Replacement demand is what it is but WMS margins and gaming ops revenue were both lower than expected.



WMS has probably “over-earned” on market share the last two quarters and replacement demand has been sluggish.  Outside of replacement demand accelerating, we’re not exactly sure what the next positive catalyst will be, but we would like to address a couple of concerns that emerged from the FQ1:  Gaming Ops revenues and Gaming Equipment margins.


Gaming operations were clearly a little disappointing in the quarter and the change in the presentation makes things even more confusing to draw insight

  • They missed our revenue number here by $3MM and gross margin by $2MM
  • The difference vs our number was driven by both a lower install base and average win per day
  • There were no new WAP games launched in the Q and Lord of the Rings generates a fee close to the participation average so that explains the slightly lower yields
  • Gaming Ops margins were good and should continue to benefit from Lord of the Rings, paying like a WAP game without the associated jackpot expense – assuming base grows
  • Under the old method, sequentially, we think that standalone units would have increased by ~100 units, LAPs would have been flat, and WAPs would have decreased by 175 units
  • In the next few quarters, they have several WAP games coming,  a new LAP (Godfather), and several standalones.  The December and March quarters will be very active from a release standpoint and should generate increases across the board in the install base

The margin issue… disappointing but we believe it is temporary

  • Lower xD margins and a higher mix of used/parts revenues meant margins were 3.6% lower than we estimated so gross margin was only $1.2MM better than our number
  • We shouldn’t really ding them for lower xD margins because that’s a temporary issue that will resolve itself by the YE
  •  xD was a much higher % of the mix than they estimated - this was partly magnified by the fact that there were many units shipped in the quarter and that xD just launched.  For the rest of the year, the mix will be less than 35%, aside from perhaps the very end of the year.  
  • While Bluebird (BB) margins were the same, there were less total units, so fixed costs were spread over a smaller base, further impacting margins
  • Used games and parts have much lower margins than conversion kits (which are around 90+%) so the mix of non-gaming dampened margins.  It seems like used games and parts should continue to be strong this year as they are getting lots of trade-ins of BB1’s for BB2’s – which isn’t a bad thing – but this is a lower margin income stream and it almost doubled YoY.


Conclusion: Sentiment is at maximum levels.  This is another indicator to watch carefully as this market continues to echo the mania of 2007.


With much of Wall Street focused on the election and upcoming Federal Reserve Policy Announcement, it is interesting to look at the sentiment that has bolstered this recent stock market rally.  Clearly it is not news that sentiment is high among investors but the chart below paints an alarming picture of just rose-tinted the Street’s glasses are.  As LBO rumors and guesstimates of how sizeable QE2 might be have driven the market, the underlying economic climate has remained fragile.  The clear and lucid picture of GDP growth propped up by government spending and inventory build is a stark reminder not to follow the herd.  I discussed this point in greater detail in the Early Look yesterday, titled, “VERSIONS OF THE TRUTH”.


Looking past the Federal Reserve announcement today, the next ball to catch is the Retail Sales numbers that are due to be released tomorrow.  Eric Levine, Director of Retail at Hedgeye, had the following insights ahead of tomorrow’s releases.  The question is, does the market – and the elevated level of bullishness – bake in the significant downside risk suggested by the commentary below.  As Eric told me, the preponderance of the commentary around the building products companies of late suggests slowing within 3Q.



  • With cold weather comparisons at their toughest for the month of October, we believe solid Halloween sell-throughs will be mitigated by weak overall demand for seasonal apparel.
  • With the next major catalyst being Christmas (kicked off by Black Friday), it’s unlikely that any tangible improvement in sales momentum materializes over the next few weeks.  We fully anticipate that holiday sales will materialize, although in a manner in which it will be difficult to guage in real time.  Recall that holiday sales generally occur later and later each year as well as even after 12/25. 


