In preparation for HYATT's Q3 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • $1.5 billion senior unsecured revolving credit facility that matures in September 2016, which replaces its existing $1.13 billion facility which had been scheduled to mature in June 2012
  • New R/C pricing at current ratings is L+1.175% plus a 20bps facility fee
  • "We are extremely pleased to have secured this committed facility at more favorable terms, backed by a strong group of diversified banks"


  • Acquired 20 hotels for $660MM
    • "With one hotel acquisition to close during the fourth quarter of 2011.
  • "The acquisition also includes the management or franchise rights to an additional four hotels."
  • "Hyatt expects the acquisition to have a positive impact of approximately $10 million, exclusive of transaction costs, on Adjusted EBITDA for the remainder of 2011. In 2012, the purchase is expected to generate approximately $40 million of Adjusted EBITDA."


  •  $250MM principal amount of 3.875% senior notes due 2016
    • Priced at 99.571; grade: BBB
  •  $250MM principal amount of 5.375% senior notes due 2021.
    • Priced at 99.846; grade: BBB



  • “Rate growth was a result of continued shift in mix of business, as well as increased pricing power due to higher levels of occupancy.”
  • “We own 40% of the joint venture and have committed to invest over $30 million of equity, which together with Noble’s investment and with moderate levels of leverage, should allow the JV to build six to eight new select-service hotels over the next few years. The first of these hotels is already under development in the Atlanta area.”
  • “Group revenue pace for the year is still positive, with short-term bookings still limiting longer-term visibility....rates are getting firmer."
  • "No plans for future share repurchase"
  • “In 3Q, we expect the renovations to have a less than 100 basis point impact to RevPAR and a less than $5 million impact to adjusted EBITDA. Starting in the fourth quarter, and into 2012, we expect to see the positive impact of the renovations in our reported owned and leased segment results.”
  • [ROI on Lodgeworks] “If you begin in a framework that’s sort of mid to higher single-digit kind of cap rates, we would look to expand that into double-digits over time on a return on gross investment.”
  • [Transaction opportunities] “We’re seen more select-oriented opportunities both in the U.S. and outside the U.S., as well as full-service and some luxury deals….. I would say that the direct comparison for the deals that we just talked about are fewer and far between, but the overall level of activity in the market has been growing.”
  • “We expect to open 15 properties this year, excluding LodgeWorks acquisitions….I think we opened about seven so far, about eight balance of the year.”
  • “The mindset’s fairly cautious right now given the undertone on the macroeconomic factors, especially in North America.”
  • “Business that we have on our books or booked for 2012, the rates are about 8% higher than where we think we will end in terms of areas for the group business at the end of ’11….We also saw that our corporate and association business on the group side, which is about 70% of the Group side, was up in terms of revenue in the low double-digit combination of demand and rate."
  • “We’ve been very focused on employment and housing prices and general confidence levels in the economy.”
  • “The best way to model our tax rate is 35% on our U.S. income and 20% on our international income….If you adjust for the reversal in this quarter, tax rate varies anywhere from 35% to 40%. So, I think that would be a good indication of the tax rate that you can project.”
  • [Fee impact] “We still believe that a full year downside ... will be in the region of about approximately $5 million...that’s an even split between the Middle East and Japan."

Bullish TREND? SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY)


So 3 days and 65 points (5%) lower in the SP500 what do you do? What I’ve done is easy to figure out. Time Stamps.


The key to being able to move to a net long position today is being Duration Agnostic. Yes, the long-term TAIL (1267) broke yesterday. But, the intermediate-term TREND (1213) is holding steady today. Provided that 1 holds, there’s no reason why this market can’t rally right back up to its refreshed immediate-term TRADE line of resistance (1248).


There are three different durations in that statement – TRADE, TREND, and TAIL. In managing the risk associated with beta, that’s how we roll: 

  1. TAIL resistance = 1267
  2. TREND support = 1213
  3. TRADE resistance = 1248 

There was a day when 20 to 190 handle moves in the SP500 (in 19 trading days) was unfathomable. Today, as we beg for more Big Government Intervention, all we get for that is A) shorter economic cycles and B) amplified market volatilities.



Keith R. McCullough
Chief Executive Officer


Bullish TREND? SP500 Levels, Refreshed - SPX

TGT: Big TREND Support

Fundamentally, TGT is in our penalty box, as noted earlier. But based on initial trading, it's oversold according to Keith's models.


"Big TREND line support here – stock down on the Scovaner news is a buy more" KM

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TGT: Our Take On Scovanner


Conclusion: Any way you slice it, this puts Target in the penalty box.



