2011 Las Vegas Strip
Forecast & Investment Guide
Global Gaming Group
3
INTRODUCTION
EXECUTIVE SUMMARY4
HISTORICAL STATISTICS8
Las Vegas Tourist Trends
Las Vegas Strip Casino Property-Level Statistics
8
21
A HISTORICAL PERSPECTIVE OF THE LAS VEGAS STRIP26
First Generation Las Vegas Casinos 1941-1988
26
First Wave Of Modern Strip Development 1989-1997
28
Second Wave Of Modern Strip Development 1998-2000
29
Third Wave Of Modern Strip Development 2001-2005
30
Fourth Wave Of Modern Strip Development 2008-2012
31
Fifth Wave Of Strip Development – Refurbish/Redevelopment Cycle 2009+
33
Las Vegas Development Conclusions
34
FUNDAMENTALS OF LAS VEGAS STRIP OPERATIONS36
Hotel Rooms
36
Visitor Geography
37
Age Demographics
39
Casino – Premium Versus Mass-Market
40
Operating Leverage
41
Leased Versus Owned
42
2009/2010 LAS VEGAS STRIP REVIEW
43
2009/2010 Key Statistics
43
Economic Factors Impacting Las Vegas Strip Performance
54
Operator Reaction To Challenging Environment
62
2011 LAS VEGAS STRIP FORECAST
66
Economic Forecasts
66
Meeting Planner Survey
70
Airline Seat Capacity
72
The Impact Of New Supply
77
2011 Revenue Projections
80
2011 Revenue Forecast Discussion – Luxury Versus Non-Luxury
85
2011 Revenue Forecast Impact On Same-Store Profitability
86
LAS VEGAS STRIP SWOT ANALYSIS
87
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
TABLE OF CONTENTS
Strengths87
Weaknesses88
Opportunities89
91
CONCLUSION
95
GLOBAL GAMING GROUP CONSULTING
97
DISCLAIMER
99
Page 2
© 2010, CB Richard Ellis, Inc.
October 2010
Threats
Welcome to the CB Richard Ellis Global Gaming Group’s
2011 Las Vegas Strip Forecast and Investment Guide.
The Las Vegas Strip has undergone an incredible transformation over its history, and the near-constant change has
been met with extraordinary gains in visitor counts, revenue and profitability. The current economic crisis, however,
has severely impacted the Strip, and the uncertainty surrounding the impact of the economy and new competition has
brought into sharp focus the need for experienced and objective analysis. This report seeks to clarify how new supply on
the strip has historically been absorbed, and how complex entities, such as casinos, fill rooms and make money.
In October 2009, the Global Gaming Group decided to create a comprehensive research report for the Strip with
revenue projections for 2010. In that report, we provided a highly analytical view of the economic and competitive
factors that impact the Strip. More importantly, we extrapolated how those factors were to impact Strip revenue in 2010.
In the report, we projected same-store revenue to decline 3% to 7% in 2010. Through June 2010, same-store net
revenue is down 4.1% - right in line with our projected range.
As the economic crisis took a stronger hold, we produced a similar report with a forecast for 2011 same-store revenue.
In addition to revenue projections, the report provides an understanding of the economic drivers and critical operational
factors that influence performance on the Strip. We believe our report will be an indespensable reference guide not just
for 2011, but years to come.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
INTRODUCTION
Our years of expertise in providing valuable advice, including conducting feasibility and market studies in virtually every
major domestic and international casino market, have provided us with a well-earned reputation as a leading consulting
team. We hope this report stimulates interest in the opportunities for profitable investments on the Strip, whether it is an
acquisition of operating casinos, buying the equity/debt of operating casinos, or purchasing casino land. We view this
report as a starting point to evaluate the market, and would be pleased to provide you with customized research and
consulting services to assist you in identifying and analyzing investment options that meet your specific criteria/strategy.
Jacob Oberman
Brent Pirosch
Director of Gaming Research and Analysis
Director of Gaming Consulting Services
702.369.4923
702.369.4803
jacob.oberman@cbre.com
brent.pirosch@cbre.com
October 2010
Page 3
© 2010, CB Richard Ellis, Inc.
Based on an intensive analysis of economic, competitive
and operational factors, the Global Gaming Group
(GGG) has developed the following forecast for the
Strip in 2011. Although 2011 will continue to challenge
market performance, the downward trajectory of the
past few years will settle in to more moderate declines.
Assuming certain economic projections hold, the Strip
gaming revenue will experience anywhere from a 1.0%
decline to 3.9% growth in 2011.
• Excluding baccarat, GGG projects that samestores (resorts open prior to December 2010) will
experience a total revenue (including gaming and
non-gaming) decline of between 1.6% and 3.9%
in 2011.
The forecast is based on the assumption that
Cosmopolitan will open with 2,000 hotel rooms
in December 2010 and will subsequently open the
remainder of its approximately 1,000 rooms in July
2011. The projection also assumes some residual
impact on the market from Aria, which did not fully
ramp up until several months into 2010.
• The Cosmopolitan, which recently reached a
marketing agreement with Marriott International,
will offer some of the best hotel room product and
meeting space when it opens. That said, recent
major property openings on the Strip have had
a more dilutive effect on the existing supply than
operators would have hoped. Although there is
precedent from the 1998 - 2000 period and the
opening of Wynn Las Vegas in 2005 for demand
growth without dilution, the competitive bar is
significantly higher today than it was during those
cycles.
Projects that have opened in recent years, such as
Palazzo, Encore and CityCenter, have all diluted
the market to an extent. It is hard to measure the
dilution impact since nobody knows for sure what
the rate of change would have been had these
projects not opened.
Fortunately, it appears that convention/meeting demand
will grow strongly enough in 2011 to offset much of the
would-be market dilution from Cosmopolitan.
• Both positives and negatives exist for leisure
spending in Las Vegas in 2011. Although there
are a few data points to get excited about, on
balance, GGG projects the negatives will outweigh
the positives and will lead to moderate declines in
spend per leisure visitor in 2011. The key issues
impacting leisure spend in Las Vegas in 2011 are
as follows:
Positives for Las Vegas Leisure Spending
o
Although it still remains above historical norms,
the household debt-service ratio (debt service
as a percentage of disposable income) has
been declining steadily in recent quarters.
o
Following a couple years of flat and/or declining
employment, CBRE Econometric Advisors are
projecting material U.S. employment growth
for 2011.
o
As of September 2010, the S&P 500 was
holding well above the March 2009 lows.
o
Outside of Europe, the International Monetary
Fund is projecting strong economic growth
in 2011. Although growth in Europe is not
projected to be stellar, new direct flights from
the U.K. and France will positively impact
international spending in the coming year.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
EXECUTIVE SUMMARY
Negatives for Las Vegas Leisure Spending
o
Rising airfares caused by flat to declining air
capacity will eat into the budgets of leisure
travelers, especially for those customers who
typically stay at value-oriented properties. Even
if air capacity is flat in 2011, airfares have no
place to go but up with the additional hotel
supply coming into the market.
o
Negative age demographic trends reflected in
a declining population in their peak spending
years (ages 44 to 52) will seriously dampen
leisure spending in 2011.
October 2010
Page 4
© 2010, CB Richard Ellis, Inc.
o
De-levering consumers are still more focused
on saving and paying down debt than engaging
in highly discretionary spend.
Either a lack of material home price appreciation
or outright home price declines, as projected by
some economists, will not provide the increase
in household equity that we believe would be
necessary for leisure spending growth on the
Strip. Prior to the recession, about half of preretirees’ savings was tied up in real estate.
Absent real estate appreciation, pre-retirees
are being forced to save to make up for the
losses in wealth during 2007 to 2009.
o Although employment might strengthen in
2011, the unemployment rate nationwide
is expected to remain well above 9% while
the California unemployment rate will not
decline much from its 2010 average of 12.2%.
The high unemployment rate (even if only
psychologically) will likely continue to keep
consumers saving and from spending in highly
discretionary areas.
• Strip same-store gaming revenue excluding baccarat
is expected to decline 2.6% to 5.6% in 2011.
With the exception of six properties, other resorts
do not generate a material amount of the Strip’s
baccarat revenue. Therefore, these projections will
approximate the 2011 gaming revenue change for
most Strip casinos.
• Baccarat revenue is projected to increase 10% to
20% in 2011.
The baccarat projection is a result of expected continuous
strong growth in the Chinese economy, where many
baccarat players reside or derive their wealth.
• Strip same-store gaming revenue including
baccarat will experience anywhere from a 2.4%
decline to 2.0% growth in 2011.
Strip casinos that earn a high proportion of their
gaming revenue from baccarat could experience
gaming revenue growth (depending on their
baccarat and non-baccarat mix) in 2011.
• Strip same-store hotel rates are expected to decline
1.1% to 3.4% in 2011.
Hotel rates will remain challenged in 2011 given
the negative factors working against leisure
spending. Hotel rates will be down less than samestore gaming revenue (excluding baccarat) as
our meeting planner survey points to convention/
meeting demand increasing markedly from 2010
(perhaps increasing by as much as 10% to 30%).
Convention/meeting demand has grown due to
increased corporate wealth in the U.S. Also, Strip
operators are getting more flexible about the
groups they are willing to host.
• It is critical that investors understand the importance
of the concept of operating leverage. Strip
operators have seen profits evaporate quickly as
revenue has declined since 2008. This has been
particularly true in the first half of 2010, as EBITDA
(earnings before interest, taxes, depreciation and
amortization) has declined $0.86 for every $1.00
decline in revenue due to the highly competitive
environment and the fact that most cost cuts have
been anniversaried. For all but six properties that
dominate the baccarat market on the Strip, GGG
projects same-store EBITDA will move approximately
$0.77 for every $1.00 decline in revenue in 2011.
With an EBITDA margin of slightly above 20% in
2010, the average non-luxury property on the Strip
can expect as much as a 13.8% further decline in
EBITDA in 2011 assuming the lower-end of the
projected revenue range.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
o
• The gap between luxury and non-luxury properties
in a down market can be dramatic. Luxury properties
are better positioned to steal market share from
mid and low-end properties when small room rate
differentials significantly enhance the comparative
value proposition of the higher-end property. The
customers at luxury properties also tend to be less
price sensitive and better able to absorb increases
in travel costs (airfares) than those customers
seeking value-oriented properties.
• During the downturn, Strip operators have engaged
in practices such as cost cutting, discounting,
increasing complimentaries (comps) and tightening
October 2010
Page 5
© 2010, CB Richard Ellis, Inc.
• Included in this report is a retrospective of
development on the Strip over the course of its
history. From early on to present day, strip resorts
have been designed to meet all their guests’ needs
under one roof. In the beginning, most players
kept their play where they stayed. Following the
creation of The Mirage, subsequent waves of
Strip development created must-see resorts that
encouraged visitors from other hotels. This crossvisitation trend was largely aided by improvements
in pedestrian traffic flows. In addition to a
retrospective of Strip development, GGG offers a
look at the current wave of development and redevelopment that is unfolding on the Strip.
• The central theme from the Strip’s development
history is that the correct execution of a unique
strategy/positioning is ultimately what makes a
successful casino. Going forward, the development
strategy will migrate from building new projects
to making the most out of existing buildings via
renovations and strategic additions.
strong same-store profit growth under the right
economic conditions.
Premier Convention Facilities:
Based on our most recent surveys, most
meeting planners we interviewed believe
Las Vegas continues to be the U.S.’ premier
convention
and
meeting
destination.
Operators Becoming More Efficient:
Strip operators, especially those with multiple
properties, have found ways to become very
efficient.
o Weaknesses
Must Reinvest in Properties to Remain Competitive:
It has become clear that in the past two years
capital expenditures have been deferred at several
Strip casinos. Strip operators should be reserving
about 4% to 5% of revenue for reinvestments in
their properties; however, several casinos have
been spending 1% to 2% of revenue in the last two
years. Even if a recovery comes fairly quickly, some
properties will have to play catch-up with both
maintenance and deferred capital projects, thus
putting a ceiling on future cash flows.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
casino credit standards to maximize profitability.
GGG believes these operational strategies have
been in effect longer than a year. Furthermore, the
promotional environment is not expected to grow
any more intense (as it did in 2010) as incremental
convention/meeting demand should offset room
supply growth in 2011.
Nothing New:
• At present, development in Las Vegas can best be
described in the following way: Practicality and
high returns are in, while glamour and heavy
spending are out.
A lack of new development in coming years means
there could be little to encourage new visitation.
• Finally, the report contains an analysis of the Strip’s
medium and long-term strengths, weaknesses,
opportunities and threats.
Because of post-9/11 security measures, procuring
a visa to visit the U.S. has become more difficult
than before.
Travel Challenges faced by International Visitors:
o Strengths
o Opportunities
Positive Long-Term Supply/DemandScenario:
Online Poker:
There is a strong possibility of a positive supply/
demand scenario once the current wave of supply
is completed possibly by 2011. Given the lead-time
to develop a Strip resort (4-5 years from planning
to opening), there is potential for several years of
If online poker becomes legal, large Strip operators
have the databases and brand awareness to
capitalize on this change. Online poker would
likely be complementary to their business, and the
potential market is quite large.
October 2010
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© 2010, CB Richard Ellis, Inc.
Only about 2% of foreign travelers arrive in Las
Vegas when they enter the U.S. There are many
under-served air markets for Las Vegas, especially
in Asia, and anything that drives additional
visitation from these big spending visitors would be
beneficial to the market.
Invest in Technology:
There are many revenue-enhancing (e.g. in-game
sports betting and server-based gaming) and costcutting measures that can potentially be achieved
with the introduction of new technology.
o Threats
Unfavorable Age Demographic Trends Could
Compound Economic Weakness and Lead to a
tribal casinos, Macau, Singapore or other new
jurisdictions (particularly in Asia) could begin to
steal visitors and high-end baccarat players from
Las Vegas.
Oil Price Shocks Lead to Declines in Airline Seat
Capacity:
Because Las Vegas is a low-yielding market for
the airlines, it remains susceptible to future oil
price shocks.
Tourism Calamities:
The Strip is wholly leveraged to discretionary
travel and is vulnerable to travel slowdowns and
possible restrictions caused by exogenous factors
such as contagious diseases, terrorism attacks, and
natural disasters.
Prolonged Drought In Las Vegas Leisure Spending:
Business Travel Alternatives:
Certainly the economy has been weak, but
inevitably it will come out of recession. However,
shifts in the age make-up of the U.S. population will
lead to a decline in the “peak spending” population
as defined by economist Harry S. Dent, which
in turn, could lead to prolonged declines in U.S.
consumption. For reference, the “peak spending”
population is defined as the population between
44 and 52; Dent does not project this age group to
start growing again until 2022.
Although not currently a major issue, increases in
technology such as video conferencing that can replace
business travel are a potential threat to Las Vegas.
Continued Reduction in Credit Issuance:
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Increase International Exposure:
Risk To Forecast
Upside potential to our 2011 forecast could come
from house prices rising by more than 5% next year. If
home prices were to rise beyond current expectations,
lost wealth would begin to be restored, which would
cause some consumers to spend more on discretionary
activities, in our opinion. We do not view this as a likely
As banks pull back from risky lending, people will
simply have to save more to get the things they
want. There is also the issue of rebuilding personal
balance sheets. Even if people are able to eliminate
debt through default rather than paying it off, the
credit available to them following the process is
expected to be limited.
scenario given the removal of specific tax incentives
Growth of Gaming Outside of Nevada:
the Strip and the short booking window of conventions, a
Although no single gaming market has ever been
shown to have a material negative impact on Las
Vegas, if Las Vegas offerings were to become stale
for several years, destinations such as California
attendance to come in below expectations.
for homebuyers and a moderate 2011 forecast by the
Mortgage Bankers Association.
The primary downside risk to our forecast could come from
economic weakness that pushes the stock market (the S&P
500) below 1,000. Given its high correlation to revenue on
collapse below this level could cause convention/meeting
October 2010
Page 7
© 2010, CB Richard Ellis, Inc.
FY 1990, gaming revenue as a percent of total revenue
has fallen nearly every year, starting at 57.8% in FY 1990
This
section
addresses
historical
statistics
and
and falling to 38.7% in FY 2009 (the second year in a
trends for the Strip. The purpose is to identify the
row below 40%). In reality, however, the slide has been
relevant components necessary to understanding the
more pronounced. Nevada Gaming Abstract revenues
fundamentals of Strip casinos as well as some of the
in the “Other” category include lease revenues to the
relevant statistics for projections. One of our principal
hotels from various leased amenities in hotel properties
conclusions involves the transformation of the Strip over
rather than the gross revenues actually realized at the
the past two decades from a simple gaming destination
outlet. Consequently, other revenues are undercounted
to a top-tier, multi-faceted resort experience. Many
in the total and gaming revenue as a percent of total
visitors are drawn to the Strip to enjoy the world-class
revenue is actually lower.
dining, shopping and entertainment in addition to its
unsurpassed gaming. Unlike previous decades, when
Table 1 – Las Vegas Strip Revenue Distribution ($1M and Over)
gambling was the backbone of industry profitability,
100%
hotel, food and beverage, retail and entertainment
90%
provide strong contributions to the Strip’s bottom line.
80%
70%
Other
60%
Las Vegas Tourist Trends
Beverage
50%
Food
40%
Rooms
Gaming
30%
growing number of visitors that do not gamble at all. The
increasing number of retail, restaurant, entertainment
FY 2009
FY 2008
FY 2007
FY 2006
FY 2005
FY 2004
FY 2003
FY 2002
FY 2001
FY 2000
FY 1999
FY 1998
FY 1997
FY 1996
FY 1995
FY 1994
FY 1993
0%
FY 1992
Vegas has evolved beyond the traditional gambler to a
10%
FY 1991
growth and opportunity. Moreover, the appeal of Las
20%
FY 1990
Over the long term, Las Vegas has been a market of
Source: Nevada Gaming Control Board; GGG
and non-gaming options appeals to non-traditional
Although it has fallen as a percentage of total revenue,
visitors and tends to fuel increased tourism growth in
gaming revenue on the Strip has generally risen over the
the market. The continual cycle of growth and product
past 18 years, growing at a compound annual growth rate
re-invention is the primary reason additional capacity to
(CAGR) of 4.5% from 1992 - 2009. Gaming revenue on
the market has historically been met, or even exceeded,
the Strip peaked in 2007 at $6.8 billion, and then began
by increased visitor demand. In the current climate of
to fall rapidly. The largest decline in that period was in
depressed earnings and heavy debt loads, however, we
2008, decreasing 10.4% from 2007, and far exceeding
are entering a period of little to no product re-invention
the declines seen after the 9/11 tragedy. In the last twelve
or “must-see” new supply.
months (LTM) for June 2010, the decline over the previous
The chart below highlights how the distribution of
revenue has changed since FY 1990 (ending June 1990).
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
HISTORICAL STATISTICS
LTM ending in June 2009 is -0.6%. Gaming revenue now
rests near the levels seen in 2004 and 2005.
According to data collected in the Nevada Gaming
Abstract for Strip casinos earning gaming revenue of
$1,000,000 and over, gaming revenue slipped below
50% of total revenue for the first time in FY 1999. Since
October 2010
Page 8
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Total
% Change
LTM June 2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
1993
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
1992
Gaming Revenue
Table 2 – Las Vegas Strip Gaming Revenue 1992 - Present ($ thousands)
% Change
Source: Nevada Gaming Control Board
October 2010
Page 9
© 2010, CB Richard Ellis, Inc.
revenue per available room night (including gaming and non-gaming revenue) has increased. Market-wide EBITDA was
$1.50 billion in fiscal 1998 (ending June), peaked in 2007, and was a normalized $2.37 billion in fiscal 2009 (ending June).
Table 3 – Las Vegas Strip Revenue and Profits 1998 - 2009
FY98
FY99
Gaming
$3,717,773,053
$4,128,143,954
Rooms
$1,618,896,618
$1,900,913,038
Food
$848,526,497
Beverage
$355,371,362
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
$4,683,729,471
$4,615,644,944
$4,247,749,172
$4,490,623,007
$4,909,991,047
$5,283,122,106
$6,040,935,450
$6,490,880,088
$6,266,058,200
$5,330,233,592
$2,380,443,846
$2,648,983,961
$2,390,866,446
$2,544,812,712
$2,970,641,703
$3,367,195,538
$3,849,204,700
$4,082,315,743
$4,070,006,370
$3,370,478,662
$1,027,946,303
$1,258,434,080
$1,353,845,193
$1,335,593,403
$1,429,119,078
$1,629,820,796
$1,817,712,594
$2,145,503,823
$2,179,198,017
$2,320,938,469
$2,066,326,184
$412,998,801
$500,220,574
$531,510,614
$528,493,997
$567,929,522
$638,534,862
$701,189,570
$822,696,923
$890,311,717
$826,479,765
$847,114,503
Revenue
Other
$857,258,099
$1,115,447,446
$1,372,841,758
$1,419,555,878
$1,379,357,679
$1,416,202,174
$1,559,510,300
$1,736,784,685
$2,078,673,702
$2,180,532,325
$2,310,879,312
$2,169,509,731
Total Revenue
$7,397,825,629
$8,585,449,542
$10,195,669,729
$10,569,540,590
$9,882,060,697
$10,448,686,493
$11,708,498,708
$12,906,004,493
$14,937,014,598
$15,823,237,890
$15,794,362,116
$13,783,662,672
EBITDA
$1,497,102,407
$1,604,018,084
$1,741,123,914
$2,261,290,486
$1,513,309,070
$2,180,492,812
$2,736,567,343
$2,986,081,972
$3,619,877,933
$3,981,744,028
$3,634,379,670
$2,365,231,310
# of Available Rooms
22,529,899
23,760,997
26,405,279
26,962,814
27,141,664
27,442,101
28,508,364
28,923,091
29,878,730
29,464,420
29,023,088
30,193,652
# of Occupied Rooms
20,571,687
21,979,938
24,560,582
25,165,543
23,933,702
25,000,271
26,283,694
26,856,718
28,086,414
27,912,740
27,314,852
27,017,132
91.3%
92.5%
93.0%
93.3%
88.2%
91.1%
92.2%
92.9%
94.0%
94.7%
94.1%
89.5%
$106,915,677
$137,105,830
$520,166,572
($747,981,416)
$667,183,742
$556,074,531
$249,514,629
$633,795,961
$361,866,095
($347,364,358)
($1,269,148,360)
EBITDA Change %
7.1%
8.5%
29.9%
-33.1%
44.1%
25.5%
9.1%
21.2%
10.0%
-8.7%
-34.9%
Revenue Change $
$1,187,623,913
$1,610,220,187
$373,870,861
($687,479,893)
$566,625,796
$1,259,812,215
$1,197,505,785
$2,031,010,105
$886,223,292
($28,875,774)
($2,010,699,444)
16.1%
18.8%
3.7%
-6.5%
5.7%
12.1%
10.2%
15.7%
5.9%
-0.2%
-12.7%
$361.33
$386.12
$392.00
$364.09
$380.75
$410.70
$446.22
$499.92
$537.03
$544.20
$456.51
10.0%
6.9%
1.5%
-7.1%
4.6%
7.9%
8.6%
12.0%
7.4%
1.3%
-16.1%
Hotel Occupancy
EBITDA Change $
Revenue Change %
Revenue/
Available Room
% Change
$328.36
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The table below highlights Strip hotel-casino profitability. With the exception of FYs 2002 and 2009 (ending June), Strip
Note: 2009 EBITDA assumes a normalized amount of Other G&A expenses
Source: GGG estimates; Nevada Gaming Control Board
October 2010
Page 10
© 2010, CB Richard Ellis, Inc.
The strength of the Las Vegas market is reflective of the rise in visitor volume over time, growing at an average rate
of 2.9% per year since 1990. 2009 visitor volume in Las Vegas was down 3.0% from 2008, however, and the delay
of many new projects announced during the 2005 - 2007 boom period will likely hamper new growth going forward
(due to the four – five year lead time necessary to complete a project). Visitor volume in the LTM ending June 2010
has risen 1.5% over the LTM ending June 2009, and is at the same level as it was in 2003 - 2004.
25.0%
45,000,000
40,000,000
20.0%
35,000,000
15.0%
25,000,000
10.0%
20,000,000
5.0%
% Change
Visitors
30,000,000
15,000,000
0.0%
10,000,000
-5.0%
5,000,000
Visitor Volume
LTM June 2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-10.0%
1990
0
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Las Vegas Visitor Volumes
% Change
Table 4 – Las Vegas Annual Visitor Volume 1990 - Present
Source: LVCVA
Repeat visitors have become a larger portion of the visiting population in recent years, growing from 74% in 1999
to 83% in 2009. The lack of new gaming supply between the Strip building boom in 1998-2000 and the opening of
Wynn Las Vegas in 2005 has also caused a decline in first-time visitation.
Through 2006, the convention market had been an increasingly important growth component to overall visitation.
Convention visitation peaked in absolute terms (6.3 million) and as a percentage of total visitors (16.2%) in 2006.
Convention visitation has fallen dramatically since then. Convention visitation in the LTM June 2010 is off 10.3%
from the LTM ending June 2009, and is the lowest percentage of total visitors (11.9%) since 2000. Convention visitor
volume is now at the levels seen in 2000 – 2001.
October 2010
Page 11
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 5 – Las Vegas Annual Convention Visitor Volume 1990 - Present
7,000,000
18.0%
16.0%
6,000,000
14.0%
5,000,000
4,000,000
10.0%
3,000,000
8.0%
% of Visitors
Delegates
12.0%
6.0%
2,000,000
4.0%
1,000,000
2.0%
Delegates
LTM June 2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0.0%
1990
0
% of Visitors
Source: LVCVA
Impact of Weak Dollar
In recent years, the weak U.S. dollar has helped fuel visitation from foreign countries, which has accounted for between
13%-15% of visitation over the last several years according to the Las Vegas Convention Visitor Authority (LVCVA). For
example, in 2002, the U.S. dollar was trading at 1 USD to 1.02 Euros. However, it fell dramatically over the next several
years, reaching an average level of 1 USD to 0.72 Euros for 2009. The Chinese yuan has also strengthened over time
against the U.S. dollar, moving from 8.28 yuan to 1 USD in fiscal 1999 (ending June) to 6.79 yuan to 1 USD on June 30, 2010.
Weakness of the U.S. dollar may be benefiting the high-end much greater than the Las Vegas market as a whole in terms
of international visitation. This phenomenon is a function of the luxury resorts’ greater brand recognition overseas, and as
a result, some high-end properties are currently filling nearly 30% of their room nights with international guests.
In addition, the weak dollar has also likely spurred increased visits from domestic visitors deterred by the higher costs of
traveling abroad.
October 2010
Page 12
© 2010, CB Richard Ellis, Inc.
on June 30, 2010. The recent weakness in the Euro has likely had a small negative impact on Las Vegas. The chart below
shows changes over time in the U.S. dollar versus the Euro:
Table 6 – U.S. Dollar to Euro
USD to EUR
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
% Change
0.913
1.000
9.5%
1.120
12.0%
1.117
-0.2%
0.958
-14.3%
0.840
-12.3%
0.787
-6.3%
0.822
4.5%
0.767
-6.8%
0.682
-11.0%
0.731
7.2%
0.721
-1.4%
Source: www.oanda.com
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Over the last several months, the U.S. dollar has strengthened against the Euro - reaching a level of 1 USD to 0.82 Euros
The U.S. dollar is down slightly in FY ending June 2010, which has possibly eased pressure on the Strip revenue
somewhat. Compared to the years prior to FY 2007 (ending June) when the dollar was stronger, weakness in the
dollar probably played a role in helping increase international visitation and spending in Las Vegas.
Airline Visitation
As of 2009, approximately 42% of visitors to Las Vegas traveled by air. For the year 2009, about 40.5 million people
traveled through McCarran Airport, down 8.2% from the previous year. Although anecdotal, increased air visitation
to Las Vegas is probably more beneficial to non-gaming spend than auto visitation because air travelers are likely to
be from farther away and consequently tend to have longer stays and participate in a greater variety of activities to
maximize their Las Vegas experience.
October 2010
Page 13
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The table below portrays the passenger activity trend at McCarran Airport since 1990.
Table 7 – McCarran Passenger Activity En/Deplaned Passengers 1990 - Present
60,000,000
25.0%
20.0%
50,000,000
15.0%
10.0%
30,000,000
5.0%
% Change
Passengers
40,000,000
20,000,000
0.0%
10,000,000
-5.0%
Passengers
LTM June 2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-10.0%
1990
0
% Change
Source: McCarran Airport; GGG
According to McCarran Airport, there were 20.0 million deplaned passengers in 2009, 2.8 million of which had
connecting flights. Of the remaining 17.2 million deplaned passengers, the greatest number of them arrived on
Southwest Airlines (33.7%). Southwest, US Airways, and United Airlines accounted for over half (51.0%) of the
deplaned passengers.
