LEISURE LETTER (03/24/2104)

TICKERS: 27.HK, RCL, CZR, OEH

EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

Tuesday, March 25

  • CCL to report earnings pre-market, conf call at 10am EST ()

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

GALAXY (27.HK) – several news stories indicate Galaxy Entertainment Group is looking to expand its gaming empire with a possible acquisition based on Lui Che Woo’s comment that he is looking for opportunities in foreign markets, including the United States. 

 

Takeaway:  We wonder if he would like to pursue single asset or platform acquisition strategy… Could Borgata be on the block or Fontainebleau Las Vegas?

 

RCL – After holding off for several weeks to see how events developed in the Crimea peninsula between Russia and Ukraine, several cruise lines have changed their Black Sea itineraries to avoid the ports of Odessa, Sevastopol and Yalta.  For its June 12 sailing, Azamara Quest (RCL) has replaced the three cities with Bartin in Turkey, and Volos and Nafplion in Greece, as well as adding an extra day in Istanbul.  Oceania, Regent Seven Seas, Windstar and MSC also have substituted ports in other countries, including Turkey, Romania, Georgia and Bulgaria.  

 

Takeaway:  Minor itineraries for Azamara.  So far, CCL brands, Cunard and Costa, are staying put.

 

CZR – The Nevada Supreme Court ruled Harrah’s Operating Co. is entitled to a $4.4 million refund on the use tax paid on two planes purchased out of state.  The gaming company had sought an $8.6 million refund on four aircraft it purchased in 2006 to fly employees and customers on business trips. The court said two of the planes were used in interstate commerce and qualified for the use-tax exemption.

 

Takeaway:  When a company owns as much real estate as CZR’s, one way or another the State of Nevada will get their fair share…  

 

Intralot – the Wyoming Lottery announced the selection of Intralot as its gaming vendor, the company tasked with furnishing convenience stores and other retail outlets with the games of chance.  Early last week, Intralot signed a new 10 year technology supply agreement with the Irish Lottery.  Intralot, was founded in 1992, is headquartered in Athens Greece and trades on the Athens Stock Exchange under the ticker “INLOT”. 

 

Takeaway:  Seems this company has quietly taken market share from its US-based counterparts.

 

OEH – announced the completion of a $657.0 million senior secured credit facility, consisting of a $552.0 million seven-year term loan ("Term Loan B") and a $105.0 million five-year, multi-currency revolving credit facility via Barclays Bank and JPM Morgan Securities. The Term Loan B is comprised of a $345.0 million U.S. dollar-denominated tranche and a EUR150.0 million euro-denominated tranche ($207.0 million as of the closing date). The Company intends to utilize the Term Loan B proceeds to refinance all of the funded debt of the Company and its subsidiaries other than the debt of Charleston Place in South Carolina, a consolidated variable interest entity with separate non-recourse financing.

 

Takeaway:  This was the next step in the transformation from the old Orient Express to the new Belmond.  This company is worth watching given the recovering European consumer and continued health of the wealthy consumer.

 

 

INDUSTRY NEWS

GAMING               

Macau Visitor Arrivals – Visitor arrivals increased by 8% YoY to 2,560,560 in February.  Mainland visitors totaled 1,714,776 (+14% YoY), with 821,844 (48% of total) traveling to Macao under the Individual Visit Scheme, up by 9% YoY.  Visitors from the Republic of Korea and Japan surged by 33% and 23% YoY respectively.  The average length of stay of visitors stood at 1.0 day.

 

LEISURE LETTER (03/24/2104) - MACAU1

 

Takeaway:  Solid visitation growth so far in 2014 but the trend higher spend per visitor continues to drive most of the gaming revenue growth.

 

Changi Airport passenger movement

Singapore's Changi Airport total passengers grew 6.3% YoY in January but declined -0.2% YoY in February.

 

LEISURE LETTER (03/24/2104) - changi

 

Takeaway:  Disappointing visitor growth for Singapore mass market

 

Las Vegas Gambler Budget Survey Signals Increased Spending Bloomberg

According to a survey by LVCVA, the average gambling budget of Las Vegas visitors rose 10% to $530 in 2013, the biggest increase since 2005.  “We look at the gaming budget more as a psychological indicator of visitor mindset. It does reflect a positive trend of attracting visitors setting aside growing budgets for the gaming part of their Vegas experience," said Kevin Bagger, the authority’s senior director of strategic research and analytics.

 

Takeaway:  Meanwhile, actual slot play continues to decline. We attribute the trend to demographics and not attitudes.

 

American Gaming Association (AGA) – AGA Chairman Jim Murren, who is also MGM Resorts Chairman and CEO, wants the group to dial down its lobbying and advocacy efforts on behalf of legalizing Internet poker because the activity is fracturing the membership of the Washington, D.C.-based trade organization.  Murren, started a two-year term as chairman in January, said the group still supports passage of federal legislation that would legalize, regulate and tax Internet poker.

 

Takeaway:  This is an interesting change of face for an industry and Chairman who are both usually very vocal proponents of gaming expansion. 

 

Las Vegas Downtown – two recent items:  First, Hsieh’s Downtown Project bought the shuttered Western Hotel casino from Tamares Real Estate for $14 million.  The Project plans to invest $200 million in real estate, $50 million in small businesses, $50 million in education and $50 million in tech startups through the Vegas TechFund.   For more details see http://downtownproject.com/   Second, this past Friday evening, Scott Cohen set ablaze his “Life Cube”  which was a take his Burning Man sculpture transferred into an urban setting.  “Life Cube” was a 24-by-24-foot plywood cube, painted and filled with notes from thousands of people.

 

Takeaway:  The rebirth of Downtown and the downtown locals continues.  We will further explore this topic during our upcoming trip to Las Vegas on April 7 & 8.

 

CRUISERS

Cruise Ships Stuck at Sea, In Port After Fuel Barge Collision Cruise Critic

Carnival Magic and RCL's Navigator of the Seas are stuck outside of Galveston Bay, while Caribbean Princess has been stranded at the port of Houston overnight after a collision between a tanker and a fuel barge partially sunk the barge and released more than 150,000 gallons of fuel into the bay.  Carnival Magic should be returning to port later today. Passengers may choose to cancel without penalty. However, refunds will not be provided for flight changes, hotel accommodations, meals, transfers or other incidental costs resulting from the delay. 

 

Takeaway:  Minor but media happy incident for the cruise lines 

 

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 


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more