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Tickers:  BYI, BYD, MGM, WYNN, HOT, PEB, CCL, RCL

EVENTS

  • Nov 23: Pacquiao-Algieri bout at Venetian Cotai Arena

COMPANY NEWS

BYI – SGMS announced that the Nevada Gaming Commission unanimously approved the company's pending acquisition of Bally Technologies, Inc. The Commission's approval was the final regulatory approval required to complete the merger. The company expects to complete the Bally merger today.  

BYD – Kansas Star Casino on Wednesday unveiled a $20 million expansion project that includes an 11,000-square-foot meeting center and a 183-stall equestrian center that will enable the casino to host large horse shows. Both facilities are scheduled to open in mid- to late December. The projects will complete the casino’s original master plan and bring the total investment in the property by Boyd Gaming and previous operator Peninsula Gaming to $330 million.

Article HERE

Takeaway: The Kansas Star expansion is ahead of schedule. The budget of $20m remains unchanged.

MGM – announced it priced a public offering of $1.15 billion in aggregate principal amount of 6% senior unsecured notes due 2023 at par.  The transaction is expected to close on November 25, 2014. Use of proceeds include general corporate purposes, including repaying certain debt maturing in 2015 and funding a portion of the development costs related to its Maryland and Massachusetts resort projects.

Article HERE

Takeaway: Probably not the last debt offering to fully fund the Baltimore and Springfield developments 

WYNN – announced a new credit agreement including a US$375 million senior secured revolving credit facility that will mature on November 20, 2019, and a US$875 million delay draw senior secured term loan facility that will mature on November 20, 2020 and will require quarterly principal payments, scheduled to begin on June 30, 2018. Use of proceeds are primarily for capital expenditures for the construction of a US$1.6-billion casino resort in Everett, Massachusetts.

Article HERE

 

WYNN – Prosecutors from the Manhattan and Las Vegas U.S. Attorney’s offices and investigators from the Internal Revenue Service and Drug Enforcement Administration are investigating whether casino operator Wynn Resorts Ltd. violated money-laundering laws, according to people familiar with the matter. Allegedly, the U.S. Government asked Wynn for a list of its biggest customers from 2011 through 2013, along with their dates of birth, Social Security numbers and details from their identification documents. The IRS specified it wants information about the company’s safeguards against money laundering and requested a list of Wynn’s top 100 patrons from North America as well as its top 50 in each of three other regions: Asia, Europe and Latin America, according to the letter.

Article HERE

Takeaway: The company has indicated it is not aware of any investigation.  Regardless, we won't want to be one of the patron names who could be listed as a stop gambler.

577.HK – The holding company of boutique Macau casino hotel project Louis XIII (pictured in a rendering) is seeking to raise up to HKD3.03 billion (US$390.7 million) in additional funds through the placing of shares and convertible bonds. The initial fundraising target is HKD1.56 billion through the placing of shares and convertible bonds, with an upsize option of up to HKD780million. The placing price range is HKD3.00 to HKD4.00 per placing share, while the conversion price of the placing convertible bonds will be the same as the placing price.

Article HERE

 

GENS.SP – Genting Singapore today repurchased 9.6 million shares for S$10.757 million. Cumulative shares repurchased year-to-date = 46,284,000.    Following today's share repurchase, the total shares outstanding = 12,201,752,480.

Article HERE

Takeaway: While Genting has quietly repurchased 0.38% of its outstanding shares this week, the price of GENS stock traded up 7.7% over the past week and up 11.9% from the intraday low of S$1.005 on November 12.

HOT – today announced it sold Sheraton on the Park in Sydney, Australia to Sunshine Insurance Group Corporation for AUS$463.0 million or US$399.0 million. 

Takeaway: We noted in our November 14, Leisure Letter the expected sale of this hotel.  The AUS$463 million sale price was higher than the rumored AUS$450 million price we heard last week. We expect Starwood to use the transaction proceeds to repurchase shares. 

PEB – announced that it acquired the 264-room, upper-upscale, Hotel Palomar Los Angeles – Westwood for $78.7 million. The company will own a leasehold interest in the property through a ground lease which will expire in 2107, assuming all extension options are exercised. For the trailing twelve months ended September 2014, the Hotel Palomar operated at 87% occupancy, with an ADR of $207 and RevPAR of $180.  For 2015, the Company currently forecasts the hotel will generate EBITDA of $5.2 to $5.7 million and NOI after capital reserves of $4.2 to $4.7 million.

Takeaway: The average price per key of $298,100 is very reasonable for the location, but the ~14.4x forward EBITDA is pricey.  With proforma cash of approximately $255 million, the company has sufficient cash to fund both the Westin and Hotel Palomar acquisitions.  We expect PEB to seek long-term mortgages on both assets, thus providing additional cash proceeds and low-cost long-term debt financing.

