Singapore comments



MBS (CEO George Tanasijevich)

  • Thinks that they can maintain their mid 50s margins that were achieved last quarter
  • Margins by segment: Mass: 60+%; Slots: 60+%; VIP: 30+%; Hotel: 80+%; Retail: 80+%
  • Last quarter, 77% of the revenue was casino driven
  • Seeing consistent monthly growth in non-rolling win and slot win by month since opening. Combined non-rolling win per day is about $4.2MM
  • Monthly RC volume is approaching the high of $4.7BN.  In April, they were at $4.3BN and $4.5BN in June
  • RevPAR hit $292 in June
  • Average Gross Rents are > $300/SFT; they are 98% leased
  • Net leasing revenue of $33MM in 2Q11 with operating profit of $26MM - targeting a quarterly run rate of $55MM in leasing revenue and $50MM of GP at full ramp when all 575k SQFT are open... vs. 438,000 SQFT at 2Q11
  • Only issue in MICE is that they don't have enough space for all the business that is coming their way. Trade show average duration of 3-4 days with attendance of 3-50k; local events and weddings average 1-2 days duration with attendance of ; MICE has averaged 4-5 day duration with in attendance
  • MRT Metro station will open directly in front of their property which will enhance property access for customers and staff
  • S$500MM Deep Water Cruise Terminal, which will allow the largest cruise ships to dock there, is projected by the Singapore Tourism Board to bring in 1.6MM cruise passengers by 2015
  • Gardens of the Bay, a S$1BN development across from their property opening June 2012, is funded by the STB.  It expects to bring in 5MM visitors per year
  • Singapore Sports Hub has a S$1.3BN opening in 2014 adjacent to Marina Bay area
  • Continuing to optimize the gaming floor. Have the highest table limits in the world and an airline fleet for the high rollers.  Subject to government approval, they are looking to convert the suites at the top of Tower 3 to super high end Paiza suites
  • South of Tower 1, there is space for an expansion subject to government approval



  • Before last Q, RWS was apparently doing a lot of junket volume, comping as high as 1.6%. Over the last Q, there has been a lot of 'paying attention' of who does business with who - particularly at RWS. So that's why their volumes got smacked. Don't believe that there will be a sea-saw of market share - but that MBS will be the clear market leader on the Mass side. On the high end they are very pleased on their collection ability. Losses are very minimal.  There also won't be a sea-saw; they are up and will stay up. 
  • Genting also has less experience in granting direct credit but they are experienced at it.
  • Doesn't expect that market to be volatile; it's growing
  • Mass is the most compelling part of the market - making $4.2mm/day with no credit risk.
  • Macau style junkets won't get approved in Singapore because the government doesn't want that. Singapore has very strict lending laws in Singapore and doesn't want the junkets breaking them.  The ones that do get approved will be wealthy people making good loans. 
  • Customers coming to Singapore are more affluent than the Macau or Vegas gambler
  • Given their location in Singapore, they benefit from all the other hotel rooms in Singapore
  • They are very room constrained right now. Looking to get more land to build more hotel rooms, ballrooms, and meeting space.


DNKN has been the best performing QSR name over the past week, rising 10%.  It probably will not surprise you to learn that a multi-day DNKN franchise convention was wrapped up yesterday in Boston. 


We are hearing that the franchisees will now be selling Keurig coffee machines in their stores later in the fall.  The retail price will be $119.00, allowing the franchisee to make about $40 for every machine sold. 


Importantly, current same-store sales trends are estimated to be running at around 3-5% for 3Q11.  My guess is that this will be a somewhat disappointing quarter as its represent little improvement in two-year trends from the 3.8% posted last quarter.


Keith re-shorted DNKN again today in the Hedgeye Virtual Portfolio.  The hoopla around the franchise convention is over and SSS are not accelerating significantly, especially given the rollout of K-Cups in the stores. 





Howard Penney

Managing Director


Rory Green




Macau presentation




  • Generating more CF than any other company in Macau
  • Top priorities are to open Sands Cotai Central on time and on track, grow their VIP business through improving junket relationships, and remodel the mid and high end mass market amenities at Venetian and Sands
  • Market share of EBITDA is 30% followed by WYNN at 22%. 72% of their EBITDA comes from Casino, 15% from hotel operations, 8% from Retail, MICE & other and 5% from F&B
  • LTM June retail sales reached $1.1BN vs. $832MM in 2010
  • Profit margin by segment:
    • VIP: 16.1%, Mass: 44.5%; Slots: 45.6%; for a total of 27.4%
  • What they are doing to grow VIP: facility enhancements, increasing level of customer and concierge services, investment in new VIP Junket rooms at Plaza (FS); increasing marketing efforts to attract best and most profitable VIP customers
  • Venetian: renovating space for the first time since 2007, new premium mass table area with 66 tables, new premium slot area with 156 high limit slots, expected completion Jan 12
  • Venetian Piazza: renovations to VIP and salons, new porte cochere to be completed in phases by feb 13'
  • Four Seasons expansion: 33k SQFT built out with junket operator - adding 28 RC tables. Already have a junket agreement in place.
  • Sands: renovating mass gaming floor in phases throughout 2012
  • Infrastructure coming online: high speed rail by 2020 connecting 250 cities and 700MM people and spending $300BN to upgrade conventional rail lines and world's first magnetic levitation line.  Guangdong-Zhuhai Intercity Rail completed by 2012; Macau-HK-Zhuhai Bridge will reduce travel time from Macau