This definitely puts TGT in the penalty box for us – for so many reasons…

  1. This was sudden. He’s been on the conference/double secret 1-on1 circuit over the past quarter. To do so knowing he was on his way out would have been uncharacteristically and unacceptably misleading.
  2. Scovanner was clearly the faceplate of the company to Wall Street, and has been for the better part of 10-years. There’s no clear successor yet.
  3. With Francis (25-year veteran) leaving to JCP last quarter, we’re now looking at two of the most seasoned executives at the company stepping down over 90 days.
  4. Both of these gentlemen collectively were charged with fixing EVERY major intermediate-term issue plaguing this company.
  5. Does anyone really think that they won’t sweep every little item under the carpet and shore up every accrual and blame it on him/them? Better yet, that’s so tough to do quickly on such a big balance sheet. This could take a few quarters.
  6. Even if the company puts up good numbers over the short term (as they’ve been doing), there’s big enough uncertainty that people will not give TGT the benefit of the doubt.
  7. This is precisely the wrong time of year for this to happen to TGT. Conversely, it’s great for Wal-Mart, and perhaps even KSS.

Golden Handcuffs

“You know what it is? It is a golden handcuff, with the keys thrown away.”

-O. Henry


Keith and I are in San Francisco with our colleague, and one of the top young institutional salesmen in the business, Bill LeClerc, visiting some of our current and prospective subscribers. (We may also stop by the Googleplex for a quick game of roller hockey if Sergey and Larry accept the Hedgeye challenge.)  Having covered technology in the late 1990s and early 2000s, I know full well that there is something special about San Francisco, and I’m reminded of that on every visit.


Coincident with this visit, I’ve also been reading “Steve Jobs” by Walter Isaacson.  The story of Steve Jobs, and the creation of Apple Computer, is, in many ways, emblematic of the last thirty some years of business history in Silicon Valley.  Plenty of time has been spent rehashing Jobs’ incredible career and personal quirks, but I wanted to highlight one interesting quote from the book, which is as follows:


“Rod Holt, who had built the power supply, was getting a lot options and tried to turn Jobs around.  “We have to do something for your buddy Daniel, he said, and he suggested they each give him some their own options. “Whatever you give him, I will match it,” said Holt.  Replied Jobs, “I will give him zero.”


Now, I’m not about to psychoanalyze Steve Jobs, but I did find this excerpt interesting.  The Daniel in question, was Daniel Kottke, who was a college friend of Jobs and one of the first employees of Apple.  Unfortunately, Kottke wasn’t a high-enough level employee to be cut in on the option pool pre-IPO and Jobs, in a very dispassionate manner, wasn’t willing to make a “charitable” exception.  To Jobs, it seems, there were no free lunches.


Like global macro markets, Steve Jobs waited for no one.  At times Job’s personal drive was seen as extreme and insensitive, yet his success in innovation is difficult to compare.  As is widely known, Jobs was Buddhist, a long time vegetarian, and for much of his early career only showered once a week.  Despite these somewhat “liberal” tendencies, he created all of his businesses without the Golden Handcuffs of government intervention.


This morning we are seeing the downside of reliance on the Golden Handcuffs of government intervention.  Currently, major European equity markets are down across the board from -2.5% to -4.0%.  Leading the charge are Italian and Greek stock markets, down -5% and -6%, respectively. In terms of sectors, the European banking sector is at the forefront to the downside, with the major French banks down close to -10% across the board.


Certainly, this is crazy equity price action given that it seems like just yesterday that Europe was bailed out and saved from the sovereign debt contagion.  Well, actually it literally was yesterday, or at least late last week.  From the outset, we were suspicious of the Bazooka press release.  As Keith wrote last Thursday:


“In the end (and, in the end, this will not end well), I don’t think this concept of Bazooka Light will make a lot of sense to anyone who takes a deep breath and actually reads what it implies.


The timing and size obviously matter – but the timing (end of November? is subject to a hefty political debate) and the size is basically whatever the Europeans want the media to buy into the headline being.”


This morning the key question seems to relate to timing as there is news out that the Greeks will hold a referendum on the EU debt deal, most likely in the December / January time frame – along with a confidence vote on the government in the coming days.  It seems the Greek people, who according to reports yesterday have more Porsche Cayenne’s registered than tax payers making over $50,000 per year, want to take their time and think about the bailout.  Personally, I would probably want to think about the Golden Handcuffs before I put them on as well.  But as I noted above, global macro markets wait for no one.


In the Chart of the Day below, we’ve also flagged the widening spreads between Italian government bonds and similar duration German Bunds.  As of this morning, this spread is literally as wide as it has ever been.  Certainly, Greece is one thing, but Italy is the eighth largest economy in the world with debt-to-GDP at north of 120%.  Unfortunately, for those looking for good news, this widening of Italian yields is signaling that things are going to get worse before they get better in Italy.


To add insult to injury, we are receiving PMI measures this morning that are foreshadowing a further deceleration of growth in Europe. Specifically, Chinese PMI for October came in at 50.4 versus the estimate of 51.8 and U.K. PMI came in at 47.4 versus the estimate of 50.0.  Tomorrow morning, the rest of European PMIs are released. Stay tuned.


Mr. Draghi, welcome to the ECB!


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Golden Handcuffs - Chart of the Day


Golden Handcuffs - Virtual Portfolio


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