Howard Penney

Managing Director







"We believe the signs of stabilization that were evident at most of our properties in the third quarter will continue into the 2010 fourth quarter. Year-over-year quarterly variances are expected to narrow at our Black Hawk and East Chicago properties. The positive impact from the Black Hawk hotel will be fully included in the final quarters of 2010 and 2009. During the fourth quarter, we will also lap the November 2009 East Chicago bridge closure and its adverse impact on that property's financial results... Also, our St. Charles property appears to have stabilized in all key financial metrics, as well as admissions and market share, since the opening of a new competitor in March 2010... We are optimistic the combination of solid net revenues and consistently strong margins should continue to produce efficient revenue flow-through."

--Gordon Kanofsky, CEO of Ameristar


  • Impact of East Chicago bridge closure: $4.6MM of revenue and $2.5MM of EBITDA
  • Promotional allowances rose 15.6% due to Black Hawk hotel and marketing post-bridge closure at East Chicago.
  • "The declines in operating income, Adjusted EBITDA and the related margin are primarily attributable to lower table games hold percentages at our Vicksburg and Missouri properties. We believe that table hold variances accounted for approximately $2.8 million of the decline in Adjusted EBITDA and a drop of 0.9 percentage point in Adjusted EBITDA margin compared to the prior-year third quarter."
  • Debt: $1.57BN; intends to repay all 2010 debt with cash from ops and revolver
  • Total leverage ratio: 4.81x (covenant: 6x)
  • Senior leverage ratio: 4.81x (covenant: 6x)
  • Interest expense: $28.1 MM
  • Capitalized interest: $0.2MM
  • Capex: $14.1 MM, down from $33.3 in 3Q 2009
  • Dividend: $0.105 per share
  • FY 2010 guidance
    • depreciation: $108.2-$109.2 MM
    • interest expense, net: $122.5- $123.5 MM (includes non-cash interest expense of $11MM)
    • Combined state and federal tax rate: 43.5%-44.5%
    • Capex: $65-$70MM
    • Capitalized interest: $0.6 MM-$0.7 MM
    • Non-cash stock comp: $13.8 MM-$14.3 MM


  • First time in 2 years that they didn't see net revenues decline
  • Optimistic that most markets have bottomed out and that they will start seeing some increases
  • Market share in Blackhawk reached a record of 27.8% and they grew 9% YoY despite the market declining 2.4%
  • 3Q is probably a good indicator of what East Chicago can generate going forward
  • Cape Girdardeau got strong local support. They are going to make a decision on whether and where to issue a license by year end.


  • How was October? Don't usually comment but October results have continued along the trends they have been experiencing.  There are 5 weekends in October.
  • Adding 106 rooms at Kansas City and making some renovations. Will use their FCF to reduce debt.  Hopefully when topline grows, the flow-through will be strong.
  • Will look at new opportunities and whether to pursue them depends on whether they are better on debt reduction and projects at existing properties
  • Why the huge growth in F&B revenues?
    • They had to respond when competition ramped up promotions. It ended up benefiting their slot margins (increased play)
  • Market shrare is 43.5% of Vicksburg market
  • 2011 Capex plan?
    • Roughly the same as 2010 - give or take $5MM
    • Will start additional rooms in Kansas City but it won't be complete
    • Room rehab in East Chicago
    • For the most part, it will be maintenance related
    • No change on slot replacement/ conversions
  • Can adjust to business levels without significant staffing increases. Should see extremely high flow-through from net revenue increases
  • Extending R/C is L+ 375bps piece
  • Capex this quarter? Almost all maintenance
  • There will be some payment in the quarter to finish off Blackhawk

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%



November 3, 2010





  • In a positive sign that spending may indeed be picking up on the west coast, Big Five noted that comps increased in each month during Q3 driven by an increase in customer traffic while average ticket declined modestly. So far in 4Q, the positive momentum has continued with comps up LSD despite tougher year-over-year compares.
  • Steven Madden confirmed that while boots started selling earlier this year than last, the category continues to be robust again in 2010. In addition, the company is also seeing a shift into booties as well with a lace-up style one of the brands hottest selling SKUs currently. 
  • H&M’s new lookbook for the highly anticipated Lanvin collaboration is now available. The new line to be launched on November 23rd is priced under $200 including accessories and shoes and will include a menswear component as well. If the company’s collaboration with Jimmy Choo last year is any indication, the Lanvin line will likely provide a much needed boost to the fast-fashion retailer.



