October 31, 2014

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Takeaway: Our positive regional call is likely to extend a little longer with decent October #s coming out and, of course, the REIT euphoria

Consistent with our earnings preview, another regional operator beats. Stock should be on steroids tomorrow due to the conference call REIT discussion




  • Southern Nevada economy continues to strengthen
  • Gold Coast/the Orleans did particularly well
  • Las Vegas:  Non-gaming amenities demand is increasing
  • Downtown:  seeing benefits from Fremont Street and new Zipline experience; also benefited from increased Hawaii visitation
  • Regionals:  margins were up at 9 of 12 properties.  YoY revenue declines are narrowing.  
  • Delta Downs:  record 3Q EBITDA (beating previous record by 10% and gained share).  While there will be an impact from Golden Nugget Lake Charles later in 2014, they remain confident Delta Downs EBITDA will grow 6% YoY.
  • IP EBITDA operating margins grew 170bps.  Blue Chip grew market share in each month in 3Q.  Strong visitation growth (+5%) for Blue Chip.  
  • Kansas Star EBITDA down 5% on lower revenues.  43% operating margin. Spend per visit up slightly but declines from visitation from casual players.
  • Par-a-dice impacted by the new 18k VLTs
  • Borgata:  hotel business also strong driven by cash rates.  Closure of competitors have resulted in a bigger customer database.  Also saw additional convention business and better occupancy since early Sept.
  • Borgata online:  profitable throughout 3Q.  Expect further improvement in 4Q.
  • Goals:  1) Reduce debt,  2) target property initiatives (e.g. opened sports bar at SunCoast, in December will update 400 rooms at SunCoast, new Asian restaurant in Downtown hotel, hotel work in IP will be done by January 2015, Kansas Star expansion will be done by end of 2014 - drive higher visitation by 2015), 3) long-term shareholder value (REIT conversion/spin study) 
  • Reduced debt by $70m in 3Q; solidly on track to repay $200m debt in 2014 (YTD: $165m).  Have reduced debt by $700mm since 2013.
  • Potential REIT possibility: have spent $3m studying's possible with certain circumstances.
  • 3Q capex: $41m - $9m (peninsula), $3m borgata); YTD: $95m
  • FY2014 capex: $110m (Boyd/Peninsula), $25m (Borgata)
  • FY 2014 EBITDA guidance: $590-600m (high end of previous guidance)
    • under Borgata deconsolidated basis, FY EBITDA guidance:  $576-586m
  • Guidance assumptions:
    • Normal weather
    • Current trends continue
    • Normal hold at Borgata (low hold in 4Q 2013)
    • No Downtown $2m favorable tax items seen in 4Q 2013),
    • No Midwest/South $9.3m tax benefit for Blue Chip in 4Q 2013
    • Adverse Golden Nugget Lake Charles impact.  Previously, had not included its impact 
    • Peninsula:  expect YoY EBITDA trends in 3Q to continue in 4Q
    • Borgata:  4Q ($7m property tax reductions)
    • Borgata items not in guidance:  2 remaining tax appeals (one-time $88m (2011-2013 property tax settlement- will be used to reduce debt), 2010 tax refund being appealed by city of AC


Q & A

  • Regional trends:  still more of the same consumer environment but getting less bad.
  • Las Vegas Locals:  all the growth came from non-gaming, broad-based across the properties.  Gaming revenue was flattish.
  • Resorts World Genting haven't started construction yet.  
  • There are not enough construction workers available for some of the Vegas projects.
  • Atlantic City strategy: picking up business in conventions and nightlife.  Will not overspend to capture new customers as a result of the closures
  • REIT:  not saying yes or no at this point; it would be obvious if we are going to go in a different direction
  • How did 3Q compare to BYD's internal guidance?  Generally performed in the middle of the range.
  • Sept 2014 was less bad than Sept 2013
  • December was very weak last year
  • Possible Revel re-opening?  Would bring more customers to the market.
  • Pokerstars entering NJ I-gaming?  no comment. Pokerstars is involved with NJ authorities.
  • Lower gas prices impact:  historically, have seen fairly quick reactions but people react less nowadays
  • AC bond issue for tax refund:  expect by at year-end
  • Delta Downs impacted by lower oil prices?  Too early to tell.  Oil price changes are transitory.
  • IP:  market is flat/up a little bit but the property is competing better. Focused on EBITDA.
  • As managing partner, BYD would recommend to MGM to refinance 9% 7/8 Borgata debt. 
  • Tribal/Native gaming opportunities:  a few years into the future

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Hilton Worldwide will report Q3 2014 results tomorrow and we expect another beat and raise event (the treat).  However, we also very shortly expect a Halloween surprise – a secondary equity offering of 90 million shares by Blackstone (the trick). We reiterate our positive view on Hilton and the lodging sector but remind investors to be sensitive to event timing.


Please see our note

FLASHBACK: Hedgeye's Keith McCullough Warns About the Return of Deflation In This 2-Minute Video

Takeaway: #Quad4 is one of the most important macro trends we have identified for the quarter.

FLASHBACK: Hedgeye's Keith McCullough Warns About the Return of Deflation In This 2-Minute Video - 45


Before formally introducing #Quad4 as one of our top Q4 macro themes, Hedgeye CEO Keith McCullough explained during an institutional call in September why we were likely heading into Quadrant 4 of his model. That’s when both growth and inflation slow.


For the record, during this call McCullough also advised getting long Utilities (XLU) which is up well over 6% since this video first aired, versus the S&P 500 which is down -1%.

#Quad4 is one of Hedgeye's Q4 2014 Macro Themes. In other words, it's one of the most important macro trends our macro team has identified for the quarter.

  • · #Quad4: Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.


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