Big overhang for NCLH shares at the same time their pricing in the Caribbean remains iffy


Wednesday, March 5

  • STAY – 7:30 a.m. Citi Global Property CEO Conference
  • LHO – 9:30 a.m. Citi Global Property CEO Conference
  • RHP – 10:10 a.m. Citi Global Property CEO Conference
  • FCH – 11:30 a.m. Citi Global Property CEO Conference
  • HT – 12:10 p.m. Citi Global Property CEO Conference
  • MAR – Mitsubishi Seattle Consumer Conference
  • BYD – 4Q13 earnings, AMC, 5 pm call

Thursday, March 6

  • Todd in Boston       

Friday, March 7

  • Employment Report for February 

Monday-Thursday, March 10-13

  • 2014 Cruise Shipping Miami Conference

Monday, March 11

  • CZR 4Q 2013 conference call

Tuesday, March 12

  • MTN FY2Q 2014 conference call

Friday, March 14

  • Hyatt Investor Day


NCLH:  15m secondary,  Genting HK to sell entire RM7 bln stake in NCLH The Edge Malaysia

Genting HK Ltd has proposed to sell entire 31.35% stake (worth US$2.18bn) in NCLH.  Chairman and CEO Tan Sri Lim Kok Thay said the disposal was in line with group's strategy to unlock the value of its NCLH investment.  It plans to seek shareholder approval.  Lim said "whether the disposal is made in the open market at market price or through secondary public offering(s), the minimum selling price per remaining NCLH share shall not be less than US$19."  Star NCLC, Genting HK's wholly-owned unit sold 7.5m NCLH shares via a block trade yesterday. After the sale, Star NCLC will continue to own 56,819,334 NCLH shares or 27.7% of total outstanding shares.  Genting HK will use the proceeds for general working capital and/or to fund new investments.


Meanwhile, NCLH issued a 15m share secondary by selling shareholders, Star NCLC and Apollo Global Mgmt last night. 


Takeaway:  Genting HK may need capital to finance its Resorts World Vegas project. Any way you cut it, these stock sales are negative for NCLH.  Our cruise pricing survey suggests that Caribbean discounting continues.


IGT – announced a 40% floor share of games running on the newly installed IGT Advantage Systems at Dania Casino and Jai-Alai.  Dania Casino has 549 slot machines.  


Takeaway:  Another system install for IGT. Taking share back from BYI?


PENN – Judge Eliza Ovrom granted the city of Sioux City's request to intervene in the Argosy Sioux City riverboat casino's lawsuit against the Iowa Racing and Gaming Commission.  This ruling occurred after Argosy owner Penn National Gaming Co. last Friday voluntarily withdrew its motion opposing the city's intervention.  Judge Ovrom also canceled a hearing on the issue that had been scheduled for Friday in Des Moines.


Takeaway:  This legal dispute will culminate with final arguments on September 6, followed by rebuttal filings shortly thereafter and a hearing in November or December.  It is looking increasingly likely analysts will have to pull SC out of their 2015 estimates.


HOT – CEO, Frits Paasschen, speaking at the Citi Global Property CEO Conference indicated the most misunderstood aspect of the company is the attractive growth and cash flow characteristics of its asset light operating model. HOT’s EBITDA is >60% fee based today vs. ~25% six years ago. The long term goal remains 80% through continued asset sales and unit growth.


Takeaway:  While we wouldn't quite characterize it as misunderstood, we appreciate the asset light strategy. What we don't appreciate is HOT's under leveraged balance sheet.  With the transactions market continuing to improve, more asset sales are likely.  HOT ramped up it's return of capital to shareholders but there is a long way to go.  HOT remains our favorite lodging name.


HST – CEO, Ed Walter, speaking at the Citi Global Property CEO Conference said “equity issuance this year should be minimal in the absence of significant acquisition opportunities, as HST is approaching its leverage target of 3x.”


Takeaway:  This is welcome news as we’d like to see the positive earnings leverage to the lodging cycle flow to the bottom line without further equity dilution which occurred in prior up lodging cycles.


Black Sea season affected Cruise Industry News

Is the Black Sea cruise season in jeopardy? It might seem so as the three most popular ports, Odessa, Sevastopol and Yalta, are all in the Ukraine, and one happens to be the naval base that Russia’s Vladimir Putin is reportedly so concerned about.  Cruise lines have not yet announced any changes, but among the major operators, Costa and MSC, as well as Azamara and Crystal, have programs in the Black Sea this coming season.


Takeaway:  This could dampen the resurgence in Eastern Europe. So far, pricing remains steady.  