LVMH Pursuit of Hermes Heats Up - In their most explicit statement since LVMH Moët Hennessy Louis Vuitton announced its stealth purchase of 17.1 percent of Hermès shares, the company’s bosses hit back in a newspaper interview in which they called for luxury mogul Bernard Arnault to get rid of his stake. Patrick Thomas, chief executive officer of Hermès International, and Bertrand Puech, executive chairman of Emile Hermès SARL, which represents the family shareholders, told French daily Le Figaro they did not consider the move by the LVMH chairman and ceo as “friendly” despite his assurances that he does not plan a hostile takeover. “The family is saying clearly and unanimously: ‘If you want to be friendly, Monsieur Arnault, then you must withdraw’,” Puech was quoted as saying by the paper. He added that he reacted with “surprise and displeasure” when Arnault phoned to notify him of the stake, just hours before issuing a statement. Thomas and Puech said they met with Arnault last week and told him face-to-face they did not consider his overture friendly. “There is nothing friendly about this move. It was neither desired nor solicited,” said Thomas, adding: “It is very probable that he will increase his stake, I don’t know his intentions.” <WWD>

Hedgeye Retail’s Take:  History suggest that the involvement of Bernard Arnault is very rarely a “friendly” gesture.  This is heading towards soap opera status. 


KCP Reclaiming Women's Sportswear License - Kenneth Cole Productions Inc. is taking control of its Kenneth Cole New York women’s sportswear license. The New York-based firm said Monday it will terminate the category’s 5-year-old license agreement with Bernard Chaus Inc., effective June 1, 2011. The license was originally scheduled to expire in June 2012. Total wholesale revenue from the line, which is distributed in more than 400 doors nationwide including Nordstrom, Bloomingdale’s, Dillard’s and Lord & Taylor, is estimated to be in excess of $50 million annually, according to a company statement. Jill Granoff, CEO of Kenneth Cole Productions, said that bringing the line in-house will help build the company’s women’s business going forward. “We intend to invest the resources required to realize the growth potential we believe exists in the wholesale, retail and international channels,” said Granoff. <FootwearNews>

Hedgeye Retail’s Take:  While Chaus may not have been the right partner, it’s still not clear how successful KCP will be while bearing the entire cost of production from design to distribution.  The brand needs help and women’s sportswear isn’t the answer.


Twitter CEO on Retail - Whether it’s Facebook, Twitter or another social networking platform, apparel and retail brands are taking money from their traditional ad spend and placing it with these Web tools to reach new consumers. On the Internet, it’s all about avoiding ad lingo and keeping the message “organic and viral.” “Where you can, be less formal,” advised Twitter chief executive officer Dick Costolo. He pointed to the Dolce & Gabbana Twitter feed and compared it to Stefano Gabbana’s personal account as a good example. The official Twitter page for Dolce & Gabbana, which has almost 40,000 followers and features a picture of Madonna, has several kinds of tweets, such as party pictures, behind-the-scenes photos from a fashion shoot and friends of the brand, such as Naomi Campbell. Costolo spoke to fashion brands on how to use Twitter to further monetize their brands, but the number-one question for Costolo following his presentation was how Twitter plans to do the same thing. “It’s a fairly easy proposition,” he noted. “Promoted tweets are often retweeted more often than organic tweets. We have an ad platform where people are incredibly engaged and we are going to expand it.” But if a company wants to pay for a “promoted tweet,” it has to be something that has already been tweeted from the account. In other words, it cannot be written expressly as an advertisement. And, like Google, Twitter will experiment more with providing key words to advertisers so they will appear at the top of any search list. <WWD>

Hedgeye Retail’s Take:  While Twitter itself is looking to monetize and commercialize its advertising properties, it appears the retailers (at least so far) have done a fairly good job promoting their brands for free.  After all, with a bunch of “followers” already  it costs absolutely nothing for a retailer to Tweet a promo or a new product launch.  Good for everyone but Twitter. 