October 2010
Page 14
© 2010, CB Richard Ellis, Inc.
Alaska
3.4%
Jet Blue
2.2%
Others
16.0%
Southwest
Airlines
34.9%
Northwest Airlines
2.6%
Allegiant
5.9%
Continental
5.8%
American
6.8%
Delta
9.5%
US Airways
5.0%
United Airlines
7.9%
Note: It has recently been brought to our attention that US Airways has historically overstated the actual number of its connecting passengers. The
exact extent US Airways has overstated its connecting passengers is not known.
Source: McCarran Airport; GGG
International air traffic rose at an annual rate of 7.3% between 2000 and 2009, more than doubling to 2.3 million
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 8 – 2009 Deplaned Passengers Distribution (less Connecting)
international enplanements/deplanements. International arrivals into Las Vegas were 1.2 million in 2009, down 1.9%
from 2008.
Table 9 – International Enplanements/Deplanements 1996 - 2009
2,500,000
35.0%
30.0%
2,000,000
25.0%
20.0%
10.0%
1,000,000
% Change
15.0%
Int'l Arrivals
1,500,000
5.0%
0.0%
-5.0%
500,000
-10.0%
International Airline Pax
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
-15.0%
1996
0
% Change
Source: McCarran Airport; GGG
October 2010
Page 15
© 2010, CB Richard Ellis, Inc.
New hotel casino projects in Las Vegas, in addition to increasing room capacity, have generally driven new visitation by
expanding interest among visitors throughout the world. As in any market, quality projects that offer good value and
competitive differentiation have a higher propensity for success. The table below identifies hotel room growth since 1990.
Room Inventory
% Change
LTM June 2010
2009
2008
-2.0%
2007
0
2006
0.0%
2005
20,000
2004
2.0%
2003
40,000
2002
4.0%
2001
60,000
2000
6.0%
1999
80,000
1998
8.0%
1997
100,000
1996
10.0%
1995
120,000
1994
12.0%
1993
140,000
1992
14.0%
1991
160,000
1990
Rooms
Table 10 – Las Vegas Room Inventory 1990 - Present
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Growth and Expansion Projects
% Change
Source: LVCVA
Hotel occupancy in Las Vegas has traditionally been strong in comparison to other large hotel markets. The following
chart highlights Las Vegas hotel occupancy from 1990 to 2009. The lowest recorded occupancy during that period was
85.2% in 1991, which was during a national recession. The highest recorded occupancy during the period was 94.0%
in 2007, following years of strong economic growth and little new room inventory. In 2009, the occupancy was 85.3%.
October 2010
Page 16
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 11 – Las Vegas Hotel Occupancy 1990 to 2009
96.0%
94.0%
92.0%
90.0%
88.0%
86.0%
84.0%
82.0%
80.0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Note: Includes both Strip and off-Strip hotels
Source: LVCVA
The following table highlights Las Vegas hotel occupancy in comparison to percent changes in room inventory since
1990. Looking at the major development peaks in 1993, 1996 and 1999, hotel occupancy rose in each case from the
year before. This trend did not hold true to form in 2008 and 2009 when supply grew and occupancy fell.
Hotel Occupancy
Room Inventory % Change
2009
2008
-2.0%
2007
80%
2006
0.0%
2005
82%
2004
2.0%
2003
84%
2002
4.0%
2001
86%
2000
6.0%
1999
88%
1998
8.0%
1997
90%
1996
10.0%
1995
92%
1994
12.0%
1993
94%
1992
14.0%
1991
96%
1990
Hotel Occupancy
Table 12 – Las Vegas Hotel Occupancy and % Change in Room Inventory 1990 - Present
Room Inventory
Source: LVCVA
October 2010
Page 17
© 2010, CB Richard Ellis, Inc.
by looking south of The Mirage, where almost every hotel-casino is owned by MGM Resorts or Harrah’s Entertainment.
Table 13 – Las Vegas Strip Casino/Hotel Ownership Map
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The map below shows a visual representation of the consolidation of ownership on the Strip. This point is best illustrated
Source: GGG
October 2010
Page 18
© 2010, CB Richard Ellis, Inc.
that own them. Throughout time, these transactions have generally led to increased consolidation. The consolidating
phenomenon has been, at least in part, spurred by the larger players looking to gain economies of scale and leverage
their economies of scale to increase the earnings of the acquired properties.
Table 14 – Las Vegas Strip Hotel-Casino Transactions 1995 - Present
Year
1995
1996
1999
1999
1999
2000
2000
2003
2004
2004
2004
2005
2006
2007
2007
2007
2007
2008
2009
2010
Acquirer
Acquired
ITT Corp
Caesars World, Inc
Hilton Hotels Corp
Bally Entertainment Corp
Harrah's Entertainment
Rio Hotel & Casino
MGM Grand
Primadonna Resorts
Park Place Entertainment
Caesars World, Inc
MGM Grand
Mirage Resorts
Steve Wynn
Desert Inn
Colony Capital
Las Vegas Hilton
MGM MIRAGE
Mandalay Resort Group
Harrah's Entertainment
Caesars Entertainment
Opbiz LLC
Aladdin Casino LV
Harrah's Entertainment
Imperial Palace LV
Morgans Hotels
Hard Rock Las Vegas
Apollo Management / Texas Pacific
Harrah's Entertainment
SBE Entertainment / Stockbridge
Sahara LV
Whitehall Street Real Estate Funds
Stratosphere LV, AZ Charlies Boulder, AZ Charlies Decatur, Aquarius Laughlin
Elad Group
New Frontier
Phil Ruffin
Treasure Island
Onex Corp.
Tropicana
Harrah's Entertainment
Planet Hollywood
1995 - 2010 Total
Amount ($ Millions)
$1,825
2,979
888
550
3,000
6,400
270
280
7,900
9,440
653
370
770
27,725
NA
1,200
1,240
755
NA
NA
$66,245
Trailing EBITDA
Multiple
9.6x
10.7x
8.1x
6.7x
9.0x
9.8x
NA
23.3x
10.9x
8.6x
12.4x
NA
19.3x
11.3x
NA
13.9x
NA
6.8x
NA
NA
10.3x
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The table below displays the transactions that have occurred since 1995 involving Strip hotel-casinos or the companies
Source: GGG estimates; company filings/earnings releases
The transaction environment in the past couple years has not been as robust as many might have expected. The lack
of deals has been a function of weak credits markets as they relate to financing acquisitions of Las Vegas casinos. The
economic and competitive environment has left many buyers and financiers uncertain of future cash flows in Las Vegas,
thus depressing the multiples buyers are willing to pay. As a result, potential sellers have been reluctant to sell because
offers have not been at multiples that are de-levering for them.
The three most recent transactions involved the sale of Treasure Island from MGM Resorts to Phil Ruffin and two
situations where acquirers took ownership of the Tropicana and Planet Hollywood by buying distressed debt positions
in the properties.
It is important to point out that each transaction involving Strip hotel-casino has its own unique set of circumstances.
Some transactions involved the sale of companies with casinos in various jurisdictions, some involved existing and
under-development casinos, some involved single assets, some were purchased as turnaround opportunities, and some
were purchased for their land value. Therefore, it is difficult to derive blanket valuation metrics for every Strip casino or
casino company.
October 2010
Page 19
© 2010, CB Richard Ellis, Inc.
will be affected after an acquisition. With a single asset purchased from a large corporation, for example, a buyer must
understand that certain operating costs are being absorbed at the corporate level (such as information technology,
human resources, finance, central marketing, executives, etc.). Therefore, the property’s profits are likely to fall as the
economies of scale are lost if it is the sole casino in the acquirer’s portfolio.
Going forward, the transaction environment is hard to predict. We envision two possible catalysts for an increase in deal
flow: 1) Market conditions deteriorate, which causes debt holders to take control or force the sale of assets, or 2) market
conditions stabilize, which will cause the financing markets to get comfortable with increasing the allowable leverage on
Strip casino acquisitions. Under the latter scenario, sellers and debt holders will be more likely to approve dispositions as
the offers come in at higher multiples. This would be a departure from 2009 and 2010 where debt holders were more
comfortable allowing debt maturities to roll forward rather than sell properties. We believe that traditional and debt-toequity transactions both have a good possibility of occurring in 2011.
October 2010
Page 20
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
It is imperative for any party looking to purchase a casino or casino company on the Strip to understand how profitability
The tables below highlight individual property statistics and operating financial history for major hotel-casinos and condohotels. The following data is based on public financial filings for various companies operating on the Strip, including net
revenue, EBITDA, hotel occupancy and Average Daily Rate (ADR) where available.
Table 15 – Las Vegas Strip Property Details
Hotel-Casino Ownership
155 East Tropicana
American Casino
Colony Capital
DLJ
Elardi Family
Harrah's Ent
Las Vegas Sands
MGM Resorts
MGM Resorts / Dubai
Maloof Family
Onex Corp
Phil Ruffin
Riviera Corp
SBE / Stockbridge
Wynn Resorts
Property
Hooters
Stratosphere
LV Hilton
Hard Rock
Casino Royale
Bally's
Bill's
Caesars Palace
Flamingo
Harrah's
Imperial Palace
Paris
Planet Hollywood
The Rio
Palazzo
Venetian
Bellagio
Circus Circus
Excalibur
Luxor
Mandalay Bay
MGM Grand
Monte Carlo
NYNY
The Mirage
Aria
The Palms
Tropicana
Treasure Island
Riviera
Sahara
Wynn
Encore
Hotel-Casino Average
Hotel-Casino Total
Other Lodging Ownership
Other Lodging Average
Other Lodging Total
Property
Casino Sqft
# of Table
Games
27,537
80,000
78,422
35,595
17,500
66,187
19,528
131,095
61,000
90,041
48,762
105,095
97,902
117,270
incl in Venetian
138,684
159,760
107,195
89,074
100,000
160,344
156,023
102,197
64,269
97,550
150,000
55,869
62,011
55,680
103,800
44,170
186,187
incl in Wynn
90,605
24
54
59
149
18
57
40
174
119
101
53
106
77
86
incl in Venetian
245
168
74
68
82
115
168
67
72
112
148
85
26
75
32
49
298
incl in Wynn
97
2,808,747
3,001
# of Table
Games
Casino Sqft
Signature
Trump
Palms Place
Four Seasons
Vdara
Mandarain Oriental
PH Towers
# of Poker
Tables
# of Slots
# of Gaming
Positions
# of Hotel
Rooms
3
8
0
18
0
15
3
29
19
12
8
0
12
10
incl in Venetian
52
73
8
12
8
10
24
15
0
20
47
11
0
8
8
16
27
incl in Wynn
15
621
1,200
1,233
890
540
1,035
396
1,420
1,385
1,455
785
1,141
1,200
1,117
incl in Venetian
3,063
2,280
1,690
1,500
1,400
1,900
2,300
1,525
1,685
2,050
1,940
1,680
875
1,550
959
830
2,900
incl in Wynn
1,437
783
1,572
1,587
1,892
648
1,467
654
2,638
2,213
2,133
1,151
1,777
1,734
1,693
incl in Venetian
4,845
3,726
2,182
1,980
1,940
2,650
3,452
2,017
2,117
2,842
3,110
2,256
1,031
2,048
1,199
1,220
4,850
incl in Wynn
2,110
476
44,545
65,407
# of Gaming
Positions
# of Poker
Tables
# of Slots
696
2,444
2,956
1,150
152
2,814
212
3,347
3,565
2,526
2,700
2,916
2,600
2,548
3,068
4,027
3,934
3,744
3,991
4,407
4,460
5,034
3,002
2,023
3,044
4,004
711
1,876
2,885
2,075
1,720
2,716
2,034
2,709
Meeting Space
Sqft
38,500
21,000
200,000
81,000
0
175,000
0
300,000
73,000
25,000
40,000
140,000
100,000
160,000
incl in Venetian
510,000
200,000
21,400
12,226
20,000
1,663,697
594,000
23,000
21,500
171,959
300,000
65,000
100,000
18,000
160,000
10,000
200,000
60,000
172,009
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Las Vegas Strip Casino Property-Level Statistics
89,381
5,504,282
# of Hotel
Meeting Space
Rooms
Sqft
1,728
1,282
599
424
1,495
200
1,200
3,000
2,460
2,500
28,000
10,619
12,360
25,000
1,780
6,928
20,985
83,939
Page 21
© 2010, CB Richard Ellis, Inc.
October 2010
Source: GGG estimates; Nevada Gaming Control Board
Aria
Bally's
Bellagio
Caesars Palace
Circus Circus
Excalibur
Flamingo
Hard Rock
Hooters
Las Vegas Hilton
Luxor
Mandalay Bay
MGM Grand
Monte Carlo
New York-New York
Paris
Planet Hollywood
Riviera
Stardust
The Mirage
Treasure Island
Tropicana
Venetian / Palazzo (beg 1Q08)
Wynn / Encore (beg 4Q08)
Harrah's Strip Properties (1)
2003
2004
2005
NA
NA
NA
$275.0 $292.0
NA
$966.7 $1,068.5 $1,253.5
$499.0 $618.0
NA
$197.8 $279.1 $287.6
$232.1 $335.6 $353.9
$300.0 $364.0
NA
$138.5 $150.7 $173.8
NA
NA
NA
NA
NA $252.9
$296.4 $431.1 $447.8
$491.6 $829.3 $898.1
$752.9 $860.8 $1,026.8
NA
NA $305.3
$267.8 $337.2 $351.9
$382.0 $423.0
NA
NA
NA $306.3
$141.0 $147.9 $150.7
$136.4
NA
NA
$579.9 $566.3 $601.4
$351.9 $385.7 $397.2
NA
NA
NA
$599.4 $726.0 $784.5
$0.0
NA $722.0
NA
NA
NA
2006
NA
NA
$1,320.9
NA
$292.6
$366.0
NA
$182.0
$52.4
$290.3
$444.4
$932.4
$1,078.4
$311.9
$337.8
NA
$267.1
$149.2
NA
$734.3
$408.2
NA
$959.7
$1,138.6
NA
2007
NA
NA
$1,305.1
NA
$291.1
$364.7
NA
$186.5
$65.0
$296.7
$444.6
$966.1
$1,203.6
$312.5
$369.2
NA
$257.6
$151.5
NA
$809.4
$407.7
NA
$984.1
$1,295.9
NA
2008
1Q09
2Q09
3Q09
4Q09
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$1,266.3 $264.4 $268.2 $262.4 $269.7
NA
NA
NA
NA
NA
$249.3
$46.8
$54.0
$55.0
$44.6
$319.6
$61.6
$70.9
$71.5
$61.1
NA
NA
NA
NA
NA
$184.3
$30.0
$47.1
$48.9
$35.5
$60.1
$13.3
$11.7
$10.7
$11.1
$280.4
$60.1
$45.2
$44.0
$50.2
$405.3
$85.3
$89.2
$88.6
$81.7
$900.3 $174.5 $193.6 $185.5 $171.4
$1,095.5 $226.7 $244.1 $266.3 $239.2
$235.9
$50.6
$50.5
$52.1
$53.2
$300.9
$64.4
$66.5
$60.7
$58.4
NA
NA
NA
NA
NA
$277.2
$57.1
$60.6
$55.1
NA
$128.0
$24.5
$24.9
$22.6
$19.9
NA
NA
NA
NA
NA
$720.7 $147.4 $153.6 $182.4 $140.8
$376.0
$66.3
NA
NA
NA
NA
$23.3
$20.5
NA
NA
$1,335.0 $317.5 $291.0 $228.1 $263.7
$1,099.3 $290.7 $313.3 $324.3 $300.4
$3,254.3 $686.4 $705.2 $657.2 $649.2
2009
1Q10
2Q10
NA $159.6 $156.9
NA
NA
NA
$1,064.7 $249.0 $248.6
NA
NA
NA
$200.4
$42.0
$47.7
$265.1
$59.1
$65.8
NA
NA
NA
$161.6
$54.2
$64.6
$46.8
$11.3
NA
$199.5
$54.0
$48.4
$344.8
$76.3
$81.1
$725.0 $167.2 $192.6
$976.2 $224.2 $252.2
$206.4
$52.4
$57.9
$250.0
$59.9
$61.7
NA
NA
NA
NA
NA
NA
$91.9
$20.5
$22.1
NA
NA
NA
$624.2 $135.5 $136.2
NA
NA
NA
NA
$13.1
$13.8
$1,100.3 $325.5 $276.2
$1,228.7 $318.6 $318.2
$2,698.0 $682.8 $712.7
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 16 – Las Vegas Strip Individual Property Net Revenue (Millions)
Note: Fourth quarter numbers for some properties are estimated as that data is not provided in 10-K filings. Some data has been normalized not to
include insurance proceeds.
(1)
Includes Caesars, Rio, Paris, Bally’s, Bill’s, Flamingo, Imperial Palace, Harrah’s and Planet Hollywood (as of February 2010)
Source: GGG estimates; company filings/earnings releases
October 2010
Page 22
© 2010, CB Richard Ellis, Inc.
Aria
Bally's
Bellagio
Caesars Palace
Circus Circus
Excalibur
Flamingo
Hard Rock
Hooters
Las Vegas Hilton
Luxor
Mandalay Bay
MGM Grand
Monte Carlo
New York-New York
Paris
Planet Hollywood
Riviera
Stardust
The Mirage
Treasure Island
Tropicana
Venetian / Palazzo (beg 1Q08)
Wynn / Encore (beg 4Q08)
Harrah's Strip Properties (1)
2003
2004
2005
2006
2007
2008
1Q09 2Q09 3Q09 4Q09
2009
1Q10 2Q10
NA
NA
NA
NA
NA
NA
NA
NA
NA
$16.0
$16.0 ($11.9) ($17.0)
$59.0
$81.0
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA $352.2 $406.1 $478.2 $433.7 $391.2
$67.1
$76.2
$60.7
$68.3 $272.3
$62.0
$57.3
$97.0 $149.0
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$62.7
$74.7
$80.8
$80.4
$79.8
$56.1
$6.3
$10.9
$7.7
$2.3
$27.2
$1.7
$5.5
$96.8 $114.0 $123.0 $138.5 $139.1 $109.2
$16.7
$21.2
$19.2
$15.0
$72.1
$14.9
$18.4
$84.0 $113.0
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$34.6
$35.6
$40.4
$40.1
$37.0
$22.2
$1.1
$10.7
$5.7 ($1.3)
$16.2
$7.7
$7.7
NA
NA
NA
$4.7
$6.7
$5.8
$1.7
$0.8
$0.5
$1.7
$4.7
$1.5
NA
NA
NA
$22.3
$30.6
$39.1
$35.0
$10.5 ($3.1) ($4.8) ($0.1)
$2.5
$5.9
$0.2
$121.7 $143.2 $148.7 $163.3 $158.7 $128.1
$19.1
$21.5
$19.8
$16.4
$76.7
$12.8
$17.6
$175.6 $241.7 $271.9 $281.8 $280.8 $246.9
$42.4
$48.6
$36.2
$31.8 $159.0
$25.4
$40.3
$221.5 $290.4 $331.2 $329.3 $388.4 $267.7
$45.3
$52.0
$70.7
$46.3 $214.3
$38.5
$52.1
NA
NA $115.6 $121.3 $110.5
$72.2
$6.8
$6.4
$1.5
$4.4
$19.2
$6.4
$9.7
$100.3 $131.9 $147.7 $141.7 $152.1 $107.1
$20.4
$22.9
$16.6
$17.0
$76.9
$18.1
$19.6
$100.0 $135.0
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$45.2
$33.4
$18.2
$48.9
$5.4
$5.8
$0.6
NA
NA
NA
NA
$22.7
$27.2
$26.8
$28.1
$30.2
$18.7
$3.3
$3.6
$1.6
$1.2
$9.6
$1.4
$2.1
$9.6
$18.0
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$162.9 $170.4 $176.7 $236.0 $232.7 $162.0
$29.6
$32.2
$54.5
$24.5 $140.8
$25.4
$23.2
$90.3 $109.1 $107.4 $115.3 $128.7 $101.2
$12.7
NA
NA
NA
NA
NA
NA
$25.9
$36.1
$38.9
NA
NA
NA ($1.1) ($3.6)
NA
NA
NA ($8.4) ($8.6)
$214.4 $289.6 $305.6 $373.5 $361.1 $392.1
$89.8
$76.7
$34.5
$56.9 $257.8 $105.3
$66.0
NA
NA $212.0 $332.8 $417.0 $252.9
$43.9
$75.5
$70.0
$54.7 $244.1
$60.3
$65.1
NA
NA
NA
NA
NA
NA $198.6 $210.6 $173.0 $174.6 $756.8 $190.9 $176.8
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 17 – Las Vegas Strip Individual Property EBITDA (Millions)
Note: Fourth quarter numbers for some properties are estimated as that data is not provided in 10-K filings. Some data has been normalized not to
include insurance proceeds. Venetian/Palazzo reports EBITDA through 2009.
(1)
Includes Caesars, Rio, Paris, Bally’s, Bill’s, Flamingo, Imperial Palace, Harrah’s and Planet Hollywood (as of February 2010)
Source: GGG estimates; company filings/earnings releases
October 2010
Page 23
© 2010, CB Richard Ellis, Inc.
2006
Aria
Bally's
Bellagio
Caesars Palace
Circus Circus
Excalibur
Flamingo
Hard Rock
Hooters
Las Vegas Hilton
Luxor
Mandalay Bay
MGM Grand
Monte Carlo
New York-New York
Paris
Planet Hollywood
Riviera
Stardust
The Mirage
Treasure Island
Tropicana
Venetian
Palazzo
Wynn / Encore (beg 4Q08)
NA
NA
$252
NA
$68
$93
NA
$188
$91
NA
$125
$217
$155
$127
$135
NA
$122
$78
NA
$166
$129
NA
$239
NA
$300
2007
NA
NA
$265
NA
$71
$100
NA
$206
$74
$128
$132
$227
$163
$132
$142
NA
$128
$83
NA
$181
$146
NA
$259
NA
$300
2008
NA
NA
$261
NA
$64
$90
NA
$186
$66
$133
$116
$214
$147
$109
$128
NA
$133
$83
NA
$163
$133
NA
$222
$234
$288
1Q09
NA
NA
$214
NA
$47
$66
NA
$142
$52
NA
$85
$177
$116
$86
$100
NA
$115
$69
NA
$135
$104
NA
$209
$221
$222
2Q09
NA
NA
$200
NA
$43
$60
NA
$165
$58
NA
$81
$161
$114
$85
$96
NA
$96
$58
NA
$127
NA
$56
$186
$207
$218
3Q09
4Q09
NA
NA
$195
NA
$43
$59
NA
$136
$42
NA
$75
$147
$109
$82
$92
NA
NA
$60
NA
$119
NA
NA
$171
$174
$210
NA
NA
$206
NA
$44
$61
NA
$93
$45
NA
$80
$153
$112
$87
$98
NA
NA
$58
NA
$125
NA
NA
$193
$204
$219
2009
NA
NA
$204
NA
$44
$61
NA
$134
$49
$86
$80
$159
$113
$85
$97
NA
NA
$61
NA
$126
NA
NA
$190
$202
$217
1Q10
$194
NA
$199
NA
$46
$59
NA
$145
$46
NA
$78
$155
$118
$81
$96
NA
NA
$56
NA
$125
NA
NA
$202
$214
$203
2Q10
$178
NA
$209
NA
$42
$57
NA
$191
NA
NA
$77
$161
$116
$79
$92
NA
NA
$55
NA
$124
NA
$58
$184
$202
$197
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 18 – Las Vegas Strip Individual Property Average Daily Hotel Rates
Note: Fourth quarter numbers for some properties are estimated as that data is not provided in 10-K filings
Source: GGG estimates; company filings/earnings releases
October 2010
Page 24
© 2010, CB Richard Ellis, Inc.
2006
Aria
Bally's
Bellagio
Caesars Palace
Circus Circus
Excalibur
Flamingo
Hard Rock
Hooters
Las Vegas Hilton
Luxor
Mandalay Bay
MGM Grand
Monte Carlo
New York-New York
Paris
Planet Hollywood
Riviera
Stardust
The Mirage
Treasure Island
Tropicana
Venetian
Palazzo
Wynn / Encore (beg 4Q08)
NA
NA
95.9%
NA
90.3%
93.2%
NA
94.3%
79.7%
NA
97.8%
92.0%
95.6%
96.7%
98.4%
NA
NA
93.0%
NA
97.5%
97.4%
NA
98.7%
NA
94.4%
2007
NA
NA
95.9%
NA
91.6%
94.9%
NA
94.3%
89.6%
96.4%
98.2%
93.6%
96.2%
96.9%
97.7%
NA
97.0%
93.0%
NA
97.4%
98.0%
NA
98.5%
NA
96.0%
2008
NA
NA
95.0%
NA
84.0%
87.9%
NA
91.7%
91.6%
93.4%
94.6%
90.2%
95.5%
93.9%
95.9%
NA
93.4%
83.8%
NA
95.8%
95.7%
NA
91.4%
90.6%
91.8%
1Q09
NA
NA
93.7%
NA
77.4%
78.9%
NA
89.3%
82.8%
NA
88.3%
83.0%
92.8%
87.8%
91.8%
NA
85.1%
76.8%
NA
91.8%
88.5%
72.0%
89.1%
92.7%
89.5%
2Q09
NA
NA
95.6%
NA
90.4%
94.7%
NA
92.3%
84.6%
NA
92.3%
94.2%
97.3%
93.5%
93.4%
NA
91.6%
76.5%
NA
96.1%
NA
78.0%
88.9%
91.5%
86.6%
3Q09
NA
NA
95.7%
NA
88.8%
95.0%
NA
89.0%
NA
NA
94.4%
93.6%
97.1%
95.6%
96.7%
NA
NA
76.7%
NA
97.1%
NA
NA
88.7%
87.9%
83.9%
4Q09
NA
NA
91.9%
NA
76.3%
81.2%
NA
82.0%
NA
NA
84.3%
85.5%
89.8%
83.5%
90.8%
NA
NA
79.5%
NA
89.5%
NA
NA
77.7%
74.6%
81.0%
2009
NA
NA
94.2%
NA
83.2%
87.4%
NA
88.2%
87.0%
NA
89.8%
89.1%
94.2%
90.0%
93.2%
NA
NA
77.4%
NA
93.6%
NA
NA
86.1%
86.7%
85.2%
1Q10
63.0%
NA
90.9%
NA
67.7%
81.0%
NA
82.1%
85.9%
NA
85.1%
84.3%
91.5%
84.8%
89.2%
NA
NA
82.2%
NA
89.2%
NA
68.0%
89.3%
94.0%
89.4%
2Q10
80.0%
NA
94.7%
NA
82.1%
92.7%
NA
85.2%
NA
NA
91.7%
94.3%
96.0%
93.9%
94.0%
NA
NA
84.6%
NA
94.8%
NA
80.0%
97.2%
98.5%
92.6%
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 19 – Las Vegas Strip Individual Property Hotel Occupancy
Note: Fourth quarter numbers for some properties are estimated as that data is not provided in 10K filings
Source: GGG estimates; company filings/earnings releases
October 2010
Page 25
© 2010, CB Richard Ellis, Inc.
This section explores the development of resorts in
Las Vegas and on the Strip in an effort to identify the
strategies underlying resort development and how their
design has evolved to attract and retain customers. The
goal is to provide perspective and insight on the various
factors (including location) that contribute to success.
In his book, Suburban Xanadu, University of Nevada,
Las Vegas (UNLV) professor David Schwartz discusses
how the first Strip casinos were designed like suburban
shopping centers where affluent suburban customers
could pull up in their cars and find everything
(gambling, restaurants, hotels, and entertainment
all under one roof). Schwartz argues that the casinos
located Downtown represented a low-end version of
what Americans in the 1950s were trying to escape
from, and as such, the Strip came into existence to
separate the luxury from the grind.
First Generation Las Vegas Casinos 1941-1988
The Strip’s first three hotels, the El Rancho (1941), The
Significant commercial development began in Las Vegas
Last Frontier (1942), and the Flamingo (1946) all had
in 1905 when the San Pedro, Los Angeles & Salt Lake
characteristics that distinguished them in some way.
City Railroad was completed. The City of Las Vegas was
The El Rancho was designed like a suburban sprawl
founded that same year in a 110-acre area that now
with motel rooms surrounding the casino. The Last
encompasses Downtown Las Vegas. In 1910, Nevada
Frontier was unique in that it offered all of the resort
became the last western state to outlaw gaming (even
amenities and concentrated on its food product. The
though it was still allowed in Las Vegas). In 1926, U.S.
