As we expected, HST missed the Street's lofty estimates




  • HST reported revenues of $903MM, Adjusted EBITDA of $144MM and FFO of $0.11- missing consensus estimates by 2.5%, 16% and 11%, respectively
  • "Comparable hotel RevPAR increased 5.4% for the first quarter as a result of the improvement in average room rate of 4.8% combined with a slight increase in occupancy."
    • On calendar quarter, comparable RevPAR would have been 6.9%
    • "Two of the Company's larger properties, the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown, were severely disrupted by major renovation projects during the quarter. On a calendar quarter basis, excluding the results of the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown, comparable hotel RevPAR would have increased by an additional 150 basis points."
  • "Despite the improvements in RevPAR, comparable hotel adjusted operating profit margins for the first quarter decreased 10 basis points compared to 2010, largely due to higher payroll taxes, property-level bonuses, and lower attrition and cancellation revenue. These items disproportionately effected the first quarter and collectively reduced margins by approximately 85 basis points. Comparable hotel adjusted operating profit margins for the quarter were further reduced by 60 basis points due to the substantial disruption at the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown."
  • On April 27, 2011, HST reached an agreement to expand its investment in the European JV through the establishment of a new fund (the "Euro Fund Two").
    • New fund target size: EURO450MM of new equity and a total investment of  EURO1BN.
    • Each of the current partners will own a 33.3% LP interest in the Euro Fund Two, while an affiliate of the Company will have a 0.1% GP interest.
    • HST is contributing the Le Meridien Piccadilly to the JV for a transfer price of GBP64MM.
  • 1Q Capex
    • ROI Project:  $46MM; Maintenance: $48MM
  • For 2011 Capex guidance
    • ROI Project: $230-250MM; Maintenance: $300-325MM
  • "Based on the current guidance for 2011, the Company intends to declare... an aggregate annual dividend of between $0.10 and $0.15 per share."
  • Revisions to 2011 Guidance:
    • Operating profit margin expansion reduced by 10-20bps to 210-260bps
    • FFO guidance raised by a penny to 88-93 cents
    • Adjusted EBITDA raised by $10MM to $1,010-1,045MM
    • $16MM increase in revenues to $4,946-5,031MM and a $23-34MM increase in expense to $4,597-4,647MM


  • Slight increase in guidance was due to acquisition activity
  • Group demand continued to increase and transient demand was healthy.
  • Transient: Rate increase of 6.2%. Overall demand slipped by 7/10% as they relied less on discounted channels
  • Group: Benefitted from a rate increase of 2% and a demand increase of 4%. 24% increase in demand from higher rated group business. Association business was off by 17% this year but is expected to recover during the course of the rest of the year.  Group is now exceeding 2007 levels. Expect group revenues to increase meaningfully this year and rate to continue to get better in the balance of the year.
  • Acquiring Hilton in Melbourne Australia for $150MM
  • Expect that M&A activity will pick up this year beyond just the major markets.  They do expect to sell some assets in the 2H11 but aren't including that in guidance
  • Expect that room rates will continue to increase throughout the balance of the year as mix shift improves
  • Expect that 2H11 will exhibit better RevPAR and margin improvement
  • Top performing market was San Fran 24.3% increase in RevPAR (occ 7% and 12% ADR). Expect that this market will continue to outperform in 2Q
  • San Deigo - 22.6% RevRAR increase. 2Q expect them to underperform due to fewer city wides and lower group demand
  • Hawaiian 18.7% increase. In 2Q they expect hawaii to have an outstanding quarter
  • New Orleans - 14.6% increase in RevPAR. In 2Q, expect them to underperform
  • Phoenix turned the corner finally this quarter. Expect this market to outperform in 2Q
  • Boston RevPAR increased 6.9% despite bad weather and renovations. Expected to underperform in 2Q
  • San Antonio RevPAR only increased 1.3%. Expect them to have a great 2Q and outperform the portfolio
  • NY RevPAR -2.3% as occupancy fell 7%. Expect NY hotels to underperform the portfolio in 2Q but outperform in 2H11
  • Philadelphia was their worst market - 23% RevPAR decline. Expect underperformance in 2Q but outperformance in 2H
  • 5 of their 11 international hotels had double digit RevPAR increases
  • Margins were impacted by:
    • Higher state unemployment taxes which impact 1H disproportionately
    • Higher bonus accruals at the property level; hotel level bonuses are expected to be flat for the year though
    • Lower cancellation and attrition fees - well below their typical levels - expect that to continue for the balance of the year
    • Sheraton NY and Phili Marriott renovations
    • All items impacted margins by 145bps
  • Unallocated cost increased 6.2%
  • Utilities increased 4.2%
  • Expected RevPAR increase to be driven more by rate than occupancy and should lead to strong flowthrough despite above inflation cost growth
  • Expect unallocated costs and utilities and marketing to increase above inflation for the year as well as property level taxes
  • 2 of their hotels that they acquired in New Zealand  - 348 rooms were damaged by an earthquake.  39 rooms impacted. Deductible is up to $14.4M or 3% of the loss. They hope to open these hotels later this year. 
  • Raised $100MM under their continuous equity program
  • 108 of their hotels do not have mortgage debt


  • A very high percentage of their room nights have a fly in customer attached to it. They are concerned about the impact of higher airfare, but in the past they have found that cost of the increased fare didn't really impact their demand.  They are more concerned about reduction in flights. They aren't feeling any impact right now
  • Too early for a HOT like transaction as they had in 2006 - focus on asset sales is still on non-core
  • Their goal for dividends is to pay out their taxable income
  • 1Q for Washington was relatively weak. Feel like the market was impacted by a potential government shutdown. Washington held up the best during the downturn. Hence they assume that the recovery there would be less than in other markets. But don't think that the market will weak - expect it to be inline with the rest of the portfolio
  • Haven't seen big differences in brand that aren't attributed to market concentrations
  • Why is their guidance on corporate expense down YoY to $99MM. Lower incentive compensation is the main reason. Number of shares they get depends on relative performance to their index so that number gets revised
  • Thoughts of all the new systems being rolled out by the brands?
    • Too early to tell
    • None of them proceed without bumps along the road -  like Marriott's new system
    • Have generally done better at some of their larger hotels than smaller hotels
    • Marriott brands have gained share over the last few years
  • Their guidance this morning does include the $150MM Hilton Melbourne acquisition - and is largely responsible for the raise in guidance
  • They did see their in the quarter for the quarter bookings were lower than what they were last year. Conversely bookings for the next 3 quarters were far stronger than what they were last year.  Think that more people are willing to book a little further out. Have positive room nights on the books for 2Q & 3Q and the almost flat for 4Q
    • Rate growth is also better for the balance of the year
    • Real drive will be what happens on the corporate side. Corporate group has been improving
  • Thinks that the transient business in the Q was more impacted by the weather than group business, like NYC
  • Expect to see improvement in Group occupancy for the balance of the year
  • Expect to see a slight increase in transient occupancy but the growth there should really be rate driven
  • NY supply issues?
    • Thinks that 1Q had some supply impact, partly because NY is always seasonally weaker in 1Q
    • For the rest of the year they are pretty optimistic. However, they will still have construction disruption
  • How close are they to peak occupancy in their urban markets? Across their portfolio they are down 6% in room nights and 9% in rate from 2007. Thinks that that is pretty evenly distributed between weak and weekend nights
  • Still expect to NY to meaningfully outperform their portfolio in 2012

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more