LEISURE LETTER (04/01/2015)



NAGAWORLD- GGR at its Phnom Penh resort NagaWorld rose 48 % YoY in Q1 2015. Gross revenue from the VIP segment doubled, to US$65.5 million, from nearly US$32.6 million in Q1 2014. In the VIP segment, NagaWorld’s rolling chip turnover for Q1 2015 jumped 70% to nearly US$1.70 billion 


Takeaway: Great results from Nagaworld. Some formerly Macau VIP customers seem to be playing there.


IGT/GTECH - has met all conditions for merger with IGT. The combined company IGT will start trading on NYSE on April 7. Last day of trading in Borsa Italiana of GTECH shares will be on April 2.


Konami - expects the delisting of its ADS from NYSE to become effective April 24.


SGMS - announced that Santa Casa da Misericordia deLisboa ("SCML" or "the Lottery"), the operator of the Portuguese State Lottery, reported record instant game sales in 2014, up 18% YoY. The trend has continued in 2015 with instant game sales exhibiting an unprecedented year-over-year increase of more than 35% thus far.


Company signed a two-year contract in February 2014 to provide instant games and related services to SCML. Scientific Games became the sole supplier of the Lottery's instant games. 


Santa Casa da Misericordia de Lisboais currently ranked in the top four lotteries in Europefor instant game per capita sales (La Fleur's 2015 World Lottery Almanac).


Blackstone - will acquire three large hotels from a consortium led by Paulson & Co. for US$1.2 billion, according to a Wall Street Journal report. While the deal has not been confirmed by either party, people familiar with the matter said the hotels in the deal are the Ritz-Carlton and JW Marriott in Orlando, Florida, and the JW Marriott in Scottsdale, Arizona. The hotels combined have more than 2,500 rooms, about 472,000 square feet (43,850 square meters) of meeting space and 54 holes of golf on 800 acres (324 hectares).


Starwood Capital - sold the Ace Hotel in London for 150 million pounds. The sale includes the 258-bedroom hotel as well as the Miranda nightclub and the popular Hoi Polloi restaurant. It was sold by Starwood Capital Group to a company called Limulus which was advised by the Deerbrook Group. The deal comes nearly three years after Starwood bought the property out of an administration led by Ireland's National Asset Management Agency.


Takeaway: This luxury boutique property in hot London was sold for average ~US$860k per key.


CCL - Passengers have been stuck onboard P&O Oriana, as it has been unable to dock at Southampton due to strong winds.  Those due to board today have been told they can board from noon tomorrow and have been offered a 50% refund off a future cruise. The 1,000 passengers who traveled to Southampton have been put up in hotels and given dinner by P&O Cruises.



MSC Cruises - is returning to the UK next year with a short series of ex-UK sailings from Southampton. The line will base Fantasia-class ship MSC Splendida in Southampton for six sailings, having pulled out of the UK market this year.



Macau GGR -  March GGR as published by DICJ totaled HKD 20.861 bn (MOP 21.487 bn), down by 39.39% YoY.  

Takeaway: As expected


Graftbuster - Huang Shuxian, minister of supervision and a deputy chief of the Central Commission for Discipline Inspection, said on Monday he hoped to "pragmatically cooperate with Macau's Commission Against Corruption to strengthen the tracking down of fugitives and proceeds".  The remark was made during a meeting in Beijing with the Macau commission's director, Andre Cheong Weng-chon, days after the launch of Operation Skynet, the mainland's international manhunt for fugitive corrupt officials.



New construction safety rules - Macau is drafting new construction safety rules, officials said, after several workers died this month at casino sites amid a building boom in the world's largest gambling hub. The Labour Affairs Bureau of the southern Chinese territory said the new regulations would be submitted to the government this year. They would include a revision of existing occupation and laws to "safeguard workplaces for all workers".



Ohio bill would cut promotional expenses - Republican senators on Tuesday accused casinos and “racinos” of shortchanging schools and local governments by $165 million since 2012 by deducting promotional credits from their revenue before taxes. 


Coley, joined by Republican Sens. Dave Burke of Marysville and Bob Peterson of Sabina, seeks to overturn a law signed by Gov. John Kasich in July 2011 that approved promotional gaming credits -- part of an agreement Kasich worked out with casino operators in which they agreed to pay the state an additional $110 million over 10 years.


Under that 2011 agreement, if promotional credits are made taxable, casino operators Penn National and Rock Ohio Caesars could cease making payments to the state on the $110 million.


“It is a big deal,” Sen. Bill Coley (R., West Chester) said. “This month, March, 2015, Ohio casinos and racinos have surpassed $500 million in promotional gaming credits. A half a billion dollars has been given out in the short time that we’ve had gaming in the state of Ohio as promotional gaming credit.”


Mr. Coley’s bill would limit promotional credits to $5 million per casino a year.


Takeaway: This is a negative for PENN if Coley gets his way. We will keep an eye on his bill. 


Cash handouts - Secretary for Economy and Finance, Lionel Leong acknowledged that the value of cash handouts might be “adjusted” in 2016, depending on Macau’s economic outlook and the government’s budget. He told lawmakers that, “cash handouts depend on MSAR’s financial situation,” before adding that, “we are still estimating the amount that will be given in 2016, taking into consideration our budget. There’s a possibility that the cash handout might be a smaller amount than in 2015.”


This year, each permanent resident will be granted a cash handout of MOP9,000 and temporary residents will receive a smaller handout of MOP5,400. 



NJ lottery - NJ Treasurer Andrew Sidamo-Eristoff says the Christie administration has lowered its revenue expectations for the state lottery in fiscal year 2015, which ends on June 30.  He did not say specifically how much the expected revenue dropped but attributed the decrease to industry-wide trends.


State documents show that initial revenue forecasts projected $1.037 billion in revenue for the current fiscal year, but Christie’s 2016 proposal reflected lower receipts at $955 million.


Sidamon-Eristoff says the lottery, which Christie privatized in 2013, is facing increasing competition from other games and that there are demographic shifts affecting customers’ behavior.

Takeaway: Not surprising given the string of disappointing tax receipt #s recently from the NJ state lottery. NJ lottery is run by Northstar New Jersey (consortium with SGMS/GTECH/OMERS).


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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