Welcome to the September edition of the Union Gaming Analytics (UGA) index of gaming operators.
The UGA Index for the period ending Sept. 30, 2013, was up 14 percent sequentially to 289.7 from 254.2 at Aug. 31, 2013. As an illustrative example, if an investor bought $100,000 of the index on Aug. 31, 2013, the investment would hypothetically be worth $113,961 on Sept. 30, 2013. 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 to the broader markets, the Dow Jones Industrial Average was up 2 percent sequentially, and the S&P 500 was up 3 percent sequentially.
Our index is composed of 23 domestic and global casino operators. Note, our index no longer includes Ameristar Casinos. In mid-August, Pinnacle Entertainment (PNK) announced that it had completed its acquisition of the company.
Top index performers include the following:
- MGM Resorts was up 15.5 percent sequentially and contributed 3.5 points to the index. On the Las Vegas Strip, gaming revenue was up 20 percent in August, driven by high-end (baccarat) play. Las Vegas Strip ADR was also up about 5 percent in the month.
- Las Vegas Sands was up 17.9 percent sequentially and contributed 105.5 points to the index. Data points were strong in Las Vegas, and Macau GGR was up 21 percent in September. In addition, the Golden Week holiday in early October appears to be off to a good strong start.
- Boyd Gaming was up 16.7 percent and contributed 0.1 points to the index. The Borgata continues to notably outperform the Atlantic City gaming market. In addition, the Borgata and its online gaming partner (bwin.party) are ready to roll out online gaming this fall (Nov. 26).
Underperformers include the following:
- Caesars Entertainment was down 8.3 percent sequentially and contributed 0.3 points to the index. In the month, CZR announced a 10 million equity share offering.
- Isle of Capri was up 1.3 percent sequentially and contributed zero points to the index. The company’s new property, Lady Luck Casino at Nemacolin (opened July 1), has gotten off to a slow start. This is likely related to entrance fee confusion, as the nature of its license (category 3) in Pennsylvania requires guests to pay to enter the casino provided they are not resort guests.
- Cambodian based NagaCorp Limited was up 1.2 percent and contributed 0.1 points to the index. For readers unfamiliar with NagaCorp, the company is already the premier gaming destination in Indochina and has numerous growth initiatives in motion.
The month of September was pretty light from an earnings standpoint, with Isle of Capri Casinos (ISLE) the lone company reporting. Across the regional landscape, this month’s (August) results showed improvement from the tepid levels observed in prior months. The month benefitted from an extra Saturday. While results are improved from recent results, same-store growth is still down. Legislatively, it was another quiet month as many state legislative sessions have convened until early next year. On the global development front, Union Gaming Group (UGG) held its inaugural Japan Development Conference in Tokyo on Sept. 17-19.
ISLE F1Q14 Earnings
ISLE’s F1Q14 results were below consensus expectations on both the top-line and EBITDA. The weakness was generally spread throughout ISLE’s regional portfolio, generally mirroring the same sluggish store growth environment we have observed throughout regional markets. There were also some property-specific issues related to flooding and new competition. On a positive note, we did see double-digit EBITDA growth in Black Hawk, Colo., and Pompano, Fla.
Macau September Gaming Revenues
In September, GGR grew 21.4 percent, to MOP29 billion (USD3.6 billion) against a +12.3 percent comp. On a YTD basis, Macau GGR is now up 16.7 percent. The strong growth was despite the market being impacted by Typhoon Usagi at the end of the month. Next month’s results (October) will reflect the Golden Week holiday.
M&A Activity
There wasn’t much news in September on the M&A front. There has been some speculation about prospective buyers looking to purchase Atlantic City casino assets related to the rollout of online gaming this fall. Earlier in the year, we saw deals to purchase the Trump Plaza and the Atlantic Club (formerly the Atlantic City Hilton) ultimately fall through for different reasons.
Regional Gaming Revenue Trends
In August (August results are reported in September), regional state gaming revenue largely showed modestly negative to flattish growth (IA -5.1 percent, IN -1.1 percent, MO +0.9 percent, AC -4.8 percent, Detroit -3.4 percent, MS +0.4 percent). Overall, the August monthly numbers showed modest sequential improvement from the prior two months. An outlier in recent months has been the Florida market (+21.6 percent in August). We think the growth in the market during the past few months is related to the state banning Internet cafés in April.
Las Vegas Strip August gaming win was up 20 percent to $589 million against an easy comp (-1.2 percent). While the headline number would suggest strong growth, gaming win was driven by unusually high baccarat hold. Off the Las Vegas Strip, the growth wasn’t as robust, as the Las Vegas locals market was -8.2 percent and downtown was -8.4 percent.
Legislative Developments
In Maine, a 20-member gaming commission narrowly (10 to eight) recommended that the state expand gaming. The group is expected to issue its findings to the Legislature in early 2014. There are currently only two casinos in the state of Maine. While the study group favors expanded gaming, their recommendation still needs approval in the legislature next year. In New Jersey, online gaming is expected to become operational Nov. 26 once the state Division of Gaming Enforcement (DGE) gives the formal go-ahead. This September the Miss America pageant returned to Atlantic City. The pageant drew its highest TV ratings since 2004 with roughly 10 million viewers tuning into the contest, and it brought some much needed positive national headlines.
Union Gaming's Japan Development Conference
In September, Union Gaming held its first Japan Development Conference at the Conrad Tokyo in Japan. The conference focused on Japan’s potential expansion into legalized integrated resort casino gaming. More than 200 people attended the event, including international gaming operators, multiple companies currently involved in the Japanese gaming industry, other potential local Japanese partners, representatives from several prefectures and Diet (legislature) members.
What to Look for in Next Month’s Index
Next month’s October index should include 3Q13 earnings from a host of companies. While we don’t yet have many formal earnings dates yet, we expect most companies to report in the late October/early November timeframe. This month regional revenues improved modestly from the prior month’s level, and we will see if this trend continues. On the Las Vegas Strip, we are seeing increased airlift capacity coming into the market in the next few months and we will be monitoring if this leads to increased gaming demand.