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    MARKET EDGES

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Tickers:  WYNN, RHP, RLJ, SHO

EVENTS

  • Friday June 20:  2014 Asia Cruise Forum (Taiwan)
  • Tuesday June 24:  CCL F2Q CC;

COMPANY NEWS

G13 / Genting Singapore – Genting Singapore delayed the June 24 ground-breaking for it’s planned casino in South Korea's Jeju Island until the third quarter of 2014 with a scheduled opening in 2017. Despite the fully planned and widely-marketed ground-breaking, the Company said the rescheduling is to allow the company the opportunity to brief the newly-elected governor of Jeju and his team on the casino's development plans and its contribution to Jeju Island.

TAKEAWAY: An unfortunate delay for Genting Singapore, but it would seem there's more to the story than simply getting to know the newly-elected governor of Jeju. 

163:HK, Emperor International Holdings –  Vanessa Fan Man Seung, an executive director of Emperor International said, “The impact of Macau shortening mainland tourists’ stay could be digested within a short time."  She also said that in the long term, tourist visits and spending will continue to increase in Macau.  In her opinion, the smoking ban on casino policy will only trigger a short-term impact.

TAKEAWAY:  There continues to be relatively little concern over the new transit visa permit rules and updated smoking ban.

WYNN – Anthony Gattineri, the last of the three owners of WYNN’s casino site consented to signing a pledge that FBT Everett Realty, has no secret owners.  Previously, the state gaming commission indicated it wouldn’t issue WYNN a license unless all of FBT’s owners signed the pledge.

TAKEAWAY: A positive step forward in the process. 

RHP – announced the addition of an additional senior secured $400 million Term Loan B to its existing credit agreement. The new term loan matures in January 2021. The Term Loan B was fully drawn at closing and bears interest at a rate equal to LIBOR plus 300 bps, subject to a LIBOR floor of 0.75%.  The proceeds received from the Term Loan B may be used, as the Company may determine, to repay revolving loans under the Company's existing credit facility and to repay the Company's outstanding 3.75% convertible notes or to settle, in whole or in part, the warrant transactions entered into in connection with the issuance of the 3.75% convertible notes.

TAKEAWAY: A modest simplification of the balance sheet if RHP is able to settle the entire warrant transactions.

RLJ – sold a non-strategic hotel, the 194-room Holiday Inn Austin NW Arboretum Area in Austin, Texas, for approximately $13.5 million, or $70,000 per key or approximately a 7.9% capitalization rate on the Hotel’s 2014 net operating income, fully loaded for pending capital expenditures.

TAKEAWAY:  Kudos to management for executing on its capital recycling strategy to enhance its portfolio through the disposition of assets that are not in line with the Company’s overall long-term investment thesis.

 

SHO – made a two part acquisition and financing announcement:

  1. a contract to acquire the 544-Room Wailea Beach Marriott for $325.7 million ($596,800 per key) or 16.9x forecasted 2014 Hotel EBITDA of $19.3M and a 5.2% capitalization rate on 2014 forecasted Hotel net operating income. 
  2. announces 18 million share secondary offering through JPMorgan

SHO expects to fund the acquisition, in part, with $60 million of common stock issued directly to the seller - an affiliate of Blackstone Real Estate Partners IV (the "Seller") at a price of $14.87 per share and the Company expects to fund the balance of the purchase price with proceeds from the issuance of common stock.   Also, SHO expects to receive operational support from Marriott International, the Hotel manager, during a planned renovation of the Hotel in 2015 and 2016.  o The company expects this acquisition will be additive

TAKEAWAY:  First, we now know why insiders at every level of Sunstone management were selling stock over the past 30 days or so.  Second, interesting that Marriott will offer financial relief to Sunstone during the renovation.  Third, SHO management gets the award for taking wordsmithing to a new level with the use of “expects this acquisition to be additive” – not to be confused with “accretive”…

INDUSTRY NEWS

Macau Junket Jitters -

  • Macau junket investor Amax International Holdings Ltd says it filed a litigation suit against its associate Greek Mythology (Macau) Entertainment Group Corporation Ltd in a local court on Wednesday in relation to its failure to provide its annual accounts to shareholders.
  • Six VIP rooms have been vacated by junkets in two major casinos.  Larger junket operators are stepping in and absorbing remaining capacity.  This fact has prompted the decision of some smaller junket operators to abandon three VIP rooms in Wynn Macau and three VIP rooms in City of Dreams.   

TAKEAWAY: Could this be the psychological bottom for junket related issues?  We believe junket issues are now yesterday's news story.

Macau Slot Machine Issue - A businessman, Ip Choi Peng, claimed that he had won a game on a slot machine in a Cotai casino on April 18. However, one of the symbols in the winning combination suddenly disappeared. Another similar incident took place five days later when he was playing at a NAPE casino. Again, he alleged that the slot machine malfunctioned and only showed half of the symbols in a winning combination. Ip Choi Peng has claimed that DICJ “coordinated” in these two incidents, and added that both casinos privately offered to find a solution via discussion.  He questioned why the casino managers would want to talk to him if the two incidents were truly caused by machine failures.

TAKEAWAY: We believe the slot machines and games in question were Aristocrat – and this issue could pose a long-term risk to the company.

 

Macau Visitation Penalties - Visitors who exceed the maximum time for which they are permitted to stay in Macau will be fined up to MOP500 per day (previously MOP200/day), following the amendment of the Administrative Regulation on the Entry, Stay and Residence Permit.  Statistics show that the number of overstaying cases has increased from around 32,000 in 2012 to more than 42,000 in 2013.

TAKEAWAY: Govt's serious about these visitation rules.

Massachusetts Gaming - A Mohegan Sun-commissioned poll says that Boston area residents prefer its proposed casino at Revere to Wynn Resorts’ Everett proposal by 55 to 22%.  Residents also oppose repeal of Massachusetts’ casino law by 58 to 35%. The pol covered Suffolk, Middlesex, Norfolk, Essex and Worcester counties.

TAKEAWAY: The media and public relations battle in an attempt to sway the Massachusetts Gaming Commission as well as public perception. 

Atlantic City - Revel, warned staff it will close this summer, as soon as August 18, if a buyer cannot be found.  

TAKEAWAY: Back in January of this year, it was widely reported Caesar's Entertainment (CZR) was considering a bid for the casino

Atlantic City Gaming - In a recent poll conducted by the Fairleigh Dickinson University, 57% of New Jersey gamblers chose Atlantic City when asked about their preferred gambling destination, 12% of those asked would gamble in New York while 31% of the study participants could not decide or refused to answer the question. 

TAKEAWAY: Atlantic City's appeal to gamblers appears to be waning.

New Gaming Equipment Company - the Nevada Gaming Commission approved a license for Gamblit Gaming, a start-up gaming equipment company that plans to combine traditional slot machines with entertainment-style video games. The company hopes to seek approval for use of the games in Nevada casinos in the first half of 2015. Following the commission meeting, Gamblit's CEO said the company expects to partner with a larger slot machine manufacturer to bring the games into market.

TAKEAWAY: The Company previously indicated it will develop game content targeting the 21-45 year old cohort group.  If successful with content development, this would be a positive for gaming.

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.