The new integrated resorts opened last year by Melco Resorts & Entertainment (MLCO) and Wynn Resorts (WYNN), and those slated to open in the next two years, are set to increase Macao’s hotel inventory by more than a third. At the end of April, Macao had approximately 37,000 rooms. This figure is expected to increase by 14,150 rooms, which amounts to 38.8% cumulative growth and 17.8% two-year compounded average growth—both high figures.
Sands China’s (LVS) ongoing redevelopment is expected to add almost 3,000 more rooms, taking its total to 13,000 rooms, the largest hotel inventory among all casinos, making up 60% of rooms. This figure is triple that of the next biggest player, Galaxy Entertainment, which has ~4,000 rooms. Its room inventory will increase tremendously with the completion of its Phase 3 expansion, which is set for 2018.
SJM Holdings’ Grand Lisboa Palace, set to open in early 2018, will add another 2,000 rooms. The MGM Cotai (MGM), set to open in 4Q17, will add another 1,400 rooms.
Hotel occupancy rises
Increasing room inventory makes sense only when resorts are able to fill these rooms. The good news for Macao is that hotel occupancy is on the rise.
In April 2017, hotel occupancy rose 6.4% YoY (year-over-year) to 86.1%. Five-star hotels saw a higher occupancy of 81.6%, a fall of 5.1% YoY. As of April 2017, hotel occupancy stood at 83.8% year-to-date, a 5.5% rise YoY.
The two-star hotel category saw the highest jump in occupancy of 14.8% YoY to 72.6%. The five-star hotel category recorded a 6.5% YoY growth in occupancy to 85.8%, the four-star hotel category recorded a 6.1% YoY growth in occupancy to 89.8%, and the three-star hotel category recorded a 2.4% YoY growth in occupancy to 86.2%.
The growing supply of hotel rooms should support the expected mass market growth. Sands China, which has the highest unutilized capacity, is expected to benefit the most from this growth. Investors can gain exposure to casino stocks by investing in the iShares US Consumer Services ETF (IYC), which invests 1.6% of its portfolio in casinos.