Las Vegas Review-Journal: Cosmopolitan already tabbed as trendsetter

By Chris Sieroty
LAS VEGAS REVIEW-JOURNAL
Posted: Apr. 5, 2011 | 3:29 p.m.

The Cosmopolitan of Las Vegas may have lost $139.5 million over 17 days in December, but gaming industry analysts believe the hotel-casino is positioned to be the property to follow in the future for emerging trends on the Strip.

The upscale hotel-casino, which opened Dec. 15, has already defied the notion that Las Vegas casinos need to be built on sprawling parcels. It has also changed the notion that U.S. visitors would not respond positively to a vertical resort, analysts said.

Both Joel Simkins of Credit Suisse and Sterne Agee’s David Bain agreed that The Cosmopolitan had begun to establish stronger brand awareness out of the box than its neighbor CityCenter did when it opened in December 2009.

“The Cosmopolitan found an identity,” Bain said. “Aria is still trying to find their identity. In my view Aria and CityCenter are trying to be everything to everyone in the luxury market.”

The Cosmopolitan is on a parcel 13 percent the size of CityCenter’s 67 acres.

Although not all of its 2,995 rooms are open, the hotel-casino had average daily occupancy of 98.7 percent in its first two weeks of operations, benefiting from a relationship with Marriott International and a listing in the company’s Autograph Collection.

“The partnership with Marriott has given The Cosmopolitan access to Marriott Rewards members as well as leads into convention demand,” Simkins said in a research report.

Bain said the effect of The Cosmopolitan’s new-room inventory on the Strip market would not be felt until “we’re out of convention season and into consumer season.”

The Comsopolitan has just 185,000 square feet of convention space, but Simkins believes meeting planners like the hotel’s compact layout and the flexibility of having facilities located on the second through fourth floors away from the casino.

While nongaming revenues were a modest $14 million, Simkins said a more complete financial picture would not emerge until this year’s second quarter or third quarter .

He said The Cosmopolitan’s “fairly high” preopening expenses of $116.5 million resulted from “generating buzz” and having many high-profile entertainers perform during the fourth quarter of 2010 and this year’s first quarter.

Bain and Simkins both believe that gaming revenues, which were reported at $4.3 million for the hotel’s opening reporting period, will take time to build.

“Naturally, without a pre-existing gaming database, we believe slot/table volumes have been soft,” Simkins said. “However, we believe the strong buzz … will eventually spill over in terms of repeat visitation, and eventually gaming revenues as the property builds its database.”

Bain said his only concern was sustained $4-a-gallon gasoline prices, which would effect The Cosmopolitan’s numbers and especially its count of visitors from Southern California.

Nevada Property 1 LLC, the reporting entity for The Cosmopolitan, was formed in 2008 after Deutsche Bank AG purchased the 8.7-acre property out of foreclosure. The hotel, between Bellagio and CityCenter, was built for $3.9 billion.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.

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