LEISURE LETTER (07/09/2014)

Tickers: CCL, HOT, MAR

EVENTS

  • July 15-17 Pre-RCL earnings Hedgeye Cruise pricing survey

COMPANY NEWS

326:HK –China Star Entertainment Ltd, which controls Casino Lan Kwai Fong on the Macau peninsula, is raising HKD538.5 million (US$69.5 million) to expand its hotel and gaming operations. Planned investments include a shopping and entertainment complex with apartments. Additionally, China Star is in the process of acquiring an equity interest in a junket operator called Eight Elements Entertainment Ltd. The company has agreed to pay HKD800 million for the rights to the profit from the Eight Elements junket operation

Takeaway: An attempt by a small operator to reinvent itself and maintain a small following on the Macau peninsula in the face of new supply and more exciting gaming venues on the Cotai Strip.

 

Affinity Gaming – the Las Vegas based casino operator with 11 properties in Nevada, Colorado, Missouri and Iowa is warning investors that it expects to default on a portion of nearly $383 million in long-term debt.  However, the company says it's working with advisers and lenders on a possible amendment, waiver or refinancing.

Takeaway: A sign of the fate to come for small regional gaming operators as the gaming revenue pie is skinny-sliced by new competition and bad demographics?

 

CCL – AIDA announced (CCL brand) said it plans to drop all ports of call in Israel for the next two months, because of security concerns - following shrapnel from defense rockets landing on the deck of AIDAdiva as it disembarked the Israeli port of Ashdod.

Takeaway: Europe tensions rising again

 

CCL – informed travel agents and guests effective October 9, 2014, smoking will no longer be allowed on the balcony of staterooms and all interior staterooms, suites, and balconies will also be smoke free.  Additionally, the company announced gratuities will be raised from $11.50 a day to $12.00 per day per passenger with all voyages departing October 9, 2014 and onward.  

 

Insider Transactions:

HOT - CEO Paasschen Frits D. Van sold 51,435 shares of stock on Thursday, July 3rd at an average price of $82.00 and now owns 246,915 shares.

 

MAR - CEO Arne M. Sorenson sold 150,000 shares of stock on Wednesday, July 2nd at an average price of $65.00 and now owns 420,618 shares.

Takeaway: Our read of the tea leaves is both companies will "beat" earnings estimates. Conversely, we doubt either CEO would be selling stock during "the quiet period" if their company were going to "miss" estimates.

INDUSTRY NEWS

New York Upstate Gaming – according to a recent study by the New York Public Interest Research Group, over the past two years gambling interests have sweetened the pot with more than $11 million in spending to influence state and local lawmakers on the building of casinos. Specifically, casino bidders and their buddies spent $6.7 million on lobbying campaigns and funneled $4.3 million to political committees in 2012 and 2013 with Genting New York spending $2.5 million on lobbying and just over $984,000 on campaign donations.

Takeaway: Gaming can generate significant profits and those with deep pockets will "invest" accordingly to win a gaming license. 

 

New York City Tourism(NY Times) According to NYC & Company, New York is projected to host 55.8 million visitors during 2014, an increase of 1.5 million over 2013. However, visitors are not shopping, dining and entertaining themselves as voraciously as visitor spending this year is now expected to rise about 7 percent, to $41.3 billion - which translates into an average spend per visitor of $740.14, an increase of only 2% over 2013, the slowest rate of growth over the past 5 years.

Takeaway: Increased visitation is good for NY lodging, but slowing spend per visitor is a headwind for lodging and will force visitors to seek lower cost accommodations. 

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.


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