  • Phase 1 (1Q12): Mass tables: 200; VIP Piazza tables: 100; 600 Conrad rooms, 1200 Holiday Inn rooms, portion of 1.2MM SF of retail, F&B, and entertainment space
  • Phase 2A (3Q12):  Mass tables: 200, Sheraton: 2000 rooms, more amenities
  • Phase 2B (1Q13): 2,000 Sheraton tower rooms
  • Phase 3: St. Regis and mixed use tower



  • Wynn has provided a good blueprint on how to partner with the junkets.  They realize that it's not just renovations but building better relationships. They realize that it's a market that they haven't served well. Improving the real estate is just part of what they are doing.  Their approach before was competing with the junkets which perhaps wasn't the wisest decision.
  • Sat with an operator that will do 100MM in RC volume and they don't have a relationship with them currently
  • How many of the Sands Cotai Central are sourced from under utilized tables? They have 400 new tables that were granted. Have 150 un-utilized tables at Venetian that they are moving over. Also, they have more ETG's since 9 seats counts as just one table
  • Think that they have $200MM+ EBITDA opportunity through their repositioning projects at Venetian & FS
  • They will get a 1 year return on the new rooms at the Plaza - those 2 rooms are already contracted
  • How are they going to structure their marketing so that they are actually targeting new customers vs. cannibalizing existing clients?
    • A: Have a number of new marketing programs - ecommerce program - systems that pre-sells inventory and markets distressed opportunities. Looking at every possible distribution channels for their hotels. Continue to convert more day trippers to overnight guests. Expect to exceed the bar that Galaxy Macau set. Working with MICE to fill in weeknight rooms.  Also have 5 different hotel price points to work with.
  • Executing job fairs at the property. Government wants to exhaust their ability to hire all the talent in the market. Having their 4th job fair.  If they still need employees, then the government is much more cooperative in allowing them to import labor. They are highly confident that they will be able to hire and fill all the positions.
  • Are they giving junkets more commissions or better credit extension? They are increasing their credit exposure in a very disciplined way. The profile won't change but the credit will increase proportionately. For partners that will bring them huge volumes, they will increase incentives to those junkets.  It's not all about commission levels, just look at Wynn.

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LIZ: You Gotta Buy This Thing


We met with the management of LIZ Friday following the release of our LIZ Black Book titled “Get in While you Can.” If anything, we came away even more positive on LIZ. Here are our top takeaways:

  • Asset Sales: The recent sales of LIZ’s fragrance business and Mexx are not likely to be the company’s last before year-end. With both deals coming after management’s recent public stance that it has “multiple irons in the fire” it has investors questioning if deal activity is done for now. The reality is that we’d be surprised if any of the brands currently in the Partnered Brands portfolio are around this time next year. With the Mexx deal now out of the way, management is highly focused on reducing debt. Additional sales are the most realistic means to this end near-term.
  • Juicy Product Evolution: It’s rare that a management team isn’t bullish on product for an upcoming season, but we’ve met with CEO Bill McComb on multiple occasions and it was hard not to notice his incremental bullishness on Juicy. This is great to see from a timing perspective as were at the point where Spring orders are just coming in. With the company now starting to receive orders for Spring ’12 when the first of Leann Nealz’ new product will hit shelves, there’s reason to believe a turn in Juicy is more reality than hope at this stage. When all anyone wants to talk about is momentum at Kate, this was great to hear.
  • Juicy Asia: The partnership for Juicy in Asia (similar to the one in place with Kate) that was expected to be announced by July is now expected to be made by year-end. Resources were reallocated to get the Mexx deal done this summer – nothing else to read into regarding the delay here. Our sense is that comps are still running up +30%-60%.
  • Juicy Management: Similar to the leadership structure at Kate Spade, we think that LIZ will soon hire a co-president who will be tasked with running the operational side of Juicy alongside Leann Nealz. Not only should this add to the bench strength at Juicy, but more importantly will free up McComb’s time to focus elsewhere (i.e. consummating deals) and will allow Leann to focus time on where she’s strong.
  • Lucky: Q4 will be a key quarter for brand and is likely when operating margins should flip from a marginal loss to positive.
  • Kate: Apparel now accounts for ~30% of sales (i.e. it’s not just handbags). While management wants to keep apparel at less than 50% on a go forward basis, the goal would be for the category to settle in at 30%-40% of sales.
  • CapEx is running at ~$80mm annually, but will be reduced to ~$60mm post Mexx.
  • Guidance: When management provided its guidance for $180mm-$220mm in EBITDA for next year they assumed a consumption environment similar to the 2H of 2009, were only 2-months into the positive comp trends at Lucky, and had not yet seen the incremental margin improvement yet at Juicy. They remain cautious seemingly because of what they’re reading/hearing, not because of what they are seeing. We’re at $230mm in EBITDA next year.

