LEISURE LETTER (03/09/2015)

Tickers:  PNK,GLPI, LVS, MGM



PNK/GLPI-   GLPI bids for PNK's real estate business - GLPI values its bid at $36 per PNK share. Presentation HERE

Takeaway:  We agree with most of the analysis provided by GLPI except the assumed multiple for PNK's OpCO.  See our note "GLPI/PNK: QUICK THOUGHTS". We think GLPI's offer is closer to $30-32.


LVS -  Sands China has announced a 5% pay rise for its staff, effective March 1, 2015. The company said it is increasing the salaries of 26,000 eligible full-time team members.  The salary increase follows the payment of a bonus on February 16. The casino operator last month said that a total of 27,000 full-timers would receive a bonus of at least one month’s salary.



Takeaway: Following SJM's lead in raising salary.


LVS - reconsidering Rolling Stones and other marketing/entertainment programs to cut costs in Macau.




MGM - The Labour Affairs Bureau says it has suspended the use of all cranes and hoists on an MGM China Holdings Ltd building site in Cotai after a concrete pipe dropped by a crane there fatally injured a construction worker below.  The Labour Affairs Bureau and MGM China both say they are investigating.



Takeaway: We're hearing this construction incident will delay MGM Cotai's opening to 1Q 2017, rather than late 2016.


Genting Singapore - RWS will borrow S$2.27 billion to refinance its debt. The five-year deal includes a $1.75 billion term loan, $500 million revolving facility and a $20 million bank guarantee facility.



Unpaid leave - Secretary of the Economy and Finance Lionel Leong Vai Tac has warned casinos to refrain from offering unpaid leave to employees that it has no work for, and to give them training instead. The newspaper quotes Mr Leong as urging casino operators: “Don’t offer unpaid leave, thank you. Offer paid training and training at work.” Speaking to reporters in Beijing, Mr Leong said how casinos treated their employees would count when the government reviewed their concessions.


Takeaway: Leong's comments are in response to Wynn Macau's suggestion that employees take unpaid leave. Unpaid leave had been a tool used by Macau casinos to cut costs without laying off staff. Not good for margins...


Infrastructure delays - The cost of the massive bridge linking Hong Kong with Zhuhai and Macau will rise above its HK$132.9 billion estimate because of a significant delay and the extra expense will be shared by the three cities, says Li Chunhong, director of the Guangdong Development and Reform Commission. Li said the completion date of the bridge would be revealed by October after an assessment.  The bridge was scheduled to be completed next year, but Li said even 2020 was a difficult target because of technical difficulties in laying sections of tubes on the seabed and joining them to make a tunnel.


Takeaway: Another major infrastructure delay for Macau


Angela Leong - Legislator and executive director of SJM Holdings, Angela Leong On Kei estimates that the industry has spent more than MOP2 billion in modifying their air purifying facilities and ventilation systems in order to comply with local smoking regulations whilst the government has been “ambiguous” in its tobacco control policy.  “If the government had implemented a full smoking ban in casinos in the very beginning, then a lot of resources and effort [to comply with smoking control policy] would have been saved,” Ms. Leong said.


Having expressed support on several occasions for a full smoking ban in casinos in Legislative Assembly sessions before, Ms. Leong argued that smoking lounges should be allowed to be retained in casino properties while having a full smoking ban in effect.


Takeaway: Angela is again pushing for an all-out casino ban on smoking. We think it is inevitable. 


Chui - aims to ‘optimize’ Macau individual travel scheme



Illinois Feb GGR- fell 5% YoY

Takeaway: Below expectations. Was it poor weather-related or is the weather tailwind over?


LV/AC hotel prices - Hotel.com’s Hotel Price Index shows the average price of a hotel in Atlantic City rose 10% last year to $149 in 2014.  Las Vegas increased 8% to an average of $120 a night.


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.

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