Flamingo was a mob-influenced resort that focused on
Route 91 was completed, which connected Las Vegas
showcasing top-flight entertainment and serving as the
with Los Angeles.
hangout for Hollywood celebrities. What differentiated
Las Vegas began to expand dramatically in 1931
when work started on Hoover Dam, and the Las Vegas
population boomed from 5,000 to 25,000. Gambling
was legalized in Nevada in 1931, and during the early
the Flamingo from the other two resorts was that it was
run by people who knew gambling and had experience
with casinos, whereas hoteliers with minimal gaming
experience managed El Rancho and The Last Frontier.
years after legalization, casinos were located Downtown
The Strip began to boom in the 1950s in the aftermath of
and on the Boulder Strip.
the Special Committee to Investigate Organized Crime
Following World War II and into the 1950s, lavishly
decorated resort hotels and gambling casinos offering
top-name entertainment came into existence on the
Strip. The Strip’s first developers viewed it as a prime
location because it was on the highway to/from Los
Angeles, and closer to Los Angeles than Downtown.
The Strip was also a logical place to develop the first
casino resorts because resorts could keep players
isolated. The Strip also allowed developers to avoid city
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
A HISTORICAL PERSPECTIVE OF
THE LAS VEGAS STRIP
in Interstate Commerce. As the government squeezed
illegal casinos around the country, people had more
reason to flock to Las Vegas to get their gambling fix.
Las Vegas was a place where the vice of gambling could
be insulated from the rest of the country. This action led
to the development of the Desert Inn, Sands, Dunes,
Sahara, Riviera, Stardust, and Tropicana. In fact, strong
demand during the 1950s resulted in one resort built
about every year.
taxes (the Strip is technically in Unincorporated Clark
County) and find cheaper land.
October 2010
Page 26
© 2010, CB Richard Ellis, Inc.
money before the law of averages can take hold.
It is important to note that originally there was no rhyme
Circus Circus, which was opened in 1968 by the
or reason to the location of resorts built along the Strip.
innovative Jay Sarno (he developed Caesars Palace as
In fact, the Strip was never envisioned as a place where
well), represented the first family friendly hotel-casino in
people would walk from one casino to another like
Las Vegas. It could be argued that although the hotel
they do today. Instead, casino owners were focused on
was opened in the 1960s, from a theming standpoint
keeping their players within their properties. In the 1950s
Circus Circus laid the groundwork for properties such
and 1960s, Schwartz discusses how players’ decisions
as Treasure Island, Excalibur, New York-New York and
on where to stay were made almost entirely on their
the theme park at MGM Grand, which all opened in the
allegiance to casino hosts and/or casino management,
1990s. In addition to a hotel, casino and restaurants,
rather than on amenities or branding. It can be inferred
the property had a midway with carnival games and an
that location during the early years was of minimal
area for public circus performances. In the 1990s, the
importance, especially given that players kept most of
property added the Adventuredome Theme Park with a
their play under one roof.
large roller coaster.
During the later part of the 1950s and into the 1960s,
Corporate/Public Ownership
some Strip casinos began to struggle due to overbuilding,
poor casino game security, and mob skimming. Things
were quiet on the building front in the early 1960s until
1966 with the opening of Caesars Palace. Caesars Palace
was not a big step up from the other casinos in terms of
quality, but it was the first uniquely themed (Roman Empire)
casino. The other casinos at the time were modeled on
Caribbean, desert or Wild West themes.
During the 1960s, Howard Hughes began purchasing
casinos in Las Vegas - ushering in the era where
corporations entered the industry. In 1967, corporations
were legally permitted to own casinos, and during the
1970s some gaming companies began to have their
stocks traded on the public stock market. Although
Hughes’ ownership gave the casinos the perception of
legitimacy, he did nothing in terms of renovating the
Design
five resorts he purchased or building any new resorts.
Just as important to the success of Caesars as its theme
Kirk Kerkorian and architect Martin Stern deserve more
was the fact that it was the first casino designed and
credit than Hughes for the transformation of Las Vegas
built from the ground up such that all the amenities
into the modern mega-resort age. The 1,000-room
interconnected. It also had a mid-rise hotel tower,
International (today’s Hilton), with its Y-shaped high-
which was distinctive. With the exception of the Riviera,
rise hotel tower, opened in 1969. In addition, the resort
the casinos at that point had wings of motel rooms
featured a 2,000-seat showroom, which signaled the
surrounding the casinos. Resorts having all the amenities
end of the days when entertainers could freely interact
under one roof in an organized fashion is key to the
with the audience in small lounges.
success of the modern casino resorts. Modern casinos
are meant to be prisons and not fortresses – meaning
they are designed to keep gamblers and guests in house.
Inherent in a casino’s design is creating amenities that
will encourage winning players to return to the tables. The
worst that can happen (for the casino) is for a winning
In 1973, Kerkorian opened the 2,100-room MGM
Grand (at the present-day site of Bally’s), which was
about twice the size of the International. The MGM
Grand’s casino offered as many table games (about
100) as today’s casinos. Other than cosmetic changes,
today’s casinos are generally similar with the exception
that the MGM Grand did not have covered parking.
Page 27
© 2010, CB Richard Ellis, Inc.
October 2010
player to leave the property from which he just won the
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Location
• El Rancho
marketed as a destination for families. Because of TI’s
limited acreage (only 18 acres), the resort has less
amenities than its sister property, and was built partly to
• The Last Frontier
generate more traffic for The Mirage. This assertion is
• Flamingo
best exemplified by the fact that there is a tram running
• Desert Inn
originally marketed as a family friendly resort. Amenities
• Sands
when it opened included a midway with carnival games
• Sahara
• Riviera
• Dunes
• Tropicana
between the two properties. The Treasure Island was
and a live-action pirate show in front of the casino on
the Strip.
MGM Grand owned an extremely large plot of land
(about 115 acres), which allowed the owners to
build one tower with extremely long wings. This not
only created long walks for guests, but created labor
• Stardust
cost inefficiencies in room service, housekeeping
• Caesars Palace
and security. The large MGM site also allowed for
• Circus Circus
• International/Hilton
• MGM Grand (the original, now Bally’s)
the construction of a theme park (now the site of the
Signature condo-hotel towers), an 18,000-seat arena
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Key Properties
and a large showroom. Like Circus Circus and Treasure
Island, the theme park at MGM Grand was meant to
cater to families.
Both Luxor and the family friendly Excalibur are
First Wave of Modern Strip Development 1989-1997
In 1989, Steve Wynn opened The Mirage, which wound
up being a runaway success in terms of profitability and
changing the face of Las Vegas. The success of The
Mirage fueled the development of many properties that
were built in the early 1990s.
The Mirage was the first of the modern casino resorts in
that it combined the earlier practice of theming (a desert
oasis), an emphasis on quality and service (hallmarks
of Steve Wynn), and features that drew in walk-traffic
(the volcano, dolphin habitat and the domed-atrium
rainforest). The location of The Mirage became the focal
point for the Strip during its first few years of operation
as guests from the surrounding hotels came to see it.
strategically located to the north of Mandalay Bay.
Although Mandalay Bay was opened later, the longterm strategy for these two properties possibly was to
partly serve as dormitories for Mandalay Bay and its
large convention center. Dubbed the “Mandalay Mile,”
the three properties are connected by interior walkways
and a tram.
The Rio, opened in 1990 with 300 rooms and originally
owned by Marnell Carrao, was initially focused on
catering to Las Vegas locals. Its location, west of Las
Vegas Boulevard, across the street from what is now the
Palms, made the strategy seem logical. Prior to 1998,
when Harrah’s Entertainment purchased the property,
Carrao slowly moved the property to more of a tourism
focus. In fact, in the late 1990s, The Rio was actively
In 1993, Wynn opened the Treasure Island (TI) on
competing in the high-end table games business. It
property adjacent to The Mirage. Treasure Island was
could compete in this segment because of a new allOctober 2010
Page 28
© 2010, CB Richard Ellis, Inc.
of a reputation of offering high quality restaurants.
Second Wave of Modern Strip Development 1998-2000
The second modern Strip building boom actually began
Like The Rio, the Hard Rock is located off of the Strip.
a few years prior to the opening of Bellagio in 1998.
But unlike The Rio, The Hard Rock’s strategy has
In 1992, Steve Wynn bought the 160-acre Dunes from
always been primarily tourist-focused - trading on its
a Japanese investor who had purchased it from the
internationally known brand. The Hard Rock’s location
Howard Hughes Corporation in 1987. In 1994, Wynn
on the east side of the Strip is less advantageous for
imploded The Dunes to make way for construction of
attracting local residents than the west side of the Strip
Bellagio. The $1.6 billion Bellagio opened in October
because McCarran Airport and UNLV make direct
1998 with its signature conservatory, Dale Chihuly
access more difficult for residents east of the Strip.
ceiling sculpture in the lobby, and eight-acre lake
The Hard Rock is well known for its concert venue (The
with singing fountains in front of the property. The
Joint), nightclub, pool party (Rehab), and restaurants.
development of these features point to a desire to cater
Another hallmark of this wave was the four skywalks
that were built over the intersection of Tropicana
Boulevard and the Strip in 1994. The skywalks made it
easy and safe for visitors to walk freely between MGM
Grand, Tropicana, Excalibur and New York-New York.
The skywalks transformed Las Vegas into a place where
to the mass market in addition to the high end. In either
case, Bellagio was intended to be the top property in
Las Vegas when it opened, and it might have been
successful anywhere on the Strip. Nevertheless, its
prominence in the market and location generally mark
it as the center of the Strip today.
tourists could easily walk from one hotel to another.
Equally important to the second wave of development
In addition, the skywalks also set the stage for the
as Bellagio was The Venetian. Sheldon Adelson had
development of retail centers on the Strip.
the foresight to see Las Vegas could be transformed
Key Properties
• The Mirage
• Treasure Island
into a convention destination. With the development
of the adjacent Sands Expo & Convention Center, The
Venetian and its all-suite hotel rooms (approximately
700 square feet) was able to sustain high room rates
during the midweek. The Venetian’s location is not as
• MGM Grand
critical to its success (in terms of mass-market walk-by
• Monte Carlo
traffic) because it is able to leverage the neighboring
• New York-New York
• Luxor
• Excalibur
• Rio
• Hard Rock
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
suite tower (there are now 2,600 rooms) and because
Sands Expo Center.
Mandalay Bay was developed as the crown jewel of
the Circus Circus Corporation. Situated at the far south
end of the Strip, the resort has very little walk traffic
from other resorts except for its two sister properties –
Luxor and Excalibur. Mandalay Bay compensates for its
seclusion by having a 1.8 million square-foot convention
center. Therefore, like The Venetian, Mandalay Bay
can drive strong hotel rates during the midweek
and reduce its reliance on the wholesale segment.
Additionally, when large-scale conventions are held at
October 2010
Page 29
© 2010, CB Richard Ellis, Inc.
Strip might be overbuilt following the building boom
rooms from Luxor/Excalibur and retain some rooms for
of the late 1990s. Additionally, the events of 9/11 put
higher-yielding tourists. Given its somewhat secluded
a damper on Strip development as business slowed
location, rather than having fountains like Bellagio,
down in the months following. Although the slowdown
Mandalay Bay has a 10,000-seat arena that helps the
was short-lived for demand from domestic visitors,
resort become a destination for events such as concerts
international visitation suffered as visa restrictions and
and Ultimate Fighting Championship (UFC) bouts. In
entry into the U.S. became more cumbersome.
addition, Mandalay has a House of Blues, a shopping
center, and one of the best pools in Las Vegas, which
helps cultivate hotel room demand.
The Palms, opened in 2001, has a unique location in
that it is both close to the Strip and caters to tourists,
but is also accessible from the west side of Las Vegas
Both Bellagio and The Venetian set the standard
and caters to local residents as well. To attract tourists,
for high-end hotels in Las Vegas. Although themed,
The Palms served as the home for the cast of the MTV
the success of these resorts has been a result of the
show Real World. This helped create buzz around the
quality of design and the successful implementation of
property and in particular its nightclub, Rain, and its
the developers’ strategies. Many properties since the
rooftop ultralounge, Ghost Bar, where the Real World
opening of Bellagio and The Venetian have toned down
cast members regularly hung out. The owner of The
their theming, and have introduced amenities such as
Palms, George Maloof, has cultivated relationships
high-end restaurants and spas.
with many celebrities and athletes who regularly stay,
In addition to quality rooms and high-end restaurants,
retail became further entrenched in the market with the
500,000 square-foot Grand Canal Shoppes and the
high-end Via Bellagio shops with its 12 retail boutiques.
dine and party at the property. The Palms also has a
successful business from Las Vegas locals, benefiting
from Maloof’s previous knowledge of running locals
casinos and the aforementioned convenient location.
In fact, the Grand Canal Shoppes were sold in 2004 at
theHotel @ Mandalay Bay is an all-suite hotel tower
a significant profit, which ultimately led developers in
with its own dedicated lobby, restaurant, bar and
subsequent waves to consider retail as a part of their
spa. These additional amenities separate theHotel
hotel-casino design program.
from other tower expansions such as the Bellagio Spa
Key Properties
• Bellagio
• The Venetian
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
the convention center, Mandalay Bay can leverage the
Tower and the Caesars Augustus Tower. It also shows
the importance for a property like Mandalay Bay to
increase its number of in-house rooms to overcome the
lack of walk-in traffic. The common thread between all
three of these hotel towers is that they generated strong
• Mandalay Bay
near term return-on-investment for their owners as they
• Paris
came online just prior to a period of strong revenue
growth on the Strip.
• Aladdin (now Planet Hollywood)
Wynn Las Vegas was in the planning stages since Steve
Wynn bought the Desert Inn in 2000. Wynn Las Vegas,
Third Wave of Modern Strip Development 2001-2005
opened in 2005, was conceived to be the highest quality
resort on the Strip. Prior to the opening of its sister
The third wave is a relatively inactive period because
property, Encore, Wynn generated the highest revenue
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© 2010, CB Richard Ellis, Inc.
October 2010
Wall Street and gaming companies were concerned the
of any Strip property. Although he developed both Wynn
and Bellagio, Mr. Wynn did some things differently with
Wynn Las Vegas. For example, he did not build giant
fountains or some other free, mass-market attraction out
front. He put a more subdued mountain light show out of
the way for hotel guests and restaurant/nightclub guests
to enjoy. It should be noted that Wynn’s location would
not be rated as ideal. The Desert Inn, which previously
occupied the location, was not a particularly successful
property – especially during its later years. For example,
in 1993 the Desert Inn was sold to ITT/Sheraton for
$160 million. Even after a $200 million renovation in
1997, the property still only fetched $270 million from
Wynn in 2000.
Key Properties
• The Palms
and advanced in-room and casino floor technology.
CityCenter is a mixed-use development on the Strip
between Bellagio and Monte Carlo, which opened in
phases beginning in December 2009. CityCenter’s
centerpiece Aria is a 4,004-room casino resort designed
by architect Cesar Pelli. CityCenter also includes a
392-room Mandarin Oriental (approximately half
of the Mandarin’s units are residential). Crystals is
approximately 500,000 square feet of retail shops,
dining and entertainment venues located directly on
the Strip. The tenant mix includes mostly luxury retailers
including large-format Louis Vuitton (14,000 square feet)
and Tiffany stores. CityCenter also includes the 1,495unit Vdara condo-hotel and the 665-unit Veer condo
towers. As of June 1, 2010, condo-buyers had closed on
32 units at Mandarin ($65.2 million in sales), 86 units at
Vdara ($54.7 million in sales) and 16 units at Veer ($8.8
million in sales). Closings only began occurring at Veer
• theHotel @ Mandalay Bay
in May 2010. The Harmon, now a pure hotel project,
• Spa Tower (Bellagio)
does not have a defined opening date.
• Augustus Tower (Caesars Palace)
CityCenter also features a Cirque du Soleil production
• Wynn Las Vegas
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
per hotel room (inclusive of hotel and gaming revenue)
celebrating the timeless musical legacy of Elvis Presley
and a fine art collection. Restaurants at CityCenter include
those from chefs and restaurateurs including Masayoshi
Fourth Wave of Modern Strip Development 2008-2012
Takayama, Shawn McClain, Michael Mina, Julian
Serrano, Jean-Georges Vongerichten, Sirio Maccioni,
Las Vegas is currently in the fourth modern wave of
Jean-Philippe Maury and The Light Group. CityCenter
Strip development. The fourth wave is characterized by
has 300,000 square feet of technologically advanced
high-density developments that encompass a number of
meeting and convention space. The Mandarin Oriental
different real estate elements - including casino, hotel,
and Aria feature the most technologically advanced
retail, condo and condo-hotel. The architecture and
guestrooms in the country upon opening with many of its
interior design aspects of the properties that will come in
functions such as curtains, television and wake-up calls
the fourth wave will likely be the differentiating factor from
controlled by a bed-side electronic control panel.
property to property, just as themes were in the 1990s.
Whereas the third wave was a gradual evolution from
(and finetuning of) the second, the fourth wave will be a
significant deviation from the third with the centerpiece
being the $8.5 billion CityCenter. Other trademarks of
the fourth wave of development include unabated luxury
CityCenter’s location presents some challenges as
it is located on a hard corner like Bellagio (Strip and
Flamingo Road) or MGM Grand (Strip and Tropicana
Road). To alleviate traffic flow, CityCenter has constructed
an overpass on Harmon Road to connect the resort with
the west side of the city.
October 2010
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© 2010, CB Richard Ellis, Inc.
beverage outlets, a new and larger “The Joint” live
Bellagio, Monte Carlo, Cosmopolitan (future), Planet
entertainment venue, rebranding the nightclub, a new
Hollywood and New York-New York has created a
spa and exercise facility, and additional retail space.
significant amount of walk traffic, which has benefited
The expansion project shows an increasing emphasis on
CityCenter’s slot machine business. To capture walk-
non-gaming attractions in Las Vegas. The HRH Tower,
traffic, CityCenter constructed pedestrian overpasses
with its separate lobby and porte cochere, also has the
within the complex and outside the complex to and from
hint of a boutique hotel.
Planet Hollywood, Cosmopolitan (future) and Monte
Carlo. CityCenter also has a tram running to and from
Crystals and Bellagio, and one running to and from
Monte Carlo and Aria.
The Palazzo, opened in January 2008, is a sister property
and has a hard connection to The Venetian and The
Sands Expo and Convention Center. Like the Venetian,
the Palazzo has an all-suite room product that is very
attractive for convention and meeting customers. From
a strategic standpoint, The Palazzo serves as another
The $400 million PH Towers, opened in November
2009, is a 1,200-unit timeshare project being built on
the same site as Planet Hollywood. Due to diminished
demand for timeshare product, many of the units are
being rented as traditional hotel rooms.
Located between CityCenter and Bellagio, Cosmopolitan
is a $3.8 billion project projected by its sponsors to open
December 15, 2010. Original plans for the property
assumed 2,200 condo-hotel units and 800 hotel rooms.
option for conventioneers, and helps Las Vegas Sands
Plans for the project changed over time, especially
consolidate more citywide and large convention business
after it was acquired out of bankruptcy by its lender,
under one roof.
Deutsche Bank AG, in 2008. The property will have
Opened in December 2008, Wynn Encore is positioned
as an upgraded and differentiated version of Wynn Las
Vegas. The casino features natural light, an intimately
designed casino (similar to its sister Macau property),
a large European pool, an elegant spa and many
unique interior design features. At over 700 square feet,
Encore’s rooms are larger than Wynn Las Vegas’ rooms.
Encore also offers Tower Suites, which are technically in
the same tower as the standard suites, but offer a private
lobby and entrance with upgraded service levels.
The expansion project at the Hard Rock included the
addition of approximately 860 guest rooms, including
the 480-room Paradise Tower that opened in July 2009
and a 380-unit all-suite tower called the HRH Tower
with upgraded amenities, opened in late 2009. The
expansion also included approximately 60,000 square
feet of meeting and convention space and approximately
30,000 square feet of casino space. The project includes
an expansion of the hotel’s pool, several new food and
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The density of hotel rooms around the property including
two hotel towers with 2,995 rooms, a 100,000 squarefoot ground floor casino, 60,000 square feet of retail
space, 11 restaurants (with many focusing on celebrity
chefs), a 43,000 square-foot spa, and 150,000 square
feet of meeting space. The meeting space features a
37,000 square-foot ballroom. The property will have
three separate pools, including two rooftop pools and
an adult pool. The Tao Group will operate a nightclub in
conjunction with the adult pool.
At only 8.7 acres, Cosmopolitan’s site is the smallest to
have a major Strip hotel-casino constructed on it. The
casino will be located on the street level, the retail on
the second level, and many of the restaurants on the
third level. The property will be accessible from the street
level to and from Bellagio, and into the retail floor via overstreet walkways to and from both Planet Hollywood and
CityCenter. Customers entering the Cosmopolitan via the
over-street walkways will flow into the casino before they
can exit the property on the street level. The vehicle porte
October 2010
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© 2010, CB Richard Ellis, Inc.
Delayed Projects
The Cosmopolitan’s casino will have a more intimate
Turnberry Associates had been developing the $3.1
feel than typical mega resorts. The slot product will
billion Fontainebleau. The development, which had
feature server-based technology with an emphasis on
been scheduled to open in 2009, was slated to have
accentuating the marketing benefits of the technology.
2,871 hotel rooms including 152 suites and 1,018
Since the Cosmopolitan was originally conceived as
a condo-hotel, it has the advantage of having large
rooms. The standard rooms at the Cosmopolitan will be
nearly 600 square feet and feature practical technology
such as WiFi, docking ports for gadgets, microwaves
and the ability to utilize concierge and room service
ordering via the television. Most standard rooms and
suites feature terraces. In addition to standard rooms
and one-bedroom suites, the resort will feature about
270 1,700-square feet hospitality-style suites with a
condo-hotel units. The project faces challenges because
it is not located on a hard corner and its location at the
far northern end of the Strip will limit walk-in traffic.
Because of the smallish size of the site (24.5 acres), the
pool was to be located above ground, and the retail
and meeting space located on multi-levels. The project
filed for bankruptcy in April 2009, and was acquired
out of bankruptcy by Carl Icahn, who took ownership
of the property in early 2010 for $105 million in cash
and $56 million in financing.
good-sized kitchen, full wet bar and a refrigerator.
Two projects that have been officially halted are Boyd
These rooms also have two full-baths, a sitting room, a
Gaming’s $4.0 billion, 5,000-room Echelon and the
separate bedroom and a full wrap-around terrace with
665-room Octavius hotel tower at Caesars Palace. Both
outdoor seating.
of these projects have undefined opening dates.
At the time of this report, the Cosmopolitan had 200 to
Key Properties/Projects
300 of its 2,995 units still reserved by individual condo
buyers, and therefore, those units may not be available
• CityCenter
to the public only if 1) the condo buyers actually close on
• Palazzo
their units and 2) the buyers opt not to be on the condo-
• Wynn Encore
hotel rental pool. With that in mind, we believe many of
these “hold out” units will ultimately either not be closed
• Hard Rock expansion
on or end up in the rental pool. The Cosmopolitan will
• PH Towers
open with approximately 2,000 hotel rooms in December
2010 and add the balance of units totaling about 995 (less
any condo buyer “hold outs”) in July 2011.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
cochere is located on Harmon Avenue.
• Cosmopolitan
• Fontainebleau
Cosmopolitan has struck a deal with Marriott International
to become a part of the Autograph Collection. The deal
gives the Cosmopolitan access to the Marriott distribution
channels, including the all-important meetings booking
Fifth Wave of Strip Development – Refurbish/
Redevelopment Cycle 2009+
network. The Marriott affiliation, room product, and
Practicality and high returns are in while glamour and
meeting space at the Cosmopolitan will appeal to meeting
heavy spending are out.
planners and benefit the property in the long term.
In light of no new resort development for the next
several years (aside from the possibility of finishing out
October 2010
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© 2010, CB Richard Ellis, Inc.
Fresh off an $84 million dollar room remodel before its
their existing operations and trying to figure out new
sale to Phil Ruffin, Treasure Island added Gilley’s in April
ways to exploit their space. Capital budgets are likely to
2010. Replacing Mist Lounge and Francesco’s Italian
be hampered for several years so approved projects are
Restaurant, Gilley’s offers a Strip-front, 124-seat dining
more likely to focus on remodels and renovations with
area, bar, nightclub and “world-famous bikini bull riding.”
smaller cash outlays and quicker returns. These projects
will still have to compete with capital needed for regular
maintenance, however. In either case, the refurbish/
remodel cycle that began in 2009 will be critical in terms
of maintaining market share in the coming years.
Wynn Encore converted its unused porte-cochere to a new
adult pool (Encore Beach Club) and nightclub (Surrender)
in mid-2010 for an estimated cost of $67 million. The
pool complex is approximately 60,000 square feet, with
26 cabanas, eight two-story, 350-square-foot bungalows,
a restaurant and poolside blackjack and craps. The
nightclub is approximately 5,000 square feet and
Harrah’s recently announced plans for Planet Hollywood
that include new signage, the construction of two
balconies above existing entrances, modifying the
property’s entrance ramps, and other enhancements.
Given the greater amount of foot traffic going to
CityCenter, we speculate the Monte Carlo will explore
ways to produce revenue in the currently under-utilized
space around its entrance.
Key Properties/Projects
• Wynn Encore/Las Vegas
connected to the pool complex.
• Flamingo
Wynn Las Vegas also began a room remodel on all 2,700
• Tropicana
of its rooms. The $100 million project, expected to be
• Treasure Island
complete by spring 2011, will also include a remodeled
baccarat pit and two new restaurants.
In June of 2010, Harrah’s announced their intention
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Fontainebleau), operators are going to be evaluating
• Planet Hollywood
• Monte Carlo
to build a postponed retail development between its
Flamingo and O’Sheas casinos in 2011. Originally known
as Project Linq and first envisioned in 2006, the plans call
Las Vegas Development Conclusions
for a street of bars, restaurants, shops, entertainment and
At the beginning of the Strip’s development cycle (1940s
a giant Ferris wheel.
and 1950s), location played virtually no role in customers’
The Tropicana is currently working through a major
redevelopment plan that involves its rooms and public
spaces. At an estimated $165 million, the property
is redesigning its hotel towers (Paradise and Island),
adding and renovating restaurants, and updating its
pool, convention space and exterior. The remodeling
project began shortly after the Tropicana emerged from
decisions on where to stay and gamble because most
people stayed where their preferred casino hosts were.
Most people played where they stayed. The casinos were
developed as resorts capable of meeting all of their guests’
needs under one roof. This phenomenon was largely still
in effect until 1994 when the first overhead walkway was
developed on Las Vegas Boulevard and Tropicana Avenue.
bankruptcy in July 2009 and is expected to last until the
Since the development of The Mirage, however, the
spring/summer of 2011.
following waves of development created must-see resorts
October 2010
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© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
that encouraged visitors in other hotels to come and view
the themes and designs in the latest projects. With the
development of Bellagio, The Venetian, Wynn and Encore,
luxury has become the expectation for new developments.
Going forward, it remains unclear if some of the highend properties of today may become the middle-market
casinos of the future.
As pedestrian traffic flow became easier through the
development of walkways/skywalks, trams between
resorts and the Monorail, tourists were encouraged to
travel from one hotel to another. The larger operators
on the Strip actively encourage cross-property patronage
through their marketing and players club programs.
Looking at the current wave of development, certain
projects face unique operational challenges due to small
sites or the lack of a hard intersection. The primary issue
is that with so much development density in new projects,
resorts must carefully manage customer traffic flow in and
around the property.
It is also important to point out that there are examples
of properties succeeding in off-Strip locations, such as
the Rio and Palms, and there are examples of properties
succeeding on the sites of resorts that once failed (Wynn
on the location of the Desert Inn). The key takeaway from
the Strip’s development history is that a unique strategy/
positioning and the proper execution of that strategy is
what ultimately makes a successful casino. To succeed,
operators will have to define and execute their strategy
in consideration of savvier repeat customers with smaller
budgets. Given the amount of capital investment and the
variety and scope of amenities required to compete on
the Strip, the competitive challenges will be greater in the
coming years.
A more quantitative analysis of future development is in
the “2011 Forecast” section of the report.
October 2010
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© 2010, CB Richard Ellis, Inc.
This section provides an understanding of how Strip
casino resorts position themselves and the key factors
determining profitability.
Hotel Rooms
In a perfect world of infinite demand, Strip casinos would
fill all their hotel rooms with high-rolling gamblers.
In the real world, where there are a relatively small
number of high rollers, the next best option is to fill the
remaining rooms with loyal leisure customers who pick
up the phone and call their favorite Las Vegas hotel for
a vacation. However, Las Vegas casinos would still not
come close to filling all their rooms, particularly during
the midweek, when many people cannot take a vacation
or a quick gambling trip. Fortunately, Las Vegas has 10
million square feet of exhibition and meeting space,
which allows it to fill many of those midweek rooms
with convention attendees. Since an unoccupied room
provides no value to the casino, most Strip resorts have
a specified number of rooms each night allocated to
wholesalers who buy the rooms at a discounted price
and sell them to the enduser (usually via the Internet) at
theoretical win is necessary to qualify for the comp/
reduced rate. The casino complimentary/casino rate
segment consists of rooms being filled by any guest
who is receiving a free hotel room or discounted hotel
room because of their play in the casino. Typically,
casino marketing will have a block of rooms set aside
365 nights a year for known casino players. If casino
marketing is not filling the rooms at the forecasted
pace, the rooms usually go back into general
inventory to be sold to Free Independent Traveler (FIT)
or wholesale guests.
