THE LEISURE LETTER (03/19/2014)

TICKERS: 27.HK, CCL, MGM, MPEL, HOT


EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

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       

Monday, March 24

  • None       

Tuesday, March 25

  • CCL to report earnings pre-market, conf call at 10 a.m. EDT

 

 


COMPANY NEWS

MGM – established a marketing alliance with the United Auburn Indian’s Thunder Valley Casino in California. The agreement will give reciprocal benefits for each MGM’s and the United Auburn’s loyalty programs.

Takeaway: Companies claim there have been tangible benefits from these relationships. MGM has a similar agreement with PNK.  It hasn't really shown up in the numbers yet as gaming revenues have been under pressure nationwide.

 

MPEL – City of Dreams' House of Dancing Water theater will host the Asian Film Awards, known as the Oscars of Asia on March 27 and is promising "the most spectacular and grandest edition ever."   This will be the 8th edition of the Asian Film Awards which is organized by the Hong Kong International Film Festival Society. 

Takeaway:  Another example of a property trying to expand their marketing effort beyond gaming while also bringing positive media and public relations to their property.

 

CCL – is offering a new travel agent promotion, where the company is waiving its initial deposit requirement for group bookings, as well as offering an enhanced free cruise berth program, through April 30, 2014. Through the new promotion, no initial deposit will be required for group bookings on sailings departing between Nov. 1, 2014 and April 30, 2015 and CCL is offering travel agents one free cruise berth for every 10 full fare guests berthed, compared to the current policy of one free cruise berth for every 15 full fare guests berthed. 

Takeaway:  Could this be a new form of competition for agent bookings? 

  

INDUSTRY NEWS

GAMING               

Macau Smoking - the Macau Health Bureau has accepted the suggestion by the six casino operators that smoking zones in mass gaming halls be scrapped and replaced with smoking rooms without slot machines or gaming tables. The government has decided to apply the new arrangements first to the 14 casinos and slot machine parlors that failed two rounds of tests of the air quality in their smoking zones last year. The new arrangements would allow VIP gaming rooms to still have smoking zones where gamblers could continue playing

Takeaway: The smoking restrictions have clearly had little impact on Mass gaming revenues.  Protecting the VIPs ability to smoke is crucial.

 

South Florida Gaming – State of Florida regulators denied a request to move a non-profit, pari-mutuel permit associated with Gulfstream Park race track from Hallandale Beach (Broward County) to a downtown Miami (Dade County) location. The ruling effectively blocks Genting from starting a stand-alone casino as Genting sought to decouple the racing & pari-mutuel betting from the more profitable gambling, slot machine and poker play, which a Florida pari-mutuel permit allows. 

Takeaway:  Does the three strikes rule apply to casino development?   Maybe South Florida doesn't want commercial gaming after all.  

 

New York Panel Named – Governor Cuomo's appointments for the panel that will choose operators and locations for the state’s new casinos have been identified.  The appointees include: a former city comptroller William Thompson, Hofstra President Stuart Rabinowitz and gubernatorial adviser Paul Francis.

Takeaway:  I'm sure this will be an above board decision making process and the best bid will win regardless of political connections.

 

Suffolk County OTB – Suffolk Off-Track Betting Corp. has finalized a deal with a Buffalo-based gaming company to run a planned casino with 1,000 electronic slot machines, with the company providing up to $65 million in upfront financing and guaranteeing at least $58 million in revenue over the next decade. Delaware North Companies Gaming and Entertainment Inc. in November beat out seven other companies for the right to develop and manage Suffolk OTB's casino.  Seperately, Nassau OTB is negotiating on three or four locations for its 1,000 video slots, said president Joseph Cairo and he expects to determine a location within 30 to 60 days.

Takeaway:  Once Suffolk OTB opens, we will get a better view of Resorts World New York (Genting) player affinity as well as potential cannibalization from increased competition. 

 

 

LODGING

PKF revised lodging forecast – The March 2014 edition of PKF Hospitality Research, LLC's "Hotel Horizons" forecasts the U.S. hotel industry occupancy rate will recover to pre-recession levels in 2014. With occupancy levels rising, hotel managers should be able to become more aggressive with their pricing. PKF-HR is forecasting ADR to increase by 4.9 percent in 2014 and another 5.7 percent in 2015.  Strong increases in lodging demand continue to support the supply growth that is occurring. PKF-HR is forecasting the number of accommodated room nights in the U.S. to increase by 2.6 percent in both 2014 and 2015. With demand growth outpacing supply, the national occupancy level will continue to increase through 2015. 

Takeaway:  Lodging is a later economic cycle investment theme and goes hand-in-hand with Hedgeye's macro policy themes. We remain constructive on the lodging names, particularly HOT, and would be buyers on weakness.


CRUISE LINES

Venice Lifts Cruise Ship Ban – A government decree that took effect in January that banned all cruise ships from passing through the canals because of the risk of damage to the ancient channels. But the administrative court of Venice accepted an appeal by lobbyists, including the city's port, and suspended the ban because of ‘the absence of any practical alternative navigation routes’.  During 2013, more than 600 cruise ships bearing 1.7 million passengers visited the Venice harbor.

 

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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