CCL – After a drydocking to turn her from the Grand Celebration to the Costa Celebration, the ship’s winter season has been cancelled, according to the Italian company. Costa said in a released statement to Cruise Industry News that the Celebration will no longer be part of the fleet starting on November 22. 2015 deployment will be taken over by the neoClassica.

Article HERE

 Takeaway:  This sale has been rumored but who was the buyer?

CCL – Carnival announced it has signed a memorandum of understanding with Fincantieri S.p.A., the world's largest cruise ship building company, to explore the possibility of a shipbuilding joint venture aimed at accelerating development and growth of the cruise industry in China. The MOU between Carnival Corporation and Italy-based Fincantieri outlines the framework for evaluating and exploring a potential shipbuilding joint venture for constructing cruise ships for the Chinese market. The MOU with Fincantieri follows the news that Carnival Corporation and the China State Shipbuilding Corporation (CSSC), China's largest shipyard, had signed an MOU in mid-October to work together on a potential collaborative joint venture focused on shipbuilding in China.

Takeaway:  Serious ship-building interest in China from Carnival. 

RCL – announced that Majesty of the Seas will transfer from its Royal Caribbean International cruise brand to its Pullmantur brand in 2016 in an attempt to help build out Pullmantur's Latin American growth strategy.  Majesty of the Seas' last 3-night sailing for Royal Caribbean International will depart on April 29, 2016.

Article HERE

Takeaway:  Pullmantur is transitioning away from the Spanish market just when trends are getting better there in 2014. Latin America, while exciting, is an uncertain opportunity.

INDUSTRY NEWS

Macau / Zhuhai Border Gate Open Longer – The long-awaited 24-hour border crossing between Macau and Zhuhai will become reality in the early hours of December 18, the government spokesperson Alexis Tam announced yesterday.
From Dec 18, the Lotus Bridge Cotai Frontier Post (connected to Hengqin) will be operating around the clock. Meanwhile, the operation hours of the Border Gate (connected to Gongbei) will be extended by an hour before and after. The border checkpoint will open at 6 am and close at 1 am.

Article HERE

Takeaway:  As suggested in previous media reports

South Korea - New Casino (Part 1) – Chow Tai Fook Enterprises Ltd signed a letter of intent to invest US$1.6 billion to create a new South Korean casino resort at Incheon, near the country’s capital Seoul, on November 16. The agreement was with Incheon City Mayor Yoo Jeong-bok for a property at Yeongjong Island in the Incheon Free Economic Zone. Chow Tai Fook Enterprises is a privately held firm founded by Cheng Yu Tung, for many years an investor in Sociedade de Turismo e Diversões de Macau SA, the parent of Macau casino operator SJM Holdings Ltd.

Article HERE

Takeaway: At present there are no less than four new major casino developments in the works - including: Chow Tai Fook, Caesars, Paradise, and Genting. Gaming operators rush to build a bigger, brighter, shinier casino as they compete for the nearly 6 million Chinese tourists to South Korea.  By comparison Macau received 18.6 million Chinese visitors in 2013.

South Korea - New Casino (Part 2) – South Korean casino operator Paradise Co Ltd broke ground on its planned US$1.7 billion Paradise City casino resort at Incheon, near the country’s capital Seoul, according to a report in the Korea Herald newspaper. The development is scheduled to open in 2017. Paradise is a partner with Japan’s Sega Sammy Holdings Inc for the scheme at Yeongjong Island in the Incheon Free Economic Zone. Paradise holds a 55% stake in the joint venture according to previous statements by the company. The project includes hotels, restaurants, and – as local law currently stands – a foreigners-only casino. The casino resort will have 160 gaming tables and 340 slot machines and 750 hotel rooms.

Article HERE

MACRO

China Lowers Interest Rates – In an unexpected shift in monetary policy, the PBoC cut the one-year deposit rate by 25 bp to 2.75%. It also cut the one-year lending rate by 40 bp to 5.6%. 

Takeaway: We have run a regression analysis that shows the highest correlation between Chinese rate cuts and Macau VIP volume on a 9 month lag. 

China PBoC Said to Inject Cash –  The PBoC was said to have added money to the banking system today as a cash shortage stemming from new share sales drove the benchmark money-market rate up by the most since July. The monetary authority supplied funds on a short-term basis, according to two people with direct knowledge of the matter who asked not to be identified. Some 50 billion yuan ($8.2 billion) was offered using Short-term Liquidity Operations. Eleven companies are due to sell shares for the first time next week. 

Article HERE

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.