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Tickers: MPEL, PEB, RHP, CCL

EVENTS

  • Oct 1 - Oct 2: G2E Las Vegas
  • Wednesday: Oct 1
    • National Day of the People's Republic of China
    • DB Leveraged Finance: PENN, BYD, SGMS, MTN
    • TAG Fall Consumer Conf: LVS, WYN
  • Oct 8: HT Investor Day

COMPANY NEWS

MPEL – Casino resort City of Dreams, in Macau, announced on Tuesday a partnership with XCOR Space Expeditions that will see three customers sent to space. “The Space Legend” campaign will kick off in November. City of Dreams will draw one winner every month for three consecutive months. “Participating guests will become one of the first 12 XCOR astronauts in Asia and also one of the first 100 XCOR astronauts in the world,” XCOR Asia chief executive Alex Tang said in a statement.

Takeaway: Boldly going to the next frontier.

PEB – amended and supplemented its Trust Certificate, classifying and designating an additional 1,200,000 of the Company’s authorized preferred shares of beneficial interest, $0.01 par value per share, as 6.50% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest as the Company entered into an underwriting agreement with Wells Fargo Securities, LLC relating to the issuance and sale of 1,000,000 Series C Preferred Shares at a price of $24.50 per share. The closing of the offering occurred on September 30, 2014. Upon completion of the offering, there were 5,000,000 Series C Preferred Shares outstanding. The 1,000,000 Series C Preferred Shares issued and sold pursuant to the Underwriting Agreement have been registered on the Company’s shelf registration statement on Form S-3 which became effective upon filing with the Securities and Exchange Commission on March 4, 2014.

Takeaway: PEB rounding out its capital stack with modestly priced preferred securities.

RHP – expect a press release from RHP today addressing the maturity of the convertible notes.

Takeaway: We expect positive earnings revisions as analysts adjust downward their fully diluted share count.

CCL (Travel Weekly) Holland America Line said it was forced to cancel a seven-day Canada/New England cruise on the Veendam to make emergency repairs on a propeller. The cruise had been scheduled to depart Quebec on Sept. 28. Booked guests will receive a full refund of their cruise fare and all shore excursions booked through Holland America Line, plus a credit toward a future cruise equal to 100% of the fare paid.

CCL (Courier Mail) In the latest debacle for Princess Cruises Sea Prince, close to 2,000 passengers in Sydney were told their New Zealand cruise had been cancelled due to technical issues. Over the past two months, The Sea Princess was plagued with several norovirus outbreaks as well as mechanical issues which resulted in passengers “go-slow” transit, meaning the ship could only travel at half-speed, resulting in several missed ports during a cruise to the north of Australia. 

Takeaway: Lots of small cancelled sailing in aggregate may undermine the recent positive financial and earnings results. Hedgeye remains concerned with European pricing risk.

INDUSTRY NEWS

Macau Smoking Ban Pronouncement – We understand the DICJ called an urgent meeting with the six concessionaires with representatives from the Health Bureau.  The DICJ issued a clarification that tables that are currently designated as “mass” tables can not be amended to be included as VIP/Premium/High Limit and shall maintain this designation and remain as non-smoking once the regulations are in force. Effectively all mass gaming areas as of Oct 6th will be non-smoking areas. This includes all tables within currently designated Premium and High Limit areas. Tables designated as VIP (Junket) tables within designated VIP (Junket) areas remain unaffected and smoking will be allowed.  The definition of a “mass” table as opposed to a “VIP” table is via the classification from the DICJ whereby the annual operating premium payable to the Govt. associated with a “mass" table is HKD $150K with a “VIP” table attracting an annual premium of HKD $300K. All the current partition works and barriers regardless of height are now, based on the revised interpretation, obsolete.  The only areas that smoking will be allowed on the mass floors is within the dedicated smoking rooms.

Takeaway:  More restrictive than previously thought and a negative for the Macau stocks.

Macau Smoking Ban Part 2 – Only 12 of Macau’s casinos and slot-machine parlors have already completed the construction of smoking lounges on their mass floors, Health Bureau director Lei Chin Ion said on Wednesday. The Health Bureau on Tuesday said that by then only 28 gaming venues had submitted final requests to establish smoking lounges.  Macau has 35 casinos in operation and five slot-machine parlors, according to data from the city’s Gaming Inspection and Coordination Bureau. Casinos will have to go 100 percent smoke-free in their mass floors after October 6 if their smoking lounges have not been inspected and approved by then. The full ban would remain until the smoking lounges are approved and operational.

Takeaway: Failure to comply with the smoking ban rules may create incremental disruptions in gaming play and downside to financial results.

Japan Gaming Legislation (Bloomberg) A Japanese lawmaker backing the legislation to enable the legalization of casinos said he expects it to win lower-house approval next month and that the gambling resorts would be in major cities and charge locals an entry fee. “We want to finish up in the lower house in the first half of October and send it on to the upper house,” Koichi Hagiuda, secretary-general of a lawmaker’s group promoting the casino bill and an aide to Prime Minister Shinzo Abe, said in an interview.  The parliament’s autumn session runs from September 29 to November 30.  Should the bill to legalize casinos pass, further legislation setting rules for operating gambling resorts would have to be approved before building would start. This could be presented in the next session of parliament, starting in January, Hagiuda said.

Takeaway: Like all things Japan, its the process...so let's pass the enabling legislation. 

Macau Ferry Fares to Increase (Macau Daily Times) The Marine and Water Bureau (DSAMA) announced that it has approved requests from two local ferry service providers to increase their ferry fares for Macau–Hong Kong economy class journeys by 2.6 to 3.4% which equals MOP5. The economy class fare of the Hong Kong International Airport–Macau service will also rise between 3.3 and 6% which equals MOP8. The new fares will come into force on October 8. TurboJet and Cotai Water Jet asked to increase their fares between 7.5% and 8.3% in March this year.

 

Outbound Macau Visitation (Macau Business Daily) Macau residents are traveling more and often. Since January, around one million locals vacationed abroad, a 7% increase year-over-year. South Korea is the hot new destination for locals, with Macau tourists growth of 10.2% year-over-year. By comparison and in sharp contrast to a 54.6% drop in outbound travel to Thailand and a 29.2% drop in travel to Malaysia during the same period, official figures released yesterday by the Statistics and Census Service. Mainland China remained the most popular destination, accounting for 72% of the total residents traveling outbound

Takeaway: Despite protests about unfair wages, we suspect casino workers are traveling and spending more.

Revel Update – The bankruptcy auction enters a third day today but with a contingency.  According to local media reports which quoted Glenn Straub's attorney Stuart Moskovitz, rival bidder Brookfield Asset Management, which owns the Hard Rock casino in Las Vegas and Atlantis Paradise Island in the Bahamas, had increased its offer from $98 million to more than $110 million, but Brookfield made its bid contingent on it being accepted by 6 a.m. today.

Takeaway: Brookfield Asset Management, a late entry to the bidding process but already licensed in Nevada.


Singapore Housing –- The flash estimate of the 3rd quarter 2014 Resale Price Index (RPI) for public housing is 192.5, falling 1.6% over the prior quarter, the Housing and Development Board while the flash estimate of the private housing price index fell 1.3 points to 208, resulting in a 0.6% decline over the previous quarter, the Urban Redevelopment Authority

Takeaway: A headwind for the Singapore mass gaming segments at Genting Singapore's Resorts World Singapore and Las Vegas Sands' Marina Bay Sands.

MACRO

China Macro – September manufacturing PMI 51.1 vs 51.0 consensus and 51.1 in August.

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.