LEISURE LETTER (06/18/2014)

Tickers: MCP:PH, MGM, WYNN, LHO

EVENTS

  • Wed-Thur June 18-19: Todd in Macau for meetings
  • Wed-Thurs June 18-19:  Hedgeye Cruise survey (pre-CCL F2Q)
  • Thurs June 19: LA May revs released

COMPANY NEWS

MPEL, MCP:PM – Melco Crown Philippines Resort seeking to raise as much as $129 million via an offering of as many as 485.2 million shares at 11.30 pesos to 11.70 pesos per share.  The capital raise follows an announcement of a 37% increase in the budget for its Manila casino and total development costs are expected to be 37 billion pesos (US$832 million), up from US$680 million.

Takeaway: Another budget increase from an Asian resort project.  This is getting ridiculous.

 

MGM –  signed a community benefits agreement with Prince George's County on Tuesday that ensures 50% of the jobs slated for the $925 million MGM National Harbor will go to local residents.

Takeaway: As expected given recent headlines and also provides MGM cover as supporting and improving the local economy while providing jobs for local residents. 

 

WYNN – as it pertains to the proposed Wynn Everett casino resort, the city of Boston was granted one additional week to reach a neighboring community or host community agreement with WYNN. If no agreement is reached, both parties will submit to arbitration. Desiring a host community agreement, Boston Mayor Walsh has reserved the right to sue in the event such an agreement is not reached or awarded via arbitration.

Takeaway: Who will blink first, if at all? 

 

LHO – announced it closed on the sale of the Hilton Alexandria Old Town for $93.4 million. The Company acquired the hotel in May 2004 for $59.0 million. Proceeds from the transaction will be used to reduce borrowings on the Company’s Senior Unsecured Credit Facility and redeem the remaining $58.7 million of 7.25 percent Series G Preferred Shares. The Preferred Share redemption will close on July 3, 2014.

Takeaway: On time and on track.

 

RCL - Targeting affluent couples with Quantum-class ships Travel Weekly

Quantum-class ships will allow RCL to reach beyond its traditional family market and target affluent couples, the cruise line has claimed.  Stuart Leven, the line’s managing director for the UK and Ireland, said the facilities on board Anthem of the Seas, due to launch next spring and to sail from Southampton, would be the same but the shows would be tailored to the UK market. 

Takeaway: This cool ship can appeal to multiple demographic groups.


Insider Transactions

  • HLT - EVP Matthew W. Schuyler (Chief Human Resources Officer) sold 373,968 shares at an average price of $22.79 and now owns 574,886 shares.
  • HST – EVP Minaz Abji sold 99,150 shares at an average price of $22.15 and now directly owns 162,137 shares.
  • H - Peter Fulton sold 8,459 shares at an average price of $59.38 and owns 27,391 shares.
  • PNK - EVP Neil E. Walkoff sold 10,000 shares of stock at an average price of $25.30 and now owns 47,539 shares.

INDUSTRY NEWS

Japan Gaming Legislation – as expected the Liberal Democratic Party introduced discussions within the Japanese Parliment regarding the legalization of integrated resorts and casinos.  The bill, which was submitted to parliament last December, will not be passed before the end of the session on June 22 and will be taken up again when the Diet resumes in autumn. Komeito party members indicated that while difficult to pass the legislation in the current session (which will end June 22), the bill has a good chance of passage in the next session which is scheduled to begin in late September/early October. 

Takeaway:  The formal process of "nemawashi" has started but nemawashi can take a long time by Western standards, so find your inner gaman.  If the current talks are constructive, it bodes well for passage of the 1st gaming legislation this fall followed by the second legislation by June 2015.

 

Malaysia Gaming Expansion (New Strait Times) The founder of Berjaya Group, Tan Sri Vincent Tan, recently announced Berjaya Group would apply for a licence for a casino in Malaysia’s Berjaya Hills Resort. Berjaya Hills Resort is a hill resort in Bukit Tinggi, Pahang, Malaysia near the Genting Highlands. It is known for its French-themed village, Colmar Tropicale

Takeaway: The proliferation of gaming across Southeast Asia appears poised to rapidly expand, similar to US Regional gaming in the early 2000's.

 

Macau Economic Growth (Macau Business) The Economist Intelligence Unit forecasts that Macau’s gross domestic product will grow at an average annual rate of 11 percent this year and next. The EIU expects economic growth of 11.3 percent this year and 10.6 percent next year. It says economic expansion will be due to “healthy growth in exports of services”, meaning tourism and gaming.

The EIU forecasts that the annual rate of consumer price inflation will be more or less steady at 6 percent this year and 6.3 percent next year.

Takeaway: Strong growth driven by increased hotel, gaming, and tourism revenues.

 

Macau Mass Segment Yield – (GGRAsia) Casino executives confirm mass floor minimum bets for casino table games in Macau are now commonly in the range of HK$1,000 to HK$5,000 even at non-peak times,

Takeaway: Confirming our research note from last week Friday titled "Handicapping Mass Deceleration" and our yielding up of mass table minimum bets. 


Saipan Gaming – Marianas Stars Entertainment, one of two companies competing for a casino license on Saipan has called on the government to consider allowing both projects to go ahead,

Takeaway: We noted in our April 28th Leisure Letter, inbound tourism to Saipan can not support a single casino...so why would the administration consider two casinos?

 

Las Vegas Hotel Opening – The SLS Las Vegas announced it will open on August 23, one week earlier than planned.

 

New York Update Gaming – Foxwoods/Muss Development dropped their plan for a proposed Sullivan County casino near the former Grossinger’s resort due to fears over a casino license potentially issued to an Orange County based developer which would effectively head off traffic bound for Sullivan County.

Takeaway: A prudent decision all things considered.

 

Lenders open vault for Hotel Deals – WSJ

Lenders made $31 billion in hotel loans last year, nearly double the 2012 level, according to the Mortgage Bankers Association.  Credit is flowing against a backdrop of rising room rates, limited new construction and a spike in leisure and business travel in big cities such as New York and Los Angeles.  "There's been a sea-change during the past two months," says Monty Bennett,  CEO of Ashford Hospitality Trust. "It's pretty close to the 2007 lending environment again."

Takeaway:  Low financing is supporting the hotel M&A environment

MACRO

China Residential Real Estate - May new home prices +5.6% YoY, a deceleration from +6.7% YoY in April.  On a MoM basis, prices fell 0.2%.

Takeaway: 1st MoM decline in over two years adds to the list of disappointing macro data points coming from China

 

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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