LEISURE LETTER (07/22/2014)

Tickers: BYI, LVS, H, INN, STAY, NCLH, CTRP

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

BEL:PM – confirmed via Philippines stock exchange filing:  1) Belle management is looking to increase public ownership in Sinophil in order to widen public float of the latter.  2) We also confirm that Belle management have had preliminary discussions with owners of land near the City of Dreams Manila site for the purchase or lease of their property, on which we may potentially expand the City of Dreams Manila integrated resort. 

Takeaway: Potentially more capex spend for MPEL at COD Manila for a larger casino.

 

BYI – announced a partnership with Mohegan Sun for the world’s largest installation of table game progressive jackpots. Bally’s new Game Manager 2 software will be used to track progressive jackpots on 43 tables across Mohegan Sun’s three casinos.

Takeaway: A major progressive table systems installation across the casino floor.

 

INLOT:GA – won a five-year contract extension with the DC Lottery and Charitable Games Control Board until 2020. The terms of the extension include terminals, peripheral devices and a communications network that links retailer terminals across the district to the central system as well as marketing support.

Takeaway: Another big win/renewal for Intralot.


LVS & 1928:HK – The labor group, Forefront of the Macao Gaming, plans a protest on Wednesday outside the Venetian Macao on the grounds the group received no response from the casino resort’s operator Sands China Ltd, a unit of Las Vegas Sands Corp, over what the association calls a “reasonable” request to increase by approximately 10 percent across the board the pay of casino floor staff working on table games at the firm’s properties.

Takeaway: Didn't LVS already raise wages and pay a big bonus?  As we noted in our March 11th and May 5th Leisure Letters, labor issues have the ability to become a major stumbling block with the operators.   

MGM – Prince George's County officials on Monday approved a building plan for a $925 million MGM Resorts International casino and hotel near the nation's capital on an 8-1 vote, paving the way for MGM to get the permits needed to begin construction. The casino, which will be designed to hold 3,600 slot machines and 140 table games plus a luxury spa and rooftop pool at the hotel. The development also includes plans for high-end retail, as well as fine and casual dining, a 1,200-seat theater venue, 35,000 square feet of meeting and event space and a 5,000-space parking structure. The property could open as early as July 2016.

Takeaway: Let the groundbreaking begin.

  

H – announced an organization realignment and we note Hyatt's formation of an integrated team to lead the Company’s select service business and the creation of a new global franchising strategy function. Hyatt's Global Head of Development and Real Estate, Steve Haggerty’s role will expand to include responsibility for Hyatt’s franchising strategy and select service business. Hyatt noted its franchising strategy and select service business are two key growth areas for the Company. 

Takeaway: Could Q2 14 industry select service RevPAR strength been the catalyst for this announcement? Hyatt's select service operations could surprise to the upside for Q2.  

 

INN – announced Mr. Jeffrey Jones and Mr. Kenneth Kay have been appointed to the Company’s Board of Directors, which now includes seven members, five of whom are independent, including Messrs. Jones and Kay. Mr. Jones has been appointed to the Audit and Nominating Committees; Mr. Kay has been appointed to the Audit and Compensation Committees. Jeffrey Jones most recently held the position of Chief Financial Officer of Vail Resorts, Inc. Kenneth Kay was Executive Vice President and Chief Financial Officer of Las Vegas Sands Corp

Takeaway: We know both Jones and Kay and view their appointments very favorably. 

 

STAY – announced resignation of CFO Peter Crage and Jonathan Halkyard was appointed Interim CFO effective Aug 1, 2014. Mr Crage, CFO since 2011, notified the company of his intentions to leave for personal reasons as of 31-Jul, 2014. Crage will complete the preparation and filing of the company’s Form 10-Q for the quarter ended 30-Jun-14 and will serve in an advisory capacity until the end of the year to assist in the transition. Halkyard will continue in his current role as COO during this interim period.

Takeaway: A reorganization following two consecutive earnings misses, in their first two quarters as a public company...we hope a third miss is not in the offering.

 

NCLH  Enhances Main Dining Menus Cruise Critic

NCLH is overhauling the menu offerings in their main dining rooms fleetwide, as part of its Norwegian NEXT onboard enhancement program. Beginning this month, regionally-focused menus (varying by ship itinerary) will roll out, offering increased selection and contemporary variations on popular dishes.

Takeaway: NCLH's industry-leading onboard yields actually declined YoY in 1Q 2014 (1st decline since 2Q 2012).  The NEXT program betterh help the ship liner get back to growth. 

 

CTRP – Another Chinese Cruise Line? Ctrip Acquiring Tonnage? Cruise Industry News 

According to sources and a Chinese media report, Ctrip may be entering the cruise industry as soon as this coming 2014/2015 cruise season in Asia.  Ctrip says it sells 10% of all cruise tickets to Chinese passengers.  Now, they may be hot on the heels of local rivals HNA Cruises and Bohai Ferry in entering the business themselves.  A source familiar with the company told Cruise Industry News that Ctrip was in the market for a medium sized vessel, at roughly the 2,000 passenger size.

Takeaway: A Chinese OTA buying a cruise? Why not.

INDUSTRY NEWS

Margaritaville Casino Biloxi – Margaritaville Casino & Restaurant has announced that it will be closing this fall.  According to a press release, the casino will close on or before September 19, and will pay its employees until that time. The casino attributed the closing to its inability to resolve a dispute with its landlords necessary to secure financing for a new hotel and other amenities. Margaritaville made the announcement to its employees this morning. The casino had 359 employees as of March 31, 2014 and opened in May 2012.

Takeaway: Another closure in Mississippi despite only two years in operation.

 

Nebraska Gaming Expansion – In November, voters will have their say on a constitutional amendment would clear the way for the video terminals (slot machines) at licensed race tracks in Omaha, Lincoln, Hastings, Grand Island and Columbus, as well as the site of the former Atokad Downs in South Sioux City. The amendment would distribute 49 percent of the tax revenue to schools, 49 percent to reduce property taxes and 2 percent to a state treatment fund for compulsive gamblers. Nebraska currently allows keno, horse racing, and a lottery.

Takeaway: Could be a positive for slot sales but a negative for PNK and CZR, two operators in Council Bluffs, IA.

 

Saipan Casino Development Questioned – Strategic Gaming Solutions CEO Ben Lee suggested a scarcity of labor will be the Saipan casino’s stumbling block and it is extremely difficult to find labor on island, adding that the construction of a 2,000-room casino-hotel will require 2,000 to 3,000 workers. Mr. Lee further stated, such a property will also need at least 1,000 to 1,500 people to run that kind of resort. Beyond labor availability Mr. Lee theorized availability, water and power will be other key challenges for Best Sunshine, which has been awarded a conditional license to run a casino on Saipan.

Takeaway: Finally a voice of reason regarding this potential White Elephant development.

  

Hard Rock Hotel and Casino Sioux City – is ready to open on August 1 and will feature an action packed weekend with a grand opening celebration, the Summerland Tour 2014 with headlining bands Everclear and Soul Asylum on August 2.

Takeaway: The demise of Argosy Sioux City is at hand.

 

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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