LEISURE LETTER (04/02/2014)

TICKERS:  LVS, MPEL, BEE

 

EVENTS TO WATCH:  UPCOMING EARNINGS / CONFERENCES / RELEASES

 

Friday, April 4

  • March NFP report

 

Tuesday-Thursday, April 8-10

  • Mid-America Gaming Congress (Columbus, OH)

 

Wednesday, April 9

  • SHO Investor Day

 

Thursday, April 10

  • HST Investor Day

 

COMPANY NEWS

LVS – the unfinished $600 million St. Regis condominium tower between The Venetian and Palazzo may soon come back to life.  The company recently studied converting the tower into a time share complex, a third hotel-casino, as well as a simple expansion to The Venetian and Palazzo.   

TAKEAWAY:  In a town that is experiencing a strong economic recovery, idle real estate doesn’t stay dark for long.  LVS maintains a number of value levers.

 

MPEL – will begin hiring 8,000 workers to staff its Studio City by end of 2014.  MSC on track to open mid-2015.

TAKEAWAY:  Affirming a mid-2015 opening continues to be encouraging.  Should give MPEL a first mover advantage among the new properties.

 

Okada Group -  Century Properties Group Inc has sought court intervention to stop Japanese gaming tycoon Kazuo Okada from scrapping their agreement to develop a portion of the $2-billion Manila Bay Resorts in Entertainment City.  In a disclosure to the Philippine Stock Exchange, the property firm of former ambassador Jose EB Antonio said it filed on Monday a petition for interim measures of protection before the Regional Trial Court of Makati against the Okada Group.

TAKEAWAY:  The Okada controversy continues...

 

BEE – announced it closed on the sale of its Marriott London Grosvenor Square Hotel for $207.7 million or $877K/key.  Net proceeds from the sale are about $97 million after the company pays off property level debt of $111 million.  Additionally, the company announced it closed on the acquisition of its 50% remaining interest in the 649-room Fairmont Scottsdale for total consideration of $149.1 million including $58.5 million of debt.

TAKEAWAY:  The Comany is finally achieving the stated goal of reducing leverage to below 5x net-debt to EBITDA.

 

OCEANIAOceania will completely refurbish its three R-class ships by June 2014 Cruise Critic

The 684-passenger Regatta, Insignia Regatta, Insignia and Nautica will receive some of the most popular features already found on the line's O-class ships Marina and Riviera. The $50 million investment begins this month with Insignia's dry dock in Marseille. 

TAKEAWAY:  We wonder if an IPO is still in the works

 

Viking River Cruises CEO Has No Interest in IPO or Selling to a Cruise Corp Skift

Viking is in the midst of an enormous expansion.  18 Viking ships were inaugurated late last month, 10-12 more river longships will be introduced in 2015 and up to 5 ocean liners will be under construction over the next 5 years.  Viking founder and Chairman Torstein Hagen said each new ship cost approximately $35 million to build.

 

Despite investment coming in from at least three banks including UBS and KFW, neither an IPO or acquisition are what Hagen says wants for his 17-year-old company at this time.  “I don’t wish it upon my colleagues to be owned by a large cruise company. We don’t foresee any capital need. I don’t see a purpose in being a public company," said Hagen.

TAKEAWAY:  The competition from the river cruises are for real and should not be taken lightly.

INDUSTRY NEWS             

Macau - Zero-fee tours continue to operate Macau Daily Times

Despite a recent Chinese Tourism Law aimed at shutting down such operations in Oct 2013, the zero-fee tours continue to be widespread.  The alleged purpose of zero-fee tours is to promote inexpensive travel packages.  However, such tours often require clients to shop at designated stores and spend required minimum amounts at each shop. 

TAKEAWAY:  Inflates visitation numbers relative to gambling revenues.

