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Strip Revenue Analysis April 2010 - The Las Vegas Strip

By Jeanne Barnes,2014-11-25 09:34
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Strip Revenue Analysis April 2010 - The Las Vegas Strip

April 2010 Las Vegas Strip Gaming Revenue Analysis

    Luxury Versus Non-Luxury Dichotomy Easing

Jacob Oberman

    Director of Gaming Research and Analysis

    CB Richard Ellis

    T: 702.369.4923

    jacob.oberman@cbre.com

Brent Pirosch

    Director of Gaming Consulting Services

    CB Richard Ellis

    T: 702.369.4803

    brent.pirosch@cbre.com

    The Nevada Gaming Control Board’s gaming revenue report for April continued the trend of moderate same-store revenue declines. After analyzing April’s numbers, we believe that we are no closer to seeing sustained same-store gaming revenue increases (excluding baccarat) than we were a month ago.

    On a same-store basis, we estimate Strip gaming revenue decreased 7.5% y/y in April and decreased 0.5% April year-to-date. Excluding bacc/mini bacc, we estimate same-store gaming revenue declined by 8.3% y/y in April and declined 9.1% April year-to-date. The gaming revenue decline ex bacc/mini bacc was reflected in the earnings for virtually every non-luxury property on the Strip in the first quarter.

    ; Las Vegas Strip gaming revenue was down 0.9% in Apr 2010, up 7.2% year-to-date, and

    down 1.4% in the trailing twelve-month period compared to the twelve months that preceded

    it

    ; Table games revenue, excluding bacc/mini bacc, was up 5.5% in Apr 2010, down 2.8% year-

    to-date, and down 12.5% in the trailing twelve-month period compared to the twelve months

    that preceded it

    ; Bacc/mini bacc revenue was up 9.9% in Apr 2010, up 71.2% year-to-date, and up 54.3% in

    the trailing twelve-month period compared to the twelve months that preceded it ; Slot revenue was down 5.1% in Apr 2010, down 4.6% year-to-date, and down 9.6% in the

    trailing twelve-month period compared to the twelve months that preceded it

    Table games (excluding bacc/mini bacc) hold percentage was a strong 12.83% in Apr 2010, 143 bps above Apr 2009 and 90 bps above the trailing twelve-month average. Bacc/mini bacc hold percentage was 8.53% in Apr 2010, 145 bps below the weak hold in Apr 2009 and 345 bps

    below the trailing twelve-month average. Slot hold percentage was slightly above average in Apr 2010.

    The calendar was favorable for table games with one extra Friday in April 2010. The calendar for slots was neutral.

Luxury and Non-Luxury Gap Easing

    The dichotomy between luxury and non-luxury properties was evident in the first quarter with luxury properties experiencing net revenue (includes gaming and non-gaming) growth of 1.6% while non-luxury properties experienced net revenue declines of 8.7% (both measured on a same-store basis). Going forward, however, we expect the year-over-year performance gap between luxury and non-luxury properties to narrow. The main reasons for this are that the easy year-over-year comparables for baccarat/mini baccarat will end in the second quarter and a pick-up in convention business will benefit middle-market properties disproportionately. Before we go into detail about our rationale, we want to point out that non-luxury properties may not see revenue growth for some time given the new supply in the market, and that the non-luxury properties that will perform the best are the ones that have been more aggressive in their capital maintenance programs.

    As we discussed last month, Asian customers make up a substantial portion of luxury property revenue and, in particular, gaming revenue. Revenue from their game of choice, baccarat, increased an estimated $141.8 million, or 69.8%, for same-stores in the first quarter from $203.2 million to $345.0 million. Furthermore, we estimate that 80%, or $113 million, of baccarat growth garnered by properties that we have placed in the luxury classification. Luxury properties achieved net revenue growth of only about $18 million during the first quarter, meaning their revenue would have actually declined by $84 million (assume 10% discounts on losses), or by about 8.8%, without baccarat. Coincidentally, the 8.8% net revenue decline is approximately the same decline experienced by the non-luxury properties in the first quarter.

    Looking ahead in the short-term, we would expect baccarat revenue to continue to grow on the Strip. But as the rate of ascent begins to slow the third quarter, and the addition of Aria as a formidable new competitor in the baccarat market, the year-over-year increases for the same-stores will become more muted. The slowing rate of ascent for baccarat growth at luxury properties will mean their performance measured on a year-over-year basis will more closely mirror that of non-luxury properties.

    The second prong to our thesis that the performance gap will be closing is the strengthening demand in convention/meeting business being cited by many operators. We caution that although demand may be increasing, the convention rates are not necessarily increasing at the same rate due to the incremental supply in the market and because operators were getting very aggressive about booking groups during 2009. Furthermore, we remain concerned as to how all the conventioneers will be getting to Las Vegas in 2011 with the reductions in air capacity, and hope that airlines will be flexible in adding capacity during peak convention times. Although properties such as Venetian/Palazzo, Mandalay Bay, and MGM Grand are the strongest players in the convention market, all properties on the Strip benefit when they hold conventions or large meetings. This is because other properties on the Strip will either host overflow convention-goers or, just as importantly, they will have more pricing power. The

    pricing power comes from the fact that the midweek convention rates are higher than midweek leisure rates, which not only reduces Strip inventory for the night, but also raises the rate bar. Essentially, what this situation creates is a lot more nights where non-luxury properties may have an opportunity to achieve $100 ADRs than the $50 ADRs they would have achieved without the meetings. Although the luxury properties might experience the same $50 increase in ADR on those nights, the percentage change is not as great.

    Keep in mind that our thesis about non-luxury properties benefiting from convention overflow only holds water if the airline industry is flexible in adding seats during peak convention periods. Otherwise, leisure customers living outside of driving distance could be shut out of Las Vegas.

    Please feel free to contact Jacob Oberman if you have questions at 702.369.4923 or jacob.oberman@cbre.com.

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