Lastly, while not a specific takeaway from the meeting per se, we’d note that our view on LIZ has been largely received with blank stares and considerable disinterest from clients over the last few quarters. That is starting to change as the path towards earnings visibility begins to improve at LIZ. This remains one of our top long ideas.


Please see our recent Black Book “Get in While You Can” for far more detail on LIZ and the key developments within each of the company’s brands.



Casey Flavin




Twisted: SP500 Levels, Refreshed

POSITION: Long Utilities


There’s a twisted message in the FOMC statement in that it’s very bullish for the US Dollar. Bernanke is done. He’s in a box and can’t do a whole heck of a lot more to debauch the Dollar anymore. What’s good for the US Dollar is good for Americans (not Oil or Energy stocks).


Here are the lines that matter across durations in our risk management model: 

  1. Long-term TAIL resistance = 1266
  2. Immediate-term TRADE resistance = 1229
  3. Immediate-term TRADE support = 1182 

In other words, despite today’s twisting, the SP500 remains bullish TRADE and bearish TAIL. No change day-over-day or week-over-week. If 1182 breaks, that will change – and that’s when you want to get back in the saddle on the short side more aggressively again. Not yet.


Waiting and watching,



Keith R. McCullough
Chief Executive Officer


Twisted: SP500 Levels, Refreshed - SPX


Q & A session

  • Haven't gone through the details of their thoughts on dividends. That will be discussed at their next board meeting in a few weeks.
  • They will not be able to put a shovel in the ground in Europe for at least 2 years. Feel that development in Spain is within their control. There are 980MM people in visitation range of Spain. If all visitors to Las Vegas were unique, which they are not, that would imply 13% penetration.
  • Thoughts on Florida / Genting development: Not possible that they can execute on their design for $3BN but more likely like $6BN. Every single floor needs different designs - especially the curved walls... Genting is fighting against Nevada state gaming regulations.  As far as Miami is concerned, if you put in more than one integrated resort, there isn't enough business to support that because the Seminoles already have 7 locations. They will look at the tax rate, minimum investment and other provisions before they decide on whether they want to participate in that market.
  • Phase I: 4 buildings in Spain and wouldn't go to the next phase until they see that the market demand is there. In Macau they also wanted to Phase but ran into that issue for 2008.  Need enough critical mass in the first phase to support casino, convention, hotel and retail business. 
  • All the other projects they are looking at in other Asian countries are single structures - ala MBS
  • Even if they commit to $20BN of project, they are all likely to be staggered with equity contributions of just ~30%. Think that the costs of most projects would be $9-10BN (at most). All constructions loans are non-recourse. Thinking about the name Europa for their Spanish development.
  • Think that if they build in Japan, it would cost around $4BN. 
  • They still own Site 3 in Macau as well... well, they lease it ... which is another development opportunity that they are discussing with the government of Macau. Site 3 will be a more Mass market oriented building so it will be substantially less expensive then their other projects and smaller.  It will not be a $4BN property. Not even sure if they can get approval on their design.
  • If they pay dividends, would it need to come out of Sands China?
    • A: actually the larger % will come from Singapore, not Macau. Also, don't expect that the dividend will be so huge... or rather that hasn't been determined yet.
  • Think that the reason that other Cotai projects haven't gotten approval is because the government wants more Venetian like projects - not gambling halls
  • Doesn't think that the government will allow Macau style junket reps. 
  • Where do they want to be on a target leverage basis given their cash flow and development pipeline?
    • A: 3x - and they will be there on a gross basis in 2011
  • Projecting $300-$400MM of maintenance capex in their existing building which include adding new VIP rooms and keeping the property fresh. Bottom line is that unlike other gaming operators they will not be cash constrained on maintaining their properties. Made a mistake for waiting 7 years to refresh Sands Macau.
  • Thoughts on Phillipines: The political structure is too dangerous for them - too corrupt and there is also a lot of product going into that market
  • Massachusetts: Told the governor that if they do more than 2 casinos, LVS isn't interested. There is too much gaming dilution in the USA.  Current bill proposes 3 casinos and 1 slot parlor.  If they don't get the location that they think is ideal, they will not participate because New Hampshire may legalize too.  There is a $500MM min capex and good relationships with unions are needed (which they lack).
  • How much retail real estate do they own?
    • A: 350 tenants and 800,000 SQFT (leasable - GLA).  They had sales of over $3000/SQFT on the first floor of their Grand Canal Shoppes in Macau.  That's $360/SQFT of rental income to them... Cap rates in Asia are about 4-5%. Malls in Macau are not yet mature because they don't have the bridge from Cotai Central yet. Thinks that the monetization of their retail real estate would retire all their debt.
  • Korea or Japan would be their preferred gaming locations if they had to choose 

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