LEISURE LETTER (09/16/2015)

Tickers: LVS, MGM, RLJ, FCH, CCL

EVENTS

  • Sept 16: Trump Plaza closes
  • Sept 16: FCH investor meetings in Canada
  • Sept 17-18: CLSA Investor Forum
    • 17th: Genting Singapore, SJM, WYNN
    • 18th: Bloomberry
  • Sept 17: Massachusetts Gaming Commission: Boston Decision by Wednesday
  • Sept 17: PENN at Credit Suisse Small & Mid Cap Conference
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept
  • Sept 18: Imperial Capital Global Opportunities Conference
    • BYD, PENN, GLPI
  • Sept 18: WYN & VAC at MKM Entertainment, Leisure Conference

COMPANY NEWS

AGI:PM & 678:HK – (GGRAsia) Alliance Global Group Inc noted the first phase of its US$1.1-billion Manila casino project called Resorts World Bayshore (RWB) would be completed by 2018 with construction set to begin within 90 days. RWB will be the fourth casino operator to open in Pagcor Entertainment City.  RWB will include 3 luxury hotels (Okura, Westin Hotels and Resorts, and a third brand yet to be finalized) offering more than 800 rooms, a retail component, a theater, and the casino. The development of Resorts World Bayshore is under Resorts World Bayshore City Inc., soon to be owned by AGI unit Travellers International Hotel Group Inc. Travellers is a joint venture with Genting Hong Kong Ltd., which is also the developer of Resorts World Manila in Pasay City, also currently undergoing an expansion program.

Takeaway: The build out of Manila as a gambling and entertainment destination continues.  GGR growth rates certainly supports it.

 

BEL:PM (GGRAsia) Philippine casino investor Belle Corp said in a regulatory filing on Monday that 3.36 billion shares in Premium Leisure Corp that it already owns will be listed with the Philippine Stock Exchange “some time this week”.

Premium Leisure (formerly known as Sinophil Corp) got regulatory approval to change its name a fortnight ago. Premium Leisure is reportedly pre-marketing a follow-on share offering to expand its investor base.

Takeaway: Very convenient timing as CLSA is the book runner for the placement and CLSA is currently hosting its Investor Forum in Hong Kong this week.

 

LVS – EVP and President of Global Gaming Operations at Las Vegas Sands Rob Goldstein and his wife listed for sale their Southampton NY compound for $28 million.  The Goldsteins acquired the property in 2007 for $14.7 million. 

Takeaway: Is it possible Mr. Goldstein will be assuming greater responsibilities within the enterprise and therefore won't have the time to relax and utilize the property? Given the gaming revenue weakness across Macau and Singapore as well as Mr. Leven's imminent retirement, we believe this to be the case.

 

MGM & 2282:HK (Macau Business & Macau Daily Times) A group of about 200 casino workers from MGM China met with representatives from the city’s Labor Affairs Bureau to complain about the company’s pay and benefit policies and demand better terms of employment.  Workers complained the company will allocate a disproportionate number of labor-intensive live gaming tables to new smoking rooms, and use more electronic gaming machines on the casino main floor – some of these machines allow a single dealer to serve many more players than traditional table games.

Takeaway:  Labor battles continue.  Croupiers and floor attendants view their role as "highly skilled" despite the entry level nature of such roles.  

 

3918:HK NagaCorp (GGRAsia) informed shareholders via HKSE filing, NagaCorp Ltd, the operator of the NagaWorld casino resort in Phnom Penh, Cambodia, says it has commissioned “an independent professional party to review the internal controls of the company and its subsidiaries...with a focus on anti-money laundering”. NagaCorp also said it had engaged another advisor called Political and Economic Risk Consultancy Ltd (PERC), “to assess the investment risks in Cambodia”. The consultant said in its findings published in NagaCorp’s Monday filing, that on a scale of 0 to 10 – with 10 being the greatest risk – its latest survey gives Cambodia an overall risk grade of 5.85. 

Takeaway: Chairman McNally drawing upon his twenty-four years of service with the Federal Bureau of Investigation to help keep NagaCorp in the clear.

 

RLJ – announced that it has acquired the 215-room DoubleTree Grand Key Resort located in Key West, FL for a purchase price of $77.0 million, or approximately $358,000 per key.

Takeaway: Key West a hot market for tourism as well as hotel transactions.

 

FCH –  sold its 446-room Holiday Inn-Toronto Airport and 221-room Embassy Suites Hotel-Indianapolis North for aggregate gross proceeds of $29M in separate transactions. 

Takeaway:  Selling assets = right sizing and focusing the portfolio as well as paying down debt

 

CCL – (Cruise Critic) Princess Cruises canceled Sea Princess' 14-night Fremantle to Brisbane cruise due to 'technical difficulties'. The ship, after arriving in Fremantle on Saturday for repairs and following a cruise from Singapore, experienced problems that affected its ability to cruise at full speed on recent itineraries. While in port, engineers discovered a second, separate technical, issue and Princess decided to bring the ship to dry dock where all repairs will be carried out. Princess gave all passengers a full refund of their cruise fare plus a 100% future cruise credit. 

Takeaway: Ironic and unfortunate timing as The Sunday Times reported that according to passengers, up to 400 people disembarked the same ship on Sunday morning morning with norovirus - which resulted in the vessel getting nicknamed "Pandemic Princess".  

 

Insider Transactions:

MAR – President of the Americas Division, David Grissen acquired 16,000 shares via stock option (with an expiration date of April 27, 2015) for $15.00/share and sold the same shares at an average price/share of $71.09. Additionall, Mr. Grissen acquired 9,840 shares via stock option (with an expiration date of February 10, 2015) for $30.31/share and sold these share at an average price/share of $71.18.  Mr. Grissen now directly owns 54,755 shares of the company’s stock and 1,785 shares via 401(k). 

INDUSTRY NeWS

T8 signal lowered as Typhoon Kalmaegi makes landfall in China (Macau News) 

Issued warning:  "Kalmaegi has made landfall over Wenchang, Hainan Island, and will continue to move further away from Hong Kong. Its associated squally showers will still affect Hong Kong intermittently. Although Kalmaegi is moving away, occasional gales will still affect Macau."

Takeaway:  This won't make things better for Macau in September

 

Macau Safe Haven for Russian Capital (Macau Business) A risk consultant says Russian investors regard Macau as a safe place to put their money, out of the reach of US and EU sanctions imposed on Russia for its interference in Ukraine, Business Daily reports.

Takeaway: Unfortunately, not the headline Macau needs at this moment.

 

Atlantic City - Donald Trump tweets considering saving Trump Plaza and Taj Mahal 

Takeaway:  Vulture buyer in the market

 

Lodging 2015 Corporate Rates – NYU forecasts big bump in 2015 corporate rates. The emerging outlook for 2015 corporate contract room rates in the United States is expected to increase the most since NYU started preparing this forecast with a national average increase of 5.5% to 6.5%.

Takeaway: A stronger than expected tailwind for the lodging cycle and 2015 outlook.


Global Tourism – International tourist arrivals grew by 4.6% in the first half of 2014 according to the latest UNWTO World Tourism Barometer. Destinations worldwide received some 517 million international tourists between January and June 2014, 22 million more than in the same period of 2013. Growth was strongest in the Americas (+6%) followed by Asia and the Pacific and Europe (both at +5%). By subregion, South Asia and Northern Europe (both +8%) were the best performers, together with North-East Asia and Southern Mediterranean Europe (both +7%).

Takeaway: More support for the strengthening lodging cycle.

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.


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