AC: UNDERROOMED? TRY OVERROOMED

If you’ve been following Atlantic City for awhile I’m sure you’ve heard the “under roomed” description tossed around quite a bit by managements and analysts alike. Similar to Las Vegas’s investor tag line, “new supply drives visitation”, the description is starting to ring hollow. Harrah’s Atlantic City opened its new 961 room Waterfront Tower in May and Borgata (50/50 JV between BYD and MGM) followed with 800 rooms at The Water Club in early June. Market implications were not positive in terms of RevPAR or gaming revenue.
  • As can be seen in the first chart, Atlantic City market RevPAR fell 6% in Q2. Harrah’s and Borgata fared even worse, suffering cannibalization to the tune of down 7% and 16%, respectively. Q3 looks even worse considering both towers opened after the 2nd quarter mid-point. On the gaming side, the market gained nothing from almost 1,800 new rooms. Contrary to the commonly held wisdom that new rooms bring new visitors, market gaming revenue fell 7%. I understand that AC continues to battle new competition from Pennsylvania, but the June/July decline was more severe than the YTD drop.
  • If Borgata is benefiting from the new tower, it is hard to see it in the numbers. The huge RevPAR decline and flattish June/July gaming revenues do not bode well for an acceptable ROI, despite the quality of the facility. On the other hand, Harrah’s posted a solid 20% gain in July gaming revenues following only a 5% June increase. For its 4 properties combined, however, gaming revenue actually fell 1%, once again bringing cannibalization into consideration. The guys at TRMP have to be sweating a bit following this weekend’s opening of their 782 room Chairman Tower.
Market and properties not absorbing new rooms
No market gaming revenue growth from new towers