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Eurozone Confidence Wanes; UK Shines

Takeaway: We maintain our marginally bullish stance on European equities over U.S. equities. We like the GBP and EUR against the USD.

This morning we received Eurozone confidence figures for the month of April.  As the charts below show, the data took a step down versus the prior month, and matches confidence figures from the major Eurozone countries that mostly slowed and fell in the April/May period. 

 

We think this inflection lower is but one data point, but indicative of what could play out as a slower growth environment for the remainder of 2014 as the overhangs of high unemployment rates, anti-Euro sentiment, and a sluggish global economy persist.  We saw moves higher in confidence figures over the last 12-16 months reflecting improved economic and political outlook, which may now be fully priced in.

 

  • Germany GfK Consumer Confidence 8.5 MAY (8.5 est.) vs. 8.5 prior
  • Germany ZEW Economic Expectations 43.2 APR (45 est.) vs 46.6 prior
  • Germany IFO Business Expectations 107.3 APR (105.8) vs 106.4 prior
  • France INSEE Consumer Confidence 85 APR (88 est.) vs. 88 prior
  • Italy ISAT Economic Sentiment 88.8 APR vs. 89.5 prior
  • Italy ISAT Business Confidence 99.9 APR (99.5 est.) vs. 99.3 prior
  • Italy ISAT Consumer Confidence 105.4 APR (101.2 est.) vs 101.9 prior

Eurozone Confidence Wanes; UK Shines - x. consumer conf

Eurozone Confidence Wanes; UK Shines - x. business conf

Eurozone Confidence Wanes; UK Shines - x. manufacturing conf

 

From a quantitative perspective, we maintain our marginally bullish stance on European equities over U.S. equities, and signaled early this week that the German DAX broke its TREND level of support. Below we offer up its new levels (see chart below).

Eurozone Confidence Wanes; UK Shines - x. dax

 

From a policy perspective, we continue to expect ECB President Mario Draghi and the Eurocrats to manage expectations over the medium to long term. On Monday Draghi was reported to have said to a German lawmakers that a QE program is relatively unlikely now. We’ll take the comment at face value and believe that opportunistically Draghi will continue to have QE in his back pocket, which should encourage European equities higher.  We also underline that Draghi is managing his inflation target of 2.0% over the longer term, and already there are encouraging signs that inflation is percolating:

  • Germany Preliminary CPI rose 1.3% in April Y/Y (1.4% est.) and 1.0% prior

 

We expect interest rates to remain “accommodative” = at the present rate or lower, as the bank works on schemes to better unlock lending to the real economy (especially SMEs).

 

On the currency front, the EUR/USD is trading in a bullish formation, above its TRADE, TREND, and TAIL levels of support, as outlined in the chart below. We expect the cross to trade higher as Eurozone QE remains on hold and as Fed Head Janet Yellen continues her dovish policy stance.


Eurozone Confidence Wanes; UK Shines - x. eur usd

 

 

 

UK Bulls


The UK economy is following our playbook:  tighter monetary policy = stronger currency = stronger purchasing power, home price appreciation, and confidence.  UK GDP ramped to +3.1% Y/Y in Q1 (double what we’ve forecast in the USA). 

 

BOE Governor Mark Carney recently said that he’s optimistic about the economy’s recovery, comfortable with the current level of interest rates, and reiterated that when it does see increases in interest rates they will be gradual and limited. This week Lloyd’s Business Barometer showed a meaningful move higher, to 66 in April vs. 44 in the prior reading.  

 

We remain bullish on the equity market (despite being essential flat YTD) and the GBP/USD.

