LEISURE LETTER (04/21/2014)

TICKERS:  PENN, MPEL, MGM, IGT, RHP, CCL, RCL

EVENTS TO WATCH

Tuesday, April 22

  • IGT FQ2 earnings:  5 p.m. Conf Call   , Passcode: IGT

Thursday, April 24

  • WYN Q1 earnings - 8:30 a.m. , Passcode: Wyndham
  • LHO Q1 earnings - 9:30 a.m.
  • PENN Q1 earnings - 10 a.m.
  • RCL Q1 earnings - 10 a.m.
  • HOT Q1 earnings - 10:30 a.m. , Passcode: 12049644
  • LVS Q1 earnings - 4:30 p.m. ; PW: 18236529
  • LA March revenues out

Friday, April 25

  • PEB Q1 earnings – 9:00 a.m.

Monday, April 28

  • CHH Q1 earnings – 10:00 a.m. , Passcode: 70683172

Tuesday, April 29

  • VAC Q1 earnings – 10:00 a.m. , Passcode: 4679876
  • MGM Q1 earnings – 11:00 a.m. , Passcode: 20455736 

COMPANY

Macau Legend - Targets high rollers Macau Business Daily 

Macau Legend Development Ltd has done a deal, increasing to 42% from 2% its share of the gross gaming revenue from junket operator New Legend VIP Club Ltd’s gaming tables in its Pharaoh’s Palace casino.  In a HKSE filing, Macau Legend's wholly-owned subsidiary, Hong Hock Development Co Ltd, had formed a variable-interest-entity (VIE) agreement with New Legend.

 

Macau Legend said, “The company believes that the demand for VIP gaming will continue to increase, and therefore it intends to capitalise on the overall growth in VIP gaming in Macau by engaging in the gaming promotion business.”

 

PENN / GLPI - Last Thursday, the Iowa Racing & Gaming Commission ruled Argosy Sioux City must shut down by July 1 because the floating casino's state gaming license has lapsed.   Then on Friday, the Argosy Sioux City officially notified the Iowa Workforce Development agency that the 300-employee floating casino likely will close by July 1. PENN, however, has vowed to ask a judge to suspend the commission action, which would allow the boat to remain open while the company pursues a series of legal challenges against the gaming commission.

 

Hard Rock & Warner Gaming indicate construction of the Hard Rock Hotel and Casino is right on track.  Contractors are working seven-days-a-week to make ensure they meet their scheduled opening this summer.

 

TAKEAWAY:  We estimate PENN EPS dilution of $0.07/share on an annual basis and about $0.80/share of asset value and GLPI NAV dilution of about $0.50/share.  While PENN's Q1 looks fine, we're not sure enough analysts have taken Sioux City out of their estimates. Discontinued Operations?

 

MPEL - (Inquirer) CoD Manila, is expected to open its doors on Oct. 1 this year instead of the earlier announced mid-year opening, in time for Golden Week.  CoD Manila will feature a 950 rooms hotel and 20,000 square meters of gaming space with up to 365 gaming tables and 3,300 slot machines. 

TAKEAWAY:  Delays are almost never a good sign.

 

MGM - Prince George's County approve zoning changes to allow the casino to operate at National Harbor.  In about two weeks, another bill will come up that will focus on the actual development plan – and that ruling will include language dealing with jobs/hiring of minorities. MGM’s casino will feature 3,600 slots, 140 live gaming tables, a 300-room hotel, restaurants, and retail and meeting space.

TAKEAWAY:  Another step in the progress toward ground breaking. 

 

IGT - completed its first multi-state wide area progressive network, linking Deadwood, SD, casinos with Borgata and Caesars properties in Atlantic City.

TAKEAWAY:  This is probably an under appreciated event by investors that could boost play and yields with bigger jackpots.

 

IGT - announced that it has licensed the popular Tokidoki brand to develop compelling, casino slot machine content.  IGT will launch new tokidoki-themed games starting in 2015 at select casino properties in Singapore and Macau, and worldwide thereafter.

TAKEAWAY:  Better late than never to expand in Asia. 

 

RHP - City of Aurora this week will ask Arapahoe County District Court Judge Charles Pratt to lift a stay placed on a countersuit Aurora filed against 11 mostly Denver hotels seeking to block tax incentives awarded to the massive Gaylord hotel project.  If the stay is lifted, Aurora may review communication between the hotels involved in the lawsuit. 

