- Caesars Entertainment expects the Rio Las Vegas All-Suite Hotel and Casino to reopen by the end of the year.
- The Rio is the last of Caesars properties in Southern Nevada to reopen.
- Caesars Entertainment is not planning to follow the lead of other companies and close properties midweek until demand increases.
Caesars Entertainment had their Q3 Earnings Call on Thursday, November 5 with several newsworthy items coming out of it. Much of the call was devoted to ‘housekeeping’ as the merger that combined Caesars with Eldorado Resorts happened during Q3. Eldorado Resorts was the surviving entity in the merger meaning there was what CEO Tom Reeg described as ‘a lot of noise’ in the financial statement as it reflected legacy Eldorado earnings through July 20 and combined earnings after that.
Reeg indicated that the company was generally pleased with the performance of properties in Las Vegas since the merger though he pointed out that the Rio, Cromwell and Planet Hollywood were closed for the entire quarter and Bally’s for part of the quarter. Reeg revealed much better occupancy numbers than expected, due in large part to the strength of the Caesars Reward program. Many financial observers think the quality of the Caesars customer database and their ability to leverage it was much of the impetus for the merger in the first place:
Our occupancy for the quarter in Las Vegas was just under 60% just a few basis points under 60%. We’re running in the mid 50s on week days now and weekends we’re well into the mid to high 90s. So we’ve been heartened by our performance, clearly that’s a key piece of evidence on the strength of the Caesars Rewards program having to pour Caesars who we inherited on the yield management side is a wizard with this stuff and has done a tremendous job for us in Vegas and we’ve moved him throughout the company in this area. So we’re excited with what Pavan and his group will bring to the table for us.
The Las Vegas Convention and Visitor Authority (LVCVA) reported that Southern Nevada August hotel occupancy came in at 63.1% on weekends and 34.4% on weekdays. The same period in 2019 had 95.2% occupancy on weekends and 84.1% occupancy midweek. Midweek visitation will continue to languish until the convention traffic is able to return but Caesars has to be thrilled that weekend occupancy is outperforming not only the broader market but is in line with 2019 levels.
The biggest news from a non-financial standpoint didn’t get a lot of fanfare but was mentioned by Reeg in a general comment about Caesars’ performance in Southern Nevada (emphasis added):
So Vegas continues to get better for us. We are not going to be talking about shutting properties mid week, obviously we’re talking about opening additional properties. We opened Cromwell last week. I’d expect to see Rio open before the end of the year.
Reeg didn’t provide much context for this information and while it isn’t a huge surprise there had been many questions about the future of the Rio. In mid-September, the word around town was that the Rio might never reopen–at least under Caesars ownership:
The future of the Rio is much more in doubt. The once revolutionary resort is getting a bit dated. It has a good location not far from the aforementioned Palms but would likely need some serious renovation to bring it into the 21st Century. My hunch is that it’ll reopen at some point but a sale or even demolition is not out of the question.
Making the future of the Rio all the more confusing–Caesars doesn’t technically own the property. It was sold to New York based real estate developer Eric Birnbaum in late 2019 with Caesars to continue managing the property for at least two years paying $45 million annually in rent. Keep in mind that deal was brokered before the Eldorado merger and there’s no telling what they have in mind for the Rio. At one point, there was talk that it would be demolished to build a baseball stadium to court a Major League team though that came and went.
As Reeg pointed out, the company’s rewards program has been effective at keeping their occupancy at a decent number and the rationale could be that the Rio can provide room for ‘overflow’ when needed. Reeg also mentioned that Caesars had no plans to close midweek as MGM is doing with some of their properties. Assuming that the rewards program can keep the midweek occupancy at or above current levels that makes sense.
There are other reasons that Caesars wants to get the Rio back online before the end of the year. It sounds a lot better from a corporate standpoint to be able to say that ‘all Las Vegas properties have now reopened’ and that they did so before the end of 2020. With social distancing still the name of the game for dealing with COVID-19 having another property open allows Caesars to spread out their guests which, in theory, helps facilitate that. It could also be that the company is still looking to do something else with the Rio and working out a deal is likely easier with an operational casino.
Reeg also revealed that bookings for the Caesars Forum Convention Center–it opened just a couple of days before the Nevada gaming industry was shut down in March–were very strong for the second half of 2021. He did provide the caveat that it was all contingent on the public health situation improving–not a given–but he did give credit to Governor Steve Sisolak for his goal of having conventions back at 50% capacity by early 2021. Reeg also gave this projection for gaming and tourism demand post-COVID:
What I tell you today is when we get into a post-COVID world, the pent-up demand you’re going to see for gaming in general and Las Vegas in particular is going to be beyond your wildest dreams. You’re — and the flow-through that you’re going to see in the sector is unlike anything that’s happened historically in this space. And so I can’t tell you when is that going to happen, I can’t — I wish I could answer when the public health situation will change, but as we look at the pieces of our database that are missing or lagging, they are the most profitable pieces of our database, its the 55 and over cohort that’s not coming. These are people that are not going anywhere, and are not spending, and are going to come out of this with significant pent-up demand and spending power and it’s going to be extremely powerful what you’ll see, I think across the entertainment space, but particularly in casinos in particularly in Las Vegas.
No surprise that a company CEO wants to give a rosy picture of future demand but I think Reeg is right on the money. The pent up demand for all types of travel once the COVID situation allows it to happen will be mind blowing. Just knowing how anxious I am to do some traveling internationally and how the vibe among many of my friends and associates echoes this you have to think that the entire sector will experience a huge rebound. Of course the first trick for any business with significant exposure to travel is to survive until this rebound can happen.
It’s important to keep in mind that although Caesars is committed to reopening the Rio by the end of the year once they do the same questions about the future of the property remain. Reeg didn’t go into detail about any plans to divest more properties in Nevada or elsewhere but did intimate that there are properties the company is ‘anticipating selling’. That could be contingent on a number of factors as well, not the least of which is the timeframe of when COVID-19 will be under control. If the Rio isn’t sold it is still a property in need of significant upgrades throughout.
