TICKERS: CZR, SJM, H, RCL
- Jan 15: LA Dec Revs
- Jan 29: PENN 4Q CC
- Feb 2: Cod Manila Grand Opening
The David Group – there is chatter that the David Group, a top-10 junket with 3-5% of total VIP rolls in Macau, is closing its VIP rooms. David Group has 2 VIP rooms at Wynn Macau, 1 at Galaxy, 1 at Sands China, 2 at MGM China and 1 at SJM (via 3rd party casino).
The junket operator had already closed VIP rooms in the Venetian Macao and City of Dreams last year.
Takeaway: Should be a drag on VIP and we will see more junkets close up shop. However, it's market dictated and not really an incremental negative.
SJM – Sociedade de Turismo e Diversões de Macau SA (STDM) says it will look into complaints by employees of the Palacio Lisboa restaurant in the Lisboa Hotel that they are overworked and underpaid.
CZR – has declared voluntary Chapter 11.
- CZR's plan, which has received support from more than 80% of first-lien noteholders, is intended to significantly reduce long-term debt and annual interest payments, while providing for significant recoveries for creditors and ensuring no interruption of operations across the company's network of properties.
- To implement the balance sheet deleveraging, CEOC and certain of its U.S. subsidiaries have voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois in Chicago. All Caesars Entertainment properties, including those owned by CEOC, are open for business and are continuing to operate in the ordinary course. All properties are continuing to host meetings and events and provide the facilities, amenities and experiences that guests expect.
H – announced the sales of five select service hotels for a total gross sale price of ~$53m. The transactions closed in December 2014. As part of the sales, Hyatt entered into franchise agreements with the purchasers, with all hotels retaining their existing Hyatt Place branding. The purchasers intend to spend a total of approximately $6 million in additional capital expenditures at the hotels.
Takeaway: These worn-down upscale properties sold at a low average price per key of $84k. There are consistent with Hyatt's asset recycling strategy.
RCL – Azamara Club Cruises is planning one of the largest drydock upgrade programs since it has owned Azamara Quest and Azamara Journey. While it's preliminary to share details, the vast majority of this 'significant' work will focus on passenger areas and accommodations, according to Azamara president and ceo Larry Pimentel, who called the projects 'an opportunity to ensure the ships stay in the up-market space. 'We're a destination-immersion product,' he added, 'but with this clientele it's incumbent to maintain the appropriate decor.'
Azamara Journey would begin its docking at the end of December and Azamara Quest in early January. Each project would stretch an estimated 3.5 to 4 weeks.
Takeaway: Dry docks costs for Q1 are heading higher.
Higher labor costs – The opening of Studio City and of Galaxy Macau Phase II will require gaming labor to expand by 16,000 to 18,000 within this year, which represents an expansion of 28%-31%. As the currently unemployed population of Macau accounts for just 6,900, labor costs in the industry are expected to soar as operators fight to staff their new resorts.
However, and bearing in mind that Galaxy started a recruitment process to hire 8,000 workers this month, MPEL CEO Lawrence Ho admitted that he was “a bit worried” about how this could be achieved.
While immigration is the main key to solving the problem, there are two factors that will contribute to increasing labor costs for gaming operators: the competition of gaming operators for the most experienced and talented workers and the prohibition of hiring non-resident workers as croupiers.
Takeaway: Finding sufficient labor for the upcoming Cotai resorts are not new news but it is a risk that cannot be discounted this year. Despite negative revenue growth, there is little the concessionaires can do to offset wage inflation. Volunteer, unpaid leaves of absences are one tool being employed.
Reno to NYC – Non-stop flights between Reno and New York City will be offered by JetBlue Airways starting on May 28. The route will make JetBlue the first carrier to offer daily nonstop service between New York City and Reno, which bills itself as the "Biggest Little City in the World."
Cyprus – According to Cyprus Commerce and Tourism Minister Yiorgos Lakkotrypis, 13 casino operators have expressed interest in running a casino.
Officials hope to pass casino legislation by end of January. There will be a competition process three weeks after the legislation is passed and to award the project to the successful bidder two months later.
Initial cost is projected at 500,000 euros (589,350 U.S. dollars) and the project includes at least 500 luxury rooms, at least 100 gaming tables and at least 1,000 gaming machines.
But the chosen operator can establish four other premises outside the casino with a maximum of 50 gaming machines each but no other casino gambling. The operation will be controlled by a 7-member Gaming and Casino Supervision Authority which will be tasked overseeing all casino activities and with making sure that it will be kept away from organized crime.
Takeaway: A small expansion opportunity for the Macau operators and slot suppliers.
Home sales – According to URA, developers sold 230 units of new homes in December, down 45.6% from the 423 units sold in November 2014. This was the lowest monthly sales figure since January 2009, when just 108 units were sold. Property sales are typically slower towards the festive year-end period. Home sales in Singapore have weakened considerably since the Government rolled out a series of cooling measures and loan curbs in recent years.
Retail sales – Retail sales gained 6.5% YoY in November due to strong auto sales. Ex motor vehicles, retail sales fell 0.4% YoY and 0.9% MoM in November 2014. However, Watches/Jewelry segment rose 4.2% MoM and 3.9% YoY.
Takeaway: Mixed macro signals for Singapore but the trend is tilting worse.
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.