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Tickers: MGM, LVS, H, RCL, MTN

EVENTS

  • TODAY: 
    • MGM appears before New Jersey Casino Control Commission
    • WYNN appears before Massachusetts Gaming Commission
  • Sept 11:
    • Macau Legend at Credit Suisse Macau Gaming Day
    • MGM China at Credit Suisse Macau Gaming Day
    • Sand China Ltd at Credit Suisse Macau Gaming Day
  • Sept 16: Trump Plaza closes
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept

COMPANY NEWS

LVS & 1928:HK (The Standard)  According to CEO Ed Tracy, Sands China is posied to expand its 25% market share.  Sands China is planning to hire extra 6,000 workers for the hotel St. Regis Macao and hotel and casino Parisian Macau.  The company currently has 9,000 rooms in five hotels. However, the opening of St. Regis will increase it by 400 rooms and the opening of the Parisian will add another 3,000.  Tracy further commented “We have 200,000 customers on weekdays and 500,000 during holidays; the hotels have an overall occupancy rate of 96%.”

Takeaway:  Tracy turning up the volume on the future "growth" story (2016 by our timing schedule) when investors are now more concerned about downside pressures to Mass and VIP segment revenues.

LVS (Strait Times) – British celebrity chef Gordon Ramsay has gone into partnership with Marina Bay Sands and will be opening a restaurant at the integrated resort next year.  He will be opening the casual Bread Street Kitchen.

Takeaway:  Non-gaming is the growth vehicle with the casino flattish.

MGM – MGM officials will go before the New Jersey Casino Control Commission later today, in an attempt to reacquire the company's stake in Borgata.  Several witnesses are expected to testify in the hearing, which would determine whether or not the company is suitable to re-qualify for a license here.

Takeaway: This event is expected.

MGM (Bloomberg) has indicated it would invest up to $10 billion to develop a Japanese casino if they’re legalized and would borrow from Japanese banks to tap on their low rates and local knowledge. “We like low interest rate money, it’s important,” Bill Hornbuckle, president of the Las Vegas-based gaming resorts operator, said.  “If you’re going to be borrowing between $3 billion and $7 billion, you’d want to be able make sure you get through the day.” MGM is seeking Japanese consortium partners ranging from financial institutions to real estate developers, the executive said, as Japan’s ruling party seeks to legalize casinos by as soon as the next parliamentary session starting in the fall.

Takeaway: Inexpensive debt - the elixir of earnings growth.  Still need legislation to pass and MGM to be selected as a concessionaire. 

H – as a follow-up regarding the resignation of CFO Gebhard Rainer, late yesterday Coach named Mr. Rainer the company's new President and COO effective September 29, 2014.

Takeaway: Confirms Mr. Rainers departure from Hyatt was related to a better opportunity and not indicative of any internal Hyatt issues.

RCL – A cruise retailer commented that: "Q4 Caribbean is definitely weak. Worse than usual because of overcapacity.  Predictable, in my view, since overcapacity has existed all year."  Another retailer sent a RCL memo stating "Q4 Caribbean Price Decrease.  We have taken fairly broad pricing decreases on Q4 Caribbean products. They would not do this if business was strong."

Takeaway:  We had noted RCL pricing lagging behind its competitors in the Caribbean in our mid-August pricing survey.

NCLH – Bonus commission offer from Norwegian TTG Digital

NCL announced this week that bookings made between September 17 and October 31, for sailings in 2015, would be eligible for an all-inclusive bolt-on, priced between £215pp on a three-night cruise and £735pp on 14 nights.  Agents can earn 10% commission on both the cruise and all-inclusive elements booked during this period.

According to Francis Riley, NCL's VP and GM,  NCL launched similar all-inclusive packages a month ago in the US, which, after an initial “slow burn”, had proven popular.  The deal-period has now been extended in the US - a move which Riley said could also happen in the UK.  The all-inclusive offer is effective for all sailings on all ships in 2015 ,except Pride of America, which sails around Hawaii, where legislation on the sales of drinks packages differs.

Takeaway:  The all-inclusive deals continue to gain steam.  

NCLH – (Seatrade Insider)  Oceania Cruises plans to provide free Internet access to travelers booked in suites and concierge-level staterooms on its five ships. This is the first time the line has offered a free Internet program, with the new benefit commencing during the 2015 winter season.  The news comes just after close rival Azamara Club Cruises' announcement that it will discontinue free Internet as a benefit of its loyalty program, starting Jan. 1.

Takeaway:  Still not sure if Internet access will play a major role in a cruiser's decision.

MTN – Park City Mountain Resort spokesman Andy Miller said Tuesday PCMR posted the $17.5 million bond to ensure the property will open for a 51st straight season. By posting the bond, PCMR avoiding enforcement of Judge Ryan Harris' eviction notice. Additionally, the bond posting allows PCMR additional time to negotiate with MTN regarding future operations. The bond includes $15 million for rent, plus an additional $2.5 million to cover interest and attorney's fees. Judge Harris also ruled PCMR will need another bond to stay eviction and operate the resort for the 2015-2016 ski season if litigation has not concluded, and the parties have not reached a settlement. The bond for the 2015-2016 season would be $19 million -- effectively $4 million of additional collateral.