• Free Independent Traveler (FIT) (20% - 40%
of Occupied Rooms) – Historically, rates for this
category are 10% to 15% above the blended average
rate for a property. FIT guests are the most valuable
customers in terms of hotel revenue, and strong
spenders in food and beverage and retail revenue.
FIT guests are typically leisure travelers who reserve
their rooms by calling hotel reservations directly,
booking through a travel agent, or booking on the
casino’s website.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
FUNDAMENTALS OF LAS VEGAS
STRIP OPERATIONS
• Convention/Meeting (15% - 40% of Occupied
Rooms) – Historically, rates for this category
average from 90% to 100% of the blended average
rate. The rate for this category would be even
higher if adjusted for the fact that most of the rooms
are occupied midweek, when rates are typically
much lower than the weekends. This category is
segmented into four sub-categories, listed in the
order of their value to a casino hotel:
a mark-up.
Thus, Strip casino resorts fill their hotel rooms with four
major segments of customers. Since individual hotels
o
Incentives
A smaller group attending Las Vegas. They
will likely host a number of functions on-site.
Attendees generally have a lot of free time
to patronize the resort’s gaming and nongaming amenities.
o
Corporate
A group that could be large or small from
a particular company. The company will
likely hold seminars and conferences for
its employees. A Fortune 500 company, for
example, could bring as many as 2,000
have their own marketing plans and identity, we have also
included a range of how properties might fill their rooms.
The wide ranges in each category are representative of the
various operating philosophies on the Strip.
• Casino Complimentary/Casino Rate (10% - 50%
of Occupied Rooms) – The room rates for this
segment are usually set to approximate the average
rate for any given night so the hotel can determine
the opportunity cost of giving a room away for free.
The casino rate also helps determine what level of
October 2010
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© 2010, CB Richard Ellis, Inc.
o
Citywide
These customers are less valuable as they
typically are attending a trade show at Sands
Expo, Las Vegas Convention Center or
Mandalay Bay Convention Center. Therefore,
they are spending less time at the hotel in which
they are staying – meaning the host hotel does
not benefit much beyond getting a nice hotel
rate. Hotels with a limited amount of meeting
space will fill have much of their convention/
meeting occupancy via this sub-category.
evil for Las Vegas casinos. Wholesalers can
either be online or brick and mortar, but typically
represent outfits where the casino dedicates a
specified number of guaranteed room nights at a
guaranteed rate 365 nights per year. The wholesaler
will then turn around and bundle the hotel room
with other services and charge a premium to the
end customer. Tour groups are the traditional tour
groups arranged by operators who arrange large
groups of value-conscious or foreign visitors.
More and more casino companies on the Strip
are offering “best rate guarantees” on their own
websites, so the online wholesalers cannot undercut
the rates on the wholesaler websites.
o
Association
Examples of associations that typically hold
meetings in Las Vegas include medical associations,
jewelers and broadcasters. These groups tend to
look for off-peak times to hold their meetings to
lower costs and maximize attendance. As such,
associations are the least valuable of the four
All four segments serve a different purpose and fill the
convention/meeting segments.
Vegas hotels to the 85%+ occupancies consistently. Since
Convention and meetings are more likely to occur
during midweek, but some leisure-based conventions
that happen on weekends. In addition, there are several
trade shows that spill over into weekends and there are
attendees who stay over from a midweek convention to
enjoy what Las Vegas has to offer.
According to the 2009 Visitor Profile Study, conducted
for the LVCVA, of the visitors who booked their hotel
accommodations over the internet, 24% used Hotels.
com (owned by Expedia), 20% used casino websites,
19% used Expedia, 8% used LasVegas.com, 6% used
Orbitz and 5% used Travelocity.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
attendees in a group, although many corporate
groups are much smaller.
an empty hotel room has no value, Strip operators do
what they can to adjust their mix and keep occupancies
high (in consideration of their core market and brand,
of course). Consequently, it is important for investors to
understand how a property fills it rooms, and how that mix
impacts profitability.
The convention/meeting segment is necessary to
maximize rates during the midweek period. Without
convention business, casinos have to fill their rooms
with lower-yielding customers during the midweek.
Conventions/meetings also provide the casino with high
margin catering and banquets revenue. On the flip side,
conventioneers typically spend less in the casino than the
other three segments.
Visitor Geography
Las Vegas fills its rooms from customers from all around
the U.S. and the world. It is important to know where
Las Vegas visitors are coming from to better understand
sensitivity to changes in local economies, as well as gain a
better understanding of the impact of future competition.
• Wholesale (10% - 40% of Occupied Rooms) –
Historically, rates for this category are 10% - 15%
below the blended average rate for a property. The
wholesale and tour group segment is a necessary
October 2010
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© 2010, CB Richard Ellis, Inc.
It is important to note that not all of the passengers
Vegas visitation broke down in the following manner:
arriving from these cities actually live there. Passengers
could simply be connecting through a hub before going
• Southern California – 26%
on to Las Vegas. For example, someone actually flying
• Other Western United States – 14%
from Chicago to Las Vegas may only be connecting
• International – 14%
through Chicago from Milwaukee.
• Southern United States – 11%
We estimate the revenue contribution from domestic
visitors is divided geographically as follows:
• Midwestern United States – 12%
• Southern California – 28%
• Arizona – 10%
• Arizona – 9%
• Eastern United States – 7%
• Texas – 6%
• Northern California – 5%
• Northern California – 7%
• New York – 5%
In the thirteen months ending June 2009, the top feeder
airports flying non-stops into Las Vegas were as follows:
• Illinois – 5%
• Florida – 3%
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
According to the 2009 Las Vegas Visitors Profile Study, Las
• Other states – 37%
Properties owned by companies with several casinos in
Table 20 – Top City Pairs for McCarran Airport
midwestern or southern states likely have a revenue mix
(13 Months Ending June 2009 & June 2010)
that skews more towards the “Other State” segment.
Airport
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Los Angeles, CA
Phoenix, AZ
San Francisco, CA
Denver, CO
Atlanta, GA
San Diego, CA
Salt Lake City, UT
Dallas/Fort Worth, TX
Burbank, CA
Seattle/Tacoma, WA
New York-JFK, NY
Chicago-O'Hare, IL
Orange County, CA
Reno, NV
San Jose, CA
Oakland, CA
Sacramento, CA
Houston-Intercontinental, TX
Chicago-Midway, IL
Minneapolis/St. Paul, MN
LAX
PHX
SFO
DEN
ATL
SAN
SLC
DFW
BUR
SEA
JFK
ORD
SNA
RNO
SJC
OAK
SMF
IAH
MDW
MSP
13-Mths Ending
June 2009
28,019
24,164
22,695
21,786
15,800
15,155
14,773
14,609
13,757
13,679
13,671
13,270
10,668
10,642
9,919
9,891
9,760
9,007
8,962
8,573
Airport
Los Angeles, CA
Phoenix, AZ
San Francisco, CA
Denver, CO
Atlanta, GA
Dallas/Fort Worth, TX
Salt Lake City, UT
Chicago-O'Hare, IL
San Diego, CA
Burbank, CA
Seattle/Tacoma, WA
New York-JFK, NY
Reno, NV
Houston-Intercontinental, TX
Oakland, CA
San Jose, CA
Minneapolis/St. Paul, MN
Chicago-Midway, IL
Orange County, CA
Sacramento, CA
LAX
PHX
SFO
DEN
ATL
DFW
SLC
ORD
SAN
BUR
SEA
JFK
RNO
IAH
OAK
SJC
MSP
MDW
SNA
SMF
13-Mths Ending
June 2010
26,783
22,690
22,128
22,027
15,174
14,068
13,452
12,714
12,347
12,242
11,749
11,685
10,197
9,055
8,879
8,754
8,697
8,250
8,184
8,144
Page 38
© 2010, CB Richard Ellis, Inc.
October 2010
Source: GGG estimates; McCarran Airport
We estimate the international segment contributes15%
to 20% of total gaming (excluding baccarat/mini baccarat)
and non-gaming revenue on the Strip.
twelve months ending June 2010, the VIP games
baccarat and mini baccarat comprised 20.6% of total
gaming revenue. We estimate approximately 75%
of this revenue comes from Asia. Further enhancing
the importance of these players is that some of them
Over the past few years, the proportion of visitation and
may partake in games such as pai gow, blackjack or
revenue from international visitors has been increasing.
roulette, meaning they may comprise of about 20-22%
The increase has been a function of rapidly rising Asian
of Strip revenue on their own.
and emerging market economies that have grown at a
much faster rate than the U.S. economy, and the Euro
and Canadian Dollar that have steadily strengthened
against the U.S. Dollar - increasing the spending power
of those visitors.
With 85% of international visitors coming from outside
Asia, they comprise a material segment of spending
even though they typically gamble less per night. We
estimate about 12%-14% of Strip gaming revenue
comes from the non-Asian international segment
The estimated breakdown of international customers to
(assumes about one-third less gambling spend per
Las Vegas is as follows:
room night than the overall visitor average).
• Canada/Mexico – 50% - 60%
We also estimate that at least 20% of non-gaming
• Europe – 20% - 25%
• Asia – 15%
• Other – 10% - 15%
Although international visitors only make up less than
15% of the occupied room nights in Las Vegas, they
constitute a higher proportion of the spending on the
Strip for several reasons. Although non-Asian visitors
tend to spend less on gambling than U.S. visitors,
revenue comes from international visitors. We surmise
visitors from Europe comprise 5%-6% of total Strip non-
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
International Breakdown
gaming revenue and visitors from Asia comprise 3%4% of non-gaming revenue.
To summarize, we estimate 32%-36% of gaming
revenue (including baccarat) comes from international
visitors. We estimate visitors from Europe comprise 3%5% of gaming revenue and visitors from Asia comprise
20%-22% of gaming revenue.
they spend much more on retail, food and beverage,
and entertainment on a per night and per trip basis,
according to the 2009 Las Vegas Visitor Profile Study. In
Age Demographics
addition, since the average length of stay is longer than
According to the LVCVA’s 2009 Visitor Profile Study, visitors
domestic visitors, their trips typically encompass nights
during the midweek that are otherwise harder to fill.
break down by age as follows:
In addition, although the data is anecdotal, we believe
• 21 to 29 – 11%
that foreign visitors are more likely to stay at luxury
• 30 to 39 – 16%
properties, evidenced by Wynn Resorts commenting
that international guests occupied 26% of their room
• 40 to 49 – 21%
nights during the first quarter 2008.
• 50 to 59 – 19%
In terms of gaming revenue, international visitors make
• 60 to 64 – 10%
up much greater than 20% of revenue. For the trailing
• 65+ – 22%
October 2010
Page 39
© 2010, CB Richard Ellis, Inc.
break down the Las Vegas spending by age group,
one would likely see the revenue contribution of the 40
to 49 age group at higher than 21% and the revenue
contribution of 65+ segment at less than 22%. The
average age of a Las Vegas visitor is 50 years old.
Marketing
Properties that compete for premium play on the Strip
have on-site casino hosts and satellite marketing
offices in major U.S. and international cities such as
Los Angeles, Chicago, Dallas, New York, Tokyo and
Hong Kong. In addition, some casinos contract with
independent agents who have proprietary relationships
Casino – Premium Versus Mass-Market
The distinction between the premium and mass markets
is important when analyzing Strip performance and the
financials of individual properties or companies. Unlike
Macau, the Nevada Gaming Control Board does not
identify how much of the Strip’s revenue comes from
premium play (or VIPs). Likewise, companies with Strip
casinos usually do not denote the amount of high-end
play in their SEC filings or quarterly press releases.
with certain players. To maintain their independence,
these agents work completely on commission.
The role of marketing personnel is to develop new
relationships and foster existing relationships at the
casino and in players’ hometowns. New players are
often incented at greater levels than existing players
to obtain trial visitation, and may receive up to 40%
of theoretical losses in complimentaries and other
compensation, while existing players will receive about
half of that. In addition to complimentary rooms, food
To gauge directionally where premium play is heading,
and beverage and entertainment, players can receive
the Nevada Gaming Control Board’s monthly revenue
promotional chips, discounts on losses, private air
reports denote the amount of baccarat and mini
transportation, rebates of travel costs and gifts.
baccarat win. Although premium play includes other
games such as blackjack, craps, roulette or pai gow, a
good rule of thumb is that about 50% - 70% of high-end
play is concentrated in baccarat and mini baccarat. To
calculate total Strip premium revenue, one can multiply
the amount of baccarat and mini baccarat win by 1.4
to 2.0 times.
The distinction must also be made between properties.
High-end properties on the Strip may earn substantial
portions of their casino revenue from premium play
while low-end properties earn nearly all of their casino
revenue from the mass market. What allows certain
properties to compete for high rollers is a combination
of marketing, service and amenities/facilities. In other
words, it does not make sense for every property to
compete for premium play, and not all properties have
the amenities to do so.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Although exact data is not available, if one were to
It is an ongoing challenge for casinos to balance
premium volume and profitability. Incentive exists for
casinos to bring in new high rollers, but competing on
price alone (incentive level) is easily matched by other
casinos. Except for the highest of high rollers, offering
too many incentives can lead to the point where the
play received may not be profitable.
Many premium players are loyal to a specific property,
casino host or independent agent, while others will
play where they are given the best incentive or highest
credit line. Casinos can use special events such as a
boxing match or a baccarat tournament to encourage
premium players to visit their property.
Service and Amenities/Facilities
Great facilities are a necessity for casinos wishing to
compete in the premium market. Facilities that attract
premium players include opulent suites, private aircraft
October 2010
Page 40
© 2010, CB Richard Ellis, Inc.
Between FY 2003 (ending June) and FY 2007 (ending
Players can also be provided with butlers and private chefs.
June), the Strip experienced unprecedented revenue and
Some players may even specifically request certain dealers.
profit growth. Strip revenue grew from $10.45 billion in
Conclusion
FY 2003 (ending June) to $15.82 billion in FY 2007
(ending June), an increase of $5.37 billion (51.4%).
When forecasting numbers for Strip properties under
EBITDA over the same period grew from $2.18 billion
development or for turnaround situations, some analysts,
to $3.98 billion, an increase of $1.80 billion (82.6%).
appraisers and others automatically assume a property
Therefore, EBITDA increased at a rate of approximately
will receive the market average win per table game or
$0.34 for every $1.00 increase in revenue.
a win per table game comparable to market-leading
properties such as Wynn, Bellagio and Venetian by simply
opening their property (sometimes even at a premium
to those comparables). It is important to understand that
relationships with players, facilities, and a critical mass of
marketing personnel (both domestic and international)
are necessary to even compete in the premium market.
In the absence of these features, and remembering that
there are a finite number of premium players in the world,
properties may not achieve the expected average estimates.
By the end of 2009, operators had completed most of
the personnel layoffs and remembered as many fixed
costs from their operations as possible. In addition,
the competitive pressures in the market had forced
operators to increase promotional levels, further
hurting margins. As a result, relatively modest samestore revenue declines thus far in 2010 have impacted
EBITDA greatly with EBITDA dropping about $0.86 for
every $1.00 decline in revenue. Excluding the baccarat
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
and secluded gaming areas (including private salons).
dominant properties, the ratio was $0.77 for every $1.00.
Going forward, when and if same-store revenue begins
Operating Leverage
In the last several quarters, all Strip casinos have
experienced significant declines in profits, which, on a
percentage basis, have declined at a faster rate than
revenue. This is due to the fact that Strip casinos have
certain fixed costs (not to mention high below-EBITDA
capital costs). It took from second quarter 2008 until
fourth quarter 2008 for casino operators to begin
massively scaling back controllable costs, and results in
those three quarters suffered dramatically.
to ascend, a similar process to the 2003 - 2007 period
is likely to repeat itself of $0.30 to $0.50 EBITDA
flow-through for every $1.00 increase in revenue.
Strip operators are now lean and mean (maybe too
lean in some cases), and will be in a position to reap
huge EBITDA flow-through when same-store revenue
increases return. As was experienced in the past cycle,
after the revenue increases come back, the Strip
operators will likely become less lean over time as
development, finance and other corporate functions
are added back to the cost structure.
Following 9/11, a similar phenomenon occurred as
operations were paralyzed in fourth quarter 2001.
Although costs were taken out of the operations almost
immediately, profits suffered. In FY 2002 (ending June),
Strip revenue fell $687 million while EBITDA fell $748
million. However, in FY 2003 (ending June), operators
benefited from the leaner cost structures as EBITDA increased
$667 million on a revenue increase of $566 million.
October 2010
Page 41
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Leased Versus Owned
Third-party operators for nightclubs, restaurants, and
entertainment venues have become more prominent in
recent years. If all goes well, the leased outlet and the
property can benefit from synergistic cobranding while
both parties minimize their risks. The theory behind
casinos bringing in third-party operators is that the
lessees specialize in what they do (such as running a
nightclub or producing shows) while the casino operator
may not be as adept. The casino operator usually forgoes
maximum profits by significantly increasing the chance
of at least receiving the lease income. However, signing
a lease with a known operator does not guarantee
success because the casino operator may have to
commit significant dollars for tenant improvements and
may be left holding the bag if the tenant vacates. It is
also possible that the tenant may act in a way that could
jeopardize the casino’s reputation via poor service,
offering a sub-par product, or worse (the $500,000 fine
levied against Planet Hollywood for conduct inside the
Privé nightclub being the most salient example).
There is no public data that quantifies the amount of
leased revenue Strip casinos generate. Leased revenue
has risen over the last several years, but many Strip
casinos continue to want to own as many of their outlets
as possible. If they decide to use outside concepts they
pay the outside company a management or royalty fee
and maintain more control over the space. This is the
case with many outlets at Wynn, Aria and Cosmopolitan.
October 2010
Page 42
© 2010, CB Richard Ellis, Inc.
Although some operators have argued that trends on the Strip are improving, many operators have indicated that the
current operating environment has been the most difficult they have experienced. In this section, we analyze the key
statistics and economic variables that have impacted the Strip during the downturn.
2009/2010 Key Statistics
Table 21 – 2009/2010 Las Vegas Strip Monthly Gaming Revenue
$600,000
40.0%
$500,000
30.0%
Revenue
10.0%
$300,000
0.0%
$200,000
% Change
20.0%
$400,000
-10.0%
Total Gaming Win
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
-30.0%
Mar-09
$0
Feb-09
-20.0%
Jan-09
$100,000
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
2009/2010 LAS VEGAS STRIP REVIEW
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
October 2010
Page 43
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
40.0%
$300
30.0%
$250
20.0%
$200
10.0%
$150
0.0%
$100
-10.0%
$50
-20.0%
$0
-30.0%
% Change
$350
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
WPUD
Table 22 – 2009/2010 Las Vegas Strip Monthly Gaming Revenue/Position/Day
Strip WPUD
Y-O-Y % Change
Note: One slot equals one position and one table equals six gaming positions
Source: GGG estimates; Nevada Gaming Control Board
Table 23 – 2009/2010 Las Vegas Strip Monthly Baccarat/Mini Baccarat Revenue
$250,000
300.0%
250.0%
$200,000
150.0%
$150,000
Win
100.0%
$100,000
50.0%
% Change
200.0%
0.0%
$50,000
-50.0%
Bacc/Mini-Bacc Win
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
-100.0%
Jan-09
$0
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
October 2010
Page 44
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 24 – 2009/2010 Las Vegas Strip Monthly Baccarat/Mini Bacc Revenue/Table/Day
$25,000
200.0%
150.0%
$20,000
WPTD
$15,000
50.0%
$10,000
% Change
100.0%
0.0%
$5,000
-50.0%
-100.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
$0
Bacc/Mini Bacc WPTD
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
$160,000
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
-30.0%
-35.0%
-40.0%
$140,000
$120,000
Win
$100,000
$80,000
$60,000
$40,000
$20,000
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
$0
% Change
Table 25 – 2009/2010 Las Vegas Strip Monthly Table Games ex Bacc/Mini Bacc Revenue
Table Games exc. Bacc
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
October 2010
Page 45
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 26 – 2009/2010 Las Vegas Strip Monthly Table Games Ex Bacc/Mini Bacc Revenue/Table/Day
$2,500
10.0%
5.0%
$2,000
0.0%
-5.0%
-10.0%
% Change
WPTD
$1,500
-15.0%
$1,000
-20.0%
-25.0%
$500
-30.0%
-35.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
$0
Tables exc. Bacc/Mini Bacc WPTD
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
Table 27 – 2009/2010 Las Vegas Strip Monthly Poker Revenue
$12,000
5.0%
$10,000
Win
$8,000
-5.0%
$6,000
-10.0%
$4,000
% Change
0.0%
-15.0%
$2,000
-20.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
$0
Poker Win
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
October 2010
Page 46
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 28 – 2009/2010 Las Vegas Strip Monthly Poker Revenue/Table/Day
$900
4.0%
$800
2.0%
$700
0.0%
WPTD
-4.0%
$500
-6.0%
$400
-8.0%
$300
% Change
-2.0%
$600
-10.0%
-12.0%
$100
-14.0%
$0
-16.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
$200
Poker WPTD
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
5.0%
$250,000
0.0%
$200,000
-5.0%
$150,000
-10.0%
$100,000
-15.0%
$50,000
-20.0%
$0
-25.0%
% Change
$300,000
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Win
Table 29 – 2009/2010 Las Vegas Strip Monthly Slot Machine Revenue
Slot Win
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
October 2010
Page 47
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 30 – 2009/2010 Las Vegas Strip Monthly Slot Machine Revenue/Slot/Day
$180
5.0%
$160
0.0%
$140
-5.0%
$100
-10.0%
$80
$60
% Change
WPUD
$120
-15.0%
$40
-20.0%
$20
-25.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
$0
Slot WPUD
Y-O-Y % Change
Source: GGG estimates; Nevada Gaming Control Board
3,300,000
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
-12.0%
-14.0%
3,200,000
3,100,000
Visitors
3,000,000
2,900,000
2,800,000
2,700,000
2,600,000
2,500,000
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
2,400,000
% Change
Table 31 – 2009/2010 Las Vegas Citywide Visitor Volume
Visitor Volume
Y-O-Y % Change
Note: Includes Strip and off-Strip resorts
Source: GGG estimates; LVCVA
October 2010
Page 48
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 32 – 2009/2010 Las Vegas Citywide Average Lodging Rates
$120
10.0%
5.0%
0.0%
$100
-10.0%
$80
-15.0%
-20.0%
$60
% Change
ADR
-5.0%
-25.0%
-30.0%
Citywide ADR
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
-35.0%
Jan-09
$40
Y-O-Y % Change
Note: Includes Strip and off-Strip hotels/motels. Reflects the addition of higher-quality room supply in 2010.
Source: GGG estimates; LVCVA
Table 33 – 2009/2010 Las Vegas Citywide Hotel Occupancy
100%
0.0%
90%
-2.0%
Occupancy
-6.0%
70%
-8.0%
60%
% Change
-4.0%
80%
-10.0%
-12.0%
40%
-14.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
50%
Citywide Occ.
Y-O-Y Change
Note: Includes Strip and off-Strip hotels
Source: GGG estimates; LVCVA
October 2010
Page 49
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 34 – 2009/2010 Las Vegas Convention Attendees
600,000
20.0%
10.0%
500,000
0.0%
-10.0%
-20.0%
300,000
-30.0%
200,000
% Change
Attendees
400,000
-40.0%
-50.0%
100,000
-60.0%
-70.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
0
Attendees
Y-O-Y % Change
Source: GGG estimates; LVCVA
Table 35 – 2008 - 2010 Las Vegas McCarran Airport Daily Inbound Seats
2008
2009
2010
January
77,786
67,929
62,327
February
77,783
68,797
62,630
March
79,831
71,931
66,196
April
77,154
70,780
66,263
May
77,013
69,367
66,107
June
81,489
71,929
65,931
July
77,000
69,303
August
72,761
67,810
September
71,842
68,020
October
71,789
68,442
November
70,448
67,021
December
68,942
63,980
Source: McCarran Airport
October 2010
Page 50
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
3,800,000
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
-12.0%
-14.0%
-16.0%
-18.0%
3,600,000
3,400,000
Passengers
3,200,000
3,000,000
2,800,000
2,600,000
2,400,000
2,200,000
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
2,000,000
% Change
Table 36 – 2009/2010 Las Vegas McCarran Airport Enplaned/Deplaned Passengers
Passengers
Y-O-Y % Change
Source: GGG estimates; LVCVA
Table 37 – 2009/2010 NV/CA Border Average Daily Traffic
50,000
14.0%
12.0%
45,000
10.0%
40,000
8.0%
6.0%
35,000
30,000
2.0%
0.0%
25,000
-2.0%
20,000
% Change
Traffic
4.0%
-4.0%
-6.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
15,000
Traffic
Y-O-Y % Change
Page 51
© 2010, CB Richard Ellis, Inc.
October 2010
Source: GGG estimates; LVCVA
The above tables highlight total market performance in 2009 and 2010. The tables below outline our estimate of
same-store gaming revenue on the Strip for the June 2010 YTD period. The performance for same-stores in the time
period is actually slightly worse because new projects that opened in late 2009 have cannibalized already-existing
properties. The first table represents our estimates for samestore gaming revenue performance in 2010 and the
second table shows our estimates of 2010 same-store gaming revenue performance excluding baccarat/mini baccarat.
Through the first half of 2010, we estimate same-store gaming revenue on the Strip fell by an estimated 5.2% from
the first half of 2009. Excluding baccarat, the same-store gaming revenue decline was greater at an estimated 8.0%.
30.0%
$500,000
20.0%
$400,000
10.0%
$300,000
0.0%
$200,000
-10.0%
$100,000
-20.0%
$0
-30.0%
% Change
$600,000
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Same-Store Gaming Revenue
Table 38 – 2010 Las Vegas Strip Same-Store Gaming Revenue $000s
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
2010 Same-Store Performance
Same-Store Gaming Revenue
Y-O-Y % Change
Source: GGG estimates
October 2010
Page 52
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 39 – 2010 Las Vegas Strip Same-Store Gaming Revenue ex Baccarat $000s
0.0%
$400,000
-5.0%
$350,000
$300,000
-10.0%
$250,000
$200,000
-15.0%
$150,000
$100,000
% Change
Same-Store Gaming Revenue ex Baccarat
$450,000
-20.0%
$50,000
-25.0%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
$0
Same-Store Gaming Revenue ex Baccarat
Y-O-Y % Change
Source: GGG estimates
The table below gives a visual depiction of the estimated percent change difference in market versus same-store
gaming revenue.
Table 40 – Total Gaming Revenue Versus Same-store % Change
40.0%
30.0%
% Change
20.0%
10.0%
0.0%
-10.0%
-20.0%
Jan-10
Feb-10
Mar-10
Total % Change
Apr-10
May-10
Jun-10
Same Store % Change
Source: GGG estimates
October 2010
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© 2010, CB Richard Ellis, Inc.
Historically speaking, an estimated two-thirds of revenue comes from the leisure segment while one-third comes from
the convention/meetings segment. In the last two years, the decline in convention/meetings markets has skewed the
overall revenue mix towards the leisure segment.
Table 41 presents a comparison of Strip revenue per available room (gaming and non-gaming) with different
economic data points over time. Strip revenue is shown on a per available room night basis because outsized revenue
increases were seen when new properties opened.
The economic data points we analyzed against Strip revenue per available room night included:
• Employment
• Real GDP
• Home prices as measured by the Case-Shiller Composite Home Price Index
• Stock market as measured by the S&P 500
Table 41 – Historical Changes in Las Vegas Strip Revenue per Available Room Night and Economic Data (Fiscal 1999-2010E ending June)
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Economic Factors Impacting Las Vegas Strip Performance
20.0%
15.0%
10.0%
% Change
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10E
Fiscal Year (ending June)
Strip Revenue / Available Room
Case Shiller Composite
Real GDP
Employment
S&P 500
Note: Revenue per available room night includes all gaming and non-gaming revenue earned by Strip hotel-casinos. We estimated FY 2010
(ending June) revenue per available room because the FY 2010 (ending June) Nevada Gaming Abstract does not come out until February 2011.
Source: GGG estimates; Nevada Gaming Abstract; Bureau of Labor Statistics; Bureau of Economic Analysis; Standard & Poors; Yahoo Finance
October 2010
Page 54
© 2010, CB Richard Ellis, Inc.
