• GB Davis

Vegas COVID19 Prevalence Rising - More Woes for Vegas - 6/18/20

  • On March 27, 2020, in "Market Currents" we indicated, "Trepp issued a very brief note yesterday, alleging to have Stress Tested the CMBS pools - and finding Hotel and Retail likely to have near Great Recession difficulties - while Office, MF, Industrial to fair somewhat better than the Great Recession.  While we generally agree with this, we are still formulating our opinion.  We like Cell Towers (but not at the public multiples as growth stocks ?!), MF and Self Storage within a credit recession which will impact CRE across the board.  We do agree that Hotel and Retail will be the most difficult sectors.  We don't consider the Gaming space real estate and Las Vegas will suffer tremendously.

  • On April 19, 2020, in "Not a Whole Lot Going on Candidly" , we indicated, "Las Vegas - Any Desire to Recklessly Party and Celebrate for the Next Several Years?  - Corporate America says, Nah, pass.

  • In 2019, Las Vegas had 42.5 million visitors (below 42.9 million peak of '16), and 6.649 million Convention visitors (peak value).  We expect Lodging, Leisure and Travel behaviors to be affected disproportionately across all STR Chain Scales in the 2021-2022 period, relative to any other recession; and will not bounce back before the overall economy, itself does.  We expect Las Vegas to fare even worse and will be shorting select issuers in the Gaming sector in the not too distant future once the technical picture is a bit more favorable.

  • Our expectation is for Convention Business to fall to early 1980s levels or less than 20% of '19 levels, and sustain this level for at a minimum a two year period if not longer.  Corporations, already feeling the sting of the COVID19 Accelerated Credit Recession, will avoid Vegas for many reasons including but not limited to the $AIG effect of corporate responsibility vis-a-vis the party atmosphere of Vegas with unemployment at Great Depression levels; and, the prospects of social distancing still front and center.

  • We also believe that airlift into Vegas will see a similar decline, room tax collection and gaming revenue.

  • We foresee a situation, in which, the finances of Las Vegas / Clark County and maybe even the State of Nevada, itself reach bankruptcy levels

  • On April 22, 2020, in "On Bear Market Wednesday's We Drink," we indicated, "

  • Las Vegas Sands ($LVS) - Earnings Highlights

  • LVS has suspended its dividend program due to the impact of Covid-19, but will continue previously announced capital expenditure programs in both Macao and Singapore

  • Macao market-wide Gross Gaming Revenue  Fell 80% in March 

  • On March 17, 2020, the Nevada government suspended all casino and non-essential operations, including all operations at our Las Vegas Operating Properties, beginning on March 18, 2020, through at least April 30, 2020, which could be extended in the future − Prior to closure, we had already experienced postponement and cancellation of group events originally scheduled to occur in the first quarter and after in 2020 − Social distancing measures implemented   

  • LVS Las Vegas EBITDA March $-5M (yes, negative) on $75m Rev

  • LVS Total EBITDA March $-14M (negative) on $303m Rev

  • On May 2, in " Lock, Stock and a Loaded Chamber" we indicated, "Las Vegas and Las Vegas Gaming to see a Downturn Significantly Worse than '08-10.  Bank of America analyst Shaun Kelley said investors shouldn’t expect business as usual. Kelley said it’s likely properties will open in stages, not all at once. Casinos will also implement social distancing measures at tables, slot machines and other facilities. In addition, large events like concerts, sports and conventions will likely remain banned for the foreseeable future. “Given the market’s reliance on air travel and large scale events, this suggests a full reopening of the Strip could take a significant period of time even if the virus remains under control,” Kelley wrote in a note.  MGM said it could potentially begin its reopening process with the Bellagio and New York-New York, but it needs at least 30% occupancy to reach cash flow breakeven.  Even once the Vegas casinos reopen, it will be a long path back to normal for investors. Casinos in Macau, China reopened in March, but gross gaming revenue for the month of April was still down 96.8% from a year ago.

On June 11, in "Checking In," we indicated

  • Fitch out with a piece on the Gaming Sector (6/11), a couple of takeaways:

  • Las Vegas.  Recovery will be the slowest on the Strip given its greater reliance on inbound visitation, air capacity (May air capacity was down 72% Yoy), and conventions. Additionally, the larger Strip operators have detailed phased reopenings of property portfolios, often starting with one high-end and one value property with follow-on openings commensurate with demand. Given the low gaming tax and greater reliance on hotel ADR, flow-through is assumed at 70%. Contrary to prior recessions, hotel supply has been steady and only Resorts World Las Vegas will open in the next year or so.

  • Fitch now expects Wynn’s net leverage to remain well above its new negative sensitivity at ‘b+*’ IDCO until 2023 when Fitch projects net leverage at 5.6x. Wynn suspended its dividend and reduced capex, which helps net leverage trajectory. Fitch does not see liquidity being an imminent concern with the company having $3.4 billion of liquidity as of April 30, 2020 and no maturities in 2020–2021.

  • Our view is that Fitch's work represents a "best case" scenario for U.S. Gaming, in which they call for a U-shaped recovery - we just don't see any drivers that would potentially exceed their forecasts; while a number of risks could easily create downside pressure- and the pressure in a name like $WYNN w/ its '21 Gross Leverage of 11.4x and Net Leverage of 9.1x (Fitch estimates) (note: gaming, generally, should NEVER go above 6x) - is 'risky business' and is material.  As COVID19 Wave II discussions begin to surface in the news cycle - hot spots, re-lockdowns, etc. - will have a material impact on risk markets, potentially in a similar vein as the late Feb, March '20 drawdowns - so we are mindful of such.  Being credit minded, we don't like to necessarily pay for the future up front, should it somehow fail to materialize

NOW, CNBC today indicated that the COVID hotspot in Las Vegas is beginning - does any corporation want to risk a convention in Las Vegas and potential death for its employees?  I think no.

  • Casinos have been open since June 4, and in Clark County, where Las Vegas is located, coronavirus cases have spiked this week. Tuesday, the county recorded a daily record for increase in cases: 342.

  • Julie Swann, a former science advisor to the Centers for Disease Control and Prevention, told the Las Vegas Review-Journal this is not a second wave. “I think you’ve seen a ripple, and there’s a tsunami left,” said Swann.

  • Federal Reserve Chairman Jerome Powell in his U.S. Senate testimony this week called Nevada “Ground Zero” for why economic recovery could take years and why the federal government needs to plan on more aid.-- 

The time to short Vegas Gaming is drawing closer. Keep it On the Real peeps, GBD

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