HEDGEYE EDGE
In anticipation of pushback to our bullish Las Vegas market call, we have been active on the research front for the last few months. In December we hosted a market representative from the LVCVA to talk about ’23 and the year ahead, and then earlier in January we walked through our initial forecast for visitation growth – see HERE and HERE, respectively. While we’re not exactly bullish as a firm on the US Macro backdrop and Hedgeye GLL remains largely negative on US Hotel RevPAR, we do remain optimistic on the prospects for the Las Vegas Strip. We’re not just working off a hunch or chasing the momentum we’re seeing in the Las Vegas weekly RevPAR data. Rather, we’ve delved into our tracking datasets and looked closer at some new ones in collaboration with our Communications team here at Hedgeye.
As our updated work will show, the balance of evidence, including the Q1-TD performance, supports our bullish views on the year ahead for the Las Vegas Strip and the related stocks. For the year ahead, we see visitation and RevPAR growth upside driven by the expectation of stable leisure demand, accelerating convention demand, and recovering International inbound demand. The components of that forecast are detailed in the below slides and sections. All Las Vegas Strip operators (MGM, CZR, and WYNN) will benefit from the demand backdrop for the Strip, but we believe MGM has the most to gain relative to current expectations. MGM = Best Idea Long.
HEDGEYE CONVENTION TRACKER
The latest installment of the Hedgeye Las Vegas Convention Tracker continues to show positive signs and ’24 should be THE year for convention visitation to fully recover and grow against pre-Covid levels. Our analysis suggests conventions drive an outsized impact on RevPAR than just the incremental visitation would suggest. We originally 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. Looking ahead, given the lagged attendance metrics for conventions, especially in Q2 & Q3’23, we think convention and group could be an even bigger growth driver in ’24.
For ’24, there appears to be 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 have been overlooked by the market, but Q4 was a strong finish in Las Vegas and given the YTD strength we think investors will again realize that convention and group growth is back. The good news is that 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 early February, we estimate market wide booked attendee pace is tracking up ~3-4% YoY and nearly ~13% higher than what was booked during a strong ‘19. 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. Stronger YoY attendance from recurring events like CES and World of Concrete should drive upside for the market. Are we saying that convention attendance for ’24 is going to be up in the >13% 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 coming 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 ’24 and beyond.
HEDGEYE LEISURE EVENTS TRACKERS
Along with our updated RevPAR forecast, the missing ingredient for our Las Vegas outlook has been our updated trackers for the Leisure segment. Las Vegas is an event driven market and fortunately for the coming months, event counts are tracking higher YoY. Importantly, the quality of events has also improved on the prior year(s), too. Sure, “quality” might be a bit subjective, but Las Vegas isn’t exactly leveraging Carrot Top’s residency to lure incremental visitation. No offense to those in favor of Carrot Top, but Las Vegas is coming off a big event year and layering in new A-List singers (Bad Bunny, Madonna, Justin Timberlake, Morgan Wallen, the Rolling Stones, and more), the Super Bowl, and other marquee sporting events later in the year.
Aided by new venues like Allegiant Stadium and now the Sphere, Las Vegas has a lot more to offer to consumers. As our trackers note, there is some “pace” slippage the further we get out into the year, but there’s plenty of time for more events to be added. On the leisure events side we’re more focused on the 2-4 months out and the setup for that period is bullish. With the help of our Communications team, we’re excited to track the total event calendar more effectively.
LAS VEGAS VISITATION & REVPAR FORECAST
With ’23 data complete, some YTD data in the books, and our trackers in hand, we’ve dug deeper into formulating our expectations for ’24. The detailed charts and slides follow our steps to building out our expectation for visitation and RevPAR growth for the market. On visitation growth, our expectations are mostly unchanged relative to our initial installment from earlier this year, and we continue to expect 4-5% visitation growth on the year. For ’24, the biggest swing factor for visitation will be domestic leisure / casino demand, which will be heavily influenced by the event calendar. As noted above, the event calendar looks strong on a YoY basis looking through 1H’24 with a tilt towards higher quality events that should command robust ADR compression.
On RevPAR, our going in expectation for the year calls for a MSD growth rate, with a healthy split between rate and occupancy gains. Given the comps, we expect growth to be more 1H weighted, but Q2-Q3 should put up very respectable growth and well above the Total US. Based on our scan of estimates we believe consensus is more in the 2-3% RevPAR camp for the LV Strip, and thus project down revenues (due to Gaming) and down EBITDA (due to wage inflation and overall cost creep). With this added RevPAR growth that we’re modeling, we see the industry being able to shield itself from a good chunk of this year’s wage increases.