Table 41 illustrates that no single economic data point moves smoothly with revenue per available room night over
time. Also, there is no one-for-one correlation between any economic variable and revenue per available room night.
Changes in the S&P 500, however, have the highest correlation with revenue per available room night. This point is a
bit surprising (and will be discussed in further detail). Compared to several economic variables, revenue per available
room has the following correlation rates:
Table 42 – Revenue per Available Room Correlation Rates
Economic Variable
Correlation Coeffecient
Employment
0.84
Real GDP
0.75
Case-Shiller Composite Index
0.68
S&P 500
0.85
Source: GGG
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
One will notice the major decline in revenue per available room night in FY 2002 (ending June) that was attributable
to a decrease in travel following 9/11. The large growth in revenue per available room in FY 2003 (ending June)
to FY 2007 (ending June) cannot be explained by employment growth alone, and appears to have been positively
impacted by growth in home prices and increases in the stock market.
It is important to understand why and how each of these economic data points impact the Strip. Keep in mind that the
decline in revenue has been exacerbated by the decline in the convention/meeting segment.
The LVCVA estimates that convention/meeting attendance fell by 5.0% in 2008 from 2007 and dropped another
23.9% in 2009. Through YTD June 2010, convention/meeting attendance has fallen just 4.1%. It should be noted
that the drop in convention attendance through June YTD was felt entirely in January and February as convention
attendance has re-commenced a growth trajectory beginning in March 2010.
The decline in the convention/meeting attendance during the last few years has put immense pressure on casinos to
fill rooms with lower yielding guests – particularly during the midweek period.
October 2010
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© 2010, CB Richard Ellis, Inc.
The table below highlights monthly employment data for 2007 through YTD 2010. In 2009, U.S. employment fell 4.3% from
2008. Through July 2010 YTD, average U.S. employment is down 1.8% compared to the same period in 2009.
Table 43 – U.S. Monthly Employment Data 000s (2007 – present)
2007
2008
% Change
2009
% Change
2010
% Change
January
137,313
138,056
0.5%
134,419
-2.6%
129,602
-3.6%
February
137,410
137,993
0.4%
133,768
-3.1%
129,641
-3.1%
March
137,594
137,831
0.2%
133,000
-3.5%
129,849
-2.4%
April
137,674
137,803
0.1%
132,496
-3.9%
130,162
-1.8%
May
137,831
137,754
-0.1%
132,151
-4.1%
130,594
-1.2%
June
137,973
137,617
-0.3%
131,692
-4.3%
130,373
-1.0%
July
138,041
137,557
-0.4%
130,294
-5.3%
130,242
0.0%
August
138,037
137,473
-0.4%
130,082
-5.4%
September
138,203
137,020
-0.9%
129,857
-5.2%
October
138,373
136,700
-1.2%
129,633
-5.2%
November
138,467
136,167
-1.7%
129,697
-4.8%
December
138,078
135,074
-2.2%
129,588
-4.1%
137,916
137,254
-0.5%
131,390
-4.3%
130,066
-1.0%
Annual Average
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Employment
Note: Seasonally adjusted
Source: GGG estimates; Bureau of Labor Statistics
In virtually every regional gaming market we have analyzed, employment typically has the highest correlation with
gaming revenue. The likely reason employment does not have the highest correlation with Strip revenue could relate
to Las Vegas trips being highly discretionary. Although having a job and feeling comfortable with one’s job status
makes a trip to Las Vegas more likely, other factors, such as housing wealth and stock market wealth, also influence
how much visitors will spend. In addition, corporate wealth as measured by changes in the S&P 500 may have a
greater impact on what corporations are willing to spend for Strip accommodations.
Real GDP
Behind the S&P 500 and employment, changes in real GDP have the next highest correlation with Strip revenue per
available room night. Its high correlation with Strip revenue could be indicative that the Strip is a microcosm of the
general economy, but movements in Strip revenue tend to be more exaggerated.
October 2010
Page 56
© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 44 – Quarterly Real GDP Growth (2007 - Present)
Real GDP Growth
1Q07
1.2%
2Q07
3.2%
3Q07
3.6%
4Q07
2.1%
1Q08
-0.7%
2Q08
1.5%
3Q08
-2.7%
4Q08
-5.4%
1Q09
-6.4%
2Q09
-1.0%
3Q09
2.2%
4Q09
5.6%
1Q10
3.7%
2Q10
1.6%
Source: GGG estimates; Bureau of Economic Analysis
Home Prices
Table 45 – U.S. Monthly Case Shiller Home Price Index (2007 - Present)
2007
2008
% Change
2009
% Change
2010
% Change
January
221.31
196.07
-11.4%
157.96
-19.4%
157.88
-0.1%
February
220.46
190.59
-13.5%
154.61
-18.9%
156.85
1.4%
March
219.67
186.11
-15.3%
151.48
-18.6%
156.24
3.1%
April
218.94
183.35
-16.3%
150.44
-17.9%
157.40
4.6%
May
218.34
181.56
-16.8%
151.19
-16.7%
159.36
5.4%
June
217.37
180.52
-17.0%
153.35
-15.1%
161.04
5.0%
July
216.30
178.67
-17.4%
155.96
-12.7%
August
214.63
176.71
-17.7%
158.07
-10.5%
September
212.72
173.35
-18.5%
158.77
-8.4%
October
209.76
169.67
-19.1%
158.69
-6.5%
November
205.25
165.95
-19.1%
158.34
-4.6%
December
200.67
162.09
-19.2%
158.17
-2.4%
214.62
178.72
-16.7%
155.59
-12.9%
158.13
1.6%
Annual Average
Source: GGG estimates; S&P Case-Shiller Home Price Index
October 2010
Page 57
© 2010, CB Richard Ellis, Inc.
especially hard-hit housing markets, the housing wealth
effect impact has likely been more pronounced.
The rise and fall in home prices have been found to
impact personal consumption in two ways:
• Housing wealth effect
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
In 2007, Alan Greenspan and James Kennedy
published a study called “Sources and Uses of Home
Equity from Homes.” In the report, Greenspan and
Kennedy present estimates of the disposition of the free
cash generated by home equity extraction to finance
consumer spending, outlays for home improvements,
debt repayment, acquisition of assets, and other uses.
There is broad agreement in the literature that housing
wealth supports consumption, but there is considerable
disagreement as to the magnitude of the effect and as
to whether the marginal propensity to consume out of
housing wealth differs from that of stock market wealth.
There also is disagreement as to whether home equity
extraction adds to personal consumption beyond the
traditional wealth effect.
• Home equity withdrawal
Housing Wealth Effect
There are several studies that estimate the housing
wealth effect. A 2006 study by Bostic, Gabriel, and
Painter estimated the marginal propensity to consume
at 6% for housing wealth. In other words, for every
$1.00 increase in home prices, the owner will spend
$0.06 more on consumption.
A study by Carroll, Otsuka and Slacalek in 2006
reported a long-run marginal propensity to consume
of non-stock market wealth of 8%. In other words, for
every $1.00 increase in real estate prices, the owner
will spend $0.08 more on consumption.
The average national home price in 2009 fell 12.9%
from 2008. Through June 2010 YTD, the average
national home price rose 3.2% from June YTD in 2009.
Based on a range of impacts, the reduced wealth
effect caused by the drop in home prices nationwide
contributed to a significant drop in Strip visitor spending.
As with the reduction in employment, because the
Strip gets a disproportionate amount of business from
October 2010
Page 58
© 2010, CB Richard Ellis, Inc.
Table 46 – Los Angeles Monthly Home Prices (2007 - Present)
2007
2008
% Change
2009
% Change
2010
% Change
January
268.68
224.41
-16.5%
166.55
-25.8%
172.98
3.9%
February
266.63
214.83
-19.4%
163.17
-24.0%
171.82
5.3%
March
264.58
207.11
-21.7%
160.89
-22.3%
170.62
6.0%
April
263.36
202.45
-23.1%
159.37
-21.3%
171.78
7.8%
May
263.19
198.54
-24.6%
159.18
-19.8%
174.67
9.7%
175.66
9.2%
172.92
4.9%
June
262.12
195.70
-25.3%
160.90
-17.8%
July
260.84
192.55
-26.2%
163.97
-14.8%
August
258.07
189.18
-26.7%
166.62
-11.9%
September
254.79
184.54
-27.6%
168.03
-8.9%
October
249.50
179.82
-27.9%
168.43
-6.3%
November
240.43
175.85
-26.9%
169.72
-3.5%
December
233.03
171.40
-26.4%
171.39
0.0%
257.10
194.70
-24.3%
164.85
-15.3%
Annual Average
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 46 shows the Case-Shiller Home Price Index for Los Angeles – the single-largest feeder MSA for the Strip. The
average Los Angeles home price in 2009 fell 15.3% from 2008. Through June 2010 YTD, the average Los Angeles
home price rose 7.0% from June YTD in 2009.
Source: GGG estimates; S&P Case-Shiller Home Price Index
October 2010
Page 59
© 2010, CB Richard Ellis, Inc.
The Greenspan and Kennedy report (referenced above) found that between 2001 and 2005 equity extracted from homes
contributed to approximately 3% of personal consumption expenditures nationally. Furthermore, between 2004 and third
quarter 2006, personal consumption financed by home equity extraction increased to reach 3.4% of disposable income.
Table 47 highlights the amount of active home equity withdrawal, which is defined by the “gross cash out” as a result of
refinancings plus the change in the overall balance of home equity loans and lines of credit. The final update of this statistic
was in 4Q08, and the Federal Reserve no longer tracks it.
Table 47 – Mortgage Equity Withdrawal
$160
$140
$120
Billions Per Quarter
$100
$80
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Home Equity Withdrawal Impact on Consumption
$60
$40
$20
$0
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
19
91
-$20
Source: Data compiled from estimates from the Federal Reserve
Active mortgage equity withdrawal fell to $7.2 billion in fourth quarter 2008. Every quarter between second quarter 2004
and fourth quarter 2007 had at least $100 billion of active mortgage equity withdrawal. Although no specific data for its
impact on the Las Vegas is available, as stated earlier, about 3.4% of consumption was being fueled by this phenomenon.
The above chart indicates that much of the consumption driven by mortgage equity withdrawal had ceased in the last few
quarters of 2008, and likely has completely dried up by 2009 (although the data is no longer tracked). Going forward,
home equity withdrawals will likely turn negative as individuals repay home equity loans/lines of credit, but the fact that it
has already fallen so dramatically bodes well for going-forward comparisons.
October 2010
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© 2010, CB Richard Ellis, Inc.
Given that the home equity withdrawal phenomenon has
run its course, homeowners must now pay off that debt
in addition to mortgage debt and credit card debt. Total
consumer indebtedness was $11.7 trillion in June 2010 –
down 1.5% from 1Q10 and down 6.5% from the peak in
3Q08, according to the New York Fed.
The household debt service ratio (the percentage of debt
service of after tax income) has also been declining in
recent quarters. This is likely a function of refinancing to
lower interest rates and defaults, which has negated debt for
a lot of over-leveraged people. According to the Federal
Reserve, the ratio was 12.46% in 1Q10, down from the
peak of nearly 14% during the bubble years, but still above
the 10% - 12% during most of the 1980s and 1990s.
It is hard to draw conclusions from household debt data.
On one hand, people are cutting their debt service levels
via refinancings, which is positive. However, some of this
is a function of credit defaults. Household debt coming
down is ultimately positive, but at what point does it
stabilize and do people become more comfortable taking
on more debt – particularly credit card debt to finance
discretionary consumption such as trips to Las Vegas?
Stock Market
Studies measuring the wealth effect of stock market gains
have had mixed results, with most stating that the wealth
effect from housing or real estate wealth is much greater.
According to a 1999 study by Ludvigson and Steindel
called “How Important Is The Stock Market Effect on
Consumption,” said,
A common assumption is that . . . roughly five
cents of each dollar of an increase in wealth is
spent soon after it is earned. While this amount
seems small, when we are looking at trilliondollar gains in wealth from the stock market, a
five-cent increase in spending per dollar of gain
adds up to real money.
A 2005 study by Case, Quigley and Shiller found “at best,
weak evidence of a stock market wealth effect.” A study
by Carroll, Otsuka and Slacalek in 2006 reported a longrun marginal propensity to consume of 2% for financial
wealth, significantly less than for real estate wealth.
Even though the data is mixed regarding potential
impacts of the rise and fall of the stock market, it appears
the stock market is a key indicator of Strip performance
given the high correlation between the S&P 500 and Strip
revenue per available room night. Why this is the case is
up for debate. It could just be when the stock market is up,
companies are doing well and willing to spend money on
holding meetings in Las Vegas. Or as the above studies
postulate, a rising stock market could make people
wealthier, which, in turn, will cause them to visit Las Vegas
more and spend more when they are here.
Based on Strip revenue performance through June 2010, it
appears the dramatic rise in the stock market since March
2009 has benefited the convention/meetings demand for
Las Vegas. The rise in the stock market does not appear to
have offset the dramatic declines in consumer wealth that
have occurred in the last several years.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Household Debt
Personal Savings Rate
Like the household debt data, it is hard to draw many
conclusions from the personal savings rate data.
It should be noted that the personal savings rate is not
in itself a measure of what Americans are saving. It is
actually a measure of what percentage of their disposable
income people are not spending. The definition of the
level of savings by the Bureau of Economic Analysis is
Disposable Income less Personal Outlays. Therefore,
the savings rate is the level of what Americans are not
spending divided by disposable income.
As previously mentioned, the study entitled “Sources
and Uses of Home Equity from Homes” produced
by Greenspan and Kennedy states that home equity
extraction had the effect of lowering the savings rate
between 2000 and 2005 by 3.4% in 2005. This
phenomenon occurred because the personal savings
rate is measured relative to personal disposable
income, purchases financed with the proceeds of
October 2010
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© 2010, CB Richard Ellis, Inc.
Table 48 – Personal Savings Rate (2004 – Second Quarter 2010)
discretionary spending levels, but we have not seen
those levels yet. The savings rate has definitely increased
from its trough levels, but based on the combined trend
of low interest rates and a low savings rate, a sustained
increase in savings seems less likely until consumers
are incentivized to save via higher interest rates. The
Federal Reserve appears committed to a low interest
rate strategy during these uncertain economic times, so
it seems unlikely that we will see a meaningful increase
in interest rates soon.
Operator Reaction to Challenging Environment
Strip operators have met the challenging operating
environment in four basic ways. That is not to say every
operator has implemented or is employing all of these
strategies, but the consequences of these strategies have
market-wide implications.
Source: U.S. Bureau of Economic Analysis
So the savings rate must increase by at least 3.4% from
its trough level until it is likely that all the mortgage equity
withdrawal impact is washed out of the comparable
periods. On top of that, the other economic data points
such as employment, the housing wealth effect, and
stock market increases and decreases will impact the
savings rate.
Drawing any conclusions regarding historical savings
rates against savings rates after 2007 is unwise as the
Bureau of Economic Analysis changed its methodology.
Although the trend has definitely been for higher
savings rates since the 2005-2007 boom years. Since
the 1Q08, the savings rate rose quickly from less than
3% to settle around 6% for the last several quarters.
When the savings rate will peak and at what level is still
unclear. According to a May 21, 2009 report by the
Congressional Budget Office, some economists “expect
even larger increases in savings, perhaps back to the
rate of 8 percent to 10 percent that prevailed before
1980.” Such a high savings rate would be a significant
negative for the Strip because it would indicate lower
Cost Cutting
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
capital gains result in an increase in expenditures, but
not income, which lowers the measured savings rate.
Greenspan and Kennedy write, “the implied increase in
personal consumption expenditures financed by home
equity extraction would parallel a substantial portion
of the decline in the personal savings rate since 1998
(through 2005).”
To maintain profitability and to continue to be timely with
interest payments, Strip hotel-casinos have taken dramatic
steps to cut costs. The areas in which casinos typically look
at cutting costs are in labor and capital investment – two of
the larger outlays. According to the 2007, 2008 and 2009
Nevada Gaming Abstracts for Strip properties, total payroll
and benefit costs represented 30.2%, 30.6% and 32.5% of
revenue, respectively.
Aggressive labor cuts are readily evident. According
to the Nevada Department of Employment, casino
employment peaked in Las Vegas for both Strip and
off-Strip casinos in June 2007 at 170,500. Since then,
casino employment has fallen to 149,500 as of June
2010 (representing a 12.3% drop). The same-store drop
in employment has actually been more severe when one
considers that several new casinos opened during that
24-month timeframe (Palazzo, Wynn Encore, CityCenter,
Hard Rock expansion and three sizable off-Strip casinos).
In fact, current casino hotel employment has retreated
to levels not seen since 1998, when there were about
40,000 less hotel rooms in the market.
October 2010
Page 62
© 2010, CB Richard Ellis, Inc.
“Adjusted EBITDAR across our operating properties
includes the savings benefits from our cost-cutting
measures, which management expects to generate
approximately $500 million in total annualized
savings across our operations, driven primarily by
decreases in payroll-related expenses [emphasis
added]. These cost-cutting measures, which we
anticipate will be fully implemented by the end
of 2009, are expected to generate annualized
savings of approximately $200 million in Las
Vegas and approximately $300 million in Macau.
Management believes that these cost savings will
provide enhanced operating leverage once the
global economy improves.”
In its 10-Q filing for second quarter 2009, MGM
Resorts stated,
“Because of these economic conditions, we
have increasingly focused on managing
costs. For example, we have reduced our
salaried management positions; we did not
pay discretionary bonuses in 2008 due to not
meeting our internal profit targets; we suspended
Company contributions to our 401(k) plan and
our nonqualified deferred compensation plans;
we rescinded cost of living increases for non-union
employees; we reached an agreement with our
primary union to defer the 2009 contractual pay
increase; we have been managing staffing levels
across all our resorts; and we have been reviewing
all areas of operations for efficiencies. As a result,
the average number of full-time equivalents at our
resorts for the quarter ended June 30, 2009 was
14% lower than the prior year quarter.”
All of these measures point to the fact that payroll costs
have been cut significantly more than. Indicated by the
top-line reduction in employee counts.
Casinos have also looked for efficiencies to reduce
labor costs. Examples include cross-training employees
in different tasks, adding kiosks at hotel check-in areas,
placing self-serve soda fountains on the casino floor, and
reducing opening hours at restaurants. Some casinos
have installed electronic table games (more often seen
in high-tax gaming markets), but the success of those
games has been mixed.
In addition to operating costs, capital expenses have also
been cut in recent years. Many properties have put off
major capital projects and are only replacing equipment
when absolutely necessary. More specifically, many
slot managers indicated that they have been unable to
purchase many slot machines in the past two years given
budget cutbacks. For example, slot equipment provider
International Game Technologies saw its machine sales fall
13% in fiscal 2009. Furthermore, other capital projects,
such as room renovations that typically take place every
five to seven years, are being put on the back burner
even as furnishings may start showing signs of wear.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Besides eliminating positions outright, payroll costs have
also been cut by freezing wages, reducing or eliminating
bonuses, suspending 401(k) matches, reducing salaries
and capping hours for hourly employees. For example,
in its fourth quarter and year-end 2008 filing, Wynn
Resorts said it would save $75 - $100 million a year
by implementing these kinds of changes (and other
efficiencies) in 2009. In its 10-Q filing for the second
quarter 2009, Las Vegas Sands stated,
Consequently, investors interested in property acquisitions
will need to have a clear understanding how cost
savings have been annualized and what cuts remain
(if any). Investors will also need to understand if the
cost cuts implemented are sustainable in the long run
(that the property has not cut too far, and that service
levels have not suffered). Furthermore, some additional
due diligence may be required in regards to property
condition and “deferred maintenance,” as near-future
capital needs will have to be considered when negotiating
the purchase price or calculating returns.
Reduction in Casino Credit
Page 63
© 2010, CB Richard Ellis, Inc.
October 2010
There is no public data available regarding to what
degree casinos have tightened their casino credit
standards or the impact of these new standards on
casino revenue. However, the trend of tightening credit
has likely had an adverse effect on Strip casino revenue
since early 2009.
Playing on the same theme, much care has been taken
by casinos when issuing casino credit and revising
casino credit lines, as many players who used to pay
their debts on time may now no longer be solvent. For
example, take the scenario of a once reliable player who
is facing bankruptcy, unbeknownst to the casino. If that
player knows he will no longer have the wherewithal to
pay off a marker should he incur gambling losses, then
he is in essence “free rolling” on the casino’s dime. This
potential problem makes the casino credit manager’s
job difficult because if he starts denying too many credit
lines, the casino risks driving away credit-worthy players
who may choose to play with the competition.
The end result from tightening casino credit standards
has been (and will continue to be) less credit issued by
the casino and, in turn, less gaming win and/or higher
discounts offered to high-end players to encourage
them to pay off their debts sooner. The consideration for
investors is that the more a particular property caters to
the mid- and low-end mass market, the less the credit
issue is likely to impact the property. And finally, the
quicker measures such as Trans Union’s Credit Risk
Index improve, the more credit that the casinos will likely
issue – meaning more gaming revenue.
Discounting
Another reaction to the weakening consumer
environment has been the use of discounting. The level
of hotel room discounting and the creative packages
being offered at reduced prices is unprecedented.
Compounding the issue is the dramatic decline in
convention/meeting visitation in 1Q09, which has
increased the unsold room inventory dramatically –
especially during the midweek period.
The new competition, reflected in an approximately
7% increase in room supply in 2010, has caused an
increase in the promotional levels on the Strip – even
over those that were being sent out in 2009.
Discounting has become a necessary evil as operators
struggle to reach historical occupancy levels in the low
90% range. Pure hotel operators traditionally push
rate at the expense of occupancy – incremental rate
increases at the same occupancy flow through almost
directly to the bottom line. Strip hotel-casinos, conversely,
are usually willing to sacrifice rate to push occupancy
because they generally have many more profit-drivers
(casino, restaurants, nightclubs, etc.) than pure hotels.
The degree of offers reached the point where it
seemed anyone who has ever signed up for a casino’s
promotional club or stayed on the Strip in the past was
sent discounted hotel offers in 2009. Anecdotally, and
suggested in the highly negative operating leverage thus
far in 2010, offers have become even more appealing
than in 2009. In particular, to the extent that casinos
have email addresses, they have been particularly
aggressive in marketing discounted offers via e-mail.
Based on our experience, even the highest-end resorts
send out promotional offers via email at least twice a
week on average.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
With 2009 news headlines regarding Clark County
district attorney prosecutions of several high-profile
gamblers who have not paid their debts, it is important to
point out that debt collection has become an increasingly
critical issue for Strip casinos. According to TransUnion, a
leading credit and information management company,
its proprietary Credit Risk Index had declined 117 basis
points to 127.66 in the 2Q10 from the first quarter.
The decline in the index represented a 5% decline from
the second quarter 2009, and points to moderately
improving delinquency rates.
Many promotional offers have included some type of
bundling such as including a free buffet, food credits or
promotional slot/table credits in the room rate. While
we believe that operators are smart by offering these
bundled room rates because they get customers to buy
things that they may not have purchased, and will keep
guests on property longer, they do cut into margins.
In this heavy promotional environment, investors will
need to become keenly aware of how discounting
impacts margins, what the contribution margin of each
profit center is, and what the long-term implications
October 2010
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© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
there might be for some brands. Investors will also
need to have realistic expectations about when heavy
discounting will stop and realize that discounting is
probably here to stay at least through 2011.
Changed Comping Standards
Along the same lines as discounting, many casinos have
also reduced the amount that has to be gambled to earn
room, food and beverage, and other complimentaries.
Traditionally, casinos have determined comping levels
as a percentage of what a player will theoretically lose
based on the average amount bet and the time gambled.
As room rates have dropped, the opportunity cost of
comping a room has also fallen. Therefore, casinos can
justify giving rooms away to players who gamble at lower
average bets or fewer hours. In addition, casinos have
an increased incentive to offer complimentaries to more
players to help meet targeted occupancy levels. The
thinking on the casinos’ part is that a known gambler
– even one that has not gambled enough to justify a
free room in the past – may be worth a complimentary
room as it is still better than a room filled by a wholesale
customer or the room going empty.
Complimentaries as a percentage of gaming revenue have
likely continued to increase in 2010. Accurately measuring
the change is difficult given a limited amount of data.
October 2010
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Economic Forecasts
As pointed out earlier in the report, real GDP (both U.S.
and international), employment, home prices and the
stock market generally move in the same direction as
Strip hotel-casino revenue per available room night.
U.S. GDP
In its July 2010 “World Economic Outlook Update,”
(produced July 7, 2010) the International Monetary Fund
(IMF) projected U.S. real GDP to grow 3.3% in 2010
followed by a 2.9% increase in 2011.
International GDP
In July 2010, the IMF projected global GDP growth of
4.3% in 2011.
Table 49 – Global GDP Forecast (July 2010)
(Percent; quarter-over-quarter, annualized)
Although the IMF report is generally positive, it points
out that “Downside risks to economic growth are much
greater.” The report cites the main risk as concern over
sovereign risk. The IMF believes if concern grows that it
“could lead to additional increases in funding costs and
weaker bank balance sheets and hence to tighter lending
conditions, declining business and consumer confidence,
and abrupt changes in relative exchange rates.”
Employment
As of August 2010, CBRE Econometric Advisors
projects average 2011 employment of 132.64 million
– representing a potential increase of 1.7% from 2010
projected employment. On a quarterly basis, first quarter
2011 employment is projected to be up 1.3%, second
quarter 2011 is projected to be up 1.4%, third quarter
2011 is projected to be up 2.0% and fourth quarter 2011
is projected to be up by 2.3%.
In September 2010, the UCLA Anderson Forecast
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
2011 LAS VEGAS STRIP FORECAST
suggested that the unemployment rate would end 2010 at
9.7% and average 9.6% in 2011. As it relates to California,
the Las Vegas key feeder market, UCLA forecast stated
that the California recovery would be slower than the U.S.
as a whole. UCLA says the California unemployment rate
will average 12.2% in 2010 and remain in the doubledigits until the end of 2012.
Our view is that growing employment will ultimately be
a positive for the Strip – although maybe not in 2011.
Other factors at work that will prevent material growth
Source: IMF Staff Estimates
The IMF’s 2011 GDP projections for key feeder markets
for Las Vegas are as follows (as of July 2010):
• China – 9.6%
• Euro Area – 1.3%
• United Kingdom – 2.1%
in Strip leisure spending in 2011 – namely demographic
headwinds and households recouping the wealth they
lost during the past few years by paying down debt and
cutting back on highly discretionary spending. In our
opinion, from a psychological standpoint, unemployment
rates well above 9% (and above 10% in California) will
not create a backdrop in which Las Vegas leisure visitors
will be any freer with their wallets in 2011 than 2010.
• Canada – 2.8%
• Mexico – 4.4%
October 2010
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© 2010, CB Richard Ellis, Inc.
Scott Sambucci, vice president of data analytics for
The Case-Shiller Composite Index has been steadily
rising since the early part of 2009 from 151.41 in
March 2009 to 161.04 in June 2010. In Los Angeles,
the Strip’s largest feeder market, the Index has grown
from 160.88 in March 2009 to 175.66 in June 2010.
Similar trends have been observed in Phoenix and San
Francisco as well – the next two most important markets
for Las Vegas.
Altos Research, believes that house prices will continue
to fall throughout 2010 and will begin 2011 lower than
2009. His contention, as well as that of Morgan Stanley,
is that there is substantial shadow inventory of homes
(delinquent mortgages that still haven’t moved through
the foreclosure process) yet to hit the market. Coupled
with low originations due to low credit availability,
downward pressure on home prices may continue. To
further complicate matters, national trends may not be
Although Las Vegas has yet to see the benefits, if home
reflective of localized activity in Las Vegas’s traditional
prices have actually begun to stabilize it would be
feeder markets – which may be better or worse than the
positive for Las Vegas visitor spending at some point.
overall direction.
Clear Capital’s Home Data Index Market Report for
July 2010 said that July house prices gained 8.1% over
last year, and their analysis suggested that the initial
upward momentum created by the tax credit was being sustained even after its expiration. The Mortgage
Bankers Association (MBA) has forecasted the median
price of total existing homes through the fourth quarter
2012, and has forecasted year-over-year improvements starting as early as 4Q10.
Regardless of the direction of home prices (slightly up
as MBA forecasts or down as other economists suggest), homeowner equity likely will not rise appreciably.
MBA, which we believe would be among the more
optimistic forecasters, only projects a 1.8% rise in home
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Housing
prices in 2011. Also, price increases in 2010 have not
translated into greater spending on the Strip, although
we recognize that tax incentives may be hiding the actual
impact. More importantly, homeowner equity among
Table 50 – MBA Mortgage Finance Forecast
the all-important baby boomer customer is not likely
Median Price of Existing Homes
($ in thousands)
to increase enough to enhance retirement savings or
make a marked improvement on Strip leisure spending.