 

Our bullish levels on the GBP/USD are outlined below:

Eurozone Confidence Wanes; UK Shines - x. pound

 

Matthew Hedrick

Associate


H Q1 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

1Q14 CONSENSUS ESTIMATES

• Total revenues:  $1,059 million

o Owned & Leased Hotels:  $536 million

o Other Revs from Managed Hotels:  $417 million

o Managed & Franchised Fees:  $86 million

• Adjusted EBITDA:  $153 million

• EPS:  $0.12/share

 

MANAGEMENT GUIDANCE

Q1 2014

  • No specific guidance

FY 2014

  • Adjusted SG&A of approx $325 million.
  • Capital expenditures of approx $350 million, including about $175 million for investment in new properties.
  • The Company intends to continue a strong level of investment spending including: acquisitions, equity investments in joint ventures, debt investments, contract acquisition costs or other investments.
  • D&A of approx $375 million.
  • Interest expense of approx $80 million.
  • Open approximately 40 hotels

 

QUESTIONS FOR MANAGEMENT

  1. Views on assets sales given strength in transaction market as well as hotel REIT share performance - one off vs portfolio transactions
  2. Where are inflation pressures negatively impacting margins?
  3. ROI on renovations from last 2 years?
  4. Discuss investment spending plans for the remainder of 2014.
  5. Recent commentary from Delta Air Lines indicated strong price taking in April, May and June of this year, how does that compare with what the company is seeing for advance bookings?
  6. What is your goal in terms of fees vs owned EBITDA?
  7. What is the right leverage?  Current thoughts on share repurchases?
  8. Rate vs occupancy gains this year and where are we in the cycle?

 

RECENT MANAGEMENT COMMENTARY

Group

  • the pace heading into 2014 has remained steady, up in the low-single-digit range.
  • trends and the profile are improving.
  • Demand remains relatively robust
  • total production and activity has been quite positive and has been positive now for the last several quarters running
  • increased demand in corporate and association business, we see healthy levels of businesses into 2015 and 2016 
  • in-the-quarter-for-the-quarter bookings have been a bit more volatile quarter-over-quarter if you look back over the last four quarters, but overall production levels will remain high
  • not seeing a shortening of booking curve in a definitive way
  • group is approximately 40% to 45% of our U.S. managed full service room revenue
  • group on a Worldwide basis is in the high 30% for full service hotels
  • 70% to 75% of group business is in the books going into the year, and that's about where we are entering 2014
  • the in-the-quarter-for-the-quarter business it's been consistently positive over the last few quarters

Margins

  • flow through on the mix of RevPAR that is mostly rate would be north of 60%

China

  • China RevPAR growth in the 2014 could be in the single-digit percentage range based on stabilization and an easier comparable prior-year results.

Preferred Acquisition Markets

  • focused and actively looking gateway city opportunities in Europe, in the U.S., and Miami and Los Angles remain high priorities

Park Hyatt New York

  • Commitment to purchase the hotel upon completion at a fixed price of $375 million
  • 210 keys, so about $1.8 million a key
  • Hyatt is a two-thirds joint venture partner in the JV that has a commitment to buy the hotel
  • No depreciation included in 2014 outlook
  • don't expect to consolidate this hotel in 2014 financial results
  • Scheduled opening is targeted for mid-year
  • Seeking property-level debt probably in the range of 50% of the total purchase price.

Modeling (EBITDA) Adjustments

  • the acquisition in Orlando, will be a net $45 million of incremental
  • Playa will be an incremental about $10 million
  • San Antonio would be in the $15 million range as a positive
  • deduct some of the sales for 2013, particularly the full service sales, and that would be in the $20 million range

Acquisitions & Dispositions

  • Closed on the previously announced purchase and sale of 10 Hyatt, Hyatt Place and Hyatt House hotels, totaling 1,560 rooms to RLJ Lodging Trust for approx $313 million. Hyatt affiliates will manage the hotels under new management agreements.

