LEISURE LETTER (03/25/2104)

TICKERS:  RCL, WYN

EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

TODAY

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

  • Las Vegas: 29th Annual Nightclub & Bar Convention Trade Show 40,000 delegates Las Vegas Convention Center

Wednesday, March 26

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

 Friday, March 28

  • Nevada gaming revenues release for February 

 

COMPANY NEWS     

RCL -  Due to the oil spill and associated response efforts in the Port of Galveston, the March 23 Navigator of the Seas sailing has been canceled.  Guests will be refunded in full, will have the option to book a future cruise at a 25% discount, & may remain onboard until March 30.

TAKEAWAY:  Unfortunate cancellation for RCL but not material on an ongoing basis.

WYN -  The Art Deco New Yorker Hotel, located at Eighth Avenue and 34th Street, is undergoing a full makeover and transformation from the Ramada brand to the Wyndham Hotel & Resorts flag.  The property is owned by a subsidiary of the Unification Church.  Additionally, commercial space on the lower 18 floors is being converted into 172 additional hotel rooms. The hotel currently holds 912 rooms, and when all of the changes are complete, that number could jump to 1,500. As leases expire over the next five years, 270,000-square-feet of space will be freed up and turned into guest rooms.  The property is located two blocks from the Related Companies Hudson Yards project

 

TAKEAWAY:  NYC already having trouble absorbing above industry supply growth.


INDUSTRY

Saipan – We highlighted the Saipan Casino Legislation in our March 3rd Leisure Letter. The gaming legislation was signed into law by Governor Eloy Inos. The law allows a 40-year exclusive Saipan casino license - Inclusive of an initial 25-year period and an extension of 15 years - and a second option to renew for another 40 years for a total of 80 years.  The legislation requires the exclusive Saipan casino license holder to build from the ground up a hotel with at least “2,000 rooms,” but also does not set a timeline nor specify a phased-in approach. (Side note: currently the largest Saipan hotels currently have just over 400 rooms.)  The bill specifies that the $1 million in nonrefundable application fee and the $30 million in advance license fee payment shall be paid within 15 days of the law’s signing.  However, the casino legislation also gives the exclusive gaming licensee a rebate offset amount of 100 percent of the gross gaming revenue.

 

TAKEAWAY:  With current annual visitation of approximately 450,000 (comprised of 40% from Japan and 20% from China), that's only a small percentage of the total 730,000 room nights at a 2,000 room hotel. We remain skeptical of the casinos profitability and viability given the isolated location.  Additional airlift is required to ensure casino visitation. 

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.