LEISURE LETTER (06/27/2014)

Tickers: 27:HK, CZR, MPEL, PENN, WYNN

EVENTS:

  • Friday, June 27 Las Vegas May revenues

COMPANY NEWS

27:HK / Galaxy  – Lui Che Woo, founder and chairman of Galaxy, said he expects company net profits to grow in 2015 by as much as 50% YoY thanks to the opening of Phase 2 of Galaxy Macau.

Takeaway: Phase 2 will benefit Galaxy more than some investors think.  500 more tables are coming.

CZR – Caesars Entertainment announced (via WARN Act letters which give employees at least 60 days' notice of a planned business closure) it will close the Showboat Atlantic City hotel and casino. The closure of the property is not unexpected as CZR CEO Gary Loveman previously commented that some additional gambling facilities in Atlantic City would need to close.  

Takeaway: Atlantic City missed its opportunity to be relevant a long time ago.  The expansion of gaming across the Mid-Atlantic and Northeast has only served to exacerbate Atlantic City's woes... Unfortunately, New Jersey Governor Christie's dream for an Atlantic City turnaround might simply be too optimistic and not based on economic reality.

Interlot – signed a four-year contract extension with the New Hampshire Lottery Commission carrying service through June 30, 2020. Intralot will continue to provide its lottery gaming system for the operation of terminal-based games, the management of instant games and support of the retailer network. During fiscal year 2013, New Hampshire Lottery sales were more than US$280 million while also awarding more than US$174.4 million in prizes. 

Takeaway:Another win for Interlot!

MPEL – is selling 100% of the issued shares of Dreamworld Leisure Ltd to Ban Kea, a Cambodian citizen, for US$500,000. The purchaser is a family relative of Entertainment Gaming’s partner in Cambodia. The sale includes all assets of Dreamworld Leisure with the exception of all electronic gaming machines, and prohibits any use of the Dreamworld brand name by the buyer. The company owns and operates Dreamworld Pailin, a casino with 26 gaming tables in the Pailin province of northwestern Cambodia, near the Thailand border. It also operates Dreamworld Poipet, a standalone slot hall in an existing casino in Poipet. The move comes as the government in Cambodia is in the process of amending its gaming laws in an effort to draw major casino operators.

Takeaway: Small disposal for MPEL

PENN - Argosy Sioux City will be allowed to stay open through July 10, the date the Polk County District Court scheduled a hearing to consider PENN's arguments against the previous Iowa Racing and Gaming Commission order to cease operations on July 1.

Takeaway: A near term win.  Remember, PENN's guidance assumes Sioux City ceases operations on June 30. 

WYNN – (GGRAsia) Tokyo’s high court rejected Kazuo Okada’s appeal against a lower court’s dismissal of a defamation lawsuit he filed versus WYNN.  In a statement, the High Court reiterated the case should not be handled by a Japanese court.

Takeaway: As expected and not surprising.

INDUSTRY NEWS

Korean Tensions – North Korea fired three short-range rocket yesterday into the waters off its east coast. The launch was most likely a routine test-firing, but government officials also believe the launch/test firing could also be meant to stoke tensions with Seoul (South Korea).  News reports indicated the rockets flew about 190 kilometers (120 miles) before harmlessly landing in the water. The rockets were fired from North Korea's eastern port city of Wonsan.

Takeaway: The escalating tensions between North and South Korea as well as on going military exercises near the South Korean territorial islands may service as a near term tourism headwind.

Macau Traffic (Jornal Tribuna de Macau) Macau has twice as many tourist coaches as buses - 1,698 tourist coaches were on the road at the end of April, including those used as shuttles as compared to 801 city buses deployed on scheduled services. Government policy is to curb any increase in the number of tourist coaches, and to have them used more efficiently, in view of the traffic congestion they cause.

Takeaway: We witnessed the significantly worse traffic congestion during our recent trip and all the more reason to get the Light Rail Transit system operational.

LEISURE LETTER (06/27/2014) - macau coach

Hotel Portfolio Transaction – Katara Hospitality, the Qatar-based global owner, developer and operator of iconic hotels, announced the acquisition of five properties in key European cities from a private investor including: the InterContinental Carlton Cannes, the InterContinental Amstel Amsterdam, the InterContinental Madrid, the InterContinental Frankfurt, and the lease hold interest in the InterContinental De La Ville Rome. The acquisition brings Katara Hospitality’s global portfolio to 32 hotels operational or under development, topping its long-established goal of 30 properties by 2016. Katara now has properties or projects in 14 countries, with a total of 7,103 rooms operational or under development.

Takeaway: Continued demand for high quality lodging assets by sovereign wealth funds.

Sales of German agencies fall 3.6% in May (Hostelur) 

German agencies saw its sales fall 3.6% in May.  Sales of tourism products (hotels and packages) fell 8.3% in May, a stark contrast to April's gain of 14%.

Takeaway: Leisure business in Germany continues to be choppy.

 

Danube Cruises affected by low water levels (Cruise Critic)

At least 20 river cruises have ben affected by lower than normal water levels on the Danube and Elbe rivers.  Riviera Travel and Viking Cruises are two of the affected parties.

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro & Financial teams are 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.