Moody’s predicts Strip upturn won’t begin until 2012

It will take at least a year for the new supply of Las Vegas hotel rooms to be absorbed into the market, a new report Thursday from Moody's Investors Service said.

In the report to investors and backers of the debt covering much of the Strip's major gaming operators, Moody's Senior Credit Officer Peggy Holloway said an upturn toward profitability won't begin until 2012.

Las Vegas has roughly 150,000 hotel rooms, including 6,000 rooms added when CityCenter opened in December 2009 and another 2,000 added by last December's opening of The Cosmopolitan of Las Vegas.

No other hotel-casino openings or expansions are on the horizon, which is a good thing, according to Holloway.

"The Las Vegas casinos have a high mountain to climb to grow earnings to anywhere near their previous peaks, as citywide hotel room rates remain below 2005 levels," Holloway said. "Excess room supply will weigh on operators' ability to raise room rates, the second most important source of profitability for casino operators after gaming, in the near term."

Moody's believes that Las Vegas visitor volume, which grew 2.7 percent to 37.3 million visitors in 2010, will continue to slowly climb this year.

Challenges facing Las Vegas, according to Moody's, include high unemployment, rising state and local taxes, and weak housing prices, all of which might give potential customers some concern about materially increasing gaming budgets.

"The Las Vegas Strip still faces a number of headwinds," Holloway said.

Companies operating in Macau, such as Las Vegas Sands Corp. and Wynn Resorts Ltd., are in better position to manage through a slow recovery. The companies are able to tap revenues from the Asian markets to offset diminished revenues from their Strip holdings.

Moody's said Strip-intensive companies with high leverage, such as MGM Resorts International and Caesars Entertainment, face significant challenges.

MGM Resorts, which has about $12.3 billion in long-term debt, owns 50 percent of CityCenter and has 10 Strip hotel-casinos. Caesars has almost $23 billion in debt and has nine properties on the Strip.

Both companies have holdings in regional markets.

Holloway was also concerned the recovery could take awhile for operators of middle- or lower-tier casinos. The companies will continue to face considerable room rate pressure.

"This will not be relieved until rates at luxury properties increase materially, not likely until 2012 at the earliest," she said.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.