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Tickers: ALL.AX, LVS, PENN, SGMS, WYNN, CCL

EVENTS TO WATCH

Thursday May 22

  • G2E Asia - The Venetian Macao

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

Thursday May 23

  • Codere 1Q conf call

 Thursday May 27

  • Aristocrat F1H 2014 conf call

COMPANY NEWS

ALL.AX – Some electronic gaming machines (EGM) from Aristocrat Leisure Ltd are down in Macau casinos following a player dispute. The shutdown affects some of Aristocrat’s EGMs, including Yellow Dragon links carrying 5 Dragons and Fa Fa Fa games. The decision to switch off Aristocrat’s EGMs follows new regulation introduced in 2012. Administrative Regulation 26/2012 states that concessionaires should refuse to pay prizes or any accumulated credits if it suspects a malfunction or software glitch in a particular EGM.

Takeaway:  A slip in what will be a great fiscal half for Aristocrat when they report on the 27th.  Maybe a small positive for IGT.

 

LVS – confirmed Michael Leven, President & COO, will retire at the end of 2014, when his contract expires.  CEO Adelson has no plans to slow down, step back, or relinquish his CEO title and role. 

Takeaway: Mr. Adelson remains fully in-charge.  As we mentioned yesterday, Leven's replacement is a very key hire.

PENN – is now required to buy the 98 acres of land Lakes Entertainment owns adjacent to the Jamul Indian reservation in San Diego County, CA. PENN will pay $5.5 million for the land no later than 10 days after the Jamul opens and PENN will manage.  Recall in 2012, Lakes entered into ten-year option agreement with Penn that granted Penn the right to purchase the 98 acres of land, owned by Lakes adjacent to Jamul’s reservation land for a purchase price of $7 million which increased annually by 1%.

Takeaway: Land crucial to development potential to further the duration of casino management contract.

SGMS priced its $350 million in 6.625% private placement senior subordinated notes due 2021 at 99.321 percent with QIBs.  The proceeds will repay $350 million in 9.25 percent senior subordinated notes due 2019. The tender offer for those notes expires June 17.

Takeaway: That's nearly $0.11/share (pre-tax) of interest expense savings and earnings accretion - should the entire nearly $9.2 million interest expense savings drop to pre-tax net income.

WYNN (GGRAsia) Gamal Aziz, president of Wynn Macau Ltd, told GGRAsia on the sidelines of the opening session of Global Gaming Expo (G2E) Asia 2014 that premium mass players – that theoretically offer superior margins to the house compared to credit-based high rollers – were now being courted more assiduously by his company, via perks traditionally reserved for VIPs including complimentary rooms.

Takeaway: Wynn getting more aggressive in Mass is a positive for market share, revs, and profits.  There remains the potential for Wynn to provide more credit to its junkets to boost VIP in the same way.  These levers provide on leg of our positive thesis on WYNN. 

 

WYNN – in the competition for the Greater Boston casino license, WYNN's competitor Mohegan Sun announced it reached a surrounding community agreement for the proposed $1.3 billion Mohegan Sun resort casino for Revere.

Takeaway: We have a two horse race and handicapping the exacta bet is too close to call.

 

RLJ – announced a 7.5 million share offering use the net proceeds from the offering to fund potential acquisitions and for general corporate purposes, and may use net proceeds to repay amounts outstanding from time to time under its unsecured revolving credit facility. 

Takeaway: The share prices of most lodging REITs are +10% to +15% on a YTD basis, the underperforming lodging REITs are flat to +4%, we are not surprised to see equity issuance. 

 

CCL - will spend up to $400m on installing scrubbers to more than 70 vessels across its brands, up from 32 announced last year. 

Takeaway: An expected announcement to comply with regulations.  Carnival has said prices will be unaffected.

MSC Cruises- (Seatrade Insider) MSC Cruises orders 2 'futuristic' newbuilds 

MSC Cruises signed a contract with Fincantieri for two ships, with an option for one more.  The ships will accommodate up to 5,300 passengers each and are to be delivered in November 2017 and May 2018. They are priced at €700m each, financed by the support of SACE.

Takeaway:  These are big ships.  The 2016-2018 capacity growth is starting to worry us.


