Closures of Tropicana and Mirage will benefit Caesars and MGM: Market Analyst

Closures of Tropicana and Mirage will benefit Caesars and MGM: Market Analyst

The recent closures of the Tropicana Las Vegas and the Mirage Hotel & Casino are poised to reshape the highly-competitive gaming landscape of the Las Vegas Strip (LVS) as it will present lucrative opportunities for industry giants Caesars Entertainment and MGM Resorts International, a senior gaming analyst has predicted.

Caesars and MGM, which collectively account for nearly one and half dozen casino-hotels and five non-gaming hotels, are expected to enjoy substantial economic gains from the closures of the Tropicana Las Vegas as their closures will result in decrease in the number of available hotel rooms in the area, which will likely drive up average daily rates (ADRs) and then boost revenue margins for existing operators.

John DeCree, the director of equity research at commercial estate firm CBRE Group Inc., recently issued a note to investors, stating that Caesars and MGM are “best positioned” to get the most out of on this opportunity. Their strategic advantages consist of plentiful room inventory, prime locations in the center of the LVS, and strong appeal to “price sensitive” guests.

The Tropicana and the Mirage had 1,467 and 3,044 rooms, respectively, representing nearly five per cent of total hotel rooms in the area. As per an estimate, the planned closures will result in a 4.9 per cent reduction in the LVS’ main corridor hotel room supply. The closure of the Mirage is expected to have a more significant impact.

In the recently issued note, DeCree stated, “This represents significant underlying demand for the Las Vegas Strip that will need to find a home.”

MGM controls more than 37,000 hotel rooms on the main LVS corridor, accounting for over 40 per cent of the supply. It could see its annual EBITDAR increasing by $69 million to $102 million. Caesars, which offers nearly 20,650 hotel rooms, accounting for 22.4 per cent of the total supply, will potentially enjoy an addition of $31 million to its annual EBITDAR to $49 million by leveraging the displaced demand due to the closure of the Mirage.

The closures of the Tropicana and Mirage signifies a pivotal change in LVS gaming & hospitality landscape, offering a windfall for Caesars and MGM. With their prime locations and strategic advancements in room inventory, Caesars and MGM are well positioned to captivate customers and reap the benefits of augmented room rates. In short, both of these operators are thus expected to enjoy promising days of growth ahead.

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