LEISURE LETTER (11/14/2014)

Tickers: LVS, CZR, IGT, MGM, H, HLT, PEB, RHP

EVENTS

  • Nov 13-16
    • Macau Grand Prix
    • Hedgeye Cruise Pricing Survey
  • Nov 16-18: Quantum of the Seas investor event
  • Nov 17:  Carnival Corp announcement (Source: Seatrade Insider)

COMPANY NEWS

LVS/GENTING – The Casino Regulatory Authority of Singapore (CRA) has fined Marina Bay Sands a total of S$197,500 and Resorts World Sentosa, S$20,000, for various breaches of the Casino Control Act.  The two casino operators had failed to prevent Singapore citizens and permanent residents from entering or remaining in their casinos without valid entry levies. They also failed to bar minors from entering.

http://www.channelnewsasia.com/news/singapore/marina-bay-sands-resorts/1473216.html

Takeaway:  Another MBS/RWS fine.

 

CZR – Richard Stockton College, located just outside Atlantic City, announced it signed a letter of intent to buy the shuttered 1.4 million square Showboat Atlantic City casino resort, including 1,329 hotel rooms and on 28 beachfront acres, from Caesars Entertainment Corp and turn the property into a branch campus.  

http://www.reuters.com/article/2014/11/12/usa-gambling-showboat-idUSL2N0T235Z20141112

 

326:HK China Star Entertainment – is planning to sell its Lan Kwai Fong hotel property on the Macau peninsula. There is currently a casino licensed by Macau gaming concessionaire SJM Holdings Ltd inside the hotel building, but China Star didn’t mention what would happen to that operation. China Star said in August it wanted to focus its operations on gaming in Macau. The company has also signed a binding letter of intent, dated October 31, 2014, to dispose of the rights over four plots of land on the Macau peninsula, adjacent to the Lan Kwai Fong hotel property. A subsidiary of China Star paid HKD550 million (US$70.9 million) for the four plots in 2010. The seller was Sociedade de Turismo e Diversões de Macau (STDM) SA, the company founded by Stanley Ho Hung Sun. At the time of the deal, Mr Ho was identified as chairman and director of Lan Kwai Fong (Macau) Ltd, a 50% owned subsidiary of China Star.

http://www.ggrasia.com/china-star-in-talks-to-sell-lan-kwai-fong-hotel-in-macau/ 

Takeaway: We are interested to learn if the buyer of the hotel will continue to operate the hotel or potentially convert to some other form of residential property. 

 

114090:KS –  Grand Korea Leisure Co Ltd, which operates three foreigners-only casinos in South Korea under the Seven Luck brand, reported Q3 2014 operating profit fell 41.7% year-on-year to KRW39.2 billion (US$35.7 million) due to a drop in hold from 16% to 12% on a year-over-year basis while revenue declined 12.3% year-on-year to KRW135.6 billion. Further hindering results were higher costs which increased 10% year-on-year.

http://www.ggrasia.com/grand-korea-leisure-operating-profit-dips-on-luck-costs/

 

IGT Shareholders of Italy's GTECH who did not vote in favor of a planned merger with U.S. International Game Technology will have time until Nov. 27 to exercise their right of withdrawal.

http://www.reuters.com/article/2014/11/12/gtech-withdrawal-idUSL6N0T265R20141112

 

023250:KS – Kangwon Land Inc, the operator of the only casino resort in South Korea where the country’s nationals are allowed to gamble, reported Q3 2014 net profit of KRW105.5 billion (US$95.9 million), up 0.9% from a year earlier based on reported revenue of KRW394 billion, a 5.2% increase year-over-year while GGR for the period grew by 5.9% to KRW376 billion.  Non-gaming revenue however fell by 6.6% to KRW18 billion mainly attributable to a 3.6% year-on-year drop – to 83,300 – in the number of visitors.  

http://www.ggrasia.com/grand-korea-leisure-operating-profit-dips-on-luck-costs/

Takeaway:  At least this Asian property saw GGR growth in Q3

 

MGMMGM Grand Detroit has been fined $350,000 by state regulators for violating multiple casino regulations, including serving alcohol to minors and allowing an employee to embezzle close to $700,000. 

http://www.freep.com/story/money/business/michigan/2014/11/12/mgm-grand-detroit-casino-fines/18923523/

Takeaway: Unfortunate lapses in oversight results in regulatory fines/penalties. 

 

Hannounced the completion of the sale of 38 hotels to a company organized by Lone Star Funds for approximately $590 million. The portfolio of 38 hotels consists of Hyatt Place and Hyatt House hotels comprising 4,950 rooms across more than ten states.

 

HLT – Hilton and Blackstone are eager to close the $1.95 billion sale of New York’s Waldorf Astoria hotel to Anbang Insurance. To speed up the review, Blackstone and Hilton are considering asking the government to go ahead with an investigation. The firm can file its own request for a review rather than wait for officials to act. The Waldorf deal is slated to close Dec. 31, although the companies can agree to a March 31 extension, “subject to certain additional limited adjournments,” Hilton said in a regulatory filing.

http://nypost.com/2014/11/13/us-may-investigate-blackstones-waldorf-deal-with-china/

Takeaway: We are confident Hilton will complete the Waldorf Astoria sale to Anbang.

