With the Tropicana shuttered in April and the Mirage heading for a temporary closure starting July 17, it’s apparent that the room supply on the Las Vegas Strip is on the decline. Some experts and analysts have confirmed this obvious trend, but the more perceptive ones are identifying potential beneficiaries with approximately 4,500 rooms between the Tropicana and Mirage going offline. This reduced room supply could be a boon for MGM Resorts International and Caesars Entertainment, the two largest operators on the Strip, but other venues stand to gain as well.
In a recent report to clients, CBRE analyst John DeCree spotlighted The Strat, owned and operated by Golden Entertainment, as a potential beneficiary of these closures. Despite noting some fundamental issues and lowering his price target on Golden to $40 from $47, DeCree maintained a “buy” rating on the shares.
The Strat is one of Golden’s three Las Vegas casinos, the other two being a pair of off-Strip Arizona Charlie’s venues that cater to locals. Although many visitors to Las Vegas consider The Strat a Strip casino hotel due to its location on Las Vegas Boulevard, it’s technically situated just north of the Strip, with Clark County not considering it part of the official Strip. This technicality does not diminish The Strat’s potential to benefit from the room reductions at the Mirage and Tropicana.
DeCree commented, “The closure of The Tropicana Las Vegas in April and the scheduled closure of Mirage later this month could accelerate the occupancy recovery at the Strat and improve overall customer mix and margins.” Golden has been proactive in enhancing The Strat by adding new non-gaming amenities. Although this venue doesn’t typically attract the high-end clientele of the Strip’s swankier properties, it could serve as an appealing alternative for customers who previously frequented the Tropicana.
“With Caesars and MGM properties at or near full occupancy on the Strip, we see an opportunity for Golden to potentially pick up more than its fair share of displaced room nights,” DeCree observed. “The Strat’s midweek occupancy is still 12 points below 2019 levels. And although weekend occupancy at the property hit 96% in the first quarter, there should be more upside from higher rates with fewer rooms available on the Strip going forward.”
The CBRE analyst also noted that The Strat has faced competition from elevated promotional activities among smaller independent rivals, a scenario lasting longer than anticipated. Elevated labor costs and some softness among cost-conscious visitors have also been challenging for Golden.
Nevertheless, there are promising catalysts for the stock, including the recent additions of new gaming taverns to Golden’s already extensive portfolio, making it the largest operator of such venues in the Las Vegas valley. DeCree also highlighted Golden’s recent implementation of a dividend and the availability of $90 million remaining on a previously authorized share repurchase plan, projecting that the entirety will be spent over the next year.