Retailers Pursue Mobile Aggressively - The increasingly social, mobile nature of the Internet is reducing the space between retailers and their customers and forcing merchants’ hands when it comes to investing in new technologies. That was one of the common denominators among speakers on an e-commerce panel. Participants were Janet Carr, senior vice president of strategy and customer engagement for Coach Inc., Denise Incandela, president of Saks Inc.’s Saks Direct unit, and Carl Sparks, president of Gilt Groupe. Edmond Jay, senior vice president of American Express Co.’s Business Insights division, moderated. Incandela led off by defining four areas that are receiving more attention at Saks’ e-commerce unit — improving the customer shopping experience, adjusting to the global nature of the business, adapting to mobile technologies and integrating social networking into operations. Getting e-commerce right is crucial, she noted, because the multichannel customer spends three to four times more than the single-channel customer, and also spends more time in stores. Salespeople get commission for Web purchases they facilitate, and all stores have access to merchandise that’s on the Web. A database has been assembled that incorporates customer information from all channels used by Saks, and the retailer is working on integrating its inventory so that all channels have access to it. <WWD>

Hedgeye Retail’s Take:  This is getting old.  At the end of the day the consumer wants its mobile experience to mimic its online experience and its retail store experience.  Very simple.   


Men Mobile Mavens - The model of the young male early adopter seems to have fallen by the wayside with the rise of digital phenomena like social media, but according to research from Adobe Systems Inc., men were ahead in mobile. In a few content activities, women led. They were 10 percentage points more likely than men to access social media via mobile, and about equal when it came to searching for local information, reading or posting to blogs, and playing games. But men’s hunger for content put them ahead in more than just sports; video, music and news were all primarily male-conducted activities. Men weren’t just using more content—they were more willing to pay for it too. Adobe found that men were more likely than women to purchase every category of mobile media and entertainment content studied, including games, video, news and, of course, sports content. Overall, 53% of women said they had never paid for mobile entertainment content, compared with just 38% of men. Mobile-commerce is also a male-dominated area. Women held their own in categories like clothing, shoes and jewelry—as well as toys, babies and kids—but men were never far behind and in many areas dramatically outpaced women’s purchase habits. <emarketer>

Hedgeye Retail’s Take:  Great opportunity for the marriage of social media and retailing given the high overlap of female participation in both activities.


R3: LVMH, KCP, SHOO, H&M - R3 11 3 10


R3: LVMH, KCP, SHOO, H&M - R3 2 11 3 10


Vietnam Retail Sales Up - Vietnam’s total retail sales and service revenue is estimated to have accelerated 25.1% on-year to VND1282 trillion in the first ten months of this year, according to the General Statistics Office of Vietnam(GSO). The service revenue contributed VND116.9 trillion, up 22.3% on year in October. The trade sector reported an on-year revenue increase of 25.8% to VND1010.9 trillion compared with VND905.149 trillion in September, equivalent to 79% of the country’s sum during the nine-month period. The Ministry of Industry and Trade has forecast retail sales and service revenue in the world’s 13th populous country with 86.5 million people will soar 22% from a year earlier to $78.9 billion this year. <fashionnetasia>

Hedgeye Retail’s Take: With the trend of manufacturing demand shifting increasingly towards Vietnam for much of 2010, we view this rapid acceleration in the country’s venues likely to continue over the intermediate-term at a minimum. As a point of reference, at its recent analyst day, PSS noted that they expect to shift from 85% of production out of China to 70%-75% over the next 2-years of which Vietnam will be a primary beneficiary.


