LEISURE LETTER (06/05/2014)

Tickers:  ALL.AX, IGT, HST


  • Thurs June 5: REITWeek, New York, NY
  • 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
  • Mon June 9 - HTZ earnings
  • Tues June 10 - HLT lock-up expiration
  • Tues June 10 - Thurs June 12: Bally Systems User Conference
    Mohegan Sun
  • Thurs June 12 - Blackstone Investor Day 8:00 am


Aristocrat – installed their Oasis 130 Casino Management System, which replaced a competitors system, at the Mono Wind Casino located in Auberry, California.

Takeaway: Good win for Aristocrat, likely a loss for IGT


BYI – announced it has entered into a definitive agreement to acquire Dragonplay Ltd., a leading online social casino company headquartered in Tel Aviv, Israel, with top-grossing applications for Android, as well as a significant presence on Facebook and Apple iOS. Total consideration includes approximately $51 million in upfront cash, plus the amount of net working capital, payable to Dragonplay’s shareholders in exchange for all of the issued and outstanding equity, and approximately $49 million in additional earn-out consideration and employee retention payments over the next 18 months subject to Dragonplay meeting certain financial performance targets. Bally expects to fund the transaction from cash on hand and proceeds from its revolving credit facility.

Takeaway: We now know why BYI recently increased the size of its corporate credit facility.

IGT – the Company's DoubleDown Casino launched a soccer-themed slot game, Final Goal, featuring a customizable game experience, where players select their favorite soccer team based on one of sixteen country flags, fifteen paylines, a soccer-themed bonus and scatter symbols, and 3x5 spinning reels in the bonus spins game. Players can collect free spins and multipliers by shooting at the goal line. The penalty kick bonus game is triggered by spinning three, four, or five bonus symbols.

Takeaway: DoubleDown continues to increase content and deepen its market reach. Dare we say that DD is turning out to be a solid acquisition. 


Bloomberry - Manila's Bloomberry in talks with Japan firm on casino tie-up (Reuters)

According to CEO Enrique Razon, Bloomberry is in talks with a potential Japanese partner for a license if and when a Japanese gambling law is passed. for what could be the company's maiden overseas venture.  


Razon also said the company is studying opportunities in Macau, which may open application for new licenses in 2020.  The company is also considering further expanding its Solaire casino-resort in Manila to include three new hotel towers with 1,500 rooms and a 15,000-seat events area.  The planned expansion, which is subject to market demand, would raise Solaire's gaming tables to 650 from 360 and nearly double its electronic gaming machines to 3,000, making it the largest integrated resort worldwide.  Solaire is set to open in November its $400 million expansion featuring more VIP gaming sections and a mall, theater and another hotel, with the extension having a total gross floor area of 200,000 square metres.

The company will add 1,300 staff for its new phase, as it expects to increase its share of foreign junket operators to 70% given the opening.

Takeaway: Another player in Japan.  By expanding, Solaire is preparing for CoD Manila's entry during Oct Golden Week.


HST – is asking Chicago for a zoning amendment that would allow development of 750,000 square feet of new office space and a 3,000-space parking garage, on owned land adjacent to the Chicago Marriott O'Hare. Host's plans show three office buildings of up to 18 floors surrounding the parking structure, all of which would be built along the west side of the hotel. Last year, Host completed a $40 million renovation of the Chicago Marriott O'Hare, in which it eliminated 211 rooms.  An outdated portion of the existing hotel likely would be razed to create extra land for the office development, according local real estate contacts. A Host predecessor acquired the Chicago Marriott O'Hare in 1997 as part of a six-hotel, 3,054-room portfolio deal, paying a total of about $240 million for the portfolio properties.

Takeaway: The surburban office vacancy rate in the O'Hare submarket was 24.5% during Q1 2014.  So, unless this all three of the proposed office buildings are build-to-suit rather than speculative development, we are skeptical of the immediate ROIC to shareholders. 


LEISURE LETTER (06/05/2014) - Host Ohare Marriott

Image: Google Maps 


Insider Transactions:

MAR – J W. Marriott, Jr. sold 20,834 shares of stock on Monday, June 2nd at an average price of $61.38 and now owns 188,229 shares.


SHO – CEO Kenneth Edward Cruse purchased 4,000 shares of stock on Tuesday, June 3rd at an average price of $14.79 and now owns 671,430 shares.


WYN – VP Nicola Rossi sold 4,000 shares of the stock on Monday, June 2nd at an average price of $74.10 and now owns 11,069 shares.


RCL – COO Adam M. Goldstein sold 4,869 shares on Monday, June 2nd at an average price of $55.14 and now owns 370,724 shares.


Macau Money Laundering(SCMP) a story about the illegal cash transfer business directly reports ICBC and Bank of China were involved in the acceptance of illegal cross border dirty money on behalf of Macau based merchants.  The illegal cross border cash transfer transactions violate three laws:  1) related to the use of mobile payment devices not registered in Macau but in the mainland; 2) when a third-party company in the mainland clears the transaction; 3) when a state-run banks give “the green light” and accept funds coming from the mainland through these POS machines.

Takeaway: Now we know the reason for the crackdown on the illegal handheld devices. 


Macau Smoking Ban – the Macau Government released dispatch 141/2014 which outline the new smoking ban rules.  The dispatch indicates gaming operators can ask the Gaming Inspection and Coordination Bureau and the Health Bureau for authorization to establish smoking lounges "in areas that are of limited access to specific games and gamblers".   However, the Gaming Inspection and Coordination Bureau has yet to define "limited access" and thus it is unclear if this terminology applies to VIP as well as premium mass gaming areas. The smoking ban will begin on October 6, after October's Golden Week holiday.

Takeaway: The burden falls back on the Gaming Inspection and Coordination Bureau to decide if premium mass will be non-smoking.


Hong Kong Gaming Boat to be sold – Macau casino investor Success Universe Group Ltd has indicated it will sell its 55% interest in M.V. Macau Success, a casino cruise ship that operates out of Hong Kong, due to rising costs. The cruise ship business posted a profit of approximately HK$0.5 million in 2013 compared with approximately HK$2.9 million in 2012. The M.V. Macau Success is a nine-deck cruise ship, operating on a daily basis from Hong Kong to international waters. The cruise ship was built in 1974 and motors under a Bahamian flag. It features a casino and entertainment facilities, with a total capacity for 660 people and more than 200 passenger rooms.

Takeaway:  Old, costly ship being sold


Outbound Chinese Tourism – Business Monitor International (BMI) forecasts Chinese tourists will rise 50% between 2014 and 2018, growing at a rate of 10% per year. The actual and already huge market of 88.1 million mainland tourists traveling abroad will stretch to 122.5 million in 2018. BMI forecasts In 2018, Hong Kong will receive more than 60 million mainland tourists, 50% more than the 41.6 million estimated for this year.  Hong Kong will capture more than half of all Chinese tourists traveling outside the country in 2018, while Macau will attract 22 million mainlanders in the next five years, around 20% of all the Chinese outbound traveling market.

Takeaway: Strong long term trends for the mass business in Macau. 


Only 1% of norovirus outbreaks are on cruise ships, says CDC (Travel Weekly)

According to the Centers for Disease Control and Prevention (CDC), norovirus outbreaks most often makes headlines when they happen on cruise ships, but these only account for about 1% of all reported outbreaks.

Takeaway:  Does CNN know about this?


China GDP – the IMF cut its 2015 economic growth forecast for China to about 7%, but urged authorities to avoid further stimulus measures and concentrate on curtailing financial risks instead


China Macro – HSBC services PMI 50.7 in May vs April's 51.4, the May result was the lowest in four months


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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