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In preparation for BYD's 3Q 2012 earnings release on Thursday, we’ve put together the recent pertinent forward looking company commentary.




  • "In Atlantic City, Borgata is contending with heightened competition, but we expect to see solid results during the busy summer season."
  • "In our Midwest and South region, the results were more encouraging. We maintained or grew market share in every market where we operate. This has been the strongest region of the country for the domestic gaming industry for some time now and it is also our most robust business segment."
  • [Peninsula acquisition] "Based on our progress to date, we anticipate this transaction will close as intended sometime in the second half of the fourth quarter."
  • "The first of these new agreements is with Wilton Rancheria, a federally-recognized tribe located about 30 miles southeast of Sacramento, California. This project will provide us our first entry into California, further diversifying our geographic footprint and extending our brand to an attractive new market. We are early in the process of this development and anticipate it will take approximately 24 months to receive all the required approvals to proceed."
  • "We are contending with an aggressive promotional environment in the Locals business but, importantly, this competition has had no impact on our top tier business. In fact, the tremendous relationships we've built with our top tier customers has been a real bright spot in our Locals business this year, as business volumes among our core customers have continued to grow. The promotional environment has, however, had a significant impact on play of customers in our lower tiers, customers we consider to be casual gamers."
  • [Downtown] "We experienced an EBITDA decline in this business segment as well but are confident that the causes are temporary....expect business to stabilize in the third quarter and resume growing in the fourth."
  • "We recently began introducing our nationwide player loyalty program B Connected and it should begin to have an impact in the third quarter. This will allow us to make more strategic marketing investments which will drive more profitable business to the property [IP]."
  • "We are also seeing the positive effects of efficiency measures at the IP where we are saving money without compromising the IP's reputation for strong customer service and outstanding amenities. The IP is running ahead of our expectations and is demonstrating our ability to unlock significant value with acquisitions."
  • "We are assuming a 35% tax rate for 2012. Our capital expenditures in the quarter were approximately $25 million and $13 million at Borgata."
  • "You should note that in the third quarter last year there was a $4.6-million favorable property tax adjustment that benefited Lucia; hence, the $44.5 million dollars in EBITDA that was reported last year for the Midwest and South segment was $40 million on a comparable basis. Also, interest expense in the third quarter will be higher as a result of the $350 million of bonds that we issued in the second quarter at 9%. So, I expect that number to be $67 million to $68 million for the quarter."
  • "We expect wholly-owned EBITDA after deduction for corporate expense to be in the range of $77 million to $82 million. We expect Borgata to generate EBITDA of $47 million to $49 million compared to $50 million last year in the third quarter. With this range of EBITDA guidance, adjusted EPS for the quarter is expected to range from a loss of $0.05 to breakeven."
  • [Atlantic City] "The property tax rate is up about 11% year-over-year as a result of many of the properties in Atlantic City, filing appeals and being successful in their appeals, so the rate continues to move up....it will continue at an elevated rate into the future. We have an appeal pending ourselves. We would expect that appeal to come to a conclusion sometime towards the end of the year or at the end of the year."
  • "We've really seen limited impact from our customers from Revel. They've had an impact on our food and beverage side of things, maybe some of the lower-end customers, but certainly not the core components of our business. And so, our thesis continues to remain intact; that is that we don't really expect to see the most significant impact from Revel until the fourth quarter just given the seasonality of the business."
  • [Borgata] "One of the things you have to keep in mind is that last summer season we ended up closed for a few days as a result of a hurricane. So there is a weather-related issue that is buried in last year's Q3 numbers....I think the estimation at that point was $5 million or $6 million for that weekend because it was a significant weekend as I recall and there was a lot of marketing and programs planned for that that were not able to take place as a result of it."
  • [Peninsula deal] "I think we plan to receive a management fee."
  • "When you look at the promotional spend in the numbers that come out of Atlantic City, you will see that some operators are down and other operators have really increased the level of promotional expenditures that they are spending. And so there's really a wide variety happening in the city right now. But Revel clearly is increasing the overall spend."
  • "As it relates to the rest of the Midwest and South operation, [promotional] spend is, I would say, stable on a year-overyear comparable basis in all markets relative to ourselves. We are also stable except for in Biloxi where we have made, obviously, a calculated decision to actually reduce marketing expense and drive profitability versus the prior owners."
  • "The secured leverage ratio is really not a pressure point for the company going forward. In fact, I think we've got plenty of cushion under there."
  • [FCF] "I think we want to have $150 million to $200 million of availability around the company (exclusive of cage cash)....Cage cash is generally around $100-105 million."


