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China to the Rescue? – Again?

Conclusion: We continue to hold the belief that China will not be a source of dumb capital to be used to help Europe fund its bailout mechanisms – if so, it would have done so already in OCT/NOV at much lower prices. Furthermore, we are of the belief that China will continue to demand concessions in return.

 

It’s clear that speculation around China’s [pending] involvement in funding the Eurocrat Bazooka matters to global financial markets, particularly considering a short-seller’s fear of: “China to buy everything.” What remains unclear to us, however, are the key details around China’s involvement: “When, how, and to what extent?”

 

The “why” is a given: in aggregate, Europe is China’s largest export market, accounting for nearly 19% of mainland Chinese shipments in 2011 (*Hong Kong and Singapore also re-export a great deal of Chinese products as well).

 

China to the Rescue? – Again? - 1

 

Moreover, with Chinese exports falling -0.5% YoY in JAN on sequentially-slowing YoY growth in shipments to Europe (-3.2% YoY in JAN vs. +7.2% YoY in DEC), the heat is incrementally on Chinese policymakers to come to Europe’s aid – particularly in light of this morning’s weakening European growth data (slowing GDP growth across the board).

 

China to the Rescue? – Again? - 2

 

Going back to the most important questions of: “when, how, and to what extent”, we continue to get left in the dark as far as the key details are concerned, leaving our Global Macro team with a thirst for more data in this regard. Consensus speculation on what the Chinese can do (as opposed to re-positioning according to what they will do) carries a great deal of risk at current prices.

 

This we know – the Chinese can channel investments into Europe via the following three avenues:

  1. An incremental rebalancing of its $3.2 trillion away from USD, GBP, or JPY assets and into EUR assets on the margin;
  2. Incremental investment from China Investment Corp, the nation’s $400B+ sovereign wealth fund; and
  3. Potentially through state-owned financial institutions such as China Development Bank and Export-Import Bank of China.

Moreover, PBOC Governor Zhou Xiaochuan did come out and say that the five “BRICS” countries all hold a “very positive attitude towards helping Europe”, they must continue to wait for the “right time and right opportunity” to invest. He went on to echo Premier Jiabao’s recent commentary that, “China hopes for more innovation from Europe to provide more lucrative products that are truly appealing to Chinese investors.”

 

All told, we continue to hold the belief that China will not be a source of dumb capital to be used to help Europe fund its bailout mechanisms – if so, it would have done so already in OCT/NOV at much lower prices. Furthermore, we are of the belief that China will continue to demand concessions in return (including real austerity, which is not equal to the promise of future austerity). Refer to our SEPT ’11 note titled “China to the Rescue?” for more details.

 

Below is a collection of our published remarks from 4Q that chronicle China’s [often-alleged] commitment to financing the Eurocrat Bazooka. The key themes of “when”, how”, and “to what extent” remain paramount:

 

DEC:

  • China is allegedly to create a new investment vehicle to manage $300B in EU/US assets. The fund is to mimic SAFE Investment Corporation Ltd., which yields ~$570B, has 65.8% of its assets in FDI and equity securities. If this new fund is real and anything like SAFE, it won’t be used to bail out ailing EU sovereigns. It will, however, look to buy European corporate assets on the cheap – something EU leaders haven’t been particularly in favor of (protectionism).
  • We continue to hammer away on our view that Asia will not be there in size to help lever the EFSF or some other form of E.U. bailout. Zhu Guangyao, China’s Vice Foreign Minister in charge of European affairs, had this to say regarding the use of China’s $3.2 trillion in FX reserves: “China can’t use its $3.2 trillion in foreign exchange reserves to rescue European nations… Foreign reserves are not revenues. China can’t use its reserves to fund poverty alleviation at home or to bail out foreign countries… Now is not the time for China to have a contingency plan in the event a Eurozone country defaults on its debts or exits from the 17-nation single currency. The government has already done its part to help Europe, which has the wisdom and strong economic fundamentals to solve its sovereign debt crisis.”

