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Tickers: MPEL, WYNN, HLT, HST, RCL

EVENTS

  • Oct 15: LVS Q3 earnings 4:30pm , pw 12611335
  • Oct 17: Hedgeye cruise pricing survey (mid-October)
  • Oct 23: PENN Q3 earnings 11 am
  • Oct 23: LHO Q3 earnings 11 am "La Salle Hotel Properties"
  • Oct 24: PEB Q3 earnings 9 am

COMPANY NEWS

959:HK Amax International Holdings– announced it completed the purchase of a 60% interest in Forenzia Enterprises Ltd, a firm that has access to an online gaming license for the Pacific island nation of Vanuatu. The transaction total consideration was HKD48.1 million (US$6.2 million). Amax International plans to use the license to operate from the country’s capital Port Vila live table games videoed and streamed for online players. At the same time it will seek to arrange for junkets to fly high rollers from mainland China and elsewhere in Asia to Vanuatu to take part in those table games. Vanatu, an archipelago country, is located about 1,100 miles east of Cairns Australia, 300 miles northeast of Nwe Caledonia and about 700 west of Fiji. The resident population is estimated at 260,000 people. During 2013, nearly 60% of visitors were from Australia, 13% New Zealand and 12% New Caledonia and more than half of all visitation is via cruise ship. 

Takeaway: A very small and very remote casino location. However, the "video" betting is a recent development and a trend we expect to gain greater acceptance once Studio City Manila opens, maybe in December or early January.

BRBY:LN – warned that second-half wholesale revenue will decline and that it expects “slight downward pressure” on margins sent the shares down as much as 6.2%, the steepest intraday decline in a year. Fewer Chinese tourists have been shopping in Hong Kong because of pro-democracy protests over the past three weeks, while fighting in Ukraine and the resulting sanctions have depressed Russian spending in Europe. 

 

 CWN:AU – Yesterday, the Victorian Parliament’s upper house approved Victoria’s Casino and Gambling Legislation Amendment Bill 2014, if fully approved, the law will extend Crown Melbourne casino resort's gaming license from 2033 to 2050. The extension is part of a wider number of reforms that include the removal of the super tax on commission-based play for international and interstate VIP players from next year. The legislation also allows for more gaming tables and gaming machines across the floors of the casino.The number of tables will increase from 400 to 440, but only 10 of the new tables will be allocated for VIP play. The casino operator will also be allowed to increase the number of fully automated table game terminals from 200 to 250. The property will also be able to add 128 new gaming machines to its floors. Crown Melbourne is the largest casino in Australia and is managed by Crown Melbourne Ltd, a unit of Australia’s Crown Resorts Ltd. Crown Resorts.

Takeaway: Mr. Packer strengthening the positioning of his Crown Melbourne casino both with better tax economics as well as table and game terminal programming. 

  

HLT – announced the launch of Canopy by Hilton, a new hotel brand that redefines the lifestyle category around the mindset of today’s leisure and business travelers. Christopher J. Nassetta, president and CEO of Hilton Worldwide, unveiled the Canopy by Hilton concept to nearly 1,900 owners and development representatives at Hilton Worldwide’s Global Partnership Conference in Orlando, Florida.  Nassetta said. “We saw an opportunity to not only enter the lifestyle space by developing a new brand, but also to redefine this category by creating a more accessible lifestyle brand. We identified the need to take the emphasis off of capital-intensive design and deliver exactly what the target consumer desires: an energizing, comfortable stay with more included value.”

Takeaway: Finally, the Hilton lifestyle brand. We look forward to seeing the concept first hand, once deployed. It's likely a long, uphill battle to acceptance, however.

HST – announced that on October 3, 2014 the Company's litigation related to the San Antonio Marriott Rivercenter hotel ended in favor of Host Hotels & Resorts as the Texas Supreme Court denied the motion for rehearing from Keystone-Texas Holding Corp.  On June 13, 2014, the Texas Supreme Court had overruled a lower court's $57.3 million verdict against the Company for allegedly interfering with an effort to sell a San Antonio shopping mall and adjacent land underlying the San Antonio Marriott Rivercenter hotel.  Now that the decision by the Texas Supreme Court is final, the Company will reverse the $69 million loss contingency previously recorded under GAAP.  In addition, a court-ordered bond will be released and the Company will recoup its previously funded $25 million escrow. 

Takeaway: A favorable resolution to the legal proceeding.

