LEISURE LETTER (07/18/2014)

Tickers: LVS, H, PEB, WYN, MTN

EVENTS

  • 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

LVS & 1928:HK (Jornal Tribunal de Macau) The Macau government's Land, Public Works and Transport Bureau halted construction on Sands China Ltd’s Parisian casino-resort in Cotai. Construction ceased because the developer has permission only to undertake earthworks on the site. However, the contractor has already built a structure 10 or more floors in height.

Takeaway: As highlighted during the LVS 2Q earnings call, the reason for the the construction halt is now known. LVS emphasized that Parisian remains on target to open in late 2015.  However, our sources are skeptical that the property will be up and running in 2015.

 

H – the Company and Playa Hotels & Resorts B.V. announced plans to introduce the Hyatt Ziva brand to Cancun. Formerly Dreams Cancun, the resort’s multi-million dollar renovation began June 1, and it is expected to reopen in late 2015 as Hyatt Ziva Cancun. The resort will be managed by Playa Resorts Management, the operational component of Playa Hotels & Resorts. 

 

In addition to Hyatt Ziva Cancun in Mexico, Playa is scheduled to open Hyatt Ziva Puerto Vallarta in late 2014. In the Caribbean, Hyatt Zilara Rose Hall and Hyatt Ziva Rose Hall in Montego Bay are scheduled to open in late 2014. The two new resorts will be co-located on Jamaica’s most romantic beach, formerly home to The Ritz-Carlton. Hyatt Zilara Rose Hall will offer an adults-only all inclusive experience that will be separate, but connected to, Hyatt Ziva Rose Hall, which will cater to guests of all ages.

Takeaway: Building the new brands, one asset at a time.

 

PEB – announced the acquisition of 331-room luxury, The Nines hotel in Portland, OR for $127.0 million. PEB noted (during the next 12 months), the company currently forecasts that the hotel will generate EBITDA of $12.0 to $12.6 million and NOI of $10.4 to $11.0 million.  As well as, in conjunction with the acquisition, the company is assuming three secured, non-recourse loans totaling $50.7M, which are subject to a weighted average interest rate of 7.4%.

Takeaway: We highlighted this yet-to-be-announced acquisition in our May 12 Leisure Letter based on a May 7th application by a Pebblebrook Hotel Trust subsidiary to take over the liquor license of the hotel and its restaurants.

 

WYN – announced it completed a term securitization transaction involving the issuance of $350 million of asset-backed notes. Sierra Timeshare 2014-2 Receivables Funding LLC issued $277 million of A rated notes and $73 million of BBB rated notes.  The notes were backed by vacation ownership loans and had coupons of 2.05% and 2.40%, respectively, for an overall weighted average coupon of 2.12%. The advance rate for this transaction was 91%

Takeaway: Very good terms for a consumer receivable securitization.

 

MTN – Air Canada recently informed Eagle county airport officials that it would need a $115,000 revenue guarantee to continue even scaled-back service to the valley. Without the guarantee, the flights wouldn’t be scheduled for the coming ski season. Eagle County Director of Aviation Greg Phillips took that news to the Eagle County commissioners, who quickly approved reserving the entire amount in order to keep the flight. EGE Air Alliance, a local group dedicated to bringing more service into the airport, is focused on two main projects: maintaining the guarantees for a summer flight from Houston — which requires about $450,000 in guarantees — and work on a probable 2015 ballot issue to provide a still-undecided form of tax funding for future flights.  The Vail Town Council voted unanimously to approve — a contribution of $25,000, with another $14,000, if it’s matched dollar for dollar by Vail Resorts as well as the Beaver Creek Resort Company.

Takeaway: The truth about airline lift subsidies into EGE airport are now becoming public information. Such subsidies are not discussed by MTN management. 

