LEISURE LETTER (05/27/2014)

Tickers:  HOT, IHG, STAY, MAR, RCL

EVENTS TO WATCH

  • Tuesday, May 27 - Aristocrat Leisure: 11pm (Live Phone Number: , Passcode: 9068797)
  • Monday, June 2 - Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference 

COMPANY NEWS

HOT - sold its leasehold interest in the Park Lane Hotel in London, UK, to Sir Richard Stutton's Settled Estates for an undisclosed sum.  Starwood will continue to 303-room, Sheraton-branded, Art Deco property under a new long-term management agreement.

Takeaway: Don't have terms but Strategic Hotels sold its leasehold interest in the 237-room Marriott London Grosvenor Square hotel for £125.15 million ($207.7 million), or approximately £528,000 per key ($877,000). 

IHG - turned down a £6B takeover approach.  Sources believe it was either Starwood Hotels or Starwood Capital.  Industry observers in London expect the buyer to return with a rebid.

Takeaway: Given HOT's share repurchase announcement, we doubt HOT is still involved, if they ever were. IHG recently announced a large capital return so nothing is imminent from their end either.

STAY - the IPO lock-up covering 172.3M shares (84.1% of outstanding) expired on May 25. 

Takeaway:  STAY listed at $20/share vs. Friday's closing price of of $21.49/share.

 

MAR - insider J Marriott, Jr. sold 97,043 shares of stock on Friday, May 23rd at an average price of $59.09, for a total transaction of $5,734,270.87. Following the sale, the insider now directly owns 188,229 shares in the company.

Takeaway: More insider selling in hotel companies.

RCL - announced its year-round deployment in Singapore for the first time from 2015, starting with its ship Legend of the Seas in the summer season and followed by Mariner of the Seas in the year-end.  

Takeway: Continued focus on Asia in 2015

MSC: Sees Fantasia class ship in UK by 2017 (Cruise Business Review)

MSC is reported to be considering a return to the UK after a break next year and to have a 137,000 gross ton Fantasia class ship based in Southampton by 2017.

Takeaway:  MSC is certainly surprising some folks on how fast the company is growing.

MSC: Sasso makes the case for MSC's growth, disputes pricing alarm (Seatrade Insider)

MSC North America chief, Rick Sasso said, "We need more capacity and we have the momentum to fill [all the new ships].  Some of our competitors have had trouble filling the increased capacity in the Caribbean.  We held our pricing even as the other major brands were heavily discounting last fall and early winter. We eventually had to make our own pricing decisions as well but...we are only a small percentage of Caribbean inventory and their stress and needs were much greater."

Takeaway:  Sasso comments suggest MSC's upcoming new ships may be focused on the North America markets e.g. New York/Miami.

 

RCL - Jorge Vilches Named President and CEO of Pullmantur

Takeaway:  Good leadership change to turn around a struggling brand

INDUSTRY NEWS

Macau Unemployment (DSEC) - The unemployment rate for February-April 2014 was 1.7%

Takeaway:  Low unemployment remains - and many of the 1.7% may be in the underground economy.  Where will the new dealers for Cotai come from?

Hong Kong Visitation - (Bloomberg) Mainland Chinese represent 75% of Hong Kong's 54.3 million tourist arrivals in 2013. Recent protests have caused the SAR to consider limiting Mainland tourist arrivals. The city may need measures to “slow the gains in tourist arrivals or stop increases, or cut visitors,” said Hong Kong's Chief Executive Leung. “We’re making studies and will seek feedback.”

Takeaway:  Any curtailing of mainland visitation to Hong Kong will result in a slowdown in retail sales as well as potentially a minor slowdown in Macau visitation as some Mainlanders appear to be accessing Macau via Hong Kong.

 

Chinese Illegal Gaming Crackdown - (Shishi Daily) RMB400 million (US$64 million) of alleged gambling money was seized by the Public Security Police in a raid on a hotel in Fujian province.  The action was the result of information from the public that an illegal casino operation was taking place at night in a “downtown hotel” in Shishi, a county-level coastal city of 300,000 inhabitants in the municipal region of Quanzhou, in southern Fujian province. 

Takeaway: Not relevant to Macau. 

Japan Gaming - Japan's Prime Minister Shinzo Abe plans to visit a casino and resort complex in Singapore to assess the facility's economic benefits and effect on society.  Abe will be in Singapore to deliver a keynote speech on May 30 at an annual Asia Security Summit.

Takeaway:  Good for LVS's prospects in Japan

Macau Infrastructure - the Light Rapid Transit railway system which was expected to open between 2015 and 2018, appears to be facing major delays.  While the loop serving Taipa and Cotai is expected to be ready by late 2016, the Peninsula portion of the network is experiencing major setbacks and cost overruns. 

Takeaway:  Infrastructure delays have been persistent and not good for an area in desperate need.

Cambodia Gaming - Roxy Casino, located in Bavet City, Svay Rieng Province and 200 metres from the border from Cambodia to South Vietnam, re-opened, after undergoing refurbishment and renovation. Roxy Casino features a main gaming hall with 15 gaming tables and eight online gaming tables, plus a premium gaming area with five tables offering high-stake games, slot machines and a sports betting area focused on international football games and will operate 24 hours a day.  The property includes a four-star hotel with 20 rooms and a restaurant. The property is currently part of a reverse-listing process that will see it listed on the Australian stock exchange via a shell company, Cell Aquaculture Ltd.

Takeaway: A new, albeit small competitor for NagaWorld.  

Massachusetts Gaming Commission - is seeking a change in the gaming tax structure that would benefit operators. Reportedly the most-discussed change has been eliminating the withholding of taxes each time a $600 or larger jackpot or hand is won.

 

Wisconsin Tribal Gaming - The Menominee Indians disclosed Phase I of the Hard Rock casino, located on the former Dairyland Greyhound Park in Kenosha, would include 2,700 slot machines, 100 table games and 24 poker tables.

Takeaway: Potential competition for Greater Chicagoland gaming dollars. Weezer should be a constant on the play list.

Medcruise:  Western med opportunities and challenges (Cruise Industry News)

The Western Mediterranean will continue to see a build-up of capacity, according to cruise line executives speaking at the MedCruise general assembly in Castellon, Spain, May 21 – 23.  2014 is expected to be strong with further growth in 2015, including the Allure of the Seas, and a spike in 2016 with more new ships.  The executives expressed optimism about the economic recovery in North America and noted that Europe was starting to pick up as well and that they are focused on growing their European sourcing.

Takeaway:  The Med has been a bright spot this year.  Expectations will be higher in 2015.

MACRO

Asian Political Tensions - A Chinese vessel rammed and sunk a Vietnamese fishing boat in disputed waters in the South China Sea.

Takeaway: Unrest in Asia continues to concern us.

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.