LEISURE LETTER (07/11/2014)

Tickers: PNK, ISLE, PENN, GLPI, LVS

EVENTS

  • July 14: AC June revenues
  • July 15-17: Pre-RCL earnings Hedgeye Cruise pricing survey
  • July 16:  LVS 2Q call (430pm)
  • July 23:  TRIP 2Q call (430pm)
  • July 24:  
    • WYN 2Q call (830am)
    • PNK 2Q call (9am)
    • LHO 2Q call (930am)
    • PENN 2Q call (10am)
    • HOT 2Q call (1030am)
  • July 25:
    • PEB 2Q call (9am)

COMPANY NEWS

PNK expects its 2Q Consolidated Adjusted EBITDA and Income (loss) from Continuing Operations to include unusual expense items that aggregate to a range of $8-10 million.  The unusual expense items relate to the rollout out of the Company's my choice player loyalty program at its Ameristar branded properties, Colorado lobbying expenses, and severance expense.

Takeaway:  PNK had mentioned on its Q1 conf call that it expects a $5m charge only related to the loyalty program integration at its ASCA properties.  At some point, analysts will have to start including these regularly occurring "non-recurring" expenses in EBITDA.  No wonder margins continue look better. 

 

ISLE – after the close, the Company announced a strategic realignment including the departure of Dale Black, who served as CFO since 2007, replaced by Eric Hausler, who currently serves as Chief Strategic Officer, a role that will be eliminated going forward. Executive Chairman Jim Perry will step down and Robert Goldstein, currently the Vice Chairman of the board, has been named (non-executive) Chairman of the board. ISLE expects these actions to reduce annual corporate expense by approximately $2.5m exclusive of severance costs.

Takeaway:  If the company were about to be acquired, one would think C-Level management would stick around for the vesting and higher take-out value on their equity interests. This also signals the need for ISLE to reduce expenses further.

 

PENN & GLPI – District Judge Eliza Ovrom on Thursday extended her stay of an Iowa Racing and Gaming Commission order to close the casino until she rules on Argosy's appeal.  Previously, Judge Ovrom granted the casino a 10-day stay, which allowed it to stay open past the July 1 deadline until Thursday. At the conclusion of a hearing Thursday morning, Ovrom said she hoped to issue a ruling early next week.

Takeaway: Positive for PENN as this is not included in guidance

 

LVS – CEO Sheldon Adelson has continued his anti-online gambling crusade by hiring former GOP congressman Connie Mack of Mack Strategies to lobby against Internet gambling legislation. Mack will go to bat for Adelson and his Coalition to Stop Internet Gambling and will be tasked with lobbying in support of the Restoration of America’s Wire Act, the federal bill introduced by Sen. Lindsey Graham (R-S.C.) and Rep. Jason Chaffetz (R-Utah) over three months ago. Mack joins a lobbying lineup that includes Steptoe & Johnson, Capitol Counsel, The Keelen Group and the Lincoln Policy Group.

Takeaway: Mr. Adelson's battle against online gaming continues.

 

BYI (SHFL) – Macau’s Court of Second Instance dismissed an appeal from SHFL Entertainment (Asia) Ltd, which sought an injunction against Paradise Entertainment Ltd and its subsidiaries’ assertions of monopolistic rights over “multi-gaming” in the Macau market. The injunction sought to prevent Paradise Entertainment and its subsidiaries from claiming monopoly rights over multi-game electronic table game products in Macau and to restrain them from any unfair competition.

 

WYNN & 1128:HK (GGRAsia)The head of Macau's Commission Against Corruption confirmed the agency is "analyzing some details" about land granted to Wynn Macau for its Cotai project after U.S.-based International Union of Operating Engineers called on the Macau authorities to investigate how Tien Chiao Entertainment and Investment Co Ltd secured rights to Cotai land before it was granted to Wynn Macau. While WYNN says it hasn't been contacted by authorities, and it doesn't anticipate any delay to the Cotai project, which is scheduled to open in H1/16.  

Takeaway:  More scrutiny behind a complicated Cotai deal but Wynn is apparently not a part of the investigation.

INDUSTRY NEWS

Chinese Money Laundering (Xinhua) China's central bank is looking into allegations by a state broadcaster that Bank of China, the country's fourth largest lender, has been laundering money offshore for clients. 

Takeaway: Could money laundering by Chinese big banks be the next area of Chinese Central Government crackdown?

 

Margaritaville Tulsa (Tulsa World)  Construction on the Muscogee’s $355 million Margaritaville casino is running behind schedule, and is now on track to open sometime in 2016 rather than mid-2015.

Takeaway:  Even fewer new slots for 2015

 

Gaming in California's Wine County – A group of Native Americans, the Mishewal Wappo Tribe of Alexander Valley, filed a federal lawsuit in 2009 asking for recognition of their tribal status. The group's 350 members, most of whom live in Sonoma County today, say they are descendants of the Wappo people, who once inhabited parts of Sonoma, Lake County and much of Napa Valley, and that they were unfairly stripped of tribal status. Tribal leaders insist they simply want recognition. But winemakers worry such status would allow the tribe to petition for lands and eventually build a casino in Napa County. If the tribe wins, it would become a sovereign nation, and any lands they were granted by the federal government or that they purchased would be exempt from local land-use and zoning restrictions. Motions to dismiss the Wappo's claim have been denied. Last July a federal judge affirmed a ruling that Napa and Sonoma counties had no standing to fight recognition of the tribe, escalating widespread apprehension that a casino could find a home in Napa’s agricultural region

Takeaway: Nearly 3 million people visited Napa Valley in 2012 and visitors spent an average of $714 per day, including $260 on lodging, $148 on restaurants and $107 on wine purchased at wineries. Lodging guests typically stayed in the valley for 2.9 days on average. 

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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