U.S. Customer Becoming Less Attractive on Relative Basis - Chinese footwear firms are shifting their focus from developed countries to emerging markets like the Middle East and ASEAN countries to reduce the burden of anti-dumping duties imposed by the EU and America, revealed by a research report conducted by RNCOS. Export to the Middle East countries has significantly increased over the previous year. Due to the establishment of China-ASEAN free trade zone, a huge growth has been seen in exports to the ASEAN countries, said RNCOS. Chinese footwear industry has witnessed robust growth both in terms of consumption and exports. The research has found that the footwear industry will recover from the 2009 downturn in near future. Liberalization and globalization have given required impetus to the Chinese footwear sector thus, enabling it to become the largest footwear producing country. According to the report, the Chinese footwear retail market can be subdivided into four sectors: Leather shoes, Rubber shoes, Cloth (textile) shoes, and Plastic shoes. As a whole, demand for rubber shoes is rising due to gradual diversification in functions and designs as well as constant improvement in comfort. The domestic sales of footwear in China have significantly risen on the back of rising online sales and increasing brand awareness. Chinese have shown great interest in the branded shoes after the entrance of many global brands that employ various promotional methods to popularize their products. <fashionnetasia>

Hedgeye Retail’s Take: Since 2009, China exports to ASEAN countries have doubled in terms of growth at the same time the domestic market demand is ramping rapidly. With manufactures also now starting to balk on orders in USD due to Fx risk, it doesn’t look likely that the cost of procurement is going to be easing in the near-term.




Vegas still stabilizing



"We continue to see the Las Vegas market stabilizing, Aria's operating performance is ramping up, and MGM Macau reported a record quarter. We have made significant progress on our financial position this year and have deployed several programs to better position our portfolio of resorts to benefit from a broader economic recovery going forward."


- Jim Murren, Chairman and CEO of MGM



  • Citycenter
    • CC net rev: $413MM; Aria net rev: $219MM; Aria EBITDA: $41MM
    • Aria's occ % was 82%; ADR was $175, resulting in REVPAR of $142
    • "$93 million impairment charge related to its residential inventory due to an increase in estimated final costs of the residential components"
    • "$279 million impairment charge related to its Harmon Hotel & Spa component due to CityCenter's conclusion that it is unlikely the Harmon will be completed using the building as it now stands.  The Harmon impairment did not affect the Company's loss from unconsolidated affiliates because the Company's 50% share of the impairment charge had been previously recognized by the Company in connection with prior impairments of its investment balance."
    • "Increase of $232 million in its total net obligation under its CityCenter completion guarantee and a corresponding increase in its investment in CityCenter"
    • Pre-tax impairment charges:
      • $182 million related to the Company's investment in CC
      • $46 million related to CityCenter's residential real estate inventory 
  • Casino revs down 9% YoY; Slot revs down 3% YoY; Table vol ex. bacc down 7% YoY; Bacc vol down 6% YoY
  • 3Q hold above midpoint of 18%-22%
  • "Rooms revenue decreased 3% from the prior year. The Company achieved 93% occupancy compared to 95% in the prior year quarter with consistent ADR, which led to a 2% decrease in Las Vegas Strip REVPAR."
  • "The Company used a portion of the net proceeds from the equity offering (40.9 MM shares) and all of the proceeds of the debt offering (10% 2016 Notes) to effectuate the extension its senior credit facility to February 2014.  Revolving commitments and term loans were reduced by $1.2 billion, leaving $3.6 billion of total commitments."
  • "Subsequent to quarter end, we have reduced our debt from $12.9 billion to $12.3 billion.  We have current availability under our senior credit facility to cover debt maturities into 2013."