  • Openings:
    • Hyatt Regency Phuket, 199 rooms
    • Hyatt Place Houston/The Woodlands, 146 rooms
    • Hyatt Place Fredericksburg-Mary Washington, 93 rooms
    • Hyatt Place Amsterdam Airport, 330 rooms
    • Hyatt Place Lincoln/Downtown, 111 rooms
    • Hyatt Place Manati/Puerto Rico, 104 rooms

Balance Sheet

  • On January 6, 2014, the Company entered into a second amended and restated credit agreement with a syndicate of lenders that provides for a $1.5 billion senior unsecured revolving credit facility that matures in January 2019. This restates its existing $1.5 billion facility which had been scheduled to mature in September 2016
  • From January 1 through February 11, 2014, the Company repurchased 329,823 shares of common stock at a weighted average price of $48.79 per share, for an aggregate purchase price of approximately $16 million
  • As of February 11, 2014, the Company had approximately $173 million remaining under its share repurchase authorization

MAR Q1 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

 

Q1 2014 CONSENSUS ESTIMATES

• Total revenues:  $3,299 million

o Owned, Leased:  $232 million

o Franchise Fees:  $167 million

o Base Mgmt Fees: $158 million

o Incentive Mgmt Fees:  $69 million

• Adjusted EBITDA:  $326 million

• EPS:  $0.51/share

 

MANAGEMENT GUIDANCE

Q1 2014:

  • Comparable systemwide RevPAR on a constant dollar basis:
    • North America: +4% to +6%
    • Outside North America: +3% to +5%
    • Worldwide: +4% to +6%
  • Total fee revenue: $380-$395 million
  • D&A: approx. $30 million
  • G&A and other: $155-$160 million
  • Operating income: $235-$255 million
  • Gains & other income: approx. $5 million
  • Net interest expense (net of interest income): approx. $30 million
  • EPS: $0.47-$0.52

FY 2014

  • Comparable systemwide RevPAR on a constant dollar basis:
    • North America: +4% to +6%
    • Outside North America: +3% to +5%
    • Worldwide: +4% to +6%
  • Adjusted EBITDA in the range of $1.425B to $1.495B.
  • Total fee revenue: $1,650-$1,700 million
  • D&A: approx. $120 million
  • G&A and other: $640-$650 million
  • Operating income: $1,090-$1,160 million
  • Gains & other income: approx. $10 million
  • Net interest expense (net of interest income): approx. $110 million
  • EPS: $2.29-$2.45
  • Tax Rate: 32%

QUESTIONS FOR MANAGEMENT

  1. Views on share repurchases given stock strong performance?
  2. Where are inflation pressures negatively impacting margins?
  3. Update regarding Gaylord booking, acceptance into the MAR group bookings channel?
  4. How is Gaylord performing relative to expectations?
  5. What insight from the Protea acquisition during the first four weeks of integration and operation?
  6. Which part of your business is trending below plan and why?
  7. How is Europe looking for this coming summer?
  8. Which parts of the World are experiencing weakness?
  9. Recent commentary from Delta Air Lines indicated strong price taking in April, May and June of this year, also MGM indicated ITYFTY is their friend in 2014, how does that compare with what the company is seeing for transient or ITYFTY bookings?

 

RECENT MANAGEMENT COMMENTARY

Financial statement adjustments

  • Beginning in the first quarter of 2014, the company will reclassify depreciation and amortization expense from “Owned, leased and corporate housing -direct” and “General and administrative and other” and present it as a separate line item on its Consolidated Statements of Income for all periods presented.

Protea Acquisition

  • April 1, 2014, completed the acquisition of Protea Hospitality Group covering 116 hotels and 10,148 rooms in seven African countries.
  • The company paid approximately $200 million at roughly 10 times anticipated pro forma 2014 calendar year EBITDA
  • Marriott now manages approximately 45 percent of Protea's rooms, franchises approximately 39 percent, and leases approximately 16 percent.
  • Protea's pipeline is more than 65 hotels and 14,300 rooms, including more than 20 hotels and 3,000 rooms in Sub-Saharan Africa
  • Protea Hospitality Group created an independent property ownership company that retained ownership of the hotels PHG formerly owned, and entered into long-term management and lease agreements with Marriott for those hotels. 
  • The property ownership company also retained a number of minority interests in other Protea hotels.

