Las Vegas venue closures improve Strat’s outlook

With the Tropicana closing in April and the Mirage closing July 17, it’s clear that the number of rooms available on the Las Vegas Strip is declining. Some pundits and analysts have confirmed this obvious trend, but the more astute see potential beneficiaries, with about 4,500 rooms between the Tropicana and the Mirage set to close. This reduction in room count could be a boon to MGM Resorts International and Caesars Entertainment, the Strip’s two largest operators, but other properties could benefit as well.

In a recent report to clients, CBRE analyst John DeCree highlighted The Strat, owned and operated by Golden Entertainment, as a potential beneficiary of the closures. Despite some fundamental issues and lowering his price target on Golden to $40 from $47, DeCree maintained a buy rating on the stock.

The Strat is one of three Golden Las Vegas casinos, the other two being a pair of Arizona Charlie’s properties located off the Strip and catering to locals. Although many visitors to Las Vegas consider the Strat to be a Strip hotel-casino due to its location on Las Vegas Boulevard, it is technically located just north of the Strip, as Clark County does not consider it part of the official Strip. This technicality does not diminish the Strat’s potential to receive room discounts at the Mirage and Tropicana.

DeCree commented, “The closure of the Tropicana Las Vegas in April and the planned closure of the Mirage later this month could accelerate the recovery of occupancy at the Strat and improve the overall guest mix and margins.” Golden has been proactive in improving the Strat by adding new non-gaming amenities. While the property does not typically attract the high-end clientele of the Strip’s more exclusive properties, it could provide an attractive alternative for guests who previously frequented the Tropicana.

“With Caesars and MGM properties nearly fully occupied on the Strip, we see an opportunity for Golden to potentially recapture more than its fair share of displaced room nights,” DeCree observed. “The Strat’s midweek occupancy is still 12 percentage points below 2019 levels. And while weekend occupancy at the property was 96% in the first quarter, there should be more upside due to higher rates with fewer rooms available on the Strip going forward.”

The CBRE analyst also noted that The Strat has faced competition from smaller promotional operations, a scenario that has lasted longer than expected. High labor costs and some weakness from cost-conscious visitors have also been a challenge for Golden.

Still, there are some promising catalysts for the stock, including the recent addition of new gaming taverns to Golden’s already extensive portfolio, making it the largest operator of such establishments in the Las Vegas Valley. DeCree also pointed to Golden’s recent implementation of a dividend and the availability of $90 million remaining from a previously authorized stock repurchase plan, with the entire amount expected to be spent over the next year.