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Tickers: CZR, AHT, NCLH, CCL, HOT

EVENTS

  • 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)
    • AWAY 2Q call (430pm)
  • July 25:
    • PEB 2Q call (9am)

COMPANY NEWS

CZR (Las Vegas Review Journal) An FBI-led raid has shut down a multi-million dollar illegal sports betting operation at Caesars Palace that authorities say was run by Malaysian and Chinese nationals who were taking wagers on the World Cup soccer tournament. Caesars Palace was not a target of the Las Vegas investigation and cooperated with authorities. The Nevada Gaming Control Board and the U.S. Department of Homeland Security assisted the FBI in a raid last week at the Strip resort. It was unclear how much money the illegal bookmaking ring took in here. All eight defendants were each charged with one count of illegal transmission of wagering information and one count of operating an illegal gambling business, both felonies.

Takeaway: Another illegal World Cup gambling operation. 


AHT – signed a definitive agreement to acquire the 357-room Fremont Marriott Silicon Valley hotel.  The Fremont Marriott Silicon Valley features 357 guestrooms and approximately 15,000 square feet of meeting space.  Ashford intends to finance the property with $37.5M of non-recourse mortgage debt.

Takeaway: Interesting to us was the lack of any details regarding actual purchase price as well as trailing 12 month NOI or EBITDA.  As of March 31, 2014, AHT had more than $154 million of cash and cash equivalents on its balance sheet as well as more than $33 million of marketable securities. These amounts do not include the additional $88 million in proceeds from the early April equity offering.

NCLH – reached an agreement with Meyer Werft to build two new Breakaway-Plus class cruise ships for delivery in 2Q 2018 and 4Q 2019.  Each ship will be 164,600 gross tons and include 4,200 passenger berths.  The contract price for both ships is approximately euro 1.6 billion. The Company has export credit financing in place for each ship, arranged and underwritten by KfW IPEX-Bank GmbH of Germany.

Takeaway: The cost/berth is ~US$259k per new ship, a 15% premium over Escape/Bliss.  By historical standards, this seems like a long lead time for delivery.  Maybe they just want a taste of the public frenzy from RCL's new ships.

CCL – (Seatrade Insider) Cunard offers NA agents 5% bonus for Med bookings on Queen Victoria.  

Insider Transaction

HOT – Director Bruce W. Duncan sold 21,813 shares on Thursday, July 10th at an average price of $84.36 and now owns 37,684 shares.

Takeaway: Another Starwood insider selling shares.

INDUSTRY NEWS

Chinese Lottery Sales – According to the Chinese Ministry of Finance, Lottery sales in mainland China reached RMB178.41 billion (US$28.74 billion) in the first six months of the year, up 19.2% YoY.  The growth was partially fueled by a jump of 45.7% YoY in lottery sales during June, to MOP36.05 billion due to a 83% YoY rise in sports lottery sales to RMB19.24 billion, fuelled by the FIFA World Cup.

Takeaway: Could Chinese lottery sales benefited at the expense of June Macau GGR?

Philippines e-Gaming Parlors – Premiere Horizon Alliance Corp said its shareholders had approved Leisure & Resorts World’s offer to buy all of Premiere Horizon’s stake in Digiwave Solutions Inc. Digiwave operates Pagcor-licensed e-Games outlets in Metro Manila and nearby provinces. e-Games outlets are parlors or cafes dedicated to online casino-style games and are licensed by the Philippine Amusement and Gaming Corp (Pagcor).  

Takeaway: The build up of Leisure & Resorts World continues.

China Infrastructure Catastrophe – A portion of the (currently under construction) 710 kilometer tunnel, known locally as the Funing No 1 tunnel which will Kunming with Nanning collapsed on Monday trapping 15 workers who are trapped in the debris from the collapsed railway tunnel.

Takeaway: If the Chinese government conducts a full scale investigation and concludes safety measures were not followed, this could result in a delayed completion of the North/South high speed railway - which would be a negative for Macau mass play.

Philippines Weather – Typhoon Rammasun’s a Category 3 storm with sustained winds of 115 mph made land fall this morning in the eastern Philippines and is expected to impact Manila later today and will be over the capital by tomorrow before moving into the South China Sea through either Bataan or Zambales province in the northwest. Rammasun will be out of Philippine territory by Thursday, moving toward southern China.

Takeaway: Rammasun could cause property damage to the Manila-based casinos.

MACRO


China June New Yuan Loans – CNY1.08T vs consensus CNY950B and CNY870.8B in May for loan growth +14.0% year/year vs +13.9% in May

Takeaway: The improved credit trends could be a harbinger of better VIP play in Macau in six to nine months from now. 

Singapore 

  • 482 new home units were sold in June, compared to 1,806 in June 2013 and 1,488 units in May 2014. Government data indicates about 4,500 units sold in the first six months of 2014. 
  • Q2 prices of private residential property dropped 1.1% YoY, following a 1.3% drop during Q1 2014. 
  • Singapore hotel RevPAR dropped 4% to SGD240.85 based on occupancy falling 2.5% to 82.5% and a 1.5% reduction in average daily rate to SGD291.79. Singapore room supply increased 2.8% year/year.

Takeaway: More macro headwinds for Singapore market

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.