LEISURE LETTER (09/04/2014)

Tickers: BYI, GLPI, CHSP, HOT, HLT, PEB, CCL, NCLH

EVENTS

  • Sept 4:  MGM at Mizuho Investment Conference
  • Sept 6-8: China/Macau - Mid-Autumn Festival
  • Sept 8: MAR Analyst Meeting
  • Sept 9: 
    • BofAML Gaming & Lodging Conference
    • GLPI & HPT at Wells Fargo Net Lease REIT Forum
    • EXPE & OWW at DB Technology Conference

COMPANY NEWS

BYI – announced an agreement with the Ontario Lottery and Gaming Corporation (OLG) to provide the central casino gaming system solution throughout the province. According to Bally, in conjunction with the system modernization, the OLG will implement Bally’s system technology to align and comply with “Conduct and Manage” responsibilities under Canada’s Criminal Code, and implement enhanced responsible gambling tools to the casino gaming facilities and operations across Ontario.

Takeaway:  This is an important win for Bally, I mean SGMS. 

 

IGT – Wheel of Fortune Spins its Way to Mobile and Desktop on IGT's DoubleDown Casino

Today marks the first time IGT's Wheel of Fortune Double Diamond slot game is available across all platforms including social and mobile devices.  Today's announcement is the first in a series of Wheel of Fortune titles to launch as part of the multi-year agreement with Sony Pictures Consumer Products.  

 Takeaway:  Long-awaited moment for Wheel of Fortune on DoubleDown.

 

GLPI – declared a cash dividend of $0.52 per share on common stock for the third quarter of 2014. The dividend will be payable on September 26, 2014 to shareholders of record at the close of business on September 15, 2014

Takeaway: Important because it signals a status quo pay-out ratio.

 

CHSP – announced several transactions, including:

1) entered into an agreement to acquire the 337-room JW Marriott San Francisco Union Square located in San Francisco, California, for a purchase price of $147.2 million, or approximately $437,000 per key; 

2) entered into an agreement to sell the 153-room Courtyard Anaheim at Disneyland Resort located in Anaheim, California, for a sale price of $32.5 million, or approximately $212,000 per key. Both transactions are expected to close within 45 days; and,

3) announced 4.2 million share common share offering and intends to use the proceeds from the offering and hotel sale to fund the acquisition of the JW Marriott.

Takeaway:  CHSP adding to its San Francisco platform while upgrading the quality of its portfolio.  Thayer Lodging Group purchased the JW Marriott Union Square from Ashord Hospitality Trust in March 2011 for $96 million.

 

HOT & HLT– Thayer Lodging Group closed on its purchase of the Westin Diplomat Hotel (oceanfront), Westin Diplomat Golf & Tennis Club and adjacent open land parcels for $535 million. The seller was The United Association, a 370,000-member plumber and pipefitters union.  Thayer plans a $100 million capex renovation of the property.  Thayer will likely name a developer in the coming weeks to build three to five towers for a total of 1,500 rooms on open land

Takeaway: Most importantly, Thayer will deflag the Westin brand and rebrand the property Diplomat Resort & Spa and will join Hilton Worldwide's newest brand, Curio - A Collection by Hilton.  HOT would lose the 998 rooms and associated fees from its managed/franchised segment, while HLT would gain the incremental fees.  Neither HOT nor HLT have confirmed the re-flagging.

 

IHG – sold 19 Holiday Inn hotels to Kew Green, an owner/operator of high quality limited and full service branded hotels (Holiday Inn, Crowne Plaza, Holiday Inn and Days Hotels) in prime locations throughout the UK. The 19 hotel portfolio acquistion increases Kew Green’s portfolio of Holiday Inns up to 38.

Takeaway: IHG continuing its Holiday Inn asset sales.

 

PEB – announced 3 million share secondary offering and which will use the net proceeds to repay the approximately $91.0 million outstanding on the company’s senior unsecured revolving credit facility and the balance for general corporate purposes

Takeaway: Small equity raise at a 52 week high share price while preserving dry powder for opportunistic, value creating acquisitions.

 

CCL – Princess '3 For Free' sale Seatrade Insider

Running through Nov 20, Princess Cruises has three offers for travelers booking Alaska, Europe or Japan cruises and cruise-tours sailing in 2015. The '3 For Free' sale gives stateroom location upgrades, a free shore excursion credit and on-board credit, and also features a refundable deposit of $100 per person.     

Takeaway:  Princess has been leading the promotional charge.

 

NCLH – Regent Seven Seas has canceled calls to Cabo San Lucas (scheduled for Thursday, September 4) and Puerto Vallarta (Friday, September 5) to avoid the harsh weather conditions from Hurricane Norbert.

INDUSTRY NEWS

Macau Customs Bust (Macau Daily Times) During an inspection on August 26 at the cargo terminal of the Macau International Airport, the Macau Customs Service (SA) found a consignment of counterfeit watches that was to be re-exported to South East Asian countries. The thirty-four boxes that contained more than five thousand watches were spotted alongside goods that had been declared to the SA. Most of them were later confirmed to be counterfeit products, with a total street value of more than MOP20 million. The SA has arrested the manager of the logistics company involved, as well as a cargo truck driver. They will be handed over to the Public Prosecution Office and may face a jail time of up to six months.

Takeaway: The crackdown on illegal activities continues.

 

Macau Airlift Contraction (Macau Business Daily) Low cost carrier AirAsia Zest reduced the frequency of its flights for the Macau-Manila run from daily to three times a week in mid-August, an adjusted schedule that is likely to remain for the rest of the year.

Takeaway: Interesting schedule contraction since AirAsia just recently  expanded its Macau/Manila/Macau schedule to daily service on July 1. 

 

Lodging Industry Outlook – PKF Hospitality Research forecasts the lodging industry in 2015 will achieve a record 65% occupancy (up 0.9% YoY) coupled with ADR growth of 5.7% for an overall RevPAR increase of 6.7%, according to the firm's Sept 2014 "Hotel Horizons" industry report. Additionally, PKF-HR believes that hoteliers will be able to increase their ADRs at an average annual pace of 5.7% from 2015 through 2017. 

Takeaway: Strong lodging industry trends prevail. 

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.