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LEISURE LETTER (05/15/2014)

Tickers: SGMS, HST, MGM

EVENTS TO WATCH 

Thursday, May 15

  • Japan Gaming Conference thru Friday, May 16

Tuesday, May 20 - Thursday May 22

  • East Coast Gaming Congress
  • G2E Asia - The Venetian Macao

http://www.g2easia.com/Conference/#IGaming

COMPANY NEWS

Insider Transactions:

  • SGMS -  Director Ronald O. Perelman purchased 1,050,000 shares of the company’s stock through MacAndrews & Forbes in a transaction that occurred on Monday, May 12th, at an average price of $8.97 per share, with a total value of $9,418,500.00. Following the completion of the purchase, MacAndrews & Forbes now holds 33.555 million shares. Perelman himself owns 38,513 shares.
  • SGMS - CEO David L. Kennedy bought 36,000 shares of Scientific Games Corp. stock on Monday, May 12th an average price of $8.98 per share, with a total value of $323,280.00. Following the acquisition, Mr. Kennedy directly owns 147,534 shares of the company’s stock.
  • HST - CFO Gregory Larson sold 42,224 shares of Host Hotels and Resorts stock on Monday, May 12th at an average price of $21.70, for a total transaction of $916,260.80. Following the completion of the sale, Mr. Larson directly owns 116,503 shares of the company’s stock, valued at approximately $2,528,115.

MGM -  MGM Resorts International CEO Jim Murren made public comments at the Japanese Gaming Congress pressuring legislators to legalize gambling resorts via the passage of a bill to end the ban on casinos in the current session of Japan’s parliament ending June 22 and thus provide development time prior to the 2020 Olympics.

Takeway: May we suggest a slow, steady and a quiet approach with lots of deep bows to the Japanese officials rather a loud, public Gaijin approach.

2282.HK, MGM CHINA - recorded a block trade deal for a total of 1.09M shrs. The shares were sold at HK$25.648 a piece or $27.92M in total.

Takeaway: Interest for a large block to trade, near recent price lows...panicked or forced seller?

CODERE -  Win per day across Codere's key markets continue to be sluggish.  April win per seat in Argentina fell 28% to €176.7 and Mexico fell 18% to € 38.8 

Takeaway:  Not a good sign for gaming suppliers with exposure to those markets.

 

THOMAS COOK GROUP - Current Summer trading

LEISURE LETTER (05/15/2014) - TC

Takeaway:  Mixed leisure picture in Europe

INDUSTRY NEWS

Japan Gaming - lawmaker Sakihito Ozawa sees 50-50 chance of casino bill passing in current parliament session.

Takeaway: Lower odds than investors are discounting but legislators are hardly handicappers.  We do fear that strong language from the operators could be viewed as too bold to the Japanese legislators.  

Macau Gaming - Top Rank chief Bob Arum set a time, date and venue for Manny Pacquiao’s next fight and it’ll happen on Nov. 16 at 12 noon at Cotai Arena in The Venetian in Macau. 

Takeaway: The fallout between Arum and Jim Murren at MGM resulted in this outcome as we previously handicapped in our Leisure Letter. 

Hotel Transaction - Thayer Lodging has agreed to pay about $550 million for the Westin Diplomat Resort & Spa in Hollywood. The transaction includes the 998-room resort’s country club, which alone is valued at roughly $150 million because of its potential for residential development.  Average price per key:  $551k.

Takeaway:  Owned by rather the United Association of Journeymen & Apprentices of the Plumbing & Pipe Fitting Industry of the US & Canada (UA) which acquired the asset in 1997 so not a HOT owned asset.  We've visited both hotels (Beach Resort and Country Club) many times since their reconstruction and reopening in 2002 and today we believe both assets are in need of a significant capex refresh.  However, price per key was solid.

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.