NOV:

  • Jesse Wang, executive vice president of China Investment Corp, the nation’s sovereign wealth fund, recent comments affirm our conviction in the view that China will not be a source of dumb, unlimited capital to finance the Eurozone bailout, but rather a source of smart money looking for attractive investment opportunities in distressed real assets: “The fund wouldn’t be the main channel if China helps tackle the sovereign debt crisis... However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.” Commerce Minister Chen Deming shared those views in his recent remarks: “While China has always been supportive of Europe’s rescue efforts, these will mainly depend on the euro zone itself… China will definitely be a part of any help offered by the global community… We are willing to further reform and further open our market, but other economies must be more open to us in return.”
  • In China, Gao Xiqing, president of China Investment Corp (the country’s sovereign wealth fund) had this to say regarding the potential of them reallocating assets to aid in the Euozone bailout: “When we talk about international investments, we must consider whether they serve our interests… We can’t say that we’re a generous nation and we can help you at whatever economic costs to us.” Additionally, Jin Liqun, chairman of the board at China Investment Corp, had this to say as well: “China cannot be expected to buy the highly risky bonds of euro-zone members without a clear picture of debt workout programs.” 
  • Two Chinese officials reiterated our view that China is unlikely to take part in bailing out Europe as a source of uninformed, unlimited capital. Zhang Tao, director of the international department at the PBOC suggested that China needs further details regarding the options for bailing out Europe: “At present there’s no specific plan that people have clear understanding of,” he said. Zhu Guangyao, vice finance minister, had similar remarks regarding the EFSF: “There’s no concrete plans yet so it’s too early to talk about further investments in these tools.”
  • Chinese Vice Finance Minister Zhu Guangyao confirmed our belief that China would not be a source of “dumb capital” for the EFSF, publically demanding more details about the “technicalities” of the fund. Additionally, China Investment Corporation (sovereign wealth fund) Chairman Jin Liqun said that “Europe is not really short of money” and publically challenged the European populace to “work harder”, “longer”, and “be more innovative”.

Darius Dale

Senior Analyst


GENTING SINGAPORE 4Q11 PREVIEW

We’re expecting another disappointing quarter from Genting. 

 

 

Our property level EBITDA estimate of S$390MM is about 5% below consensus.  Based on our proprietary analysis of government tax data, we believe that the Integrated Resorts in Singapore generated Gross Gaming Revenue (GGR) of S$1.94BN, down 5% QoQ but up 13% YoY.  MBS reported GGR of S$1.01BN, implying that RWS produced only S$930MM compared to S$975MM in 3Q11. 

 

Part of the issue is that Singapore growth may be somewhat tapped out as we wrote about in ‘SINGAPORE Q3 REVIEW’ on 11/11/11.  RWS also experienced a several week delay in the grand opening of the Equarius Hotel and Beach Villas (opening tomorrow) and its slot/EGT expansion – both originally slated to open by Christmas.  We suspect that management walked down Q4 expectations in January but it looks like numbers still need to come down.  We noticed a change in tone from when we spoke with the company in mid-January, compared to the tone in late November.  In late November, their expectation seemed to be for a big sequential increase in VIP similar to Q4 2010.  However, management was much more cautious in January – shifting the focus on what they need to do to get Phase 2 of their resort open later in 2012 rather than near-term growth.

 

 

Details:

 

We estimate that RWS will report net revenue of S$769MM and EBITDA of S$390MM.   RWS did S$375MM of EBITDA last quarter on S$789MM of revenues which included a large bad debt charge of S$38MM.  Without the abnormally high bad debt charge, 3Q EBITDA would have been S$408MM. However, 3Q also benefited from high hold of 3.17%.