Downtown BR hotels get boost from Mardi Gras bookings Business Report

While New Orleans hotels have been full with Carnival revelers over the five-day Mardi Gras holiday, those visitors are not translating into spillover crowds in Baton Rouge hotels.  Nevertheless, officials at the city's growing number of downtown hotels say they have enjoyed some of their busiest weekends yet, thanks to local Mardi Gras festivities.   DDD Executive Director Davis Rhorer, "All the hotels were sold out last weekend. More importantly, several have had high occupancy rates in the 80% to 90% range over the past several months. That is very good news for downtown and quite high in the market." Citywide hotel occupancy rates in Baton Rouge typically average between 65% and 70% for any given month, which is slightly better than the national average but not as good as some local hotels would like it to be


Takeaway:  Good news for the Baton Rouge market.  PNK has the largest exposure to BR.


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 


Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

CHART OF THE DAY: Voodoo Accounting + Face Tattoos


CHART OF THE DAY: Voodoo Accounting + Face Tattoos - ironmike

Voodoo Accounting + Face Tattoos

“Reality is wrong. Dreams are for real.”

-Tupac Shakur

My colleague and energy Sector head, Kevin Kaiser, approached me in the office the other day and told me that he had a disconcerting dream about me.  It turns out the dream itself wasn’t all that crazy, but was simply that I decided to get a Mike Tyson-esque face tattoo.  My takeaway was that Kaiser was probably just spending a little too much time on MLP accounting.


Incidentally we are still short Kinder Morgan (KMI) and Linn Energy (LINE) on our Best Ideas list.


In tribute to Kaiser’s dream, though, I’ve included as the Chart of the Day below an exhibit from his most recent note on LINE.  The exhibit shows the actual free cash flow from every quarter in 2013 as well as his projected 2014 free cash flow.  Admittedly, free cash flow might be a bit of a misnomer as cash flow is actually decidedly negative.


Voodoo Accounting + Face Tattoos - ironmike 

In fact, in 2013 free cash flow (defined as discretionary cash flow less cap-ex and contribution to JV) was negative $-374 million.  In 2014E, we are projecting free cash flow of negative $-132 million.  An astute analyst might actually note that at least the free cash flow deficit is improving, which is true if you believe LINE’s guidance.  The bigger issue, though, is one of distributions.


Based on current guidance, LINE will be paying right around $960 million in distribution in 2014E.  How does a company that has negative $-132 million in free cash flow pay almost $1 billion in distributions you might ask?  Well, in this instance, we can only assume that either they are going to issue massive amount of debt and new shares (they already have $9.1 billion in net debt), or as the famous American poet Tupac said in the quote above ...dreams are for real.


(Incidentally, you can rest assured that I won’t be getting a Mike Tyson face tattoo anytime soon!)

Back to the Global Macro Grind ...

Speaking of dreamland, President Putin proved yesterday that he may not actually be living in one based on his press conference to discuss Russia’s actions in Crimea.  We wrote in yesterday’s Early Look that Putin’s ambitions may not actually be as grandiose in the Ukraine as many in the manic media would have us believe.  In fact, it seems the key take away from the rambling press conference is that Putin has no intention to use force and is merely protecting legitimate Russian interests in the region.


The broader take away from this incident may actually be its impact on President Obama and, by default, the Democrats heading into the mid-term elections next fall.  As I wrote yesterday, we did a poll in which the results indicated pretty decisively that Putin would come out as the stronger leader and it seems this is certainly the case.  The New York Post (admittedly a Republican leaning newspaper) made an apt analogy between Obama and Jimmy Carter this morning in an op-ed in which they wrote:


“Vladimir Putin has taken the measure of Barack Obama. He’s found Jimmy Carter.


Like Jimmy Carter, who boasted he was free of any “inordinate fear of communism,” Obama began his term as president vowing to “reset” relations with Russia.


Like Jimmy Carter, who conveyed weakness when Iran took our embassy staff hostage, Obama confirmed his own weakness when he drew a red line in Syria and then backed down from enforcing it.


Like Jimmy Carter, who was rewarded by Leonid Brezhnev with a Soviet invasion of Afghanistan, Putin has returned Obama’s favor with a Russian invasion of Ukraine


And just like Carter, who responded with what his staff called “a strong public statement,” Obama responded with his own statement saying he is “deeply concerned” by Russia’s military movement in Ukraine.


As in the Carter era, Obama-era defenders of inaction suggest there is little they can now do to get Russia out of Crimea. They are likely right.”


Now whether Obama is truly a foreign policy comrade (for lack of a better word) of Jimmy Carter, or the NY Post is actually living in Republican dreamland, is certainly up for some debate.  But there can be no question that that is something that Republicans will push aggressively into the upcoming mid-terms, especially if the Russians remain in Crimea.


