LEISURE LETTER (05/20/2014)

Tickers: DRH, SHO, WOLF, CCL


Tuesday, May 20 - Wednesday 21

  • East Coast Gaming Congress

Tuesday, May 20 - Thursday May 22

  • G2E Asia - The Venetian Macao



 Thursday May 23

  • Codere 1Q conf call

 Thursday May 27

  • Aristocrat F1H 2014 conf call



DRH - Director Gilbert T. Ray sold 15,797 shares on Friday, May 16 at an average price of $11.88. Following the transaction, Mr. Ray now directly owns 43,653 shares in the company, valued at approximately $518,598.

SHO - SVP, Treasurer & Secretary Lindsay Newton Monge sold 7,521 shares of Sunstone Hotel Investors stock on Monday, May 19 at an average price of $14.22. Following this transaction, Mr. Monge now directly owns 90,841 shares in the company, valued at approximately $1,291,759.

Takeaway: There is clearly a wide dichotomy between the view from the C-Suite (bottom of the fifth inning in the lodging cycle) told to investors and how C-Suite insiders trade their company stock. Recent insider activity for lodging is clearly biased to the "sell" side.  

WOLF - will break ground Wednesday on a new Great Wolf Lodge in Garden Grove, CA (near Disney) that will feature a 121,000-square-foot indoor water park – the company’s largest – along with a 603-room hotel and conference center.  The $250 million development is scheduled to open in late 2015.

Takeaway: New competition for the "happiest place on earth"...


CCL –  (Seatrade Insider) Holland America Line will transfer the 1,258-passenger Ryndam and Statendam to P&O Cruises Australia in November 2015, making the company the biggest year-round operator in Australasia by increasing its fleet from three to five ships.  Stein Kruse, CEO of Holland America Group, said these ships are definitely not replacement vessels for Pacific Dawn, Pacific Jewel and Pacific Pearl.  He insisted P&O Cruises Australia will be a five-ship company ‘for the foreseeable future.’  Kruse said Australia is ‘far away from overcapacity’ and believes the additional ships will increase the number of fly-cruise passengers from the US, Europe and Asia.  Holland America Line’s 99,500gt Pinnacle-class ship for 2,660 passengers, due for delivery in February 2016, will replace the capacity of the two ships moving to Australia.

Takeaway:  Another bold decision that could bring dividends.  Although the demographics are not as favorable (54% of Australia's ~23 million people are between the ages of 25-64), CCL is exploring the newer cruise markets to make room for the new HAL ship.   


CCL – Power Failure Strands Costa Cruise Ship in Port Cruise Critic

 Costa Deliziosa had a power failure in Valencia and will remain in port until the cause of the outage is identified and fixed.  The blackout lasted for "a few hours" before technicians managed to restore power and essential services.  Although it remains unclear exactly how long repairs will take, Costa has told passengers scheduled to sail on an upcoming 13-night Eastern Mediterranean cruise from Civitavecchia (for Rome) on May 20, that the ship will not sail as scheduled.

Takeaway:  Get your act together Costa, you're having a decent year


China to pilot digital exit-entry permit to HK, Macau Macau News

According to the Ministry of Public Security of China, China will issue smart cards to gradually replace the current paper permits for those commuting between the mainland and Hong Kong and Macau.  The ministry plans to pilot the new permit in Guangdong, a province in south China adjacent to Hong Kong and Macau, and local police agencies will accept applications for the e-permit starting May 20.

Takeaway: Anything that smooths the transfer of people is good for Macau.

Illinois Gaming Expansion – Illinois Democratic Representative Bob Rita of Blue Island sent a letter to House Speaker Michael Madigan and Republican leader Jim Durkin looking to gain support for his plan – the first proposal adds five casinos (including one in Chicago) and slots at horse tracks; while the second calls for a mega-casino in Chicago.  Illinois faces an estimated $1.8 billion revenue shortfall unless lawmakers make permanent an income tax increase that is scheduled to roll back in January.

Takeaway:  More talk, no action


Massachusetts Gaming Expansion - Foxwoods Casino Resort and the investment group Crossroads Massachusetts LLC are upping the ante and betting on finding 120-acres of waterfront property to expand their proposed destination resort project by more than three times its present size. Fall River and Foxwoods are taking advantage of an extended deadline of Sept. 23 to submit an application for the license to work on a better project and host community agreement.

Takeaway: Sounds like Foxwoods is attempting to compete with the proposed Wynn Everett development.  


AAA survey –  36 million Americans, +1.5% YoY, will travel 50 miles or more for Memorial Day.  The travel period in the report covers Thursday, May 22, through Monday, May 26.  Gas prices are expected to stay the same as last year's national average of $3.63 per gallon.

Takeaway: Good news for leisure travel and bookings


Asia Unrest

  • Vietnam/China - the territorial dispute and protests over China's decision to move an oil rig into disputed waters of the South China Sea spiraled into riots last week in which foreign-owned factories were burned and looted.
  • Thailand - Thailand's army declared martial law nationwide on Tuesday to restore order after six months of street protests that have left the country without a proper functioning government

Takeaway:  Global geopolitical unrest is increasing.  Some Chinese travel agents have already suspended Vietnam tours.  China also at territorial odds with Philippines and Japan and curbing tourism to Malaysia/Singapore.


Singapore - Q1 2014 GDP of 4.9% missed consensus estimates of 5.5%.  The expansion in GDP during the January-March period was lower than the government's initial estimate of 5.1%. 

Takeaway: Not encouraging news for the mass gaming segment


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.


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