 

HLT – Hilton Worldwide intends putting its Sydney hotel on the market. JLL has been appointed to sell the asset in 2015. Price expectations are for well over $450 million as offshore interest surges for hotel assets in Australia. It has 579 rooms at 488 George Street, opposite Sydney’s Queen ­Victoria Building. The newly refurbished Hilton has 23 meeting rooms, 4,000 square meters of food and beverage space and an 25 meter indoor pool.

http://www.propertyobserver.com.au/finding/commercial-investment/37738-sydney-hilton-for-sale-with-price-expectations-in-excess-of-450-million.html

Takeaway: We believe, but have not confirmed the $450 million is Aussie Dollars or approximately USD$391 million or approx USD$675,300 - substantially higher than our USD$250,000/key estimate. We applaud Hilton's effort to sell non-US assets.  HOT should take note. 

 

PEBannounced it acquired The Westin Colonnade Coral Gables for $59.4 million. The 157-room upper-upscale hotel is located in Miami on Miracle Mile in the heart of Coral Gables, Florida. The hotel will continue to be operated by Davidson Hotels and Resorts. For the trailing twelve months ended September 2014, the hotel operated at 80% occupancy, with an average daily rate of $198 and room revenue per available room of $159. During the next 12 months, the Company currently forecasts that the hotel will generate EBITDA of $2.9 to $3.4 million and NOI after capital reserves of $2.3 to $2.8 million.

Takeaway: South Florida remains red hot for lodging transactions.  We expect more South Florida hotel transactions over the coming weeks/months as Blackstone recently listed for sale several assets.

 

RHP premiered its holiday season with The Gaylord Texan is kicking off the holiday season with it's annual ICE! exhibit featuring a "Frosty the Snowman" theme sculpted from more than 2 million pounds of ice by master artisans from Harbin, China over the past 30 days. The Gaylord Opryland Resort transformed its grounds with 2 million lights and opened its 31st annual A Country Christmas, featuring such attractions as ICE! featuring ’Twas the Night Before Christmas, the Radio City Christmas Spectacular starring the Rockettes, Restless Heart’s “A Season of Harmony” dinner show. Both exhibits and shows run through Jan. 3, 2015,

Takeaway:  We previously donned a parka to experience the Gaylord Texas ICE! exhibit and slide down the ice slide. We were impressed with the creativity and magnitude of the exhibit.

INDUSTRY NEWS

Govt says LRT to link with Guangdong railway by tunnel

Secretary for Transport and Public Works Lau Si Io said the city’s light rail transit (LRT) in Cotai will be linked to the Hengqin border by a tunnel under the Shizhimen channel which separates Cotai from the island in Zhuhai.  Lau also said that the Cotai-Hengqin Lotus Flower border checkpoint will be rebuilt to accommodate an LRT station.

 

He added that the government had no timetable yet for the reconstruction of the border checkpoint and when the construction of the tunnel will begin.

 
According to previous media reports, Guangdong expects the extension of its inter-city railway to Hengqin to be completed by 2016 with the line planned to be 17 kilometres long, with seven stops between Zhuhai station and Hengqin's Changlong Park.  The LRT will cover the peninsula, Taipa and Cotai. Construction in Taipa and Cotai is underway. The government has said that it expects the LRT section in Taipa to start operating in 2016.

http://www.macaunews.com.mo/index.php?option=com_news_portal&Itemid=45

Takeaway: Macau's infrastructure projects have experienced multiple delays. A long road is ahead.

 

Push for Macau Casinos to be 100% Smoke FreeThe labor activist group Forefront of the Macao Gaming says the government has to be more efficient in enforcing the smoking ban on casino mass floors in the city. The association is also calling for the whole of gaming venues – including VIP rooms – to be smoke free. Members of the Forefront of the Macao Gaming met with officials of Macau’s Health Bureau on Wednesday. 

http://www.ggrasia.com/macau-activists-want-smoking-ban-in-casino-vip-rooms/

 

NBA Commissioner Adam Silver Supports Sports Betting – In a New York Times OpEd, the Commissioner wrote "I believe that sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated."

http://www.nytimes.com/2014/11/14/opinion/nba-commissioner-adam-silver-legalize-sports-betting.html?_r=0

Takeaway: A profound comment from a professional sports commissioner, whose league recently filed legal proceedings against the State of New Jersey.  

 

Anbang Plans HKSE Listing – the Chinese insurer buying New York’s Waldorf Astoria hotel, is planning an initial public offering that could raise about US$2 billion (RM6.67 billion), said people with knowledge of the matter. The Beijing-based company aims to start the share sale as early as next year and prefers Hong Kong as a listing destination.

http://www.malaysiandigest.com/business/527681-waldorf-buyer-plans-us-2b-ipo.html

Takeaway: Anbang pursuing the Berkshire Hathaway strategy?

 

MACRO

China October new yuan loans CNY548.3B vs consensus CNY626B and CNY857.2B in September

  • Loan growth +13.2% y/y vs +13.2% in September
  • Deposits +9.5% y/y vs +9.3% in September
  • Total social financing CNY662.7 vs consensus CNY887.5B and CNY1.05T in September
  • M0 +3.8% y/y vs +4.2% in September
  • M1 +3.2% y/y vs +4.8% in September
  • M2 +12.6% y/y vs consensus +12.9% and +12.9% in September

 Takeaway: New yuan loans was below expectations in October

 

Singapore retail sales up 5.5% YoY in September. Excluding motor vehicles, total retail sales grew by 0.6% YoY

 

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: European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 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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