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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

TICKERS: BYI, LVS, MGM, WYNN, WYN, NCLH, RCL

 

EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

Friday, March 21

  • None       

Monday, March 24

  • None       

Tuesday, March 25

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

Wednesday, March 26

  • PENN at TAG Spring Consumer Conference
  • Melco Crown Extraordinary General Meeting
  • Melco Crown Board Meeting  

Thursday, March 27

  • None    

 Friday, March 28

  • None  

 

COMPANY NEWS

BYI – the company’s wholly owned subsidiary, Shuffle Master Entertainment (Asia) Limited was cleared of two patent infringement charges alleged by LT Game Limited Macau, LT Game Limited Hong Kong and Paradise Entertainment.   The patent investigation was conducted by the Macau Public Prosecutor, who found no evidence that Shuffle Master Entertainment engaged in any wrongdoing.

LVS – asked Singapore authorities for more land to increase count by nearly 60%.  Marina Bay Sands request includes an additional 1,500 rooms to the 2,563-room, plus meeting rooms, ballrooms and exhibition spaces.

Takeaway:  Having visited MBS many times, this was always the plan.  However, MBS needed the City of Singapore to finish construction of the subway rail and Marina Bay station, as well as the surrounding street and highway infrastructure.   We expect the additional hotel towers will be located southwest of Tower 1 and across Sheares Link, between Bayfront Avenue and Sheres Avenue. More rooms would be a huge positive for this capacity constrained property.

 

LVS – Sands Casino Resort Bethlehem has named Douglas S. Niethold its interim president following the departure of Robert DeSalvio, who left Sands Bethlehem for Wynn Resorts.

Takeaway:  We continue to believe LVS is looking to exit Bethlehem via a sale of the property.

 

MGM – According to the Massachusetts Gaming Commission, Thursday is the last day for MGM Resorts International to hash out the terms of surrounding community deals with Longmeadow and West Springfield in regards to its plan to develop an $800 million resort casino in Springfield's South End.

Takeaway:  We expect MGM to reach an agreement with all the communities as the development of Springfield means too much to MGM in the long-term versus a few hundred thousand dollars. 

 

WYNN – published its Annual Meeting and Shareholder Proxy Statement which notably includes a renegotiated Executive Compensation for Mr. Wynn.  Mr. Wynn’s $4 million base salary will drop to $2.5 million, so that a higher proportion of his compensation is attributable to variable, at-risk components that drive stockholder value. He will now pay annual rent of $525,000 for his Wynn Villa and will reimburse the Company for certain expenses for his personal use of Company aircraft.  Finally, a significant portion of Mr. Wynn’s 2014 annual incentive award will be payable in equity.

Takeaway:  Still not ideal but certainly a more shareholder friendly compensation structure   

 

WYN – completed a $425 million asset-backed notes securitization.  Sierra Timeshare 2014-1 Receivables Funding LLC issued $328 million of A rated notes and $97 million of BBB rated notes.  The notes were backed by vacation ownership loans and had coupons of 2.07% and 2.42%, respectively, for an overall weighted average coupon of 2.15%. The advance rate for this transaction was 88%.  Sierra Timeshare 2014-1 Receivables Funding LLC is an indirect subsidiary of Wyndham Vacation Ownership. The transaction was completed in reliance upon Rule 144A and Regulation S as a placement of securities. 

Takeaway:  As the economic cycle progresses, investors are pushed to go out the risk/credit spectrums for higher yields.  As a result, we are not surprised by this securitization which we view as a positive for the timeshare industry.  We expect additional timeshare securitizations this year.  

 

CCL - released details of its return to Norfolk, Va. in 2015, saying it will offer two- to seven-day voyages out of the city on the 3,006-passenger Carnival Splendor.  Taking place in May and October 2015, the seasonal sailings will include five-day Bahamas cruises calling at Nassau and Freeport, and a six-day Bahamas cruise that adds the private island of Half Moon Cay. A seven-day Bermuda cruise.  The company also said Carnival Splendor will sail seasonally out of New York and Miami in 2015 as well.

Takeaway:  CCL is constantly testing markets for demand as well as pricing.  As additional ships (capacity) come on-line, we expect older ships will be based in secondary markets such as Norfolk. 

MSC Cruises – signed a letter of intent with shipbuilder STX France for the construction of two 167,600-ton vessels for delivery in 2017 and 2019.  MSC says the ships, its largest ever, will represent a new class at the line and have a capacity for up to 5,700 passengers a piece. They'll have 2,250 cabins.  The deal also includes an option for two more of the ships.

Takeaway:  Keeping up with the its bigger competitors as well as positioning itself for a likely IPO as the new ships will be the "growth story". 

