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Decent results and the MGM catalyst



After reporting what looks like a decent quarter, BYD’s stock is trading lower.  The stock traded up into the quarter but once those gains are booked we expect a sharp reversal in the stock.  While the quarter was not a blockbuster, it did beat our expectations, particularly in the regional markets.  Importantly, BYD’s locals Las Vegas business reported YoY growth and beat our estimate so that market may have stabilized. 


We think the stock could bounce significantly off of its morning lows.  Anecdotally, there seems to be a lot of interest in the hedge fund community for the next big gaming idea, given the terrific moves that a lot of gaming stocks have had year to date.  BYD had a good week of trading but is still lagging the big movers over the past few months.  Moreover, with a likely very strong MGM quarter coming up a couple of weeks (August 8th), people will be looking for the usual derivative Strip play – exposure to the Las Vegas locals market.  MGM is up over 30% in the last month alone.  Watch BYD closely today.


Here are the results from the quarter:




In preparation for the HOT Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from HOT’s Q1 earnings call and subsequent conferences/releases.



Post earnings call commentary (June 21 – Jefferies Conference / June 8 – Goldman Conference)

  • “We’re very focused on deleverage; we’d like to be a solid investment grade rating over time. That means additional debt pay-down in the coming years; we do have maturities that come due in ‘12 and ‘13 that we will pay down with some of that excess cash. But we are also very focused with any incremental cash that we generate from time share and our lodging operations, as well as selling assets to reinvest that capital in the business and accelerate our growth.”
  • “There’s still not a lot of capital available for buyers to put debt on those properties, so the pool of capital is still relatively limited.”
  • “You won’t get that kind of ramp in incentive fees that you might have gotten if you had a lot of old U.S. contracts, because we didn’t see that kind of decline either. Having said that, we will get some ramp”
  • “Hotels will be as profitable as rate. Rate is the make or break variable… Rates are still well below where they were, at least 10%, 15% in some places. Rates will not only get back to where there were in nominal terms, but I am convinced they will go well past, there is no question about it, because there really isn’t going to be any hotel construction unless they do that.”
  • “On the cost side… the insurance markets are tighter, so insurance costs are going up but they are not such a big chunk of costs that they will be a big factor. The same with utilities. F&B, we tend to want to pass on those costs… if we have big inflation, there will some cost pressures, but hopefully, we also have rate flexibility. What happens to margins in this industry over the cycle, entirely a function of rate. It is the variable to watch.”
  • “Our immediate priority in priority order, reinvest in the business, pay down some debt. Those are the first two priorities. We scaled back investing in our business through the tough times in ‘09 and to some degree in ‘10. We’ve begun to scale it back up in our own hotels. Our own hotels need some capital.”
  • “My guess is we’ll get to a BBB rating sometime next year. Once we’ve gotten to those, then we get to the point where, where do we put excess cash? Well, clearly acquisitions, if they are available, we would be interested, not of real estate, but of brands.”
  • “So if there is a slowdown going on today, I think the rule of thumb people have had is, we may see it in our business six months from now.”
  • “Yes, the environment is good today in terms of pricing, but it’s not a deep market for hotel sales. So we did $6 billion or $7 billion of the hotel sales in the ‘06, ‘07 timeframe in one $4 billion-plus sale. I don’t know of anybody out there today who is in the market for a $2 billion portfolio.”
  • “We get a very small percentage of our business from OTAs (Online Travel Agency) today, less than 5%.”

