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In-line Q1 and guidance. 



“The outlook for the rest of the year looks promising as we view the events of the past few months as not having derailed the overall global economic recovery. For example, our group and transient bookings remain robust. As such, we remain cautiously confident for 2011 and are bullish about our long-term prospects.”

- Frits van Paasschen, CEO




  • "During the quarter, the Company signed 29 hotel management and franchise contracts representing approximately 8,700 rooms and opened 21 hotels and resorts with approximately 5,200 rooms... Eleven properties (representing approximately 3,400 rooms) were removed from the system during the
    quarter.... At March 31, 2011, the Company had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms."
  • "Special items in the first quarter of 2011, which totaled $33 million (pre-tax), primarily relate to a charge associated with the Company’s minority investment in a hotel in Tokyo, Japan following the earthquake in March 2011. Excluding special items, the effective income tax rate in the first quarter of 2011 was 21.0%"
  • "Revenues at Starwood branded Same-Store Owned Hotels in North America increased 6.5% while costs and expenses increased 4.6% when compared to 2010. Margins at these hotels increased approximately 150 basis points."
  • "Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 8.5% (6.9% in constant dollars) while costs and expenses increased 7.4% (6.3% in constant dollars) when compared to 2010. Margins at these hotels increased approximately 90 basis points and were negatively impacted by approximately 120 basis points due to continued increase in the gap between inflation and currency devaluation at the Company’s Latin America hotels."
  • Owned hotels: "First quarter results were negatively impacted by pre-opening costs at the new leased W London Leicester Square, the effect of the earthquake at the new leased St. Regis Osaka, one renovation
    and one asset sale."
  • "Originated contract sales of vacation ownership intervals increased 6.5% primarily due to improved sales performance on existing owner channels and increased tour flow from new buyer preview packages. The number of contracts signed increased 7.8% when compared to 2010 and the average price per vacation ownership unit sold decreased 1.4% to approximately $16,500, driven by inventory mix."
  • Capex in the Q: $40MM of maintenance and $33MM of development spending. 
    • "Net investment spending on vacation ownership interest (“VOI”) and residential inventory was $16 million, primarily related to the St. Regis Bal Harbour project."
  • "On April 6, 2011, the Company completed the sale of one wholly-owned hotel for cash proceeds of approximately $110 million. This hotel was sold subject to a long-term management contract."
  • Guidance for 2Q:
    • Adjusted EBITDA of $245-255MM (consensus of $259MM)
    • EPS: $0.42-$0.46
    • WW RevPAR SS Operated Hotels: 7-9% constant dollars (+200bps for FX)
    • WW Branded SS Owned Hotels: 8-10% in constant dollars (+400bps for FX)
    • 10-12% growth in fees and income (-200bps impact from ME & Japan)
    • VOI / residential earnings: Flat YoY
    • D&A: $79MM
    • Interest expense: $58MM
    • Income from continuing ops: $82-90MM
    • Tax rate: 24%
  • FY2011 revisions from last quarter:
    • Reflect the benefit of FX/ ie weak dollar on RevPAR
    • EPS +5 cents due to lower below EBITDA line items
    • VOI earnings +5MM
    • SG&A YoY +2%
    • D&A -5MM
    • Interest expense -5MM


  • Despite global turmoil, their view of the lodging recovery remains unchanged
  • Occupancies at their hotels are now above peak 2007 levels
  • For the first time, rate contributed as much to RevPAR as occupancy
  • Annualized delinquencies and defaults in VOI have returned to 2007 levels
  • Group pace for 2011 is on track to be up double digits and 2012 business is on track to be better than 2011.
    • NA booking from outside of NA grew 20%
  • Achieved high single digit growth in corporate negotiated rates
  • Mid week occupancies are approaching peak levels in gateway cities
  • While leisure demand is likely to be somewhat impacted by rising fuel prices, business travel is not really elastic
  • Their customers tell them that they plan to travel more in 2011 than 2010
  • NY suffered from a 7% increase in supply this year. Already for Q2 they are seeing occupancies build - but they also contributed to the supply growth.  NY also suffered from weather.
  • Their websites drive 3x as much bookings for them than 3rd party sites. 50% of their bookings come directly to them (call centers etc)
  • SPG members account for 47% of their stays. SPG guests are 50% of Aloft and Element guests
  • $5MM impact from Japan and ME in the quarter
  • Japan: Their St. Regis in Osaka will lose $7-8MM this year vs expectation of B/E results
    • $20-25MM impact on EBITDA
  • China RevPAR up over 20% - China is their second largest country concentration after the US
  • India- have 32 operating hotels with 4 more to open. Goal of 100 operating hotels by 2015
  • Asia ex Japan continues to be a major contributor to their growth
  • ME: have 24 hotels across the affected countries. Expected to earn 15MM in fees and now expect that to be cut in half, earning no incentive fees. They are seeing strong growth in sub Sahara Africa.
  • Booking pace in Europe was strong
  • Mexico has been negatively impacted by drug wars and violence.  However, they are bullish long term on Mexico
  • Owned margins declined as much as 400bps in Argentina
  • Gained 300bps of share across all their brands
  • In Q2, expect occupancies in the 90s in NY and large rate increases
  • WW RevPAR is still 10% below peak levels


