Las Vegas Strip casino operators could see earnings boosts after Tropicana, Mirage close

Casino operators on the Las Vegas Strip have a near-term earnings catalyst on the horizon, with the closing of the Tropicana Las Vegas and The Mirage Hotel & Casino representing a 4.9% combined reduction in total room supply on the Las Vegas Strip.

The company that operates the most hotel rooms on the Las Vegas Strip is MGM Resorts International (NYSE:MGM) with nearly 37,000 rooms across 13 properties, including Luxor, Aria, Excalibur, Bellagio, Mandalay Bay, The Cosmopolitan, Park MGM, and New York-New York. Caesars Entertainment, Wynn Resorts (WYNN), and Genting Group are also major players. Behind the scenes, VICI Properties (VICI) owns Caesars Palace Las Vegas, MGM Grand, and the Venetian Resort Las Vegas. In particular, analysts think some of MGM Resorts (MGM) and Caesars Entertainment's (NASDAQ:CZR) middle-tier properties could see a benefit until Hard Rock International develops the former Mirage site. Hard Rock International announced in May that it plans to reopen as the Hard Rock Las Vegas in spring 2027.

CBRE Equity Research analyst said the Mirage is the more meaningful contraction. "We estimate that The Mirage had ~1mm occupied room nights and generated $596M of revenue and $169M of EBITDAR in FY23. This represents significant underlying demand for the Las Vegas Strip that will need to find a home," he observed. DeCree and his team estimate potential incremental EBITDAR generation for Caesars Entertainment (CZR), Golden Entertainment (GDEN), MGM Resorts International (MGM), and Wynn Resorts (WYNN) based on each operator taking their fair share of The Mirage's one million occupied room nights in FY23. For investors, DeCree believes the significance and longevity of the supply contraction remain largely underappreciated.

Investor sentiment for the Las Vegas Strip remains low amid operating expense inflation and macroeconomic uncertainty, despite overall fundamental performance on the Strip that has held up relatively well, even with meaningful supply growth from Fontainebleau Las Vegas and Resorts World Las Vegas. However, DeCree highlighted that average daily room rates continue to climb higher, and while occupancy has not yet met 2019 levels, consumer spending remains high with help from a strong event calendar and the continued recovery of convention and international demand.

"We expect 2Q24 Strip earnings to be in line or slightly ahead of expectations, and with a tangible catalyst from material supply contraction on the Strip, we believe forward estimates could be overly conservative, which could help lift investor sentiment heading into 2H24."

MGM) are down 3.7% on a year-to-date basis, while Caesars Entertainment (CZR) is off 20.6%. Golden Entertainment (GDEN) has swung 27.1% lower this year. Meanwhile, Red Rock Resorts (RRR) has poked out a 3.6% gain. In terms of quantitative analysis, MGM Resorts (MGM) has the highest Seeking Alpha Quant Rating of the casino operator group.