In preparation for ASCA's 3Q earnings release Wednesday, we’ve put together the recent pertinent forward looking company commentary.




  • "We also have had some road disruption in the St. Charles area. They have been repaving project on Main Street, which is one of the main roads running right in front of our property, and that will be finished in mid-September and also the state is doing some preparatory work for the Interstate 70 bridge project that will begin later this year in earnest."
  • [Jackpot] "The hotel rooms were completed around the end of July."
  • [East Chicago] "We have found ways to profitably grab market share in the Northwest Indiana market and are exhibiting tight cost controls not only at that property but company wide."
  • "We're estimating non-cash stock-based compensation to be in the $3.5 million to $4 million range in Q3. Our blended federal and state tax rate, we're projecting right at this point in time to be between 40.5% and 41.5% for the third quarter."
  • [Capital Spend] "The range is expected to be $75 million to $80 million that includes the $31.5 million payment made to Creative in July and approximately another $30 million of that amount will be used in construction and design cost for Lake Charles."
  • "Net interest expense in Q3 will increase slightly because of the $240 million add-on at just under 7% replacing some 2.5% revolver money, but we'll be at approximately $29.5 million, non-cash interest expense for the period will be about $1.4 million. And for Q3, we still don't anticipate any net revolver borrowings to fund Lake Charles. We'll be able to fund our cash needs in the third quarter basically from free cash flow."
  • "Q3 corporate expense excluding its portion of stock-based comp is expected to be $13 million to $14 million and the anticipated diluted weighted average shares outstanding for Q3 will be approximately 34.3 million. And the Board did declare at the Board Meeting last week another $0.125 per share dividend payable in mid-September."
  • [Ameristar Lake Charles] "We now having to include the purchase price of Creative, we expect to spend about $560 million to $580 million excluding capitalized interest and pre-opening expenses."
    • "The budget factors that have gone into this decision include rightsizing some of the food and beverage outlets with the expectation that at some point, a second hotel tower will be warranted and developed at the property."
    • "We don't expect much borrowing under the revolver in 2012, as we believe we can fund much of the CapEx for Lake Charles out of free cash flow. We anticipate the full project funding will be split about 50/50 between free cash flow and revolver borrowing."
  • [Massasschusetts] "So my expectation is it'll probably still be late 2013 at the earliest – probably, the time that they would make license selections. It could stretch into the first half of 2014."


In preparation for MGM's 3Q earnings release Wednesday, we’ve put together the recent pertinent forward looking company commentary.




  • MGM China paid the Macau Government ~$56MM as the initial payment of the contract premium.  The Macau Government will arrange for the publication of the Land Concession Contract in the Official Gazette of Macau in due course.  
  • $2.5 billion budget- 1,600 hotel rooms, 500 gaming tables, and 2,500 slots built on an approximately 17.8 acre site.  The resort will feature over 85% gross floor area of non-gaming offerings, including exciting restaurant, retail and entertainment offerings.
  • Construction is expected to begin after the publication of the Land Concession Contract in the Official Gazette of Macau and is anticipated to take up to 36 months.



