Posted on: July 2, 2024, 9:32 AM.
Last updated: July 2, 2024, 9:32 AM.
The price per night for a hotel room in Las Vegas is expected to increase after the closures of the Tropicana and The Mirage.
The Mirage’s closure later this month for a multibillion-dollar renovation of the Hard Rock should benefit the Las Vegas Strip’s other casinos in the meantime, and could present shareholders with a buying opportunity, a gaming analyst says. (Image: Tripadvisor)
The Tropicana closed in April, slashing the Strip’s room inventory by 1,467 guest rooms. The Mirage will close July 17, taking another 3,044 guest rooms offline for several years as Hard Rock International transforms the integrated resort built by Steve Wynn in the late 1980s into a rock ‘n’ roll-themed destination, headlined by a hotel shaped like a guitar.
CBRE Equity Research’s John DeCree thinks the removal of the 4,511 rooms is a clear benefit to all Strip operators, but MGM Resorts and Caesars Entertainment will likely be the biggest beneficiaries. The gaming analyst also predicts that with “more customers chasing fewer rooms,” rates will go up.
Rosy outlook
The Tropicana’s nearly 1,500 hotel rooms are off the market for good, as the resort is being demolished to make way for a possible MLB stadium. The Mirage’s room inventory and more will return, but not until sometime in the spring of 2027, when Hard Rock completes its renovation of the property.
In the meantime, there are fewer rooms available at the casino resorts on the Strip, which is good news.
While Tropicana could make sense for some properties, the demand created by The Mirage’s closing is large enough to potentially make a difference for all operators on the Strip,” DeCree wrote.
The Mirage’s guest rooms generated nearly $600 million in revenue for MGM Resorts last year, with more than one million occupied room nights.
DeCree said investor sentiment for Strip casino companies remains low, despite relatively strong recent quarterly performance and record gaming revenues from publicly traded players. Despite room inventory additions from the 2021 openings of Resorts World and Fontainebleau last year, daily rates have continued to climb, while occupancy has yet to return to 2019 levels.
“With the help of a strong events calendar and continued recovery in convention and international demand, we expect the Strip’s earnings in the second quarter of 2024 to be in line with or slightly ahead of expectations. And with a tangible catalyst from the Strip’s material supply contraction, we believe forward estimates may be too conservative, which could help improve investor sentiment,” DeCree said.
Buy, buy, buy
DeCree believes the Las Vegas Strip’s room decline could translate into stronger profits for MGM, Caesars, Wynn Resorts and Golden Entertainment, the latter of which owns and operates The Strat. DeCree has given each company a “buy” rating.
With mid-range MGM and Caesars rooms booked months in advance due to a strong events and convention calendar, DeCree believes less popular properties like The Strat and Sahara can capture some of the late bookings that would otherwise have gone to the Tropicana or Mirage. Sahara is privately owned by the Meruelo Group.
“There are likely limitations on the number of additional room nights these two operators (MGM, Caesars) can capture, particularly during peak events and weekends. This could create an opportunity for underutilized assets like The Strat to benefit from both higher occupancy and a higher average customer spend,” DeCree concluded.