Transient

  • Transient business comes back more quickly than group and transient has rebounded in a very similar way in this lodging recovery as prior cycles

Group

  • Group REVPAR at the Marriott brand rose over 4% in Q4 compared to the year ago quarter, with group room rates up nearly 3%
  • Future group business looks even brighter
  • Group booking pace for the Marriott brand for 2014 is up over 4%, about the same as we reported in September and corporate group pace is up nearly 10%
  • Record levels of group business confirmed and booked in December 2013 - and that gives us further bullishness that group is doing what it should do as the economic cycle matures and that is, it’s coming back. Hopefully, we’ll see those trend lines continue in early 2014.
  • Corporate demand is quite short-term, the trend is very encouraging for 2014
  • 60% of 2014 group business is already on the books
  • Expect system-wide RevPAR at North American hotels will likely increase at a 4% to 6% rate in 2014, with the improvement largely coming from rate.

Washington DC

  • Washington suffered from, well, being Washington

Europe

  • Signs of improved economic growth

ME/Africa

  • REVPAR growth was strong in Kuwait and Dubai, but we saw significant REVPAR declines in Egypt

Caribbean/ Lating America

  • Good leisure business and group demand drove results in the Caribbean and Cancun reported double-digit REVPAR growth
  • Panama continues to report lower REVPAR due to oversupply

Asia Pacific

  • Expect mid-single-digit constant-dollar REVPAR in 2014, constrained a bit by recent supply growth
  • Government austerity measures intensified in Beijing, reducing food and beverage revenue

G&A

  • In 2014, expect G&A to be flat to down 2% YoY
  • In 2014, we are going to be more maniacally focused on managing G&A dollars

Capital Allocation

  • Approx $1.25 billion to $1.5 billion could be returned to shareholders through share repurchases and dividends and we expect to continue to repurchase shares in 2014.
  • As of February 18, 2014, Marriott repurchased 5.0 million shares of its stock for $246 million.
  • On February 14, 2014, the board of directors increased the company’s authorization to repurchase shares by 25.0 million shares for a total authorization of 34.3 million shares as of February 19, 2014.

Investment Spending

  • Investment spending in 2014 will total approximately $800 million to $1.0 billion, including approximately $150 million for maintenance capital spending
  • New mezzanine financing and mortgage notes, contract acquisition costs (including the approximately $200 million payment associated with the Protea transaction)

Additions/Attritions/Cancellations

  • At year-end 2013, MAR’s worldwide development pipeline increased to over 195,000 rooms, including nearly 30,000 rooms approved, but not yet subject to signed contracts
  • The company anticipates gross room additions of 6% worldwide for the full year 2014 including the Protea hotels.
  • Net of deletions, the company expects its portfolio of rooms will increase by approximately 5% by year-end 2014.

Asset Sales

  • January 3, 2014: total purchase price for the three EDITION hotels ( sold the London EDITION, and signed binding agreements for the sale of two other company-owned EDITION hotels currently under development in Miami Beach and Manhattan) is approximately $815 million, roughly equal to the aggregate estimated total development costs of all three hotels. The hotels will each be operated by Marriott under long-term management contracts with their new owners, which are companies ultimately owned by the Abu Dhabi Investment Authority. Marriott expects to convey each hotel individually to the new owner after construction is complete. he residential component of the Miami Beach EDITION was not included in this transaction. Marriott will retain ownership of the residential units pending their sale to individual purchasers.
  • January 30, 2014: sold its leasehold interests in the Renaissance Barcelona Hotel to an affiliate of the Qatar Armed Forces Investment Portfolio (QAFIP) for approximately €78 million including €45 million ($62 million) cash and the assumption of €33 million ($45 million) of related obligations.  The hotel will continue to be operated by Marriott under a long-term management contract.

