LEISURE LETTER (10/09/2014)

Tickers: LVS, PENN, GLPI, PEB, NCLH

EVENTS

  • October 9: Todd Jordan in Macau
  • October 16: Hedgeye cruise pricing survey (mid-October)

COMPANY NEWS

880:HK SJM  (Macau Business) When Jai Alai Palace will reopen is uncertain because work on renovating the establishment remains suspended while it awaits government permission to proceed. The government ordered the suspension of the work in March while the Land, Public Works and Transport Bureau considers an application for permission to modify the building.

Takeaway:  The approval process for Macau projects have been very slow.

LVS (Inquirer)– a Marina Bay Sands food court, 1983, was closed temporarily for thorough cleaning, after a photograph of cockroaches patronizing one of its stalls went viral online. Marina Bay Sands issued a statement to say that they were “aware of a pest incident” that occurred at 1983 – A Taste of Nanyang on October 6. The food court, which is run by Koufu, is located at the South Promenade of The Shoppes. “We immediately took action and worked with the tenant to conduct checks and investigate the incident,” said the statement.

Takeaway: An unfortunate and unwelcomed guest, but we've seen much worse Singapore locals hawker / food centers. 

3918:HK NagaCorp – New startup airline, Bassaka Air, was granted its aircraft operation certificate (AOC) by the State Secretariat of Civil Aviation. Representatives from Bassaka Air, which has partnered with the state-owned China International Travel Services (CITS) and will lease its two Airbus A320 aircraft from casino firm NagaCorp to ferry in Chinese tourists, said the first flight is yet to be confirmed.  Bassaka AIr's CEO Joseph Strekker  denied the casino operator had any financial interest in BA, however confirmed the aircraft were leased from NagaCorp.

Takeaway: While technically unrelated businesses, the airline was clearly established to support tourism to NagaWorld. 

PENN & GLPI – Sioux City and its residents bid bon voyage to the former Argosy riverboat casino when it departed Sioux City down the Missouri River. The three-deck boat is bound for Wood River, Ill., where its new owner operates a large shipyard and salvage operation. 

Takeaway: The final headline in this matter will be the ruling and resolution of the current litigation over the license. 

PEB – entered into an agreement to acquire an upscale, full-service hotel
and adjacent commercial real estate and land parcel in the Boston, Massachusetts region for $261.0 million from an unaffiliated third party. The
Company expects to fund the purchase price with available cash and borrowings on its senior unsecured credit facility. The closing is expected to
occur before the end of 2014,

Takeaway: PEB filling a noticeable hole in its Northeast footprint.

NCLH – received antitrust clearance from FTC regarding purchase of Prestige Cruises.

INDUSTRY NEWS

Japanese Gaming Expansion (Yomiuri Shimbun) The integrated resort enabling legislation was revised to exclude Japanese nationals from gaming participation. As a result, only foreign nationals will be initially allowed to gamble at casinos.

This policy was agreed Tuesday at a meeting of senior members of the league dedicated to promoting international tourism.  The league, chaired by Hiroyuki Hosoda, executive acting secretary general of the Liberal Democratic Party, will make an official decision at a general meeting next Thursday. The league plans to add a clause in the bill that Japanese nationals would be allowed to gamble at casinos through the enactment of another law.

Takeaway: Besides this major change, the enabling legislation also includes the following stipulations "integrated resorts will be limited to central government-designated areas based on applications from local governments" AND "central, relevant local governments can collect levies from firms that open and operate casinos, and entrance fees from users".

UnionPay Crackdown Continues in Macau (LUSA) The value of transactions using unregistered China UnionPay Co Ltd terminals in Macau amounted to MOP300 million (US$37.6 million) in the first eight months of 2014. Lusa quotes the city’s Judiciary Police as saying they have identified 51 suspects (39 from mainland China and 12 from Macau) involved in what they describe as illegal transactions. They have investigated 40 cases since the beginning of the year, with 34 of the cases sent to the territory’s Public Prosecutions Office. Jewellery and watch shops inside the precincts of the city’s casinos were banned from applying for new UnionPay swipe terminals since July 1. The existing swipe card devices operated by such shops have not been removed but the Macau government has not excluded that possibility.

Takeaway: Despite the crackdown, it appears the use of illegal devices continues.

  

Biloxi Margaritaville Casino – A U.S. bankruptcy judge has given MVB Holding until midnight Oct. 27 to vacate the former Margaritaville Casino building and turn the keys over to the property owners. Mississippi Gaming Commission regulations say the building can’t reopen as a casino unless it has a 300-room hotel, an upscale restaurant and an amenity that would make it unique and draw new people to the market.

Takeaway: The redevelopment plan remains unclear given the hotel mandate. 

EBOLA Screening to Begin – The government plans to begin taking the temperatures of travelers from West Africa arriving at five U.S. airports as part of a stepped-up response to the Ebola epidemic. The additional layer of screening would begin at New York Kennedy and the international airports in Newark, Washington Dulles, Chicago and Atlanta. He said the new steps would include taking temperatures and would begin Saturday at JFK. The new measures also will include more screening questions for passengers arriving from the countries worst hit by the outbreak -- Liberia, Sierra Leone and Guinea.

Takeaway: A good first step, but more precautions are warranted.

Business Travel Trends – According to the Global Business Travel Association, during the second quarter of this year, U.S.-originated business travel added up to $72.8 billion, a 7.1% year-over-year increase. Although, notably, there was a 0.1% decline in the actual number of trips. However, more business people are traveling. The report found that travel volume is expected to rise only 2.3% for the year, but spending will grow by 7% year-over-year due to the higher prices for hotel rooms, airfare and food. International outbound business travel is also expected to rise in volume by 5.6% for the year 2014, followed by a 6.5% increase in 2015 despite slowing growth in Europe, China and Latin America, according to the report.

Takeaway: Positive trends for the lodging industry.

Virgin Hotels – Virgin Hotels announced the opening of its first hotel in Chicago, scheduled to open on January 15, 2015, with “chambers” starting at a US$209 rate. The hotel with 250 guestrooms, 40 one-bedroom suites and two "rock star" suites will also have a large gym on the top floor of the building as well as a spa that will open in the spring. The company also launched its new web-site virginhotels.com.

Takeaway: All inclusive entertainment, fee unlimited-highspeed internet -- we look forward to putting our heads onto a pillow and trying the custom-designed hybrid bed and other creature comforts.

MACRO


German Recession Fears Increase – German exports plunged 5.8% in August by their largest amount since the height of the financial crisis and leading institutes slashed forecasts for growth, fueling debate on whether Berlin is doing enough to prop up the domestic and European economies. This was the latest sign that Europe's largest economy is faltering amid broader euro zone weakness and crises abroad which have battered confidence and delayed German firms' investment plans.

Hedgeye remains negative on consumer spending and believes in muted inflation, a Quad Four set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.