LEISURE LETTER (09/19/2015)

Tickers: BYI, LVS, PNK, H

EVENTS

  • Sept 19: Hedgeye Cruise Pricing Survey mid-Sept
  • Sept 22: BEE 2 pm EDT Investor Day

COMPANY NEWS

BYI – announced Caesars Entertainment UK will install 108 SHFL Fusion terminals linked to SHFL Fusion Auto, i-Table Roulette, and live American roulette tables at "The Casino at the Empire" in London and its seven other casinos throughout the United Kingdom. The company will also install 57 ChipStar roulette chip sorters, which now have the ability to sort 43-mm chips. chips.

Takeaway: Caesars adopting the new Shuffle technology.


LVS & 1928:HK (Macau Business) A court in Israel has rejected a claim and ended 13 years of litigation by a former employee, Moshe Hananel, who sued for 12% of Mr Adelson’s holding in Macau casino operator Sands China Ltd. Mr Hananel, who worked for Interface Partners International Ltd, an Israeli company once owned by Mr. Adelson, had sued for breach of contract, alleging that Mr Adelson had agreed to give him share options in payment for drafting a casino licensing plan.

Takeaway: The termination of another "share the wealth" suit by former LVS business partners.

 

LVS & 1928:HK (Macau Business Daily) A Macau resident died on Monday while working in Sands Cotai Central. The male construction worker was 58 years old and died from an accidental fall while working on theater construction in the complex.

Takeaway: An unfortunate accident at SCC that could result in further construction delays at LVS properties. Some think that the last construction fatality at The Parisian led to the recent permitting delays. 

 

PNK – Golden Nugget Lake Charles began its pre-open marketing blitz with e-mails touting the properties 1,600 of the world's newest slots, 60 gaming tables, poker room, 740 luxury rooms and suites and more than 3,000 parking spaces, 30,000 sq. ft. of meeting space for up to 2,500 attendees and much, much more.

Takeaway: "Coming this Fall 2014"...very soon L'Auberge Casino Resort Lake Charles will have neighborly competition. Are the real estate PNK bulls ready for the hit?

 

CLDT & NRF – Inland American Real Estate Trust announced it entered into a definitive agreement to sell a portfolio consisting of 52 select service hotels with 6,976 rooms to a joint venture formed by affiliates of Northstar Realty Finance Corp. and Chatham Lodging Trust for approximately $1.1 billion. Inland American expects to realize approximately $480.0 million of net proceeds as a result of the transaction.

Takeaway: Another large select service hotel portfolio transaction.

 

H – announced a contract to sell a portfolio of 38 hotels for approximately $590 million consisting of 4,950 rooms (~$119,200/key) across tens sates and the Hyatt Place and Hyatt House brands with an estimated closing in November 2014. The buyer, Lone Star Funds, intends to invest  approximately $50 million in additional capital expenditures across the portfolio over over the next 24 months. Aimbridge Hospitality, LLC will manage the hotels for the Purchaser. 

Takeaway: Could more share repurchases be in the future?  A great sale considering many of the assets are in second and third tier markets and Hyatt acquired the 143-hotel AmeriSuites portfolio/chain from Blackstone in December 2004 for $600 million and then invested an additional $150 million in capex for an average all in cost/key of $41,666.  Hyatt sold a 10-hotel, 1,560 room portfolio to RLJ earlier this year for $313 million ($200,600k/key). We like H here.

 

EXPE & AWAY – Expedia will list more than 115,000 HomeAway vacation rental listings on the U.S. version of Expedia.com. 

Takeaway: A potential competitive threat to destination hotels.

 

Airbnb – Airbnb to collect 14% hotel tax in San Francisco: The peer-to-peer apartment-rental service will begin collecting taxes in San Francisco October 1, and those funds will be transferred to the city. 

Takeaway: Airbnb capitulating and will begin paying local hotel taxes. The next key market for tax payments will be NYC.

INDUSTRY NEWS

Unions Call for Total Smoking Ban in Macau (Macau Daily Times) Leaders of three casino employees unions affiliated with the Macau Federation of Trade Unions (FAOM) allege several casino operators are converting part of their mass gaming areas into VIP rooms. This means that guests will be able to smoke there even after the mass area smoking ban comes into force on October 6. The Unions are calling for a total smoking ban in all areas within a casino so that there will be no chance for operators to exploit any legal loopholes

Takeaway: More outcry for better work conditions for dealers and floor workers. Macau operators getting hit from all sides.

 

Macau Health Bureau to Enforce Smoking Ban (GGRAsia) The Macau Health Bureau will “rigorously” inspect the smoking lounges and smoking areas as well as “strictly enforce” the upcoming smoking ban for casino mass gaming floors. The Health Bureau’s statement comes after representatives from three casino labor activist groups expressed worries about what they think are likely working conditions once the smoking ban on casino mass floors goes into effect next month.

Takeaway: The Government defending its policy and enforcement actions.

 

China Employment Reforms (GGRAsia) The State Council of China shut down the National Holiday Office, a body responsible for scheduling the country’s national holidays. The office was disbanded after 14 years of operations and ahead of China’s major Golden Week holiday, which starts on October 1.

