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Macao Hotel Inventory to Double amid Falling Occupancy

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Macao hotel inventory

Macao casinos’ $28 billion investment in integrated resorts is set to change the city’s gaming business. All the capacity additions discussed in the previous article are set to double the number of hotel rooms in the region. The absence of VIPs has also freed up a lot of rooms.

Macao Hotel Inventory to Double amid Falling Occupancy

More hotel rooms will mean more accommodation for overnight tourists drawn to the expanding non-gaming entertainment in the area, including shows, events, and theme parks on the Cotai Strip and on the neighboring Hengqin Island. Gambling tables and slot machine numbers will also jump.

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With over 9,000 hotel rooms, Sands China (LVS) has the largest share of the total hotel inventory in the Macao region, at 60%. It also boasts the largest convention venue and the highest number of retail and restaurant outlets, giving it a competitive edge. Galaxy Entertainment, which has the second-highest hotel room inventory, has less than half of the inventory of Sands China’s ~4,300 rooms.

Other casinos building up capacity include Wynn Resorts (WYNN), Melco Crown Entertainment (MPEL), and MGM Resorts (MGM).

Hotel occupancy continues to fall

Increasing room inventory makes sense only when resorts are able to actually fill these rooms. The current data seem to tell a different tale.

For January 2016, hotel occupancy stood at 77.5%, an 8% year-over-year (or YoY) fall. Five-star hotels saw an occupancy rate of 77.4%, a fall of 5.1% YoY. Four-star hotels saw a higher occupancy rate of 78.9%.

Macao needs to see a significant increase in visitors. However, Union Gaming Research thinks that the Macao government would not allow for unlimited growth in visitation.

Investors who want to avoid the risk of investing in single casino companies may be interested in ETFs that invest in casino stocks. These include the VanEck Vectors Gaming ETF (BJK) and the Consumer Discretionary Select Sector SPDR ETF (XLY).

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