LEISURE LETTER (10/08/2014)

Tickers: BYI, CZR, HT, MHGC, CCL

EVENTS

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

COMPANY NEWS

BYI –announced that a special meeting of its stockholders has been scheduled for November 18 to consider and vote on a proposal to approve the previously announced agreement and Plan of Merger with Scientific Games Corporation

Takeaway: The merger appears on track to occur prior to year-end 2014.

CZR – filed an 8K and disclosed Wilmington Savings Fund Society issued what the Wilmington called a purported notice of default.  In response to the notice, CZR's responded that the company will review the notice and respond within the 60 days allowed to avoid a default.

Takeaway: Could this be the beginning of a long anticipated debt reorganization?

HT – in a precursor to the Company's investor day, announced preliminary Q3 2014 comparable RevPAR of +9.4% based on ADR +5% and occupancy +3.44%, consoliated hotel RevPAR of +12% based on ADR +6.9% and occupancy +3.94%

Takeaway: Early indications of very strong coastal market hotel performance during Q3 2014.

MHGC (NY Post) started a formal sales process to sell the 928-room Hudson Hotel located on Columbus Circle and is seeking $500M and is also seeking to sell the 194-room Delano hotel in Miami for $200M, according to sources

Takeaway: Hmmm, Hilton has $1.95 billion of Waldorf proceeds to reinvest and both assets could fit under the Curio flag.

CCL – will construct a training facility for deck and technical officers in Almere, Netherlands. The company already has a maritime training center in Almere, the Center for Simulator Maritime Training (CSMART). The new CSMART will be three times larger, according to Carnival Corp. Construction is scheduled to start next year, and a 2016 opening is planned. The facility will serve 6,500 deck and technical officers per year from all nine of Carnival Corp.’s cruise brand, the company said.

CCL (Cruise Critic) A nine-night Japan sailing onboard Diamond Princess continues to see delays and port cancellations due to two back-to-back typhoons in the Pacific Ocean. The sailing, scheduled to depart October 6, has already been pushed back to October 8 due to Typhoon Phanfone, but now Typhoon Vongfong is hampering the ship's itinerary as well. Princess is giving each passenger a future cruise credit of 50% of the cruise fare paid for the voyage. The credit may be used on any Princess cruise booked before the end of 2015.

Takeaway:  Princess Japan back in the news 

 

AirBnB – San Fransisco Approves Airbnb Law – Addressing the controversial and fast-growing practice of ad-hoc hotels in homes, San Francisco Board of Supervisors agreed to legalize but rein in short-term residential rentals by passing the so-called "Airbnb law".  The law allows only permanent residents to offer short-term rentals, sets up a new city registry for hosts, requires collection of the hotel tax, limits entire-home rentals to 90 days a year and establishes guidelines for enforcement by the Planning Department. It is slated to take effect February 2015.

Takeaway:  AirBnB finally gets recognition in SF

INDUSTRY NEWS

Mainlanders shun Hong Kong, flock to Macau Macau Business
750,000 mainlanders poured into Macau during this year’s golden week of Chinese National Day holidays, +17% YoY.  The surge in Macau was the reverse side of a slowing of growth in the number of mainlanders visiting Hong Kong as pro-democracy demonstrations there acted as a deterrent to tourism.

Takeaway:  Visitation has been the lone bright spot.  Some people think there is less foot traffic to the casinos but it's a guessing game.

Hong Kong CEO Corruption Investigation (The Sydney Morning Herald) Chief Executive CY Leung faces questions over secret $7m payout from Australian firm.  The payments were made in two installments, in 2012 and 2013,  after he became Hong Kong's top official. The arrangement is outlined in a secret contract dated December 2, 2011, before he was elected chief executive, in which Australian engineering company UGL agreed to pay the Beijing-backed politician £4 million - related to a deal in which UGL bought an insolvent 200-year old British property services firm he was associated with called DTZ Holdings, whose prospects depended on Mr Leung's network of managers and clients in Hong Kong and mainland China.

Takeaway: When protests don't get the desired results, the protesters dig deeper into personal lives and conduct.


