LEISURE LETTER (10/07/2014)

Tickers: HST, MAR, CCL, RCL, MTN


  • Wed Oct 8 & Thurs Oct 9:  Todd Jordan in Macau
  • Wed Oct 8  HT Investor Day


27:HK – (GGRAsia) During September 2014, Galaxy Entertainment Group retook top market share with 22.9% of GGR for the month.

Takeaway: Galaxy is our preferred operator for clients seeking long exposure to the Macau gaming market due to the early 2015 opening of Galaxy Macau Phase 2.


HST – announced the sale of Tampa Marriott for $199 million and the acquisitions of B2 Miami Downtown Hotel for $57.5 million and a 90% interest in Grand Hotel Esplanade Berlin for Euro 81 million via the European JV. 

Takeaway: HST continues to reposition its portfolio in its focus/core markets.


MAR – priced $400mm 7yr. senior unsecured notes at 99.314, Series N at 3.125% = Treasuries +110 bps. The offering was upsized from $300m and better than original pricing terms of T+120-125 bps. JPM, WFC, DB were joint book running managers.

Takeaway: Better than expected terms - an upsized offering at a lower coupon - a hoteliers dream and easy debt.


CCL – extended its 'Reuniting for Fun' group promotion through the end of October based on travel agent response. With the promotion, an initial deposit is not required for group bookings on departures between March 1, 2015, and April 30, 2016. In addition, Carnival is offering travel agents one free cruise berth for every 10 full fare passengers berthed, compared to the line’s current policy of one free cruise berth for every 15 full fare passengers. As a special bonus, Carnival is offering one free cruise berth for every eight full fare passengers berthed on select five- to 14-day sailings from a number of US homeports, including Galveston, Baltimore, New York, San Juan and Port Canaveral.


CCL –Holland America Line canceled Veendam's Oct. 11 cruise and is sending the ship to drydock in Philadelphia to complete repairs to one of the propellers. This was the third cruise cancellation for Veendam after a problem was identified while the ship was in Québec last weekend and it was been determined that a complete repair can only be made in a drydock. Passengers will receive a full refund of their fare plus a future cruise credit of 100% equal to the fare paid. In addition, HAL will reimburse non-refundable expenses such as missed tours and excursions that were purchased through the line.

Takeaway: Another unfortunately delay for this vessel.


RCL – Oasis of the Seas, The Royal Caribbean International vessel arrived in Rotterdam last week and will stay in dry-dock for almost two weeks for a planned five-year routine maintenance update before departing from Rotterdam Cruise Terminal on October 14 for a 13-night trans-Atlantic cruise to Port Everglades, including a UK stopover in Southampton to pick up passengers on the following day.

Takeaway: Retooling just prior to peak sailing season.


MTN – snow is in the forecast!  According to weather.com rain and snow showers are in the extended forecast for late Saturday evening, Sunday and Sunday evening for Vail and Breckenridge, Colorado.

Takeaway: Let it snow, time to dust-off and wax up the skis! 


Macau Smoking Rooms Confirmed (GGRAsia) Macau’s Health Bureau has confirmed the 12 gaming venues that have received official approval for smoking lounges for their main casino floor patrons, including: the casino at StarWorld, operated by Galaxy Entertainment Group Ltd; the casinos at Sands Macao, the Venetian Macao and Sands Cotai Central respectively, operated by Sands China Ltd; and the casino at Wynn Macau, operated by Wynn Macau Ltd.  However, that means some of Macau’s biggest and most profitable casinos have main floors that are currently entirely smoke free.  Those venues with no approval as of Monday night for mass floor smoking rooms are: Galaxy Macau, run by Galaxy Entertainment; Altira Macau and City of Dreams run by Melco Crown Entertainment Ltd; MGM Macau, operated by MGM China Holdings Ltd; and Casino Grand Lisboa and Casino Lisboa run by SJM Holdings Ltd.  VIP areas – though not premium mass areas – have been excluded from the smoking ban.

Takeaway: We are also hearing the Plaza Casino at Sand China Limited's Four Seasons is also entirely non-smoking as no smoking parlors were installed.


Macau Golden Week GGR (GGRAsia) Average daily revenue (ADR) in Macau casinos rose to more than HKD970 million in the first five days of the week-long Chinese national holiday, compared to HKD870 million in the final weeks of September. The early look on ADR translates into nearly a 40% YoY decline GGR during the period. 

Takeaway: Significantly slower ADR growth is consistent with our VIP and mass deceleration thesis.


Japan Gaming Enabling Legislation (Jiji Press) The fate of a bill aimed at lifting a ban on casinos in Japan remains uncertain as even ruling coalition lawmakers are concerned that the measure will increase gambling addiction and organized crimes. Chief Cabinet Secretary Yoshihide Suga told a press conference on Friday that the government will "make all-out efforts" to enact the bill during the ongoing Diet session set to end late next month. The bill was submitted to the Diet in December last year by a group of lawmakers including those from Abe's ruling Liberal Democratic Party.

Takeaway: Never a done deal until the party leaders agree and say so.


Revel Auction Unsettled (Press of Atlantic City) Glenn Straub, the losing bidder in a bankruptcy court auction for Atlantic City’s former Revel Casino Hotel plans to challenge the result at Tuesday’s hearing in Camden. Among Straub's main complaints is that Revel improperly accepted a bid from Brookfield after a specified deadline, that Revel’s attorneys reneged on an agreement to share information with him on competing bids, and that six hours of closed-door meetings on what was supposed to be the first day of bidding was improper. Straub is considering whether to make an offer exceeding $110 million at the hearing, which the lawyer says the judge has the power to accept.

Takeaway: LIke all real estate transactions, big egos fill the room.


Illinois Gaming Expansion (Chicago Daily Herald) A year long debate over whether Arlington International Racecourse should have slot machines and Lake County and Chicago should have casinos is likely to continue under the next governor, no matter who it is. Both Democratic Gov. Pat Quinn and his challenger, Republican Bruce Rauner, told the Daily Herald editorial board they are open to the idea of adding more gambling options in Illinois, including in the suburbs.

Takeaway: Good for the equipment manufactures. 


Precursor Wave Season Sale – all major cruise lines (CCL, NCLH, RCL, DIS, HAL, etc.) are are taking part in Cruise Lines International Association's biggest annual consumer promotion, now called CLIA Cruise Week. The Oct. 6-13 event offers deals aboard more than 200 ships, including those belonging to river and specialty operators.

Takeaway: More early season discounting to drive early occupancy and load factors.

Italian Cruise Tourism – Italy is facing another year of declining ship calls and cruise passengers, according to Francesco di Cesare, president of Risposte Turismo research and consulting company. According to di Cesare’s figures, calls at Italian ports this year will be down 8.97% and passenger numbers 9.36%, compared to 2013. These translate to 10.3m passengers and 4,676 calls - the lowest in the last four years.

Takeaway: High water in Venice partially contributing to lower traffic.


Lodging Transaction – Carey Watermark Investors (CWI) just grabbed the Sawgrass Marriott Golf Resort & Spa, a 511-unit golf resort and spa in Ponte Vedra Beach, FL. CWI acquired the asset from an affiliate of Goldman Sachs and Petra Capital Management. Financial terms of the deal were not disclosed. The resort last sold in 2006 for $220 million. The resort saw a $20.3 million renovation in early 2014. CWI plans to invest an additional $25 million to further to improve the property.

Takeaway: Another upper-upscale property located in South Florida crosses the market.


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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