Even before the Ukrainian situation, President Obama’s approval rating was doing the Democrats no favors.   Since last summer, the last time his approval rating was higher than his disapproval rating, his rating has turned negative and decidedly so.  Based on the current Real Clear Politics poll aggregate, Obama’s disapproval rating is 52.7 for an almost 10 point spread versus his approval rating of 43.1.


In other news in the world of dreams, the Chinese this morning may be experiencing their first corporate bond default ever.  Specifically, Shanghai Chaoroi Solar announced it won’t be able to pay roughly $14.6 million in interest on a bond issue from two years ago.  It is likely too early to tell whether this is the canary in the Chinese debt coal mine, but one thing is for certain - the Chinese GDP target of 7.5% will be a mere dream if the $1.5 trillion Chinese corporate bond market starts to shake.


Conversely, the European economic recovery seems much less of a dream as PMI data accelerated to 32-month high 52.6 versus 51.6 prior. Additionally, European retail sales came in at a better than expected +1.3% year-over-year gain versus an expected decline of -0.4%.  When combined with the fact the periphery yields are now near all time lows, as evidenced by the Spanish 10-year yield ticking lower ahead of tomorrow’s auction, it may be time to do more than dream about the European revival.


Our immediate-term Risk Ranges are now as follows (our Top 12 macro ranges are in our Daily Trading Range product):



VIX 13.14-15.92 

USD 79.81-80.46 

Brent 108.05-111.85 

NatGas 3.79-5.09

Gold 1 


Keep your head up, stick on the ice and dream big,


Daryl G. Jones

Director of Research


Voodoo Accounting + Face Tattoos - virtual

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March 5, 2014

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TODAY’S S&P 500 SET-UP – March 5, 2014

As we look at today's setup for the S&P 500, the range is 27 points or 1.38% downside to 1848 and 0.06% upside to 1875.                                          










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.37 from 2.37
  • VIX VIX closed at 14.1 1 day percent change of -11.88%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Feb. 28 (prior -8.5%)
  • 8:15am: ADP Employment Change, Feb., est. 155k (prior 175k)
  • 8:30am: Former Fed Chairman Bernanke speaks in S. Africa
  • 10am: ISM Non-Manufacturing, Feb., est. 53.5 (prior 54)
  • 10:30am: DOE Energy Inventories
  • 2pm: Fed releases Beige Book
  • 7pm: Fed’s Fisher speaks in Mexico City
  • 8:30pm: Fed’s Williams speaks in Seattle


    • Republican Cornyn avoids Texas runoff w/Tea Party challenger
    • President Obama speaks at event on raising minimum wage in
    • Hartford, Conn.
    • Sec. of State John Kerry, Russian Foreign Minister Sergei Lavrov visit France
    • 9:30am: House Oversight Cmte holds hearing on IRS targeting of political group, fmr IRS official Lois Lerner slated to testify
    • 9:30am: Senate Armed Svcs Cmte hears from Defense Sec. Chuck Hagel, Joint Chiefs Chairman Martin Dempsey on auth. request
    • 10am: Senate Appropriations panel hears from Elon Musk on national security space launch programs
    • 10am: Senate Budget Cmte hears from White House Budget Director Sylvia Burwell; House Appropriations panel hears from Agriculture Inspector Phyllis Fong on USDA on budget request
    • 10:30am: Treasury Sec. Jack Lew at Senate Finance Cmttee re budget request
    • 3pm Ruslana Lyzhychko, former Ukraine Parliament member and EuroMaiden protest leader, speaks at Natl Press Club


  • Kerry makes push to ease Ukraine tension with Lavrov talks
  • China keeps 7.5% growth target this yr as challenges mount
  • Li says China to declare war on pollution as smog spreads
  • SEC giving Markey’s Herbalife concerns “every consideration”
  • Honeywell to host annual outlook mtg, discuss targets
  • GM’s China sales gain 20% in Feb. on demand for Wuling vans
  • Time Warner Cable, EBay present at Morgan Stanley TMT conf.
  • Fed’s Lacker sees first rate increase in ‘early’ 2015
  • Fast Retailing chief sees being world’s biggest retailer: WSJ
  • Goldman No. 1 in equities ranking as 2014 IPO pipeline grows
  • JPMorgan repeats at top in fees; bankers anticipate more deals
  • S&P business at risk on Australia liability finding: lawyer
  • Biogen buys rights to Eisai’s experimental Alzheimer’s drugs
  • Adidas sees 2014 net income below analyst est.
  • IPhone 6 likely to see late-summer introduction: Jefferies
  • U.K. services expand for 14th month as confidence increases
  • U.S. Supreme Court hears arguments on Halliburton securities class action suits
  • Obama said to allow 2-yr renewal of extended health plans