  • "We also experienced slower than anticipated in the year, for the year convention bookings during that brief period. And based on these current trends, we expect RevPAR in the third quarter will be slightly down.
  • [Las Vegas] "We've already seen an improvement in customer trends here in the third quarter....So, we think the trends will be moderately up year-over-year for the balance of the year on visitors."
  • "The softness we experienced during the second quarter for convention bookings in the year, for the year has not impacted long-term bookings. In fact looking out into 2013, we're encouraged to see convention bookings, the pace being up year-over-year and although it's still early, 2014 pace is even stronger. We've also fortunately recently seen a pickup in U.S. consumer trends at our wholly-owned properties."
  • "We will begin remodeling the rooms of THEhotel in mid 2013. And through the Light Group, a subsidiary of Morgans, we will be introducing three new restaurants and a cutting-edge new nightclub, injecting some fresh energy into Mandalay Bay."
  • "We continue to expect our CapEx for the full year to be approximately $350 million. Our MGM Grand room remodel continues to progress with approximately 3,300 rooms completed. The project is on schedule for a September completion date. In the fall, we will begin the remodel of the Bellagio Spa Tower rooms, which will cost us approximately $40 million and is included in our full-year capital budget. The room remodel will begin here in August and be completed right before the holidays later on this year."
  • "Our stock compensation expense is estimated to be approximately $9 million to $10 million. Depreciation expense in the quarter is estimated to be approximately $230 million to $235 million. Our interest expense in the second quarter was $277 million including approximately $6 million from MGM China and $17 million in amortization expense. We estimate that our gross interest expense for the third quarter will be roughly in line with the second quarter."
  • "On the gaming front, we are working to complete our Level Two expansion. This project will deliver a high-quality product to house over 40 VIP gaming tables. The project is expected to be completed in early fourth quarter."
  • "On the main floor, we will introduce some new products to offer to our customers. And at the same time, we'll be focused on capital improvements next year to refresh our mass gaming experience."
  • "And looking ahead into 2013, all of our room product at MGM Grand at Bellagio will be fully refreshed and we know that that leads to higher ADR and better customer mix."
  • "We remain positive about the future of Las Vegas as visitation continues to grow and we expect the new international terminal at McCarran which just opened in late June will help drive future growth and that builds on the momentum we're seeing from our European visitors."
  • [MGM Grand] "And we know based on the rooms that have been brought back on to service, we're getting nice increases in ADR and the mix is starting to pick up and we'll have all of that for the fourth quarter and certainly for all of next year....And the convention groups love the product. So, future bookings look really good on the convention side of the Grand."
  • "We're seeing double-digit increases in the rooms on the books there. And everything's positive from that perspective both at Bellagio and MGM. Mandalay Bay is always the tough one, because there's so many rooms always on the books, but they're getting up there and their pace should be where we'd like to see them."
  • [CityCenter/Aria] "We're in a really good position. Now it's just filling the holes in tough periods, but we're pretty comfortable where we are right now on the convention side for next year. Even more so in 2014."
  • "So, I think you saw that we're getting decent flow through at some of our properties, especially if you kind of figure out the hold on it. Our FTEs are flat. We're managing our expanses in other ways where we can, and we're very, very focused on driving free cash."
  • [Group rates] "I would suspect, we're going to see mid single-digit increases."
  • [Macau tax agreement] "It's basically an annual fee in lieu of the dividend tax. That agreement covers us through the year ended 2011 and any dividends payable through the year ended 2011 and we've submitted an extension request to that agreement that's pending with the government currently. So, it's roughly about, Grant, correct if I'm wrong, about a $3 million, $4 million payment in the quarter that covered all the previous years and the extension right now is pending approval with the Macau
  • [Vegas promotional environment] "There are some people out there that are probably a little more competitive than others, but from our perspective, we're back to a normal yielding process."
  • [EBITDA margins in Macau] "We're still saying mid to upper 20s%."

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The Electoral Storm

“If you play with the power, the lights go out.”

-Yale Hockey adage


For many on the eastern seaboard this morning, the power being out is no joke.  By some estimates that I’ve seen the total number without power exceeds some 8 million people.  I can certainly attest that much of the Hedgeye team that lives in New York City or along the Connecticut shoreline is without power this morning.  In fact, our CEO Keith McCullough just sent me a picture from his driveway and he and his family are completely blocked in due to fallen trees in their driveway.


