LEISURE LETTER (08/15/2014)

Tickers: MGM, MPEL, BYD, MTN, CHH, RCL

EVENTS

  • Aug 19-21:
    • Hedgeye Cruise Pricing Update
  • Aug 19:
    • Galaxy Entertainment Group 2Q results 5 am

COMPANY NEWS

MGM & 2282:HK – In a change of tone regarding the current state of the gaming business in Macau, Grant Bowie, CEO of MGM China said that China's moves to strengthen capital controls represent "a significant policy shift" that has made Chinese visitors to Macau "more circumspect."  He noted the two channels for getting cash out in Macau are being squeezed. First UnionPay tightened checks on suspicious transactions in the territory to combat money laundering. Second, junkets are facing pressure from casinos and regulators to disclose the names of their customers.

Takeaway:  comments that could've been made last month. 

 

MPEL & MCP:PM – Melco Crown (Philippines) Resorts Corp said the company and its subsidiaries had a total manpower of 2,480 employees as of June 30, 2014, up from 340 employees at the end of March.  The company also expects to increase its work force by 107% at the end of the third quarter and an additional 3% by year end as it readies the property for opening. 

Takeaway: The hiring process is in full swing for a late 2014 opening. 

 

AYA:TSX Amaya Gaming Group – in its earning release disclosed it completed the acquisition of of Oldford Group Limited, parent company of the Rational Group, one of the world's largest online gaming companies and owner and operator of the PokerStars and Full Tilt brands on August 1, 2014, approximately two months ahead of the anticipated timeline.  And subsequent to the quarter, Amaya completed the integration of its Casino Gaming System for websites of several major online casino operators including bwin.party's websites in Europe, Cherry AB's websites, Ultimate Gaming in New Jersey, and Rational Group's Full Tilt Poker. Amaya also launched new online and mobile casino games for its customers and completed the integration of new games from multiple third-party suppliers onto Amaya's Casino Gaming System including IGT, Bally Technologies and SHFL, and Leander.

Takeaway: The new big kid on the online gaming block.

 

GENM:MK – Police found skimming devices fitted to four automated teller machines (ATM) to steal bank card data of users in Genting Highlands since February. The most recent case was detected at 4pm on Aug 7, while the other three cases were detected in February, May and June. The initial investigation found the syndicate fitted the skimming devices and installed wireless CCTV cameras to the machines to steal users' pin numbers and card data before making fake ATM cards to withdraw money. 

  

880:HK SJM (GGRAsia & Macau Business) SJM is the latest casino operator targeted by casino labor group Forefront of the Macao Gaming after hundreds gathered on Thursday outside of the firm’s human resources offices to protest against the company’s pay and promotion policies. Approximately 1,000 people attended the protest - an unconfirmed headcount as police did not comment. Many of the protesters had their faces covered. It is not clear how many were workers from SJM Holdings. The labor group demanded SJM Holdings increase by approximately 10% across the board the pay of casino floor staff.

Takeaway: Interesting because Forefront previously indicated it would not protest against local (non-American) operators.

 

MTN – Utah Third District Court Judge Ryan Harris is expected to receive arguments today from Park City Mountain Resort and Vail Resorts on how to calculate the value (amount) of the bond which would serve as security and allow Park City to continue using Talisker’s acreage while PCMR pursues its appeal. Talisker and Vail (which control the litigation on behalf of Talisker) will argue they are entitled to at least the amount of money Park City has been earning by using its land. Utah law provides for treble damages in such landlord-tenant disputes as a spur for tenants to leave property they no longer have the right to occupy. Judge Harris is expected to set the amount after an Aug. 27 hearing.

Takeaway: Despite the ongoing litigation, the real question is who will operate The Canyons this winter. 

 

RCL – Celebrity gives instant credit in onboard booking program (Seatrade Insider)  

Celebrity Cruises' on-board booking program is now giving an instant on-board credit of $50 to $500. When passengers book a future cruise while on board, they can immediately receive the credit or they have the option to use it on a future cruise.  The offer is combinable with one of the benefits from the year-round 'Evergreen 123Go!' promotion—a choice of a free Classic Beverage Package, free gratuities or up to an additional $300 in on-board credit. 

Takeaway:  Another driver for Celebrity's strong onboard performance.

 

INSIDER TRANSACTIONS:

CHH – CEO Stephen P. Joyce sold 44,463 shares of stock in a two step sales with 17,811 shares sold on August 11 at an average $48.58/share and 26,652 shares sold on August 12 at an average $49.12/share.  The 44,463 shares were an exercise of employee stock options granted on May 1, 2008 at $26.55/share with a May 1, 2015 expiration date.  Mr. Joyce now directly owns 110,704 shares of the company’s stock as well as a beneficial interest in 269,279 options.

 

BYD – Director William Boyd sold 5,000 shares at $10.20 each.  He now owns 24,960 shares directly and 2.087 million shares through various trusts.

 

Takeaway: More insider selling by lodging executives and Boyd

INDUSTRY NEWS

Cosmopolitan Las Vegas Results – grew revenue almost 17 percent in the second quarter and trimmed its quarterly loss. Overall revenue was $200.1 million, highlighted by a 67.6% increase in gaming revenue. Hotel revenue grew 13.5%, food and beverage revenue was up 2.5% and other revenue increased 12%.

Takeaway:  Another operator with stellar Strip revenues in 2Q

 

Upstate New York Gaming Expansion – Applicants for four state casino licenses in upstate New York will make public presentations before the New York Gaming Facility Location Board Sept. 8-9. The Location Board will also host three public comment events in September to allow the public in each eligible region to comment in support of or in opposition to any proposal within their respective region.  The public comment events will be:

EASTERN SOUTHERN TIER

• 8 a.m. to 8 p.m. Wednesday, Sept. 24, at the Hotel Ithaca, 222 S. Cayuga St., Ithaca.

CAPITAL REGION

• 8 a.m. to 8 p.m. Monday, Sept. 22, Albany Holiday Inn Turf, 205 Wolf Road, Albany.

HUDSON VALLEY/CATSKILLS

• 8 a.m. to 8 p.m. Tuesday, Sept. 23, in The Grandview, 176 Rinaldi Blvd., Poughkeepsie.

Takeaway:  The award process gets into full swing.

 

JW Marriott Ihilani Ko Olina (Oahu) Resort & Spa (Pacific Business News) is scheduled to temporarily close early next year and undergo an extensive renovation which is likely to reopen under Four Season Hotels. The Resort Group is repurchasing the Ihilani from Cornerstone Real Estate Advisors after the agreement with Marriott International is up at the end of this year. The hotel management company recently registered a new business in Hawaii under "FS Ko Olina Inc."

Takeaway: A loss for the Marriott system and significant win for Four Seasons.

 

Germans favor shorter cruises, ocean pricing holds while river pricing drops (Seatrade Insider)

According to e-hoi, a German booking portal, Germans are choosing shorter ocean and river cruises, and are becoming increasingly price sensitive when booking a river cruise.  The Baltic, Northern Europe, the Caribbean and the Canary Islands all gained market share among the top destinations while the Mediterranean—although still the favorite—lost share.  In the ocean segment, the average cruise price remained stable at €1,266 (1H 2014), compared to €1,261 in 2013. The average cruise duration dropped from 10.1 days to 9.8 days, resulting in a 2% increase in the daily rate, from €115 to €117.  The age of river cruisers remains older than that of ocean cruisers: 61.6 years compared to 53.6 years.

Takeaway:  German ocean pricing has been stable but underperforming the rest of Europe this year. 

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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