Youtube from Q1 Conference Call

  • “Our vacation ownership business continues to be a strong source of cash, and with small re-investments, we can sustain our sales and cash generation at current levels through 2013.”
  • “Our group pace – or the total amount of group business we have on the books for 2011 – is on track to be up double-digits. We’re also on track for our group pace in 2012 to be ahead of 2011. In fact, we now have more business on the books for 2012 than we did in early 2006 for 2007.”
  • “Our corporate negotiated rates, we’re happy to report that we achieved the high single-digit increases that we were seeking. Coupled with rising occupancies, transient revenue increased 15% in Q1, and from what we can see today, this trend is continuing in Q2, with room nights booked one month out on track to increase double-digits and with ADRs up over 6%.”
  • “Midweek occupancies now are approaching 2007 levels in gateway cities such as New York, London, Paris, Hong Kong, as business travel, particularly at the high end, remains robust.”
  • "We expect to make $5 million to $10 million in Japan, a $20 million to $25 million EBITDA shortfall for the year. Given the financial condition of the Sheraton Grande Tokyo Bay, we have written off our equity investment. All in all, Japan will be a headwind this year.”
  • “U.S. Booking pace remains strong in China, though comparisons will be affected by the lapping of the World Expo in Shanghai in Q2 and Q3 last year.”
  • “Moving on to the Middle East and Africa, the political turmoil in North Africa continues, with no clear end in sight. Our one hotel in Libya is shut, and travel into most North African countries is down sharply. We have 24 hotels across the affected countries, which includes all of North Africa plus Bahrain, Syria, and Jordan. We expected to earn at least $15 million in fees this year. We now estimate our fees will be cut in half, with no incentive fees earned and base fees down sharply.”
  • “EMEA division is working on offsetting shortfalls from the Middle East in other parts of the region The first quarter is a small quarter in continental Europe, but booking pace suggests strength as we enter Q2.”
  • “Drug wars and the negative press in the U.S. have decimated leisure travel into our Mexican resorts. In the peak season, occupancies were in the 50s, and rate was down sharply, as we have to replace U.S. guests with lower-rate domestic business.”
  • “In Latin America, the gap between high local inflation while currencies appreciate relative to the dollar is severely hurting our owned hotel margins, particularly in Argentina. This inflation devaluation gap caused our owned margins to decline as much as 400 basis points in Q1. We are working on improving our dollar rate realization with our global accounts and by remixing the business.”
  • “Based on current trends, we expect second quarter RevPAR growth to be in the same range as first quarter growth in North America, despite tougher comparisons.”
  • “In Q1, worldwide RevPAR was 10% below the Q1 2008 peak, 9% lower on rate and 100 basis points lower on occupancy.”
  • “Our vacation ownership business continues to be stable. Sales to existing owners have picked up, and tour flows are getting better. Default rates also continue to decline.”
  • “Japan, North Africa, and the sale of the Westin Gaslamp will reduce Q2 EBITDA by approximately $10 million”
  • “Sales have continued at good square foot rates and high deposits, and we’ve been in contact with people with signed contracts to alert them to the upcoming closing schedule. As we have indicated, there will be income recognized from closings that are completed in 2011 which is not included in our outlook. We will provide our best estimates as we get closer to actually initiating the closing process. Any cash from closings this year is also not included in our estimate of cash flow from our vacation ownership and residential business.”
  • “When you look at the lower-rated channels, OTA, our business with OTA has probably peaked at 5% to 6% of room nights, whereas when you went back to 2007, that number was closer to 2% or 3%, so there’s several percentage points that we can gain by moving to our own higher-margin distribution channels instead of using the OTAs. And our business with government is relatively small, call it just under 3%, and at the prior peak, that was probably 1% or 2%. So there’s some room to grow there from a mix standpoint.”


The Macau Metro Monitor, July 27, 2011




According to a source, MBS has named George Tanasijevich CEO of Marina Bay Sands and Benny Zin its COO.  Tanasijevich had been MBS's interim CEO following the sudden resignation of Tom Arasi from the position in January.  Zin, who had been serving as interim COO, was Marina Bay Sands' VP of meetings, conventions and exhibitions.


In a separate article, MBS has again called on the Singapore government to make available several adjacent plots of land which are currently not on the reserve list and not positioned to go through the public tender process.  "The ramp-up here in each of our business lines has been very rapid. We want to be ahead of the demand to make sure that we're not constrained as we continue to progress and build our business," said Tanasijevich. 



Judge Elizabeth Gonzalez said the Jacobs case will proceed as she turned down a request to put the suit on hold.  Last week, Sands China attorneys had asked to freeze the lawsuit while an appeal was ongoing.  The appeal to the Nevada Supreme Court was filed last May, asking for the lawsuit to be dismissed.




Unemployment rate for April-June 2011 was 2.7%, up slightly by 0.1% point over the previous period (March-May 2011).  Total labor force was 338,000 in April-June 2011 and the labor force participation rate stood at 71.6%, with the employed population increasing by about 800 over the previous period to 329,000.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.




