THE LEISURE LETTER (3/7/2014)

SJM, CZR, HLT


EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES 

Monday-Thursday, March 10-13

  • 2014 Cruise Shipping Miami Conference

Monday, March 11

  • CZR 4Q 2013 conference call:  5 pm
  • STN 4Q 2013 conference call:  4:30 pm  

Tuesday, March 12

  • MTN FY2Q 2014 conference call:  4:30 pm

Friday, March 14

  • Hyatt Investor Day

COMPANY NEWS

SJM – Lagerfeld to model 3rd tower at Lisboa Palace Macau Business Daily

The hotel will have up to 270 guestrooms and suites in its own 20-storey tower as part of the HK$30 billion (US$3.87 billion) Lisboa Palace.  It’s described as the first luxury hotel “fully designed” by Mr Lagerfeld, and is expected to open in 2017.  The entire project at Lisboa Palace is due to have 2,000 rooms.  

 

Takeaway:  SJM at a competitive disadvantage being the last Cotai project to open in this latest supply surge

 

CZR – the former Harrah’s Rincon Casino & Resort completed a $160 million renovation and expansion as well as changed its name to Harrah’s Resort Southern California in Valley Center.  The property features a new 21 story, 430 room hotel and a 55,000 sq ft casino with 1,600 slots, 59 table games and a poker room.  Total hotel rooms now include 1,065 rooms and suites.

 

Takeaway:  Strengthening the brand via management contracts, while expanding the Total Rewards network.

 

HLT – Hilton Grand Vacations and Strand Capital announced the development and sales launch of Ocean 22 in Myrtle Beach, SC.  Ocean 22 by Hilton Grand Vacations Club will be a 24 story tower, featuring 220 luxury 1, 2, and 3 bedroom ocean view and ocean front suites. The property is scheduled to open in the summer 2015.

 

Takeaway:  Another capital light timeshare development that will add incremental timeshare management fees.  Timeshare undervalued?  

INDUSTRY NEWS

China says no casinos for resort island Hainan Reuters

Luo Baoming, Hainan's Communist Party chief, and Wang Yong, the mayor of resort city Sanya said that casinos will never be allowed to operate there.  The decision may dampen investment appetite from scores of international and national developers betting on stellar profits in the southern province.

 

Takeaway:  A positive for Macau but not a surprise


Las Vegas Culinary Workers Union 226 – 10,000 union workers will vote to go on strike on March 20th over higher benefits cost – union members voted to adopt the Obamacare Health Plan but are now unhappy over the premium costs each member will pay under the new healthcare plan. 

 

Takeaway:  Even the unions are turning against Obamacare.  Margins could be under pressure with higher labor costs yet slot revenues not growing.

 

Palms Las Vegas – will offer the 1st 24-hour checkout resort accommodations in Las Vegas.

 

Takeaway:  Interesting guest feature, but we wonder if such a feature should be priced at a premium to rack rate

 

Queensland, Australia – The Queensland government announced it received 19 registrations to bid for the licenses for the integrated casino and hotel developments.  Twelve of the companies are looking to develop in/near Brisbane – including Echo and Crown Resorts.  Detailed proposals are due to the government later this summer.

 

Takeaway:  A large scale, integrated resorts sounds like a great idea, but let’s recall, despite Brisbane’s location on the northeastern coast of Oz, it is still more than 3,800 miles from Singapore and 4,300 miles from Hong Kong – and is thus, less frequent destination for Asian gamblers.

 

MACRO

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.


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People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

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UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

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Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

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An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

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