  • 665-room MGM Grand hotel to open in Sanya, China in just over a year
  • Loyalty program revamped; has 60MM customers
    • Was behind the curve but catching up
    • Customers in MS and Detroit moving up the tiers
  • Market share in MS and Detroit have improved; Detroit market share was 42.5% in 3Q.
  • "Finally seen pockets of strength in Vegas"
    • customers coming out to shows
    • international and high end business doing well
    • restaurant spend per cover is up YoY
  • Significant increase in convention business and mix for 1Q 2011
    • luxury properties continue to outperform in October and for Q4; Bellagio REVPAR very strong
    • Mid-tier properties continue to struggle
  • Convention
    • continues to improve, particularly after Labor Day
    • mix improved in 3Q; October was great--November is decent too.
    • bookings in the high-teens
  • 1Q 2011: Room nights on the books up 30% YoY; convention revs up 40%; mix will be up to the mid-high teens.
  • Macau EBITDA: $83MM-- 23% EBITDA margin
    • mass table vol: up 25% YoY; slot vol: up 38% YoY; vip turnover: up 39% YoY
    • October was record month in terms EBITDA and margins
  • Quiet period with HK Exchange on Macau IPO
  • In compliance with convenants
  • City Center: $1.85BN credit facility
    • actively pursuing refinancing
  • 4Q stock comp: 9-10MM
  • 4Q depreciation: 155-160MM
  • 3Q gross interest expense: 285MM (261MM was cash interest) no capitalized interest
  • 4Q: interest expense: 270-280MM (no cap interest)
  • 2010 capex: ~200MM; spent 129MM thru Sept
  • Plan to refresh Bellagio and MGM Grand rooms next year
  • CityCenter: adjusted EBITDA 52.4 MM; Aria EBITDA 41.4; Crystals EBITDA: 2.4 MM; Vdara lost 600,000 and Mandarin lost 3.6 MM . Other components of CityCenter were 13MM net--26.1MM in residences income and administration costs of 13MM--primarily legal fees.
  • Aria
    • Net casino rev: 125.5 MM
    • High limit slot area closed in July; reopened in October
    • Non-casino rev: 94MM
    • Has 136k rooms nights on books for 2011--74% of total room nights for 2011
    • 50,000 room nights booked for Q1
    • FTE down 3% QoQ
    • Vdara: 70% occ; $129 ADR; occupied room nights flat QoQ; $10.9 net revenues in 3Q
  • Oriental: 7.2 MM rev; 3.6MM loss in EBITDA
  • Crystals: 70% occupied by end of 3Q; 80% occupied by year end
  • City-center residential: in September 2010, commenced CC leasing program
    • 200 units in the program; have leased 27 of those units

Q & A

  • Resort fee: $20MM in revs; by end of year, all wholly-owned properties will have a resort fee; if including resort fee in REVPAR, it would be positive. REVPAR is up in October. No change from previous guidance
  • Casino revs in 3Q:
    • Bellagio: table revs up
    • Mandalay Bay: table revs up
  • CC refinancing:
    • Hopefully get something done by end of year
    • No equity offering needed
  • CC 4Q should be profitable
    • Aria: 88% in 4Q; gaming volumes are strong in Oct; bacc market share tied with Bellagio; CC weekend occupancy 76% in Q1; 93% in Q2; 95% in Q3
  • Harmon infrastructure improvements will benefit Aria
  • Gaming tax proposal in Vegas: doesn't see any increase
  • May continue to have monthly distributions from Macau
  • Macau debt: 800MM
  • Marketing program: Wanted to be better on customer analytics; will see decreased promotional spending as they market better to their customers.
  • Have 400 condos for sale


The following are our notes from the Hyatt conference call that just ended.



"During the third quarter, RevPAR, margins, and fees increased as a result of improved demand. Higher levels of corporate and group business resulted in improved performance at convention and business hotels in particular. International hotels continued to perform well as occupancies and rates increased in several regions, contributing to fee growth of approximately 25% in the quarter."

- Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation



  • "Net income attributable to Hyatt included a favorable impact from special items of $21 million after-tax, or $0.11 per share, during the third quarter of 2010 compared to a favorable impact from special items of $5 million after-tax"
  • "During the third quarter, we opened three hotels, including Andaz 5th Avenue in New York City, an owned property. In total, we expect to open approximately 30 properties in 2010. In terms of future expansion, last month we announced the development of Andaz Wailea Resort and Residences in Maui, Hawaii, which is scheduled to open in 2012. Also, during the last week we announced the development of three new hotels in New York -- Park Hyatt New York, Hyatt 48Lex, and a Hyatt property near Union Square. Also, the major renovation of Grand Hyatt New York is progressing well. We are excited about increasing and improving our presence in key markets in the years ahead."
  • "Capital expenditures during the third quarter of 2010 totaled approximately $60 million, including approximately $6 million for investment in new properties."
  • Other activity in the quarter:
    • "Invested $60 million for preferred equity in the Hyatt Regency New Orleans re-development."
    • "Sold two aforementioned properties (Hyatt Regency Greenville and one non-Hyatt branded property) for $20 million."
    • "Conveyed Hyatt Regency Princeton to the lender, resulting in a reduction in debt of approximately $45 million."
  • Debt: $800MM and Cash & equivalents: $1BN



