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Takeaway: With or without a REIT spin, long term secular headwinds remain.

REIT value mostly in the stock as size of equity offering and timing of split disappoints investors. Meanwhile, an EBITDA miss is released



PNK 3Q 2014 CONF CALL - pnk




  • 3Q: 1st anniversary with ASCA
  • Positive signs on revenue front, could benefit Q4
  • 3Q:  visitation and spend per visit have improved sequentially; particularly encouraging in core properties and ASCA properties.  October looks pretty good.
  • ASCA integration:  Increase in VIP play of 8% and trips increased 4%; 7% growth in top 3 tiers
  • ASCA portfolio:  REVPAR: +6%
  • Universal card integration on track for 2015
  • Marketing SS down 60bps YoY;  promotional environment across portfolio is rational and stable
  • New Orleans, Belterra Park, and Lake Charles underperformed in 3Q
  • Belterra Park:  sees some improvement but very disappointed
  • St. Louis (2 properties): grew market share to 48%  RC tied its highest quarterly share.  St. Charles table share at highest level since 2007.
  • L'Auberge Baton Rouge:  performed well.  Strong VIP play and hotel performance and controlled marketing spend helped EBITDA. 
  • Lake Charles:  all-time revenues ; flow through hampered by certain items described in earnings release
  • Macro environment better and revenues have flattened
  • Sees opportunities to reduce food and labor costs
  • Lake Charles:  low table hold and special costs
  • Belterra Park:  expect 4Q EBITDA to be better than 3Q EBITDA; expect positive EBITDA in 2015
  • $61m cost ASCA synergies at end of 3Q
  • Team retention: $1.5m accrued in 3Q; retention costs will continue through 2Q 2015 
  • New Orleans hotel:  expect to open by end of 2014; budget $20m (incurred $17m through 3Q 2014)
  • Continue to reduce leverage and expect to see continued improvements in leverage
  • Expect equity issuance in 2015; options include rights offering to existing shareholders
  • REIT:  past evaluation stage, will submit IRS private letter filing in next 45 days.  E&P purge:  <$100m through 2016.
    • OpCo will not have meaningful taxes for a substantial amount of time
  • REIT protection shareholder vote in Summer 2015 
  • REIT will have broader mandate than only gaming


Q & A

  • Belterra Park:  still believe there is additional revenue that they're not capturing right now.  It's an awareness issue.  If revenues don't grow in 2015, 
  • REIT: 
    • Incremental costs related to REIT:  legal/advisory work (more of a 2016 event)
    • $1bn equity issuance:  not set in stone yet but it is a conservative estimate. Dilution concerns will be addressed.  
    • IRS private letter ruling may not come until mid-2015
    • Will be a diversified REIT - not just gaming
    • Total NOLs (Federal, State and carry forwards) at end of 3Q 2014: tax shield of roughly a billion
      • $700mm ($550m + Lumiere sale) 
      • $300 goodwill
    • Expect leverage post-spin to be lower than today's levels
    • PNK calling of bonds?   Too early to comment.
    • Tax-free spin jeopardized by equity offering?  No.
  • Improvement in consumer trends:  broad-based across all regions, particularly in >$100 segment
  • Saw revenue growth in October
  • Inflection point in regional gaming?  Maybe a little early. But optimistic on early November too. 
  • Majority of bad weather impact happened in the Midwest and began in late Dec2013/January 2014.
  • Monarch casino in CO:  PNK likes what they have done with the renovations.  
  • Black Hawk market could use more rooms 

Cartoon of the Day: ¥€$

Takeaway: This is going to get really ugly.

Cartoon of the Day: ¥€$ - Burning money cartoon 10.31.2014 3


Takeaway: Even on our Street low estimates, MPEL's valuation remains cheap. However, catalysts remain negative and estimates are going lower

A slight miss from our estimates on an apples to apples hold adjusted basis






  • Luck-adjusted EBITDA margin: 28.1%
  • Challenging VIP environment and higher labor costs
  • CoD:  mass table yields significantly above peers
  • Highly competitive market in Macau
  • 5th CoD tower:  well under way
  • CoD Manila:  plan on opening doors in December.  Grand opening: CNY 2015
  • Studio City:  on track to open mid-2015.  Have received all necessary permits and approvals to complete project.  Will double room inventory and gaming floor for MPEL.
  • Repurchased ~$100m of stock for 3Q
  • Property EBITDA 3Q:  27.5% (27.4% in 3Q 2013, 26.4% in 2Q 2014)
  • 3Q luck-adjusted EBITDA : $325m
  • 2.69% low hold impacted EBITDA by $20m
  • Mass accounts for 85% of groupwide EBITDA
  • 4Q non-operating guidance:  D&A ($95-100m), corp expense ($30m), consolidated interest expense ($40m) of which $11m (CoD Manila), net of $27m of cap interest