  • Group business comments relate to NA - obviously, they have more hotels in NA than they had a few years ago. However, most of growth in NA has been limited service not group hotels. That helps comparisons between 2006/2007 and 2011/2012
  • Most transactions are rifle shot deals
  • As they get into the middle of the cycle, they are more likely to pursue more sales of their assets or a larger transaction.  They are in the market testing asset sales.
  • Why is their SG&A guidance higher? Impact of FX - dollar is weaker and 1/3 of their SG&A is in Euros and Asian currencies
  • Weakness in Japan and ME is offset by better results in other parts of the world. NA - despite lapping some very difficult comparisons, in 2Q their RevPAR is tracking in-line with 1Q results
  • NA RevPAR is impacted by a Canadian and Mexican currency. NA would have 9.3% ex FX affects.
  • Aside from NY, London has had 3-4% supply growth. They just opened the W in Lester Square and its been one of the strongest openings. 
  • Franchise revenue growth has to do with Aloft ramp and just new hotel openings
  • Aloft is ramping faster than they expected when they launched the brand a few years ago. 
  • What percentage of their mix is still in the discount channels?
    • Their revenue management tools are giving them more insight into demand at their properties allowing them to effect mix to their benefit
    • OTA business peaked at 6-7% was about 3% in 2007
    • Government is about 3% of their business and was about 2% at their prior peak


Kona reported strong sales and earnings last night after the market close, confirming our bullish thesis on KONA.


KONA reported a 7.6% increase in 1Q same-store sales after the close yesterday, bringing the two-year average trend to a very strong +2.6%.  This two-year numbers constitutes a sequential gain of 350 basis points from 4Q10.  Looking to 2Q11, the company is guiding to a conservative 5% print for same-store sales.


Overall, restaurant sales increased 12.3% and restaurant operating margin increased to 14%.  The company stated, in its earnings release, that the company is being impacted by commodity costs but top-line sales have aided management in gaining leverage over these costs and improve profit margins.  Net loss for the quarter was $0.01 per share and the company is guiding to earnings in the second quarter of $0.02 to $0.04 per share.  


See our not from 04/14 titled, "KONA - GAIN ALPHA ON THE KONAVORE DIET", for detail on why we think the stock could trade between $7.50 and $8.00 in the next 12-18 months.  





Howard Penney

Managing Director


Huge Q1 but significant guidedown for Q2-Q4.  Strange.


“The year started off with a roar — strong bookings, low costs and solid profits — and in the first quarter every one of our brands exceeded its forecast. Unfortunately, the events in Northern Africa and Japan have turned what was shaping up as a spectacular year into merely a very good one.  Nonetheless, other than adjustments for fuel pricing, our earnings guidance for the year is essentially intact despite these dramatic geopolitical events.  The demand for the majority of our products has remained quite strong and even the impacted itineraries have begun to improve.”