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







Yesterday, the ICSC chain store sales index posted its fifth consecutive weekly gain.  Consumer spending does not seem to be impacted by the reductions in confidence as the debt-ceiling debate continues; even recent small increases in gasoline prices and stock market weakness have not hurt current trends. Year-over-year growth posted its best three weeks in more than a year, topping 4% for two consecutive weeks. 


Richmond Federal Reserve Manufacturing Survey


Also yesterday, the Richmond Fed Manufacturing survey contracted in July after rebounding in June. The composite index fell by 4 points to -1 and has now been in negative territory in two of the last three months.  In 1Q11 the index averaged 21.  The all important look at Job picture slowed significantly in July, with the employment index slipping from 14.1 in June to 4 in July, the lowest level since September 2010.


So far this week we have seen two regional Fed surveys that point to a continued sluggish job picture and an overall economic that is sluggish at best.  Despite that consumer spending remains resilient and that is showing up in the restaurant industry sales trends - for the better positioned concepts.  I view the slight uptick in consumer confidence as a non-event, as confidence levels are still consistent with a consumer recession. 




Food Retail and Food Processing were the leaders yesterday as full service restaurants continue to lag.  Quick service restaurants’ price action was also sluggish.






  • DNKN is now one of the most expensive stocks I follow, despite the massive surge in multiples over the past year, with no track record as a public company.
  • SBUX was upgraded to “Buy” at Janney Montgomery today.  The twelve-month price target is $48 per share.
  • DPZ traded higher on accelerating earnings after posting a strong quarter.  See our post from yesterday for further details.
  • COSI clearly has some real problems, trading down -3.8% on accelerating volume.


  • BWLD missed EPS expectations for 2Q but is still looking strong, in our view.  Restaurant level margins improved year-over-year, while operating margins declined on higher G&A and pre-opening expenses.   We are comfortable with the concept incurring “the cost of growth” so long as comps remain strong, which they are.  Commodity costs also remain favorable.  See our post from early this morning for more details.
  • BWLD was upgraded this morning to “Outperform” at Raymond James.
  • KONA posted a great quarter.  We continue to like the story as remodels are completed and sales trends remain strong.
  • PFCB posted a dismal quarter this morning.  The change of timing of the release is never good news.  EPS came in at $40 cents versus expectations of $0.55.  Guidance was lowered dramatically for 2011 to $1.60-1.70 versus prior $2.15-2.20 and consensus $2.09.  The stock traded down as much as -12% in premarket trading after the news came out.




Howard Penney

Managing Director


Rory Green



MBS was the standout which bodes well for the stock. High hold across the properties helped but volumes at MBS were outstanding.



We felt going into this quarter that MBS was the lynchpin.  If we were right, then it should be a good day for the stock.  MBS beat us by $68MM on EBITDA – and it wasn’t just hold.  Macau was just in-line with our estimate – hold adjusted was in-line with the Street – while Las Vegas beat us mainly due to luck.  Relative to the market, Macau remains disappointing for the company but with the kind of growth we’re seeing, who cares?  Right now it is, and should be, all about Singapore.


Overall, we estimate that higher than normal hold across LVS’s portfolio benefited net revenue and EBITDA by $91MM and $64MM, respectively, although to be clear, high hold was factored into our Macau estimates.  Here are the results by region.







Macau property EBITDA was in-line with our estimate ($2MM lower) and 5% above consensus. However, as mostly factored into our projections, hold benefited Macau net revenues by an estimated $60MM and EBITDA by $37MM.  Despite efforts to grow their junket business, it was apparent that LVS was not making much traction.


Sands Macau

Sands Macau’s net revenues were 2% below our estimate and EBITDA was 9% lower than we estimated.

  • $7MM revenue miss versus our estimate was due to lower gross gaming revenues, and higher fixed expenses led to the $10MM EBITDA vs our estimate
  • VIP net table win was $9MM lower than our estimate due to lower hold
    • We estimate that direct play was 12% in the quarter vs. our estimate of 10%
    • Drop was 3% better than we estimated which resulted in hold that was 20bps lower
    • The rebate rate was 99bps or 33.3% of hold (consistent with 1Q11)
    • While hold was on the high end of the theoretical range, it was in-line with Sand’s hold over the last 2 years. If we use theoretical hold of 2.85%, net revenues and EBITDA would have been $7MM and $4MM lower, respectively
    • Slot win was $2MM below our estimate – handle grew 14% YoY vs our estimate of 18% and the win % was 20bps lower
    • We estimate that fixed expenses were $47MM, up 6% YoY



