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In preparation for HST's Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from HST’s Q1 earnings call.




  • “Transient segment, business trends continue to be positive, with an overall average rate increase of 6.2% for the quarter, driven by an 8% increase in our premium and corporate segment and a 5 plus percentage increase in our special corporate segment.”
  • “Group business, we benefited from a demand increase of 4% at an average rate increase of more than 2%, resulting in an overall Group revenue increase of 6.4%. The main driver for these results was a 24% increase in demand from our higher-rated corporate Group business, as that segment continues to recover ground loss in the downturn. Our association business, which has longer booking lead times, was off this quarter by 17%, but it is expected to recover significantly over the course of the remainder of the year. Every segment of our Group business experienced average rate growth, and all but the corporate segment are now exceeding 2007 rate levels. However, given that overall Group demand is still more than 13% behind 2007 levels, we were still expecting to see an increase in Group business drive our recovery.”
  • “Our booking pace outlook improved over the course of the quarter, especially in March, and exceed 2010 in our booking pace from last quarter. We expect overall Group revenues to increase meaningfully this year”
  • “For the full year, we expect to spend approximately $230 million to $250 million on these types of projects.  For the full year, we expect to spend $300 million to $325 million on maintenance capital expenditures.”
  • “We expect that our disposition activity will pick up in the second half of 2011 and become even more active in ‘12 and ‘13. With that being said, our guidance currently does not assume any dispositions.”
  • “We remain optimistic that the economy will continue to pick up steam this year.  As the recovery continues, we expect demand to remain strong and average rates to keep improving, as our business mix shifts the higher rate of business segments”
  • “We expect comparable hotel RevPAR will increase 6% to 8% for the year, with adjusted margins increasing 100 to 140 basis points.  It is worth noting that we expect the second half of the year will exhibit better relative performance than the first half on both the RevPAR and margin front, as we expect to be more significantly affected by renovation work in the first and second quarters.  Now we anticipate that pricing will be better during the latter stages of the year.”
  • FY 2011 Guidance: “Adjusted EBITDA of $1.01 billion, to $1.045 billion, an FFO per share of $0.88 to $0.93.”
  • “Over the next three quarters with the expectation of a full year common dividend of $0.10 to $0.15 per share.”
  • Regional RevPAR guidance for 2Q11:
    • San Francisco: “continue to outperform our portfolio… due to excellent Group and transient demand and further ADR increases”
    • San Diego: “underperform the portfolio due to fewer citywide and overall reduced group demand only partially offset by improvements in transient demand and rates.”
    • “We expect Hawaii to have an outstanding second quarter due to further improvements in group and transient demand as well as increases in ADR.”
    • New Orleans: “underperform the portfolio … due to a decline in group demand”
    • Phoenix: “outperform our portfolio… due to strong corporate group demand and ADR gains”
    • Boston: “underperform the portfolio…due to the reduced citywide demand and the displacement of business as we wrap up our meeting space renovation at the Sheraton Boston.”
    • San Antonio: “great second quarter and to outperform the portfolio because of strong group demand, which should drive a significant increase in ADR”
    • “With the renovations continuing into the second quarter, we expect our New York hotels to continue to underperform our portfolio, however, we do believe that our New York hotels will have a great third and fourth quarter”
    • “The Philadelphia market will continue to struggle in the second quarter due to the renovation of the hotel, which is expected to be completed in August of this year. However, we expect our Philadelphia hotels to have a strong second half of the year.”
  • “On a full year basis for 2011, hotel level bonuses are expected to be roughly flat relative to 2010.”
  • “In the first quarter of 2011, cancellation and attrition fees were well below the levels (in 1Q10 which were elevated), the typical level, and that trend’s expected to continue throughout 2011”
  • “Looking forward to the rest of the year, we expect the RevPAR increase to continue to be driven more by rate growth and occupancy, which should lead to strong rooms flow through, even with growth in wage and benefit costs above inflation.”
  • “We expect some increase in group demand as well as higher quality groups, which had helped to drive growth in banquet and audio-visual revenues and solid F&B flow through, particularly in the second half of the year, as payroll tax and bonus expense comparisons become easier.”
  • “We expect unallocated costs to increase more than inflation, particularly for utilities, where we expect higher growth due to an increase in rates and volumes and sales and marketing costs, where higher revenues and implementation of new sales and marketing initiatives will increase costs. We also expect property taxes to rise in excess of inflation.”
  • “I think we will be opportunistic about selling some of our larger hotels, but I think the focus initially will really be as you were suggesting on the non-core assets”
  • “Washington was one of the markets that held up the best in the downturn. So it declined the least. As all these different markets start to work their way back to where they were before and then move beyond that, we’ve generally assumed that Washington growth would be fine in a historical context but in the short-term would likely be lower than certainly markets like New York, Boston and San Francisco, but not because it’s not a healthy market, but because the overall level of decline there was just lower.”
  • Q: “Guidance on corporate expense is $99 million versus last year’s $108 million. How do you account for that being down?”
    • A: “One of the bigger factors is just the way that our compensation program works. The amount of shares that we earn depend upon primarily on our relative performance compared to the rest of the market, and at this point in the year we tend to just use target for a number and then we refine that number as we get later into the year. Last year, because we performed so well against NAREIT and so well against the lodging companies that are in our index, our compensation was higher, and that’s why you saw the number being higher”


