Gaming Industry Basics: RevPAR

When evaluating the financial results of most gaming companies, it won't take long before you run across a term called RevPAR, or revenues per available room.

As the name implies, RevPAR is an easy way to gauge the revenues that a firm is squeezing from each of its hotel rooms. Because it incorporates both occupancy and room rates, the metric is a commonly used barometer of health for a company's lodging operations.

Calculating RevPAR is simple enough. Simply divide the total revenues generated in a period by the number of rooms available. For example, assume that Slots Unlimited managed 10,000 rooms last quarter, which were occupied three-fourths of the time at an average daily rate of $120.

The total revenues for the quarter would be calculated as follows: 10,000 rooms x 90 days in the quarter x $120 ADR x 75% occupancy rate = $81 million.

Next, the number of total rooms available would be 10,000 x 90 days = 900,000.

Finally, dividing $81 million in revenues by 900,000 available rooms yields a RevPAR figure of $90, meaning the firm took in approximately $90 on average from each room every night of the quarter.

Or, you can just multiply the occupancy for the period by the average daily rate (ADR) charged per room: $120 x 0.75 = $90. As you can see, this method is more straightforward, and, not surprisingly, the more commonly used of the two.

Let's take a look at recent RevPAR figures from some of the gaming industry's biggest players.

When analyzing RevPAR, here are a few additional things to keep in mind:

• Increasing RevPAR is an indication that either occupancy or room rates are on the rise, or some combination of both. Of the two, rising room rates have a much more dramatic impact on the bottom line than corresponding increases in occupancy.
• RevPAR includes hotel revenues only, and doesn't factor in money raked in elsewhere, such as in the showrooms, restaurants, shops, or casino.
• However, guests don't exactly leave their wallets and purses in the room, so strong results on the hotel side typically drive growth in other areas, and rising RevPAR can often lead to stronger table volumes, increased food and beverage sales, better retail traffic, etc.
• RevPAR says nothing about overall hotel revenues. For example, MGM's per-room revenues of $128 are roughly half the $246 at Wynn Resorts, but with a much larger property portfolio, MGM's $491 million in total hotel revenues are far greater than Wynn's $64 million. Be sure to also take expansion, profit margins, and other factors into account
• Don't just look at RevPAR as a static number -- evaluate the bigger trend. For example, Wynn posted the highest RevPAR of the three last quarter, but it also reported the lowest growth rate. And though MGM Mirage generated the smallest RevPAR figure, the firm has now delivered positive growth in that department for 13 consecutive quarters.

Generally speaking, a pattern of rising RevPAR suggests a healthy pricing environment where demand is strong. When this is the case, revenues generated in other departments are typically growing as well. However, as is the case with almost any financial measure, looking at RevPAR in isolation can sometimes be misleading, so always dig deeper to determine whether or not other figures are sending the same message.

Put this theory to practice by reading these follow-up articles:

• A Winning Hand at MGM Mirage
• Gaming Roundup: MGM Mirage Strip Strong

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Fool contributor Nathan Slaughter does not own shares in any of the companies mentioned.