MTN – the Third Judicial District Court of Summit County, Utah ruled favor of Talisker (and Vail Resorts) on all matters relating to the expiration of the Park City Mountain Resort lease.

Takeaway: While a positive ruling, PCMR continues to own the base operations and Vail must reach an agreement (very soon) to lease or purchase such operations from PCMR.  Futhermore as we wrote in our April 10, 2014 Leisure Letter, PCMR indicated that if unsuccessful with its lawsuit, PCMR indicated it would dismantle and remove most of the area's chair lifts except for Jupiter, Thaynes, and Motherlode.

INSIDER TRANSACTION

MAR - Simon Cooper, President/Managing Director Asia Pacific, sold 10,000 shares of stock on Monday, May 19 at an average price of $58.50/share.  Following the transaction, Mr. Cooper now directly owns 46,315 shares in the company.

Takeaway: More selling by an lodging insider at the same time the managements are telling investors that business trends are accelerating. 

INDUSTRY NEWS

GAMING

Macau bound ferry accident – More than 30 people were injured late Wednesday night when a Macau-bound high-speed ferry collided with a cargo ship in the waters west of downtown Hong Kong around 11 p.m. local time.  The ferry involved in the accident is operated by Shun Tak-China Travel Ship Management Ltd.

Takeaway: Given the frequency of high-speed ferries between Macau/Cotai and Hong Kong, we are surprised more accidents don't occur.

 

Macau smoking ban – according to the Macau Health Bureau, premium mass areas located on the mass market floor will have to comply with the the full smoking ban.  Grant Bowie, CEO MGM China, recently commented that in order to have smoking in VIP rooms, the VIP rooms will need to be physically separated from mass market gaming areas.

Takeaway: Bowie says VIP could be somewhat impacted by smoking ban.  We certainly haven't heard that from anyone else.

Macau non-gaming spend - non-gaming spending by visitors in Macau increased 10% to US $1.99 billion in 1Q 2014 while overnight visitors during Q1 spent more on non-gaming items with spending up 8% to $1.653 billion while day trip visitors spending increased 19% to $350.641 million.

Takeaway: Strong growth in non-gaming spend.

 

Upstate New York Gaming in an unexpected turn of events to applicants, New York Governor Andrew Cuomo spoke up in support of casinos located in Sullivan and Ulters counties versus proposed casinos in Orange County.  The Governor indicated he favors the more economically hard-hit regions of the Catskills/Hudson Valley getting a first crack at jobs-building casinos and will press hard to get the first licenses issued in those areas - which was the intent of Proposal 1.

Takeaway: It seems to us, this was the Governor's intent in floating and supporting Proposal 1.  Additionally, we remind investors gaming will likely come to the downstate zone, which includes the City of New York, Nassau, Suffolk, Westchester, Rockland and Putnam counties seven years after the commencement of gaming activities in the upstate region.

LODGING

Macau Hotel ADR – The average price of hotel rooms increased by around 10.3% in April YoY.  The biggest increase was by 4-star hotels, where rates increased an average of 1,026 patacas per night from 890 patacas an increase of around 15.3% YoY.  5-star hotels increased by 9.5% YoY to 1,547 patacas from 1,403 patacas a night.

Takeaway: Strong growth in ADR prior to the new properties opening in 2015 and 2016. 

 

NYC Lodging –  New York Attorney General and Airbnb have reached agreement on information disclosures about short-term New York City apartment rentals in a state investigation of illegal hotels.  The NYAG is seeking information about Airbnb's hosts going back three years, noting many listings appeared to offer unoccupied apartments for very short periods, violating rules against unregulated hotels. The state law prohibits owners or renters of apartments in multi-unit buildings from renting them for less than 30 days unless they remain present. The law permits having boarders or renting rooms.

Takeaway:  Sounds to us like a crackdown on short-term rentals in NYC will happen, which in turn will reduce the number of Airbnb bookings/transaction fees.

MACRO

China HSBC Flash PMI - May flash PMI picked up from 48.1 in April to 49.7, ending the consecutive decline in the past 6 months. 

Takeaway:  Still falling demand but above expectations

 

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.