LEISURE LETTER (10/23/2014)

Tickers: LVS, MGM, LHO

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

27:HK Galaxy (Macau Business) Galaxy Entertainment Group Ltd has scrapped its plan for a four-star apartment hotel to form part of its expanded Galaxy Macau casino-resort. The Official Gazette indicates that the company will use the land once allotted for the apartment hotel for a bigger five-star hotel. Galaxy Entertainment has said it intends to open the second phase of the Galaxy Macau in the first half of next year.

Takeaway: Opting for five-star, more luxury programming - likely to support the gaming operations.

 

LVS & 1928:HK(Macau Daily Times) Sands new integrated resort, The Parisian Macao, is set to open in late 2015, and tenancy commitments for the new property have reached 85% of its retail area, according to the casino operator.

Takeaway: We'll take the over on that opening date. 

 

MGM – Newly installed photovoltaic (solar) panels on 20 acres of Mandalay Bay convention center rooftop will generate 5 megawatts of electricity, enough to supply Mandalay Bay with about 20% of its electricity load. The array is owned by energy company NRG, which built it using federal grants that paid for about 20% of the panels.

Takeaway: With water levels on the Colorado River falling, both fresh water for consumption and electricity from Hoover Dam will likely become more expensive. MGM seeking other means of lowering it's operational expenses.

 

LHO – announced very strong Q3 results with FFO/share of $0.85/share exceeding consensus by $0.06/share and reported RevPAR was 11.5%, well above the high end of guidance +5.5% to +8.5% with ADR up 10.2% while occupancy increased 1.1%.  Comparable hotel margins rose 211 bps versus guidance of flat to +125 bps. New full year RevPAR guidance is now 8.75% to 9.25%, up from 6.5% to 8.0%.

Takeaway: A strong beat and raise for this lodging REIT with assets in Washington DC, Boston, Chicago, Los Angeles, San Diego and San Francisco.  The strong results bode well for Lodging C-Corps (HOT, HLT, H and MAR) and Lodging REIT HST as well as BEE, PEB and SHO.

 

MSC Cruises – raised commission on its shore excursions from 5% to 15%. 

Takeaway: Shore excursions are becoming more popular on the UK itineraries. MSC is trying to maintain their edge by raising commissions.

INDUSTRY NEWS

China's 4th Plenum Adjourns – The Central Committee of the Communist Party of China, elected by the National Congress of the Communist Party of China, convenes at least one plenary session every year. The fourth session concluded today with no major policy announcements.

Takeaway: Like all things in China, we await the official government commentary regarding the outcome of the 4th Plenum actions.

 

Macau Visitor Arrivals – During September, visitor arrivals increased 3% year-over-year with Mainland China arrivals increasing 6% to 1.6 million visitors.

LEISURE LETTER (10/23/2014) - Macau

Takeaway: A significant slowdown in total visitation as well as Mainland China visitation which are headwinds to Macau mass growth.

 

Mainland China Banks Tightening Credit – According to data compiled by SNL Financial, the five biggest lenders in China saw their non-performing loans (NPL) increase in the first six months of the year - a trend that is worsening and results in increased selectivity which in turn reduces credit for gamblers and junkets in Macau. The Industrial and Commercial Bank of China saw its NPL ratio increase from 0.94% in December 31 to 0.99% in June 30. Currently, China’s largest bank has 150 billion yuan at risk of never being paid. But the situation is similar throughout the Chinese financial system. Agricultural Bank of China has a NPL ratio of 1.24%, China construction Bank 1.04% and Bank of China 1.02%. The problem with NPL is also that each country has its own system of calculating them, making it harder to get the real picture

Takeaway: Another headwind for Macau gaming and GGR growth.

 

Taiwan Open Skies (Macau Business) Taiwan expects its open skies agreement with Macau, signed in February, to come into effect this year, according to the director-general of the Taipei Economic and Cultural Office in Macau, Lu Chang-Shui. Mr Lu says the agreement is now being considered by island’s legislature. The agreement will allow airlines to carry unlimited numbers of passengers and amounts of freight between Taiwan and Macau.

Takeaway: Potentially allowing for increased visitation, especially if a low-cost carrier flies the route which would in turn be a positive for Macau gaming.

 

Singapore World's Top Destination in 2015 – Lonely Planet, in its latest guidebook, Best in Travel 2015, call Singapore the World's #1 Destination for 2015 and noted that Singapore is "always celebrating something" with new attractions like the National Art Gallery and Singapore Sports Hub next year in time for its Golden Jubilee. 

Takeaway: Increased tourism to Singapore is welcomed, but will the tourists gamble at either casino?

 

Las Vegas Strip North Development – Jackie Robinson (cousin to the baseball player) held a groundbreaking on Wednesday at a vacant 27-acre site off Paradise Road between the SLS Las Vegas and Turnberry Towers to mark the construction start of a $1.4 billion arena, 500-room nongaming hotel, with retail outlets, a grocery store, movie theater, offices, underground parking and a plaza as parts of the project. The location can be seen here. Robinson’s privately funded arena scheduled to open in early 2017 will cost $690 million, and he has lined up an arena management heavyweight — Philadelphia-based Comcast-Spectacor — to schedule programming and manage the 22,000-seat retractable-roof arena.

Takeaway: The center of gravity on the Las Vegas strip will shift north as Resorts World Las Vegas and the Crown properties open.

 

Planet Hollywood Las Vegas & Jennifer Lopez – British tabloids are reporting that Jennifer Lopez will sign a contract to perform a 72 show mini-residency in Axis at Planet Hollywood.

Takeaway: We previously pointed out the reprogramming of Planet Hollywood with key hires in the music and entertainment department.  Furthermore, this could be harbinger of programming for Revel as Brookfield Asset Management owns both Planet Hollywood Las Vegas as well as Revel.

MACRO

China Flash PMI was 50.4 vs. 50.2 in September and consensus expectation of 50.2 as well.

 

China Mini-Stimulus - (Xinhua) reported the National Development and Reform Commission approved feasibility reports on five airport and three railway projects, with a total investment of 150B yuan ($24.4B) in a move by the government to boost infrastructure investment in the country's less developed central and western regions to offset slowing growth.

 

Singapore Inflation for September 2014 increased 0.6% year-over-year reflecting higher costs of food and education & stationery which more than offset lower cost of transport. By comparison on month-over-month basis, CPI in September 2014 dropped 0.1% versus August 2014.

 

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.