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LEISURE LETTER (10/21/2014)

Tickers: LVS, BEL, RCL, SKIS

EVENTS

  • Oct 23:
    • RCL Q3 earnings 10 am
    • PENN Q3 earnings 10 am
    • LHO Q3 earnings 10 am "LaSalle Hotel Properties"
  • Oct 24: PEB Q3 earnings 9 am
  • Oct 28:
    • GLPI Q3 earnings 10 am
    • HOT Q3 earnings 11:30 am , code "10325720"
    • MAR Q3 earnings 5 pm , ID "59390131"
  • Oct 29: H Q3 earnings 11:30 am code "95150754"
  • Oct 30:
    • HST Q3 earnings 10 am
    • MGM Q3 earnings 11 am , pw "6307991"
    • BYD Q3 earnings 5 pm , pw "8021592"

COMPANY NEWS

ALL:AU (GGRAsia) Gaming supplier Aristocrat Leisure Ltd announced it completed the acquisition of U.S.-based gaming machine manufacturer Video Gaming Technologies Inc (VGT), in a deal worth US$1.28 billion. The Australian firm also said it would consider other “accretive opportunities”.

Takeaway: Could Aristocrat be on the hunt for additional add-ons?

 

AYA:TSX – announced it launched a strategic review of alternatives for Cadillac Jack Inc., its video slot machine subsidiary. The company said it wants to consider plans aimed at helping Cadillac Jack grow and maximizing value for Amaya's shareholders. Cadillac Jack designs, manufactures and sells a range of server-based and stand-alone video reel slots and other gaming machines.

Amaya has hired Macquarie Capital and Deutsche Bank Securities Inc. as co-financial advisers to assist in the review.

Takeaway: Sounds to us like a spin-off/sale is imminent.

 

LVS & 1928:HK (Macau Business) Macau casino operator Sands China Ltd’s labor costs will grow to over US$1 billion (about MOP8 billion) this year, their highest ever, according to Sheldon Adelson, the boss of parent company Las Vegas Sands Corp. Mr Adelson attributes the increase to the need to pay workers more to attract and keep them in a competitive labour market.

Takeaway:  We think it may be $1.1 bn and much higher in 2015.

 

BEL – Belmond, the luxury hotel company and rail-excursion operator formerly known as Orient-Express, will add two excursions for its Eastern & Oriental Express rail line next year. The five-night “Fables of the Peninsula” tour from Singapore to Bangkok will debut in late March and includes an overnight stay at Raffles Singapore and a one-day excursion to Kuala Lumpur. Rates for the excursion, which is limited to 60 passengers at a time, start at about $7,700 per person. The two-night “The Ancient Temples of Lanna” excursion will start operations in late October. The route starts in Bangkok and ends in Chiang Mai. That northern Thailand city is known for its horse-drawn carriages and artifacts.

Takeaway: New vacation offerings by a premiere operator to Old World destinations for the super wealthy.

 

SKIS – Peak Resorts files for $100 million IPO through FBR, Stifel and Baird. Back in April 2011, the very same company attempted a $40.3 million IPO through Rodman & Renshaw but the IPO was pulled "due to market conditions".  The company currently operates 13 ski resorts, 12 of which are owned in Missouri, Indiana, Ohio, Pennsylvania, New Hampshire and Vermont. The S-1 can be found here. Use of proceeds is to paydown 10%+ debt (EPR is the counterparty).

Takeaway: If a company's cost of debt is >10% (page 29 of the S1), what is the appropriate cost of equity - significantly higher in our opinion.  The last time we saw a transaction like this (equity issued to pay down high cost debt) was the Muruelo Maddux in January 2007 - quickly went gonzo.  On this filing alone, we'd prefer to buy EPR.

INDUSTRY NEWS

Macau Ferry Terminal Renovation Delay – (Macau Daily Times) Director of the Marine and Water Bureau (DSAMA), Wong Soi Man, has revealed that renovations to the Macau Ferry Terminal (also known as the Outer Harbor Ferry Terminal) will not be finished until the end of this year. She explained that the delay was inevitable because the renovation is being carried out while the terminal is still in operation.

Takeaway: A slight delay, but not likely to impede inbound visitation.

 

Clark County Nevada Taxi Rate Increase (LVRJ) The Nevada Taxicab Authority on Monday approved a rate increase of just more than 8%, boosting Clark County to the second highest rate in the nation among cities with a tourism-based economy.  The board unanimously authorized rates to climb from $3.30 for the initial drop to $3.45, 20 cents per one-thirteenth of a mile ($2.60 a mile) to 22 cents per one-thirteenth of a mile ($2.86 a mile) and wait-time charges of $30 an hour to $32.40 an hour. The $2 McCarran International Airport pickup fee will remain unchanged. The per-mile rates include a 20-cent-per-mile fuel surcharge.

 

It was the first taxi rate increase since November 2008. It’s unclear when the new rates will take effect because the Taxicab Authority must get permission to use budget reserve funds to pay overtime to the vehicle inspectors and investigators to change the meters on the 3,000 cabs in the Las Vegas fleet. A meter changeover generally takes about five to six days, but it could take weeks to get the approvals necessary to budget funds for the associated costs.

Takeaway: Higher costs to visit Las Vegas.

 

New Jersey Sports Betting Lawsuit (Bloomberg) The National Collegiate Athletic Association,  the National Basketball Association, the National Football League, the National Hockey League and Major League Baseball sued to block New Jersey Governor Chris Christie's renewed attempt to allow sports betting at Atlantic City’s struggling casinos. The complaint filed yesterday in federal court in Trenton came three days after Christie signed a revised bill to allow betting on sports at the state’s racetracks and casinos. The leagues contend the new bill is an attempt to end run a 2013 court order that had struck down a previous state law legalizing sports betting in Atlantic City casinos and at the tracks.

Takeaway: The judicial process to overturn begins.

MACRO

China Macro 

  • Q3 2014 GDP +7.3% yr/yr vs. consensus +7.2%

Also for China during September:

  • Industrial production +8.0% yr/yr vs consensus +7.5% and +6.9% in Aug
  • Retail sales +11.6% yr/yr vs consensus +11.8% and +11.9% in Aug
  • Jan-Sep FAI +16.1% yr/yr vs consensus +16.2% and +16.5% in Jan-Aug

 

Hedgeye Macro Team remains negative 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 bottoms up slowing in Europe 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. 

 

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.


MACAU: NO PICKUP HERE

Takeaway: Yes stocks are down but with no catalysts in sight and Street estimates still too high, nothing to see here.

Another soft week in Macau

 

 

Please see our note: http://docs.hedgeye.com/HE_Macau_10.21.14.pdf


Keith's Macro Notebook 10/21: Russell 2000 | UST 10YR | Oil


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HOT: CATALYSTS COMING INTO FOCUS

Takeaway: The new HOT: asset sales, share repurchase, strong RevPAR and earnings beat – the perfect set-up

St. Regis Rome sale announcement an important signal

 

 

Please see our note:   http://docs.hedgeye.com/HE_HOT_10.21.14.pdf


 

 



THE HEDGEYE MACRO PLAYBOOK

Takeaway: Our Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and proprietary quantitative market context.

CLICK HERE to view the document. In today’s edition, we highlight:

 

  1. Why the ever-evolving consensus bull case of "I'm bullish because everyone else is bearish" is unlikely to perpetuate new highs in DM Equities
  2. How accelerating risk in the HY/junk bond market has the potential to be broadly disastrous for equity investors

 

Best of luck out there,

 

Darius Dale

Associate: Macro Team


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