  • Gaming revenue, net of commissions of S$626M
    • Gross VIP revenue of S$485MM and net revenue of S$254MM
      • We expect RC volume to increase sequentially to S$17BN, down 21% YoY due to more conservative credit extension and the proximity of Chinese New Year to Jan 1.  This likely reduced what could have been two VIP visits to versus just one last year.  Last year, RC volumes increased 39% from 3Q to 4Q.
      • Hold of 2.85%
      • Rebate of 1.25%
    • Gross Mass table of S$297MM and S$239MM net of gaming points - Gaming points equaled 4% of drop or S$58MM
    • $152MM of slot and EGT win
      • The incremental slots/EGT expansion was installed the second week of January vs. by Christmas as originally scheduled
  • Non-gaming revenue of S$144MM
    • Hotel room revenue of S$35MM
      • There should be a sequential pick up in occupancy due to the holidays
    • S$23MM of F&B and other revenue
    • USS revenue of S$86MM
      • Transformers opened on December 3rd
      • The quarter also benefited from school holidays
  • Gaming taxes of S$89MM
  • Implied fixed costs of S$181 – similar to last quarter

HYATT YOUTUBE

In preparation for HYATT's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

YOUTUBE FROM Q3 CONFERENCE CALL

  • “Overall as of the end of the third quarter, our signed contract base for future hotels exceeded 150, representing more than 36,000 rooms which is a small increase from last quarter”
  • Renovation of big 5 owned hotels: “We're starting to see the benefits of these renovations as hotels are starting to see RevPAR index growth, higher levels of interest among meeting planners and indications that the renovated hotels will be even more appealing to transient and group guests for 2012 and beyond.” 
  • “From a revenue displacement perspective, because we had rooms out of service in the fourth quarter of last year, we do not expect to see any additional negative impact from displacement on a year-over-year comparative basis going forward”
  • “Visibility to the future continues to be limited as booking windows continue to be tight.  About one-third of our group business and virtually all of our transient business for 2012 has yet to book.”
  • “Corporate rate negotiations have just begun, and while we hope for high single-digit percentage rate increases because of relatively high levels of industry occupancy and continuing limited new hotel supply growth, the fact is that visibility is limited”
  • “We continued to shift more business away from lower discount, promotional and opaque third-party rates to higher rated corporate negotiated rates”
  • “As we did last quarter, we continue to see an increase in food and beverage revenues and ancillary revenues on a per occupied room basis at North America full service hotels. Specifically, all three measures outlet revenue per transient room night, banquet revenue per group room night and other operating revenue per occupied room increased.”
  • “Our adjusted SG&A expenses increased approximately 15% in the quarter. Approximately a third of this increase is due to bad debt expense and performance surcharges related to two properties, a third, due to increased head count driven by growth initiatives and a third due to inflation and increased business levels.”
  • “Our full-year forecasted tax rate percentage is currently in the mid 20% range, excluding discrete items.”
  • “We have fine-tuned our capital expenditure estimate to be between $390 million and $400 million. Our expectation of depreciation and amortization expense has increased to approximately $300 million, primarily due to the LodgeWorks transaction.”
  • “Our estimate for interest expense has increased to approximately $60 million, primarily as a result of our recent debt issuance.”
  • “Our SG&A, if you exclude the one-time I would describe the bad debt expense or the performance cues as really one-time events, is running at approximately a little over 8% on a year-to-date basis.”
  • “The total CapEx investment will be lower than what's reflected for 2011 largely because, 2011 had the renovations that related to our five big hotels which are largely complete, and the figure broadly was about 40% of the $400 million that you have for 2011.”
  • “Approximately a third of the margins were relative to property refunds. Now we do have property refunds. We've seen some last year. We've seen some this year. It just happened this quarter, so when you compare quarter-over-quarter, it is a one-time event.  The rest of it was largely driven by the portfolio and it's driven by a couple of factors. First, the margin increase is broad-based so it's not a few properties driving it. It's across the board, both North America and international. Secondly, mix shift which is trending towards higher rated group and transient business has driven higher room and food margins. And we continue as we've done in the past to drive productivity through effective cost control. Our cost per occupied room increase was less than half of the occupancy increase we saw in the quarter.”
  • “I think overall, the LodgeWorks transaction should marginally help margins over the long-term. So it should be accretive”
  • “Our quarter three RevPAR growth in Europe was in the mid-single digits, so slightly higher than what we've seen in the international business. We've seen really no change, similar trends continue into recent weeks…Our presence is Europe is small. If you look at our total room base, we have about 5% of our room base invested in Europe. And our presence in Europe is largely concentrated in Germany, France and in a few markets in the UK.”