I think the best thing you can say when a storm like this occurs is that it could have been worse.  From what I can tell, the government, who we are sometimes apt to criticize, did an excellent job getting in front of Sandy and sending out appropriate warnings.  That said, New Jersey Governor Christie unfortunately may have made a major political mistake in cancelling Halloween.  He has clearly now completely lost the 12 and under demographic.


From a global macro perspective, the key question relating to Sandy is what, if any, impact it will have on the election.  It seems in the short term, the storm has caused President Obama to pull back on his campaign schedule, while the Romney / Ryan team is staying at it in Ohio and Wisconsin today.  At this juncture of the election, it’s not clear if another couple of campaign stops really matter.


In terms of real time impact from the storm, Intrade barely budged over night, which suggests neither candidate will really get a meaningful bounce from anything Sandy related.  So we go back to a Presidential race that is increasingly becoming too close to call.  On a national poll level, Romney remains with the ever so slight edge, but his major issue remains Ohio.


If we take the average of the last 10 polls in Ohio, Obama has an advantage of +1.9.  Even as one-off polls can be wildly inaccurate, historically the averages of polls have been a pretty good indicator of outcomes.  So, even if the undecided voters swing meaningfully to Romney at this point, Obama appears to have enough of an edge in polls to win Ohio.  As a result, Romney’s chance of an Electoral College victory appears almost impossible.  The question, of course, is can we believe the Ohio polls?


That last statement is certainly not me trying to be a conspiracy theorist, but rather just to highlight some clear discrepancies amongst the Ohio polls.  As I wrote to one of our subscribers yesterday, if we dig deeper into the Ohio polls, we get some color on what could be the major wild card of this election, which is that there is some serious skew in the polls. I’ll give you a couple of examples related to Ohio:

  • In a recent poll from Gravis marketing, it has Obama with a +1 point lead on Romney, but the sample has 40% Democrats, 32% Republicans and 28% Independents;
  • In another recent poll from Public Policy Polling, the poll has Obama with a +4 lead, but the sample is 43% Democrats, 35% Republicans and 21% Independents; and
  • Finally, a recent Ohio Newspaper Poll has the raced tied, but the sample was 47% Democrats, 44% Republican and 10% Independents.

Clearly, turnout is the major wild card in Ohio and a factor the polls are not modeling with any consistency.


The other wild card is the economy.  We did a call with Professor Ken Bickers from Colorado who has accurately modeled Presidential election outcomes going back to 1980 based on state level economic data.  His analysis shows that Romney should win in a veritable landslide of 330 Electoral College votes.  We’ve posted a link to the presentation below if you did not get a chance to see it live:




Similar to dealing with Sandy, the best thing for most of us will be when this election is behind us.  It is time for American politicians to start working together again, just as all Americans do in times of national need.  To that end, I’d like to leave you with a quote from both President Obama and Governor Romney.


The American culture promotes personal responsibility, the dignity of work, the value of education, the merit of service, devotion to a purpose greater than self, and at the foundation, the pre-eminence of family.
                -Governor Mitt Romney


“And I will do everything that I can as long as I am President of the United States to remind American people that we are one nation under God, and we may call that God different names but we remain one nation.”

                -President Barack Obama


All the best to you and your families in the coming days.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


In terms of logistics from our end, we still are planning to host or best ideas call this Thursday at 1:30pm.  We will be re-circulating dial in information and materials ahead of the call, so stay tuned for that. 


The Electoral Storm - bb. el


The Electoral Storm - bb portfolio

To Growth

This note was originally published at 8am on October 16, 2012 for Hedgeye subscribers.

“Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.”

-Ronald Reagan


Former Hedgeye Intern Brennan Turner recently started a company called FarmLead.  He has an ambitious goal which is to create the largest online grain trading platform in the recently deregulated Canadian wheat market.  Every day Turner sends out a morning recap of the action in the global grain markets from his office in the north Canadian outpost of Saskatoon.  Like a true entrepreneur he is focused on growth, and so ends each morning commentary with the salutation: “To growth”.