  • Occupancy levels increased in 75% of their portfolio
  • In NA ADR increases came from a mix shift towards higher rated transient and group business
  • Owned portfolio had strong flow through
  • Asia Pacific is benefitting from continued ramp up of newly opened hotels
  • In China they have 22 hotels under development and 11 hotels currently open
  • The Andaz in Waikiki will have a residential component - expect to invest $90MM in this development.  They are working with Starwood Capital
  • Will acquire a Park Hyatt when its complete in 2012 in NYC for $365MM - will own 2/3rds - just over 200 keys
  • Sold the Hyatt Greenville to an existing franchisee who will invest money to upgrade the property
  • Plan on selling 11 hotels so that they can free up capital to recycle
  • Results in NA were negatively impacted by renovation at 5 of their hotels. Margin improvement was due to continued productivity gains.  They managed expense increases to 4.4%. Lower cancellation and attritution fees also negatively impacted margins
  • NA managed and franchised hotels:
    • 60% of the hotels showed rate increases in the quarter
    • FS hotels experienced a 20% increase in room nights at flat room rates compared to last year, as a result of strong turnout for business on the books and near term booked business
    • F&B increased 8%
    • Group rates will lag prevailing rate
    • Transient demand - saw a 4% decline due to an increase in occupancy due to short term bookings.  Business hotels showed better performance.  Booked more business directly vs. through third party internet channels.
  • International mgmt and franchised: 
    • Asia Pacific continues to benefit from China RevPAR growth of 50% - Shanghai World Expo driven
    • In other Asian regions RevPAR grew 5-7%
    • Southeast Asia region lagged others in growth
  • Special $35MM gain on debt extinguishment on Hyatt Princeton when they conveyed the hotel back to the lender
  • 5 Large renovations are going well and some of them are approaching completion. Estimate that the renovations impacted EBITDA by $4MM and RevPAR by 175bps.  4Q impact is expected to be about 350bps to owned and leased RevPAR and $8MM of EBITDA.  The higher impact is due to markets performing better.  Renovations will impact the first 9 months of the year in 2011. Estimate that the cumulative negative impact will be 300-350bps of RevPAR and $20-25MM of EBITDA
  • Owned and Leased EBITDA will also be impacted by assets sold/conveyed in the quarter - so this quarter the impact was roughly $5MM


  • Expect a high single digit unleveraged return on the NY Park Hyatt and a low double digit return on the Hawaii project.
  • Hawaii Andaz - Residential 38 units, 290 rooms
  • They are in early stages of corporate rate negotiations. Their goal is to get a high single digit rate increase while corporates want flat to decreased rates.
  • There is nothing that restricts them for establishing a dividend policy. The reason they have a no dividend policy is because they feel like they have more attractive uses of deploying that capital
  • Costs for 2011 on Owned & Leased portfolio
    • Focused on increasing productivity, but they are starting to add hourly staff given the increases in occupancy. They are still tight on management staffing
    • They are giving merit increases in salaries
    • Bonuses have been re-instituted
    • Energy costs and HC costs are not really controllable
  • How did resorts vs. urban/convention hotels perform?
    • Leisure side was weaker. So urban and convention hotels outperformed
  • Much of their international development are driven by third party development
  • Why are they spending $1.6MM per key in NY, can't they buy something for less?
    • Very limited pool for brands that were available for conversion and that were for sale
    • There are also a number of residential units in the building that they will release for sale when the market recovers
  • Started this year with 1 hotel in NY and will have 5 within 2 years - with hotels that are all new or newly renovated
  • What comps are they using for Park Hyatt?
    • Will be at the top of the luxury market in NY
    • Over 700 SQFT per room
    • over 25% suites
    • Looked at rates in 2006-2008
  • Any markets in China that are starting to be overdeveloped?
    • maybe in the short term but over time they feel like there will plenty of demand
    • Many hotels they are building are in "secondary" emerging citites

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