August 13, 2010 / 6:37 PM / 9 years ago

Cosmopolitan Las Vegas could push hotel rates down

LOS ANGELES (Reuters) - Casino hotels on the Las Vegas Strip, already struggling to attract customers without further discounting, will face new pressure with the December opening of 2,000 hotel rooms at the $3.9 billion Cosmopolitan of Las Vegas.

Lights on the Las Vegas Strip are viewed looking northbound from the Mandalay Bay Resort just before "Earth Hour" in Las Vegas, Nevada March 28, 2009. REUTERS/Steve Marcus

The competition could trim as much as 5.5 percent, or $74.1 million, from next year’s earnings before interest, taxes, depreciation and amortization (EBITDA) at rival casino operator MGM Resorts International, according to a report on Friday from Union Gaming.

Under such a worst-case scenario for other Strip casinos, the research firm found that 2011 operating cashflow could fall 1.7 percent at Wynn Resorts Ltd, 1.4 percent at Las Vegas Sands Corp and 1.2 percent at Harrah’s Entertainment Inc.

Union Gaming arrived at its findings by quantifying the impact of daily room reservation rates through March 2011 at the Cosmopolitan on its peer group of high-end luxury hotel rooms.

The research firm, which assumed that current visitation and occupancy trends remain stable, estimated that the Cosmopolitan could attract just over 1 percent of total visitors to Las Vegas, dropping occupancy rates at existing high-end resorts from 82.1 percent to 76.5 percent.

The Cosmopolitan, acquired in a foreclosure by Deutsche Bank AG in 2008, is scheduled to open about two-thirds of its 3,000 luxury rooms in mid-December.

The two 50-story Cosmopolitan towers are wedged between two MGM-run resorts — the multi-tower CityCenter and the Bellagio — on the west side of the Strip.

Las Vegas — hit hard by the recession and the consequent downturn in consumer and business spending — has struggled to keep hotel rooms full at the same time new capacity enters the market.

CityCenter’s December 2009 debut added 6,000 high-end rooms to the Strip. Other projects, like the partially built Fontainebleau on the northern portion of the Strip, are expected to remain on hold, maybe for years, until the market recovers.

The number of hotel rooms in Las Vegas was up 5.3 percent from a year earlier to 148,524 at the end of June, according to the Las Vegas Convention and Visitors Authority.

Average daily room rates were nearly flat year-over-year in the first six months of this year at $95.83, but were down more than 27 percent when compared with 2007’s average of $132.09, according to the city’s travel bureau.

Reporting by Deena Beasley; Editing by Phil Berlowitz

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