewer flights into Las Vegas, Moody's cautioned.

And the same factors that have hurt the Strip during the recession will persist to some degree this year, Moody's said. These include consumers being reluctant to increase their gambling budgets because of fears state and local taxes will rise, home values will decline further and high unemployment will persist.

And the market is still absorbing more than 4,000 hotel rooms added by CityCenter in late 2009 and 2,000 rooms at the Cosmopolitan last year -- with another 1,000 coming at the Cosmopolitan this year, Moody's said.

Another threat is that properties that underwent ownership changes in recent years such as Planet Hollywood and the Tropicana "are likely to become more aggressive with respect to room rates or other promotions to regain lost market share," Moody's said.

Companies with strong Asian operations and solid liquidity positions -- Wynn Resorts Ltd. and Las Vegas Sands Corp. -- are in the best shape to manage through the slow recovery, Moody's said.

Highly-leveraged operators including MGM Resorts International and its half-owned CityCenter, Caesars Entertainment Corp. and the Cosmopolitan "face significant challenges," Moody's said.

Mid-market and bargain operators such as American Casino & Entertainment Properties, owner of the Stratosphere, will face considerable room rate pressure likely to persist into 2012, the report said.

Nevertheless, overall, there are early signs of recovery and "the Las Vegas Strip is showing signs of modest improvement as consumers and businesses are becoming more willing to spend on leisure and business travel," Moody's analyst Peggy Holloway said in the report.

The bottom line, according to Moody's: Strip visitor volume will ramp up slowly in 2011, but it will take another year for the market to absorb the new supply.

"The real upturn in profits will not begin until 2012," the debt rating agency said.

The latest numbers from luxury Strip operators Wynn Resorts and Las Vegas Sands confirm high-end occupancy and rates have plenty of room for improvement.

For Wynn Las Vegas and Encore, hotel room occupancy during the fourth quarter was 81.8 percent, up just slightly from 81 percent during the fourth quarter of 2009.

For the Venetian and the Palazzo, Las Vegas Sands reported occupancy during the fourth quarter of 80.7 percent and 79.3 percent, respectively.

These percentages are down markedly from the pre-recession days of 2007, when they ran at better than 90 percent citywide.

The Las Vegas Convention and Visitors Authority last reported visitation numbers for December and they were up 3.7 percent from December 2009, to 2.88 million people. Citywide room occupancy improved 1.1 percentage point to 72.4 percent.

The state Gaming Control Board this month reported Las Vegas Strip casinos won $5.7 billion from gamblers last year, an increase of 4.1 percent from 2009.

Statewide, the total gaming win rose 0.1 percent to $10.4 billion -- an increase that followed two years of declines.

Gaming analysts at Standard & Poor's earlier this month suggested Wynn Resorts and Las Vegas Sands are the Las Vegas Strip operators best prepared to endure continued low spending levels by consumers.

"We believe that the Las Vegas Strip gaming market likely bottomed in early 2010. Our ratings incorporate our belief that the Strip should realize at least modest growth in gaming revenues over the next few years, as well as continued moderate growth in convention business, which should benefit revenue performance at most properties. Visitation trends remain solid, which, combined with ongoing improvement in group booking levels, should support continued strong occupancy in the low- to mid-90 percent area and stable room rates in 2011, despite the recent opening of the Cosmopolitan Las Vegas," Standard & Poor's said in a Feb. 3 report.

"Still, even with visitation improving and room rates showing resilience, continued depressed levels of spend per customer will likely preclude more than modest growth in gaming revenue in 2011. While Las Vegas Sands Corp. and Wynn Resorts Ltd. continue to rely less on Las Vegas, a prolonged period of only modest growth could be problematic for Caesars Entertainment Corp. and MGM Resorts International, given their much higher reliance on the Strip and very weak credit measures," S&P's report said.