LEISURE LETTER (11/07/2014)

Tickers:  MGM, WYNN, HLT, NCLH

EVENTS

  • Nov 10
    • CZR Q3 earnings 4:30 pm , pin 20797507
    • SNOW FYQ1 earnings 5pm
    • SJM Q3 earnings 5:30am
  • Nov 11
    • Galaxy Entertainment Q3 earnings: 3:15am
    • Genting Singapore Q3 earnings:  5am
    • Stations Casino Q3 earnings: 4:30pm
  • Nov 13-16
    • Macau Grand Prix
    • Hedgeye Cruise Pricing Survey
  • Nov 16-18
    • Quantum of the Seas cruise to nowhere

COMPANY NEWS

MGM/WYNN – Officially awarded MA licenses.  Both companies intend to break ground next year and have the casinos open by 2017.  WYNN paid its $85 million license fee up front while MGM will pay its fee on November 17. Also, the MA gaming commission voted to extend the southeastern region deadline from December 1 until the end of January. 

Takeaway:  ROI is the question

HLT – (Ithaca Journal) Ithaca Common Council unanimously endorsed proceeding with a land transaction for a new hotel in the block immediately east of the Commons. Council on Wednesday voted to authorize transfer of city ownership of a 32-space parking lot at 320-324 E. State/Martin Luther King Jr. St. to the city’s community-development arm. The resolution also authorized the Ithaca Urban Renewal Agency to enter formal negotiations with Lighthouse Hotels for the city-owned property at the site. Lighthouse proposes a 120-room, seven-story Hilton Canopy hotel. The $19 million project would have a cafe-bar and a restaurant.  

http://www.ithacajournal.com/story/news/local/2014/11/06/ithaca-hilton-canopy-agreement/18594349/

Takeaway: Hilton's first openly discussed Canopy - a brown-field redevelopment and at cost per key of approximately $158,000.

WYN – announced it completed a term securitization transaction involving the issuance of $325 million of asset-backed notes. Sierra Timeshare 2014-3 Receivables Funding LLC issued $255 million of A rated notes and $70 million of BBB rated notes.  The notes were backed by vacation ownership loans and had coupons of 2.30% and 2.80%, respectively, for an overall weighted average coupon of 2.41%. The advance rate for this transaction was 88.5%.

Takeaway: Slightly higher interest rates (5-10 bps) than VAC's recent securitization.

NCL – priced $680m senior notes at par (5.25%) maturing Nov 2019

Insider Transactions:

CCL – CEO Gerald Raymond Cahill sold 25,002 shares of the stock on Monday, November 3 at an average price of $40.09 and now directly owns 87,337 shares in the company.

CHH - COO Patrick Pacious sold 33,947 shares on Monday, November 3 at an average price of $53.25 and following the sale and now directly owns 99,211 shares.

INDUSTRY NEWS

Grand Prix – Macau Grand Prix Committee coordinator Costa Antunes revealed that this year’s sale of Grand Prix (Nov 13-16) tickets has exceeded expectations, with tickets for the main stand already sold out. The organizer of the 61st Macau Grand Prix has also predicted that the event will attract more people to Macau this year.

http://macaudailytimes.com.mo/grand-prix-ticket-sales-beat-expectation.html

 Takeaway: Shouldn't impact visitation that much

California – North Fork Rancheria may still offer Class II games or it may ask the Bureau of Indian Affairs to approve Class III games, despite a failed Nov referendum.  Station Casinos was to manage the casino.

http://www.indianz.com/IndianGaming/2014/028440.asp

 Takeaway:  Persistence can pay off

MACRO

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.