CCL –  Carnival signs MOU Deal with Chinese Shipyard at CCS9 in Tianjin

joint venture aimed at accelerating the development and growth of the Chinese cruise industry, expected to be one of the largest cruise markets in the world with 4.5 million passengers by 2020, according to the Chinese Ministry of Transport (MOT).  The MOU outlines the framework for exploration of a partnership between Carnival Corporation and the CSSC that includes the possibility of forming a shipbuilding joint venture that could become a three-way arrangement involving Fincantieri of Italy, the world's largest cruise ship building company, in support of the Chinese government's plans to grow the cruising industry in China and could result in the first world-class cruise ship to be built in China.

Takeaway:  A favorable shipbuilding deal for CCL and China.  

RCL – Celebrity Cruises has announced an All-Included Europe Package beginning Monday, Oct. 13.  Guests can now fly directly from New York or New Jersey where they can embark on their European vacation.  The Celebrity All-Included Europe Package is available for the following prices: $2,999 Oceanview lead rate for seven-night Celebrity Equinox Mediterranean sailings; $3,499 Oceanview lead rate for 12-nights on the Silhouette to the Baltic; and $3,499 Oceanview lead rate for 10- or 11-nights on the Reflection on Mediterranean sailings

Takeaway:  All-inclusive deals continue to be more popular. Celebrity taking a page out of Prestige's playbook.


INDUSTRY NEWS

October Macau GGR(LUSA/Macau Daily Times) The gaming sector should see its revenues shrink for the fifth consecutive month in October. Sources linked to Sociedade de Jogos de Macau (SJM) and Melco Crown contacted by the news agency Lusa estimate that the decrease could range between 10 and 13%. “We are still at the beginning of the month, but given the results of the Golden Week we believe that the October revenues will improve when compared to the previous four months.  However, year-on-year the results will decrease above 10% again,” an SJM source said “Gaming revenues are falling and a profit fall when compared to 2013 can’t be discarded,” a Melco Crown source told Lusa. The same source added that the losses are related to “a stricter control on the part of the mainland authorities of the money that is transferred outside its borders, that is limited [by law] to 20,000 yuan.”

Takeaway:  We bet the decline will be larger and margins will be worse = snakeyes for the operators. 

Macau GGR vs. Employment(Macau Daily) Reported that if gaming revenues drop below MOP22 billion per month, as compared to MOP25 billion now, a wave of dismissals in casinos will begin. However, the article lacked any reference to a spokesperson or government official.  By contrast, Carlos Siu, Associate Professor for the Gaming Teaching and Research Centre at the Macao Polytechnic Institute does not currently foresee any impact on employment resulting from the deceleration of gaming profits, saying, “In terms of the global [economic] environment, Macau is still having a rather good one.” He believes that the city need not worry if staying alert.

Takeaway:  Politics will be played in preventing job losses.

Macau-Zhuhai Border Checkpoint (Macau Daily Times) Zhuhai authorities will strive to finish the expansion of the border crossing channels at the Zhuhai-Macau Cross Border Industrial Zone before mid-December.  Although the authorities stated that they are yet to make the decision on which groups will be allowed to cross the border through the Industrial Zone checkpoint, it is likely that Macau residents, non-resident workers, mainland tourists and students may soon be able to cross the border between midnight and 7 a.m.  The expansion will add at least six automated passenger clearance channels in both directions, as well as a manual clearance channel. It is expected that, after the expansion, the Industrial Zone checkpoint will be capable of handling around 12,000 people between midnight and 7 a.m.

Takeaway: A long-term infrastructure positive but not likely to stimulate additional near term demand for the Macau casinos.

China Corruption Crackdown Continues – Agile Property Holdings (3383:HK) saw its share price plummet following a Caixin.com report Mainland authorities are investigating an alleged involvement of the company's chairman, Chen Zhuo Lin, in a bribery case linked to officials in Yunnan Province over property project approvals. 

Takeaway: The crackdowns continue.

 

New Jersey Sports Betting – The New Jersey State Senate approved a sports betting bill on Tuesday.  The bill now goes before the Assembly for review and vote. If passed in its current form, the legislation will then go to Governor Christie for signature. If the legislation becomes law, the law will likely be heard by U.S. Federal Court.

Takeaway: An uncertain outcome still remains.

Hurricane Gonzalo – maintaining its strength as a strong Category 3 Hurricane with sustained winds of 125 mph and is moving northwest on a heading of 320 degrees at 13 mph.  Gonzalo over the next 12-18 four hours is expected to turn away from the East Coast of the United States and pass just of the Western shore of Bermuda early Friday morning.  Both CCL and RCL skipped ports of call this week across the Caribbean but expect for Bermuda rerouting over the coming days.

LEISURE LETTER (10/15/2014) - hurricane bermuda

MACRO

Hedgeye Macro Team remains negative on Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottom-up slowing in European cruise pricing in our monthly survey.  Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis.  To a lesser extent, HOT and HLT are also exposed to European weakness.

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 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.