Gaming executives are optimistic over the direction of the industry in 2022, with increased visitation at their resort-casinos and the trend of luring younger players since the start of the pandemic.
That’s the key takeaway from two days of the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum at Wynn Las Vegas.
Rising gas prices due to the conflict in Ukraine and what that might mean for the consumer spending on travel didn’t come up as a big issue, according to reports released by J.P. Morgan analyst Joseph Greff.
Wynn Resorts CEO Craig Billings said that similar to his peers, Wynn has seen strong forward bookings from leisure customers. In addition, longer-term investment has allowed Wynn to double down on the younger and more affluent demographic, with the average customer age down eight years from the traditional visitor, he said.
Wynn has had some of the highest room rates on the Strip and those show no signs of slowing, as the property appeals to luxury customers.
“Management feels confident about their ability to take price going forward,” Greff said.
As for Encore Boston Harbor, Wynn executives feel they have “finally hit their groove in the market,” Greff said. Most of the customer database has come from the Boston area and has been predominantly casino-centric.
“Management plans to expand outreach from the immediate Boston area, as well as complement casino demand with non-gaming amenities,” Greff said. “On the latter, additional capex at the property will help diversify the revenue base.”
Caesars Entertainment CEO Tom Reeg noted that what is going on in the stock market is completely the opposite of what you’re seeing in the business.
“Demand is strong and highly correlated with virus trends. Inflation, which has been around for several quarters now, has had zero impact on demand, and management anticipates any potential weakness in spend/yield to be offset by the continued improvement in visitation,” Greff said.
COVID-19 cases and subsequent mask mandates and restrictions “have a very strong correlation with gross gaming revenue, while gas prices have historically had very little correlation,” Greff said.
In Las Vegas, pricing power is incredibly strong and Caesars anticipates group business to improve over the course of the year. Regionally, management called out Atlantic City as improving post capex completion this summer, while in New Orleans, last Thursday’s mask mandate removal is a positive.”
Red Rock Resorts CFO Steve Cootey told the conference that the removal of Nevada’s mask mandate in February has increased demand. Like other properties, he said Red Rock has seen “solid retention across the younger base,” which remains higher than it was before the pandemic.
Older customers have started to return as COVID cases have eased, he said. Customers are spending more than they did in 2019, with weekend demand “sustainability strong,” while convention business continues to improve.
“Looking at inflation and rising gas prices, Red Rock Resorts envisions its portfolio as less sensitive, given a closer proximity to properties and a higher-end consumer base with home values that have held up well,” Greff said. “The population-migration story remains intact, with these customers coming in at higher income levels.”
Boyd Gaming CEO Keith Smith and CFO Josh Hirsberg told analysts that demand for high-value customers began to normalize in January after the omicron wave passed. They raised the issue of how out-of-town traffic “was a bit of a headwind” during the Delta variant, but how the impact from omicron was more widespread across their database, especially from older customers.
“Boyd is starting to see more stability across the segments, and noted the younger demographic came back,” Greff said. “Interestingly, additional competing amenities have not had any adverse impact on the consumer. Lastly, gas prices have historically not had a significant impact on the business given the localized drive-to nature of its properties, though it noted that if gas prices were to sustain at higher prices for a sustained period of time could have an impact.”
Penn National Gaming CEO Jay Snowden and CFO Felicia Hendrix also stated that demand remains strong, excluding late December and early January when the omicron wave hit. Spend per visit is still up a “healthy level” versus 2019, though down slightly on a year-over-year basis, and any shortfall is being made up by still-improving visitation, they said.
“Retention of the younger demographic has been surprising to the upside, which Penn attributed to its loyalty program, given more unique redemption options across (online sports betting/igaming) and merchandise,” Greff said. “Across the older demographic, visitation has improved as COVID cases have subsided, though this still shows room for improvement versus 2019.”
Penn reiterated its focus on building a high-quality and sustainable online sports betting and igaming business, establishing healthy consumer habits, and not putting the business on sale, Greff said.
“Industry-wide, current market shares are skewed by the level of promotional spend, which Penn has not participated in,” Greff said. “As others pull back on spend, management could be opportunistic, though in the current environment, the level of media spend is unjustifiable.”
Gaming & Leisure Properties CEO Peter Carlino and CIO Matthew Demchyk talked about the company’s approach to mergers and acquisitions as “kissing a lot of frogs,” Greff said. Their tone remained positive about “abundant opportunities in which GLPI “will thoughtfully compete for assets, though winning deals is not necessarily driven by bidding the highest price (a la its recent Cordish deal). Potential acquisitions will continue to be evaluated in terms of the spread on cost capital.”
Greff said GLPI expects additional projects in the near future, citing potential for a hotel tower with Penn at its Columbus location. GLPI continues to look at both gaming and non-gaming assets (the current mix of deals hasn’t moved much), though management sees ample runway within gaming, he said.
Las Vegas Sands Senior Vice President of Investor Relations Daniel Briggs said they see an eventual return of demand in Macau, similar to what’s currently happening in Las Vegas, albeit on an undetermined and delayed timeline, Greff said.
China’s zero-COVID policy will likely have to be resolved and without knowledge of how that may develop, uncertainty in the recovery will remain, Greff said.
Optimism for the concessionaires has continued to be a bright spot, with investment and dividends expected to continue in the future. Macau concession renewals were extended from June to December 2022.
“With greater than 90% of previous VIP business being junket, LVS is optimistic that these players will convert to either premium direct or premium mass, the former of which uses credit and is backed by assets in China,” Greff said.
Briggs said Singapore should benefit from vaccinations and the additional airlift. The Singapore market comprises one-third Singaporean locals, one-third from Hong Kong and mainland China, and the remainder from various foreign markets.
LVS stressed the importance of high-quality rooms for premium-mass customers, with a $2.2 billion investment focused on adding and improving rooms that have the ability to take market share for this growing segment, Greff said. LVS sees the potential for additional investment post-concession renewal at the end of this year. Future asset sales would be possible if the proceeds are necessary to fund near-term investment opportunities, he said.
As for Wynn’s overseas ventures, Billings said they expect travel to normalize to Macau over time, though the near-term trajectory is difficult to forecast, given an increase in COVID cases in Hong Kong and mainland China.
“For 2022, Wynn’s priorities include completing the concession-renewal process (which is well underway) and repositioning the business to take more market share in the mass and premium-mass segments,” Greff said. “The final concession bill was largely as expected and management does not envision any significant revisions going forward.”
Wynn executives were enthusiastic about the project at Al Marjan Island in Ras Al Khaimah, United Arab Emirates. With UAE’s more than twice the airlift capacity of the Las Vegas market and about 85 million passengers per year, the opening of a property in the country will allow 95% of the global population to access a Wynn brand within an eight-hour flight, Greff said.
“Having a property by the beach provides a new set of challenges, though management feels confident in their ability to execute given their complete control over the design,” Greff said. “Importantly, Wynn is excited about regulatory progress in the UAE, with a Singapore-esque approach that is being taken and expectations for a reasonable tax rate.”
