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LEISURE LETTER (07/28/2014)

Tickers: MGM, PENN, PNK, GLPI, SNOW

EVENTS

  • July 29: 
    • WYNN 2Q 8:30am ; pw: 67663320
    • NCLH 2Q 11am ; pw: 63063248
    • IGT 2Q release
    • GLPI 2Q call 10am
  • July 30: 
    • MGAM 2Q earnings
    • MAR 2Q call 10am : , pw: 59383825
  • July 31:
    • HST 2Q call 10am:
    • BEL (OEH) 2Q call 10am: , pw: 68627603
    • H 2Q call 11:30am:  , pw: 21721745.
    • BYD 2Q call 5pm:  , Passcode: 2654057
  • Aug 1:
    • HLT 2Q 10am: , pw: 67361605

COMPANY NEWS

GTK:IM – signed a seven-year contract with the Tennessee Lottery which it expects to yield $130 million in total revenue. Under the deal, a unit of GTECH will provide new lottery systems and related services starting from April 2015. The contract includes one seven year extension. GTK will provide a system with 5,500-terminal capacity able to expand to 7,500.

Takeaway: GTech wins another lottery contract!

MGM – MGM Hakkasan Hospitality CEO Neil Moffitt has recently been on a media tour touting the benefits of the relationship between MGM Resorts and Hakkasan Hospitality including the potential MGM Resorts to "kick start its non-gaming hotel business." MGM Hakkasan Hospitality will focus on the design, development and management of luxury non-gaming hotels, resorts and residential offerings under the Bellagio, Hakkasan, MGM Grand and Skylofts brands in key international gateway cities and prime resort destinations across the globe. 

Takeaway: Another crack at the non-gaming hotel business...  

PENN & GLPI – The Iowa Supreme Court late on Friday ordered the Argosy Sioux City riverboat to close by 5 p.m. on Wednesday, July 30, 2014.  The very brief ruling by the Court read "After consideration of the papers filed, the court denies the application for stay. The emergency stay previously entered by this court shall be lifted at 5:00 p.m., July 30th, 2014."

Takeaway: With this ruling, PENN is operating without a valid gaming license in the state of Iowa for Argosy Sioux City.  Barring some miraculous legal maneuver, the property will close rather than risk compromising its other properties and gaming licenses.  Expect a one time charge during 3Q14 for the shuttering and removal of the boat.

PNK – despite Orange Capital's media blitz regarding PNK shares being undervalued.  From June 13th through July 1st, Orange Capital sold more than 232,000 shares for nearly $6 million in proceeds.  However, Orange increased their stake from 3.67% to 4.16% due to the purchase of call options, sale of put options, and an initiation of a swap contract.

Takeaway: Voting with their pocket book.

SNOW – Intrawest Resorts Holdings’ lock-up period will expire on Wednesday, July 30th. Intrawest Resorts Holdings had issued 15,625,000 shares in its public offering on January 31st. Following completion of the IPO, approximately 60.1% of our outstanding common stock will be held by the Initial Stockholders -- or about 27,049,200 share are subject to lock-up. 

Takeaway: More equity coming soon.

INDUSTRY NEWS

Japan Gaming (Nikkei) – The Japanese Diet is considering levying entry fees on its citizens while foreigners would be allowed to enter for free when casinos open in Japan.  According to Nikkei, the fee would be less than $100.  In addition, Tokyo governor has strengthened his anti-casino rhetoric and reports say MPEL has given up on Tokyo.  Nikkei also says Japan may approve 3 casinos based on the Singapore model, with Yokohama a strong candidate, given its cruise line center.

Takeaway: The Singapore Model is coming to Japan. 

Revel – with the upcoming auction close at hand, local media reports indicate potential bidders include: Seminole Indian Nation which owns the Hard Rock franchise, Carl Ichan who owns Tropicana, and Caesar’s Entertainment, which is planning to close Showboat in little more than a month.  If Caesar's was successful in buying Revel, it could be viewed as an asset trade up for Caesar's. 

Takeaway: More soon...August 6th is the auction date.

On Line Gaming in Canada – Atlantic Lottery Corporation, operates lottery games in Atlantic Canada. It is owned jointly by the four Atlantic provincial governments: New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador. Atlantic Lottery recently announced it will revisit the prospect of online gambling for the province. 

Takeaway: An interesting development and possible internet gaming expansion. 

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.