-Richard D. Fain, chairman and chief executive officer




  • 1Q
    • Improvement in both ticket and onboard revenue yields and across all major product groups.
    • Costs were controlled; Due to timing, some costs shifted to later in 2011.
    • At the pump fuel: $511/metric ton
    • Fuel option portfolio increased by $24.2MM ($0.11 EPS) and the associated gain was booked to Other Income/(Expense) 
  • Q2 guidance:
    • EPS $0.40-0.45 vs consensus at $0.56
    • Net yields:
      • Reported: +5% vs consensus at +5.1%
      • Constant currency: +1 to 2%
    • NCC:
      • Reported: +5%
      • Constant currency: +3%
      • Ex-fuel reported: +4 to 5%
      • Ex-fuel constant currency: +2%
      • Fuel: 317K metric tons
      • Fuel expenses: $189MM
  • FY 2011 guidance
    • Net yields:
      • Reported: +5 to 7% (previously +4 to 6%)  vs consensus at +4.9%
      • Constant currency: +3 to 5%
    • NCC:
      • Reported: +5 to 6%
      • Constant currency: +4%
      • Ex-fuel reported: +4 to 5%
      • Ex-fuel constant currency: +2 to 3%
    • Fuel: 1.326M metric tons
    • Fuel expenses: $770MM
    • Three significant factors have influenced the company’s outlook on yields: geopolitical events, the weakening of the U.S. Dollar and increased tour activities.
    • Two of the factors influencing the company’s yield outlook, currency exchange rates and increased tour activities, are also affecting NCC guidance.
  • Higher food and transportation costs offset by savings initiatives in other areas
  • Fuel hedges: 56% for the remainder of 2011 at $75 bbl; 55% hedged for 2012 at $86 bbl; 40% hedged in 2013 at $91 bbl; 10% hedged in 2014 at $103 bbl; 
    • WTI Fuel options at strike prices ranging from $90 bbl to $150 bbl cover an additional 44%, 25%, and 11% of estimated consumption in 2011, 2012 and 2013, respectively.
  • The slowdown in Mediterranean bookings following unrest in Northern Africa have returned to normal levels as a result of lower pricing. 
  • Caribbean and Alaskan itineraries continue to show better than expected YoY improvement
  • Cash + undrawn RC: $1.6BN
  • Capex: $1.1BN, $1.2BN, $500MM and $1.1BN in 2011, 2012, 2013, and 2014, respectively
  • Capacity increases: 7.5%, 1.4%, 2.2% and 0.7% in 2011, 2012, 2013, and 2014, respectively



  • Managing through geopolitical events effectively
  • Over less few weeks, bookings in Mediterranean returned back to normal at lower pricing
    • Europe: expect yield increase in mid-single digits
  • Improvements in 1Q will continue into rest of 2011
  • Expect 2011 to be almost as strong as originally hoped
  • Strength in Caribbean and Alaska offset weakness from reduced bookings from Japan and Egypt
  • Focus on improving pricing; +1% in pricing improves EPS by 25 cents
  • Capex estimates have been raised due to Project Sunshine, refurbishments, and green technology investments
  • Close-in bookings higher than expected particularly in Caribbean and Brazil
  • Fuel costs: $2MM better than expected due to swap gains
  • $24MM gain on Mercury sale: will be recognized in an extended period
  • Higher fuel prices: 30 cents impact
  • Geopolitical impact: 20 cents on EPS and -1% on yields
  • 10% in fuel price translates into $30MM in costs, ex fuel option impact
  • Japan/Egypt will be felt in 2Q
  • Increased Pullmantur Tour activity primarily in 2H 2011
  • Low European itinerary visibility for 2012
  • Celebrity Silhouette: final stages of construction; will sail in July
  • Celebrity Constellation: onboard/ticket revenues have been good
  • Celebrity ships: volume and prices were stronger than expected
  • Celebrity Millennium (2012-2013): will go to Far East (will be solsticized)



  • Ex. currency, Pullmantour expansion, and geopolitical impact, everything else is same as in January 
  • UK prices substantially higher YoY; Expect successful UK market this summer
  • Sourcing mix in Europe: US passengers less than 25%
  • Much fewer people flying to cruises
    • Direct air passengers less than 10%
  • Mediterranean: still discounting but volume is back; pricing is relatively stable now
  • When will yields peak?
    • 3Q
  • Cannot provide rolling 12-month bookings but quarterly, it has been linear
  • Have raised prices in Alaska, Caribbean, and Bermuda as well as Northern Europe
  • Caribbean: outlook positive
  • G&A: very controlled; but maybe more marketing expense to drive top line

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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


Notable news items and price action from the past twenty-four hours along with our fundamental view on select names.

