LEISURE LETTER (07/02/2014)

Tickers: CZR, LVS, PENN, BEE, HOT, HST, CCL, NCLH

COMPANY NEWS

GTech Spa – said it would undertake a share repurchase programme to fulfil management stock incentive plans. The company’s board approved the buyback of up to 1,782,426 of its own shares. Based on Monday’s closing price of EUR17.85, GTech would pay about EUR$31.8 million (US$43.6 million) for approximately 1 percent of its share capital. 

Takeaway:  Approved a previously announced buyback 

CZR – announced that it would invest $223 million toward revamping the 2,256-room Quad Resort & Casino and rebrand it as the Linq Hotel & Casino. Reservations under the new name are on sale and the transition to the Linq brand is scheduled for completion on Oct. 30. The company is introducing the revamped property with $89-a-night room rates.

Takeaway: CZR trying to keep pace its competitors and room renovations and the resulting lift in ADR to $89/night.

LVS – COO John Caparella sold 22,840 shares on Friday, June 27th at an average price of $76.24 and now owns 15,680 shares.

Takeaway: Interesting sale as we don't often see insiders selling at this company.

PENN – Hollywood Gaming at Mahoning Valley Race Course took delivery Monday of the first of what will be a total of 850 video lottery terminals. Approximately 24 VLTs from manufacturer Multimedia Games arrived at the Austintown site. Additional shipments are scheduled over the next several weeks from leading manufacturers including Bally Technologies, Konami Gaming, Aristocrat and WMS.

Takeaway: Opening with 850 VLTs

BEE – announced it closed a $120.0 million limited recourse loan secured by the Four Seasons Washington, D.C. hotel. The loan bears interest at a floating rate of LIBOR plus 225 basis points and has a three-year initial term with two, one-year extension options available to the Company The financing replaces the $130.0 million financing previously encumbering the property. 

Takeaway: As expected and a slight savings on interest expense.

HOT – in Dubai, Starwood Hotels & Resorts has officially taken over a two-tower property which previously housed the 260-room Kempinski Grand and 200-room Ixir Hotel, reflagging the towers under the Le Meridien and Westin brands respectively as of July 1 under an agreement signed in April. 

Takeaway: Continuing to build the brand network via international conversions.

HST – announced it amended and extended its existing $1 billion revolver scheduled to mature in 2015 and its $500 million term loan scheduled to mature in 2017. The amended facility will extend the final maturity for both the revolver and term loan to 2019 (including extensions) and reduce pricing to reflect current market conditions.  At the new pricing level based on our present credit rating, the all-in pricing was reduced 30 basis points on the revolver and 32.5 basis points on the term loan.  Therefore, U.S. dollar denominated borrowings today would result in an initial all-in rate of 1.35% and 1.28%, respectively.  Today, approx. $220 million is outstanding under the revolver and $500 million under the term loan.

Takeaway: Reshaping the corporate credit facility...could a large acquisition be in the near future? 

CCL – Carnival offers agents triple point booking opportunity through July 31 (Travel Agent Central)

In celebration of the launch of Carnival Freedom's new schedule from Galveston, TX kicking off in February 2015, Carnival is offering travel agents a special triple point booking opportunity in its Travel Agent Rewards Program.  Beginning today through July 31, travel agents may earn 450 points (compared to the standard 150 points for new online bookings) through 2016 for all “Fun Ship” departures from Texas.

Takeaway:  Galveston has been a trouble spot for CCL for bookings and pricing in 2014.

NCLH – Norwegian Gem schedule tweaked to avoid strengthening storm Arthur (Seatrade Insider) 

Norwegian Gem is calling at Nassau on Tuesday instead of at Great Stirrup Cay as planned. Gem is due to depart at midnight and begin its return to New York City to stay ahead of the storm in more pleasant weather.  Arthur is expected to be a hurricane by Thursday.

INDUSTRY NEWS

Imported workers make up nearly 40% of workforce (Macau News)

According to the Human Resources Office (GRH), Macau’s number of imported workers (commonly known as blue-card holders) reached a record 159,299 at the end of May, 33,699 more than a year earlier.  Month-on-month, the number of non-resident workers rose by 3,091

Takeaway:  Labor issues will be in the spotlight as we get closer to the new Cotai openings.

 

Saipan Gaming Expansion – Imperial Pacific International Holdings Ltd, a Macau junket investor, disclosed via a HKSE filing it would distribute cash vouchers totaling US$10 million among all locally born adults in the U.S. Pacific territory of the Commonwealth of the Northern Mariana Islands if the company were to win a casino license.  Based on 2010 United States Census Bureau data, 53,833 people lived in Northern Mariana Islands and 74% (39,836) are estimated to be aged 15 or over. 

Takeaway: This distribution won't make locals "rich" as the distribution represents about $250/person over age 15. 

South Korean Gaming Dispute (Chosun Ilbo) Four Chinese tourists staged a protest at Jeju airport in May after a casino on the island refused to pay them baccarat winnings of KRW1.1 billion (US$1.09 million) because of suspicions that they cheated. The four individuals were customers at a casino hotel in the tourist resort of Seogwipo and racked up the ‘winnings’ in little more than two hours of play at the baccarat tables.  But management at the casino – a venue not named by the police – suspected the Chinese tourists had colluded with casino staff, possibly by asking a dealer to use sleight of hand to swap cards coming out of the card shoe with ones hidden on the dealer’s person. The incident, which allegedly occurred in May but has only just been reported, is now the subject of litigation between the players and the casino.

Takeaway: Interesting controversy as well as timing given Gentings recent announcement to delay the Jeju groundbreaking. 

South Korea Replacing Macau – (Xinhua) Chinese tourists no long need to bring a large amount of US dollars when traveling in South Korea, as they can choose to use China UnionPay, or even renminbi in cash in some stores. China is the first source of tourists for South Korea.  From January to May this year, Chinese tourists exceeded 2 million. South Korean banks have also witnessed a large amount of renminbi deposits since the second half of last year, with the total volume reaching US$11.3 billion at the end of May. South Korea expressed its intent in April to build up renminbi offshore trading markets. 

Takeaway: Some Chinese VIP gamblers could be going to South Korea rather than Macau...

Massachusetts Gaming Support(WBUR) a new WBUR poll indicated 56% of respondents approve of locating casinos in Massachusetts, while 38% disapprove and 6% don’t know, or refused to answer.  

Takeaway:  So far, the pro-casino side has the lead.

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.