Las Vegas High-End Integrated Resorts Unlikely to Lead Hotel Recovery

Posted on: September 30, 2020, 09:24h. 

Last updated on: September 30, 2020, 10:59h.

Glitzy Las Vegas Strip venues, such as the Cosmopolitan and the Wynn, are unlikely to be near-term contributors to the broader lodging industry’s recovery, as Fitch Ratings forecasts weakness across the premium hotel segment.

Upper Tier Hotels
Expensive hotels on the Las Vegas Strip, seen here, will take a while to rebound, but that’s true of upper-tier venues across the US, says Fitch. (Image: Reuters)

The research firm says the domestic lodging group’s rebound from the coronavirus pandemic will be slower than expected, absent help from pricier properties. That jibes with expectations that Sin City’s rebound from the coronavirus pandemic could be extended well into 2022, or even 2023. In April, Fitch downgraded credit ratings across the lodging industry, including gaming companies, citing crimped cash flow, but notes its muted 2021 outlook is unlikely to result in another round of lower grades.

Hotel occupancy bounced back in recent months after bottoming in April, and revenue per available room (RevPAR) is in line with our forecast,” said the ratings agency. “Fitch continues to expect US RevPAR for the sector, including closed hotels, to decline about 45% on average in 2020. But we now expect the rebound to be around 75% of 2019 levels in 2021, compared with our previous expectation of 80%, due to our tempered first-half 2021 outlook.”

Following the June reopening of Nevada gaming venues, Strip occupancy rates labor around 30 percent during the week, and 50 percent on the weekends.

Vaccine Hopes

In the eyes of many analysts, Sin City’s recovery trajectory is intimately tied to the development of a COVID-19 vaccine. That’s because businesses are apprehensive about booking conventions, and leisure travelers are skittish about boarding planes until a virus treatment comes to market.

Las Vegas operators are doing what they can to get visitors back to the Strip. For example, MGM Resorts International recently unveiled its “Convene with Confidence” plan, which includes rapid COVID-19 testing, aimed at rejuvenating convention traffic.

Other companies are restoring premium room rates, seeking to allay concerns that the quality of clientele in Sin City is declining in the wake of the pandemic. Those efforts could pay dividends in the future. But, for now, expensive hotels across the country are grappling with a rough climate.

“A meaningful recovery in the upper tier is not likely in the near term,” said Fitch. “Performance in luxury and upper-upscale tiers has lagged, particularly in urban locations, as large group and business activity remains low.”

Rebound Will Take Awhile

In the domestic gaming industry, the bulk of the poshest integrated resorts are located in Las Vegas. The price tags usually assigned to those accommodations, coupled with the tourists’ reluctance to fly, are prompting analysts to favor regional casinos.

However, Sin City’s priciest venues aren’t alone when it comes to lengthy return to normalcy estimates.

“For the upper-tier segments, Fitch is incorporating a roughly 60% decline in 2020 RevPAR, depending on geographic and asset exposure, to reflect the steeper second-quarter 2020 decline and slower second-half 2020 recovery,” according to the research firm.

The ratings agency adds high-end hotels, regardless of asset mix and location, should “approach national performance trends in 2022 and 2023.”