INDUSTRY NEWS

Macau Junkets Capital Infusion (GGR Asia) Hong Kong-listed China Star Entertainment Ltd is to loan HKD200 million (US$25.8 million) to an unnamed Macau junket promoter, only identified as ‘Junket Company 3′. The loan is via a China Star Entertainment subsidiary registered in the British Virgin Islands called Classic Champion Holdings Ltd and is spread across 24 months at an annual interest rate of 10%. The filing said the junket firm concerned currently promotes 46 tables at an unnamed casino in Macau. China Star, which runs Casino Lan Kwai Fong in the Macau Peninsula under the gaming licence of SJM Holdings Ltd, added that the junket promoter had generated rolling chip turnover of approximately HKD357.38 billion for the 18 months to June 30. China Star reported in its 2013 annual results to December 31 that Casino Lan Kwai Fong operated a total of 84 gaming tables, targeting VIPs and mass-market customers, and 128 slot machines. China Star said in late June there was a delay in its move to buy an equity interest in the profit stream from another junket promoter at the casino hotel called Eight Elements Entertainment Ltd

Takeaway: More liquidity can't be bad.

 

Macau Junket Acquistion (GGR Asia) International Entertainment Corp (IEC), a Hong Kong-listed company that in January announced it was interested in buying a 70% economic interest in Macau junket investor Suncity International Holdings Ltd, says in its annual report that the deal has not yet been concluded.  International Entertainment describes its current main activities as “hotel operations, and leasing of properties for casino and ancillary leisure and entertainment operations”. On January 9, IEC it said it had entered into a term sheet with Suncity International – the potential vendor – and Alvin Chau Cheok Wa, the sole beneficial owner of the vendor – about acquiring a 70% economic interest in the business. It was to be effected via purchase of a 70% equity interest in Suncity International, which in turn International Entertainment said was entitled to all the net profit from gaming promotion operations by Sun City Gaming Promotions Co Ltd. In January the deal was described as worth HK$7.35 billion (US$948 million), to be settled in cash and through the issue of new shares at HK$5 each, representing up to 29 percent of the enlarged share capital of International Entertainment.

Takeaway: Could the recent VIP challenges result in "recast" transaction terms?

 

South Korea Gaming Expansion (GGR Asia) The provincial government of South Gyeongsang in South Korea on Wednesday signed a deal with an international consortium to develop a movie-themed park based on 20th Century Fox’s films. The project, to be part of a larger entertainment complex featuring a casino, will be located near the city of Busan, in the south of the country. The partners in the movie-themed park project include Fox Consumer Products Inc, the marketing and licensing arm of 20th Century Fox group, and Village Roadshow Theme Parks Ltd, one of Australia’s largest theme park operators, with interests in China and the United States. The site is forecast to open by the second half of 2018. The entertainment complex will be built in a 2.8-million-square-metre (30.1 million sq feet) site in Changwon, according to media reports. The entertainment complex will also include a six-star hotel, a water park, a cinema, retail areas and a golf course. The theme park will be its centrepiece, featuring more than 25 rides and attractions with characters and story lines from 20th Century Fox’s movies.

 

The reports gave no details about the casino component. Local authorities expect the entertainment complex to attract around 10 million foreign and local tourists a year. They believe it will benefit from the fact there are more than 60 cities with a population in excess of one million within three-hours’ flying time of Busan’s international airport.

Takeaway: More casinos coming in S Korea

 

Slot System Failure (stltoday.com) Lumière Place technology officials worked Thursday to determine what caused a slot machine failure that forced a temporary casino shutdown. State gaming regulators ordered the casino closed at 11:45 p.m. Wednesday, about four hours after the problem surfaced. The casino reopened about 6:30 a.m. Thursday, said spokeswomen for Lumière Place and the Missouri Gaming Commission.  Lumière Place officials said in a statement that “a system failure” of the slot machines began just before 8 p.m. The casino began manually paying customers their slots winnings as workers tried to fix the problem.  

Takeaway: Technical glitch at Lumiere won't have an impact.  

 

Hard Rock Hotel Planned for Lake Tahoe – Officials for the Las Vegas-based Warner Hospitality and the Tahoe-based Park family that owns the former Horizon Casino Resort at Stateline say the $60 million renovation and reprogramming will convert the former Horizon property to the Hard Rock Hotel & Casino Lake Tahoe and will include more than 500 hotel rooms and a 25,000-square-foot casino.

Takeaway: Could be a handful of new slots for this property.  

MACRO

China Real Estate – The average prices of new homes in 70 major cities fell 0.5% in June from the previous month, accelerating from May’s 0.2% monthly drop based on data issued by the National Bureau of Statistics.  Prices in Shanghai and the southern city of Guangzhou fell 0.6% each from May, the biggest drop since January 2011.

 

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.