LEISURE LETTER (08/21/2014)

Tickers: BYD, MGM, PNK, WYNN, CCL

EVENTS

  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27:  BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes

COMPANY NEWS

GTK:IM – said 14 banks have agreed to lend the Company up to $10.7 billion, in part to back its planned acquisition of U.S. slot machine maker IGT (International Game Technology).  The financing will be via a senior bridge loan and will be available to GTECH for 15 months, after which the company is expected to issue bonds to refinance the bridge loan.  GTECH said 45% of the bridge loan would be denominated in euros and the remainder in U.S. dollars. Credit Suisse, Barclays and Citigroup have arranged a syndicate of 11 banks to jointly finance GTECH. Other lenders involved include BNP Paribas, Credit Agricole, Deutsche Bank, Intesa Sanpaolo, JPMorgan Chase, Mediobanca and UniCredit.

Takeaway: Full support by all the investment banks.

BYD & MGM – Borgata Hotel Casino & Spa announced seven shows with Emmy and Golden Globe Award winning comedian Jerry Seinfeld, performing at Borgata's intimate 2,500-seat Event Center.  Seinfeld will continue his series through 2016, with tickets on sale this Friday (August 22) for his first show scheduled for Thanksgiving weekend – Saturday, November 29, 2014

Takeaway: Building a schedule of headline entertainment programming in an effort to draw more visitors - and hoping they gamble. 

MGM & 2282:HK (GGRAsia) Chief Executive of MGM China Holdings Ltd, Grant Bowie on Wednesday commented that the declaration by Macau’s Chief Executive that the city’s casino operators should provide housing for their migrant workers raises “complex” issues as the SAR struggles with lack of buildable land as well as where to locate such housing.

Takeaway: Mr. Bowie attempting to play nice with Macau's Chief Executive, labor, and shareholders.

9776:JP – Konami Gaming, Inc., announced that its award-winning casino management system SYNKROS® has been selected by Canyon Casino in Black Hawk, Colorado, to replace their existing system.  Canyon Casino has more than 400 slot machines, 100 of which operate as coin slots where guests can still appreciate the sound of coins falling into the trays. The casino's available table games include blackjack, craps, and roulette

Takeaway: A notable win for Konami. 

1680:HK – In its Q2 2014 financial results, Macau Legend Development indicated the Harbourview Hotel opening will be delayed from Aug 2014 until tentatively in Q4 2014. Additionally, the redevelopment completion of Macau Fisherman's Wharf will also be delayed by one or two quarters as the company awaits the issuance of the superstructure construction license which is expected in Q4 2014. The Legendale Hotel which was targeted for a Q1 2017 completion has yet to obtain Macau government approvals to begin construction.

Takeaway: More development, construction and opening delays and postponements. Galaxy Phase II looks good for its timetable but we have zero confidence that the other Cotai projects will open on time.

WYNN & 1128:HK – The Board of Directors of Wynn Macau Ltd approved an interim dividend of HKD0.70 (US$0.09) a share for the six months ended June 30, 2014. The dividend will be paid on September 23. Last year the company had declared an interim dividend of HKD0.50 a share.

Takeaway: With the interim dividend announced, attention will now focus on the size of the year-end special dividend.

CCL – starting in October 2015, Carnival will offer 10- to 14-night cruises, a first for the line, out of Baltimore on the 2,124-passenger Carnival Pride. Previously, Carnival only offered seven-night cruises from Baltimore.

Takeaway:  For the Caribbean, the longer-dated itineraries have done better than the shorter itineraries this year.  

 


Insider Transactions:

HST – President & CEO Ed Walter sold 190,000 shares on August 19th at an average price of $22.6115/share and directly owns a remaining 116,568 shares.  Additionally, an Limited Liability Corporation indirectly owned by Mr. Walter also sold 10,000 shares on August 18th at an average price of $22.6489/share and the LLC now owns 90,000 shares.  Beyond the outright 116,568 owned shares, Mr. Walter beneficially owns 436,895 restricted stock share as well as 230,803 non-qualified stock options with expiration dates from January 20, 2022 through January 22, 2024. 

CHH – Stephen P. Joyce exercised employee stock options on 11,659 shares of the company’s stock and immediately sold the 11,659 shares on Monday, August 18th at an average $50.69/share via a 10b5-1 program.  The options expiration date was May 2, 2015. Following this transaction, Mr. Joyce now owns 125,763 shares of the company’s stock.  

Takeaway: This was Mr. Joyce's second sale within seven calendar days.  He sold 44,463 shares on August 11, 2014.

INDUSTRY NEWS

Japanese Gambling (Japan Times) – According to research published by the Japan's National Hospital Organization Kurihama Medical and Addiction Center,  4.38 million men, accounting for 8.7%, and 980,000 women, or 1.8%, are suspected to suffer from gambling problems, totaling 5.36 million people or 4.8% of the adult population in the country. The research was conducted along with a survey for alcohol dependence in July 2013. The team interviewed 4,153 adults nationwide chosen on a random basis, and conducted research on gambling and Internet addiction based on international standards.

Takeaway: Suspect timing of this dated study results - seemingly just ahead of the Diet integrated resort legislation debate this fall. 

 

Increased Asian Regional Gaming Competition (GGRAsia) In reaction to the escalating crackdown on official and business corruption across mainland China, several jurisdictions neighboring China, including Japan, Vietnam, South Korea as well as Cambodia and the Philippines, appear to be increasing their efforts and attempts to either enact or liberalize laws to encourage foreign direct investment by casino operators.

Takeaway: The proliferation of gaming across new international markets continues.   

MACRO

Macau Inflation –  According to the Macau Statistics and Census Service, higher rents and the cost of eating out were key contributing factors to Macau's July inflation report of +5.92% year-over-year. On a month-on-month basis, from June to July, prices increased 0.37%.   

Takeaway: Such reports unfortunately give a voice to the labor unions rather than calling on the Macau Government to support policies which support lower inflation.

China Economic Slowdown (redux)(WSJ) Highlighted the start-stop nature of China's economy despite Beijing's efforts to intervene with lower interest rates, project approvals and infrastructure spending to keep the economy growing. Yet, the portion of the economy that is most at risk of falling out of the government's control is the property market. Property prices and construction activity continue to fall, posing risks to the banking system, personal wealth and local government finances. The relaxation of curbs against property speculators, already implemented in several cities, may yet have a positive impact. More moves, including easier credit for mortgages and developers, appear likely.

Takeaway: Not all of China macro is looking better.

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.