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    MARKET EDGES

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Tickers: CZR, KNM, PEB, HOT, CCL, NCLH

EVENTS TO WATCH 

Monday, May 12

• DRH Q1 earnings – 10am , Passcode: 66393516

• HMIN Q1 earnings – 9pm

Tuesday, May 13

• SNOW FQ3 earnings – 5pm

• HTHT Q1 earnings – 9pm , Passcode 28722442

Nomura Global Gaming & Lodging Conference in New York

• 8am WYN

• 3pm RHP

• 4:30pm HOT

According to Norumra's website, confirmed companies include: CCL, STAY, GLPI, HLT, HST, MAR, MGM, NCLH, PENN and  Industry Experts: Smith Travel Research, Inc. and International Casino Institute (Japan Gaming)

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

• 11:40am PNK

• 12:20pm IGT

• 12:20pm CHDN

• 1pm BYD

• 1pm MGAM

• 1:40pm PENN

• 2:25pm BYI

• 5:05pm SGMS

• 5:05pm Seminole Gaming

• 5:50pm GLPI

• 5:50pm Golden Nugget

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

Wednesday, May 14:

• Altantic City April Revenues

• Japan Gaming Conference thru Friday, May 16

Three senior and influential politicians including: Takeshi Iwaya, Chief Secretary of IR GIREN and Member, House of Representatives, Liberal Democratic Party; Koichi Hagiuda, Member, House of Representatives, Liberal Democratic Party; and, Sakihito Ozawa, Member, House of Representatives, Japan Restoration Party.

Thursday, May 15

• Japan Gaming Conference thru Friday, May 16

COMPANY NEWS

CZR – is rumored to have offered Britney Spears a two year contract extension for $12 million to continue her Las Vegas show until at least Christmas 2016,

Takeaway: The Emperor tries to lock down a high demand ticket as a means to drive casino floor traffic.

 

KNM – will unveil "Dungeons & Dragons" themed slot machines at this year's Southern Gaming Summit and National Indian Gaming Association Gaming Show on Tuesday May 6

Takeaway:  Konami had a good fiscal year 2014.  Let's see if the momentum can continue.


Hard Rock – Don Marrandino appears to be in discussions to join the Hard Rock Las Vegas in lead role responsible for booking music & comedy entertainment. Recent conversation have included reps from AEG.  Marrandino's most recent position in Las Vegas was for Harrah's Entertainment as President of Flamingo, Harrah's, Imperial Palace, Bill's Gamblin' Hall & Saloon and O'Shea's until August 2009 when he charged with heading up the company's Atlantic City hotels: Caesars Atlantic City, Bally's Atlantic City, Showboat Casino Hotel and Harrah's Resort Atlantic City.

Takeaway:  It is now looking like HardRock is putting the pieces in place to drive revenue growth in anticipation of a potential IPO 

 

PEB – appears to be buying the 331 room, Nines Hotel in Portland. The Nines hotel had been in financial straits this week until the Portland Development Commission decided to accept an $11.5 million buyout on $18.2 million in debt. The hotel's management company, Sage Hospitality indicated another publicly traded company was planning to take over the Nines, but would not disclose that company's identity. On May 7, a Pebblebrook Hotel Trust subsidiary filed an application to take over the liquor license of the hotel and its restaurants.  

Takeaway: Adding to its West Coast and Portland presence. Based on a quick internet scrape, we understand average daily room rates are $149 to $339 per night. We await the financial details of the acquisition.

 

HOT – Renowned Excelsior Hotel Gallia in Milan will join The Luxury Collection portfolio in Nov 2014.  It will mark The Luxury Collection's 7th hotel in Italy, as the brand remains on track to surpass 100 hotels globally in the next 5 years.  The hotel will offer 235 elegant guest rooms and suites, a signature restaurant and a roof-top bar with panoramic views of the city, an elegant lounge bar and cigar room, plus 1,000 square metres of wellness facilities including a spa, indoor swimming pool and fitness center. 

Takeaway:  Off balance sheet growth.

CCL – Costa Serena will sail year-round from Shanghai starting April 2015, making CCL the first global cruise company with four ships based in China.  This would increase CCL's capacity in China by 140% over a 2-yr period.  Costa Serena will join Costa Victoria, Costa Atlantica and the seasonal Sapphire Princess.  Princess Cruises brand will officially introduce Sapphire Princess to China on May 21.  The move will increase Costa's overall capacity in Asia by 74%.  CCL believes China could become the 2nd largest cruise market in the world by 2017. 

Takeaway:  CCL adding competition on the heels of RCL's recent Quantum announcement.  China is a big risk and opportunity for CCL/RCL.  The cruise companies haven’t gotten it right yet in China but they are slowly beginning to realize the importance of having Asian-centric ships to best cater to the Chinese consumer i.e. more gambling options, predominately Asian cuisine.  From an itinerary perspective, they need to focus on cruising around Chinese cities, not around their Asian neighbors as there is less interest. China may make waves in 2015 and will be a focal point.

NCLH – the cruise line is roiling relations with local vendors in the Bahamas.  NCL has apparently prohibited straw crafts from being brought back on its cruise ships in Nassau for the past several weeks. Local vendors are complaining that NCL cruise passengers are saying that anything they buy in the straw market will be confiscated by cruise ships guards when they return to the ship. Nassau-based Bahamian officials say the ban was connected to the infestation of the palm mite in the Caribbean. However, the Bahamas has no incidents of palm mite infestation according to the tourism officials. Furthermore, the officials also say the straw in the Bahamas is cured anyway.   The issue shows how dependent the Bahamas is on cruise ship tourists. NCL sails nearly 15,000 passengers to Nassau on a regular basis on five cruise ships - the Breakaway, Gem, Pearl, Sky, and Getaway.

