LEISURE LETTER (09/03/2014)

Tickers: IGT, LVS, BEE, DRH, HLT, HOT, RCL

EVENTS

  • Sept 3:
    • MGM China (2282:HK) at Nomura China Investor Forum
    • Sands China Ltd (1928:HK) at Nomura China Investor Forum
    • MTN - expected ruling from Judge Harris in PCMR vs. Talisker
  • Sept 4:  MGM at Mizuho Investment Conference
  • Sept 6-8: China/Macau - Mid-Autumn Festival
  • Sept 8: MAR Analyst Meeting
  • Sept 9: 
    • GLPI & HPT at Wells Fargo Net Lease REIT Forum
    • EXPE & OWW at DB Technology Conference

COMPANY NEWS

BEL:PM (GGRAsia) reports indicated CLSA Ltd is pre-marketing the PHP8.7 billion (US$200 million) follow-on share sale to expand its investor base with the official book opening on September 22 and a listing date of October 2. Reportedly, CLSA Ltd is the sole global co-ordinator of the operation, while Credit Suisse and Macquarie are joint bookrunners

Takeaway: Widely anticipated since BEL's filing on July 22.

 

IGT (Macau Business) Gaming equipment suppliers LT Game Ltd and International Game Technology will together unveil a concept called the "Total Casino Solution" at this year’s Macao Gaming Show, which will take place from November 18 to 20 at the Venetian Macao casino-resort.

Takeaway: Could this be the next iteration of the systems business?

 

LVS (Korea Herald) recently proposed to the Seoul government the construction of “a truly iconic building” in Jamsil, the site of the 1988 Olympic Games main stadium located in the affluent southern Seoul area. It is close to the Hangang River that runs through the capital city with a population of over 10 million, and Lotte World Tower, a 123-story building currently under construction.  LVS proposed to moving the baseball stadium to another location in order to optimize the redevelopment potential of the Jamsil site as a leading international meetings, incentives, conferences and exhibitions destination. 

Takeaway:  Another MICE opportunity or something larger?

 

BEE – announced that it has closed a ten-year, $115.0 million limited recourse loan secured by the InterContinental Miami hotel.  The Company had recently repaid the $85.0 million financing previously encumbering the property. Under the terms of the agreement, the loan bears interest at a fixed rate of 3.99% and has a ten-year term.  Deutsche Bank Securities Inc. originated the financing.

Takeaway: This financing replaced the existing $85mm loan that encumbered the property.

 

DRH – announced two acquisitions for a total of $174.2 million. First, the newly constructed 282-room Hilton Garden Inn/Times Square Central located on 42nd Street between Avenue of the Americas and Broadway in New York for a purchase price of $127.2 million ($451,000/key). Second, the 106-room boutique hotel, The Inn at Key West in Key West, Florida, for a purchase price of $47.5 million ($448,000/key). As of June 30, 2014, DRH has $253.0 million of unrestricted cash on its balance sheet and no outstanding balance on its $200 million senior unsecured credit facility. 

Takeaway: DRH's most recent equity offering was for 20 million shares at $10.03 on July 10, 2012.  Given the recent stock price and now low levels of cash, we would not be surprised to see an equity offering - especially as we approach year end 2014.

 

HLT – announced "China Golden Week" promotion for mainland China and Hong Kong. The promotion will reward customers who book directly through Hilton Worldwide's portfolio of hotels in mainland China and Hong Kong with exclusive discounts as well as, offering HHonors membership points to our valuable members. China Golden Week promotion from September 1 to October 10, 2014, all fully prepaid direct bookings up to two days prior to arrival will enjoy up to 34% off at any participating hotels and resorts under Hilton Worldwide across mainland China and Hong Kong

Takeaway: Hilton attempting to capitalize on its vastly larger China lodging footprint during the all important Golden Week.

 

HOT – announced an agreement with Hainan Jianfeng Tourism Development Co., Ltd. to debut China’s first W Retreat and the second St. Regis resort on Hainan Island. Scheduled to open in 2019 and 2020, respectively

Takeaway: Hainan, once thought to be the next gaming mecca, is quickly becoming a new city for high-end executive offices and technology firms.

 

RCL – announced that it has entered into an agreement to sell its 1,814-passenger cruise ship Celebrity Century to Exquisite Marine Ltd., a holding company led by Ctrip.com. Royal Caribbean Cruises will continue to operate Celebrity Century until April 2015. 

Takeaway: A smart move by RCL on 2 fronts - allows them to get rid of an old under performing asset while establishing a JV to manage the ship's operations while also broaden its relationship with Ctrip, who's a powerhouse OTA in China. 

INDUSTRY NEWS

Tourism chief forecasts single-digit visitor growth (Macau News)

Macau Government Tourist Office (MGTO) Director Maria Helena de Senna Fernandes said she believes that in the next few years, growth in the number of visitor arrivals will remain in single digits.  She also said her bureau would be more focused on convincing visitors to extend their stay. Currently, visitors’ average stay amounts to just one day.

Takeaway:  Through July, Macau visitation has grown 8% ytd in 2014.  Changing the day trip perception of Macau will be difficult.

 

Macau International Airport – handled 520,000 passengers in August, 6.5% more than a year earlier and the most in any month yet. Macau International Airport Co Ltd says the airport handled 3,400 landings and takeoffs, 1.4% more.

Takeaway: The visitors are coming to Macau, but just not gambling as much.

 

Trump Plaza Atlantic City – New Jersey Division of Gaming Enforcement approved the closing to Trump Plaza and said the property can cease gaming operations at 6 a.m. Sept. 16, and that casino-cage operations should continue until 8 a.m.

Takeaway: The closing of the third casino in a mere two weeks.

MACRO

China Economic Data - The non-manufacturing purchasing managers’ index (PMI) rose to 54.4 in August from 54.2 in July.  Additionally, the HSBC Holdings Flash PMI survey was 54.1 versus 50.0 in July.

 

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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