Revenue and EBITDA results for Venetian Macau were within 1% of our estimate

  • Non-gaming revenue was $6MM better than we estimated due to better retail revenues
  • VIP net revenues were $12MM better than we estimated due to higher drop and higher direct play
    • Direct play jumped up as a % of total drop after decreasing for 3 quarters.  We estimate that direct play was 22% in 2Q compared to 19% last quarter
    • The rebate rate was 1% or 29% of hold
    • Assuming theoretical hold of 2.85%, net revenues and EBITDA would have been $58MM and $35MM lower, respectively.  If we use the 9 quarter average hold of 2.92%, then the high hold impact on net revenue and EBITDA would be $51MM and $31MM, respectively
    • Mass table revenues were $17MM below our estimate mostly due to lower hold
    • Slot revenues were $6MM above our estimate due to 22% growth in handle vs our estimate of 5%. Slot handle increased 15.5% QoQ.
    • We estimate that fixed expenses increased 3% YoY to $104MM

Four Seasons

Net revenue and EBITDA results for Four Seasons were $5MM and $10.5MM above our estimates, respectively

  • Casino revenues were $3MM better than we estimated, non-gaming revenues were $1MM better while promotional expenses were $1MM lower
  • VIP net revenues were $5MM better than we estimated due to 2% higher drop and slightly better hold than we estimated (8bps)
    • Direct play was 41% in 2Q compared to 40% last quarter
    • The rebate rate was 73bps or 32.4% of hold
    • Assuming theoretical hold of 2.85%, net revenues and EBITDA would have been $14MM and $8MM better, respectively.  If we use the 9 quarter average hold of 2.8%, then the low hold impact on net revenue and EBITDA would be $12MM and $7MM, respectively
    • Mass table revenues were $1MM below our estimate despite 38% hold
      • We estimate that high Mass hold benefited the quarter’s net revenue and EBITDA by $9MM and $6MM, respectively, if we use the 9 quarter preceding hold of 28% to normalize results
      • Slot revenues were $1MM below our estimate due to lower win %
      • We estimate that fixed expenses decreased 8% sequentially to $18MM


Marina Bay Sands

Marina Bay Sands results were the crown jewel of LVS’s second quarter results, with EBITDA coming in 23% ahead of consensus and 20% ahead of our estimate.  

  • Net gaming revenues were $94MM, 19% above our estimate
  • Slot revenues were $13M higher
    • Sequential handle growth accelerated to 17% from 11% last quarter
  • Mass table revenue was $27MM higher
    • Sequential drop growth accelerated to 13% from 5% last quarter
  • Net VIP revenue was $54MM higher
    • Drop increased 21% sequentially
    • Hold was 19bps above our estimate of 2.8% and accounted for 30% of the EBITDA outperformance ($20MM) vs our estimate. The prior 4 quarter hold rate for MBS was 2.63%. If we include this current quarter, the property’s average hold since opening has been 2.7%. 
    • If hold had been 2.85% net revenue and EBITDA, would have been $17MM and $15MM lower, respectively.
    • The rebate rate was 1.23%
    • Non-gaming revenues, net of promotions, were $13MM better than we estimated
    • We estimate that fixed expenses were $201MM up from $182MM in 1Q




Las Vegas

Revenues for Venetian and Palazzo came in 6% ahead of our estimate while EBITDA was 21% better than we estimated

  • Better revenues were primarily driven by better F&B, retail and other revenues and lower promotional expenses as well as better casino results which were slightly offset by lower rooms revenues. 
  • Non-gaming revenues (ex-rooms) grew an impressive 38% YoY, however, that growth should taper off in the 2H11 as the two properties had non-gaming growth of 50% in the 2H10 vs a 6% decline in 1H10.
  • We estimate that better than favorable luck across tables and slots helped the quarter by $14MM on revenues and $12MM on EBITDA
    • Slot handle plummeted 39% YoY due to less promotional activity. However, a continued rise in win percentage to 8.8% helped offset weakness in handle. Slot win decreased 28%. 
      • Had hold been 8% - which is still on the high side for most slot operators, revenues would have been $3MM lower
  • Table win benefited from better than average hold.   If we use a 9 quarter average of 17.4%, revenues would have been $11MM lower.
  • Operating expenses (excluding taxes) grew 14% YoY to $232MM vs our estimate of $229MM. Expense growth should moderate in the back half of 2011 as comps get easier.