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 80.28%
  • SHORT SIGNALS 78.51%

MAR YOUTUBE

In preparation for MAR's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

YOUTUBE FROM Q3 CONFERENCE CALL

  • “For 2012, total revenue bookings for the Marriott brand are running up 7% year-over-year, compared to only 3% pace in February.”
  • “In mid-August, we surveyed 4,500 industry group meeting planners. Two-thirds said that no other lodging company is easier to do business with than Marriott, and 80% said they are more likely to do business with Marriott brands in 2012 than in 2011.”
  • “Our international REVPAR growth is likely to slow from the third quarter pace. Many of our newer comparable hotels in Asia have benefited from ramp-up in recent quarters, and the fourth quarter will reflect tougher comps. REVPAR in Europe will likely moderate in the fourth quarter due to the timing of this year's fairs in Germany, as well as tougher comparables."
  • “REVPAR in London is expected to remain strong, but we anticipate weak performance in the British provinces as a result of government austerity efforts. So for the fourth quarter, we are assuming international system-wide REVPAR growth to increase 3% to 5% on a constant-dollar basis, or 5% to 7% excluding the Middle East and Japan.”
  • “In North America, we expect system-wide REVPAR growth of 6% to 8%. Across North America, we see little evidence of economic slowdown in our lodging business. Group cancellations and attrition levels are running at normal levels. In fact, group attendance is running a bit higher than meeting planner expectations at many hotels.”
  • “On this basis, we expect fourth quarter contract sales to total $200 million to $210 million, and timeshare sales and services net to total $68 million to $73 million. Similarly, we would expect timeshare segment results would total $45 million to $50 million, reflecting continued reductions in interest income as outstanding mortgage balances continue to decline.”
  • “For the fourth quarter, we expect earnings per share to total $0.45 to $0.50 per share, a 15% to 28% increase over the prior-year adjusted EPS.”
  • “For the full year 2011, we expect adjusted EPS will increase 19% to 23%, to $1.37 to $1.42. We anticipate adjusted EBITDA will climb 7% to 8% compared to last year's adjusted amount. Our guidance assumes the spinoff will not occur until year-end 2011, and again, includes the $13 million pre-tax we spent on year-to-date spinoff costs, but excludes future spinoff costs. On a cash basis, we estimate the total cash transaction costs related to the spin at $40 million to $50 million for the full year 2011. We have already expensed about $13 million of this through the income statement year-to-date. Not all of the $40 million to $50 million will be expensed in 2011, as some will be capitalized.”
  • “For 2011, we assume $500 million to $600 million in Marriott investment spending, including $50 million to a $100 million in maintenance spending. Year-to-date, we've repurchased over 36 million shares for over $1.2 billion through the end of the quarter, and given our current debt levels, we expect to slow our repurchase pace in the fourth quarter.”
  • “3% REVPAR growth correlates with modest GDP growth, perhaps 1% or so, and it's hopefully too conservative. 7% REVPAR growth correlates to 2.5% to 3% GDP growth, and is probably too aggressive to count on, but we present these bookends to allow investors to independently model the business, as we all have different views of the future.”
  • [Autograph] “With 24 hotels worldwide today, we expect to have roughly 40 properties opened or signed by year-end 2011 and 60 to 70 properties by year-end 2012.”
  • “We expect to open roughly 5,000 rooms in the fourth quarter of this year, 30,000 rooms for the full year of 2011, and another 30,000 rooms in 2012.  We expect to achieve growth in rooms with modest net invested capital. We also expect to generate meaningful amounts of free cash flow.”
  • “In 2012, we expect to have another $500 million to $1 billion of cash available for share repurchase or opportunistic investing. In fact, even if we only see 3% REVPAR growth, we would expect some level of share repurchase activity in 2012.”
  • “Group revenue on the books is up 7% for 2012, and U.S. government per diems are up 4% to 7%, depending on the market. We'll have to see how special negotiated corporate rates turn out, but our strong book of group business gives us some negotiating leverage.”
  • “I would say that we feel really good about the bookings going forward, both for Q4 and for 2012, and we think sales transformation is a piece of that. I think it's one of the reasons we feel positive about the way that program is developing....We think most of that is economic cyclicality, group business tends to come back a little bit more slowly, and some of that is the impact of the D.C. market, where we've got a number of big boxes, and obviously that's a little bit weaker.”
  • “I think implicit in the numbers we've got within that 3% to 7% range next year is relatively more modest growth in Europe than in other parts of the world, and I think a bit of that is their fare schedule, which is a bit more relevant to the way our business reports there than it is in other parts of the world. So I think part of that is just a bit more modest expectations for those economies generally.”
  • “The hotels that are in our pipeline of 105,000 rooms are 90% under construction in China, some number like that, and will represent the bulk of what we open into mid-2012.”
  • “We'll keep our debt levels at a 3x coverage ratio. We obviously want to stay BBB.  That keeps us in the commercial paper markets. We think that's an efficient debt structure. So we'll maintain that 3x, but with growing EBITDA, obviously that gives us debt capacity that we can draw upon, but at the same time maintaining that 3x. So I think you'd see a combination when I talk about that $500 million to $1 billion capacity, being made up of, again, maintaining that 3x plus the excess cash.”
  • [Courtyard incentive fees] “We haven't done budgets yet for 2012, but I don't think I'm sticking my neck out too far to say that at least some of the largest portfolios of these few first hotels are not paying incentive fees in 2011, and we're not anticipating that they'll pay incentive fees in 2012.”
  • “We will not publish what the commission rate is with Expedia. Our contract with them comes to term at the end of this year. We are in discussions with them about terms of a renewal. I think, generally, what we can tell you is that someplace between 2% and 3%, maybe about 3% of our total business comes from online travel providers, including Expedia, but that would include the Pricelines and Orbitzes and Travelocitys, and others. Expedia probably is in the 1%, 1.5% maybe, range of our system. All the OTAs will be more significant in hotels which are more leisure-dominated."

