Las Vegas gaming industry expected to have slow recovery

LAS VEGAS, Nevada -- Fitch Ratings Service tagged the American gaming industry with a stable outlook Wednesday but said it expects the economic recovery in Las Vegas to lag regional casino markets.

In a report for the investment community, Fitch analysts said gaming revenue growth was resuming in many markets following a 2-year recession that reduced consumer spending at casinos throughout the country.

In December, the ratings service gave the gaming industry a negative rating.

Fitch senior analyst Michael Paladino said the new report "is very market specific." He said some casino jurisdictions are recovering quicker than others but the industry could turn negative again should the national economy take another dip.

"Certain markets are getting better, but this is an industry that is capital intensive where there are also high leverage levels," Paladino said in an interview after the report was released. "The gaming industry is highly sensitive to changes in the pace of the recovery."

The report cited several reasons other than additional consumer spending as to why the industry is recovering.

The lack of new casino projects in 2011 and more efficient cost structures for casino companies, brought about by the recession, are helping to fuel year-over-year improvements for operators this year.

"However, leverage levels remain high for the sector and market trends are uneven, which will require investors to monitor their exposure carefully," Paladino said.

Several companies, such as MGM Resorts International, Caesars Entertainment and Boyd Gaming Corp., took advantage of favorable capital markets in late 2009 and last year to deal with leverage issues, such as extending debt maturity dates.

Paladino said the moves provided "additional time for an operating recovery and to allow some of the more leveraged operators in the industry to strengthen their credit profiles."

Fitch expects the recovery on the Strip to continue "to build traction as 2011 progresses." The agency expects the recovery will be more pronounced in 2012.

December's opening of the Cosmopolitan of Las Vegas added 2,000 hotel rooms to the market. The $3.9 billion resort is expected to add 1,000 rooms by July. The ratings service thought the Cosmopolitan would drive incremental demand and visitation to the Strip this year, especially with the property's agreement with Marriott International to tap into the lodging chain's 32 million-member database.

The ratings service thought both the Las Vegas locals market and the Southern California Indian casino market would trail the recovery being experienced in other regional gaming markets.

Fitch cited the weak housing markets and high unemployment rates in Nevada as reasons the recovery will be slower.

Nevada-based companies, such as Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts would benefit from strong growth in Asia, particularly Macau and Singapore.

The Fitch analysts thought casino operators in markets such as Atlantic City will continue to be pressured by new competition from Pennsylvania and other neighboring states.