Notable news items and price action from the restaurant space as well as our fundamental view on select names.





Corn futures climbed in Chicago as speculation grew that hot weather in parts of the U.S. will curb supplies.  The U.S. is the world’s largest producer and exporter of corn.


European coffee stockpiles climbed 11% to 12.7 million bags on May 31 from 11.46 million bags on April 30, according to the European Coffee Federation.  Coffee prices have been in a downward trajectory during July, but remain up 52% year-over-year.





Food processors continue to underperform as their costs remain high.  Looking at commodity prices over the past week, there seems to be ample volatility across the board and we would expect that to continue to pressure the food processors.






  • CMG is reporting after the close.  Consensus comps are +8.6%, consensus EPS is $1.68, and revenue is $558.3M.  Goldman is advising buying an August $330 straddle ahead of a possible EPS miss.
  • MCD June U.S. comp sales estimate was increased to 7.3% at Janney.



  • KONA continues to blaze a trail higher, gaining 3.7% on accelerating volume.  It is, by far, the best performing stock on one week, thirty day, and ninety day durations.
  • MSSR and BOBE both gained on accelerating volume.




Howard Penney

Managing Director


Rory Green



TODAY’S S&P 500 SET-UP - July 19, 2011


As we look at today’s set up for the S&P 500, the range is 18 points or -0.34% downside to 1305 and 1.04% upside to 1319.







THE HEDGEYE DAILY OUTLOOK - global performance


THE HEDGEYE DAILY OUTLOOK - daily sector view




  • ADVANCE/DECLINE LINE: -2139 (-2789)  
  • VOLUME: NYSE 874.26 (-18.58%)
  • VIX:  20.95 +7.27% YTD PERFORMANCE: +19.17%
  • SPX PUT/CALL RATIO: 1.99 from 2.48 (-20.03%)



  • TED SPREAD: 23.68
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.94 from 2.94
  • YIELD CURVE: 2.57 from 2.57



  • 7:45 a.m./8:55 a.m.: Weekly retail sales: ICSC/Redbook
  • 8:30 a.m.: Housing starts, est. 2.7%, prior 3.5%
  • 8:30 a.m.: Building permits, est. (-2.3%), prior 8.2% (revised
  • 11:30 a.m.: U.S. to sell $28b 4-wk bills
  • 7:30 p.m.: Fed’s Hoenig speaks on monetary policy, agriculture



  • Investor confidence in Germany drops more than forecast in July as euro-area debt crisis worsens
  • Zillow prices its IPO after the close today, may value the company at ~$460m
  • Spain sold EU4.45b ($6.3b) of treasury bills, just below its maximum target, as its financing costs surged
  • Gold surged to record, surpassing $1,610-oz. as it climbed for 12th straight day




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Record Profits for Miners as Shipping Cost Slumps on Glut: Freight Markets
  • Oil Gains in New York as U.S. Supplies, China Demand Counter Europe Debt
  • Copper Advances to a Three-Month High as U.S. Housing Starts May Increase
  • Sugar Climbs on Smaller Crop in Top Producer Brazil; Cocoa Prices Decline
  • Gold May Rise, Extend Longest Winning Streak in Nine Decades, on Debt Woes
  • Onahama Copper Smelter Struggles to Restart After Japan Quake, Radiation
  • African Swine Fever Close to Russia’s Western Borders Threatening EU Pigs
  • India Yet to Decide on Allowing Wheat Exports, Farm Secretary Basu Says
  • Corn Futures Advance as Persistent Hot Weather in Midwest Threatens Yields
  • Booming Cotton No Boon to African Farmers Milked by Government, Monopolies
  • Zhongpin Says Report on Overstated 2010 Sales was Based on ‘Faulty’ Facts
  • Barclays Capital’s Yingxi Yu Leaves Commodity Research Team in Singapore
  • Thai Rubber Output to Gain as More Trees Begin Production, Exporter Says
  • Potash Cartel’s ‘Cupboard Is Bare’ for India After China Pact, Mosaic Says




