Union Gaming Analytics Index

The UGA Index for the period ending June 30, 2013, was down 9.8 percent sequentially to 220.8 from 244.8 on May 31. As an illustrative example, if an investor bought $100,000 of the index on May 31, the investment would hypothetically be worth $90,181 on June 30. Note, however, that the UGA Index has been compiled for illustrative purposes only and is not being offered as an investment vehicle by Union Gaming Analytics or any affiliated entities.

In comparing the UGA Index with the broader markets, the Dow Jones Industrial Average was down 1.5 percent sequentially and the S&P 500 was down 1.4 percent sequentially.

The decrease this month was broad-based as 22 of the 24 companies that comprise our index were down sequentially.

Top index performers include the following:

Ameristar Casinos was up 0.3 percent sequentially and contributed 0 points to the index. During the month, Pinnacle Entertainment (PNK) reached an agreement in principle with the FTC that would allow the company to consummate its acquisition of Ameristar Casinos (ASCA).
Genting Berhard was up 3.5 percent sequentially and contributed 6.5 points to the index. Genting held its grand opening of Resorts World Bimini in the Bahamas on June 28.
Pinnacle Entertainment was down 0.1 percent sequentially and contributed 0 points to the index. PNK agreed in principle with the FTC to sell some assets (in St. Louis, Mo., and Lake Charles, La.) and the Indiana Gaming Commission approved the merger.
Underperformers include the following:

Sands China was down 11.3 percent sequentially and contributed 62.9 points to the index. The sell-off was related to broad concerns over a slowdown in the Chinese economy rather than any company specific factors.
SJM Holdings was down 11 percent sequentially and contributed 7.9 points to the index. Again, the sell-off was related to concerns over a slowdown in the Chinese economy.
Boyd Gaming was down 13.3 percent sequentially and contributed 0 points to the index. The stock had been on a hot streak for most of the year, driven by optimism related to online gaming in New Jersey, but it pulled back in June.
June featured a light earnings calendar with just Isle of Capri (ISLE) reporting results. Across the regional landscape, in regional gaming markets, overall May gaming-revenue results were a bit better than April levels. On the legislative front, it was a pretty quiet month as many state legislative sessions are on summer break. However, New York did approve a major expansion bill to allow new casinos.

ISLE F4Q13 Earnings
ISLE reported F4Q13 results that were below the street on the top-line and EBITDA. The calendar was impacted by a tough comp, given this year there were 13 weeks (1/28/2013 to 4/28/2013) versus 14 weeks in the comparable quarter last year (1/23/2012 to 4/29/2012). Overall, it wasn’t a great quarter on an operating basis and the weakness was compounded by a calendar issue, plus some one-off events (flooding in Davenport, Iowa).

Macau June Gaming Revenue and Border Gate Expansion
In June, GGR grew 21.1 percent to MOP28.3 billion (USD3.5 billion) against a +12.2 percent comp. On a year-to-date basis, Macau GGR is now up 15.3 percent. In late June, local press reports indicated the expanded immigration facilities on the China side of the border with Macau should become operational. The border gate expansion will be a clear positive for mass market visitors into Macau.

M&A Activity
In Iowa, Isle of Capri (ISLE) entered into an agreement with Kehl Development, which gave Kehl an option to purchase Rhythm City Casino for $51 million and assume certain liabilities. Kehl can exercise the option any time before Sept. 15, 2013, and may extend the period to Oct. 15. ISLE was formerly in discussions to sell the Davenport property, but negotiations ultimately broke down. For reference, the two Isle of Capri properties (Bettendorf and Davenport) comprise the Quad Cities market, along with Jumer’s Rock Island, a casino on the Illinois side of the border. In other M&A news, to alleviate FTC’s concerns PNK agreed to divest Lumiere Casino and the Four Seasons Hotel in St. Louis, as well as Ameristar’s Lake Charles project in Louisiana. Recall that in late May, the FTC contended that the combined entities would be detrimental to gaming customers in the two markets (St. Louis and Lake Charles) generally as it relates to promotional allowances, table games rules/regulations and poker rakes.

Regional Gaming Revenue Trends
In May (May results are reported in June), regional state gaming revenue largely showed flat to very modest growth (IA +0.3 percent, IN -5.8 percent, MO +1.2 percent, AC -3.8 percent, IL -0.1 percent, LA +4.9 percent). Overall, May gaming-revenue results were a bit better than April levels.

In Nevada, Las Vegas Strip April gaming revenues were -2.3 percent. The weakness was driven by a double-digit decrease in baccarat volume. We did see some growth in both table and slot volume. Next month’s results about May will be our first glimpse into whether two mega-club openings (Hakkasan and Light & Daylight) are helping grow gaming win. Note, the Nevada Gaming Control Board reports results with a two-month lag so while the regional markets were reporting May results, this month Nevada was reporting April results.

Legislative Developments
The major legislative news in June was centered on New York state. The New York Legislature approved legislation to allow new casinos. For reference, the bill will allow four casinos in upstate New York, including two in the Catskills region. In addition, it will allow two 1,000-VLT centers in Long Island to be run by the OTBs in Nassau and Suffolk counties. In Las Vegas, the Culinary Union picketed The Cosmopolitan in mid-June. The two sides disagree over a number of issues including pension benefits, working hours, health care and issues relating to the number of rooms housekeepers are required to clean (room credits). The Culinary Union represents approximately 55,000 workers citywide.

What to Look for in Next Month’s Index
In next month’s index, the earnings calendar is relatively light with no companies scheduled to report 2Q13 earnings. However, some companies are likely to report results toward the tail end of July. On the legislative front, things quiet down as we head into the summer months and most states’ legislative sessions have ended. We will be observing regional trends during the month to see if the modest growth we saw this past month continues. Of note, we have recently observed double-digit growth (up 11.1 percent to $39.4 million in May) in the Florida racino market. We think this is related to the state’s recent ban on internet cafés, and it will be interesting to see if the growth continues.

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