LEISURE LETTER (09/02/2014)

Tickers: CZR, LVS, MPEL, VAC, CCL

EVENTS

  • Sept 2:  Revel closed
  • Sept 4:  MGM at Mizuho Investment Conference
  • Sept 9:  EXPE at DB Technology Conference

COMPANY NEWS

ALL:AU – announced it entered into an agreement with Playtech for the sale of the Aristocrat Lotteries business for total consideration of EURO10.5 million in cash, subject to certain adjustments and closing conditions. The sale will result in a non-cash write off of AUD45 million in the current financial year, subject to adjustments. Completion of the sale is expected in the current financial year.

Takeaway: Aristocrat focusing on its core business.

 

CZR – A federal judge on Friday imposed a preliminary injunction on Helena Wong, a casino hostess who used to work at Maryland Live Casino in Hanover and is now employed at the new Horseshoe Casino in Baltimore. Wong sent an email earlier this month to roughly 20 Maryland Live customers offering free access and services at Horseshoe Casino. Maryland Live filed a lawsuit against Wong, alleging that the contact information for those clients is proprietary information.

Takeaway: Clearly an attempt to pull out all stops and recruit regional VIPs to newly opened properties.

 

LVS – completed an amendment and restatement of its Marina Bay Sands Credit Facility where by the Company extended the maturity of such term loans to August 28, 2020 for the Facility A Loans and extended until February 28, 2020 the Facility B Loans. Additionally, the the amortization schedule for the Facility A Loans was amended to provide for 0% due at the end of the third quarter of 2014, 0.5% due at the end of each quarter beginning with the fourth quarter of 2014 until (and including) the third quarter of 2018, 5% due at the end of each quarter beginning with the fourth quarter of 2018 until (and including) the third quarter of 2019, and 18% due at the end of each quarter beginning with the fourth quarter of 2019 until the second quarter of 2020 and on the maturity date of the Facility A Loans; and the leverage covenant was amended to provide that leverage shall not exceed 3.50 to 1.0 on the last day of each fiscal quarter from the end of the fourth quarter of 2013 until (and including) the end of the third quarter of 2019, and 3.00 to 1.0 on the last day of subsequent fiscal quarters.

Takeaway: A favorable credit facility extension for LVS that should result in even more capital return to shareholders - especially with the stock down.

 

LVS & 1928:HK – opened the Phase III, $50 million addition, of its Cotai Central shopping mall, adding 36 stores and boosting square footage by 70% to 400,000.

Takeaway: The maturation of the SCL's retail properties continue and thus a sale is not likely in the near-term.

 

MPEL (Macau Business) Hollywood will make a short film to accompany the opening of casino operator Melco Crown Entertainment Ltd’s Studio City development in Cotai. RatPac Entertainment will produce the film, Martin Scorsese will direct it and Robert DeNiro, Leonardo DiCaprio and Brad Pitt are due to appear in it. The film will have its premiere at the opening of Studio City in the middle of next year.

Takeaway: Continuing the focus on non-gaming entertainment and a clever new property promotion which does not highlight "gaming".

 

VAC – is in negotiations to sell its Kauai Lagoons project, located near Lihue Airport and one of the largest Hawaii construction projects to be stalled by the Great Recession, to Hawaii developer Ed Bushor for $60 million.

Takeaway: Cleaning up an idle, non-income generating asset.

 

CCL (Cayman Compass) The captain of the Carnival Magic anchored in an unauthorized zone in George Town. As a result the anchor damaged part of a  coral reef. The vessel dropped anchor 200 meters out of the authorized zone due to strong winds. Under Marine Conservation Law no boats can damage any type of coral within Cayman waters when using anchors. The Carnival Magic was moved back into the anchor drop zone by noon.

 Takeaway: Expect CCL to pay a fine for this unfortunate event.

  

STCO:SP – Straco Corporation has agreed to buy the troubled Singapore Flyer for $140 million in cash. The Flyer, which cost $240 million to build, came under the spotlight in May last year when the company behind the now six-year-old attraction was placed in receivership. Straco is behind several well-known tourist attractions in China such as the Shanghai Ocean Aquarium and Underwater World Xiamen. Straco is led by founder and executive chairman Wu Hsioh Kwang, a prominent local businessman who is chairman of the culture, education and community affairs committee at the Singapore Chinese Chamber of Commerce and vice-chairman of tourism and leisure for the Chinese business group at the Singapore Business Federation. 

Takeaway: LVS took a pass on this entertainment asset.

INDUSTRY NEWS

Macau Smoking Ban – The Health Bureau says it had received by yesterday plans for smoking rooms in 39 casinos. The casino operators submitted the plans anticipation of the government restricting smoking in casinos to smoking rooms and VIP gaming rooms from October 6. The smoking rooms will have no gaming tables or slot machines.

Takeaway: The early plans to accommodate gamblers who smoke are making their way through the approval process despite a mere five weeks until the smoking ban implementation.

 

Philippines Gaming – legislation was introduced to impose a PHP3,500 (peso) (US$80) entrance fee on any Filipino entering a casino.  The author of the legislation, Representative Peter Unabia, suggests the fee is to prevent financially challenges residents from accessing gaming.

Takeaway: Another source of tax revenue for the Philippines government.

 

Mexico Gaming Expansion – Legislation to legalize casinos in Mexico, and possibly leading to integrated resorts in Cancun and Los Cabos, will be unveiled within 10 days, Octavo Dia has quoted Fernando Zarate Salgado. Mexico's House of Deputies that will consider the bill, which would allow for a 10-year license and one 10-year renewal.

Takeaway: Some increased competition potentially for Las Vegas Strip gamblers who live in Mexico and the Southwest and West Coast of the US.


Atlantic City – Fitch Rating Agency estimated that of the $457 million in gaming revenues from Atlantic Club, Showboat, Trump Plaza and Revel over the 12 months that ended in July, $280 million of gaming revenues will remain in Atlantic City, with more than $140 million in gaming revenues going to Caesars’ properties.

Takeaway: Time will tell how gaming revenue resets across the surviving Atlantic City properties.

MACRO

Chinese Banks and Non-Performing Loans(WSJ) According the the WSJ, the big-five Chinese state-owned lenders (ICBC, China Construction Bank, Ag Bank, Bank of China, and Bank of Communications) and found that the banks reported a combined CNY423.49B in NPLs in H1, up 21% y/y. The banks cited steel, manufacturing, and small-business sectors as the main sources of the bad loans. The banks also wrote off a total of CNY46.91B of bad loans in H1, vs the CNY22.07B written off a year earlier

 

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.


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more