 

The office will be incorporated into a new, and in administrative terms more senior, ministerial joint conference that is led by Vice Premier Wang Yang.

The new body involves 28 ministries and has been asked to boost domestic tourism under what is referred to as a macro-strategic development plan, according to Chinese media. Currently, most Chinese workers are only eligible for the national statutory holidays – the so-called Golden Weeks – that have produced larger and larger crowds as the majority of the population travels during the same periods. That puts enormous pressure on transportation networks and certain popular destinations including Macau and Hong Kong.

Takeaway: Several news stories have indicated this is the first step towards China's adoption of privately scheduled, paid holidays and employee vacation time versus nationally scheduled holidays. Such policies would likely reduce the travel around Golden Week holidays as well as smooth the seasonality of Macau gaming revenues.

 

Typhoon Fung-Wong Batters Manila – Storm Fung-Wong caused widespread flooding in the capital, shutting government offices, financial markets and schools. The City of Manila and surrounding provinces of Rizal and Bulacan were under the highest red rainfall warning and severe flood warning. More than 300 millimeters (12 inches) of rain was forecast. Fung-Wong brought widespread rainfall of as much as 8 inches in Southeast Luzon and and Eastern Visayas, and has the potential to become a stronger typhoon threatening Taiwan, South Korea, and Japan. 

Takeaway: More heavy rain in and around Manila could lead to construction delays for the casinos currently under development - including City of Dreams Manila.


Maryland Casino Lifetime Ban (Baltimore Sun) The Maryland State Lottery and Gaming Control Agency might remove the lifetime self-ban option because of concerns that it is excessive and redundant. Gamblers still could register for a two-year exclusion. After two years, the state requires them to undergo an assessment if they want to be removed from the list. Otherwise, the ban remains. As of Sept. 5, 576 Marylanders had registered for the program, subjecting themselves to potential criminal penalties, including arrests and fines, for entering a casino.

Takeaway: When more states are implementing self-imposed lifetime gambling bans, Maryland appears set to drop such an effort.

 

US Lodging Cycle New Highs in 2014 – According Marcus & Millichap's Mid-Year 2014 National Hospitality Report, growing room demand is outstripping the rise in supply. The report suggests with the economy gaining momentum during the second quarter, little appears to stand in the way of the U.S. hotel sector attaining new highs in occupied rooms and room revenue in 2014. At midyear, the demand trend is rather straightforward. Specifically, the expanding economy and strengthening job market will spark additional spending by businesses and consumers, helping to fill more hotel rooms. Group demand is also positioned to increase and supply growth nationwide has been restrained.

Takeaway: More positive data of the lodging sector.

 

Alternative Lodging Portals (HotelsMag) Room Mate Hotels announced the launch of www.BeMate.com, a new travel service that promises to combine the amenities of a hotel with the privacy and convenience of an apartment. Launching with 2,500 apartments in 10 cities across Europe and North America, including New York City, Miami, Florence, Mexico City and Amsterdam, all BeMate apartments are within walking distance of a Room Mate or partner hotel. Hotel services offered to BeMate.com guests include housekeeping, airport transfers, babysitting, breakfast, luggage storage and late checkout. BeMate.com accommodations range from studios to four bedrooms and include apartments and houses, all with private kitchens. BeMate.com's team approves each accommodation and owner, and guests booking a BeMate apartment arrange their entire trip through the company rather than the apartment owner. BeMate.com said it has plans to expand to 200 cities by the end of 2015 and will launch a mobile app for iPhone and Android users this year.

Takeaway: A new competitive entrant for Airbnb.


Hotel Transaction

The Sofitel hotel in Midtown is being sold to an Asian real estate investor for $272 million. A partnership composed of Accor Group, Goldman Sachs Group and GEM Realty Capital will sell the 398-room hotel at 45 West 44th Street to the Hong Kong-listed firm Keck Seng Investments. Goldman Sachs and GEM paid $255 million for a 75% stake in the Midtown hotel and another Sofitel property in Philadelphia in 2006.

Takeaway: At $683,400/key for mid-town New York, this seems like a bargain price for the buyer.

 

More Go Private Transactions in the Future? – Blackstone Group is looking to create a seventh fund, Blackstone Capital Partners VII, to raise approximately $16 billion, “roughly in line with a predecessor fund that wrapped up fundraising in 2012.

Takeaway: New support for the the REIT and real estate valuations as the fund could deploy nearly $50 billion of purchasing power when fully levered.

MACRO

Chinese Loan Demand - (Xinhuanet) a survey by the PBoC showed total loan demand dropping to its lowest level in 13 quarters in Q3. The survey put the country's total loan demand index at 66.6% for Q3, down 4.9% from Q2. Among the respondents, 56% said the current macro economy is normal, up 5.2%, while 42.8% considered it relatively cool, down 4.6% points from Q2.

 

Singapore Resident Income vs. Expenditures – Based on data compiled by Singapore's Department of Statistics, average monthly household income from all sources rose by 5.3 per cent per annum in nominal terms between 2007/08 and 2012/13 while households at all income levels expenditure rose 4.4 per cent a year on average over the five year period between 2008 and 2013. Employment income accounted for 79% of total household income from all sources in 2012/13, with business income and income from non-work sources contributing 11% and 10% respectively. 

 

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.