LEISURE LETTER (07/21/2014)

Tickers: PENN, GLPI, WYNN, DRH

EVENTS

  • July 23:  TRIP 2Q call (430pm)
  • July 24:  
    • WYN 2Q call (830am) ; pw: Wyndham
    • PNK 2Q call (9am) ; pw: 27759616
    • LHO 2Q call (930am)
    • RCL 2Q call (10am)
    • PENN 2Q call (10am)
    • HOT 2Q call (1030am) ; pw: 61542222
    • AWAY 2Q call (4pm)
    • LA June revs released
  • July 25: PEB 2Q call (9am)
  • July 29: 
    • IGT 2Q release
    • GLPI 2Q call (10am)
  • July 30: 
    • MGAM 2Q earnings
    • MAR 2Q call (10 am) : , pw: 59383825

COMPANY NEWS

PENN & GLPI – The Iowa Supreme Court granted a motion for an emergency stay on the Argosy Casino's closure in Sioux City, Iowa and Argosy Sioux City, which was slated to close July 21, will be open until the Iowa Supreme Court sets a hearing date. The IRGC has until today to file resistance to the supreme court's stay.

Takeaway: Again, good news for PENN but don't they still need to show this in discontinued operations?

 

CWN:AX – Australia’s Crown Resorts Ltd is teaming up with a subsidiary of Chinese property developer Greenland Holding Group Co Ltd to bid for a casino resort in Brisbane. If their bid is successful, Crown will manage the integrated resort and will have an ownership interest in that part of the precinct. 

Takeaway: Packard continues to play his hot hand.

 

SINO:PM – the company is progressing with the reorganization and name change to Premium Leisure Corporation.  Following the reorganization of the gaming assets in Sinophil, which will be entitled to half of the earnings from gaming operations at City of Dreams Manila, Belle will own close to 90% of the future gaming arm.  According to media reports, Belle Corp is expected to increase the public float of Sinophil/Premium Leisure Corporation ahead of the opening of City of Dream Manila phase one. 

Takeaway: Belle Corp looking to capitalize on the media attention and investor interest in City of Dreams Manila. 

  

MNTG – MTR Gaming Group, Inc. announced that, at its special meeting of stockholders, a majority of the outstanding shares of MTR’s common stock voted to approve the merger agreement with Eldorado HoldCo LLC.

Takeaway: The final step in the delayed merger. 

 

WYNN (Boston Globe) Wynn Resorts has offered the City of Boston $5 million for road improvements, $1 million upfront and $2.6 million annually, along with hiring preferences for city residents, as compensation to offset the possible effects of a planned hotel and gambling resort on the Mystic River waterfront in Everett.  The offer is the richest deal Wynn offered to any community around the company’s planned resort, but far less than the $18 million annual payment promised to Boston by a rival applicant, Mohegan Sun, which is proposing a Revere casino. Wynn has won arbitration hearings with Chelsea and Somerville, settling compensation packages worth about $650,000 annually with each community as each city had asked for more. Boston Mayor Martin J. Walsh last week announced that his administration would not participate in the arbitration, leaving the Massachusetts Gaming Commission in charge of setting the city’s compensation package

Takeaway: Boston is the city that initially didn't want a casino, but then fought to block casinos in neighboring towns, only to receive a surrounding city offer, but then walked away.  Boston Mayor Walsh seemingly can't make up his mind...or is he simply playing the role of gadfly.


Insider Transactions:

DRH - CEO Mark W. Brugger sold 40,000 shares of the stock on Wednesday, July 16th via a 10b5-1 transaction, at an average price of $13.05, and now owns 864,213 shares.

Takeaway: More insider selling in lodging

INDUSTRY NEWS 

World Cup Betting (SCMP) Police in Hong Kong and the neighbouring province of Guangdong in China seized $750 million ($96.7 million) in illegal World Cup bets, more than double the amount estimated to have been gambled on the previous tournament. Hong Kong police broke up 97 operations after raiding some 140 locations including bars and residential flats. A separate report recently cited Chinese authorities as saying that illegal gambling during the World Cup on the mainland was thought to have been a much as $3.9 billion

Takeaway: $3.9 billion, that's HKD 30.225bn or roughly one month of Macau GGR!

 

Japan Gaming Legislation (Kyodo News) The Japanese government plans to set up a new body that could help speed up the process of opening the first casino resorts in Japan in time for the Tokyo Olympics in 2020. Officials from various government agencies will come together to work on the matter, Chief Cabinet Secretary Yoshihide Suga told reporters on a conference. According to a Japanese legislative memo, lawmakers give the clearest indication yet that they are interested in foreign casinos operators participating in integrated resorts.

The note mentions a “need to work with appropriate operators as well as the domestic industry”.  The note also shows that an entry levy could be imposed on foreigners as well as locals were casinos to be legalized in Japan.

Takeaway: "Integrated resorts are widely viewed as a main feature of my growth strategy,” said Mr Abe when he visited Singapore’s casinos during an official visit to the Lion City in May.


Bermuda Gaming Expansion – Bermuda legislators have completed a draft of a bill that would regulate casino gaming in the territory, said Shawn Crockwell, Bermuda’s tourism minister. The legislation will be presented before the end of 2014, said Crockwell. 

 

Cruise Lines Philippines Expansion – Carnival Corp., Royal Caribbean International and Norwegian Cruise Lines have expressed interest to help develop the Philippines as a cruise-ship destination, according to the Philippine Embassy in Washington, D.C. 

Takeaway:  Another Asian destination in focus. 

 

Macau International Airport Traffic – Macau International Airport Co Ltd released 1H 14 statics which included a 10.7% increase in passenger traffic to over 2.61 million passengers and the handling of 1,206 aircraft private jet movements, an increase of nearly 30% over the same period last year.  The rise in passenger volume was registered when two new routes, launched between here and Dalian in mainland China and between here and Siem Reap in Cambodia.

Takeaway: Decent passenger growth

MACRO 

Pearl River Delta Manufacturing – (SCMP) According to the Chinese Manufacturers’ Association of Hong Kong, 29.6% of Hong Kong manufacturers are likely to scale back their investment in the next three years, an increase of 2.7% over last year. The survey also shows that 32% of Hong Kong manufacturers with factories in the area were planning to move their factories to other areas with lower labor costs, namely Southeast Asia and remoter parts of Guangdong or other provinces in mainland China. The increase in labor costs is the main reason these Hong Kong based companies are retreating from the area. According to the Association Hairman Irons Sze, labor cost in the area have increased 10% to 15% every year.

Takeaway: A potential headwind for Macau mass gaming if manufacturing jobs move elsewhere. 

 

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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