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: good day to put your shorts back on; crashing markets bounce to inconsequential lower-highs; resistance: IBEX = 9984, MIB = 19559

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: mixed overnight; China down -0.7% but India up +0.8%; Asian markets don't think $IBM is a new long idea

THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Are You In the Herd?

“Nothing is more obstinate than a fashionable consensus.”

Margaret Thatcher


Most stock market operators, particularly those trained in the dark art of short selling, have an understanding of the concept of herd mentality.  The expression “herd mentality” describes how people are influenced by their peers to adopt certain behaviors.  Herding around perceived fundamentals has led to some of the most spectacular bubbles of the last fifteen years – the internet, real estate, uranium, and so on.  Interestingly, we may be at the beginning of the end of the most spectacular financial bubble of our lifetimes: sovereign debt.


Just over two years ago, on April 8th, 2009, Keith and I attended a guest lecture at the Yale Law School by former Treasury Secretary Robert Rubin.  For better or worse, Keith and I have never worshipped at the Church of Rubin, though many current and former U.S. policy makers are considered his protégées - including the venerable Timothy Geithner and Larry Summers - so his philosophy certainly influences current U.S. policy.  At that time two years ago, the Hedgeye team was digging deep into sovereign debt issues and were naturally struck by one specific quote from Rubin’s lecture:


“There is no risk of any defaults on sovereign debt globally."


In hindsight, Rubin pretty near top ticked the global sovereign debt markets with his Fashionable Consensus.

Last week, we introduced Policy Pong as one of our three Q3 2011 investment themes.  On a global level, Policy Pong refers to the batting back and forth of Keynesian monetary and fiscal policies between Europe and the United States.  Our view on the world’s two key reserve currencies, the Euro and the U.S. Dollar respectively, is directly influenced by the intermediate outlook for policy from each region. 


In the U.S., the policy debate over the debt ceiling is critical to watch, but the U.S. Treasury market is telling us emphatically that no default is imminent.  In fact, yields on 10-year treasuries are near year-to-date lows at 2.92%, while credit default swaps for 10-year treasuries are trading at 64 basis points versus 59 basis points on December 31, 2010.  Despite heightened rhetoric, it is likely that the Republicans and Democrats will reach a Fashionable Consensus, which in the intermediate term is positive for the U.S. dollar versus the Euro.


Are You In the Herd? - Chart of the Day


There is no doubt that the herd is negative on European sovereign debt. In fact, with Greek 5-year CDS currently trading at 2,568 basis points and recent media reports suggesting that Greek debt could be written down by 80%, the case could be made that investors are too bearish on Greece.  As it relates to the outlook for Europe more broadly though, Greece, at less than 2% of European Union GDP, is not the best indicator for contemplating the next move in the Euro currency or the Eurozone economy.  So, the question remains, is the herd bearish enough on the Euro and European sovereign debt issues?


We are currently short of the Euro / USD via the etf FXE in the Virtual Portfolio. The key component of this thesis is that we believe that the ECB will be forced to shift its monetary policy stance due to both slowing growth in Europe and accelerating sovereign debt issues, primarily in Italy.  Currently, credit default swaps on 5-year Italian bonds are trading just north of 300 basis points, which is slightly better than Lebanon at 358 basis points and Vietnam at 344 basis points.


This acceleration in the price of Italian credit default swaps has been underscored by the rapid increase in yields on Italian government debt.  As an example, the yields on Italian 10-year bonds are currently at 5.79%, an increase of almost 100 basis points from the start of July.  Rapidly accelerating interest costs are an issue for Italy because it has debt-to-GDP of north and 110% and interest-payments-as-percentage-of-GDP are north of 4.8%, according to recent ECB reports, which is second only to Greece at 6.7%.


