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-Fitch: lodging market holds while gaming softens.


While challenging economic conditions have cooled demand for gaming, New York-based ratings agency Fitch Ratings notes lodging demand has held up much better.

According to Fitch, lodging demand in the U.S. has benefited from minimal hotel supply growth, while increased gaming supply has saturated many markets across the country. Lodging has also benefited from greater exposure to the corporate sector than gaming.

Following 8% growth in 2011, U.S. revenue per available room (RevPAR) is up roughly 7% so far this year. RevPAR continues to be increasingly rate driven, which is more profitable for lodging companies, as the average daily rate has grown roughly 4.3% year-to-date with occupancy up 2.5%.

RevPAR is a coincident-to-lagging economic indicator. Due to the maturing cycle and the broader economic deterioration in mid 2012, Fitch said it expects RevPAR growth to continue to decelerate in 4Q12 and 2013.

Fitch said it is looking for 5.0% RevPAR growth for the balance of 2012 to result in full year growth of roughly 6.5%. Its preliminary forecast for 2013 calls for roughly 4.0% RevPAR growth in the U.S., largely driven by rate growth.

Due to the attractive supply-demand picture, the operating outlook for lodging companies heading into next year remains positive absent further broad economic deterioration, given the highly cyclical nature of the industry. At this stage of the cycle with balance sheets at comfortable levels, most lodging C-Corps are now using any excess debt capacity to fund shareholder friendly and growth initiatives.

Fitch is maintaining an outlook for 2% visitation growth for the Las Vegas Strip this year, but is revising its Las Vegas strip gaming revenue outlook to more than 3.5%. Fitch said it expects visitation and revenue growth in 2013 will be similar to that of 2012.

Atlantic City continues to struggle, and Fitch's current outlook incorporates a continued bottoming of the market, leading to a 3.0% gaming revenue decline in 2012 and flat-to-slow single-digit increase in 2013. The Midwestern/Southern regional markets have performed generally in line with Fitsh's initial expectations, and the firm expects significant cannibalization of existing properties in that market to continue.

Overseas, Macau gaming revenue growth has been hampered by the China broader economic deceleration. However, Fitch believes the near-term VIP demand softening has been stabilizing and have tightened its 2012 growth forecast to 12%. Growth should continue to slow next year, as the firm is currently looking for an increase of 7%-8% in 2013.

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Date:Sep 27, 2012
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