    • Boyd Gaming (BYD) 4pm, ($0.26)
    • Brown-Forman (BF/B) 7:45am, $0.76
    • Envision Healthcare (EVHC) 4:05pm, $0.18
    • Giant Interactive Group (GA) 4:05pm, $0.24
    • Hovnanian Enterprises (HOV) 9:15am, ($0.05)
    • Laurentian Bank of Canada (LB CN) 8:40am, C$1.30
    • Linamar (LNR CN) 4:05pm, C$0.71
    • Navistar (NAV) 7am, ($1.75) - Preview
    • PetSmart (PETM) 7am, $1.21
    • Revlon (REV) 6:30am, $0.82
    • Sanchez Energy (SN) 5:44pm, $0.35
    • Semtech (SMTC) 4:30pm, $0.23
    • Veresen (VSN CN) 4:22pm, C$0.06
    • WuXi PharmaTech Cayman (WX) 4:30pm, $0.46
    • Zogenix (ZGNX) 4:01pm, ($0.10)


  • Zinc Climbs to One-Year High as China Retains Economic Target
  • WTI, Brent Decline After Biggest Loss in Two Months on Ukraine
  • Illegal Coal Trade at Indonesian Mine Said to Widen: Commodities
  • Barclays, Deutsche Bank Accused in Suit of Gold Fix Manipulation
  • Gold Below Four-Month High as Palladium at Highest Since April
  • Corn Drops Amid Reduced Concern About Ukraine Export Disruption
  • Palm Oil May Top 3,000 Ringgit for Mistry If El Nino Occurs
  • Jiangxi’s Li Sees China Copper Demand Matching Economic Growth
  • Indonesians Buying Bread to Spur Wheat Imports on Egyptian Scale
  • Indian Sugar Exports Jumping as Brazil Drought Fuels Rally
  • Frigid U.S. Weather Means Highest Power Prices Since ’08: Energy
  • Buffett’s BNSF Crude Cars Spur $5 Billion Safety Spat: Freight
  • Oil Money May Urge Russia to Think Twice About Ukraine
  • Brazil’s Dryness-to-Carnival Boosting Coffee Prices; Sugar Rises


























The Hedgeye Macro Team















In preparation for BYD FQ4 2013 earnings release tonight, we’ve put together the recent pertinent forward looking company commentary.




  • BORGATA EBITDA $15-17m
  • Wholly-owned Adjusted EBITDA post corp:  $105-110m
    • Despite the impact of soft market conditions and winter weather on operations in the Midwest and South and Peninsula segments, the Company's wholly-owned operations performed in-line with expectations in 4Q, benefitting from continued performance in the Las Vegas Locals and Downtown Las Vegas segments. 
    • 4Q Wholly-owned Adjusted EBITDA excludes a favorable property tax adjustment of $9.3m


  • Lower end of our database (“rubies”) - similar amount of trips, but spending less.
  • From September to October, saw recovery at properties in the Ruby tier of the database (not to prior year levels in all cases, but certainly sequentially from September to October improvements)
  • In October, most of our operations are showing improvement over last month


  • Expanding into social gaming…Stardust Casino, another social gaming product is currently in a test period prior to an anticipated roll out in the United States in the coming months


  • Work is underway for our project with the Wilton Rancheria Tribe


  • Launch an enhanced Penny Lane at all seven of our major Las Vegas properties.
  • Begin a phased rollout of Penny Lane in the Midwest and South
  • Ultimately get to the new Peninsula properties sometime next year


  • Expect very modest revenue growth
  • Seeing the benefits of the refinements we have made to our marketing and operations


  • Continue to improve yield on our Hawaiian charter service
  • During the three-month period ending in September, we captured a 31.6% market share
  • A hotel casino just reopened this past weekend returning more than 600 rooms to the Downtown inventory


  • Blue Chip is contending with new capacity in both Michigan and Ohio


  • Benefiting from strong economic conditions in Southeast Texas and gaining market share there
  • Diamond Jo Dubuque successfully grew visitation
  • At Kansas Star, new non-gaming offerings continued to drive top-line growth. However, expenses are naturally higher year-over-year as well to support the significant amenities that have been added. Removed quite a bit of cost out of the business since BYD first opened the permanent facility early this year. And BYD will continue to focus on growing revenue to realize the full potential of our investment.


  • 4Q results were impacted by several short-term factors in December, including an unusually low hold percentage and severe winter weather during two weekends. 
  • 4Q guidance do not include any meaningful impacts from online gaming.

BYD 4Q 2013 YOUTUBE - byd

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