LEISURE LETTER (10/22/2014)

Tickers: CZR, PENN, GLPI, H, MAR, RLH

EVENTS

  • Oct 22: ALGT Q3 earnings 4:30 pm http://ir.allegiantair.com
  • 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

CZR(GGRAsia) wants to build what one of its executives calls “the world’s first fly-in integrated resort” next to Manila International Airport (pictured) in the Philippines. Steven Tight, president, international development for Caesars, said the firm is willing to spend US$1 billion on the project. According to Mr. Tight, “What I think is most exciting about the opportunity is to create what I suppose would be the world’s first ‘fly in’ integrated [gaming] resort, where you could fly your plane right onto the property and have access directly to the resort, without having to deal with the traffic and other complications of Manila itself.” The resort would be aimed at VIPs and premium mass players, with an element of non-gaming targeted at locals, Mr Tight said.

Takeaway: CZR desperately needing an international presence. While not a 'fly in' casino, Resorts World is already right next to the airport.

PENN & GLPI– Nearly two weeks after leaving Sioux City, the former Argosy riverboat casino arrived safely at its new home, Mike's Inc., on Monday in Wood River, Illinois. A subsidiary of Penn National Gaming Co. then sold the boat and its other Sioux City assets, including two barges, to Mike's Inc. 

Takeaway: Despite removing the vessel from the Sioux City riverfront, the clean-up and deconstruction continues.

H (financialpost.com) is close to selling two additional hotels, including the 346-room Toronto Park Hyatt and the 644-room Hyatt Regency Vancouver.  

Takeaway:   We estimate the potential sale price of the Toronto Park Hyatt at $180-$200 million and the Hyatt Regency Vancouver at $270-$300 million for a combined sales price of $450-$500 million.  Kudos to Hyatt for their aggressive pursuit of the asset light strategy and selling assets to willing buyers and supportive capital markets.

MAR – Atlantis Paradise Island in Nassau, Bahamas, can now be booked through Marriott International's booking channels. Atlantis in July joined Autograph Collection, Marriott's upscale collection of independent hotels. The 3,400-room Atlantis is the largest hotel in the collection.

Takeaway: We look forward to commentary from MAR management regarding the booking trends at this very large, destination asset and the power of the MAR booking channel.

RLH – announced the launch of a new upscale hotel conversion brand targeted for the top 80 U.S. urban markets. Hotel RL is a full-service, lifestyle brand. RLHC anticipates announcing the first addition to Hotel RL before the end of the year and plans to open or convert more in 2015.

Takeaway: Every hotel operator must have a lifestyle brand these days. 

INDUSTRY NEWS

Macau Inflation (DSEC) The annual rate of consumer price inflation was 5.82% in September, the lowest in 8 months. The slowdown in food and non-alcoholic beverage prices was the cause.  This, despite another record increase in housing and fuel costs for the citizenry.

Takeaway: CPI remains stable but labor costs will go higher, much higher.

  

New Jersey Examining Real Money Skill-Based Gambling (Courier Post) The state Division of Gaming Enforcement says it is seeking game developers’ proposals to conduct real-money gambling on skill-based games, which would make New Jersey a nationwide laboratory for a betting phenomenon many have predicted will become the next big thing. Game developers would have to partner with one of Atlantic City’s eight casinos, in the same way that Internet gambling providers must do. And like online gamblers, players of real-money skill games must be physically located within New Jersey’s borders. (New Jersey can approach other jurisdictions about multi-state gambling compacts if there’s enough interest.) Nevada is considering a similar plan, and other countries, including England and Mexico, are testing similar technology.

Takeaway:  We've consistently highlighted the demographic headwinds for regional gaming and the slot companies.  Skill-based gaming has been the solution we've often pointed to and we'll be monitoring this closely.

NY Online Gaming (igamingplayer.com) A new online campaign called Let NY Play, which urges lawmakers in the Empire State to legalize online poker for cash, originated with MGM. 

 Though the games are still illegal, the pot is huge:  a study by MGM estimated that New Yorkers bet as much as $110 million in illegal online poker games. If the games were legalized, the study said, it could mean $50 million to $80 million in annual taxes for the state, and an additional $80 million from selling licenses to operate the sites.

Takeaway: MGM trying to get a share of NY gaming without a brick and mortar casino. 

Obama to Host Tribal Nations Conference– President Barack Obama will host the 2014 White House Tribal Nations Conference at the Capital Hilton in Washington, DC on Dec. 3. The conference will provide leaders from the 566 federally recognized tribes the opportunity to interact directly with the President and members of the White House Council on Native American Affairs. Each federally recognized tribe will be invited to send one representative to the conference. This will be the sixth White House Tribal Nations Conference for the Obama Administration, and continues to build upon the President’s commitment to strengthen the government-to-government relationship with Indian Country and to improve the lives of Native Americans

Takeaway: Expect a push for faster processing times of requests for tribally owned, but off-reservation land to be placed in trust -- which then affords the opportunity for additional off-reservation casino development.  

US Travel Trends in Q4 2014 – Booking data from Expedia shows that 21 million Americans are expected to fly from October through December. Of the top 10 destinations for air travel, 50% are warm-weather destinations and 30% are cold-weather. The most highly-shopped hotel destinations during the 2014 holiday season can be found in warm-weather destinations, including:

  1. Orlando, Florida;
  2. Cancun, Mexico;
  3. New York City;
  4. Riviera Maya, Mexico; and
  5. Punta Cana, Dominican Republic.

Takeaway: Sun and sand remain hot go-to destinations and nice to see renewed interest in New York City. Las Vegas is outside the top ten.

Countries Barring Income Travel from Ebola-stricken Counties – A number of Caribbean countries are moving to prohibit incoming travel from Ebola-affected countries including Liberia, Sierra Leone and Guinea, including the Federation of St. Kitts and Nevis, St. Lucia, Jamaica, Trinidad and Guyana.

Takeaway: Setback for these destination locations.

MACRO

Chinese Home Prices - He Keng, former deputy-director of the NBS and legislator with the National People's Congress, said China should avoid mortgage-backed securities because they were at the heart of the US subprime crisis. He also noted Chinese home prices should be allowed to fall an average 30% before the government steps in.

Takeaway: Hedgeye's Macro Team noted most Chinese mortgages are at LTV's of 30% to 40%.  Regardless, a 30% drop in residential real estate would certainly dampen consumer spending and economic growth and negatively impact Macau.

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.