HEDGEYE EDGE
For Las Vegas related companies, leisure travel will drive a lot of the fundamental story next year, as usual, and likely much of the stock action too. The group and convention segment, while not as big, is very important and as we’ve shown, punches above its weight when it comes to RevPAR contribution. Filling up rooms midweek is a big challenge for the market, unlike most hotel markets, so group and convention demand becomes even more important for Las Vegas.
The incremental good news is that this segment continues to look better for ’24. Per our Convention Tracker, the booked position in terms of expected attendance is showing nice growth, both YoY and vs ’19 across all quarters of ’24 and for the full year. While the sell side is modelling a down revenue year next year, we think group and conventions will contribute to another growth year and it should start in Q1. Of course, the focus is on Q1 ’24 being an off year for the big Con/Agg conference but World of Concrete is cycling back, CES is showing likely higher attendance than ’23, and Super Bowl will hit in February.
For an independent perspective, we will be hosting a call with a market expert from the Las Vegas Convention Authority next Monday. Additionally, stay tuned for additional analysis on Strip visitation and updated RevPAR forecasts from Hedgeye. Assuming leisure travel hangs in, the data is suggesting upside to analysts’ ’24 revenue projections for the Strip driven in part by the convention and group segment. MGM may be the best way to play positive Strip trends and the stock remains on the Hedgeye Best Idea Long List.
LAS VEGAS | CATALYSTS IN PLACE FOR INCREMENTAL GROWTH
Convention Tracker Results
The Hedgeye Las Vegas Convention Tracker continues to show an incrementally more positive outlook for visitation from this underrated segment on both a quarterly and annual basis. Our analysis suggests conventions drive an outsized impact on RevPAR than just the incremental visitation would suggest. We continue to believe that Strip revenues will grow in YoY in ’24 despite the consensus expectation of a retraction.
We reintroduced the Las Vegas Convention Tracker in April ‘22 as the market found its footing and group meetings began to actualize. Historically, this tracker has helped us gauge inflection points in Las Vegas RevPAR given the critical nature of the group and convention business to the market. As part of our MGM / LV Strip deck earlier this year we showed our updated data for ’23 which was a key contributor to our positive Strip view. Looking ahead, given the lagged attendance metrics for conventions, especially in 1H’23, we think convention and group could be an even bigger growth driver in ’24 as shown below.
Since the beginning of the year, companies have corroborated our views, and our latest tracker reading should instill even more confidence among the doubters. The market is not just about new events, some of which being one-offs. Rather, there’s multiple layers of growth here, and more growth is coming in the shoulder periods and weekdays. To us, it seemed as though the positive anecdotes reported by MGM, CZR, and WYNN were again overlooked by the market, but if October comes in strong and the rest of Q4 does as well, we think investors will again realize that convention and group growth is back, and the outlook is even better.
Our tracker data represents a deep sample set of large-scale conventions, trade shows, and group meetings that are coming to town. As of November, we estimate market wide booked attendee pace is tracking up ~6% YoY and nearly 20% higher than what was booked ahead of a solid 2019. These numbers are particularly encouraging given the loss of Con/Agg in Q1’24 and smaller conventions and incremental trade shows cycling back into Vegas seem to be filling the void. World of Concrete coming back into Las Vegas in Q1’24 + Super Bowl should really buffer the YoY impact of Con/Agg cycling out for a year.
Are we saying that convention attendance for Q4’23-Q3’24 is going to be up a full ~20% vs pre-Covid? Not necessarily, and that’s not our forecast, but the direction of the survey, which tracks those large-scale high value conventions, would imply further acceleration in convention attendance growth for the next few quarters which should drive incremental room compression in the market. Couple these trends with favorable ITYFTY bookings feedback from companies and optimism from planners, and we see a lot of potential for Las Vegas in ’23, '24, and beyond. Growth has resumed on the Strip.
Reminder: Conventions really matter
The group segment is more important to Las Vegas than most hotel markets. Convention and group mix in Las Vegas drives much of RevPAR growth historically, and that shouldn’t change this time around as more compression is added to the market. It’s very simple – the midweeks can be very slow in Las Vegas relative to other Top 25-30 markets so the infusion of group should again be a boon for the market.
When coupled with an explosive event calendar and still robust leisure demand, room night compression and ADRs should be strong. As we’ve discussed in the past, Las Vegas has added a lot of incremental convention capacity to the market with little commensurate growth in room supply, which should be a nice tailwind for occupancy and rate.
Near Term Momentum
Convention growth has been particularly incremental in recent weeks as the Las Vegas market continues to grow on top of massive growth compares (note, October ’22 showed material growth vs ’19). STR now tracks weekly growth rates for the market and the performance so far in Q4-TD is encouraging. As the rest of the country middles along with 2-3% growth, the Las Vegas market is inflecting into much higher growth rates. Comps are tough into year end but relative to October, they begin to ease. Massive ADR growth around Formula 1 should buoy Q4 results and with a strong slate of NFL games left and convention growth, the market is in good shape for a strong finish to the year.
The stocks of companies with Strip exposure reacted favorably to end of June and July RevPAR accelerations and we suspect a further strengthening of trends to again become a catalyst for the stocks, especially MGM. MGM remains a Best Idea Long at Hedgeye.