Takeaway:  Is NCL looking for a larger piece of the local purchases from the vendors?

INDUSTRY NEWS

GAMING      

Macau – in response to the United States Department of State's request to lower the threshold for reporting gaming-related financial transactions from US$62,500 to US$3,000, the Gaming Inspection and Coordination Bureau (DICJ) and the Financial Intelligence Office (GIF) dismissed the suggestion and noted the current reporting limit is "adequate".

Takeaway:  We first noted this request in our March 12 Leisure Letter and believe everyone involved in gaming understand the sanctity and importance of keeping a clean reputation especially with concession renegotiations in the not too distant future. 

 

Macau – Transit Visa reform (Macau Daily Times).  The government intends to reduce the number of days that visitors are permitted to stay in the region when in transit to another destination. According to Secretary for Security, Cheong Kuok Va, the government is undertaking discussions with mainland authorities regarding how best to reduce irregularities in the way visitors arriving from China enter the MSAR.  Cheong Kuok Va’s statement follows a report conducted by the Chinese state media CCTV, which revealed that around a million people are estimated to have entered the region last year using a travel loophole.

Takeaway: This reform was widely discussed last week but dismissed by MPEL.  Given the short average length of stay (one day), we doubt this change will impact GGR.

Macau – Heavy rain caused delays at Macau airport.  The poor weather conditions over the past few days have caused inconvenience to travelers at the Macau International Airport with many flights delayed or canceled. Delays of up to four hours were common. 

Takeaway:  News flash - it rains a lot in Macau, this is nothing new.    

Japan – with the Japan Gaming Congress this week, various media outlets are reporting the Japanese Integrated Resort Promotion Law outline may be presented as early as next week.  Early reports indicate the Promotion Law may include a two plus two formula with 2 big integrated resort licenses targeted for each of Tokyo and Osaka, and up to 2 small integrated resort licenses targeted for smaller markets, including municipalities or prefectures that have already expressed interest like Hokkaido, Nagasaki, Nagoya and Okinawa.

Takeaway:  Most investors expected two large integrated resorts.  However, the two additional smaller resorts are a bonus.

Japan – According to the Chicago Tribune, Neil Bluhm's Rush Street Gaming will pursue the Osaka gaming license and is interested in partnering with a Japanese firm for a US$4-$5 billion casino.  Osaka with 2.8 million residents is located 155 miles northeast of Tokyo.  The Kensai Keizai Doyukai believes land costs in Osaka will be one-tenth the cost as compared to Tokyo.

Takeaway:  As expected but still as unlikely that Bluhm gets a concession.

 

Saipan – Macau junket investor First Natural Foods Holdings Ltd will invest at least US$2 billion (16 billion patacas) in a casino-hotel resort in a Western Pacific Ocean island, if it acquires an exclusive casino license there. First Natural Foods Holdings Ltd via its wholly-owned subsidiary, Best Sunshine International Ltd, submitted a business plan to the authorities of the island of Saipan in the Northern Mariana Islands bidding for the sole gaming license. First Natural said it aims to build ‘four luxury hotels and villas in four stages’ on the island, which is a commonwealth territory of the United States.  The firm will make an ‘initial investment of at least US$2 billion… to include a casino and an integrated resort which will include the construction of 2,000 guest rooms’ as the statutory requirements of acquiring the gaming license.  Saipan officials noted two companies have applied to the authorities for the license, including First Natural. Marianas Stars Entertainment Inc, 25% of which is owned by Hong Kong-based Mega Stars Overseas Ltd, is the other applicant.

Takeaway: We remain skeptical of this project as current visitation does not support such a large scale development.

Indiana –  (Evansville Courier & Press) Indiana lawmakers this summer could consider how to address declining revenue from the state's riverboat casinos.  Indiana Gaming Commission figures show the money the state collects from casino taxes has dropped from a peak of nearly $876 million in 2009 to about 752 million in fiscal 2013.  Increased competition from new casinos in neighboring states is a big factor in the drop. Senate President Pro Temp David Long said he supports assigning the issue to a summer study committee when they are set up later this month.

Takeaway:  We will save Indiana the $100,000 cost of the study: yes the reduction in Indiana GGR and gaming tax collections is due to demand declines, but much more due to an increase in supply.  Namely, increased competition from surrounding jurisdictions (new casinos in Ohio and new VGMs in Illinois) have resulted in the degredation of Indiana's gaming revenues.

LEISURE LETTER (05/12/2014) - o1 

Cruise politics – Blumenthal, Rockefeller, Markey call on Coast Guard to Make Cruise Ship Inspection Information Available to Public

MACRO

China

  • April new yuan loans
    • C¥774.7B vs. consensus C¥850B and C¥1.050T in March.
    • Loan growth +13.7% y/y vs +13.9% in March
  • Total social financing C¥1.55T vs consensus C¥1.65T and C¥2.07T in March
  • Money Supply:
    • M0 +5.2% y/y vs +5.2% in March
    • M1 +5.5% y/y vs +5.4% in March
    • M2 +13.2% y/y vs consensus +12.2% and +12.1% in March

Takeaway:  Missed expectations. Credit issues could seep into Macau's VIP business.

 

Chinese Politics

  • Chinese President Xi Jinping said the nation needs to adapt to a "new normal" in the pace of economic growth and remain "cool-minded" amid slowdown in expansion.  
  • PBOC Governor Zhou Xiaochuan says no big china stimulus coming
  • PBOC Deputy Governor Liu Shiyu urges tougher rules to rein in shadow banking

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.