 

Package Tours and Hotel Occupancy Rate for February 2014 DSEC

As the Lunar New Year fell in February this year, visitor arrivals in package tour totaled 851,000 in February 2014, +5% YoY.  Visitors from Mainland China totaled 645,000, +7% YoY, with 312,000 coming from Guangdong Province; meanwhile those from Taiwan (59,000), the Republic of Korea (38,000) and Hong Kong (36,000) recorded decreases.

 

There were 99 hotels and guesthouses operating at the end of February 2014, providing 28,000 guest rooms, -1% YoY.  The average occupancy rate of hotels and guesthouses surged by 15% points YoY to 92%, with 5-star hotels leading at 93%.  The average length of stay of guests increased by 0.1 night YoY to 1.5 nights. 

TAKEAWAY:  CNY shift helped...

 

Maldives - The Economic Ministry reports that investment opportunities will be opened for the five mega projects planned to be developed in the Maldives.  The five mega projects that will be open for foreign investment at the forum will be: project to develop Ihavandhippolhu as an economic zone; Project to develop 'I-Heaven' and Ibrahim Nasir International Airport (INIA); project to develop Hulhumale at its second phase; project to change the current commercial harbour to Thilafushi and its development and the project to extract fuel and gas from the Maldivian region.

TAKEAWAY:  Interesting to us how the Maldives is attempting to remake itself in the face of global warming and rising ocean levels...


Kansas Gaming - House Bill 2272, which was introduced by state Sen. Jacob LaTurner, would lower the investment requirements for a casino in the Southeast Gaming Zone.  Similar legislation passed the Senate 28-10 earlier this session.  The current casino licensing requirements are $225 million with a privilege fee of $25 million.  The new HB 2272 legislation would lower those costs to $50 million and a privilege fee of $5.5 million which are similar to the requirements for the casino built in Dodge City, Kansas.

TAKEAWAY:  A southeast Kansas casino represents another threat to the State of Missouri gaming. 

 

Massachusetts Gaming  - If Mohegan and Suffolk Downs are awarded a casino license, their project completion could be delayed by months after the state ruled in favor of a do-over for the project’s environmental impact study. The new casino plans were ruled to be so different from the original that state officials would need to see a new set of reviews for traffic and other impacts. The project was originally supposed to be located mostly in Boston, but was quickly moved to Revere after East Boston residents rejected the plans in a November referendum.

TAKEAWAY:  The political and legal jockeying continues...

 

Mississippi Gaming - developers of the Scarlet Pearl Casino in D'Iberville were unable to meet the 5 p.m. deadline Monday to close on the financing for the $250 million resort.  Developers of Hemingway Casino at the Gulfport Harbor face a deadline at 5 p.m. today to complete their financing of a $112 million casino.  Scarlet Pearl -- and Hemingway Resort if it misses today's deadline -- must go back through the entire review process with the Gaming Commission and meet the new, more stringent development requirements.  Scarlet Pearl may qualify under the new rules because it has the required 300 hotel rooms, along with an elaborate 36-hole miniature golf course, an event center and other amenities.  The Hemingway Casino in Gulfport doesn't have enough rooms under the new regulations. It is proposed as a 205-room luxury hotel rooms operated by Hemingway Hotel and Resorts and based on the life of author Ernest Hemingway. It also is 5,000 square feet short of the minimum of a 40,000-square-foot or larger casino.

TAKEAWAY:  Financing low ROI projects is never easy. 

 

Wisconsin Gaming - local media reports the State of Wisconsin agreed to pay a Michigan law firm up to $1.5 million to study the proposal made by the Menominee Tribe to build a casino on the property left vacant by a defunct greyhound racetrack in Kenosha.

TAKEAWAY:  Regardless of the decision by the Wisconsin Governor regarding the proposed Kenosha casino, this issue seems destined for litigation in the court system.  Maybe that's why the Governor retained a law firm to conduct the gaming study. 

 

LODGING M & A - Sotherly Hotels bought the upscale 326-room Georgian Terrace Hotel from Fremont Realty Capital for US$61 million. Average price per key was $187k.


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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