LEISURE LETTER (05/08/2014)

Tickers: CZR, H, MHGC, WYN, RCL, MTN

EVENTS TO WATCH

Thursday, May 8

• MPEL Q1 – 830am , Passcode: MPEL

• CAR Q1 – 830am , Passcode Avis Budget

• BEE Q1 – 10am , Passcode: 10895989

• HOT – 1010am presenting at Baird's 2014 Growth Stock Conference

• SGMS Q1 – 430pm , Password: SGMS

• STN Q1 –

 

Friday, May 9

• HLT Q1 earnings – 10am , Passcode: 25981567

• AHT Q1 earnings – 11am

 

Monday, May 12

• DRH Q1 earnings – 10am , Passcode: 66393516

• HMIN Q1 earnings – 9pm

• SJM Holdings Q1 earnings 

 

Tuesday, May 13

• WYN - 8 am presenting at Normua Global Gaming/Lodging Conf.

• HTHT Q1 earnings – 9pm , Passcode 28722442

 

Wells Fargo Gaming Conference in Las Vegas (all times EDT)

• 1140 am PNK

• 1220 pm IGT

• 1220 pm CHDN

• 1pm BYD

• 1pm MGAM

• 140 pm PENN

• 225 pm BYI

• 505 pm SGMS

• 505 pm Seminole Gaming

• 550 pm GLPI

• 550 pm Golden Nugget

1:1 meetings only – MPEL, Station Casino, Motor City Casino & Hotel, and Jacob’s Entertainment.

 

Wednesday, May 14:

• Atlantic City April Revenues

• Japan Gaming Conference thru Friday, May 16

 

COMPANY NEWS

CZR – weighs closing one or more of its four casinos in Atlantic City due to oversupply. 

Takeaway:  Right sizing supply for dwindling demand.

 

RWLV – The Nevada Gaming Control Board on Wednesday recommended Genting be given a preliminary finding of suitability to hold a state gaming license. Malaysia-based Genting Berhad will finish developing the former 87-acre Echelon site for Resorts World Las Vegas. The initial phase will cost $4 billion and will include 3,000 hotel rooms, a casino with a combined 3,500 slot machines and table games, 30 food and beverage outlets, a 4,000-seat theater and an elaborate garden attraction that will serve as the property’s front door to the Strip. Genting will also build a rooftop sky park and observation deck atop the 674-foot-tall tower, whose height has already been approved by the Federal Aviation Administration

Takeaway: This is the formal step in the approval process.  During our recent visit to Las Vegas, we already observed construction activity - thus, the hearing was a formality in our opinion. 

 

H – announced the sale of Hyatt Residential Group for approximately $190 million to Interval Leisure Group.  Additionally, Hyatt will sell to Interval Leisure its interest in a JV that owns and is developing a 131 unit vacation ownership property in Maui and Hyatt will be reimbursed an additional $35 million for this operation. Finally, Hyatt selected Internal as Hyatt's exclusive licensee in vacation ownership. Transaction closing is expected in Q4 of 2014.

Takeaway: Hyatt remains an active recycling capital out of non-core assets and preferred equity interests into more Hyatt branded assets in gateway cities with an upper-upscale and luxury focus - a long-term strategy we applaud.  

 

MHGC – Yucaipa Companies, led by Ron Burkle, sent a letter to interim CEO Jason Kalisman regarding Morgan's Board of Directors subverting "Yucaipa's board observations rights."

Takeaway: We expect this discussion will take media center stage at Morgan's 2014 Annual Meeting of Stockholders is scheduled for May 14, 2014.

 

WYN – Scott McLester, EVP & General Counsel, sold 15,000 share at an average price of $72.0012 on May 5.  Mr. McLester owns additional 14,509 shares as well as 56,004 restricted stock units granted under the 2006 Equity Incentive Plan.

 

RCL Royal Caribbean faces claims of 'stealth cuts'  TTG Digital
Travel agents have accused Royal Caribbean International and Celebrity Cruises of introducing commission cuts “by stealth”, by increasing the proportion of the booking that is non-commissionable since last year.  A Royal Caribbean spokeswoman denied there had been any changes to commission policy.  

Takeaway: It's no surprise that agent commissions are being cut in a highly promotional environment.  Princess and other brands are doing it too except maybe in a more open manner.


MTN – Beaver Creek residents voted to take on $5 million in debt to buy an easement, which they say will force Vail Resorts to move its proposed alpine slide up the mountain toward Spruce Saddle, and away from them. That, they say, will help preserve their property values.

Takeaway: Just when investors thought the execution of the Epic Discovery was about to roll-out at the Vail/Beaver Creek resort, a slight adjustment to the plan. 

INDUSTRY NEWS       

Union Pay – This morning the Macau Police confirmed crackdowns on UnionPay and noted the agency made 3 separate arrests in February and March of this year.  China's state-backed bank payment card UnionPay announced sweeping measures in Central Government led effort to combat overseas money laundering, capital flight and other illegal bank card use in the former Portuguese colony and gaming mecca, Macau. 

Takeaway: Thus far it appears the crackdown is focused on illegal hand held processing devices rather than legitimate point of sale devices in retail establishments.  Current policy does not allow Union Pay terminals on casino gaming floors.  We've seen these concerns surface in the past and we wrote about in our Leisure Letters dated 3/13/14 and 3/18/14.

 

Avian Flu H5N6 – A 49-year-old man, from Nanchong in the southwestern province of Sichuan died from the H5N6 strain of bird flu, in what is believed to be the world's first case of human infection from the virus subtype. According to Taiwan's Centers for Disease Control, H5N6 has previously been detected in the environment in Germany, Sweden and the US.  Bird flu has been more virulent in China with a total of 250 cases and 96 deaths from the H7N9 strain in the January to March 2014 timeframe, according to the National Health and Family Planning Commission. Last year China recorded 46 deaths and 144 cases from the H7N9 outbreak, which started early in 2013 and returned in the autumn.

Takeaway:  More and more new strains popping up.

 

Massachusetts Gaming – the Commission is scheduled to vote today on Boston Mayor Walsh's demands for Boston to be recognized as a host community to the proposed casinos in Revere and Everett. 

Takeaway: Wynn remains opposed to host community status for Boston while Mohegan Sun is attempting to complete an agreement with Boston city officials.

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.

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more