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MGM Q1 2014 REPORT CARD

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

 

OVERALL:

  • BETTER - Strong Q1 2014 results slightly exceeded our Consensus high projection slightly. We're less optimistic about the rest of the year but trends should remain positive on the Strip and especially in Macau. 

 

REVPAR/bookings:

  • BETTER:
    • Q1 RevPAR Strip RevPAR 14% based on +200 bps occupancy and +12% ADR, but expect Q2 RevPAR +5%.  Q2 Aria RevPAR +14%, Vdara RevPAR +21%.
    • January RevPAR +9%, February RevPAR +10% versus Q1 results.  
    • ITYFTY is a friend in 2014
  • PREVIOUSLY:  1Q REVPAR expected to be up ~10% YoY, feel good about the remainder of the year, most of the REVPAR growth will come from rate.

Slot business:

  • SAME: U.S. business improving as seen in slot handle and slot win (non Bacc table revenues and market share both increasing)
  • PREVIOUSLY: Slot business here in Las Vegas is actually up when the market has been actually down.  Overall slot numbers are down because of the regional properties

Strip development:

  • BETTER:
    • The Park, AEG Arena, Delano targeted Sept completion, NYNY retail reconfiguration targeted for December completion, Mandalay Bay Convention Center expansion, "City of Rock" music venue.
    • More projects aimed at stimulating demand and improving the guest experience and thus driving incremental interest and demand by corporate groups, leisure and FIT sectors.
  • PREVIOUSLY: Strip frontage at New York-New York and Monte Carlo will be completed in the first half of this year.  New park will be completed in 2016.  Remodel of THEhotel into the Delano will begin in April and expected to be completed by September.

MGM Cotai:

  • SAME: MGM Cotai - well underway, 2016 opening.
  • PREVIOUSLY: Increased project cost from $2.6b to $2.9b, open in early 2016

MGM National Harbor:

  • SAME: break ground in a few months, focused on design, development and programming, no change to the $1 billion budget, most profitable non Las Vegas casino development in the US and expect to open summer 2016
  • PREVIOUSLY: Ground break in the summer and opening in 2016

Springfield:

  • SAME: go before Commission in June 2014, monitoring referendum while also waiting for "appeal" referendum; Supreme Court must rule before July 9th to make November ballot; awaiting Commission license award.  However, gaming is polling favorable across MA with voters
  • PREVIOUSLY: Remain very excited about the opportunity for a downtown revitalization project in Springfield.  Await a decision and awarding of that license this year.

Convention market:

  • SAME: CY 2014 total room nights will be 16% from convention mix
  • PREVIOUSLY: Strong convention market in Las Vegas in 2014 with improving corporate business.  Expect 1Q convention mix to be ~22%, near peak levels for any 1Q prior  FY 2014:  expect convention mix to increase to 15.5-16%, which is beginning to approach prior peak levels.
  • SAME: Up double digit pace in 2014 vs. 2013 and 2015 vs. 2014.
  • PREVIOUSLY: Convention pace for 2015, 2016, 2017, all look above where they were prior year for the previous years.

Strip flowthrough:

  • SAME: Flow through was 55% vs. 50-60% expectation
  • Flow through was a bit better than expectations due to strong collection efforts which have been consistent throughout the year, continued refinements to our M life program, and a change to the employee vacation policy and accrual.  As a result, Strip flow through was approximately 70% in 4Q, above 50% to 60% target.

Crystals:

  • BETTER: EBITDA +30%
  • PREVIOUSLY: Added a few more tenants and look forward to bring on a few more in current calendar year

Luxury vs Core

  • SAME: Luxury is 18-20% below 2007 peak cash floor.   "Core" is down >30% off peak (other half of portfolio).
  • PREVIOUSLY:  Luxury properties continue to see a pretty good customer and continue to hope to see them improve their spending. By comparison core properties, they continue to be challenged on consumer spend.  The correlation between the ADR and spend is definitely there.

