Strat Could Be Mirage Closing Winner, Says Analyst
With the Tropicana shuttered in April and with the Mirage heading for a temporary closure starting July 17, it doesn’t take an expert to figure out that room supply on the Las Vegas Strip is declining.
Some experts and analysts have stated the obvious, but the astute ones are identifying potential winners under the scenario of about 4,500 rooms between the Tropicana and Mirage going offline. Reduced room supply is a potential positive for MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR) — the two largest operators on the Strip — but other venues could benefit.
In a new report to clients, CBRE analyst John DeCree highlighted The Strat, which is owned and operated by Golden Entertainment (NASDAQ: GDEN), as a potential beneficiary of the Tropicana and Mirage closures. Citing some fundamental issues, he lowered his price target on Golden to $40 from $47, but reiterated a “buy” rating on the shares.
The Strat is one of Golden’s three Las Vegas casinos with the other two being a pair of off-Strip Arizona Charlie’s venues that cater to Las Vegas locals.
Strat Not on Strip, But Could Still Benefit
Many visitors to Las Vegas consider the Strat a Strip casino hotel because it’s located on Las Vegas Boulevard, but in reality, it’s situated just north of the Strip and Clark County doesn’t consider the area in which the venue resides to be part of the Strip. That doesn’t diminish Strat’s status as a potential beneficiary of the Mirage and Tropicana closures.
Most importantly, the closure of The Tropicana Las Vegas in April and the scheduled closure of Mirage later this month could accelerate the occupancy recovery at the Strat and improve overall customer mix and margins,” wrote DeCree.
Golden has taken steps to spruce up the Strat and add new non-gaming amenities and while the venue typically doesn’t capture a lot of business from the consumers that frequent the Strip’s toniest properties, it could be a compelling alternative for customers that previously enjoyed the Trop.
“With Caesars and MGM (properties) at or near full occupancy on the Strip, we see an opportunity for Golden to potentially pick up more than its fair share of displaced room nights,” according to DeCree. “The Strat midweek occupancy is still 12 points below 2019 levels. And although weekend occupancy at the property hit 96% in the first quarter, there should be more upside from higher rates with fewer rooms available on the Strip going forward.”
Other Potential Catalysts for Golden
The CBRE analyst also pointed out that the Strat has been among the Las Vegas casinos that have been hampered by elevated promotional activity among smaller independent rivals — a scenario that’s lasted longer than expected. Elevated labor costs and some softness among cost-conscious guests have also been a drag on Golden.
However, there are potential catalysts for the stock, including the recent additions of some new gaming taverns to Golden’s already expansive portfolio. The company is the largest operator of such venues in the Las Vegas valley.
DeCree also highlighted the operator’s recently implemented dividend and the fact that the company has $90 million remaining on a previously authorized share repurchase plan. He expects the entirety of that amount will be spent over the next year.
The closure of the Tropicana and the upcoming shutdown of the Mirage on the Las Vegas Strip could potentially increase business for Golden Entertainment's off-Strip casino, The Strat. As DeCree noted, with MGM Resorts International and Caesars Entertainment likely to see an increase in occupancy due to reduced room supply, there's an opportunity for The Strat to "potentially pick up more than its fair share of displaced room nights." Furthermore, DeCree mentioned that Golden Entertainment recently added new gaming taverns to its portfolio, which could serve as potential catalysts for the company.
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