LEISURE LETTER (05/13/2014)

Tickers: MGM, PENN, GLPI, SJM, HOT, WYN

EVENTS TO WATCH  

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

• 430pm HOT

According to Nomura'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)

• 1140am PNK

• 1220pm IGT

• 1220pm CHDN

• 1pm BYD

• 1pm MGAM

• 140pm PENN

• 225pm BYI

• 505pm SGMS

• 505pm Seminole Gaming

• 550pm GLPI

• 550pm Golden Nugget

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

Wednesday, May 14:

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

• 1205pm MCRI and MNTG

• 1250pm MGM

• 135pm ISLE

• Atlantic City April Revenues

• Japan Gaming Conference thru Friday, May 16

COMPANY NEWS

SJM – (Macau Business Daily) chief executive Ambrose So Shu Fai thinks state-backed electronic payments system operator China UnionPay Co will curb mass-market gaming revenue in Macau by tightening controls on the use of its cards to obtain cash in Macau. However, the Chief Executive indicated the tightening would not harm SJM Holdings, which focuses on VIP gaming. (Macau Business Daily)

Takeaway: Easy for him to say without the Mass exposure.  We certainly haven't seen any impact yet.  We'll take the other side.


Bloomberry – said it expects double-digit annual growth in gaming volume, as its Solaire Resort & Casino in Manila brings in more high rollers from Asia. Solaire’s VIP gaming area will double following its $500 million expansion to be completed in the fourth quarter

Takeaway:  Bloomberry continues to ramp up but TTM gaming revenue is less than US$500m, hardly anything compared with Macau's $48b annual revenue.  CoD Manila  will contend later in the year, likely around Oct Golden Week.

 

MGM – Massachusetts Gaming Commission is holding a final public host community hearing on the MGM's proposed Springfield Casino project tomorrow at 4pm at the MassMutual Center Ballroom. 

Takeaway: Progress despite a snail's pace while also waiting for a decision regarding the repeal referendum.  


PENN – in a suit filed with the Massachusetts Gaming Commission, Raynham Park owner George Carney requests the Massachusetts Supreme Judicial Court revoke the slots license the commission issued in February to Penn National. Carney asserts PENN’s casino at Plainridge racetrack would benefit its former owner, Ourway Realty, which was found unsuitable for a license because its former President, Gary Piontkowski, took more than $1 million from the track’s cash room over a 10-year period. Ourway sold the track to PENN, though the lawsuit claims Ourway still holds a financial interest in Plainridge. The suit also alleges that PENN failed to disclose Ourway’s stake in Plainridge to state gaming regulators.  The commission awarded the slots license to Penn National in March on a 3-2 vote, with Raynham Park getting no votes. 

Takeaway: Could delay the project.  Stay tuned, we're researching the issue.


PENN/GLPI – The Iowa Racing and Gaming Commission upheld its decision to close the Argosy Sioux City riverboat casino by July 1. The commission on Monday quietly turned down a request from Penn National Gaming, Argosy's parent, to rehear a protracted case involving the gambling boat's state license.

Takeaway: As expected, but we now await PENN's next salvo in this battle of words and dollars.

 

HOT – Director Thomas O. Ryder sold 22,653 shares of HOT stock in a transaction dated Friday, May 9th, at an average price of $78.74, for a total value of $1,783,697.22. Following the completion of the sale, the Mr. Ryder directly owns 3,100 shares in the company, valued at approximately $244,094

Takeaway:  First signs of insider selling following the share repurchase announcement.  

 

WYN (Skift) launched its 1st multi-brand television advertising campaign featuring all 12 of its lodging brands.  

Takeaway: Stay tuned, we look forward to hearing the cost-benefit analysis conversations on the Q2 earnings call about this campaign.  Historically, multi-brand, non-differentiated advertising campaigns don't result in an increased immediate consumer awareness. 

TUI Travel – Current trading outlook:

  • Overall, pleased with Summer 2014 trading with 60% of holidays sold to date 
  • Higher average prices across Mainstream offsetting slightly lower 
    overall volumes against strong comparatives 
  • Excellent online performance – bookings up 6% on prior year

Takeaway:  Holiday travel provider TUI offers a decent outlook for the UK/Europe leisure market

INDUSTRY NEWS

New York Gaming Expansion – according to details released by New York's Gaming Facility Location Board, developers proposing to build a casino in Orange or Dutchess counties must commit to investing at least $350 million in the project, while the Capital region minimum investment is $135 million and the Lower Tier region requirements span $70 million to $135 million depending on location and number of licenses.

Takeaway: Based on our math, it would appear New York will generate $720 million in licensing fees should the Commission seek to "maximize" licensing fees to the State of New York - representing one casino in Orange or Dutchess counties, one license in Columbia, Delaware, Greene, Sullivan and Ulster Counties, one license in the Capital Region, and one license in Wayne or Seneca Counties.

UnionPay – New reports across China indicate US technology company Apple is likely to incorporate a near field communication payment function in the net generation iPhone and has reached an agreement with China UnionPay on a mobile payment service. According to the Brightware report,"Under the deal with China UnionPay, users would be able to download the bank card organization’s app to Passbook in their iPhones and make mobile payments on over three million China UnionPay ‘QuickPass’ POS machines in China,”

Takeaway:  We added this story as proof to the skeptics who don't believe in the legitimacy of UnionPay.

 

Slot Equipment Merger – American Gaming Systems ("AGS"), a leading designer and manufacturer of Class II gaming machines for the Native American market with an emerging presence in a broad range of commercial Class III markets in the United States, today announced their acquisition of Colossal Gaming. As of December 31, 2013, AGS had 8,563 gaming machines in 184 gaming facilities in 19 U.S. states, with 154 gaming facilities under revenue sharing agreements and 30 facilities under daily fixed fee agreements. Colossal Gaming was founded in 2003 by industry veterans Steve Weiss, Alison Stroh, and Lowell Hansen, as a game design studio with the mission to bring new and unique game play to the industry. Colossal is a pioneer in large-format slot gaming, and the designer and manufacturer of the top performing games "Hot at the Top" and "Colossal Diamonds".

Takeaway:  Small slot players joining forces 

MACRO

China Property - China Banking Regulatory Commission instructs banks to accelerate personal mortgage loan approvals and not suspend mortgage loans. 

China Economic Data - Industrial Production for April was 8.7%, below the 8.9% consensus estimate, April retail sales were +11.9% below the 12.2% consensus, and Fixed Asset Investment was +17.3% vs. expectations of 17.7% for April.

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.