Fitch: Genting's Las Vegas Strip Debut a Risk for U.S. Operators

NEW YORK--()--Genting Group's (Genting; together with the parent company, Genting Berhad) purchase of Boyd Gaming's 87-acre Echelon site and plans to develop the site into an integrated casino resort by 2015-2016 is a negative consideration for the Las Vegas Strip's (LV Strip) operating outlook, according to Fitch Ratings. A longer term and broader competitive concern is Genting's apparent willingness to be a more active participant in the domestic market.

Genting (issuer default rating [IDR] of 'A-') is a well-capitalized global conglomerate with a $6.8 billion cash position as of Dec. 31, 2012. Genting operates Resorts World New York ($673 million in gross gaming revenue in 2012), owns a substantial land bank in downtown Miami, and hopes to develop an integrated casino resort if approved by Florida legislature.

In Las Vegas, Genting plans to develop an integrated resort (Resorts World Las Vegas) with a 175,000-square-foot casino and 3,500-room hotel included in the first phase. The scale and timing of the project exceeds our expectation for near-to-medium term gaming and room capacity growth on the LV Strip. Tepid capacity growth has been one of the key considerations for our favorable outlook for the LV Strip, along with the prospect of the convention/group business mix returning to pre-recession levels. Together with SLS Las Vegas (SLS), a $400 million redevelopment of the Sahara due to open late 2014, the two projects' proposed room capacity equates to 3.4% of citywide room inventory as of December 2012.

Longer term, we recognize that meaningful capital investment in Las Vegas is integral to the vitality and allure of the city as an entertainment destination, which will benefit leading operators. Projects such as Caesars' center LV Strip Linq project and MGM's potential arena project on the south end provide the types of compelling entertainment offerings that have been the foundation for Las Vegas' long-term growth and success relative to other gaming destinations such as Atlantic City. Continued resort development and redevelopment is another critical component of Las Vegas' long-term growth story. However, the LV Strip is still in the midst of a choppy recovery, so the additional room and gaming capacity provided by SLS and Resorts World Las Vegas is notable, particularly if this is the onset of a resurgence of supply growth, given the low interest rate financing environment.

Last year was somewhat disappointing for LV Strip operators, with 2012 citywide occupancy being roughly flat (up 0.2%), average daily rate (ADR) up 2.8%, and gaming wins up 2.3%, and commentary by Las Vegas operators for 2013 has been somber. Based on Genting's Resorts World Las Vegas reported price tag of roughly $2 billion for the initial phase and released renderings, we believe the property will target high-end Asian customers, which has been the principal catalyst for gaming revenue growth on the LV Strip since 2010 when the LV Strip recovery started. Baccarat, which is the main proxy for this customer segment, accounted for 22% of the gaming win on the LV Strip (up from 9% in 2002 and 13% in 2007) and roughly three-quarters of the gaming revenue growth in 2012.

Properties that are especially vulnerable to the increased competition from Genting are the high-end resorts with substantial international play. These include the Wynn Las Vegas and Venetian complexes, Bellagio, Caesars Palace (part of Caesars' OpCo), and CityCenter. From an issuer perspective, Caesars Entertainment Corp. (IDR of 'CCC'), CityCenter Holdings LLC (IDR of 'B'), MGM Resorts International (IDR of 'B'), and Wynn Resorts, Ltd (IDR of 'BB') are the most exposed. While the above entities are particularly exposed from a concentration perspective, there is likely to be an additional push-down impact from Resorts World Las Vegas as the new capacity will pressure ADRs and intensify competition citywide.

More broadly, we believe that Resorts World Las Vegas extends Genting's increasingly aggressive participation in the U.S. gaming market and gives the company potential marketing synergies. For instance, the Las Vegas resort could be used as an amenity to higher value Resorts World New York customers and enables Genting to be a more effective competitor in the New York metro area (although the high tax rate in New York will limit the generosity of potential offers). Other potential markets that Genting may look to enter and grow its database are southeast Florida, Chicago, and/or Toronto.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contacts

Fitch Ratings
Brian Bertsch, New York, +1 212-908-0549 (Media Relations)
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Brian Bertsch, New York, +1 212-908-0549 (Media Relations)
brian.bertsch@fitchratings.com