2014 non-operating guidance

  • SAME:
    • Domestic CapEx spend - $425 million, includes MGM contribution to AEG Arena
    • During Q1: 
      • US CapEx $72m
      • MGM China $121m with
      • $14m spend at MGM Macau and
      • $107m on Cotai development
  • PREVIOUSLY:
    • Capex at wholly owned domestic resorts:  $350m
    • JV LV arena: $75m on MGM's share of investment
    • National Harbor: $170m on development costs
    • MGM Macau: $70m
    • MGM Cotai: $500m

GLPI Q1 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

 

1Q14 CONSENSUS ESTIMATES

  • Total revenues:  $159 million
  • Adjusted EBITDA:  $107 million
  • FFO:  $0.68/share
  • AFFO:  $0.71/share

MANAGEMENT GUIDANCE

Q1 2014:

  • Total Rental Income:  $477 million with ~$421 million from PENN, ~$13 million from Casino Queen, ~$46 million to account for property taxes paid by PENN, and reduced by ~$3 million to account for non-assigned land lease payments made by PENN
  • Net Revenue:  $158.1 million
  • Adjusted EBITDA:  $106.6 million
  • Net Income:  $44.1 million
  • Real Estate Depreciation:  ~$23 million
  • Non-real estate deprecation: ~$3.5 million
  • Funds From Operation:  $67.1 million
  • Adjusted Funds From Operation:  $74.2 million
  • Net Income, per diluted common share: $0.72
  • AFFO, per diluted common share:  $0.71

FY 2014:

  • Net Revenue:  $630.8 million
  • Adjusted EBITDA:  $432.6 million
  • Net Income:  $181.1 million
  • Real Estate Depreciation:  ~$92 million
  • Non-real estate deprecation: ~$14 million
  • Funds From Operation:  $272.8 million
  • Adjusted Funds From Operation:  $301.8 million
  • Net Income, per diluted common share:  $1.59
  • AFFO, per diluted common share:  $2.65

 

QUESTIONS FOR MANAGEMENT

  • Argosy Casino Sioux Falls
    • Given IRGC ruling the property is to closed by July 1, how should revenue and expense assumptions be revised? 
    • Why did GLPI guidance include a full year of operation for Argosy Sioux City when the GLPI S-1A indicated:  "GLPI also includes rental income of $5.2 million for the entire period related to Penn's Sioux City casino which, based on recent events, may be forced to close as early as July 2014"
  • If the acquisition pipeline is so vast ($10 billion by some reports) and the company has little competition for transactions, why have we not see press releases announcing acquisitions?  And, if the pipeline is so full, why the need to hire a SVP of Corporate Development, who has corporate finance/investment banking history?
  • Would the company consider a large portfolio/transformative acquisition that would require a concurrent issuance of equity either to the seller or into the open market? 
  • Discuss the current valuation gap between potential sellers and buyers of gaming assets?
  • Thoughts on diversifying tenants.  Would you consider sale/leasebacks with BYD, PNK, or even an MGM?
  • With weak regional trends, are you comfortable with maintaining the current levels of rental payments.

 

RECENT MANAGEMENT COMMENTARY

Development Pipeline

  • Mahoning Valley Race Track - Hollywood themed facility with up to 1,000 video lottery terminals as well as various restaurants and amenities. To be managed by Penn National Gaming, with expected opening in the fall of 2014.   Planned budget $100 million, $25.9 million expended as of 12/31/2013
  • Dayton Raceway - Hollywood themed facility with
    up to 1,500 video lottery terminals as well as various
    restaurants and amenities. To be managed by Penn
    National Gaming, with expected opening in the fall
    of 2014. Planned budget $89.5 million, $26.2 million expended as of 12/31/2012

Acquisition

  • During January, the Company completed the acquisition of Casino Queen in East St. Louis, Illinois for $140 million. GLPI also provided Casino Queen with a $43 million, five year term loan at 7% interest, pre-payable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen's outstanding long-term debt obligations. GLPI leased the property back to Casino Queen on a triple net basis for approximately $14 million in rent per year.