$200
$195
$190
$185
$180
$175
$170
$165
$160
$155
$150
Stock Market
The S&P 500 began 2010 at 1,115.10, rising dra-
4Q 12
3Q 12
2Q 12
1Q 12
4Q 11
3Q 11
2Q 11
1Q 11
4Q 10
3Q 10
2Q 10
1Q 10
4Q 09
3Q 09
2Q 09
1Q 09
matically from a trough of 682.55 in March 2009. The
Source: Mortgage Bankers Association Mortgage Finance Forecast,
August 16, 2010
There is hardly consensus on the direction of home
prices, however. Many analysts and market watchers
believe that the government tax incentives for home
buying that expired in June 2010 may have accelerated home sales and inflated price increases that would
have occurred in the future at a more natural pace.
S&P 500 has been up and down in 2010, reaching a
closing high of 1,217.28 on April 23 while its closing
low (at the time this report was written) came on July 2
at 1,022.58. As of September 13, 2010, the S&P 500
closed at 1,121.90.
Although to date the rise in the stock market has not
had a dramatically positive effect on Las Vegas leisure
spending, it is a reflection of increased corporate
wealth, which has helped drive convention/meetings
business back to Las Vegas.
October 2010
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© 2010, CB Richard Ellis, Inc.
casino attendees are older than the adult population
its current range of 1,000 to 1,200 on the S&P 500, the
as a whole. Our research has shown that people 50
environment should be very supportive for continued
and older account for between 60% and 65% of the
increases in convention/meeting demand. With that
typical regional casino’s revenue. This means that the
being said, it appears the stock market would have to
50+ customer segment spends about 20% to 25% more
rise much more significantly – perhaps to its all-time
per year in regional casinos than the adult population
high around 1,500 – to have a material impact on
as a whole.
consumer wealth and spending.
Because of the diverse entertainment options in Las
If the S&P 500 were to fall below 1,000 for an extended
Vegas, the Strip caters to a more varied demographic
period of time, it would likely signal difficulties in the U.S.
than the typical regional casino, but since older people
economy that would likely lead to reduced convention/
have more wealth, they tend to spend more in Las
meeting demand. Such a scenario would be negative for
Vegas. Therefore, people 50 and older likely account
Las Vegas as leisure spending is not yet strong enough to
for between 50% and 60% of the total spend in Las
compensate for a decline in meetings demand.
Vegas, and make up a critical customer group for Las
Demographic Changes - Future Impact on the Strip
GDP growth, employment growth, home price growth/
stabilization and a strong stock market all are requisites for growth in Strip revenue. Even if all these occur,
however, that does not mean revenue will necessarily
increase. Seismic economic shifts in essential demographic groups will be the largest determinant in Strip
revenue next year.
In July 2010, we introduced the thesis that changing
demographic trends were heavily influencing casino
revenue trends. More specifically, the destruction in
retirement wealth among retirees and pre-retirees was
causing a material negative impact on gaming spend
in Las Vegas and regional gaming markets. The thesis
concluded that spending among younger casino-goers
would likely bounce back sooner, but the discretionary
nature of gaming would cause it to be the last thing to
come back in the overall consumption spectrum.
Vegas casinos.
Retirees and working parents who no longer have kids
livings at home have more time on their hands and are
more likely to visit casinos. In addition, older people
tend to be the most frequent casino visitors, meaning
their overall share of casino revenue is greater than
their proportion of the population – particularly in regional markets.
Although older people have the time, they often do not
have the wealth they had a few years ago. Over the past
two years, we have seen an unprecedented destruction
in wealth. As baby boomers near retirement age, many
are beginning to question if they have enough savings
for retirement. According to the “2010 Del Webb Baby
Boomer Survey”, 50-year olds today have less money
saved than they did in 1996, but plan to need more
for retirement. Although a partial explanation for this
is that people are retiring at an older age, it is clear
that many baby boomers have to save more of what
For reference, people 65 and over make up 26.2%
they are earning to make up for their recent losses in
of the adult population (21+) while people 50 to 64
retirement savings.
make up 25.7% of the adult population, according to
national demographic data from Claritas. Those in the
former group are mostly retired while those in the latter
group are approaching retirement age. On average,
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Going forward, as long as the stock market stays within
The most troubling part of the Del Webb survey is that
41% of 50-year olds polled in the survey said they will
never be financially prepared for retirement. This com-
Page 68
© 2010, CB Richard Ellis, Inc.
October 2010
pares to 15% who said they would never be financially
traditional peak earning years (45 – 54) cannot find
this data point encapsulates the feeling of the baby
comparable wages and jobs before retirement.
boomer consumer at the moment. Another similar
data point comes from “the Employee Benefit Research
Institute Retirement Confidence Survey”, which found
46% of workers in 2010 saying they were either not
confident or not too confident that they would have
enough money to get through their retirement years.
This compares to 44% lacking confidence in 2009 and
31% lacking confidence in 2006.
A 2004 study called “Baby Boomer Retirement Security:
The Roles of Planning, Financial Literacy, and Housing
Wealth” by Lusardi and Mitchell measured the composition of wealth of baby boomers in 2004. The study
found that real estate accounted for 47% of their accumulated wealth while stock holdings accounted for
Retirees feel less confident about having enough money
to make it through their retirement years. 39% of retirees
in 2010 were either not confident or not too confident
that they would have enough money to get through their
retirement years. This compares to 32% lacking confidence in 2009 and 25% lacking confidence in 2006.
All this data suggests that the rise in the stock market
in since March 2009 was not enough to counteract the
unprecedented wealth evaporation of the Strip’s key
demographic groups. Although the stock market has
buoyed convention demand, leisure customers have not
opened their wallets when they visit the Strip because of
the previously stated factors.
12%. As housing wealth increased dramatically from
The good news for casinos is that younger people are
2004 through 2007, it likely accounted for more than
less concerned about retirement, and although their
47% of baby boomer wealth by 2007.
wealth also has been reduced, it would make logical
A 2003 study by John Karl Sholz at the University of
Wisconsin looked at potential realistic shocks on retirement preparedness. Most relevant from the study to
today was that 80% of households were accumulating
enough wealth to maintain pre-retirement consumption
during retirement. However, if home equity was halved,
only 58% would be able to maintain pre-retirement
consumption. One can conclude from both studies that
the loss of housing wealth has caused lower consump-
sense that they would return to their normal casino
spending habits more quickly, or at least at a faster
rate than baby boomers and retirees, when the employment picture brightens. This stems from the lower
urgency to save for retirement combined with the fact
that younger people had lost less in the real estate and
stock market collapse. Anecdotal evidence pointing to
strong nightclub and pool revenue on the Strip lends
some credence to this assertion.
tion levels while the loss of stock wealth has played a
So while the strip has some advantages over regional
lesser role in the drop in consumption.
markets – namely its appeal to a broader age range–
Wealth has decreased significantly, and the best bet
for many 50-somethings has been to spend less on
discretionary items like gaming, which is what has happened in the last year. Recent retirees have had to reset
their consumption expectations (if they have been able
to retire at all), and as such their gambling spending
habits could be negatively impacted for years to come.
A weak employment picture also exacerbates problems
with spending levels if near-retirement workers in their
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
prepared for retirement in 1996. Our opinion is that
there are still more demographic headwinds facing
the Strip. There is still some validity in the theories
presented by noted economist Harry S. Dent that U.S.
consumption spending may have peaked solely due to
changes in age trends the last few years. Dent argues
that consumption peaks between the ages of 44 and
52, and as the baby boomer population ages beyond
their peak spending years, consumption in the U.S. will
naturally go down.
October 2010
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© 2010, CB Richard Ellis, Inc.
Although precise population projections for the 44 to
52 age group are unavailable, Claritas Data Systems is
projecting the U.S. population between the ages of 45
and 54 will decline by 1.6% between 2010 and 2015.
In addition, Claritas also projects a moderate decline in
the population between the ages of 35 and 44 over the
same time period. Although the population is expected
to grow, all of the gains are in the population under 35
and over 55.
Thus, diminished spending from baby boomers coupled with Dent’s theories foretell a general decline in
consumption as baby boomers move out of their peak
spending years. Although neither will automatically lead
Source: H.S. Dent Foundation
to declines in Strip leisure spending, they both mean other
Table 52 from Dent shows how spending (the red
economic metrics will have to grow more strongly just to
shaded area) will decline over the next decade (the
support flat leisure demand.
period between the blue lines) as the population living
within their peak spending years will be on the decline.
The “spending wave” is receding and will continue to
do so until Gen X reaches its peak spending.
Table 52 – The Consumer Spending Wave
It is also important to remember just how discretionary
Strip spending is on the overall consumption spectrum.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 51 – Consumer Lifecycle
People will still take trips to Las Vegas, but outside the
retail centers on the Strip, visitors do not get anything
tangible to take home. We hypothesize that is why other
forms of consumption will continue to perform better
than consumption on the Strip until consumer wealth
levels rise materially.
Meeting Planner Survey
In early September 2010, as conducted an informal
survey of several meeting planners that book meetings
in Las Vegas and other destinations. The respondent
group was composed of a mix of mostly corporate and
incentive group meeting planners. Survey questions
centered on trends the meeting planners were seeing
with regard in booking to Las Vegas and if those trends
led meeting planners to believe they would book more
Source: H.S. Dent Foundation
or less business into Las Vegas in 2011 versus 2010.
They were also asked to provide commentary on how
forward-looking pricing trends had changed versus
the fall of 2009.
October 2010
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© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The primary conclusions from the survey are as follows:
• Almost unanimously, respondents said they were seeing
increased interest in Las Vegas as 2010 has progressed.
• When asked whether they expected to book
more meeting delegates into Las Vegas in 2011
compared to 2010, most respondents thought they
would book more delegates in 2011.
o
When asked to quantify the increase, responses
ranged from 10% to 30%.
• Answers to pricing questions were mixed, although
most meeting planners felt it has remained fairly
static over the last year.
o
Some meeting planners felt incremental group
business in 2011 would be from more pricesensitive association groups or international
groups.
• Meeting planners were mixed on whether increased
airfares/baggage fees were impacting their clients’
Las Vegas spending decisions.
o
Some said that it did not have a direct impact
while the majority felt that there is a finite
spend per delegate, and if more of that spend
was being allocated to flights then less could
be allocated to hotel, banquet, and other
spending.
• Other issues brought up by meeting planners include:
o
Las Vegas is probably taking some meeting
market share from Chicago because issues
with the unions have caused exhibition space
pricing to rise in Chicago.
o
Destinations such as Hawaii that are completely
reliant on leisure travelers have been hurt the
most by the decline in air capacity.
October 2010
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© 2010, CB Richard Ellis, Inc.
ConAg to Las Vegas in March 2011 (it is on a rotation) will be a positive for the market given its size and spending
power. Attendance figures are actuals through July 2010. Attendance for the latter part of 2010 and all of 2011 are
based on projections made by the exhibition planners that are relayed to LVCVA. It is within the realm of possibility
that additional 30,000+ attendee groups could be signed up for 2011.
Based on current trends our survey results, we expect actual meeting attendance to slightly outperform the projections
in table 53 for large conventions in 2011.
Table 53 – 2010A/E / 2011E Convention Calendar with 30,000+ Projected Attendees
2010
Convention
2011
Location
Adult Entertainment Expo
Sands
Consumer Electronics Show
LVCC
Shooting, Hunting, Outdoor Trade
Sands
Intl Builders
LVCC
Winter Las Vegas Market
World Mkt Center
World of Concrete
LVCC
MAGIC Int'l Spring Show
Sands / LVCC
ASD / AMD Trade
Sands / LVCC
Intl Hospitality Week
LVCC
CTIA Wireless
LVCC
Natl Association of Broadcasters
LVCC
Int'l Esthetics, Cosmetics, Spa
LVCC
National Hardware Show
LVCC
RECon
LVCC
JCX Annual Trade Show
Sands
Int'l Communications Industries
LVCC
Summer Las Vegas Market
LVCC
ASD / AMD Trade
LVCC
MAGIC int'l Fall Show
LVCC
Fall Las Vegas Market
World Mkt Center
2010 Mr. Olympia
LVCC
Int'l Baking Industry Expo
LVCC
Automotive Aftermarket Industry Week
Total w/ 30,000 +
Start
Date # of Attendees
1/7/10
30,000
1/7/10
110,000
1/19/10
45,000
1/19/10
55,000
2/1/10
50,000
2/2/10
65,000
2/16/10
75,000
2/28/10
41,000
3/9/10
30,000
3/23/10
40,000
4/12/10
85,000
4/24/10
32,000
5/4/10
30,000
5/23/10
30,000
6/5/10
31,000
6/9/10
32,000
8/2/10
50,000
8/4/10
41,000
8/17/10
75,000
9/13/10
55,000
9/24/10
30,000
9/26/10
35,000
11/2/10
106,000
Convention
Consumer Electronics Show
Adult Entertainment Expo
Shooting, Hunting, Outdoor Trade
World of Concrete
Winter Las Vegas Market
Int'l Air Conditioning & Heating
ASD
ConAg
Intl Hospitality Week
Kitchen/Bath Industry Show
National Hardware Show
RECon
JCX Annual Trade Show
Int'l Esthetics, Cosmetics, Spa
ASD
American Dental Association
National Business Aviation Association
Automotive Aftermarket Industry Week
Also Likely for 2011 but not Confirmed
MAGIC Int'l Spring Show
Summer Las Vegas Market
MAGIC int'l Fall Show
1,173,000 Total w/ 30,000 + (including not confirmed)
Location
LVCC
Sands
Sands
LVCC
World Mkt Center
LVCC
Mirage, Sands, LVCC
LVCC
LVCC
LVCC
LVCC
Sands
LVCC
Mirage, Sands, LVCC
Mandalay
LVCC
Start
Date # of Attendees
1/6/11
120,000
1/6/11
30,000
1/18/11
55,000
1/18/11
65,000
1/24/11
50,000
1/31/11
40,000
2/27/11
45,000
3/2011
140,000
3/8/11
31,000
4/26/11
37,000
5/10/11
31,000
5/24/11
30,000
6/3/11
31,000
6/18/11
32,000
7/31/11
41,000
10/10/11
45,000
10/10/11
35,000
11/1/11
106,000
?
?
?
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 53 is a comparison of 2010 and 2011 conventions with more than 30,000 projected attendees. The return of
75,000
50,000
75,000
1,164,000
Source: GGG estimates; LVCVA
Airline Seat Capacity
Strip operators have had to deal with falling air capacity during the last few years. As shown earlier in the 2009/2010
Review, McCarran seat capacity is down 7.4% June 2010 YTD. Compared to the first half of 2008, McCarran seat
capacity is down 17.3%. The decline in seat capacity has had less of an impact on deplaning passengers because
some of the capacity had been used for connecting passengers for US Airways hub operations. With US Airways’ hub
operations now ceased at McCarran, pretty much everyone getting off a US Airways flight is staying in Las Vegas. In
addition, passenger occupancy has been up. Therefore, although capacity is down 7.4%, the amount of deplaning
passengers is down somewhat less.
October 2010
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© 2010, CB Richard Ellis, Inc.
connecting passengers). There is no overlapping service
been for the casinos to fill a greater percentage of their
to Las Vegas for the two carriers, and both airlines run
rooms with drive-in customers. Since drive-in customers
very high load factors from their hub cities (Houston,
live closer, they tend to be more frequent visitors and
Cleveland, Chicago and Denver). However, that does not
spend a bit less per trip. The other major impact from
mean that the flights from hub cities may still be pared
reduced air capacity is higher airfares. According to the
down as the combined airline consolidates its hubs.
U.S. Department of Transportation, average one-way
airfares into Las Vegas were up 9.1% in first quarter
2010 to $153. Airfares have risen quarter over quarter
since bottoming at $136 in second quarter 2009. On
top of higher fares are higher baggage fees, which
is an industry-wide phenomenon. Fortunately, going
into 2011, all airlines will have already anniversaried
baggage fee policies and there should be no material
incremental effect from them in 2011.
It is likely that value-oriented properties have been impacted to a greater degree than luxury properties. This
dichotomy is a function of airfares essentially pricing
out less wealthy visitors from coming to the market or
taking a relatively greater bite out of their wallet before
they step foot in Las Vegas.
Going into 2011, it is possible that air capacity declines
and associated higher prices during peak convention
periods could crowd out leisure customers flying to Las
Vegas altogether or at the very least cause them to have
to shift travel dates. As a result, we remain hopeful that
the airlines will be flexible with capacity during the peak
group demand periods. If not, it will be particularly hard
As mentioned earlier in this report, there have been capacity increases from the international carriers into Las Vegas
in the first half of 2010 of about 2,000 seats per week
(not reflective of international cuts by US Airways). The
increases have been somewhat mitigated by Mexicana,
which stopped its three daily flights from Mexico City
during Summer 2010 because of financial troubles.
More importantly, U.S. carriers have mostly continued
to pare down Las Vegas flights. As of June 2010, for
fiscal 2011 (ending June 2011), the McCarran Inovata
Schedule projects an airline seat capacity decrease of
0.5% to 1.7% from the prior FY. Extrapolating to calen-
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
One of the consequences of falling air capacity has
dar year 2011, the most likely scenario is for airline
seat capacity to be flat to down 1%.
As we will discuss below, it appears Las Vegas airfare
prices will continue to rise in 2011 if Strip casinos want
to maintain occupancy levels in the face of increased
room supply and decreased air capacity. In a worse
case scenario, value-oriented customers may get shut
out of the market, and occupancy at properties that
target these customers could go down in 2011.
for Strip hotels to fill rooms with leisure customers because
leisure customers will have no way to get to Las Vegas.
United-Continental Merger
In September 2010, shareholders of Continental
Airlines and UAL Corporation approved a previously
announced merger deal to form the world’s largest airline. For the first half of 2010, United Airlines accounted
for 7.9% of deplaning passengers at McCarran (excluding connecting passengers) while Continental Airlines
accounted for 5.8% of deplaning passengers (excluding
October 2010
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© 2010, CB Richard Ellis, Inc.
that two-year period represented a 24.6% increase in
supply or an annual rate of 11.6%, more than twice the
Case Study: 1998 - 2000 Period
rate between 2009 and 2012.
According to the Nevada Gaming Abstract, in the twelve
months ending June 30, 1998, there were 22,529,899
available room nights for Strip casinos. This implies
61,725 available hotel rooms on any given night.
The following resorts opened between October 1998
and 2000:
• Bellagio: At a cost of $1.6 billion, the five-diamond
Bellagio, which originally had 3,004 hotel rooms,
opened in October 1998. The property is credited
with ushering Las Vegas into the luxury-resort era.
• Mandalay Bay: Originally built with 3,643-rooms
(including the Four Seasons), and opened in March
1999, the property catered to a younger audience
than Bellagio or Venetian. Hallmarks of the property
were the House of Blues, an 11-acre lagoon, beach
and pool area, and the Foundation Room. Although
it was always in the master plan, the property did not
add its convention center until 2003.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The Impact of New Supply
• The Venetian: The five-diamond property opened
in May 1999 at an original cost of $1.5 billion.
Opening with 3,036 rooms (it now has 4,049),
the property had a total of 1.6 million square feet
of exhibition and meeting space either under its
roof or in the connected Sands Expo Center. The
Venetian’s all-suite layout, with standard suites
averaging 700 square feet, set the standard for
attracting convention customers to Las Vegas.
• Paris: The 2,915-room Paris opened in September
1999 at a cost of $785 million. The resort, originally
owned by Park Place Entertainment, is heavily themed
and has a 5/8th-scale replica of the Eiffel Tower.
• The Aladdin (now Planet Hollywood): The 2,600room Middle-Eastern themed property opened in
August 2000.
These five resorts combined to add 15,198 rooms to the
Strip, which at the time had approximately 61,726 hotel rooms. The 15,198 rooms that came on-line within
October 2010
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© 2010, CB Richard Ellis, Inc.
lectively induced demand in the luxury, convention and young adult segments. Demand from the middlemarket also
likely increased, as people simply wanted to see the Bellagio Fountains, Venice, Paris etc. Table 54 shows the collective
financial performance of Strip casinos in the twelve months ending in 1998 (pre-openings), 1999, 2000 and 2001:
Table 54 Strip Casino Profits Fiscal 1998-2001
FY98
Revenue
Gaming
Rooms
Food
Beverage
Other
Total Revenue
EBITDA
# of Available Rooms
# of Occupied Rooms
Hotel Occupancy
EBITDA Change $
EBITDA Change %
EBITDA Change $ from TTM 6/30/98
EBITDA Change % from TTM 6/30/98
Revenue Change $
Revenue Change %
Revenue Change $ from TTM 6/30/98
Revenue Change % from TTM 6/30/98
Operating Leverage
Revenue / Available Room
% Change
$3,717,773,053
$1,618,896,618
$848,526,497
$355,371,362
$857,258,099
$7,397,825,629
$1,497,102,407
22,529,899
20,571,687
91.3%
Year ending June 30
FY99
FY00
Bellagio opens
$4,128,143,954
$4,683,729,471
$1,900,913,038
$2,380,443,846
$1,027,946,303
$1,258,434,080
$412,998,801
$500,220,574
$1,115,447,446
$1,372,841,758
$8,585,449,542
$10,195,669,729
$1,604,018,084
$1,741,123,914
23,760,997
26,405,279
21,979,938
24,560,582
92.5%
93.0%
$106,915,677
$137,105,830
7.1%
8.5%
$106,915,677
$244,021,507
7.1%
16.3%
$1,187,623,913
$1,610,220,187
16.1%
18.8%
$1,187,623,913
$328.36
$2,797,844,100
FY01
$4,615,644,944
$2,648,983,961
$1,353,845,193
$531,510,614
$1,419,555,878
$10,569,540,590
$2,261,290,486
26,962,814
25,165,543
93.3%
$520,166,572
29.9%
$764,188,079
51.0%
$373,870,861
3.7%
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Demand grew significantly after the five casinos opened. It can be argued that these resorts both individually and col-
$3,171,714,961
16.1%
37.8%
42.9%
9.0%
$361.33
10.0%
8.5%
$386.12
6.9%
139.1%
$392.00
1.5%
Source: GGG estimates; Nevada Gaming Abstract
Between FY 1998 (ending June) and FY 2001 (ending June), revenue on the Strip increased 42.9% while total revenue
(gaming and non-gaming) per available room night increased by 19.4%. Furthermore, although exact data is not available, an estimated three-quarters of the market-wide revenue growth was attributed to the new properties with the remaining one-quarter of the revenue growth over the three-year period attributed to same-store growth. The increase in spend
per room night can be attributed to the fact that the new hotels offered a collective experience that was significantly above
the previous market offerings.
Hotel occupancy was actually higher in FY 2001 (ending June) at 93.3% than it was in FY 1998 (ending June) (91.3%),
despite the additional capacity. Average daily hotel rates also grew from $79 in FY 1998 (ending June) to $101 in FY 2001
(ending June). Total Strip hotel revenue increased by 63.6% between FY 1998 (ending June) and FY 2001 (ending June),
significantly outpacing the 24.6% increase in room supply.
Another interesting statistic is that the Strip EBITDA was $1.50 billion in FY 1998 (ending June) and grew by $764.2 million
Page 75
© 2010, CB Richard Ellis, Inc.
October 2010
(51.0%) by FY 2001 (ending June). However, the new resorts generated estimated EBITDA of $774.7 million in FY 2001
Spa Tower at Bellagio, which was only open during
the opening of the new resorts experienced a total EBITDA
about half of FY 2005. For simplicity sake, we assume
decline of $10.5 million, or 0.7% (nearly unchanged).
that a full-year of operations at the Spa Tower gener-
In FY 2001 (ending June), each new resort generated the
following amount of EBITDA:
• Bellagio - $344.7 million
• Venetian - $169.6 million
• Mandalay Bay - $91.5 million
(TTM ending July 2001)
• Aladdin - $31.9 million
• Paris - $137 million (based on comments in Park
Place Entertainment third quarter 2000 10-Q filing)
• Total - $774.7 million
Source: company SEC filings
ated $50 million in incremental revenue for Bellagio in
FY 2006. That would leave $980 million in same-store
revenue growth in fiscal 2006, or a revenue increase
of about 7.7% off a $12.68 billion same-store revenue
base in FY 2005.
The question is: Whether the Strip have grown more
than 7.7% in FY 2006 if Wynn had not opened? Recall
that the 2005/2006 period had the lowest savings
rates, highest mortgage equity withdrawal rates and
highest home price growth during any time in modern
history. So, clearly the Strip would have experienced tremendous growth with or without the opening of Wynn
Las Vegas.
For comparison, Strip revenue grew 10.2% in FY 2005
In three years, the same-stores experienced essentially
(benefiting from the stub year at Bellagio Spa Tower
flat profit growth while personal consumption grew
and Wynn and a full year of Augustus Tower opera-
5.0%, 5.1% and 4.7% in 1998, 1999 and 2000, re-
tions). Strip revenue grew 5.9% in FY 2007. Based on
spectively. This implies the same-store casinos could
the revenue growth from the surrounding years, it
have expected revenue growth significantly above what
would suggest that Wynn Las Vegas grew the market
they actually experienced.
without any measurable cannibalization. Although that
Case Study: Wynn Las Vegas
was likely the case with Wynn, we believe the economic
backdrop and pent-up demand helped drive business
The thought that new supply could open on the Strip
to Las Vegas. In addition, anecdotal evidence points to
without cannibalizing existing properties was given
Wynn attracting back to Las Vegas high-end gamblers
some fuel following the opening of Wynn Las Vegas
who may have shunned the market for the years fol-
in April 2005. Wynn Las Vegas, however, is a fantastic
lowing 9/11. High-end international gamers were the
project just as the Encore that followed it. In addition,
primary that stayed away from Las Vegas due to tighter
there had not been a major casino opening directly on the
visa restrictions post 9/11.
Strip since 2000, suggesting there was pent-up demand.
What Impact Did CityCenter Have?
In FY 2006 (ending June), gross Strip revenue increased
The implications for the Strip based on the 1998 -
by $2.03 billion (15.7%) from $12.91 billion in FY
2005. Based on public filings, Wynn Las Vegas generated about $1.0 billion more in gross revenue than it
did in the partial year of operation in FY 2005. Of the
remaining $1.03 billion in Strip growth during FY 2006,
there is probably an amount that is attributable to the
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
(ending June), implying that casinos in existence prior to
2000 wave of development and the 2005 opening of
Wynn Las Vegas are mixed. The evidence shows that
Strip demand has the ability to grow well in excess of
baseline economic growth if a new product is perceived
as something visually different or of a higher quality to
October 2010
Page 76
© 2010, CB Richard Ellis, Inc.
resorts, both the quality of customer improved (more
high-income people visited Las Vegas) and the average
customer was willing to pay more, or demand required
the average customer to pay more. For example,
Bellagio offered a higher-quality guest experience than
previously offered in the market. Bellagio brought in
more wealthy guests, and guests who may have already been visiting Las Vegas justified paying more to
stay at Bellagio than they did in the past because of
the experience Bellagio provided. The same goes for
The Venetian, as conventioneers and meeting planners could justify paying more to stay there because of
• While CityCenter was likely to be differentiated
by its size and overall design features, it seemed
unlikely the quality of CityCenter could materially
surpass what was already in the market.
• Visitors would not be willing to pay higher rates on
the Strip just to see CityCenter.
• CityCenter would give baccarat players an excuse
to visit Las Vegas, especially given a strengthening
Chinese economy. Recall that as of early 2009,
baccarat was well off record levels, which were set
in 2006.
• CityCenter would act as a catalyst for international
air carriers to commence/add service to Las Vegas.
the large suites, and the fact that all the meeting and
convention facilities were under one roof. As we sug-
Except for baccarat revenue, the prongs to our thesis
gested with Wynn Las Vegas, anecdotal evidence points
were mostly qualitative. In general, we believe that
to high-end gaming customers returning to Las Vegas
CityCenter has not created a great deal of incremental
after the downturn following 9/11.
domestic demand.