 

NCLH – The first piece of steel was cut at Meyer Werft in Papenburg, Germany for the construction of Norwegian Escape, the first of two new Breakaway Plus Class ships for Norwegian Cruise Line, set for delivery in fall of 2015. The Norwegian Escape will homeport year-round in Miami following her delivery in late 2015 and sail a seven-day Eastern Caribbean itinerary starting November 14, 2015

Takeaway:  Economic recovery, coupled with modestly better pricing always results in new ship construction. 

 

RCL – announced that the 5,400-passenger Allure of the Seas will redeploy to Fort Lauderdale in November 2015 from Barcelona, where she will be based from May to October 2015.  From Fort Lauderdale, Allure will resume alternating, seven-night sailings to the Eastern and Western Caribbean. Eastern Caribbean sailings will feature calls in Nassau, Bahamas; St. Thomas; and St. Maarten. Western Caribbean sailings will feature calls in Falmouth, Jamaica; Cozumel, Mexico; and Labadee, Royal Caribbean's private beach area on the north coast of Haiti. 

 

INDUSTRY NEWS

GAMING               

Attempts to Ban Online Gaming Nationwide – A bill proposing to ban online gaming throughout the United States, “The Internet Gambling Control Act” alleged authored by Congressman Jason Chaffetz (R-Utah), was found to be the work of Darryl Nirenberg (an anti-gaming lobbyist who represents Sheldon Adelson and Las Vegas Sands Corporation) aims to ban all forms of Internet gambling, including online poker, state lotteries and sports betting but not horse racing. 

Takeaway:  The bill is unlikely to pass.  The future is on line poker and we don't think that can be stopped even if it is just through interstate efforts.

 

New Jersey Gaming Expansion not likely – State Senate President Stephen Sweeney dismissed any possibility for legislative discussion on the idea of a Meadowlands casino for another two years because the agreement he made with Governor Christie to give the struggling Atlantic City casino industry five years to try to rebound would not expire until Feb. 2016.

Takeaway:  Hope springs eternal for Atlantic City, while the New Jersey gaming revenues continue to experience cannibalization by surrounding states.  

 

Boston Mayor Walsh plays thug – Boston Mayor Martin Walsh is seeking greater power and influence in evaluating the Mohegan Sun casino project at Suffolk Downs in Revere and Wynn Resorts proposal on the Mystic River waterfront in Everett.  The Mayor declared Boston is entitled to hold a referendum on each proposal, to negotiate massive compensation packages with the developers, and, if it so chooses, to block a casino from being built.  Walsh’s administration made the assertion in two letters to the state gambling commission Wednesday in which the city declares that it is a host community, under the 2011 casino law.  The gambling commission will address Boston’s assertions at a meeting Thursday.  If the commission does not accept Walsh’s declaration, an obvious option for the city would be to file a lawsuit challenging the panel’s interpretation of the casino law.

Takeaway:  Seems like old-time, back alley Boston politics.  Boston officials had their chances to host the potential casino but played hardball with the operators and now likely regret that tactic. 

 

Wisconsin Tribal Expansion – The Lac du Flambeau Indians and the city of Shullsburg have finalized an agreement for a $132 million casino.  The off-reservation casino project still hinges on both approval from the state and federal governments.  The proposal also is the second attempt for a Shullsburg casino. More than 10 years ago, federal and state officials rejected a plan that included a 300-room hotel, golf course and water park. Tribal members said the new proposal would be constructed in phases and include a hotel.

Takeaway:  Located 28 miles from Dubuque, Iowa, the proposed Shullsburg casino would cannibalize BYD's Diamond Jo Dubuque and the Mystique Casino to most, while ISLE's Lady Luck in Marquette and Wild Rose Clinton (in Clinton) would likely experience some lost revenues as well.

 

LODGING

Airbnb – is seeking to raise $400 to $500 million via private equity.  Airbnb, founded in 2008, allows individuals to rent out couches, rooms, apartments and homes through an online marketplace of more than 600,000 current listings.  Hosts set a nightly rate, and Airbnb collects guest payments, keeping a portion of the fees for itself.  The equity raise, if successful, is estimated to value Airbnb at $10 billion. 

Takeaway:  We remain skeptical of this business model and view Airbnb as a portal for the low-budget, back packing, hostel segment and don't view the business as competitive threat to the traditional lodging industry.   By comparision, AWAY has an equity market cap of approximately $3.83b billion. 

 

European RevPAR – February RevPAR increased 6.1%, better than +4.8% in January. During February, occupancy was up 3.3% while ADR upticked +2.7%.  February RevPAR on a country basis included: France -2.9%, Germany +6.1%, Spain +5.9% and the UK +9.5%.

Takeaway:  The recovery across Europe continues. HOT is a major European player.

 

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.