Q & A

  • October mass decline:  downturn in market has affected premium mass segment.  More uncertainties in the market.  
  • Anti-corruption drive having an impact on premium segment
  • Reclassification of premium mass to VIP:  In 2H of October, converted premium mass tables into VIP. If no reclassification, mass revenues would have been slightly up YoY rather than down 11%
    • All cash business. No direct rebates.
  • If Japan fall away, it will meaningfully change capital allocation/dividend policies.
  • One competitor is becoming more promotional using their large room base (LVS)
  • Saw more promotions in premium mass segment.  Is concerned about this.
  • Chinese President visit in December:  in the long-term will benefit Macau; could bring a gift bag:  24-hr border crossing, etc.
  • Altira:  Suncity just started operations in mid-Sept.  Just ramping up.  
  • Altira strategy:  want to bring large junkets to property
  • 100% occupancy:  have turned away about 40% of potential customers
  • CoD Manila:  want to be extra safe
  • Mass market margins:  flat QoQ
  • Studio City:  usually when they do mass labor recruitment, it is 5-6 months before opening the property.  Waiting to see when Galaxy does their mass labor recruitment
  • Henquin Island:  have not really looked at this opportunity
  • CoD Manila:  more VIP demand than available supply.  Anti-corruption doesn't just relate to Macau; it includes Philippines and Las Vegas.
  • Mass/table breakout (end of Sept 30):  Altira (95 VIP, 30 MASS), COD (185 VIP, 310 MASS)
  • MPEL Premium mass outperformance:  quality of product and consumer service; high hold % also matters
  • 2nd wave of Cotai openings will have relative competitive advantages
  • Smoking ban:  smokers play longer hours when they can smoking.  Sees some negative impact from smoking ban.  Added smoking rooms on mass floors (in CoD and Altira).
  • Premium mass business at CoD: 50-60%
  • Difference btw premium mass margin and grind mass margins is de minimis.
  • DICJ controversy with MPEL's decision on allowing smoking on mass:  MPEL believes it is completely compliant with law
  • MSC:  hurdle rate of 20% cash-on-cash return even with downturn in market
  • Dividend policy:  30% of NI (no changes at this time)
  • Altira:  productivity per table substantially lower than CoD levels; productivity will be better in coming quarters
  • MSC:  no change to budget.  Number of tables:  don't know

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VIDEO | Hedgeye’s Brian McGough Explains Why $KATE Is a Winner

Hedgeye’s Retail Team added KATE to our Best Ideas List as a long in early October. Sector Head Brian McGough hosted an institutional conference call yesterday ahead of earnings, detailing his bullish thesis and highlighting why KATE’s growth story is widely misunderstood. In the excerpt below, McGough outlines his 3 key points.

For access to the video in its entirety, contact sales@hedgeye.com.


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TODAY 1pm EST FLASH CALL - Top Russia Insider to Discuss Developments Inside Putin’s Russia

TODAY 1pm EST FLASH CALL - Top Russia Insider to Discuss Developments Inside Putin’s Russia - HE M putin


In light of the continuing crash of its currency and stock market, we are receiving considerable customer interest on the question: “What’s going on with Russia?”


As a result, Hedgeye’s Macro Team is hosting a special “Behind the Curtain” conference call TODAY, November 6th at 1:00pm EST with Michael McFaul, one of the world’s foremost experts on Russia and Vladimir Putin. Until earlier this year, McFaul was the U.S. Ambassador to Russia and held closed-door meetings with Putin and his top lieutenants before finally stepping down out of concern for his family and his own safety.


Mr. McFaul has been called, “the leading scholar of his generation, maybe THE leading scholar, on post-Communist Russia.” He was President Obama’s chief advisor on Russia through his first term and was a main policy architect of “Reset” in U.S. - Russian relations.


A high-profile figure during his time in Moscow, McFaul was harassed and accused of orchestrating a coup. Perhaps in light of his considerable work and reputation as an expert on anti-dictator movements and revolutions, Putin reportedly stared at McFaul across a meeting table and remarked, “We know that your Embassy is working with the opposition to undermine me.” 


*The New York Times recently ran an intriguing article, “Former U.S. Envoy to Moscow Says Russians Are Still Spying on Himon McFaul detailing how Russia is still spying on him.


McFaul will provide 30 minutes of prepared remarks, followed by open Q&A moderated by Hedgeye’s analyst Matt Hedrick.




  • What are the roots of ‘Putinism’ and where is the country economically heading?
  • How do weaker energy prices influence the Kremlin’s strategy (economic, political, and social)?
  • How is the East-West battle over Ukraine resolved?
  • What are the impacts of sanctions on Russia and the West and how might they evolve?
  • Can Russia successfully pivot to the East?



  • Toll Free Number:  
  • Direct Dial Number:  
  • Conference Code: 441871#

Ping for more information.





McFaul is the former U.S. Ambassador to Russia (from January 2012 to February 2014). Prior to this, McFaul worked three years for the U.S. National Security Council as Special Assistant to the President and Senior Director of Russian and Eurasian Affairs.  


He holds a BA in international relations and Slavic Languages and an MA in Slavic and East European Studies from Stanford University in 1986. He spent time in the Soviet Union as a student in the 1980s. He was later awarded a prestigious Rhodes scholarship to Oxford where he completed his Ph.D. in International Relations in 1991.


Born and raised in Montana, McFaul is fluent in Russian, and is currently a professor of Political Science at Stanford University and a fellow at the Hoover Institution.


He is the author and co-author of numerous books, including:  Revolution in Orange: The Origins of Ukraine's Democratic Breakthrough (2006); Between Dictatorship and Democracy: Russian Postcommunist Political Reform (2004); After the Collapse of Communism: Comparative Lessons of Transitions (2004); and Russia's Unfinished Revolution: Political Change from Gorbachev to Putin (2001), among many others. 

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