TAKEAWAY:  RHP looks poised to become a development, growth story.

 

CCL - canceled various Alaska port calls by Carnival Miracle previously scheduled for this summer due to a "technical issue" impacting the ship's cruising speed.  The cancelled port callings include Skagway and Ketchikan.  Additionally, several Hawaii cruises will also see itinerary modifications, though no canceled ports.  Repairs to the propulsion unit will not be completed until a scheduled dry dock in early 2015.

TAKEAWAY:  At least this didn't happen in the Caribbean

 

RCL - Azamara Club Cruises is offering Vacation.com members a High Value Guest Incentive Commission where vacation.com members can earn as much as 5% over their preexisting Royal Caribbean Cruise Line family commission level and up to 21% for a high value guest booking

TAKEAWAY:  Aggressive commission policy

 

CCL - Seatrade Insider Princess 'Summer Clearance Sale', up to 40% off fares 

Receive as much as $200 onboard spend for Caribbean, Alaska, and Europe itineraries.  Promotion ends on April 30.

TAKEAWAY:  More onboard coupons but less price cuts compared with last summer's Princess promotion.  Last year's Princess summer clearance sale (May 1-8, 2013) offered up to 50% price cut for Alaska and Europe and up to $100 off onboard spend.  

  

INDUSTRY

Chinese cancelling visits to Singapore as well after MH370 incident Strait Times

Travel agencies in Singapore have been getting fewer bookings from Chinese tourists in the aftermath of Flight MH370's disappearance.  The National Association of Travel Agents Singapore (Natas) said current bookings for packages which include Singapore as a stopover have fallen by more than 50% at some agencies.

 

Anita Tan, COO of Natas, which represents more than 300 firms, added that the industry is hopeful that bookings will recover by the July school holidays, which is a peak period for Chinese travellers.

TAKEAWAY:   There were fears several weeks ago that a backlash may happen.  Well, it has.  Not great for LVS and Genting Singapore.

 

No China headwinds for Macau Macau Business Daily 

“I don’t think the recent slowdown in China will affect Macau in the near future. Only in a scenario where the disposable income of Chinese families drops more than 5% could we talk about an impact on the territory’s economy”, said the economist, José João Pãozinho.

 

Despite worrying January-March figures - housing sales dropped 7.7%, construction starts fell 25% and retail sales trailed estimates- the backbone of China’s economic peace, the growing middle class, is still intact.  Urban per capita income rose 7.2% in the first quarter and 3.44 million jobs were created in this period, 40,000 more than compared to a year ago, Beijing’s statistic’s bureau reveals.

TAKEAWAY:  We tend to agree.  Look for a May bounce back.

 

Cotai stores require 20,000 workers Macau Daily News

Retail spaces in the new mega casino resorts opening in Cotai from 2015-17 will require as many as 20,000 workers to man the operation, says Terry Sio Yuen Yee, founder and CEO of a Macau-based distributor and agency of luxury branded products, Rainbow Group. 

 

Proposed monthly rents, however, have already increased to about 300-450 patacas (US$37.5-56.3) a square foot, compared to 100-150 patacas when the first slew of resorts opened in 2007, said Sio.  Nevertheless, her company still aims to invest some 500 million patacas in opening 30 new stores in the new resorts within the next five years, said Sio.

TAKEAWAY:  Retail positions are easier to fill than dealers.  We continue to worry about dealer wage inflation and the supply of dealers to support the Cotai growth.  Remember that dealers are required to be Macau citizens. 

 

Massachusetts Gaming – Boston Mayor Martin J. Walsh's administration is calling on the state's top gambling regulator to recuse himself from the casino licensing process in eastern Massachusetts.  The Walsh administration accused Massachusetts Gaming Commission Chairman Stephen Crosby of making "prejudicial" statements critical of the city's request to be declared a host community for proposed casinos in nearby Everett and Revere.  If granted host community status, Boston residents would have an opportunity to vote on casino proposals by Mohegan Sun in Revere and Wynn in Everett.

TAKEAWAY:  Feels to us like Wynn should walk away and let the Mayor take the blame for failing to create jobs and increase state tax revenues.

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.