LEISURE LETTER (10/03/2014)

Tickers: H, IGT, CCL


  • October 8: HT Investor Day


H -  announced it sold the Park Hyatt Washington for $100 million to Westmont Hospitality Group and Thomas Tan, a member of the Bestford Hospitality Group. The sale price also equates to ~$463,000 per key and 15.0x on last 12-month EBITDA.

TAKEAWAY: We view this as a very favorable pricing on an asset sale for Hyatt.                                    


GENT:MK – has filed suit against Phil Ivey in London’s High Court alleging Mr. Ivey “edge-sorted” cards in August 2012 while playing a form of baccarat called Punto Banco at Genting’s Crockfords casino in London. Genting refused to pay up, saying the practice is unfair. Ivey, who sued Genting last year, says edge sorting isn’t dishonest and he should be paid the money. Both sides agree that Ivey was in the casino in August 2012 and that he won the money. “The issue is whether it amounted to cheating,” Christopher Pymont, Genting’s lawyer, said in documents filed at London’s High Court.

TAKEAWAY: Another legitimate suit or simply “piling on” given the similar edge sorting lawsuit by the Borgata Casino.


IGT -- has reached an agreement after an in-depth RFP process with Mille Lacs Corporate Ventures, which has elected to continue with IGT and upgrade IGT Advantage systems solutions at Grand Casino Mille Lacs and Grand Casino Hinckley, located in Minnesota.

TAKEAWAY: A good systems win/renewal for IGT covering two Minnesota Native American casinos.


CCL – Carnival Miracle will be the first cruise ship to call at Cabo San Lucas since Hurricane Odile hit the Mexican state on September 15th. Loaded with relief supplies provided by Carnival, the ship will depart from Long Beach, California, on October 4th , arrive in Cabo San Lucas on October 6th. During her visit, the crew will off-load several pallets of bottled water, canned food, cereal, sanitary supplies, paper products, personal items and other supplies for local resident

TAKEAWAY: Carnival leading the way back to Cabo San Lucas with an aide sailing.


Golden Week Visitation – Visitation to Macau on October 2, 2014 totaled 151,667 an increase of 9.1% year-over-year while Mainland China arrivals totaled 122,925 an increase of +6.2% year-over-year.  The total visitation thus far during Golden Week, Oct 1 and Oct 2, total 288,575 for 9.5% rise year-over-year while Mainland China visitation was 227,494 for an increase of 4.3% year-over-year.

TAKEAWAY: Mainland visitation is particularly disappointing and overall visitation not posting the strong double-digit results forecasted by some sell-side analysts.


Macau Labor Protests(GGRAsia) Some dealers of MGM China Holdings Ltd and SJM Holdings Ltd in Macau are striking and/or protesting against the casino operators over salaries and benefits. The action started at noon on Friday and will continue on Saturday. The plan includes some staff working to rule, some reporting late and some calling in sick, according to secretary general of labor, Cloee Chao, activist group Forefront of the Macao Gaming. Reuters earlier reported that up to 300 dealers at MGM Macau based on information provided by Ieong Man Teng, head of Forefront of the Macao Gaming.

TAKEAWAY: Labor discord reaching a peak just prior to the busiest visitation periods Saturday afternoon and Sunday morning.


Neptune Limited Reports Results(GGRAsia) an investor in casino VIP promoters in Macau, reported net profit of HKD148.8 million (US$19.2 million) for the year ended June 30, 2014, down 93.8% from a year earlier, according to a filing with the HKSE.  The firm said the significant decline was due to an “impairment loss of available-for-sale investments of HKD111.1 million” caused by the recent slowdown in Macau’s gaming market. That led to a drop in value of an investment made in October 2013 in the profit stream of a junket operator in Galaxy Macau casino. The same reasons required the company to write down HKD88.6 million from an investment made in February 2014 in the profit stream of a junket operator in City of Dreams casino, it added. The firm recorded a 23% increase year-over-year in turnover to HKD710.4 million, but it saw its earnings before interest, taxation, depreciation and amortization (EBITDA) slide 8.7% to HKD517.6 million.

TAKEAWAY: The VIP slowdown negatively impacting the financial results of the junkets.


Steve Wynn to So Cal – Variety.com is reporting Steve Wynn has allegedly gone into escrow to purchase the lower East Gate Bel Air acres Lionsgate Estate compassing approximately 24,000 square foot, 11 bedroom, 17 bathroom (and all furnishings). Mister Wynn’s children, not to mention his ex-wife, Elaine, live in Los Angeles

TAKEAWAY: Mr. Wynn continues to build his personal real estate empire.


CMBS Delinquencies - during September improved (declined) by seven basis points to 6.03%. The September late-pay rate is 211 bps lower than a year ago, and thus far in 2014 delinquencies have fallen 140 bps. September saw nearly $1.4 billion in newly delinquent loans, putting 26 bps of upward pressure on the delinquency rate. Loans that cured totaled over $600 million in September, which helped push the delinquency rate down by additional 13 bps. There are currently $31.8 billion in delinquent loans, which is down from $32.5 billion in the previous month, according to Trepp. The figure includes loans that are past their balloon date but are current on their interest payments. During September, the lodging delinquency rate dipped 31 bps and is now 5.06%. Lodging remains the best performing major property type, although a year ago that distinction was held by retail.

TAKEAWAY: Good news and positive developments for the real estate finance sector.


China Macro Readings –  September official services PMI 54.0 vs 54.4 in August (weakest official result in 8 months) while New Orders 49.5 vs 50 prior and weakest since December 2008, and Employment 49.5 vs 49.6 prior

TAKEAWAY: Mainland macro-economic data remains anemic. 


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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