How Are Las Vegas Sands’ Singapore Hotel Operations Trending?

Las Vegas Sands (NYSE:LVS) continues to benefit from the higher demand at its Singapore hotel. Higher demand has led to a better pricing for the hotel over the past few years. The average daily rate (ADR) grew at an average annual rate of 15% since 2010, driven by the economic growth and casino demand. Usually, casino operators are motivated to sustain occupancy in order to generate demand for the casino and other ancillary facilities, thereby, compromising the ADRs. However, in case of Sands’ Singapore property, occupancy level has been close to 99% for the past three years. This is the reason it has been able to improve the ADR and this trend is likely to continue in the coming years. On that note, we discuss below Sands’ Singapore hotel operations over the past few years and what can drive the growth for its hotels in the coming years.

Casino Operations Will Drive Sands’ Singapore Hotel Operations In The Coming Years

Singapore operations contribute close to 25% to the company’s value, according to our estimates. This makes it the second biggest market for the company. The highest contribution comes from Macau while Las Vegas strip holds little value for the casino giant. The company was quick to realize the slowing growth in the U.S. and expanded in different geographies. However, most of the value in Singapore comes from its casino operations, which in turn aids the hotel business. The hotel operations are driven by ADR and occupancy levels of the property. Sands’ ADR has been trending well over the past few years and has increased at an average annual rate of 15% from $250 in 2010 to $431 in 2014. Looking at hotel occupancy levels, it grew from 73% in 2010 to 99% in 2012 and has remained around those levels since then. ^[1] Marina Bay Sands offers close to 2,500 rooms and for a hotel of that size, maintaining such high occupancy levels purely reflects the demand scenario in the region.

ADR is largely dependent on the hotel’s occupancy levels as it is demand that weighs on the pricing of the rooms. The average rate usually differs for group bookings and individual bookings. Apart from casino guests, a typical hotel sales team is focused on bringing in a defined number of room nights through various corporate groups and large travel agencies. However, since these corporates and travel agents bring in a sizable chunk of room nights and help occupancy levels to grow, the price offered to them is often lower than the one offered on individual bookings. Overall, we estimate Sands’ Singapore ADR will continue to grow in the coming years. We estimate it will reach levels north of $600 by the end of our forecast period.. This will translate into revenues of over $500 million and an estimated EBITDA margin of 69% will translate into EBITDA north of $350 million, representing close to 5% of the company-wide EBITDA. This growth will primarily be driven by a growth in the casino operations and higher inbound tourism, in our view.

Las Vegas Sands’ Marina Bay Sands and Genting’s Resorts World Sentosa are the only two casinos in Singapore. Many of the players from China and other nearby South Asian countries travel to Singapore for gaming. In the past five years, Sands’ Singapore mass gaming volume has increased from $2.40 billion to $4.50 billion and VIP gaming volume has increased from $22 billion to $43 billion. ^[1] The nearby South Asian economies are growing at a good pace and Singapore is attracting more visitors, which is aiding the casino business. International visitors have increased from 11.6 million in 2010 to over 15.0 million in 2014. ^[2] Singapore’s economy grew at 3% in 2014 and is expected to grow at a rate of more than 3% in 2015 as well as 2016. If Singapore’s economy continues to do well, it will be positive for casino companies, which in turn, will further boost the demand for its hotel and other ancillary services. All these factors will lead to higher room pricing and occupancy levels and drive Sands’ Singapore hotel operations in the coming years.

1. Las Vegas Sands’ SEC Filings [↩] [↩]
2. International Visitor Arrivals, Singapore Tourism Board [↩]