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Tickers: BYD, WYNN, HOT, H, HLT, HST, CCL

EVENTS

  • Sept 17: PENN at Credit Suisse Small & Mid Cap Conference
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept
  • Sept 18: CLSA Investor Forum - Bloombergy
  • Sept 18: PENN at Craig-Hallum Alpha Select Conference
  • Sept 18: Imperial Capital Global Opportunities Conference
    • BYD, PENN, GLPI
  • Sept 18: WYN & VAC at MKM Entertainment, Leisure Conference

COMPANY NEWS

BYD – announced that Chief Operating Officer Paul Chakmak will leave the Company, effective September 19. Keith Smith, President and Chief Executive Officer, will assume Chakmak's responsibilities.  Additionally, the Company reaffirmed its previous guidance for the full-year 2014, projecting total Adjusted EBITDA in the range of $580 million to $600 million

Takeaway:  A step in the right direction given the track record.  We've consistently said that BYD could add $5-7 in value per share by improving its operations. We would've preferred a qualified replacement rather than the CEO assuming the COO duties.  Reaffirmation of guidance an on the margin positive.

577:HK Louis XIII – Louis XIII Holdings Ltd. just made the biggest single order in the history of British luxury car maker Rolls-Royce Motor Cars, plopping down $20 million for a 30 car fleet of bespoke Rolls-Royce Phantoms. The fleet is to be delivered in 2016. The deal will give Louis XIII the largest fleet of Rolls’ Phantom model car in the world, and two of the cars featuring “external and internal gold-plated accents” will be the most expensive Phantoms the company has ever produced and sold. 

Takeaway:  Building out the infrastructure to support the super VIP, by invitation-only clients.

WYNN – Wynn Resorts topped Mohegan Sun for the Boston-area casino license. The Massachusetts Gaming Commission voted 3-to-1 to award the license to Wynn based largely on the strength of its $1.6 billion project’s economic development potential.

Takeaway:   Now WYNN has to please the Boston Mayor and wait for the resolution of the November Repeal referendum.   The Everett casino will take 36 months to construct and contain 504 hotel rooms, 3,242 slots and 168 gaming tables.

HOT/HLT/H –  Cabo San Lucas Hotel Update following Hurricane Odile

  • Starwood Hotels & Resorts said that the Sheraton Hacienda Del Mar and Westin Resort and Spa Los Cabos sustained enough damage to prevent the properties from accepting new guests until at least Oct. 31.
  • The Hilton Los Cabos Beach & Golf Resort said that all guests and employees were safe but that the property would be closed “until a definitive assessment of the damage is complete.”
  • Hyatt Place Los Cabos and Hyatt Ziva Los Cabos are closed and not accepting reservations for the next 30 days.
  • The One&Only Palmilla will be shut down until Sept. 25.

Takeaway: Risks to operating hotels in tropical latitudes. 

HST – The United States District Court for the Eastern District of Virginia has issued a preliminary order of forfeiture and a restitution order in regards to the guilty plea filed by Robert Koger. Koger pleaded guilty on Jan. 16, 2014 to wire fraud and conspiracy to commit wire fraud. According to the restitution order Koger is required to pay back a total of ~$40.7 million of which ~$20.3 million is to be paid to Host Hotels and Resorts.

Takeaway: A small one-time windfall and recovery. 

Seatrade Med Conference Takeaways (Seatrade Insider, Hostelur)

  • David Dingle (Carnival UK chairman):  "I'm starting to feel good for the first time about all the European markets as a whole.  In Spain, the economic situation has bottomed and there are signs of growth, while the strong passenger volumes in France are encouraging."
  • In 2013, a record 6.4m Europeans cruised, a 4% increase over 2012, and Europe's appeal as a destination drew 1m people from overseas to cruise in continental waters.
    • <3% of European population cruised
    • <1% of Asia population cruised
  • Kyriakos Anastassiadis, CEO of Louis Cruises:  "Greece has really come back strongly" with close to 2m total tourists. "For the next two to three years there will be continued demand for the Eastern Mediterranean, particularly Greece and Turkey."

  • "China effect" helping growth

  • Oasis of the Seas handled record 58k passengers last weekend

  • Of last year's 27m passenger movements, 19m were in the Western Med, 5m in the Adriatic and 3m in the Eastern Med.

