LEISURE LETTER (11/19/2014)

Tickers:  BYD, CZR, BEE, CLDT, HOT, MTN

EVENTS

  • Nov 19: Sega Sammy Investor Meeting
  • Nov 23: Pacquiao-Algieri bout at Venetian Cotai Arena

COMPANY NEWS

BYD – The first renovation is now complete -- the Suncoast opened The Game, a sports bar and grill near the property’s race and sports book that replaced a TGI Friday's.  The Game is being positioned as a new concept with more than two dozen craft beers from local brewers and a menu that includes spicy barbecue chicken wings, build-your-own hamburgers, fish tacos and flatbread artisan pizzas.

Article HERE

Takeaway:  BYD following through on Q3 conference call assertions to revamp restaurant offerings. Probably an improvement but a sports bar at a casino is pretty much par for the course at locals casinos these days. 

Station Casinos – disclosed the pending sale of 101 acres of land in the southeast quadrant of the Mount Rose Highway-South Virginia Street junction in Reno Nevada to an undiscloser buyer for approximately $2.0 million and recognized an impairment loss of $11.7 million to write down the carrying amount of the land to its fair value less cost to sell. 

Article HERE

CZR – Philippine Amusement and Gaming Corp received a concept proposal for a casino resort from Caesars Entertainment Corp, but the country’s gaming regulator says it will wait for a “substantial completion” of Entertainment City before deciding on new licenses.

Article HERE

Takeaway:  According to sources, CZR says a Philippines project is still viable despite upcoming bankruptcy proceedings.

  

BEE – announced the Company signed an agreement to acquire the 210-room Four Seasons Resort Scottsdale at Troon North from an affiliate of Walton Street Capital, L.L.C. for $140.0million, which includes 13.8-acres of developable land zoned for an additional 88 hotels keys and potential incremental residential usage. Management has valued the land parcels at $6.0 million. The acquisition, which is expected to close during the fourth quarter of 2014, remains subject to customary due diligence, closing conditions and working capital adjustments. The Company forecasts the property will contribute approximately $10.0 million of EBITDA and $8.0 million of NOI in 2015. The purchase price, net of the allocated land value, represents a 13.4 times multiple on forecasted 2015 EBITDA and a 6% cap rate on forecasted 2015 NOI.

Takeaway: We would like to know what is the property's LTM EBITDA as compared to management's expectations for 2015 EBITDA -- regardless, it is a full price on "forward" EBITDA multiple. Interesting to us is the implied $628,570 price per key versus the $90,900 per key for the developable land.

CLDT – announced it completed the previously announced acquisition of a 52-hotel, 6,976-room portfolio from Inland American. The combined total purchase price was approximately $1.1 billion, before deal costs and funding of escrows.

HOT – announced the sale of the 229-room Sheraton Ambassador Monterrey hotel to FibraHotel. Specific transaction details were not disclosed. The hotel will be operated by Starwood through a long-term management agreement.

Takeaway: We don't expect any material net proceeds from this asset sale as the press release noted Fibra's total investment including capex would be $12.5 million over two years.

MTN – Specialty Sports Venture, the retail division of Vail Resorts Inc., is searching for sites in several suburbs with plans to open three or four more Hoigaard's stores.

Article HERE

Takeaway: Not large enough to move the revenue nor earnings lines at Vail Resorts.

 

MSC Cruises Agents are struggling to sell MSC Divina in the Caribbean despite incentives given by MSC. MSC’s decision last week to offer 18% commission on groups for the Divina’s 2015-16 season in the Caribbean. No other cruise line pays such a high commission.

Takeaway:  Higher commissions are not enough to sell a bad product.


Insider Transaction:

BEE – EVP, General Counsel & Corporate Secretary Paula Maggio sold 17,493 share of stock (non-options related) at $13.0245 on November 18 (immediately following the acquisition announcement) and now owns 219,087 shares.

