Las Vegas Strip a risk for American operators

Genting Group's purchase of Boyd Gaming's 87-acre Echelon site and plans to develop the site into an integrated casino resort by 20152016 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 wellcapitalized 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-squarefoot 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.