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Gaming and Hospitality REITs: Resilience Amid Market Volatility

August 1, 2024

Note: We reveal investment insights through the quotes of top business leaders.

Key Takeaways

  • Gaming and hospitality REITs like VICI and MGM emphasize the importance of excluding certain items for clearer performance comparisons and highlight strong performance in key markets like Macau.
  • VICI's resilience is bolstered by its ability to raise funds and generate income from leases, though it faces challenges from macroeconomic factors such as inflation and market volatility.
  • High occupancy rates and strategic rate management are crucial for stability, with Wynn Resorts and MGM Resorts reporting strong occupancy and revenue growth.
  • Future outlooks are optimistic, with Wynn improving its leverage profile and MGM focusing on strategic planning, despite acknowledging potential uncertainties and strategic pivots.

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Current Performance Overview

VICI and MGM emphasize the importance of excluding certain items for a clearer comparison of current performance to prior periods. MGM highlights strong performance in Macau, demonstrating resilience and economic prowess. Both companies acknowledge the risks and uncertainties in forward-looking statements, underscoring the need for careful performance evaluation.

"Management believes it is useful to exclude certain items when comparing current performance to prior periods because these items can vary significantly depending on specific underlying transactions or events." --- (VICI, press release, 2024/05/02)

"Many of them, as you know, are market leading. We have shown and demonstrated now, I think, in Macau, our growing EBITDAR prowess and our ability to have set a whole new plateau of economic performance." --- (MGM, earning call, 2024/Q2)

"All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results, performance and achievements will differ materially from the expectations expressed herein will increase with the passage of time." --- (VICI, sec filing, 2024/Q2)

"We believe that while items excluded from Adjusted EBITDAR may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends." --- (MGM, sec filing, 2024/Q1)

Economic Conditions and REIT Resilience

VICI's resilience amid economic conditions is influenced by its ability to raise funds, generate income from leases, and access capital resources. However, this resilience is challenged by macroeconomic factors such as inflation, higher interest rates, and market volatility, which can adversely affect cash flows and capital access.

"Our ability to raise funds through the issuance of debt and equity securities and access to other third-party sources of capital in the future will be dependent on, among other things, general economic conditions, general market conditions for REITs and investment grade issuers, market perceptions, the trading price of our stock and uncertainties related to the macroeconomic environment." --- (VICI, sec filing, 2024/Q1)

"We believe VICI’s election of REIT status, combined with the income generation from the lease agreements and loans, will enhance our ability to make distributions to our stockholders, providing investors with current income as well as long-term growth, subject to the macroeconomic environment, other global events and market conditions more broadly." --- (VICI, sec filing, 2024/Q1)

"Our cash flows from operations and our ability to access capital resources could be adversely affected due to uncertain economic factors and volatility in the financial and credit markets, including as a result of the current inflationary environment, higher interest rates, equity market volatility, and changes in consumer behavior and spending." --- (VICI, sec filing, 2024/Q2)

Occupancy Rates and Stability

Gaming and hospitality REITs maintain stability through high occupancy rates and strategic rate management. Wynn Resorts reports near 99% occupancy in Macau and strong Q2 performance, while MGM Resorts highlights a 93% occupancy rate and strategic partnerships driving revenue growth. Balancing occupancy and rates ensures robust revenue and guest experience.

"So we're always balancing occupancy and rate in order to drive strong revenue results, but also maintain a great experience on the property." --- (WYNN, earning call, 2024/Q1)

"Net revenues grew 3%, driven by both higher rate and occupancy. Our strategic relationship with Marriott contributed to our performance this quarter now with over 410,000 room nights booked." --- (MGM, earning call, 2024/Q2)

"I mean you're getting as much rate as it looks like you want. I mean fundamentally, is that property structurally different in that relative to the Macau properties where you run occupancy close to 99%." --- (WYNN, earning call, 2024/Q1)

"Three Months Ended March 31, 2024 2023 Occupancy 93 % 92 % Average daily rate (ADR) $ 277 $ 258 Revenue per available room (RevPAR) $ 258 $ 239 Las Vegas Strip Resorts food and beverage revenue increased 3% for the three months ended March 31, 2024 compared to the prior year quarter due primarily to an increase in catering and banquet revenue and improved restaurant options." --- (MGM, sec filing, 2024/Q1)

"The strength in our business has continued into Q2. In the casino, our mass drop per day in April increased 30% versus April 2019 and on the non-gaming side, our hotel occupancy was 99%." --- (WYNN, earning call, 2024/Q1)

Future Outlook and Predictions

Wynn Resorts and MGM Resorts International both express optimism about their future outlook, with Wynn highlighting an improving leverage profile and positive free cash flow, and MGM focusing on strategic planning and increased production forecasts. However, MGM also acknowledges the inherent uncertainties and potential strategic pivots in their digital investments.

"Meanwhile, our leverage profile continues to improve as does our outlook on future free cash flow." --- (WYNN, earning call, 2024/Q1)

"We've decided to change our approach to these calls in the New Year to give you a more focused recap of our results with additional color and commentary around our plans for the future." --- (MGM, earning call, 2024/Q1)

"Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict." --- (MGM, sec filing, 2024/Q1)

"But is there a point at some point in the future where if you aren't getting the results that you won out of the digital segment, you would make the tough decision to essentially pivot away from investing there and instead get more aggressive with the core business, which seems like to us that it's pretty undervalued at this point." --- (MGM, earning call, 2024/Q2)

"Our Group forecast is up 6.5% for 2023 and our year-to-date production is up 29% for all future dates." --- (MGM, earning call, 2024/Q1)

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