LEISURE LETTER (06/30/2014)

Tickers: BYI, IGT, IKGH, LVS, PENN, PNK, CCL

COMPANY NEWS

PENN (WFMZ) withdrew its proposal for a $480M Hollywood Casino Philadelphia at 700 Packer Avenue in the City's Sports and Entertainment District, which has been pending with the Pennsylvania Gaming Control board (PGCB) since November 2012.  CEO Wilmott said, "A contributing factor in our decision to withdraw our proposal was the city of Philadelphia's vocal support for a center city casino location, despite the fact that 2/3 of the profits from our proposed casino were dedicated to the city's education and pension fund liabilities."

Takeaway:  PA is reaching saturation so the opportunity would have been small.   A positive for shareholder ROIC. 

BYI – unveiled its newest slot machine offering "The Magic of David Copperfield"

BYI – announced it cut 270 jobs as part of a reorganization effort, half of the jobs eliminated were located outside the United States. 

Takeaway:  There will be a one-time reorganization charge in the quarter.

BLOOM:PM – Bloomberry Resorts and Solaire Resorts and Casino unveiled its latest marketing strategy the "Billboard in the Sky" - a brightly painted, logo-adorned Air Asia Airbus A320 which will traverse the skies over Malaysia, China and South Korea

Takeaway: A creative way to advertise gaming, without really advertising gaming - similar to Southwest Airlines fleet of "Shamu" aircraft.

 

IGT – signed an agreement with DLV to install IGT systems in 50 slot halls connecting approximately 1,000 machines in locations throughout Latvia over the next two years

Takeaway:  Good systems win for IGT

IHG.LN – the Board of Directors approved the payment of a special dividend of $2.93 (174.9p) per share or per ADS (as applicable) to shareholders on the Register as at 18:00 BST today (30-Jun) in pounds sterling and to ADR holders on the ADR register as at 16:00 ET today, in US dollars. The dividend is payable on July 14. 

Takeaway: Curious and interesting timing of the special dividend, especially in light of the recent takeover commentary.

IKGH (Macau Business) says it has applied to list its shares on the main board of the Hong Kong Stock Exchange. The company announced the exchange will review the application for three days, and if the HKSE accepts IKGH's application, the HKSE will pose post additional information on the exchange’s website.

Iao Kun has VIP gaming rooms in the StarWorld, Galaxy Macau, Sands Cotai Central, City of Dreams Macau and Le Royal Arc casinos.

Takeaway: The next step in the listing by introduction. 

PNK – L'Auberge Casino Resort unveiled 60 refurbished suites last week with the completion of phase two of its $20-million renovation project. The renovated rooms include spruced up Luxury Rooms and the newly added Royale Suites and Marquis Suites, which offer views of the resort's golf course.  In September, L'Auberge completed renovations of 754 of its almost 1,000 rooms. 

Takeaway:  L'Auberge is preparing for increased competition as this winter will mark the opening of the new Golden Nugget Casino and Hotel immediately adjacent to L'Auberge.

CCL Westerdam sailing resumed (Seatrade Insider)

Holland America Line's Westerdam sailed at 10 a.m. Sunday after returning to Seattle Saturday night following a boiler room fire that was quickly put out.  No injuries were reported.  The fire broke out in one boiler room at approximately 5:15 p.m. Saturday, after Westerdam had departed at 4 p.m.  As a result, Westerdam will miss its planned call in Sitka.  Passengers will receive an on-board credit of $250 per stateroom as well as a future cruise credit equal to 25% of the cruise fare.

Takeaway:  An unfortunate event over the weekend 

INDUSTRY NEWS

Package Tours and Hotel Occupancy Rate for May 2014 (DSEC)

Visitor arrivals in package tour increased by 21% YoY to 925,000 in May 2014.  Attributable to the Labour Day holidays, visitors from Mainland China (734,000) recorded an increase of 25%, with 240,000 coming from Guangdong Province.  Visitors from Taiwan (62,000) surged by 50% and those from Hong Kong (33,000) increased by 3%; meanwhile, visitors from the Republic of Korea (27,000) decreased by 2%. 

There were 99 hotels and guesthouses operating at the end of May 2014, providing 28,000 guest rooms, down by 1% YoY; 5-star hotels accounted for 66% of the total supply, with 18,000 rooms.  The average length of stay of guests was 1.4 nights, up by 0.1 night YoY.  The average occupancy rate of hotels and guesthouses increased by 7% points YoY to 86%, with 4-star hotels leading at 88%. 

Takeaway:  Hotel visitation, occupancy steady

Okada in talks with possible partners for $2b casino (Reuters)

Okada is in talks with several listed companies as a possible local partner for its $2 billion casino project in the Philippines.  

New Jersey Sports Betting – the State legislature passed bills allowing sports betting at casinos and racetracks. Gov. Chris Christie now has 45 days to sign or veto the bills. They would take effect immediately upon his signature.

Takeaway:  Long shot

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.