Caesars and MGM Set to Gain from Closures of Tropicana and Mirage on Las Vegas Strip

According to a Las Vegas-based gaming analyst, the recent closures of two significant properties on the Las Vegas Strip will likely benefit the largest casino operators, Caesars Entertainment and MGM Resorts International. These two giants, which collectively oversee 16 casino-hotels and five non-gaming hotels, stand to see substantial economic gains from the shuttering of the Tropicana Las Vegas in April and the impending closure of the Mirage on July 17.

Impact on hotel room supply and rates:

The closures will significantly reduce the number of?available hotel rooms?on the Strip, which is expected to drive up?average daily rates?(ADRs) and subsequently increase revenue margins for existing operators.?John DeCree, director of equity research at CBRE Group Inc., a commercial real estate firm, highlighted in a July 2 note to investors that Caesars and MGM are “best positioned” to capitalize on this situation. Their strategic advantages include ample room inventory, prime center-Strip locations, and greater appeal to “price sensitive” guests.

The?Tropicana?had 1,467 hotel rooms, while the?Mirage?currently boasts 3,044 rooms. Together, these closures represent a 4.9 percent reduction in the Las Vegas Strip’s main corridor hotel room supply, according to?DeCree.

Among the two properties, the?Mirage’s shutdown?is anticipated to have a more significant impact. CBRE estimates that the Mirage had approximately 1 million occupied room nights, generating?$596 million?in revenue and?$169 million?in earnings before interest, taxes, depreciation, amortization, and restructuring (EBITDAR) in 2023.

“This represents significant underlying demand for the Las Vegas Strip that will need to find a home,” DeCree wrote, as Las Vegas Review-Journal reports. He believes that Caesars?and?MGM, with their substantial room inventory, particularly in the mid-tier asset class on and around the center Strip, are well-positioned to absorb the displaced demand from the Mirage.

Projected revenue gains:

MGM, which controls?37,243 rooms?on the main resort corridor (40.4 percent of the supply), could see an additional?$69 million?to $102 million in annualized EBITDAR, based on CBRE’s analysis. Caesars, with?20,630 hotel rooms?on or near the Strip (22.4 percent of the total supply), could potentially generate an?extra $31 million to $49 million?in incremental EBITDA by leveraging the displaced demand from the Mirage, DeCree noted.

While Caesars?and?MGM?are expected to benefit significantly, the CBRE analysis also notes potential challenges. Given their already high occupancy rates, large-scale events and peak weekends could strain room availability. As a result, DeCree suggests that budget-conscious travelers might turn to The Strat, which could see a boost in occupancy. Conversely, high-end guests are likely to prefer Wynn’s two luxury properties.

Wynn could gain anywhere?from $8.7 million to $31.4 million, while Golden Entertainment, the parent company of The Strat, could see an increase of $2.5 million to $4.5 million in EBITDAR from the Mirage closure.