  • Jorges Vilches (Pullmantur CEO):

    1. Spain showed signs of recovery on demand side  
    2. Western Med and the Med itself have tremendous growth potential, with Europe source market outsizing US's
    3. Additional ship in 2016 for Pullmantur
  • Eastern Med can be a growth opportunity

  • Urging ports to consider reduced off-peak tariffs

  • Risks:  lack of infrastructure in ports, civil unrest, and geopolitical tension

Takeaway:  Europe for the most part has been a bright spot in 2014.  Can the momentum be sustained in 2015 given the emerging macro headwinds?  

CCL (Travel Weekly) Carnival Cruise Lines is renewing its Great Vacation Guarantee for another year, after guests used it 47 times to get refunds since its debut in September 2013.  The guarantee provides for a 110% refund, complimentary transportation home and a $100 shipboard credit on a future cruise if guests are dissatisfied with their vacation for any reason. The guarantee must be invoked within the first 24 hours of the cruise. 

Takeaway:  If it worked before, do it again.

INDUSTRY NEWS

Chinese Advised to Avoid the Philippines (Macau Business) The Ministry of Foreign Affairs has warned Chinese against traveling to the Philippines.
The ministry issued a written statement saying this is because the Philippine police recently found that a criminal gang planned to attack the Chinese Embassy in Manila, Chinese interests in the Philippines and public places there, including shopping malls. It advised Chinese already in the Philippines to be extra cautious

Takeaway: A significant headwind for Chinese visitation and gaming spend.  A warning from the Ministry will not be taken lightly.

Forefront of Macau Gaming Leaders Investigated (SCMP) Four Macau casino workers are believed to be under police investigation after they took part in a string of protests for better pay and benefits. They were being accused of "aggravated disobedience".  Forefront of Macau Gaming co-founder and secretary general Cloee Chao, a casino supervisor, became a criminal suspect on September 10, though no charges were specified, a Public Security Police Force document. Chao said three other union members were under investigation, including: Union President Ieong Man-teng, Lei Kuok-keong and Ung Kim-ip. 

Takeaway: The operators and authorities strike back at Forefront of Macau Gaming.  Macau's Basic Law states residents have freedom to demonstrate, strike and organize trade unions. However, Macau does not have a collective bargaining law.

Clark County To Examine Slot Parlors (Restricted Gaming License) –  Under Nevada and Clark County laws, slot machines can only be an amenity at taverns, like a pool table or dart board, not the main attraction. The Clark County Commission passed regulations in 2011 that forced slot parlors to start acting more like bars - revised rules required at least 2,500 square feet of public space, seating for 25, a kitchen that’s open at least 12 hours a day and a bar with at least eight embedded slot machines with no more than 15 total slot machines. However, some slot parlor operators have not complied with the revised rules.  As a result, the Clark County Commission is returning to the issue of tavern gaming in an effort to stamp out slot parlors that have proliferated across the greater Las Vegas Valley.  Commissioner Steve Sisolak will introduce an ordinance on October 7, 2014 amending the county’s tavern gaming law to make sure bars that offer slot machines are also selling food and beverages to their customers. 

Takeaway: Could be indirect pressure from the larger local gaming operators (i.e., Boyd & Stations) to reduce competition. 

Trump SoHo Grand Foreclosure – Real-estate investor CIM Group, which holds a junior loan on Trump SoHo, the upscale Manhattan hotel and condominium tower is taking control of the building through a foreclosure process and has hired brokerage Eastdil Secured to auction off the property. Mr. Trump has a licensing arrangement with Trump SoHo and manages the property, but doesn't have an equity stake.

Takeaway: Developed near the peak of the prior real estate and economic cycle.  Condo sales have been hampered by the restrictions preventing full-time occupancy.  

MACRO

China Bank Lending (Bloomberg) The Chinese Central Bank will provide China's largest five banks - ICBC (601.398.CH), China Construction Bank (601939.CH), Ag Bank (601288.CH), Bank of China (601988.CH), and Bank of Communications (601328.CH) - with CNY500B in liquidity via standing lending facilities with three month tenors. The banks will each receive CNY100B, and the process is due to be completed Wednesday.

Takeaway:  After much promises, the central bank finally acted.  While not a 0.5% RRR cut, the effects may be similar.  Our research suggests a lag response of 9-11 months for VIP gaming.

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.