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LEISURE LETTER (12/09/2014)

Tickers: MPEL, H, HLT, LHO, NCLH

EVENTS

  • Dec 9: Hedgeye Client Holiday Cocktails Cellar Bar @ Bryant Park Hotel
  • Dec 14: City of Dreams Manila Opening
  • Dec 17:  Upstate NY Casino Decision
  • Dec 20: Trump Taj Mahal Closing

Today's Headline Story

China's "Tigers & Flies Crackdown" Continues – President Xi Jinping vows to continue to seek, find and discipline CPC members who are NOT dutiful and well behaved and live a life free of corruption.  Xi also vowed to make no exceptions when it comes to Party discipline and law and to give no leniency, no matter who is involved. A majority of these "tigers," a popular term for high-ranking corrupt officials, were senior provincial officials and chief officials of provincial capitals. Discipline inspectors have also tightened their grasp on low-ranking corrupt officials, who have been dubbed "flies."

Article HERE

Takeaway: No end in sight to the corruption crackdown

COMPANY NEWS

27.HK Galaxy – The Fook Lam Moon Cantonese restaurant chain will open a high-end Chinese restaurant in the second phase of Galaxy Macau next May. The Hong Kong-based restaurant operator charges diners an average cover charge of at least HK$1,000 (US$129)

Article HERE

Takeaway:  Looking more likely that Phase 2 will open before May Labor Day

 

GENS – Genting Singapore today repurchased 12.2 million shares (38% of today's trading volume) for S$13 million. Cumulative shares repurchased year-to-date = 143,561,000 or 1.2% of the outstanding shares.  Following today's share repurchase, the total shares outstanding = 12,104,575,298.   

Article HERE

 

MPEL – Lawrence Ho, CEO of MPEL, said, "The core market of Macau is China and the Chinese economy is not doing that well. I think all of these factors are understandable. But long term, as a company, we’re very confident about the long term. We just need to live through the short term."

Article HERE

Takeaway: We still think the China economy is impacting Macau more than believed in the investment community and Mr. Ho's comments seem to back up that assertion. Slot and grind mass revenue growth has gone negative after all. 

 

LANDING INT – Mainland China real estate developer Landing International Development Ltd said it is in negotiations to acquire a casino licence in a HKSE filing on Monday. 

 

H – announced the sale of the 644-room Hyatt Regency Vancouver to an affiliate of InnVest for approximately $123 million or $190,000 per key. The hotel will continue to operate as a Hyatt Regency hotel. The Hyatt Regency Vancouver was built in 1973 and underwent a major renovation in 2012. 

Article HERE

Takeaway:  This is a very disappointing sale in terms of price per key for Hyatt for a recognized, upper-upscale property in a great location. Deferred capex the likely culprit.

 

HLT – Hilton Grand Vacations Trust I LLC, a wholly owned special purpose subsidiary of Hilton Worldwide Holdings amended its $300 million receivables loan agreement with Wells Fargo Bank Deutsche Ban and Bank of America, N.A whereby the company extended the commitment term from May 9, 2015 to December 5, 2016 and reduced the usage fee prior to the end of the commitment term from 1.25% to 1.00%.

Takeaway: A slight improvement in financing terms

 

LHO – announces 7.6 million share common stock offering and granted the underwriters an option to purchase up to 1,140,000 additional shares with the intended use of net proceeds to fund all or a portion of the cost of future expected hotel acquisitions, including, specifically, the acquisition of each of three hotel properties located in Los Angeles, California, Portland, Oregon and San Francisco, California for an aggregate purchase price of approximately $500 million. 

Takeaway: Another REIT with a late December equity issuance to minimize current year dilution - a capital markets strategy that most lodging REITs employ year after year.

 

NCLH – Up to $1,000 free onboard spending money per cabin leads Norwegian Cruise Line’s wave period sales promotion. The deal covers selected cruises booked by January 7.  The offer is available on “hundreds” of cruises from April 2015 to April 2016 on board 13 of Norwegian’s ships covering the Caribbean, Bermuda, Hawaii, the Panama Canal, Alaska, Northern Europe and the Mediterranean.

Article HERE  

Takeaway: Wave promotions are in full swing. NCL tries an onboard promotion that RCL is a fan of.

INDUSTRY NEWS

China's "Fox Hunt 2014" Continues – Today, the Communist Party of China's (CPC) Central Commission for Discipline Inspection (CCDI) released a bilingual statement saying that corrupt officials who fled abroad "must be brought to justice" as they ruined the Party's ethics and discipline codes; dishonored the Party and the government; undermined social justice; and caused public discontent. People, at home or abroad, with relevant information are encouraged to pass on intelligence via a form hosted on the official Supervision Ministry/CCDI website. The page, "Anti-corruption fugitive repatriation and asset recovery", explains that it will deal with reports on CPC members and public officials who have fled abroad, transferred the proceeds of corruption offshore as well as offer advice on fugitive repatriation and asset recovery.