  • SBUX reported earnings yesterday after the close.  U.S. company comps came in at +7%, EPS was in line with expectations at $0.34.
  • KONA reported a 7.6% increase in 1Q same-store sales after the close yesterday.  Overall, restaurant sales increased 12.3% and restaurant operating margin increased to 14%.  Net loss for the quarter was $0.01 per share and the company is guiding to earnings in the second quarter of $0.02 to $0.04 per share.
  • EAT CEO Doug Brooks is committed to creating shareholder value.  Yesterday he said he would sell Maggiano’s if the right offer came along.
  • BWLD investors will be happy to read that an appeal by the NFL to reimpose a lockout on players while they remain in dispute was rejected by a federal court judge yesterday.
  • CMG and Pinkberry feature in an interesting story about overseas expansion for restaurant companies.
  • DPZ’s Domino’s Pizza U.K. & Ireland is hoping to capitalize on German growth with an all-share purchase of the country’s master franchise and plans to expand the brand from two stores in Berlin to a 400-store empire. 
  • PFCB declined 10.4% on accelerating volume following poor earnings yesterday.
  • PNRA also declined on accelerating volume after worse-than-expected earnings on Tuesday.




Howard Penney

Managing Director


PNK beat our Street high EBITDA estimate and it looks sustainable.



"We are pleased to report another quarter of year-over-year Adjusted EBITDA growth and continued improvements in operating margins. These improvements reflect the ongoing implementation of operating strategies focused on providing best-in-market experiences for our guests and improving our own internal processes.  We continue to progress with better methods to improve operations and elevate the guest experience."


-Anthony Sanfilippo, President and Chief Executive Officer.




  • The new Stadium Sports Grill and Bar at Lumiere Place will open in early May
  • Baton Rouge project: The three casino hulls were recently moved from the shipyard to the project site along the Mississippi River and construction of the casino is underway.
  • As of March 31, 2011, approximately $290 million of the $357 million construction budget (excluding land and capitalized interest) remains to be invested in the planned Baton Rouge facility.
  • Cash: $143MM, $70MM used in day-to-day operations
  • At the end of 1Q, the Company's $375MM credit facility was undrawn and approximately $9.3 MM LoC were outstanding. The Company expects to begin drawing on its credit facility as construction on its Baton Rouge project further ramps up. 
  • Gross interest expense: $27MM; net interest expense:$26MM
  • Capitalized interest of $0.8MM was related to Baton Rouge project
  • Discontinued operations: Atlantic City: - $2.2MM



  • Cautiously optimistic on consumers
  • 90bps margin improvement ex severance costs
  • Sees shared services at St. Louis (started 6 months ago) making progress
  • L'Auberge and Boomtown New Orleans did very well
  • Boomtown New Orleans efficiency improvements continue into 2Q
  • Tough weather conditions in 1Q, particularly at Belterra
  • Capex:  $38MM ($24MM due to Baton Rouge)
  • Most rivers in Southeast have had abnormally high water levels
  • Baton Rouge: barges are in place; river levels still above normal; now expect summer 2012 opening - pushed back from Q1 2012
  • All Mid-western properties gained share
  • 2011 Marketing expense as % of revs: on track with expectations
  • L'Auberge brand campaign: summer 2011



  • Severance costs: predominantly corporate; corporate expense; 6.5-7MM run rate for corp expense
  • April trends: continues 1Q trend
  • 1Q Marketing spend: played to expectations; not inflated by myChoice
    • Haven't seen an increase in promotional spend by competitors in their markets
      • St. Louis: special program and brand campaigns drove marketing expense, unrelated to myChoice
    • 1Q myChoice expenses: launch related 
  • Mostly higher consumer spend per visit driving results (even in St. Louis properties)
  • VLTs in Ohio:  encouraged by early thoughts on tax structure
  • Encouraged by early myChoice results
  • myChoice performance metrics: play consolidation, play frequency, migration of tiers, # of new customers YoY
  • myChoice will help retention rate of existing customers
  • Weather impact:
    • Belterra: overall net-neutral; was affected in January
    • South: coastline Lousiana properties not much impact
    • St. Louis: tornado last week no impact
  • St. Louis: early innings of ramp up
  • Louisiana properties: still sees room for improvement
    • L'Auberge: can be better yielded; a lot of work being done
  • Texas: very difficult to pass

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