China Warns Against HK-style in China (IBN Live) Wary over the pro-democracy protests in Hong Kong spreading to China, the official media said that any attempt to launch a "color revolution" in the mainland would be futile and a day dream. "Any intention among a small number of people to hold a color revolution on the mainland through Hong Kong would be a daydream," the ruling Communist Party of China's official mouthpiece, the People's Daily said. In a front-page commentary under the headline, "Determined to protect the rule of law in Hong Kong," the newspaper said that democracy without the rule of law would only result in chaos.

Takeaway: Protests unlikely on Mainland China.

China Corruption Crackdown (Xinhua News) A total of 162,629 phantom staff on the government payroll have been removed since a national campaign targeting corruption and bureaucracy was launched last year. Hebei Province saw the largest number of such officials, with 55,793 found to be getting paid even though they never worked, the Communist Party of China flagship newspaper People's Daily.

(wantchinatimes.com) So far, five out of 13 members of the Shanxi Provincial Committee of the Communist Party of China have been detained for graft. The high percentage of officials being probed for corruption is rare among provincial cities and provinces around China

Takeaway: The corruption crackdowns continue.

Philippines May Penalize Delayed Casino Opening (themalaysianinsider.com) The Philippines' gambling regulator will penalise the local affiliate of Japan's Universal Entertainment Corp if it fails to open a US$2 billion (RM7 billion) casino-resort along Manila Bay next year as planned, the head of the state authority said. Tiger Resorts Leisure and Entertainment Inc, the local affiliate of Universal which is controlled by gaming magnate Kazuo Okada, said last month it was likely to launch the first phase of its casino-resort project in 2016, a year later than planned.

Takeaway: PAGCOR threatening penalties for delayed openings.

Cabo San Lucas Hotel Update – While Mexican authorities report that 100% of electrical services have been restored in Los Cabos and in Baja California Sur, the reopening of hotels will be much slower.  The following are hotel openings that have been confirmed:

• Sheraton Hacienda del Mar Golf & Spa Resort, reopening the first phase of 200 rooms, pools, beach areas and kids club on Nov. 1. Second phase of the remaining 70 rooms will end at the end of November. The opening of the DeCorte restaurant is to be determined.

• Westin Los Cabos, not expected to open before Oct. 31.

• Hilton Los Cabos, taking no reservations until Jan. 15, 2015.

• One&Only Palmilla is not taking reservations until Dec. 15, but will know by Oct. 15 whether the resort will be open for the Christmas holidays.

• Hyatt Ziva Los Cabos will reopen April 30, and Hyatt Place Los Cabos will reopen June 1.
• Holiday Inn Resort Los Cabos is closed until Dec. 1

• Holiday Inn Express Cabo San Lucas is open with 60 guestrooms, and 35 rooms, the pool and business center are closed “indefinitely” for repairs

• Esperanza, an Auberge Resort, closed until Dec. 15.

Takeaway: The slow process of reopening a hotel in remote locations with limited access to rebuilding supplies. We hope the properties re-open for the busy December holidays and New Year's celebrations.


Lourve Hotels – Louvre Hotels has more than 110 operating properties under the Premiere Classe, Campanile, Kyriad, and Golden Tulip brands in 47 countries.  US-based private equity group Starwood Capital is seeking buyers for its international budget hotel operator Louvre Hotels Group (LHG), according to French media reports, with the sale expected to raise €1.2 - €1.5 billion, representing more than 10 times LHG's annual gross operating profit. 

Takeaway: Starwood Capital looking to harvest portfolio gains.

 

Cruise Lines Cancel West Africa – Several cruise lines have changed itineraries due to concerns over Ebola, canceling port stops in West Africa. On Holland America Line’s 35-day African Explorer cruise due to depart November 15 aboard the MS Rotterdam, from Cape Town, South Africa, to Southampton, England, three ports of call in Ghana, Gambia and Senegal will be replaced with an added overnight in Cape Town, an added overnight in Cape Verde and a stop in Tangier, Morocco,

Takeaway: This is what is being reported as the cause of the sharp stock declines in the cruiser space yesterday and concerns on European visitation.  It's a mere excuse to mask the already underlying worsening trends in Europe. 

MACRO

China Macro – September HSBC Services PMI 53.5 vs 54.1 in August

China Golden Week Retail Sales (Reuters) retail sales during the "Golden Week" holiday slowed to 12.1% from a 13.6% rise last year. The Ministry of Commerce said retailers and catering firms chalked up sales of 975B yuan ($158B) during the week-long holiday.

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.