LEISURE LETTER (11/03/2014)



  • Nov 3:
    • BEE Q3 earnings 11 am , pw 37266467
    • SHO Q3 earnings 12n , ID 75906336
  • Nov 4: 
    • Gaming Referendums: 
      • Massachusetts Question 3 (repeal casino law)
      • Colorado Amendment 68 (allow casinos in Mes, Pueblo and Arapahoe counties)
      • California Proposition 48 (veto gaming compact with North Fork Rancheria for off-reservation casino in Madera)
      • Rhode Island Question 1/2 (operate table games at Newport Grand)
    • RHP Q3 earnings 10 am
  • Nov 6:
    • MPEL Q3 earnings 8:30 am , PS MPEL
    • PNK Q3 earnings 10 am , code 27759617
    • BEL Q3 earnings 10 am , ID 12457691


MPEL – (Macau Business) The government could fine the City of Dreams casino up to MOP100,000 (US$12,519) for failing to prohibit smoking in a part of the casino where the law bans it, Health Bureau deputy director Cheang Seng Ip says. The bureau says the Melco Crown Entertainment Ltd casino turned part of its mass-market gaming floor into a smoking area without official authorization.

Takeaway: A proposed penalty of pennies. 

CWN:AU – announced that the Victorian Commission for Gambling and Liquor Regulation has determined to amend the Melbourne Casino Licence to give effect to the Agreement between the Victorian Government and Crown announced on 22 August 2014. The amendments to the Melbourne Casino Licence will take effect from today. These amendments will help boost Victorian tourism and create new jobs as they will allow Crown Melbourne to compete more effectively in interstate and international markets. Under the Agreement announced on 22 August 2014, Crown must now pay to the State AUD$250 million within seven days.

Takeaway: Crown has sufficient resources to readily pay the AUD$250 million levy.  As of June 30, 2014, Crown Resorts' total liquidity, excluding working capital cash of AUD$110.9 million, was AUD$1,140.0 million, represented by AUD$66.9 million in available cash and AUD$1,073.1 million in committed undrawn facilities.


3918:HK NagaCorp(GGRAsia) says it is considering a public offering to help fund its “US$369-million” casino project in the Russian Far East.

Takeaway: Could a separately listed structure be a result of NagaCorp's desire to "box in" or ring-fence the risks associated with operating a casino in Russia?


880:HK SJM Holdings (Macau Business) SJM Holdings chief executive Ambrose So Shu Fai, said the company would put 10 more gaming tables in its Grand Lisboa casino. Separately, executive director Angela Leong On Kei has denied that the casino operator has anything to do with a Macau company’s project to build a Hello Kitty theme park just over the border on Hengqin island. Ms Leong had previously spoken of putting a theme park on land she owns in Cotai. She has declined to confirm or deny whether one theme of the Cotai park will be the Japanese cartoon cat.

Takeaway: More tables for Grand Lisboa while the fate of the Hello Kitty Entertainment Park remains uncertain.


HLT– announced today that certain selling stockholders affiliated with The Blackstone Group L.P. have commenced a secondary offering of 90,000,000 shares of Hilton Worldwide common stock. The underwriters will have a 30-day option to purchase up to an additional 13,500,000 shares of common stock from the selling stockholders.  Hilton Worldwide is not offering any shares of common stock in the offering and will not receive any proceeds from the sale of shares in this offering. In addition, none of Hilton Worldwide’s officers or directors are selling any shares of common stock beneficially owned by them in the offering.

Takeaway: We cautioned investors of a potential BX secondary offering last week Thursday in our note titled "Hilton: Trick or Treat - a Little of Both". Overhang could be an entry point.

HOT – introduced SPG Keyless, the hospitality industry’s first mobile, keyless entry system allowing guests to use their smartphone as a key. Rolling out to Aloft, Element and W Hotels around the globe, SPG Keyless enables guests to bypass the front desk (where available), go directly to their room and unlock their stay with a simple tap of their smartphone.

Takeaway: Previewed on last week's Q3 2014 earnings call, the app is now live.


NCLH –  proposing to issue $680 million aggregate principal amount of senior unsecured notes due 2019 to fund a portion of the Prestige acquisition. NCLH intends to finance the remaining portion of the Prestige acquisition, as well as to refinance Prestige's Oceania and Regent Credit Facilities and satisfy and discharge the indenture governing Prestige's Regent Senior Secured Notes using $1.05 billion of borrowings under its New Term Loan A and New Term Loan B facilities (the "New Term Loans"), available cash and an additional share issuance.  The Offering and the New Term loans are expected to close concurrently with the Prestige acquisition.

Takeaway:  The unsecured notes financing portion for Prestige was lower than previously estimated. This should help interest expense in 2015.


CCL – Carnival Corporation has unveiled the cruise industry's first-of-its-kind hybrid wireless network known as WiFi@Sea™.  Once completed, the integrated network will seamlessly switch among its various technology solutions to give passengers the highest available bandwidth capacity and strength of signal. The network will be capable of providing Internet connectivity speeds that can be roughly 10 times faster than those previously offered on Carnival Corporation's ships. Following the initial launch in 4Q Caribbean, CCL is scheduled to rollout the technology globally. The technology will eventually be available on all nine of the company's leading global brands.

Takeaway:  This is important capex to counter recent changes to RCL's high-speed internet offerings, particularly on Quantum.


RCL - (TTG Digital)  RCL Vice-president Dominic Paul said he sees Anthem remaining in Southampton for the foreseeable future.  Paul defended the decision to up prices for Anthem, insisting that demand remained strong for the ship, despite the higher cost. “It’s selling well – we’re seeing strong demand for 2015 in general, but in particular for Anthem – there seems to be a real desire to try the ship.”  He also said he was unconcerned by fears about the extra capacity being put into Southampton next year.  “When [the 4,300-passenger ship] Independence came to the UK people said it was a really big ship to fill, but it’s got a really strong following now. People have sailed on it time and again – it’s been highly successful.”  Asked whether the line would hold its nerve and maintain the pricing, Paul replied: “We didn’t significantly discount this year – we had a very successful season in Europe.  

Takeaway:  It's usually the case to be optimistic ahead of Wave. We will see if Anthem can hold its pricing (and premiums) through 2015. 



Singapore Tourism (GGRAsia) Easing visa restrictions for tourists from key markets including China, India and Russia could help Singapore attract 358,000 to 504,000 more visitors in 2016 than under current policies, suggests a report by the World Travel and Tourism Council and the World Tourism Organization, an agency of the United Nations.

Takeaway:  This would result in a small bump on the base of more than 15.5 million tourists during 2013.


China GDP Growth now a Six-Handle - a report from the China Securities Journal, which noted that Liu Shijin, deputy head of the Development Research Center, said economic growth will slow to 6% to 6.5% in the coming two to three years and stabilize around this range for several years after.

Takeaway:  What happened to the 7% GDP growth target?


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.

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