Although the 1998 - 2000 development period and
On the other hand, CityCenter has likely played a role
the Wynn opening had mixed-to-positive implications
in stimulating baccarat demand in the market. Through
for the rest of the market, subsequent openings since
June 2010 YTD, Strip baccarat/mini baccarat revenue
the economic downturn have had harder to measure
was up 28.4%. According to MGM Resorts second
impacts. Palazzo (January 2008) and Wynn Encore
quarter 2010 earnings conference call, company ex-
(December 2008) opened right before and during the
ecutives pointed to CityCenter having a 14% baccarat
peak of the economic storm that hit Las Vegas visita-
market share. This indicates that the market still was
tion. It is difficult to say what the market would have
experiencing same-store baccarat revenue growth dur-
done had these projects not opened or if the same-
ing the first half of 2010.
store revenue declines would have been more or less
pronounced. With that being said, it is more likely than
not these projects cannibalized the market – if for no
other reason than it was hard to get people excited
about seeing new properties during such difficult economic times.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
customers. In other words, after the opening of these
In terms of stimulating international visitation and international flights, it is tougher to say whether CityCenter
directly acted as a catalyst for either. International
arrivals into McCarran Airport were down 2.1% in the
first half of 2010. However, we would point out that US
Airways accounted for about 10% of international seats
Prior to factoring in new projects, our 2010 Strip Forecast
in the first half of 2009. US Airways completely discon-
& Investment Guide had projected Strip revenue would
tinued all flights to/from Las Vegas and non-hub cities.
have increased 2% to 4%. In the 2010 report, we laid
So backing out the US Airways flights means interna-
out the idea that 70% to 90% of CityCenter and other
tional carriers actually were adding seats in 2010 – in
new projects’ revenue (gaming and non-gaming) would
the high single digits in percentage terms. The com-
come at the expense of existing casinos in the market.
mencement of British Airways flights from London and
Our thesis was based on the following premises:
the addition of Virgin Atlantic service to Manchester, in
October 2010
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© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
addition to existing operations from London support the
idea that CityCenter would spur international demand.
At the end of the day, the addition of nonstop flights to Las
Vegas is the best, most viable to tap that demand.
Through the first half of 2010, we estimated same-store
gaming revenue on the Strip fell 5.2% from the first half
of 2009. Excluding baccarat, the same-store gaming
revenue decline was greater at an estimated 8.0%.
According to the earnings releases of Strip operators,
we estimate same-store hotel rates fell about 3.6% in
the first half of 2010.
Same-store net revenue fell an estimated 4.1% in the
first half of 2010. As we suggested earlier, although the
decline in same-store revenue has been fairly benign,
the promotional environment has been fierce. By the
end of 2009, most operators have completed most of
the personnel layoffs and taken as much fixed costs out
of their operations as possible. In addition, competitive
pressures in the market caused by CityCenter, the Hard
Rock expansion, and the PH Towers have forced operators to increase promotional levels, thereby hurting
margins. As a result, the modest same-store revenue
declines through the first half of 2010 have impacted
EBITDA greatly with EBITDA dropping about $0.86 for
every $1.00 decline in revenue. As such, same-store
EBITDA has fallen an estimated 11.2%.
To conclude, CityCenter and the other recently opened
projects likely did more cannibalizing than growing the
market. However, since there is no control group, it is
hard to determine with certainty if the Strip would have
actually grown 2% to 4% as we had forecasted prior
to factoring in new competition. One other important
note is that although CityCenter probably did create
incremental demand, the promotional environment intensified in the market – putting pressure on same-store
profits in 2010, as previously discussed.
October 2010
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© 2010, CB Richard Ellis, Inc.
Please refer to the section entitled “Fourth Wave of Modern Strip Development 2008-2011+” for more detail on the
recently-opened and future projects in Las Vegas, including The Cosmopolitan. The Cosmopolitan has a December
2010 projected opening date.
Table 55 – Las Vegas Strip Scheduled Hotel-Casino Projects 2010-2012
Hotel-Casino
Hard Rock Expansion
Aria
Cosmopolitan (opening December 2010)
Caesars Palace expansion (earliest opening 2012)
Fontainebleau (3,889 rooms open after 2012)
Hotel Casino - Subtotal
Non-Gaming Hotel (affiliated with casino)
CityCenter - Mandarin - non gaming hotel (hotel rooms only)
CityCenter - Harmon - non gaming hotel (earliest opening 2012)
Non-Gaming Hotel (affiliated with casino)
Condo-Hotel/ Timeshare
PH Towers timeshare/hotel
Vdara condotel
Condo-Hotel/Timeshare - Subtotal
Total Net Additions
Las Vegas Strip Rooms at end of year (1)
% Change
(1)
2010
2011
2012
2010- 2012Total
380
4,004
2,995
665
4,384
2,995
665
8,524
200
0
400
400
600
1,200
1,495
2,695
0
0
2,695
7,279
2,995
1,065
11,819
96,309
99,304
3.1%
100,369
1.1%
200
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
2011 Supply Forecast
Total includes 6,928 pure hotel, condotel or timeshare units that are affiliated with casinos at the end of 2010.
Note: Does not include pure residential units at CityCenter.
Source: GGG estimates
At the end of 2010, there will be 96,309 hotel-casino and condo-hotel rooms affiliated with casinos on the Strip (not
counting Cosmopolitan). In addition to these rooms, there are approximately another 52,215 (148,524 market total)
hotel, motel, and condo-hotel units located off of the Strip. Some of the rooms are located in casinos that cater to Las
Vegas residents while others are located in stand-alone lodging properties.
Between 2010 and 2012, 11,819 hotel, condo-hotel, timeshare and condo units affiliated with Strip casino projects
are already opened or are expected to come online. Most of the increase in room supply has already been absorbed
with Strip room supply (unadjusted for mid-year opening dates) expected to equal 3.1% in 2011 and 1.1% in 2012.
The entire increase in 2011 will come from Cosmopolitan, while two smaller projects could open by 2012. The
prospects of either opening, however are somewhat speculative at the time of this publication.
October 2010
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© 2010, CB Richard Ellis, Inc.
Table 57 – Las Vegas Strip Targeted Occupancy 2011E
Since Cosmopolitan will not be opening with 2,995
Adjusted Strip Room Inventory
Casino-Hotel
Other Lodging
Total
2010A / E
hotel rooms and since Aria was not fully ramped up
until the middle part of 2010, some adjustments to the
Supply Forecast must be made.
• Aria – Given that Aria had fairly low occupancy
rates (by Las Vegas standards), in the first two
quarters for modeling purposes, it is assumed that
Aria’s room count was effectively 380 units lower
during 2010.
Target Occupancy Rates
Casino-Hotel
Other Lodging
Strip Room Targeted Occupied Rooms
Casino-Hotel @ 89%
Other Lodging @ 50%
Total
2011E
89,001
6,928
95,929
91,879
6,928
98,807
89%
50%
89%
50%
79,211
3,464
82,675
81,772
3,464
85,236
% Change
3.2%
0.0%
3.0%
3.2%
0.0%
3.1%
• Cosmopolitan – Assumes 2,000 rooms will be
open for all of 2011 and an additional 995 rooms
will be open for the last six months of 2011.
Source: GGG estimates
After these two adjustments, the adjusted Strip room
ditional rooms per night? The simple answer is that
inventory is as follows:
the additional supply should be pretty well absorbed
Where will demand come from to fill those 2,561 ad-
by incremental demand from the convention/meetings
Table 56 – Las Vegas Strip Adjusted Room Inventory
segment. Assuming the convention/meeting segment
accounts for about 20% of occupied room nights on
2010A/E – 2011E
2010A / E
2011E
% Change
Strip Room Inventory
Casino-Hotel
Other Lodging
Total
89,381
6,928
96,309
92,376
6,928
99,304
3.4%
0.0%
3.1%
Adjusted Strip Room Inventory
Casino-Hotel
Other Lodging
Total
89,001
6,928
95,929
91,879
6,928
98,807
3.2%
0.0%
3.0%
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
2011 Revenue Projections
the Strip in 2010, convention/meeting demand would
have to grow about 15.5% in 2011 for the new supply
to be absorbed if leisure demand were held constant at
2010 levels.
Source: GGG estimates
The adjusted room inventory on the Strip will rise from
95,929 rooms in 2010 to 98,807 rooms in 2011, or
an increase of 3.0%.
Now that the adjusted room inventory is known, the
next step is to determine how many incremental rooms
will need to be filled in the market on a nightly basis.
Using target occupancy rates of 89% for casino-hotel
rooms and 50% for other lodging rooms, the Strip will
need to fill 2,561 (3.1%) more rooms per night next
year to maintain the same occupancy levels.
October 2010
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© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 58 – Las Vegas Strip Room Supply Absorption Scenario 2011E
2010A / E
2011E
% Change
Strip Room Inventory
Casino-Hotel
Other Lodging
Total
89,381
6,928
96,309
92,376
6,928
99,304
3.4%
0.0%
3.1%
Adjusted Strip Room Inventory
Casino-Hotel
Other Lodging
Total
89,001
6,928
95,929
91,879
6,928
98,807
3.2%
0.0%
3.0%
89%
50%
89%
50%
79,211
3,464
82,675
81,772
3,464
85,236
Target Occupancy Rates
Casino-Hotel
Other Lodging
Strip Room Targeted Occupied Rooms
Casino-Hotel @ 89%
Other Lodging @ 50%
Total
Room Mix by Segment (estimated)
Convention / Meetings
Leisure
20.0%
80.0%
Room Mix by Segment (estimated)
Convention / Meetings @ 20%
Leisure @ 80%
Total
16,535
66,140
82,675
Projected Convention / Meeting Room Nights Needed to Maintain 2010 Occupancy
Projected Leisure Room Nights Needed to Maintain 2010 Occupancy
19,096
66,140
Change in Convention / Meeting Room Nights Needed to Maintain 2010 Occupancy
Change in Leisure Room Nights Needed to Maintain 2010 Occupancy
Convention / Meetings Demand Increase in 2011 to Maintain 2010 Occupancy
2,561
0
15.5%
Room Mix by Segment (estimated)
Convention / Meetings
Leisure
22.4%
77.6%
Same-Store Room Mix by Segment (to maintain 2010 occupancy levels)
Convention / Meetings
Leisure
18,522
64,152
Same-Store % Change in Room Nights (to maintain 2010 occupancy levels)
Convention / Meetings
Leisure
12.0%
-3.0%
3.2%
0.0%
3.1%
Source: GGG estimates
October 2010
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© 2010, CB Richard Ellis, Inc.
believe 10% to 20% convention/meetings demand
taining the same occupancy as 2010 with no incremen-
growth being more likely. As we pointed out, 15.5%
tal leisure demand, the convention/meeting segment
convention/meeting demand growth will be the break-
mix would have to account for about 22.4% of Strip
even point at which same-stores will not require any
occupied room nights in 2011. For the same-stores,
additional leisure demand growth to maintain 2010
convention/meeting occupied room nights would
occupancy levels.
increase by 12.0% and leisure occupied room nights
would decrease by 3.0%.
An underlying assumption in the table above is that
Cosmopolitan will create no incremental demand.
Although most data points to increased convention/
While most of Cosmopolitan’s demand will come at the
meeting room night demand in the market in 2011,
expense of other operators, at least until the property
15.5% growth may or may not be achievable. Table 59
is able to build brand awareness, it is overly simplistic
shows sensitivity as to how market-wide leisure room
to believe that there will be absolutely no incremental
night demand will need to grow if convention/meeting
demand. Cosmopolitan’s relationship with Marriott will
demand grows at 0%, 5% and 10%.
likely bring in some amount of incremental business to
Las Vegas. Although this will be the case, the incremental
Table 59 – Las Vegas Strip Room Supply Absorption Sensitivity
Marriott demand will likely not be great enough to move
Analysis 2011E
overall market-wide demand.
2011E Convention / Meeting Market
Demand Growth
2011 E Room Mix by Segment (to
maintain 2010 occupancy levels)
Convention / Meetings
Leisure
Total
Same-Store Room Mix by Segment (to
maintain 2010 occupancy levels)
Convention / Meetings
Leisure
Total
Same-Store Room Mix by Segment (to
maintain 2010 occupancy levels)
Convention / Meetings
Leisure
Total
% Change in Market Leisure Demand
(to maintain 2010 occupancy levels)
0.0%
5.0%
10.0% 15.5%
Convention Spending/Visitor
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Based on the above scenario, with same-stores main-
Although convention/meeting demand is increasing,
16,535
68,701
17,362
67,874
18,188
67,047
19,096
66,140
85,236 85,236 85,236 85,236
weak leisure demand and increased room supply lead
to the conclusion that spend per convention visitor will
be about flat in 2011. Our meeting planner survey also
pointed to the mix of new meeting business tending
19.4%
80.6%
20.4%
79.6%
21.3%
78.7%
22.4%
77.6%
100.0% 100.0% 100.0% 100.0%
16,038
66,637
16,840
65,835
17,642
65,033
18,522
64,152
82,675 82,675 82,675 82,675
3.9%
2.6%
1.4%
0.0%
Source: GGG estimates
more towards lower-yielding association groups.
Leisure Spending/Visitor
Most of the economic data points do not lend themselves
to any measurable improvement in leisure spending
in 2011. A lack of material home price appreciation
(some economists are forecasting a resumption in price
declines) and continued high unemployment will continue to act as catalysts for people to save – or at least
not increase their levels of highly discretionary spend-
The above table shows that if convention/meeting
ing such as that which occurs on Las Vegas vacations.
demand stays flat in 2011 (not a scenario we believe
Unemployment, which is expected to remain well above
is likely), leisure demand will have to grow 3.9% for
9% in the U.S. and significantly higher in the key feeder
same-stores to maintain 2010 occupancy levels.
of California, will likely not lead to a significant change
Based on the data available (meeting planner surveys
in consumer psychology.
and projections and commentary from operators), we
October 2010
Page 82
© 2010, CB Richard Ellis, Inc.
achieving similar occupancy levels to 2010, given the
stop saving/paying down debt and dedicate more to very
pick-up in convention/meeting demand.
discretionary spend, but it seems unlikely.
Flat convention/meeting spend per visitor and 2% to
Further compounding the unfavorable economic and
5% lower leisure spending per visitor will yield a rev-
demographic environment will be the flat to potentially
enue decline of 1.6% to 3.9% (excluding baccarat)
slightly declining air capacity. If the Strip is going to
for same-stores in 2011.
need to fill an extra 2,561 rooms per night, one would
reason that the airlines will be able to raise prices, thus
cutting into visitor budgets.
Same-store gaming revenue (excluding baccarat) is
projected to decline slightly more than the overall
revenue decline. This is a function of convention/meet-
It is likely that the international leisure customer will
ing room nights contributing less gaming revenue per
provide a moderate lift in the Strip in 2011, but the
room night than leisure room nights (about 25% less),
relative size of the international segment is still small
given that conventioneers have business obligations
and even a 5% growth in international leisure spend
during their stay that limit the time they can dedicate
would only translate into a slightly less than 1% increase
to gaming. In addition, room nights occupied by con-
in overall leisure spend.
vention guests typically have fewer adults in the room
Other than the expected bump in international spending, the main positive for leisure spending is that the
increase in convention/meeting attendance will mean
than rooms occupied by leisure customers (1.4 average adults versus 1.8 average adults according to the
LVCVA’s 2009 Visitor Profile Study).
the amount of rooms that need to be filled by leisure
Weighing these factors, same-store gaming revenue
customers to maintain 2010 occupancy should not
(excluding baccarat) is projected to decline 2.6% to
have to increase materially.
5.6% in 2011. It should be noted that properties that
We project that the spend per leisure visitor will
decrease 2% to 5% (this projection does not include
generate a material portion of their gaming revenue
from baccarat will likely perform better than this range.
changes in baccarat spending). This projection as-
Same-store hotel rates are projected to decline slightly
sumes the same number of leisure visitors as 2010. If
less than the overall revenue decline. The thought pro-
convention/meeting demand falls short of 15.5% de-
cess behind the hotel rate projection is that convention/
mand growth, then the decline in spend per leisure visi-
meeting hotel rates will remain roughly flat with 2010.
tor will fall towards the lower end of the range, as more
The likelihood that same-stores will be filling more of
room nights will have to be filled with leisure customers.
their rooms with convention/meeting guests is positive
2011E Same-Store Revenue Projection
(Excluding Baccarat)
since the convention rates midweek are typically about
20% higher than midweek leisure rates (can vary by
season and property). It is anticipated that leisure rates
Underlying the same-stores/projection is the assump-
will decline about the same amount as the projected
tion they will experience a change in customer mix in
decline in spend per leisure visitor.
2011 as more of their rooms are filled by convention/
meeting guests (about 22.4% in 2011 versus about
20% in 2010). Except for the value-oriented properties
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
There is always a chance that in 2011 Americans will
Weighing these factors, same-store hotel rates are
projected to decline 1.1% to 3.4% in 2011.
on the Strip, most casinos should have little trouble
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2011E Las Vegas Strip Gaming Revenue Projections
(Excluding Baccarat) 2011E
(Total Market including New Supply)
Convention / Meetings
Leisure
2010 A/E
20.0%
80.0%
2011E Low
2011E
22.4%
77.6%
2011E High
% Change in Revenue
Convention / Meetings
Leisure
0.0%
-5.0%
0.0%
-2.0%
Same-Store % Change in Revenue (1)
-3.9%
-1.6%
Same-Store % Change
Gaming Revenue (excluding baccarat)
Hotel Rates
-5.6%
-3.4%
-2.6%
-1.1%
(1)
Includes all gaming and non-gaming revenue with the exception of
baccarat revenue. Because most Strip resorts do not generate a material
amount of baccarat revenue, these projections are the most relevant for
all but the five or six resorts that dominate the baccarat market.
Table 61 outlines the calculations of 2011E Strip gaming
revenue. The key assumptions are as follows:
• 2010 Actual/Estimated (A/E) Strip gaming revenue
projected based on actual June 2010 YTD gaming
revenue annualized and adjusted on historical
(2006-2009) seasonality factors.
• 2011 Estimated (2011E) percent change in samestore gaming revenue (excluding baccarat) is as
calculated previously in this report.
• 2011E percent change in same-store baccarat/
mini baccarat revenue is based on the expected
strong growth in the GDP of China. Baccarat
growth is projected to grow faster than Chinese
GDP because of the belief that the elasticity of the
Chinese economy and gaming spend is greater
than 1.0.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 60 – Las Vegas Strip Same-Store Revenue Projections
Source: GGG estimates
Although not itemized in the above table, same-store
non-gaming revenue for restaurants, bars, spas, nightclubs, and entertainment venues will most likely decline
somewhere between the rate of decline for gaming revenue and hotel rates. The one departmental outlier will
be catering and banquets revenue, which is projected
to increase by about 12% for same-stores in 2011 – reflecting the increase in convention/meeting demand. It is
notable that although a very profitable business, catering
and banquets makes up less than 5% of total revenue at
virtually every Strip resort.
On a relative basis, same-store revenue on weekdays
should perform better than weekends. The incremental
room supply be felt more on weekends when the con-
• It is assumed that each incremental occupied room
night in 2011 will generate 60% to 80% of the
2010 projected market average gaming revenue
(excluding baccarat) of $148.
• It is assumed that the new supply will not generate
a material amount of incremental baccarat/mini
baccarat revenue in 2011.
If baccarat is included in the equation, 2011E samestore Strip gaming revenue is expected to range between
a decline of 2.4% and an increase of 2.0%.
For the Strip as a whole, including both baccarat and
new supply, 2011E Strip gaming revenue is expected
to range from $5.56 billion to $5.84 billion, representing a decline of 1.0% to an increase of 3.9%.
vention/meeting demand is not there to offset the weak
leisure business.
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© 2010, CB Richard Ellis, Inc.
be flat in 2011 if mass market gaming revenue were
2010 A/E
2010 Strip Gaming Revenue (projected)
Gaming Revenue excluding Baccarat
Baccarat / Mini Baccarat
Total
to fall 5.6% (the bottom of our projected non-baccarat
gaming revenue range). At 20% of a theoretical luxury
$4,477.0
$1,144.0
$5,621.0
property’s gaming revenue, baccarat revenue would
need to increase 22.4% (above the top of our projected
2011E Low 2011E High
% Change 2011E Same-Store Gaming Revenue
Gaming Revenue (excluding baccarat)
Baccarat / Mini Baccarat
Total
-5.6%
10.0%
-2.4%
projected range) for the property’s gaming revenue to
-2.6%
20.0%
2.0%
range) for the property’s gaming revenue to be flat in
2011 if mass market gaming revenue were to fall 5.6%.
Besides the high-end play potential, however, luxury
properties are simply better positioned to steal market
2011E Same-Store Gaming Revenue
Gaming Revenue excluding Baccarat
Baccarat / Mini Baccarat
Total
$4,226.2
$1,258.4
$5,484.6
$4,359.7
$1,372.8
$5,732.5
2011E Strip Gaming Revenue
Gaming Revenue excluding Baccarat
Baccarat / Mini Baccarat
Total
$4,304.8
$1,258.4
$5,563.2
$4,467.7
$1,372.8
$5,840.5
% Change 2011E Strip Gaming Revenue
Gaming Revenue excluding Baccarat
Baccarat / Mini Baccarat
Total
share from mid- and low-end properties. When room
rates are compressed, a small room rate differential
enhances the comparative value proposition of a higherend property. Furthermore, many luxury properties also
actively pursue the convention and incentive markets
in which their location or amenities are far superior to
middle- and lower-end offerings. Luxury properties that
-3.8%
10.0%
-1.0%
-0.2%
20.0%
3.9%
Source: GGG estimates
cater to the convention market have the potential to sig-
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Table 61 – 2011E Las Vegas Strip Gaming Revenue Projections ($ Millions)
nificantly outperform other convention-based properties
because they will reap the benefits of both convention
goers (stronger mid-week rates, less reliance on wholesale,
high margin ancillary revenues) and high-end gaming play.
Another consideration in the dichotomy between luxury
2011 Revenue Forecast Discussion –
Luxury Versus Non-Luxury
and non-luxury properties is the impact airfares (includ-
Based on our estimates above, it quickly becomes ap-
previously mentioned, at the lower end of the spectrum
parent that the opportunity for growth is more heav-
every incremental dollar in travel costs likely eats into the
ily weighted towards luxury properties – specifically the
vacation budget proportionately. Thus, a $20 increase
properties that dominate the baccarat market. If next
in airfare means $20 comes out of the hotel/gaming/
year’s baccarat projections tend towards the upper end
entertainment budget while in Las Vegas. Furthermore,
of our range, same-store luxury properties could be up
we’ve discussed that airfare increases can squeeze out
in an otherwise down market. Most of the data regarding
the lower end customer altogether since there might
the mix of baccarat play to overall gaming revenues at
not be desirable alternative travel times where fares are
the dominant properties is anecdotal, so making specific
inexpensive enough. Value-oriented properties that rely
projections for this segment can be difficult.
on this group of travelers may suffer disproportionately
ing baggage fees) can have on customer budgets. As
when those customers are pinched. At the upper end
For a theoretical luxury property that earns one-third of
of the spectrum, however, luxury properties are likely
its gaming revenue from baccarat, baccarat revenue
to appeal to customers who are less price sensitive to
would have to rise 11.2% (near the bottom of our
these fluctuations.
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© 2010, CB Richard Ellis, Inc.
As it has been the past couple years, operators will
continue to be very cautious regarding expenses go-
in convention demand holds. Finally, we believe that
excluding the impact of the baccarat-heavy properties
provides a more reasonable and less volatile view of
general operating leverage performance.
ing forward. According to the Nevada Department of
Based on earnings releases and public filings, during
Employment, total employment in the Casino Hotels and
the first half of 2010, non-luxury properties on the Strip
Gaming sector YTD through June 2010 is down 2.2%
achieved a 21.8% average EBITDA margin. Assuming
versus the same period last year. Considering the addi-
that same-store revenue will decline 3.9% (at the low end
tion of CityCenter, same-store employment is likely down
of our projected range), we conclude that EBITDA for the
more significantly, and these numbers are well off the
average non-luxury Strip property will fall 13.8% in 2011.
peaks in 2007. There will have to be sustained improvement in the market before more hiring is likely, but our
market intelligence indicates that some of the wage and
benefit reductions enforced in 2008 and 2009 are slowly
being rolled back.
Looking at it another way, assuming our projections for
same-store revenue declines in 2011 between 1.6%
and 3.9% hold, this still leads to further material EBITDA
decline next year. Hypothetically, a property with total
revenue of $500 million in 2010 would experience an
Operators have reason to be cautious. Our internal
$8.0 million - $19.5 million revenue decline in 2011.
calculations based on publicly available data tell us that
That revenue decline would translate into a $6.2 mil-
EBITDA dropped approximately $0.86 for every $1.00
lion - $15.0 million drop in EBITDA. Conversely, any
decline in revenue during the first half of 2010 – up
upside to the revenue forecast as discussed above would
significantly from last year’s data. Excluding the bac-
translate into better EBITDA performance.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
2011 Revenue Forecast Impact on
Same-Store Profitability
carat dominant properties, the ratio was $0.77 for every
$1.00. This suggests that fixed costs are making up a
larger portion of the expense mix, and/or that promotional spending in this competitive market is eating into
margins. For 2011, we believe the operating leverage
ratio will remain approximately $0.77 for every $1.00
decline in revenue.
With little evidence to suggest the current cost structure
will improve next year, the current operating leverage
ratio seems unlikely to change dramatically in 2011.
We also believe occupancy will essentially be flat next
year, which means that declines in rate flow through
would be near 100% in the hotel department, all other
things being equal. Aggressive promotional spending,
which increased the acquisition cost for every dollar,
likely contributed to the negative impact on operating
leverage in 2010. These costs would largely be variable,
but we do not believe 2011’s promotional environment
will be much worse than 2010 if the projected increase
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Premier Convention Facilities
A complete discussion of the Strengths, Weaknesses,
Las Vegas has approximately ten million square feet
Opportunities, and Threats facing the Strip could be a
of meeting and exhibition space and three of the ten
separate paper by itself. For the purposes of this report,
largest convention centers in the U.S. (Sands Expo, Las
we spotlight some of the more pressing issues and briefly
Vegas Convention Center, and Mandalay Convention
discuss their implications.
Center), all within a few miles of each other. According
to Tradeshow Week, Las Vegas hosted 45 of the top
200 shows in 2009, and six of the top 10 (International
Strengths
Positive Supply/Demand Scenario
There is likely to be a lull in major development activity
for several years following the opening of Cosmopolitan.
Consumer Electronics Show, World of Concrete, the
International Builders Show, ReCon, the National
Association of Broadcasters and the World Shoes and
Accessories Show). The LVCVA reports that Las Vegas
has held the top spot for the past 16 years.
There is very little interest in developing new casino re-
In our discussions with meeting planners, with the ex-
sort projects or in acquiring raw land for new projects.
ception of the high-end executive meeting segment, Las
Even with dramatically reduced land and construction
Vegas is described as a destination that has facilities and
costs from the peaks of just a few years ago, develop-
amenities. Although not as inexpensive as it once was,
ers are finding it nearly impossible to pencil out new
compared to competing destinations such as Chicago
projects in the current economy. In addition, operators
and Orlando, Las Vegas still offers good value.
and bankers alike are going to be monitoring samestore performance and the absorption of CityCenter and
Cosmopolitan into the market before considering any
new development. With the significant lead time of four
to five years for developing a casino resort and a waitand-see attitude to the existing supply, it could be quite
some time before new resorts come online.
Additionally, as the Las Vegas convention and meetings
market continue its growth trend, the casinos that cater
to these markets should achieve substantial EBITDA
flow-through. Because incremental convention business
occurs during midweek, it will replace lower-rate paying wholesale customers. In addition, the catering and
banquets revenue associated with meeting guests can
Thus, with the likelihood of no new resorts in the near
reach as high as $100 per occupied room night and an
future, there should be a reasonable window for opera-
EBITDA margin around 40%.
tors to adjust to current supply/demand levels. And with
variable costs cut as leanly as they are now, the potential
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Las Vegas Strip SWOT Analysis
Larger Companies Have Become Very Efficient
exists for outsized profits three to five years from now –
While the challenges of fixed costs and a capital-intensive
particularly for the newer and better-maintained resorts.
business model have depressed profitability in the past
Older resorts, many of which have been neglected the
year, the flip side is that the efficiencies gained from the
last several quarters, will be less competitive and lose
downturn should provide out-sized profit improvements
market share and need to be refreshed before they can
in a recovery.
experience increased profitability.
For example, companies have taken a more vigilant
approach to scheduling line-level employees. Some
October 2010
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© 2010, CB Richard Ellis, Inc.
Even if it means that a hotel may get lower (or nega-
their food & beverage outlets. And at least one corpo-
tive) initial returns on its investment – a hotel remodel
ration has centralized operating functions like payroll,
may be necessary in the face of declining market ADRs.
reservations and marketing.
Luxury properties are particularly susceptible to this phe-
Clearly, the downturn has forced managers to make
tough decisions that have a positive impact on efficiencies.
nomenon, as their cost of maintenance is greater than
low-end and mid-market properties.
Investors and operators must realize that the deferred
capital projects during the last two years will put a ceiling
Weaknesses
on future cash flows once operators get around to them.
Reinvestment Required to Remain Competitive
What’s New?
