LEISURE LETTER (09/30/2014)

Tickers: MGM, LVS, HLT, RHP

EVENTS

  • Sept 29 - Oct 2: G2E Las Vegas
  • Tuesday: Sept 30
    • JPM Securities: FCH, AHT
    • DB Leveraged Finance: WYNN, MGM, CHH, FCH, RHP
    • TAG Fall Consumer Conf: LVS, WYN, MTN
  • Wednesday: Oct 1
    • National Day of the People's Republic of China
    • DB Leveraged Finance: PENN, BYD, SGMS
    • TAG Fall Consumer Conf: LVS, WYN

COMPANY NEWS

MGM (Bloomberg) according to MGM Resorts chief financial officer Dan D’Arrigo, the US$1.45 billion worth of 4.25% bonds, issued in 2010 and maturing in April 2015, will be converted into company stock at a price of US$18.58 a share. Mr D’Arrigo said the conversion would reduce MGM Resorts debt to about US$11 billion and cut annual interest costs by US$60 million.

Takeaway: MGM senior management still managing the balance sheet for debtholders.

 

LVS & 1928:HK – Conrad Macao, Cotai Central located at Sands Cotai Central was recently awarded ‘Top 25 Conference Hotel in Asia’ by online travel magazine SmartTravelAsia.com’s annual ‘Best in Travel’ Poll 2014. This year’s Poll saw Conrad Macao’s ranking gain three points to come in at number 21 on the list (from number 25 in 2013).

Takeaway: A positive award for LVS and SCL and it's MICE focused programming.

 

HLT – in a preview of its Q3 2014 earnings update, Hilton Worldwide in an update to its Hilton HHonors members noted the opening of 62 new hotels from June 30 to September 16, 2014 including 47 hotels in the U.S., five hotels in Canada, two hotels in China, England, and Russia and one in Japan, Malaysia, Panama, Tanzania, and Turkey.

Takeaway: A strong Q3 new openings sum, higher than Q3 2013's 40 openings and slightly below our forecast of 65 hotels.  Given the timing, two additional weeks in the quarter, we  believe HLT could surpass our forecast of 65 hotel openings for the full Q3 2014.

 

RHP – the convertible notes will mature tomorrow, October 1.  We expect the company to issue a press release/8K related to the maturity.  We forecast the company using proceeds from its corporate credit facility to retired the approximately $230 million of outstanding debt.

Takeaway: We view the maturity as a positive turning point as the maturity will reduce the fully diluted shares and result in positive earnings revisions.

 

EBAY – announced that it would spin off its PayPal payments unit into a separate publicly traded company.

Takeaway: Interesting to us, we ponder whether the new PayPal would consider securing gaming and regulatory approvals to allow the company to participate in online gaming/betting industry.

INDUSTRY NEWS

Macau Illegal Worker Crackdown (Macau Daily Times) The Public Security Police Force (CPSP) has found 19 illegal workers after conducting inspections at over 400 sites. The Labor Affairs Bureau, which conducted similar inspection procedures in six of the locations, uncovered two people working illegally within the area. In a statement, authorities said that a joint operation also took place in two other locations, but no illegal workers were found. Inspections took place mainly in construction sites and residences, as well as commercial and industrial buildings.

Takeaway: Seemingly a headline to appease the labor unions.

 

Occupy Central (Hong Kong) (Bloomberg) Protesters continued to block roads in central Hong Kong in the fifth day of pro-democracy demonstrations as leaders warned the standoff would escalate in the coming days if their demands aren’t met. Crowds swelled to the tens of thousands last night as police largely kept their distance.  By morning, enough people remained in the Admiralty district for key roads to stay blocked as workers commuted by foot and metro. Student leaders last night said the protests would spread if their demands aren’t met for Chief Executive Leung Chun-ying to resign and for the government in Beijing to drop plans to control the 2017 leadership election.

Takeaway: Twenty-five years later, we have Tiananmen Square Redux this time in Hong Kong.

 

Macau Government to Share Financial Information (Macau Business)

The Macau government says it will soon amend the law to make it easier to share information about taxpayers with other governments. The amendments will allow the government to adopt the common reporting standard advocated by the Organization for Economic Cooperation and Development. The common reporting standard requires governments to exchange automatically information about accounts held in financial institutions under their jurisdiction, instead of exchanging information only when asked to.

Takeaway: A headwind for GGR growth - especially VIP and premium mass segments.

 

Resorts World Bayshore (Manila) – owner and operator of upcoming casino property Bayshore City Resorts World at Manila’s Entertainment City, has formalized a partnership with Japanese hotel brand Okura Hotels and Resorts. The Bayshore City Resorts World Okura Hotel is expected to include approximately 380 guest rooms. 

Takeaway: The programming of the Resorts World Bayshore continues with this luxury hotel offering.


U.S. Cruise Passenger Growth Slowing (Travel Weekly) Data from the 2014 Economic Impact study recently released by CLIA show that U.S. cruise passenger growth has declined in each of the past four years.  While the absolute number of U.S. passengers has grown since 2010, from 10.1 million to 10.7 million last year, the relative share sourced from the U.S. has dropped from 68% to 61%. 

Takeaway: Maybe the new ship development and deployments will spur U .S. passenger growth.

MACRO

China Macro - HSBC manufacturing PMI September reading was 50.2 which was lower than the flash reading of 50.5.

 

Chinese First Time Home Buyers - the PBoC said it will relax rules for first time property buyers, as well as relax credit controls for second home buyers and support property developers to sell mortgage-backed securities in an effort to support reasonable home loan demand.

 

Guangdong Capital Plans - (China Securities Journal) The southern province of Guangdong plans to seek more than CNY77 billion of private capital to invest in state-owned enterprises in 17 industries

 

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.


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more