LEISURE LETTER (05/29/2014)

Tickers: LVS, HOT, CCL

EVENTS TO WATCH

  • Monday, June 2 - Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference 
  • Monday, June 2 - Tuesday, June 3 - Midwest Gaming Summit, Rosemount, IL
  • Tuesday June 3 - Thursday, June 5 - REITWeek, New York, NY

COMPANY NEWS 

LVS (Macau Business) Sheldon Adelson hopes a visit to Marina Bay Sands by Japanese Prime Minister Shinzo Abe will speed up the legalization of casinos in Japan.  The news agency quotes Mr Adelson as saying the prime minister will tour the Marina Bay Sands casino-resort in Singapore on May 30 and get a “scripted plea” to push for legalization. Prime Minister, Shinzo Abe, is visiting Singapore where he is giving a key note address at the IISS Asia Security Summit Shangri-La Dialogue. 

Takeaway: When will the Gaijin learn, the Japanese people and systems move at their own speed and pace?

 

HOT – signed a new 430,000-square-foot, 20-year lease for a planned $30 million expanded global headquarters at One StarPoint in Harbor Point, Stamford CT - made possible by a state loan of up to $5 million and $20 million in state tax credits. The two-tower One StarPoint is a 430,000-square-foot Class A office property that was originally built in 1989 and renovated in 2011. Starwood currently occupies 300,000 square feet, and under the new lease will be able to expand into additional space as it becomes available.

Takeaway: Confirmation that this company is not relocating to a foreign domicile anytime soon.

 

CCL - Ibero Cruises to be absorbed into Costa Cruises (Cruise Currents)

Earlier this month, Costa Cruise’s CEO, Michael Thamm, announced the line would absorb the smaller Ibero Cruises into the Costa brand by the end of the year.  The decision to absorb Ibero into the Costa brand will allow Costa to significantly expand in the Spanish cruise market, a market Costa has been eyeing for some time.  Prior to the final transition into the Costa fleet, one of Ibero’s two ships, Grand Celebration, will be renovated and redesigned to coordinate with the remainder of the Costa fleet. The ship will be renamed Costa Celebration and has reportedly received a new hull design, reflective of the white hulls of the current Costa fleet. The Grand Holiday is expected to be either transferred from the Ibero fleet or sold before the transition is finalized.

Following the transition, Thamm states Costa will increase their calls in Spanish ports by 6% in comparison with 2013.  

Takeaway:  The Spanish market has rebounded somewhat in 2014.  We're seeing it in our pricing survey.

 

BX (Las Vegas Sun) Executives responsible for Blackstone's investment in Cosmopolitan of Las Vegas indicated they "believe that gaming revenues can increase there very quickly by 50 percent."  They also indicated this is not their (Blackstone's) first foray into Las Vegas. In addition to a previously unknown equity position in the Cromwell and Drai’s Beach Club and Nightclub, they also have made a substantial billion-dollar-plus investment separately in Caesars Entertainment.

Takeaway: Tough to bet against Jonathan Gray's track record, but this will be a challenge. 

INDUSTRY NEWS

Japan Lower House Staff:  Casino Bill Won't be Discussed this month (WSJ)

As a result, lobbyists and lawmakers said they believe it will be nearly impossible for the bill to get passed during the current parliament session, which ends June 22.  A committee on Japan's lower house won't have time to address the casino bill in its next session on Friday because it has to handle another item regarding the country's Atomic Energy Commission, a representative from the cabinet committee in charge of bill discussion told WSJ.  Toru Mihara, an adviser to the 200-member bipartisan group pushing the bill, said Wednesday that he remained optimistic the bill would still be passed, just "not in the near future."  Some casino advocates such as Mike Tanji, executive adviser at Gaming Capital Management Inc., said they are now setting their sights on the next parliament session this fall.

Takeaway: WSJ confirmed the rumors of last week.

 

UnionPay – (Macau Daily Times) despite the crackdown on non-Macau registered UnionPay POS (point-of-sale) machines in local casinos, people are still using the loophole posed by the machines to illegally withdraw money.  Allegedly, a reporter from the Hong Kong newspaper Apple Daily found a man from the mainland who solicits people to make illegal UnionPay withdrawals in a Cotai casino. The currency transaction would be conducted in a hotel room via a Mainland UnionPay machine. 

Takeaway: No surprise that illegal transfers are continuing.

 

UnionPay –  announced it will spend 200 million yuan ($32.02 million) to promote its payment functions and services to cardholders. The promotion is to change cardholder habits from swiping cards to paying with phones. 

Takeaway:  Recall in our May 13 Leisure Letter we noted Apple is likely to incorporate a near field communication payment function in the net generation iPhone and Apple reached an agreement with China UnionPay on a mobile payment service whereby users would download the UnionPay bank card app to Passbook in their iPhones and make mobile payments on over three million China UnionPay ‘QuickPass’ POS machines in China.

 

US Online Poker Legislation –  new online gambling bill that includes a carve out for online poker is floating around Washington DC.  The bill draft is titled the “Internet Gambling Prohibition and Control Act of 2014”as is viewed as a potential path to compromise between Mr. Adelson and his adversaries. 

Takeaway: Poker is likely the only form of internet gambling to be legalized federally.  This has been our contention all along.


Iowa Gaming – Warner Gaming LLC's Hard Rock Sioux Falls announced August 1 will be the opening date for the new casino. 

Takeaway: The stage is set for a showdown between Argosy Sioux City's desire to remain open (subject to their bankruptcy proceedings) and the Hard Rock's desire to open without competition from another local casino. 

 

Downtown Las Vegas – a Las Vegas committee will consider a new liquor law allowing people to drink only from plastic cups in a 32-block area around Fremont Street downtown. The proposed amendment to city ordinances is meant to help police enforce regulations prohibiting the outdoor consumption of alcohol purchased from liquor stores within 1,000 feet of those stores. The 1,000-foot law has been in effect for several years but never strictly enforced. The law would apply within an area bounded by Stewart Avenue to the north, Bridger Avenue to the south, 8th Street to the east and the Union Pacific Railroad right of way to the west, which is essentially Main Street.

Takeaway: The City of Las Vegas is trying to clean up the image of downtown Las Vegas and this is but one of many small actions in that process.

MACRO

Las Vegas Home Prices - the S&P Case-Shiller Home Price Index increased 21.2% YoY in March.  While the area has experienced a strong rebound in home prices over the past 18 months, values remain below peak levels of 2007.

Takeaway:  Positive data point for the locals casino business but climbing housing prices have yet to boost gaming revenues.

 

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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