TEXT-Fitch: Lackluster outlook for U.S. casino operators

Wed Feb 6, 2013 12:42pm EST

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Feb 6 (Reuters) - The 2% payroll tax cut expiration provides another headwind for an already lackluster outlook for U.S. casino operators, according to Fitch Ratings. Operators also face cannibalization from new openings in select markets against a difficult macroeconomic backdrop. The 4Q12 earnings season should give us a sense for how the tax cut expiration is affecting consumer behavior, which could also be affected on the positive side by an improving housing market and declining consumer debt levels.

Penn National announced earnings last week and reduced full year 2013 revenue guidance by 1.6% from guidance announced in tandem with the company's proposed REIT spin-off. The revision is partially related to a slower than expected ramp up of the company's Ohio facilities but also captures the uncertainties surrounding consumer spending.

Taking into account new openings or expansions in Ohio, Maryland, and Louisiana, we project same-store revenues to be flat to slightly down for U.S. regional operators in 2013. Las Vegas should fare better but only marginally with 3% growth.

With this backdrop and a limited number of available development opportunities and sound risk/return profiles coupled with the historically low interest rate environment, we expect operators will focus on mergers and acquisition activity and other engineering tactics in order to maximize returns for shareholders. We highlighted this in our "2013 Gaming Outlook" report released on Dec. 17, 2012. Subsequent to the release of this report, Pinnacle announced plans to acquire Ameristar and Scientific Games announced plans to acquire WMS. Prior to the report, Boyd acquired Peninsula in November 2012 and Penn announced a plan to spin-off its assets into a REIT (discussed in our last eNewsletter).

Wynn and Las Vegas Sands paid sizable special dividends at the end of 2012, partially because of tax uncertainty heading into 2013 but also as a reflection of the lack of imminent need for funding growth. We expect focus on generating returns for shareholders will continue into 2013.

Conversely, our initial forecast calling for 8% gaming revenue growth in Macau, as noted in our Asia-Pacific gaming outlook report dated Dec. 17, 2012, driven by mass market growth of roughly 20% and mid-single digit growth in VIP, which has rebounded over the last couple of months. January revenue grew a solid 7.3%, given the partial smoking ban implemented at the beginning of the year in addition to an adverse calendar comparison with respect to Chinese Lunar New Year. We are not revising our revenue growth forecast at this point, as we have a cautious view of the sustainability of the VIP rebound.

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