Las Vegas Sands Getting Profits in its Sleep

Las Vegas Sands  executives have recently pointed to five trends that will lead to continued growth in Macau over the next five years. The last of these trends is the growth in the number of hotel rooms to accommodate the vast number of tourists visiting the island. Macau hosted 29 million visitors in 2013, compared to just 600,000 permanent residents of the Chinese special administrative region. Whether the guests actually use the rooms, or gamble through the night, those hotel rooms are still being paid for. Major companies including Las Vegas Sands, MGM Resorts International, Wynn Resorts, and Melco Crown are all expanding their share of hotel rooms in Macau to accommodate these gamers. However, Las Vegas Sands is making the biggest bet on this growing trend.

Source: Las Vegas Sands 2013 10-K presentation.

More visitors and more profit
The number of annual visitors to Macau has grown from 11.5 million in 2002 to over 29 million in 2013, a nearly 150% rise, according to official data. Last year's visitors contributed to the $45.2 billion in gaming revenue during 2013. The trend appears to only be increasing. The number of visitors to the island during the Chinese New Year holiday season in January and February of this year was up 23% over the same period of 2013, which resulted in record-high gaming revenue in Macau during February. Based on these results, it's likely that 2014 will post even more visitors and profits for Macau gaming companies than 2013. But where will all of these visitors sleep?

If you build it, they will come -- and sleep in it
By mid-2013, there were 28,082 hotel rooms in Macau, according to the government's statistics bureau. Compare that to the 770,000 visitors to Macau during the week long Chinese New Year holiday at the beginning of February. While the risk of overbuilding and having unoccupied rooms is real, there is clearly a growing unmet demand for accommodation to house the increasing number of gamers visiting Macau.

Another reason to believe the number of visitors to Macau will continue to increase in the coming years is that the gaming companies in Macau remain focused on the mass-market segment of gamblers to lead growth. Morgan Stanley estimates that in 2014, growth from mass-market gamblers will top 28% in Macau, compared to VIP gamer growth of just 13%. Las Vegas Sands has gained more than any other company on revenue from this group, and is happy to continue preparing accommodations to serve the growing market.

Source: Las Vegas Sands 2013 10-K presentation.

According to its 2012 annual report, Sands at the time operated 25% of all hotel rooms in Macau, totaling over 7,000 rooms. The company is adding 3,300 rooms in its coming Parisian resort in Cotai which is scheduled to be completed in 2015.

The other companies in the region are also building new resorts with added hotel rooms, including Melco Crown's Studio City which is also to be completed in 2015, along with new Wynn and MGM Cotai properties expected to open in 2016. However, none of the other companies are making such a large bet on providing rooms for the growing number of tourists. Wynn's casino hotel and Melco Crown's Studio City will each include 2,000 rooms, while MGM's casino hotel only has a planned 1,600 rooms.

Investors' Foolish takeaway
Last year showed incredible growth in the number of visitors and the total revenue for gaming operations in Macau. The trends in the number of visitors to Macau during the first part of this year, the record-setting revenue in February, and the increased interest in mass-market gamers all indicate that this incredible growth will continue. For investors watching closely, Las Vegas Sands is preparing itself best to accommodate these arriving gamblers. By the time all of the new resorts are open by 2016, Sands will account for more hotel rooms in Macau than any other company. I'm bullish that Las Vegas Sands' aggressive strategy of being the No. 1 resort operator in Macau will reap long-term rewards, though Foolish investors should continue to research and watch this industry to decide which company will win the most from these trends.

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Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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