Balance Sheet

  • The Company had $285.2 million of unrestricted cash on hand
  • No balance outstanding under the $700 million unsecured credit facility revolver

Other

  • The Company owned the real estate associated with 21 casino facilities, including two facilities currently under development in Dayton and Youngstown, Ohio and leases, or expects to lease with respect to Dayton and Youngstown, 19 of these facilities to Penn. Two of the gaming facilities, located in Baton Rouge, Louisiana and Perryville, Maryland, are owned and operated by a subsidiary (GLP Holdings, LLC) of GLPI.

PNK Q1 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

 

1Q14 CONSENSUS

  • EBITDA:  $151 million
  • Revenues: $548 million
  • EPS: $0.41

QUESTIONS FOR MANAGEMENT

  • Q2 trends relative to weather adjusted Q1.
  • What are the important macro variables contributing to regional gaming weakness?
  • How much of an impact is demographics playing in the soft trends? 
  • Breakdown of weakness across casino segments.
  • Have you been able to quantify the impact of the rewards sharing program with MGM?
  • What is causing the recent weakness in Louisiana?
  • Competitive environment for Belterra Park
  • Additional comments on Orange Capital's REIT push
  • What can be done to revive the lower spending segments?
  • Progress on Ameristar synergies
  • Update on Vietnam - hidden asset?

 

RECENT MANAGEMENT COMMENTARY

Integration revenue synergies:

  • Have moved quickly to put the infrastructure in place so that we can begin to realize revenue synergies during the first half of 2014.

Business Trends:

  • Similar to 2013, trip frequencies continued to decline with people visiting less often, while spend patterns have remained relatively stable.  Trip declines are particularly pronounced in the less than $100 average daily theoretical segment and end markets with new competition.

Marketing Spend:

  • Continue to be very focused on driving profitable revenue and applying a rational approach to marketing spend. Reinvestment declined both in terms of dollars and as a percentage of gaming revenue, down 240 basis points year-over-year.

L'Auberge Baton Rouge:

  • Market share increased 420 basis points from prior year with healthy growth from both the local and regional play
  • Hotel also continues to be a very good story with this property achieving the second highest RevPAR in the company.

River City:

  • Continues to outperform the market with a 230 basis point improvement in market share during the fourth quarter.

Midwest:

  • Performed pretty well in the face of a challenging environment, as our margins in the Midwest also improved despite a 4% decrease in net revenues.

Synergies

  • Feel very confident in ability to meaningfully exceed the target of $40 million of annualized merger synergies.  In fact, PNK expects to exceed this $40 million number of implemented synergies by the end of 1Q 2014, with more to come. 
  • The loyalty program will launch in April, so haven't seen any impact at the Ameristar properties along those lines. VIP marketing, house coding our branch offices, all of those efforts are very early in the execution stage. Some are still in the planning stage, but we are beginning to execute most of our revenue synergies in the first and second quarter of this year.

New Orleans hotel:

  • The project remains on budget and is expected to open early summer.

<$100 segment:

  • Decline in the less than $100 segment was driven in part by the elimination of unprofitable programming that PNK had in place in Q4 2012.  And some was driven, as you've seen across our sector just by macroeconomic issues that are affecting the lower risk segments in our business.

Database integration spend:

  • Expect this year to have roughly about $10 million or so that will be spent on that in 2014. It'll be largely done by the end of this year.

Non-operating guidance:

  • Corp expense:  continue to trend down towards $20m
  • D&A:  The real operating number should end up being in the mid-50s or so, with this player list depreciation putting it in the call it $60 million to $65 million.
  • Cash taxes:  $10m

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