Hotels, and Strip resorts in particular, are capital and
While the lack of new development should make same-
labor-intensive operations. As high volume, high oc-
store comparisons easier in the future, the flipside is that
cupancy operations, Strip resorts require a great deal
the lull in new projects leaves the Strip a stagnant market.
of maintenance, cleaning and repair (operational ex-
Much of Las Vegas’ visitation growth over the past 20
penses), as well as large amounts of capital, to maintain
years has been fueled by the near-constant development
market share in a highly competitive environment. Hotel
cycle. The vast majority of Las Vegas visitors are repeat
rooms, restaurants, nightclubs and other public spaces
visitors. With nothing new to see, the potential danger
must constantly be refreshed in an effort to simply hold
is that the ratio of new visitors will continue to decline
onto frequent guests who might otherwise become bored
while repeat visitors become bored with Las Vegas as
with a favorite property. Slot product is continually evolv-
a destination. Reno, Laughlin and Atlantic City all offer
ing, and table games technology and player tracking is
cautionary tales of what can happen when a gaming
improving, so the casino floor must keep up with these
destination market cannot break a stale development cycle.
changes to remain competitive. In addition to all the
property enhancements required, casinos require large
numbers of personnel to adequately staff and maintain
their properties.
In the past two years, capital expenditures have been
deferred at several Strip casinos. Even if a recovery
comes fairly quickly, the properties in this category will
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
properties have shut down or reduced hours at some of
Although the convention/meetings market will keep Las
Vegas vibrant for some years to come, Strip operators
are all pondering the question of how to attract leisure
travelers when building something luxurious just does
not cut it any more.
Difficult to Obtain Inbound International Visa
have to play catch-up with maintenance and deferred
According to the U.S. Department of State, “U.S. im-
capital projects, thus delaying their return to higher profit
migration laws enacted by Congress provide authority
margins. We believe that Strip operators should reserve
over immigration matters, including entry and exit of all
4% to 5% of their annual revenue for capital refreshment
travelers across the nation’s borders, determining who
and replacement. During the last two years, Strip opera-
may enter, how long they may stay, and when they must
tors have been spending about 1% to 2% of revenue for
leave.” The Department of State also notes that the USA
replacements, and as such, the product is suffering and
Patriot Act of 2001 and the Enhanced Border Security
room remodels are getting pushed back.
and Visa Reform Act of 2002, among other recent
October 2010
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According to Poker Players Research, 10.1% of the adult
increased the time it takes to obtain a visa.
population in the U.S. played poker in 2007. However,
There are currently 36 countries able to visit the U.S. on
the Visa Waiver Program (VWP), after Greece was added
to the list in March of 2010. For those countries not on
the VWP, the processing of a visa application is targeted
to take less than 30 days.
only about a quarter of those players are playing online
poker for real money presently. Given the immense marketing that would likely occur upon legalization in the
U.S. by known entities such as large Strip and regional
market operators, we would expect the U.S. participation
rate to exceed 7%. We estimate U.S. players could gener-
To the extent the Department of State can continue to
ate $8 to $10 billion in rake by 2014. U.S.-based sites
shave processing time and paperwork and still maintain
could actually generate revenue greater than that if one
appropriate security, it can help encourage international
counts revenue from non-U.S. players, which is currently
visitation. If the process is viewed as overly burdensome
a $2 billion market.
for legitimate leisure travelers, it may deter visitation and
hamper the city’s ability to break into new tourist markets.
For those major gaming companies that have large
databases, they will have the foundation to quickly establish a trusted online poker presence and the means
Opportunities
Online Poker
to extract value at both the online and land-based level.
Their brick-and-mortar operations will allow them to
offer comps such as hotel rooms, show tickets, food
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
changes, have impacted how visas are processed and
etc., along with rewards commonly offered in the online
The Unlawful Internet Gambling Enforcement Act
realm such as deposit bonuses, rakeback deals and free
(UIGEA) passed in 2006 outlawed U.S. financial institu-
tournament entries. Better yet, they will also have a com-
tions from processing transactions between U.S. citizens
petitive advantage in that they can offer these benefits
and online gambling websites. The result of this action
at cost, while an online-only operator would have to
was not the cessation of online gambling in the U.S.,
purchase the same items at retail.
however, but a shift in the sites where players gambled
and the processors the websites used. In 2005, prior to
The key for Las Vegas will be if online poker is legalized,
the UIGEA, we estimate online poker generated about
and if the brick-and-mortar companies can generate
$2 billion in rake for the various operators, with about
profits, they will be able to reinvest some of these profits
80% of that rake coming from U.S. players. In 2009,
into Las Vegas. This scenario would prove to be very
we estimate online poker websites generated at least $4
beneficial for Las Vegas.
billion in rake, with U.S. players still accounting for about
Increase International Exposure
50% of the market.
In July 2010, the House Financial Services Committee
sent bill HR 2267, to legalize and regulate online betting,
for consideration by the House. Specifically, HR 2267
amends title 31, United States Code, to provide for the licensing of Internet gambling activities by the Secretary of
the Treasury, to provide for consumer protections on the
Internet, to enforce the tax code, and for other purposes.
Simply put, there are many people in the world who
have never been to Las Vegas. Even if the annual number of visitors to Las Vegas represented unique visits, it
would still be less than 1% of the world’s population.
As a result, there is a vast, untapped potential customer
base around the world for Las Vegas. Because they come
from further away and visit less often, international visitors tend to stay longer and spend more per visit than
October 2010
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© 2010, CB Richard Ellis, Inc.
systems that give a better picture of customer behavior
to different international markets over the years, and any
and use this intelligence to deliver improved service and
opportunities the LVCVA has to incentivize foreign air car-
increase profit opportunities.
riers to add service to Las Vegas should be considered.
In-game betting and other in-house mobile devices are
Indeed, it was recently announced that the LVCVA, along
some examples of these potential profit opportunities.
with McCarran Airport, helped bring the air-travel trade
In-game (or in-running sports wagering) mobile gaming
show World Route Development Forum, or Routes, to Las
systems allow guests to bet on nearly every play of the
Vegas in October 2013. Routes is a prestigious aviation
game they are watching. Along with being able to bet on
conference that brings together commercial and charter
an adjusted money line, point spread and total points,
airline route planners with airports and tourism authori-
the systems also frequently offer varieties of proposition
ties from around the world. The purpose of the summit in
bets during the game. Other mobile devices (or add-on
2013 will be to discuss new and existing routes, as well
functionality to in-game betting devices), offering tradi-
discuss added service to Las Vegas. Assuming the expan-
tional casino games such as blackjack, video poker and
sion goes as planned, Routes will visit not long after the
slots, were formally introduced on the Strip this past year
opening of McCarran’s six new international gates in the
as a means for patrons to gamble in other areas of the
new Terminal 3.
resort such as certain restaurants and bars, the race and
Invest In Technology
sports book, and other select public areas. The obvious
positive about in-game betting is that it acts as another
There are a number of potential revenue enhancing and
reason for tourists to visit Las Vegas during football and
cost saving technologies in use and under development
basketball season. The key question surrounding in-game
that could substantially improve results throughout the
betting is if it creates incremental spend in the casino or
business. The opportunity for the Strip is for operators
merely steals spending from another profit center and
to embrace these technologies and find a way to make
moves it into the sports book.
them work in their unique operating environment.
In the future, new properties on the Strip may begin to
Part of the challenge is that many of the systems currently
embrace server-based-gaming (SBG), as the market-
in use tend to be from a hodge-podge of vendors and
ing potential of customizing the slot player experience
customized applications bound together by internal IT
is immense. It appears that the Strip casinos currently
departments. The casino resort business has long suf-
employing some form of SBG are focusing on its market-
fered from the lack of a singular integrated in-house
ing benefits rather than the ability to constantly switch
solution: the F&B point-of-sales system (POS) is different
games. When and if the newer properties can demon-
from the hotel system, which is different from the casino
strate a return on investment from SBG, competitors will
database, which is different from retail POS, etc. Those
then be compelled to begin the conversion process to
companies looking to develop and expand their custom-
avoid losing market share to the newer casinos.
er relations management (CRM) programs, for example,
must often pull disparate data from myriad sources to
get an overall view of a customer. Consequently, we
venture that many Strip properties do not have a true
understanding of the overall value of their individual
customers. There is a tremendous opportunity to develop
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
domestic visitors. The LVCVA has made various overtures
In terms of cost saving technologies, there are still many
opportunities and incentives for properties to invest in
such systems. Check-in kiosks for the hotel, accounting,
administrative and purchasing and ordering programs
from centralized systems, and green technologies are
areas in which Strip casinos could save labor and capital
October 2010
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© 2010, CB Richard Ellis, Inc.
would be exacerbated by these demographic shifts.
systems (RFID technologies at table games, for instance)
Conversely, any leisure spending growth that would
could help improve comp and credit policies at the
have been expected under favorable economic conditions
casinos, providing more accurate data for marketing
(strong employment, home price growth, etc.) would be
initiatives and thereby contributing revenue benefits as well.
dampened by the decline in the peak spending population.
Threats
The decline in peak spending population will naturally
Unfavorable Age Demographic Trends Could
Compound Economic Weakness and Lead to a
Prolonged Drought In Las Vegas Leisure Spending
lead to growth in the population between the ages of 55
and 64 – a traditionally lower spending group. During
the next few years, it is possible that the recent declines in
real estate wealth that have devastated pre-retirees’ and
For a complete explanation of the specifics regarding
retirees’ net worth will cause their spending to decline a
the unfavorable age demographic trends, please refer to
greater amount from their “peak spending” to their pre-
the section earlier in the report entitled “Demographics
retirement years than what would be expected to occur
- Future Impact on the Strip.”
during normal times.
Certainly, the economy has been weak, but inevitably
Continued Reduction in Credit Issuance
the economy will come out of recession. However, shifts
in the age make-up of the U.S. population will lead to a
decline in the peak spending population as defined by
Dent, which in turn, could lead to prolonged declines
in U.S. consumption. For reference, the peak spending
population is defined as the population between 44 and
52. Dent does not project this age group to start growing
again until 2022.
The mechanisms of easy credit that allowed increased
spending, such as mortgages with no down payment
and relaxed consumer credit standards, are not likely to
come back and may be legislated out of existence. Banks
have all but eliminated no down payment mortgages
and are likely to stay with more traditional mortgage
products and maintain more conservative lending standards for the foreseeable future. Having been burned
The typical Las Vegas customer falls squarely into the
by defaults on many of their exotic mortgage programs,
peak spending consumer. As a quick reference, the
those products are viewed as too risky to surface again
“2009 Las Vegas Visitor Profile” identifies the following
any time soon. Credit card companies have raised rates
characteristics of Las Vegas visitors. The typical Las Vegas
and slashed credit limits in response to the Credit Card
visitor is likely to be:
Accountability, Responsibility and Disclosure Act signed
• Married (78%);
in May 2009.
• Earning $40,000 or more (83%);
As banks pull back from risky lending, people will simply
• Employed (65% - but lowest ratio in five years);
is also the issue of rebuilding personal balance sheets.
• 40 years old or older (72% - the average age
is 50.0); and
Even if people are able to eliminate debt through default
• Additionally, 28% were retired.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
to improve their bottom lines. Improved player tracking
have to save more to get the things they want. There
rather than paying it off, we suspect the credit available to
them following the process will be limited. Consequently,
a scarcity of credit means that employment and incomes
If Dent’s thesis were to play out, the weakness in eco-
will have to grow at more significant, sustained rates to
nomic indicators such as employment and home prices
encourage discretionary spending.
October 2010
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© 2010, CB Richard Ellis, Inc.
The legalization of casino gaming in other jurisdictions
while other states look towards the long-term benefits of
gaming and allow larger Vegas-style casinos.
has not been proven to cause a material negative impact
However, as seen over and over again, having a few
on spending or visitation to the Strip. Part of the reason
casinos in a state will not necessarily decrease visitation
for this is because gaming is so prevalent around the
to Las Vegas because one or two casinos cannot dupli-
country that any additional jurisdiction could only have
cate the critical mass of differentiated experiences that
a limited impact. Las Vegas used to cater to junkets from
the Strip offers. A case in point is the impact of California
all around the country. However, once a casino opens
tribal casinos on Las Vegas. In November 1999, 58 tribes
in or near a city, there becomes little demand to have
signed compacts with the State of California that allowed
pure-gaming casino excursions to Las Vegas from that
Class III or Las Vegas-style gaming. Today, there are 61
city. That does not mean there are not still junkets to Las
casinos in operation in California with approximately
Vegas, simply that they are much less prevalent than they
60,000 slot machines and table games. In 2009, the
once were.
California tribal casinos generated $7.2 billion in gaming
The keys going forward are for operators to continue to
execute on their strategies, and for the city to continue
to evolve and reinvent itself. Las Vegas is uniquely Las
Vegas. It has a critical mass of hotel and entertainment
offerings that are unmatched in the world. But that does
not mean other international destinations such as Macau
revenue. Essentially, California went from allowing tribes to
operate bingo-style slot machines to offering 60 Vegasstyle casinos in just ten years. Even though Californians
comprise 28% - 33% of the visitors to Las Vegas (2005
- 2009 average per the LVCVA), Strip gaming revenue
has grown 36.3% (CAGR of 3.5%) since 1999.
cannot emerge.
International
United States
Since 2002, when gaming was opened to outside opera-
Thirty-seven states currently have at least one form of
casino, racetrack casino or tribal casino. According to
the American Gaming Association, consumer spending
on commercial gaming in the twelve states that allow
stand-alone casinos was $30.74 billion in 2009, a 5.5%
decrease from 2008. Although revenue was down in
2009, it still has risen dramatically from $22.2 billion
in 1999. Another $6.4 billion was spent at racetrack
casinos in 2009, up 5.0% from 2008.
The number of gaming options outside of Las Vegas will
continue to grow in the future. When state budgets face
deficits, politicians look for ways to cover the shortfalls
without raising taxes. The introduction or expansion of
gaming is usually a palatable alternative for them. Some
jurisdictions have been turning to highly taxed racinos,
which typically will have a limited amenity package,
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Growth of Gaming Outside Nevada
tors there, Macau has been the focal point of investment
for the gaming companies fortunate enough to have
garnered one of the six licenses there. Macau’s gaming
revenue in 2009 totaled $14.72 billion, well more than
all of Nevada’s casinos combined. Our estimate of Asian
gamers constituting at least three-quarters of Strip baccarat/mini baccarat revenue means increased gaming
closer to home could potentially hurt Las Vegas.
There are two schools of thought on the impact of
Macau’s growth on Las Vegas. One perspective is that
the increased presence of Las Vegas operators in Macau
will introduce players to the Las Vegas experience and
operators will market their Vegas properties in turn to
them. More credence is attached to this theory when
factoring in Las Vegas’ much lower gaming tax rate of
6.75% compared to Macau’s 39.0%.
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the next four to five years, this situation could be closer
Las Vegas for the Asian gambler, so if Macau can offer
than before.
a comparable experience there is no reason to take the
trip to Las Vegas. Macau’s complex system of junkets also
Oil Price Shocks
allow Asian players access to credit they may not be able to
Because Las Vegas is particularly dependent on the
obtain from Las Vegas casinos. Given the amount of capi-
availability of low cost airfare, oil price shocks are a
tal invested in Macau by Las Vegas Sands, Wynn Resorts
constant (but not necessarily immediate) threat. In 2008,
and MGM Resorts, and the Las Vegas-style experiences
economic weakness and the rising price of oil, which
these casinos offer, it is best to be prudent when forecast-
rose to over $140 per barrel, caused airlines to reduce
ing high-end Asian play in Las Vegas going forward.
capacity into Las Vegas. Because Las Vegas is a low-
Furthermore, the liberalization of gaming in Macau may
have helped fuel the competetive tourism race that continues
across Asia. Nearly every Asian country has set ambitious
in-bound foreign tourism goals. To achieve these lofty goals,
many have turned to casinos. In 2010, two multi-billiondollar casino resorts opened in Singapore. Other countries,
including Taiwan, Japan and Thailand, are exploring the
idea of casinos. If Singapore ends up being a success with
muted negative social impacts, gaming could begin to
yielding market for the airlines, it remains susceptible to
future oil price shocks. Furthermore, airline visitation is
dominated by just a couple airlines. If oil price shocks
disproportionately impact one of those major carriers,
especially Southwest Airlines, the rising price of oil could
be particularly damaging.
Reductions in Travel Due to Calamities
Given the Strip’s high dependency on discretionary
spread much quicker throughout Asia.
travel, any transmittable diseases, terrorist attacks or
Currently, there are some high-end gamers in Asia who
are a risk for Las Vegas. The impacts of 9/11 are well
still choose Las Vegas as an alternative to Macau for a
known. In 2009, the H1N1 virus spread globally to 81
variety of social and political reasons. Singapore now
countries and negatively impacted travel for several
presents a closer, viable alternative to both Macau and
locales. As another frame of reference, Severe Acute
Las Vegas for these customers. If another Singapore-
Respiratory Syndrome (SARS) caused 774 fatalities
style integrated resort were developed in one of the
between November 2002 and July 2003, according
northeastern Asian countries that was easily accessible
to the World Health Organization. It is hypothesized
from Hong Kong and major cities in China, it could be a
that the disease, which began in China’s Guangdang
strong negative for Las Vegas, especially as it relates to
Province, did not materially curb travel to Macau in 2003
baccarat revenue.
(Guangdong Province is Macau’s largest feeder market).
Thus, the threat to the Strip from gambling proliferation
around the world is that Las Vegas operators cannot
rest on their laurels or stop trying to develop new, exciting properties. To the extent they cannot keep the Strip
a vibrant, exciting resort destination, there will be little
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
The counter argument is that Macau is much closer than
other disasters that reduce the amount of global travel
In fact, Macau’s casino revenue rose from US$2.6 billion
in 2002 to US$3.4 billion in 2003. Tourism-based travel
throughout Asia, however, was significantly down. The
full impact from the Gulf Coast oil spill in April 2010 is
still not known.
incentive for visitors to venture far from the gambling
We note that any analysis regarding how much a pan-
experiences they can get closer to home. With the devel-
demic or other calamity might affect the Strip would
opment pipeline for Las Vegas likely to be stagnant for
be very difficult, and that there is no way to quantify the
impact. The important thing for investors to realize is that
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Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
in the event people curb travel and shun mass gathering places (such as casinos), revenues would drop off
dramatically – perhaps for several days, weeks or months.
Business Travel Alternatives/Teleconferencing
Although Las Vegas is still unsurpassed in terms of meeting destinations, many companies are considering new
alternatives to business travel.
According to the National Business Travel Association’s
2010 Business Travel Buyers’ Cost Forecast:
• 85.19% of companies surveyed indicated that the
use of teleconferencing is increasing (up 14% over
last year).
• 62.26% of companies surveyed indicated that the
use of video teleconferencing is increasing (up 10%
over last year).
• 27.86% of companies surveyed indicated that the
use of telepresence (technologies that simulate a
user’s presence in a location other than where they
actually are) is increasing (up 106% over last year).
• 81% of corporate travel buyers think technology is
replacing trips.
Continued technology advancements in the area of telecommunication pose long-term risks for the Las Vegas
meeting markets. It is not likely that meeting people in
person will ever disappear completely. The increase of
creative ways to market and communicate could constrain convention/meeting growth in the long run. We
believe there will always be important reasons for groups
to gather to share new information and products where
the experience cannot be replicated by remote attendance.
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© 2010, CB Richard Ellis, Inc.
to decline; 3) consumers still more focused on saving
(especially pre-retirees and retirees) and paying down
To arrive at our 2011 forecast for the Strip, we reviewed
debt than engaging in highly discretionary spending; 4)
various economic factors to see how they correlated with
lack of any increases in household wealth in an environ-
and impacted Strip revenues, surveyed meeting planners,
ment without material home price appreciation; and
and reviewed past performance on the Strip for perspec-
5) continued unemployment in 2011 above 9%, with a
tive on the current climate. Based on our research, we
significantly higher percentage expected in California, Las
project that 2011 Strip gaming revenue will experience
Vegas’ key feeder market.
anywhere from a 1.0% decline to a 3.9% increase.
These headwinds will be partially offset by a declining
Same-store revenue from both gaming and non-gaming
(but still above historical norm) household debt-service
sources (excluding baccarat) is projected to decline 1.6%
ratio, increasing employment, a stock market holding
to 3.9% in 2011. With the exception of six properties,
well above the March 2009 lows, and likely increases in
these projections will approximate the 2011 total rev-
leisure spending from international visitors.
enue change for most Strip casinos.
It is projected that the new supply entering the market
Strip same-store gaming revenue excluding baccarat
in 2011 will cannibalize existing properties. It is difficult
is expected to decline 2.6% to 5.6% in 2011. However,
to make the case that Cosmopolitan will not have a
continued growth in the baccarat segment will cause the
mostly dilutive effect on the market. Although there is a
six properties that derive a material portion of their gam-
precedent from the 1998 - 2000 period and the opening
ing revenue from baccarat to perform better than that
of Wynn Las Vegas in 2005 for demand growth with-
range, perhaps even seeing gaming revenue increases
out cannibalization, the competitive bar is significantly
in 2011.
higher today than it was during those cycles.
While there are many variables that affect future perfor-
Projects that have opened in recent years, such as Palazzo,
mance, we find that the performance of the S&P 500 is
Encore and CityCenter, have all diluted the market to an
highly correlated to Strip revenue. While not necessarily
extent. It is hard to measure the dilution impact since no-
benefiting the leisure market, the stock market is a mea-
body knows for sure what the rate of change would have
sure of corporate wealth, and has caused a significant
been had these projects not opened. However, even if
increase in convention/meeting demand. The increase
Cosmopolitan does not create any incremental demand
in convention/meeting demand in 2011 will likely offset
(a harsh assumption given its tie-in with Marriott), the
the impact of new competition coming into the market.
increase in convention/meeting demand should mitigate
As such, hotel rates are expected to decline by only 1.1%
most of the would-be dilution.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Conclusion
to 3.4% in 2011, or less than the projected declines in
non-baccarat gaming spend.
We have stressed the concept of operating leverage. Strip
operators have seen profits evaporate quickly as revenue
Although some positive trends exist as they relate to
has declined since 2008. This has been particularly true
leisure spending in Las Vegas in 2011, the negatives will
in the first half of 2010, as EBITDA has declined $0.86
likely outweigh those few positives. The most prominent
for every $1.00 decline in revenue due to the highly
headwinds for the Strip are: 1) projected flat to slight de-
competitive environment and the fact that most cost cuts
clines in airline capacity that ultimately will lead to higher
have been anniversaried. For all but six properties that
prices; 2) negative age demographic trends that will
dominate the baccarat market on the Strip, we have
see the population in their peak spending years begin
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Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
$0.77 for every $1.00 decline in revenue in 2011. With
an EBITDA margin of 21.8% in 2010, the average nonluxury property on the Strip can expect as much as a
13.8% further decline in EBITDA in 2011 assuming the
lower-end of the projected revenue range.
Upside potential to our 2011 forecast could come from
house prices rising by more than 5% next year. If home
prices were to rise beyond current expectations, lost
wealth would begin to be restored, which would cause
some consumers to spend more on discretionary activities. We do not view this as a likely scenario given the
removal of specific tax incentives for homebuyers and a
moderate 2011 forecast by MBA.
The primary downside risk to our forecast could come
from economic weakness that pushes the stock market
(the S&P 500) below 1,000. Given its high correlation
to revenue on the Strip and the short booking window of
conventions, a collapse below this level could cause convention/meeting attendance to come in below expectations.
In consideration of the challenges facing the market, we
remind investors that there are likely to be wide variations regarding how individual properties will perform
in light of the forecast. Facility amenities (especially as
they relate to meeting space or their appeal to baccarat
players), location, marketing programs, management
philosophies, capital reinvestment decisions, etc., will
impact properties uniquely, so our forecast should not be
applied unilaterally. This report is intended as a starting
point in your research or as a supplement to other investment reports you may have compiled. Should you wish
to explore an opportunity in more depth, we would be
pleased to provide customized research and consulting
services to assist you.
October 2010
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© 2010, CB Richard Ellis, Inc.
In addition to the market leading acquisition/disposition team, CB Richard Ellis’ Global Gaming Group provides consulting services led by Brent Pirosch and Jacob Oberman. Our team has a wide array of experience in the gaming and
hospitality industry, including finance, accounting, marketing, and hotel operations. We have developed relationships,
and regularly converse with, many of the casino industry’s and investment community’s brightest minds and most
creative thinkers. We believe providing clients with the most thoughtful and innovative ideas will ultimately help lead to
optimal results when times are good or bad. Most recently, we have developed a groundbreaking model that quantifies
several different economic factors’ impacts on casino spend.
Our team has conducted studies in a variety of locations and jurisdictions in the U.S., including Nevada, New Jersey,
Mississippi, Florida, Kansas, Illinois, Wisconsin, and Maryland. In addition to maintaining a database of information
on international developments, the Global Gaming Group has also completed studies in locations such as Singapore,
Spain, Morocco, Belize, and the Caribbean. Beyond gaming studies, we have provided analytical support to major
casino transactions and have also performed several retail feasibility studies for casinos - including several on the Las
Vegas Strip and in eastern gaming markets.
List of Services:
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Global Gaming Group Consulting
• Buy-side and investment advisory (debt/equity)
• Feasibility studies
• Gaming market assessments that can incorporate economic, competitive, governmental and operational
factors into future market and/or property performance
• Proforma and financial modeling
• Property and operations analysis
• RFP advisory for developers
• Government advisory
• Resort retail market assessments
• Resort retail feasibility studies
October 2010
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© 2010, CB Richard Ellis, Inc.
Nevada. Mr. Pirosch leads the team’s efforts on the financial aspects of marketing proposals, information memoranda
and underwriting, as well as conducting gaming and retail feasibility studies.
Dedicated to maintaining the Global Gaming Group’s market-leading consulting practice, he has completed gaming
and retail consulting assignments in a variety of jurisdictions around the world. Besides conducting studies in major U.S.
markets like Las Vegas, Atlantic City and the Gulf Coast, Mr. Pirosch has conducted studies in many regional markets as
well. His international projects include studies in Singapore, Morocco, Spain, and Belize.
Mr. Pirosch has been working in gaming and hospitality since the beginning of his career and is a graduate of the School
of Hotel Administration at Cornell University. During his time in the industry, he has had hands-on experience in finance,
marketing, sales, casino operations, human resources, and hotel operations. Prior to joining CB Richard Ellis, Mr.
Pirosch was a Senior Analyst at MGM MIRAGE. In that role, he was accountable for the financial oversight, budgeting,
and analysis of several, large corporate departments.
Jacob Oberman is the Director of Gaming Research and Analysis for the Global Gaming Group. Mr. Oberman has a
wide array of experience in the gaming and hospitality industry, including finance, accounting, casino and hotel operations. At CB Richard Ellis, Mr. Oberman has conducted gaming market assessments and feasibility studies for commercial casino, tribal casino and racino projects in a variety of markets including Las Vegas, Atlantic City, Mississippi,
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
Brent Pirosch is the Director of Gaming Consulting Services for CB Richard Ellis’ Global Gaming Group in Las Vegas,
Pennsylvania, Wisconsin, Singapore and Spain.
In addition to gaming studies, Mr. Oberman has lead several retail feasibility studies for casinos including several on
the Las Vegas Strip. Given his understanding of the visitation drivers for casinos combined with CB Richard Ellis’ global
retail knowledge, has made the Global Gaming Group the choice for advisory services involving retail development in
and around casino environments.
Prior to joining CB Richard Ellis, Mr. Oberman was a Financial Analyst at The Bellagio in Las Vegas. In that role, he was
responsible for property budgeting, performing ad hoc analyses, maintaining market share databases and evaluating
property financial performance. Previously, he also was an intern at the MGM Grand Las Vegas and at Deutsche Bank
Securities North American Equity Research for Lodging, Gaming and Leisure.
Mr. Oberman holds a Bachelor of Science Degree from the Cornell University’s School of Hotel Administration.
October 2010
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© 2010, CB Richard Ellis, Inc.
© 2010 CB Richard Ellis, Inc. The information above has been obtained from sources believed reliable. To the extent possible, we have attempted to verify and confirm estimates and assumptions used in this analysis. While we
do not doubt its accuracy, we make no guarantee, warranty or representation about it. It is your responsibility to
independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used
are for example only and do not represent current or future performance. Therefore, actual results achieved during the period covered by our analysis will likely vary from our estimates and the variations may be material. As
such, the Global Gaming Group and CB Richard Ellis accept no liability in relation to the estimates provided.
October 2010
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© 2010, CB Richard Ellis, Inc.
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
DISCLAIMER
Special Report: 2011 Las Vegas Strip Forecast & Investment Guide
For more information please contact:
Jacob Oberman
Brent Pirosch
Director of Gaming Research and Analysis
Director of Gaming Consulting Services
702.369.4923
702.369.4803
jacob.oberman@cbre.com
brent.pirosch@cbre.com
October 2010
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© 2010, CB Richard Ellis, Inc.