As Resorts World Las Vegas opens its doors Thursday night, Wall Street analysts and a UNLV economics professor predict that the Strip and locals casinos are positioned for a strong second half of 2021 and an even stronger 2022, with the potential for more mergers and acquisitions.
UNLV’s Dr. Stephen Miller released a report Thursday morning saying he expects visitor volume to rebound 57% in 2021 and increase 13% in 2022. The opening of the first Strip property since The Cosmopolitan in December 2010 is expected to help with visitation.
Las Vegas hosted slightly more than 19 million visitors in 2020, down 55% from 2019, when there were 42.5 million visitors.
Gross gaming revenue in Clark County, after falling 36.8% in 2020, will increase 35.5% this year and 10.7% in 2022, Miller said in a report issued by UNLV’s Center for Business and Economic Research. Hotel occupancy, after falling 46.6% in 2020, will increase 30% this year and 12% next year, Miller forecast.
The Nevada Gaming Control Board is scheduled to release May gaming revenue numbers on Wednesday and Miller said those numbers, along with last month’s visitation volumes, will show where Las Vegas is in its recovery. “It’s pretty positive,” Miller told CDC Gaming of his outlook. “I think we’ll be back to where we were (pre-pandemic) by the third quarter of 2022.”
The one caveat to his forecast is what’s happening with COVID-19, particularly the Delta variant from India, and whether it takes hold in Nevada and other parts of the country. There’s the potential of rising infections in the fall and winter, he said. “It’s a concern if the pandemic picks up again and the government comes back in and shuts down some portion of the economy,” Miller said.
Deutsche Bank research analysts, meanwhile, recently came to Las Vegas to host meetings with gaming operators from Strip and locals’ casinos and came away optimistic.
“With strong group business poised for the second half of 2021, continued strength in leisure bookings, and confidence in margin retention, the tone of our meetings with operators was upbeat, with few if any caveats of potential caution over the near term,” said Deutsche Bank research analyst Carlo Santarelli.
Their report found most management teams agreeing that business is returning to historical norms, with weekends sold out and midweek continuing to build. Group business will add to occupancy during the second half of 2021 and into 2022, Santarelli said. Some operators will have group business during the second half of 2021 that exceeds the same period in 2019, he said.
“Management teams noted that the group and convention pace for 2022 and 2023 has returned to normal,” Santarelli said. “We expect a more normalized calendar in 2022 and most with whom we spoke were bullish on the group recovery, noting that pace is akin to 2019 for both 2022 and 2023. Again, corporate and group travel and the willingness of corporations to bring back travel budgets will play a role in the quality of the recovery, but at present, from a booking perspective, a recovery to 2019 levels feels likely over the next 12-24 months.”
That will boost margins with additional revenues from catering and events, in addition to higher room rates for leisure travelers, Santarelli said. He said the shifting of convention calendars and concerns about COVID-19, however, make it difficult to predict attendance at conventions. But he added it’s promising that more shows are relocating to Las Vegas.
Las Vegas also remains an attractive market for potential buyers, who have several assets to consider purchasing, incluing raw land on the Strip, Santarelli said.
“We expect (mergers and acquisitions) to remain a theme over the near to medium term,” Santarelli said. “Given the sharpness of the recovery and the enhanced operating efficiencies coming out of the pandemic, we believe the gap between buyers and would-be sellers, as it pertains to the bid/ask spread, has contracted. We believe buyers, which we believe are both traditional and financial, are comfortable with the pace of the recovery and could be keen to transact, given equity multiples and low borrowing costs. As such, we would not be surprised to see transactions in the next 6 to 12 months of operating assets and/or raw land for future development. We believe gaming REITs are likely to play a role in these transactions, given their improved equity multiples and lower borrowing costs.”
As for gaming revenue, Santarelli noted that operators indicated spending is improving and can continue based on pent-up demand, consumer savings, enhanced jobless benefits, and the first round of child tax credits that starts in July.
For local operators, slot card swipes are down in the low double digits, but gaming revenues are up 8% in 2021 through April versus 2019. April was up 18% versus 2019 and May and June trends show no signs of slowing down, Santarelli said.
“While older customers continue to build toward 2019 visitation levels, the younger demographic has held firm in its visitor patterns,” Santarelli said. “Overall, spend-per-patron and time-on-device metrics are up considerably and driving the entirety of the growth relative to 2019.”
The Strip trends “remain more challenged” in comparison to the locals market, but Santarelli said there’s been “considerable improvement” in recent months with gaming revenue. Through April, Las Vegas Strip gaming revenue is down 23% compared to the same period in 2019, he said.
“That said, domestic gaming is down 18% over the same period, as limited high-end play, primarily due to international travel restrictions (Asia), remains meaningfully depressed,” Santarelli said.
Baccarat revenue on the Strip had languished for several years prior to 2019, he said. It is down 50% from 2019.
“Strip gross gaming revenue could sustainably, as in not simply a few solid months here and there, return to 2019 levels over the medium term,” Santarelli said. “While our view on the Strip gaming recovery is favorable, we would be remiss not to note a potential future risk and future headwind to the current relative outperformance of gaming versus entertainment and food and beverage trends.”
Casinos have relied heavily on their databases and their ability to tap that aggressively, moving forward, is likely to remain a question mark, Santarelli said.