Takeaway: As we noted late week, despite C-Level executives telling us BEE's stock was undervalued during meetings at NAREIT, insiders continue to sell, and sold prior to this acquisition announcement.

INDUSTRY NEWS

Macau Visitor Expenditure Survey for 3Q 2014  – total spending (excluding gaming expenses) of visitors in 3Q 2014 reached MOP15.5 billion, up by 5% YoY. Visitors from Mainland China spent an average of MOP2,220, or -4% YoY, and spending of those travelling under the Individual Visit Scheme (IVS) was MOP2,758.

Article HERE

Takeaway: The wealthy Chinese are not only gambling less, but their non-gaming spend is also lower.


Border crossing between Macau and Hengqin Island should start operating on a 24-hour basis and the move will be announced at the commemorations of the 15th anniversary of the Macau Special Administrative Region, according to Chinese media.  The Chinese-language newspaper “Ou Mun Iat Pou” (Macau Daily News) reported that the building works at that checkpoint are progressing apace “in order to be completed before that date.” 


Chinese media in Macau reports that China’s government is expected to announce the opening of the “Lotus Flower” border crossing in time for the celebrations of the 15th anniversary of the establishment of the MSAR, which is marked on 20 December.

Article HERE

Takeaway: Rumors of the 24-hr crossing opening has been well communicated. It looks like it will open on December 20 - also the day of the Chinese Premier visit

Border record – Macau border registers new record of 515,000 people in one day. The feat was achieved on November 15, 2014 (1st day of Grand Prix).

Article HERE

Takeaway: Visitation seems to be doing ok but how many of them are gambling significantly?

 

Macau's 2015 Municipal Budget & Gaming Taxes – Secretary for the Economy and Finance Francis Tam Pak Yuen expects revenue from direct taxes on gaming to be MOP115.5 billion (US$14.46 billion) next year, about the same as this year and enough to cover the government’s spending plans. Mr Tam told the Legislative Assembly that the absence of growth in revenue from direct taxes on gaming would reduce only the budget surplus, not government spending.

Article HERE

  

Macau Wages Rising – Small and medium enterprises intend to increase the pay of their employees by 5% to 6% next year, according to Macau Small and Medium Enterprises Association vice-president Daniel

Article HERE

Takeaway: SME's raising employee wages commensurate with inflation (the average annual rate of consumer price inflation in the 12 months ended September was 6.03%) but below the gaming sector wage increase.

Japan's Integrated Resort Legislation Delayed Again – The bill to legalize casinos in Japan will face new delays and might even be scrapped as PM Abe called a general election for mid-December, says Kazuaki Sasaki, assistant professor at the Nihon University College of Economics and director of IR (Integrated Resorts) Gaming Academy in Japan.

“This could be a setback for the casino legislation in Japan. While it definitely means new delays, it may even be that the IR bill could be scrapped. In the best case scenario, the Diet [Japanese parliament] may revisit this bill around this time [November] next year,” Sasaki added.  

Article HERE

Takeaway: Very little hope for Japan as recession and more pressing issues than gaming take precedence. 

   

Philadelphia Second Casino License Awarded – The Pennsylvania Gaming Control Board awarded a license to a joint venture of Cordish Companies and Greenwood Gaming and Entertainment. The casino will be the fourth in the Philadelphia area and the 13th in the state, and will be named "Live! Hotel & Casino Philadelphia".  The property will feature 2,000-slot and 125-table casino as well as a 250-room hotel. 

Takeaway: More competition for Atlantic City  

Golden Nugget Lake Charles to open – The Golden Nugget Lake Charles announced it is taking hotel reservations beginning on Monday December 8 with a promotional rate as low as $139/night.

Article HERE or HERE

Takeaway: While we are able to book a room via the web-site (found in the above link), the company's toll-free reservation number 844-777-GOLD was inoperable. Watch for the cannibalization impact to PNK's L'Auberge Lake Charles. 

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:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 2014 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.