Article HERE

 

Singapore Campaign to Address Problem Gaming– Singapore’s National Council on Problem Gambling hired Addiction Advertising Pte Ltd as the creative agency to launch a new campaign to address problem gambling. The campaign is expected to run in the first quarter of 2015 across multimedia platforms that include broadcast, print and online.  

Article HERE

Takeaway: Likely another headwind to Singapore GGR growth

 

Nassau New York OTB Coming Soon– Nassau Regional Off-Track Betting has begun negotiating a contract to purchase an unidentified property to build a mini-casino with 1,000 video slot machines and table games, according to OTB president Joseph Cairo.  Nassau OTB is currently in the process of floating up to $100 million in tax-exempt bonds to buy and develop the proposed site. The state last year granted Nassau and Suffolk counties authority to build one gaming site each with up to 1,000 video lottery terminals. They include slot machines and electronic table games such as roulette, baccarat and blackjack.

Nassau expects the proposed facility to generate $19 million in 2015.

Article HERE

Takeaway: Nassau OTB is a true grind, locals only operation. We expect RWNY to launch new marketing strategies to reinforce its dominant position in greater NYC.

 

Airbnb NYC Impact – according to research shared exclusively with Hotel News Now, Airbnb accounts for approximately 5.4% of total lodging demand in NYC, 11.1% of available rooms and Airbnb's share of total annual room revenue was 2.9% for the 12 months ended April 2014. Airbnb’s total annual occupied rooms for the 12 months ending April represent 19.7% of the combined economy and midscale segments. Airbnb attracts a large segment of guests staying 30 days or more as well as small groups of five or more guests. Excluding these two market segments, Airbnb’s annual occupied rooms decreases by 23.5% when stays of more than 30 days and parties of five or more are removed from consideration.

Article HERE

Takeaway: AirBnB presents a significant threat to economy and midscale hotel chain segments. 

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.

 


Deflationary Dominoes

Deflation expectations continue rising, as prices linked to inflation expectations continue crashing. (See: Russia down another -1.9% this morning to -38.5% year-to-date).

 

Editor's note: This is an excerpt from Hedgeye CEO Keith McCullough's morning research. For more info on how you can subscribe to our services click here.

Deflationary Dominoes  - 68

The domino risk of deflation from Oil to Energy Stocks and Bonds doesn’t stop there – Policies to Inflate have dominated headlines for half a decade.

 

The Oil crash clocked in at -42% (from June!) then bounced right off that $62.21 oversold level we gave you yesterday. This dynamic and non-linear situation continues with a refreshed risk range of $61.27-68.02/barrel.

 

Energy stock/bond bulls need to bounce well beyond the top-end of that range to get back to breakeven.

 

It’s different this time?

 

Deflationary Dominoes  - boom


Keith's Macro Notebook 12/9: Deflation | Oil | Volume

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


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A WEAK WEEK AHEAD OF TOUGH COMPS

Takeaway: Poor results from week 1 do nothing to dissuade us from our year long negative view on Macau stocks.

A detailed analysis of last week’s Macau data

 

 

Weekly ADTR fell 22% YoY last week. With weekly comps getting more difficult, focused enforcement of the transit visa scheme, and the China Presidential visit on the 19th/20th, trends could worsen further. For the full month, we’re projecting GGR to decline 23-28% YoY. 

 

We remain 10-15% below the Street on Q4 2014 and 2015 EBITDA estimates.  Numbers and sentiment are likely heading south over the near-term and until we see significantly lower Street estimates and the emergence of a positive catalyst, we remain negative on the Macau stocks.

 

Please see more details in our note: CLICK HERE

 

 


Join Tonight For Hedgeye Holiday Cocktails & Appetizers

'Tis the Season…. We hope you can join us at Cellar Bar (40 W. 40th Street – in the Bryant Park Hotel) TONIGHT December 9th from 5-9pm for some holiday cheer!

 

Please RSVP to this email if you can join.

 

We look forward to seeing you!

 

-Your Hedgeye Macro Team

 

Join Tonight For Hedgeye Holiday Cocktails & Appetizers  - z. Hedgeye  Holiday Invite

 

Join Tonight For Hedgeye Holiday Cocktails & Appetizers  - z. Cellar Bar Map


RH - FLASH Call TODAY 11am ET

Takeaway: We're hosting a quick call today to hit on our thoughts on key drivers headed into tomorrow's print, and will take questions accordingly.

We're hosting a FLASH Call on RH today at 11am ET. Details are below. 

We'll be reviewing our thoughts in advance of Wednesday's print, as well as hitting on the questions we're getting on the event.  

 

This will be a quick call – with 5-10 minutes of prepared remarks, and then 15 minutes of Q&A.  We’re encouraging people to send questions in advance to , though obviously feel free to send them real-time during the call. As always, all questions will be kept anonymous.  

 

Dialing Instructions

Time: 11am ET

Toll Free Number:

Toll Number:

Conference ID/Password:  13597516

Materials: CLICK HERE


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