THE LEISURE LETTER (03/18/2014)

Hedgeye Expert Call Today - Gaming REITs and Boyd Gaming

 

EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

Tuesday, March 18

  • Hedgeye Expert Call with REIT Attorney Ed Glazer at 11am, Boyd Case Study.
  • Please contact sales@hedgeye.com

 

Wednesday, March 19

  • Galaxy Entertainment:  FY 2013 annual results, +1, Pin 705014
  • iGaming North America 2014 thru Friday, Planet Hollywood Las Vegas

Thursday, March 20

  • None       

Friday, March 21

  • None       

 

COMPANY NEWS

CZR – South Korea approved construction of its first foreign-owned casino for foreign gamblers as Asia’s fourth-largest economy tries to emulate Macau and Singapore in attracting more tourism spending from China. The casino, a joint venture between Las Vegas-based Caesars Entertainment Corp. (CZR) and Lippo Ltd. (226), a Hong Kong-listed property developer, will be built near South Korea’s main Incheon International Airport west of Seoul, South Korea’s tourism ministry said in a briefing today. The ministry granted preliminary approval for the first part of the project that may be worth as much as 2.3 trillion won ($2.2 billion), and will also include hotels and shopping malls.  The first phase of Caesar/Lippo’s resort is projected to US$695m with 100 gaming tables, 300 slot machines and 600 hotel rooms.  There are 17 casinos in Korea with 16 open only to foreigners; Kangwon Land in Jeongseon, Gangwon Province, is the only one that allows Koreans to enter.

Takeaway:  First, given the South Korean governments explicit concerns over potential operators funding concerns, we were surprised Caesar’s received initial approval.  Second, we believe the annual potential GGR for a Seoul-based foreigners-only, integrated resort casino is about US$1.0 - $1.2 billion.

 

 

INDUSTRY NEWS

GAMING               

South Korea Tourism – South Korea plans to draw 10 million Chinese visitors a year by 2020, compared with 4.3 million last year, an increase of 53 percent from 2012, according to data from Korea Tourism Organization. Chinese visitors made up 36 percent of foreign visitors to Korea in 2013, and accounted for 41 percent of visits to the country’s casinos in 2012, according to the latest official data. All but one of South Korea’s 17 casinos are open only to foreigners. Their combined revenue was KW2.46 trillion in 2012, the latest available data, and attracted 5.4 million bettors. Revenue at foreign-only casinos grew by an average of 15 percent a year for the five years through 2012, the data show.

Takeaway:  All Asian tourism efforts continue to focus on the untapped and every growing Chinese consumer, who is looking to be more worldly and Western. 

 

Union Pay Card – The president of the Monetary Authority of Macau (AMCM), Anselmo Teng Lin Seng, refused to comment on the recent report that claimed a large amount of money was smuggled out of China through UnionPay terminals in Macau pawn shops and jewelry stores. He only reiterated that Macau is in line with the international requirement concerning money laundering prevention and claimed that AMCM will continue to closely monitor the situation.

Takeaway:  We have been warning investors about the increase chatter regarding money laundering, news headlines, and a potential near-term liquidity squeeze. 

 

LEISURE

Ferrari Land Theme Park – Ferrari and PortAventura Entertainment S.A.U have signed an agreement to build a second Ferrari-themed park, Ferrari Land, as part of the PortAventura resort and theme park outside Barcelona, Spain. Expected to open in 2016, the 7.5 ha (18.5 ac) site is billed as “an opportunity for the whole family to experience and discover the world of Ferrari.”  Details have yet to be worked out for the €100 million (US$136 million) park, but Ferrari promises “new and exciting attractions” that will include Europe’s highest and fastest vertical accelerator; a luxury five-star establishment with 250 rooms, restaurants, and a driving simulator; and Formula 1 car exhibits and a slot-car ride.

Takeaway: This will be the second Ferrari Land Theme Park, the first Ferrari World Abu Dhabi opened in 2009.  Barcelona is the 10th-most-visited city in the world and the third most visited in Europe after London and Paris, with more than 7.5 million tourists every year.  Maybe LVS should have considered Barcelona rather than Madrid. 

 

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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