Takeaway: A modest near-term headwind for MTN. However, MTN will continue its push to secure the operational rights to Park City.

INDUSTRY NEWS 

Monmouth racetrack plans to be the first to offer sports betting in NJ NJ.com

Monmouth Park today said it will offer wagering on professional athletics by the end of the month.  Terming the Christie administration’s move “huge” and “the saving grace” to the horseracing industry, Monmouth Park adviser Dennis Drazin said Monmouth was forecasting $1 billion worth of sports bets and a $75 million commission to be split between Monmouth Park and its UK-based partner, the sports-betting firm William Hill, just in the first year of operations.  “And if nobody else does it, we’ll see an increase in that revenue,” Drazin said.  Indeed, Monmouth Park is alone among state-licensed gambling operations saying it plans to offer sports betting, and likely to remain so unless federal courts allow it.

Takeaway: Monmouth may indeed have a monopoly for a while since Meadowlands and PENN's Freehold Raceway are holding out for a federal court approval on sports betting. 

Las Vegas Housing Prices  (Vegas Inc) The median sales price of single-family homes in August was $200,000, same as July but up 9.9% YoY.  The last time prices rose less than 10% YoY was in July 2012.

Takeaway: Slowing housing price growth which we highlighted on July 16, 2014 note "LV LOCALS: THE MIRAGE OF A RECOVERY".  

 

HKSE listed stocks weak - the superfecta of negative news included:

1) BofA strategist David Chui comments that China’s market rally will evaporate.

2) Premier Li was quoted saying that China can't rely on easy credit policy for growth.

3) Slower than forecasted M2 growth during August.

4) Standard Chartered cut gaming sector outlook.

In stock trading action:

0027  (-2.77%)

0880  (-3.52%)

1128    (-3.44%)

1680   (-1.64%)

1928   (-2.40%)

2282  (-2.63%)

0577   (-2.94%)

Takeaway: Difficult to catch the falling knife, much easier to buy 5% off the bottom than chase stock prices lower.

Macau Entertainment – The much awaited battle between Manny Pacquiao and Floyd Mayweather Jr. is once again gaining steam as Pacman and his promoter, Top-Rank, revealed they are currently negotiating with Money May's camp for a possible showdown in 2015. The eight-time division world champ added that a fight with Mayweather could happen next year, probably in Dubai with at least $225 million (conservative estimates) at stake for their pound-for-pound slugfest. But first, Pacquiao will fight undefeated American Chris Algieri on November 22 in Macau.

Takeaway: The battle in the ring versus the battle outside the ring for promotional and venue sponsorship dollars.

Vietnam Gaming to Open to Locals – as follow-up to our August 13, Leisure Letter commentary on this topic, Vietnam may soon start allowing locals to play in their casinos as part of the plans by the Hanoi government. Ngo Van Tuan, Head of the government’s Banking and Finance Department said that the intention is to submit the final draft of a new casino decree to Prime Minister Nguyen Tan Dung as early as October, with approval likely before the end of the year. The proposal is believed to be based on the model used in Singapore where locals pay a levy (either daily or annual) to enter the casino but foreigners are permitted entry for free. This is supposedly designed to verify sufficient financial ability, to ensure that only those who can afford to gamble can enter the casinos.

Takeaway: An apparent clear path to legalization of locals gaming in Vietnam - a minor competitive headwind for Macau and Singapore.

Nassau Bahamas Redevelopment – Chinese interests (likely, China State Construction) have developed their own EDAW-style comprehensive plan to revitalize the city of Nassau - involving their own real estate acquisitions and developments - and quietly presented this to the Government.  The new Chinese plan sheds new light on China State Construction’s interest in acquiring the British Colonial Hilton, which is widely regarded as the economic anchor for downtown Nassau and Bay Street.  However, Roger Stein, who previously attempted to re-develop South Ocean, and formerly bid to acquire the British Colonial Hilton in partnership with global asset manager, Och-Ziff, has submitted a new Letter of Intent to buy the downtown Nassau property. Stein is now expected to partnered with a New York-based hotel group in a $60 million-plus offer, but the British Colonial Hilton’s current owners - Aubaine Capital and the Canadian Commercial Workers Industry Pension Plan (CCWIPP) - are thought to favor the expected Chinese bid.  

Takeaway: This redevelopment opportunity is important because the British Colonial Hilton is immediately adjacent to the Nassau Bahamas Cruise Terminal and Festival Place Shopping Mall.  

MACRO

China Money Supply as measured by M2, was up 12.8% year-over-year during August -- the slowest growth in five months. August's growth was slower than the 13.5% rise at the end of June and lower than 13.5% median forecast

Chinese Economic Growth grew 7.4% in the first half of the year, down 7.7% growth last year and slightly lower than the 7.5% target set by the government.

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.