Rather than viewing the European Union holistically, sovereign debt investors are rightfully evaluating each sovereign issuer on its own merits.  Conversely, the ECB is seemingly evaluating the next interest rate move on what is best for the healthy economies in Europe, in particular Germany.  Unfortunately for the one size fits all policy makers at the ECB, the GIPSIs (Greece, Ireland, Portugal, Spain, and Italy and so named for their wandering fiscal policies) are collectively more than 25% of Eurozone GDP and have credit default swaps government debt yields that are saying “No Más” to Trichet’s hawkish stance.


(For those sports fans, the best analogy is Sugar Ray Leonard versus Roberto Duran when Duran quit mid-fight, which occurs at 1:35 of this video: http://www.youtube.com/watch?v=HPoWrWwwi8M)


The second derivative issue of sovereign debt in Europe relates to the European banking system and the impending collateral call on European banks.  Our ever insightful Financials Team lead by Josh Steiner wrote a note yesterday titled, “European Debt Crisis: Where the Bodies Are Buried (The 13 Most Exposed EU Banks), with the following key takeaway:


“We find that there are numerous European banks with over 100% of their Core Tier 1 Capital committed to either PIIGS commercial loans or PIIGS sovereign debt holdings. For example, we found that 18 of the 40 largest European banks held 100% or more of their Core Tier 1 Capital in PIIGS sovereign debt or commercial loans. In 13 of these cases, the banks held more than 200% of their Core Tier 1 Capital in PIIGS sovereign debt or commercial loans.” 


Is it Fashionable Consensus to be short of the Euro? Perhaps, but our research, risk management, and obstinance are telling us to stick with it.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Are You In the Herd? - Virtual Portfolio


Even the “greatest wet blanket” couldn’t dampen another blockbuster quarter at Wynn Las Vegas. Oh, and Macau helped too.



“And I'm saying it bluntly, that this administration is the greatest wet blanket to business, and progress and job creation in my lifetime.”      


 – Steve Wynn



WYNN blew away our Q2 EBITDA estimate by 10%, and we were way ahead of the Street.  Despite the “the weird political philosophy of the President of the Unites States”, Steve managed to put up another blockbuster quarter in Las Vegas.  Then again, Steve had Lady Luck on his side this quarter – not sure about Obama and his Keynesian plan to revive the economy.  We estimate that hold favorably impacted the quarter revenue and EBITDA by $39MM and $28MM, respectively.


Overall, we’d say this was a terrific quarter.  While Macau EBITDA didn’t beat us by much, we were high on the Street.  After numbers go up, the question will be, “what’s next?”  We think Wynn Macau is a market share retainer at best and will likely lose share over time.  Market growth remains incredibly strong, but that benefits everyone.  What is the next catalyst?  MPEL for instance has many more catalysts, is cheaper, and probably has higher upcoming earnings revisions. 


Below are some observations and takeaways from the quarter. 



Wynn Macau generated $977MM of net revenue and $314MM of EBITDA, which were in-line with our estimates. 

  • VIP net table win was $12MM below our estimate
    • Direct play was only 8% vs our estimate of 10%
    • The rebate rate was 30.5% (vs. our estimate of 30%) or 88bps
    • Mass revenues were $6MM above our estimate
      • Drop increased 26% YoY vs our estimate of 44%; however, hold was 27.8% vs. our estimate of 23.5%.  Wynn’s hold since 2Q10 (when they opened Encore) has been 25.5% if we include the current quarter
      • We estimate that high hold benefited Mass revenues by $16MM and EBITDA by $10MM
      • Net non-gaming revenue was $3MM below our estimate due to higher comps
      • Fixed expenses were $93.4MM – in-line with our estimate

Las Vegas

Las Vegas results of $391MM of net revenue and $133MM of EBITDA blew away our estimates by 10% and 41%, respectively. 

  • Casino revenues came in $24MM above our estimate, entirely due to high hold on Wynn’s baccarat business
    • Table drop of $535 million was right in-line with our estimate, but hold of 27.6% was materially higher
    • Using the mid-point of Wynn’s normal range of 22.5% - we estimate that hold benefited the quarter by $27MM on net revenue and $21MM on EBITDA.  If we use the trailing 5 quarter hold rate of 23.8%, the benefit on revenues and EBITDA would have been $20MM and $16MM, respectively
    • Slot revenue was $1MM below our estimate
    • Casino discounts were 15.9% of gaming revenue or $30MM
    • Non-gaming revenues were $10MM better than we estimated due to better F&B results
    • Total operating expenses of $258MM declined $5MM sequentially and only increased 2% YoY



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 80.48%
  • SHORT SIGNALS 78.35%