GAMING INDUSTRY:PERFORMANCE REVIEW

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Given the focus on recent expansions taking place in global gaming markets, I thought it was important to share some of the latest trends within the southern Nevada tourism industry and its impact on major gaming operators on the Las Vegas Strip. While gains in non-gaming activities have generally outpaced growth within the gaming sector, the underlying fundamentals continue to point toward expansion.

The Las Vegas Convention and Visitors Authority (LVCVA), the authority when it comes to quantifying visitor volume and related metrics, recently released their summary of tourism indicators for the southern Nevada market. Through the first 10 months of 2016 (latest available data), most of the key measures of health for the local tourism economy have shown positive signs of growth –some of which are fairly impressive.

Visitor volume, or the number of travelers that decide to get in a car or jump in a plane headed to Las Vegas, is up 1.6 percent on a year-to-date basis compared to October 2015,with over 36 million visitors so far this year.During the past 12 months, visitor counts reached nearly 43 million, hovering at an all-time high. Room inventory in Las Vegas has remained flat while occupancy has increased.

October year-to-date hotel occupancy was 88.8 percent in 2015 while in 2016 occupancies reached above 90 percent. As a result of the additional demand, operators have man-aged to leverage pricing. Daily room rates rose approximately 4.3 percent to an average of$127.08. Rising occupancies and room rates translated into healthy gains in revenue per available room (RevPAR), reaching $114.81,or an increase of 6.2 percent on the year.

A key area of expansion and a standout when reviewing industry performance metrics is the number of visitors to Las Vegas attending conventions. Through the first 10 months of 2016,a total of 5.5 million convention attendees descended on Las Vegas, which represented an impressive increase of 8.7 percent when compared to the same period of the prior year. More impressive is the 12.5-percent growth rate during the past 12 months compared to the prior year. The rise in the business sector has allowed hotel operators to leverage room rates, while stabilizing the overall visitor base.

Despite expansion within the southern Nevada tourism industry, the gaming segment of the economy continues to post modest increases. During the past 12 months,gaming revenues in Clark County grew by 1.0 percent and operators located on the Strip posted a 1.1-percent gain.

While trends in the Las Vegas market have been showing steady signs of recovery, metrics in Macau, China have started experiencing positive trends in recent months. Macau posted four straight months of positive year-over-year revenue growth, with a 14.4-percent increase in gaming revenue for the month of November (latest available). This is partially attributed to several new openings in the area such as Wynn Palace and the Sands’ Parisian Macao. As a result of the trends in both Las Vegas and Macau, major casino operators have reported predominantly positive results in aggregate during the third quarter of 2016.

MGM Revenue Up by Double Digits

MGM Resorts International (MGM) reported double-digit revenue and earnings growth in the third quarter sourced to positive results in domestic markets. Domestic net revenue rose 16 percent
to $1.9 billion during the third quarter of 2016, which was partially attributable to the consolidation of the Borgata Hotel Casino & Spa in Atlantic City due its buyout of Boyd Gaming’s interest in the property. However, same-store revenue was up a healthy 8 percent. MGM reported that over half of domestic revenue comes from non-gaming sources as food and beverage, retail, and other offerings are becoming an increasingly important part of the domestic portfolio.
Despite domestic gains, the company’s international arm saw net revenue decline 6 percent from a year earlier to $500 million. Domestic and China operations combined for a company-wide net revenue increase of 10 percent to $2.5 billion during the quarter. Profitability for the third quarter also experienced positive trends. Overall, the company’s adjusted EBITDA reached $754 million
during the quarter. Earnings at MGM’s domestic properties increased 39 percent to $570 million (+31 percent on a same-store basis), while MGM China reported an adjusted EBITDA of $150 million, a 16.9-percent increase of $21.6 million.

Wynn Earnings Up in Macau

Wynn Resorts (WYNN) reported positive revenue growth in the third quarter of 2016 that was mostly driven by a 16.7-percent revenue gain at its Macau operations. The growth is due in part to the recent opening of Wynn Palace, which contributed $164.6 million in revenue in its first 40 days of operation. Las Vegas operations turned in a 3.9-percent increase over the same quarter in the previous year with revenues of $427.1 million. Wynn reported total revenues of $1.1 billion for the quarter, which was up 11.4 percent from the prior year.
This positive performance carried over in company profitability. Wynn Resorts’adjusted EBITDA was $305.4 million, up by$25.5 million (+9.1 percent) from the$279.9 million in third quarter of 2015.Macau’s adjusted EBITDA was $176.6 mil-lion, an 8.4-percent increase from the $162.8 million reported in the third quarter of 2015. Las Vegas operations for Wynn report-ed a 10.1-percent increase in EBITDA from$117.1 million in the third quarter of 2015 to $128.9 million.
While numbers were up in Macau, the Wynn Palace opening was the primary driver. Wynn Macau witnessed a decrease in business volumes such as VIP turnover, table drop and slot machine handle. The increased competitive environment appears to have impacted the property’s performance during the quarter.

Sands Reports International Growth

Las Vegas Sands’ (LVS) company-wide revenue increased 2.6 percent from the prior year to$3.0 billion in the third quarter of 2016. EBITDA across the company reached $1.1 billion (+8.6 percent).
Total revenues for Sands China Ltd. reached$1.7 billion, an increase of 3.6 percent. Marina Bay Sands posted modest revenue growth with a 1.6-percent increase to $762 million. Adjusted EBITDA in Macao was up 15.3 percent, reporting $628.5 million for the third quarter of 2016.Marina Bay Sands EBITDA was relatively flat year over year despite the increase in revenue at the property.
It is worth noting Sands opened The Parisian Macao on September 13, 2016, which contributed 18 days of operations, including $68.6 million of revenue and $19.2 million of EBIT-DA, toward third quarter activity.
On the domestic front, net revenue at Sands’ properties in Las Vegas fell a modest 0.6 percent from the previous year, while Sands Bethlehem in Pennsylvania reported an improvement of 1.6 percent. Revenue for Sands domestic properties were relatively flat year over year, though domestic EBITDA reported a 5.2 percent increase. EBITDA for Las Vegas increased 6.9 percent to $85 million.
Brian Gordon is a principal with the Nevada-based advisory services firm, Applied Analysis. Gordon has extensive gaming and leisure experience from an accounting,finance and operational perspective.
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