Sands Bethlehem revenues and EBITDA were $5MM and $7MM lower than we estimated due to lower net non-gaming revenues and higher operating expenses in the quarter


Exceptional Day

This note was originally published at 8am on July 22, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The ignorant man marvels at the exceptional.”

-George D. Boardman


George Boardman was an accomplished American man from Maine. Graduating in 1822, he was Colby College’s first graduate. He had exceptional success as a global missionary.


Most of the people I know who accomplish great things in this good life don’t marvel at their accomplishments. They wake up every morning expecting it of themselves. They also expect adversity. In fact, most of them can’t live without it.


Yesterday was an Exceptional Day for Europe. I, for one, got royally squeezed in my European shorts by it. After going through the wringer on plenty of these centrally planned short squeezes since 2008, I’ve stopped marveling at them. This is what the Fiat Fools do. Whether it was TARP in 2008 or what you saw yesterday, short-term volatility only perpetuates the long-term problem.


Members of the European Keynesian Kingdom (EKK) emerged from their 3 hour lunch yesterday with a statement that Greece needed an “exceptional and unique solution.”


Then, they offered the bankrupt nation $229 BILLION in new aid (~75% of GDP!)…


Then, they spent the rest of the day gloating about their short-term political success…


That’s what professional politicians promising the arrest of gravity do.


Germany’s leader of Short-Termism, Angela Merkel, emerged from the meetings in Brussels proclaiming her mystery of faith saying: “I am satisfied with the outcome because the euro countries showed today that we are up to the challenge, we can take action.”


True, Mrs Merkel – for a day. But what shall you do tomorrow? Another European summit? How about next week? Any plans for August?


In all things risk management tomorrow starts today. Rather than marveling at your wins or loses, you’re job is to put on the trades today that will position you to not lose money tomorrow. Being awestruck by an exceptional market move can freeze you. Don’t let that happen. Out of sight, out of mind – onto the next.


My short-term performance problem in Europe yesterday aside, we had a great day on the long side of everything we’re long in US Equities. Covering my short position in the SP500 on July 5thhas allowed me to broaden my horizons and move to our most invested position in Global Macro for 2011 YTD (drawing down my Cash position to 43%).


What that doesn’t mean is that I should be marveling at those gains. Given our Q3 Macro Theme of “Risk Ranger”, I should be selling some of my gross long exposure in the US today and adding to my short exposures in Europe. The core tenant of the Risk Ranger theme is implied in the name – manage your risk within proactively predictable ranges of market prices.


So let’s do that – in Global Equities here are the intermediate-term TREND ranges we plan to use in Q3, until the plan changes:

  1. USA – SP500 range of 1241-1377
  2. CHINA – Shanghai Composite range of 2629-2849
  3. JAPAN – Nikkei range of 9670-10227
  4. INDIA – BSE Sensex range of 17611-19409
  5. GERMANY - DAX range of 7075-7451
  6. SPAIN - IBEX range of 9251-10405
  7. ITALY – MIB range of 17614-20889
  8. GREECE – ATG range of 1151-1346
  9. BRAZIL – Bovespa range of 58521-63929
  10. CANADA – TSE range of 12811-13765

That’s it. There’s nothing exceptional about today or how we are going to manage risk around it. We have our intermediate-term strategy and, as we whip around both the US Debt Ceiling debate and European Sovereign Debt Crisis, we’re sticking to it. As you can see, not 1 of the top-side’s in our intermediate-term TREND ranges was violated to the upside yesterday.


My immediate-term TRADE ranges (different duration than the TREND) for Gold (we’re long, and we bought Silver yesterday too), Oil (no position), and the SP500 (no position) are now $1585-1619, $97.21-99.76, and 1319-1351, respectively.


Enjoy the storytelling of the Fiat Fools and, of course, an exceptional weekend,



Keith R. McCullough
Chief Executive Officer


Exceptional Day - Chart of the Day


Exceptional Day - Virtual Portfolio

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 80.51%
  • SHORT SIGNALS 78.32%