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    MARKET EDGES

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Tickers: LVS, 1928.HK, MPEL, BEE, LHO

EVENTS TO WATCH

  • Tues June 3: Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference, New York
  • Tues June 3: NYU Int'l Hospitality Industry Conference, New York
  • Tues June 3: Midwest Gaming Summit, Rosemount, IL
  • Tues June 3 - Thurs June 5: REITWeek, New York, NY
  • Wed June 4 - Thurs June 5: Russian Gaming Week 2014
  • Thurs June 5 - Todd in Vegas for slot suppliers mgmt meetings
  • Thurs June 5 - 4:30 pm MTN earnings
  • Tues June 10 - HLT lock-up expiration
  • Tues June 10 - Thurs June 12: Bally Systems User Conference
    Mohegan Sun

COMPANY NEWS

1928:HK & LVS – The Dragon's Palace High Limit Area is now open at Sands Cotai Central.  This newest prestige area at Himalaya Casino features 74 baccarat tables, two Sicbo tables and four private gaming rooms. Minimum bets are HKD 1500/3000/5000/10000 (depending on tables), with a maximum bet limit of HKD3Million.  In addition, The Dragon's Palace provides daily pass-around canapés, refreshments and a dining area with a comprehensive menu.

Takeaway:  Widely anticipated and recently discussed on LVS's Q1 earnings call, the newly built premium mass area is now open. 

 

MPEL – confirmed on Tuesday a hotel management agreement with Hyatt for the hotel at City of Dreams Manila.  Melco Crown Philippines said the Hyatt would feature 365 guestrooms, two food and beverage areas, a fitness centre, VIP lounge, and outdoor swimming pool and is targeted to open in October 2014 to coincide with China's Golden Week holiday. 

Takeaway:  As expected 

BEE – increased guidance for full year 2014 Comparable EBITDA and Comparable FFO/fully diluted share to reflect the closing of the common equity offering, the acquisition of the remaining 63.6% interest in the Hotel del Coronado (expected to close in early June), and the redemption of the 8.25% Series C Cumulative Redeemable Preferred Stock (expected to be completed in early July) -- comparable EBITDA $230-$250M vs prior guidance $210-$230M and comparable FFO $0.59-$0.68 vs prior $0.57-$0.67.

Takeaway:  The upward revision was expected but the magnitude of the positive revision was larger.  The company is finally on the road to stronger financial results. 

 

LHO – entered into a definitive contract to sell the Hilton Alexandria Old Town for approximately $93 million with proceeds from the transaction used to reduce borrowings on the Company's Senior Unsecured Credit Facility. The Company acquired the hotel in May, 2004 for $59 million. The Company expects the transaction to close during June 2014. The transaction is subject to customary closing conditions.  Additionally, LHO initiated the process to redeem its $58.7 million, 7.25 percent Series G Preferred Shares. Official notice of redemption will be given at a later time. The redemption is expected to close early July 2014.

Takeaway:  Generating positive returns for shareholders both with asset sales and paying off preferred debt. 

MSC Cruises - Boosts commission pay to 25% (Seatrade Insider)

MSC Cruises USA's has announced a 60-day Balcony Bonanza Cash-Back booking incentive for all MSC Divina Caribbean seven-night and 10-night sailings between Aug. 2 and Dec. 20.  Effective today, MSC Cruises USA is paying 5% commission on all pre-paid special services pre-booked by agents on behalf of their clients.  In addition to the current commissionable shore excursions, hotel packages, transfers and airfare, this now includes spa treatments, specialty restaurants, beverage packages and stateroom celebration packages, among others.  MSC will continue to pay 10% commission on pre-paid cruise insurance coverage.

Takeaway:  This follows Celebrity's temporary commission incentive yesterday.  While good for agents and maintaining good relationships, we wonder if these actions could be attributed to Caribbean pricing pressures to some extent.

INDUSTRY NEWS

May GGR - (DSEC, GGR Asia)

Macau May GGR rose 9.3% YoY to MOP 32.354 billion (HKD 31.411 billion, USD 4.051 billion).  According to industry figures compiled by GGRAsia, market shares are as follows:  LVS (23.2%), SJM (23%), GALAXY (21.2%), MPEL (12.8%), WYNN (10.5%), and MGM (9.3%).

Takeaway: Disappointing May numbers well below our forecast. Please see our separate note today.

Japan – "Japan Industrial Revival Plan" the 60-page draft outline of Prime Minister Shinzo Abe's growth strategy promises to overhaul corporate governance, promote technology and attract private investment.  However, issues still not addressed in the preliminary draft include whether Japanese corporations will be allowed to own farmland, reforms to the labor arbitration process as well as a policy position regarding legalizing casino gambling.  The policy plan will form the basis of Abe's "third arrow" reform update due to be announced later this month.  

Takeaway:  Abe has endorsed casinos last week so we're not worried about the lack of gaming language in the "third arrow" policy plan. Timing remains elusive. 


Cambodian Border Casinos negatively impacted – Statistics from the Cambodian authorities indicate the number of people passing through the Thai-Cambodia border crossing per day has declined from an average of about 1,500 prior to the military coup to about 700 on Monday.  The Cambodia-based company called Crown Resorts Co with three casinos in Poipet receives more than 200 Thai visitors per day.  However, following the military coup, the number of Thai visitors has fallen to just over 100 per day. The drop in visitation is due to fears the Thai army may impose capital controls which would result in devaluation of the Thai baht similar to the 2006 devaluation.

Takeaway:  A potential headwind to NagaCorp's NagaWorld casino.

Amex survey – (Seatrade Insider) 

American Express travel counselors are booking more cruises this year than last and report demand or interest in river cruising is skyrocketing. However, clients are waiting for future price cuts and many ask for on-board credits. And most agents are focused on getting repeat customers to cruise, rather than drumming up new business. The most typical challenge to closing cruise sales is customers waiting for the price to drop (42%), less spending on vacations (36%), interest in land-based tours and vacations (34%), negative publicity surrounding cruising (34%) and customers booking online (29%).

Takeaway:  Not a good sign for cruisers' attempt to raise prices

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.