Lodging demand high at Wynn Resorts

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Occupancy rate at Wynn Resorts

Important performance indicators for the hotel industry are occupancy rate, average daily room rate (or ADR), and revenue per available room (or RevPAR). These indicators are important for casino players like Wynn Resorts (WYNN), Las Vegas Sands (LVS), MGM Resorts (MGM), and Caesars Entertainment (CZR) that also provide hospitality services at the resorts. Investors could have a diversified portfolio in these companies through exchange-traded funds (or ETFs) like Consumer Discretionary Select Sector Standard and Poors depositary receipt (or SPDR) fund (XLY). WYNN’s hotel operation contributes ~10% to the overall revenues.

Part 7-1

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The above chart shows that Wynn Resort’s (WYNN) average occupancy levels have increased both at Macau and Las Vegas over the last year. Wynn Resort’s 3Q14 average occupancy stood at 98.5% for Macau operations and 89.3% for Las Vegas operations as compared to 95.8% and 87.9%, respectively, in the same quarter last year. To capture the seasonality effect in the visitation rates year-over-year, a comparison has been made.

Part 7-2

Revenue per available room (RevPAR) falling

The above chart shows that Wynn Resort’s (WYNN) RevPAR in Macau has been falling since the beginning of this year. This was attributable to a fall in the average daily room rate (or ADR). Here, ADR is calculated by dividing total room revenue, including the retail value of promotional allowances (less service charges, if any), by total rooms occupied, including complimentary rooms.

RevPAR increased by 8.4% and 8.2% year-over-year for Macau and Las Vegas operations, respectively. RevPAR increased in Las Vegas due to an increase in the ADR. Wynn Resort’s Chairman and CEO Stephen A. Wynn said in the earnings call, “Last month I raised the rates by 18% of our hotels in Las Vegas to online booking agents and to everybody else. And we benefited from it. That’s why our RevPAR is up.”

RevPAR is the most important of all the performance metrics used in the hotel industry since it captures both room rates and occupancy levels. RevPAR is revenue per available room and is calculated by dividing total room revenue, including the retail value of promotional allowances (less service charges, if any), by total rooms available. In short, RevPAR is occupancy rate times the ADR.

In the next part you will learn why the share prices of the casino companies have been volatile recently.

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