In recent weeks, we’ve had some government economic data reported in the United States that has suggested growth may be on its way back.  I’m not a conspiracy theorist, but under closer examination the data is probably more suspect than reliable.  The specific examples I’m thinking of include:

  • Advanced monthly retail sales – According to preliminary estimates, retail sales were up +5.4% for the month.  This is meaningfully above the 20-year average and an acceleration over the prior month.  The caveat is that this is a seasonally adjusted number.  In fact, the seasonal adjustment was $22 billion.  For comparison, the seasonal adjustment in 2012 was $12 billion.  So the biggest growth component of retail sales was the Commerce Department’s seasonal adjustment which was up a staggering 83% year-over-year.
  • Jobless claims – Last week jobless claims appeared to show meaningful improvement and fell 28,000 to 339,000.  At face value, this is a meaningful week-over-week improvement.  The caveat of this number was of course that one “large” state was excluded, which diminishes the improvement.
  • Jobs report – Jack Welch probably made the most noise around the jobs report two weeks ago when he tweeted, “Unbelievable jobs numbers … these Chicago guys will do anything … can’t debate so change numbers.”  The reality of the jobs report is that the headline number of 7.8% was a misleading statistic, although it likely wasn’t conjured up in the Obama campaign office.  The key reason that the unemployment rate is dropping is because labor force participation is literally at 20-year low of 64%.

Not surprisingly there was some furor over Welch’s tweet and as a result he wrote an op-ed in the Wall Street Journal the next day clarifying his statement.  A point that is worth highlighting from his op-ed is the following:


“Meanwhile, we're told in the BLS report that in the months of August and September, federal, state and local governments added 602,000 workers to their payrolls, the largest two-month increase in more than 20 years. And the BLS tells us that, overall, 873,000 workers were added in September, the largest one-month increase since 1983, during the booming Reagan recovery.”


Similar to the retail sales numbers, the seasonality reported in the jobs numbers this year appears to be seeing an accelerated adjustment.  Once again, this isn’t a conspiracy theory statement, but rather a red flag as it relates to reading too much into some of the recently reported U.S. economic data.  Unlike one of our competitors who took up their Q3 GDP estimate yesterday on the back of growth in seasonality adjustments, we are not there yet.


Tonight we are likely to get a lot of discussion about future economic growth in the United States as President Obama meets Governor Romney tonight for the second Presidential debate.   The lead in quote from Ronald Reagan was not an attempt at a political statement, but rather an allusion to tonight in which it is likely both candidates refer to predecessors that they hope to emulate to stimulate growth.


According to the average of the most recent six major national polls, this race is basically a dead heat at 47.3 to 47.3.  Some of the polls, like the most recent Washington Post Poll that has Obama up three points, still appear to have some Democratic skew (Democratic ID of 35% versus Republican ID of 26%), but in general this race is definitely in the category of too close to call.  Tonight, Obama has a chance to re-establish himself, but even so the damage is likely done from the first debate and we will likely stay tight into election-day.


As is typical for modern Presidential politics, this race is once again going to come down to the battleground states.  On this front, we will be joined next week on October 24th by Professor Ken Bickers from the University of Colorado, who has done a historical analysis of state-by-state economic indicators as a method of predicting Electoral College results.  His work has predicted every Presidential election accurately since 1980.  The dial-in will be circulated to our Macro clients in advance, but if you aren’t a macro client and are interested in gaining access to this call please email sales@hedgeye.com.


Flipping to Europe briefly, Spain has obviously been in the news over the last couple days.  It appears that the Spaniards will be requesting some form of aid, which is increasingly likely to be a credit line as opposed to a full blown bailout.  The Spanish 10-year, while still below 6.0%, did accelerate over night from 5.72% to 5.83%.  As always, though, the root of Europe’s issues are in expectations as much as anything and as it relates to potential Spanish intervention an unnamed Spanish Finance Ministry official said the following:


“He suggested that the day following a request, interest rates on Spanish debt could fall by 150 bps, while the Spanish stock market could surge 15%.”


We’d probably take the other side of that.


Our immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1739-1769, $112.67-116.29, $79.24-80.06, $1.28-1.30, 1.64-1.72%, and 1419-1444, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


To Growth - Chart of the Day


To Growth - Virtual Portfolio

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