PNK 4Q11 CONF CALL NOTES

Strong margins in St. Louis and low corporate expense drives beat.

 


 "As we move further into 2012, we look to build on our record 2011 performance and remain focused on driving shareholder value.  Through the evolution of our mychoice program, additional capabilities within our technology infrastructure, incremental cost efficiencies throughout the enterprise, and execution of projects in our growth pipeline, we believe 2012 will be another year of significant growth for our Company."

 

- Anthony Sanfilippo, president and chief executive officer of Pinnacle Entertainment

 

CONF CALL NOTES

  • Remain committed to cost cuts and margin expansion. Feel like there is still room to remove non-revenue generating expenses,especially from marketing.
  • Maintain balance sheet health, liquidity, and financial flexibility
  • MyChoice:
    • Top tier grew 44% in membership YoY
    • 34% of their total members migrated up one tier - with the greatest migration to the mid tier
    • More improvements to MyChoice coming in April
  • Spend per visit were up slightly and trips were down slightly
  • Belterra and St Louis saw an increase in both spend and trips
  • Worth per available room grew 5%.  Consolidated occupancy moved up to 84%.
  • Belterra: 16.1% market share; gained 135bps of market share and was the only property to increase admissions in the market
  • Key takeaways:
    • MyChoice continues to be the focal point of their marketing program
    • Sees increase spend per visit for their loyal players
  • Will start a room refurbishment program at L'Auberge soon
  • Have a hard time growing revenues at Boomtown New Orleans.  They will be implementing some cost controls.
  • Bossier: Believe that the market will continue to be under pressure
  • Belterra: Helped by challenges that one of their competitors faced due to a temporary bridge closure
  • Believe that the VLTs issue in Ohio will get resolved in 2012
  • Garage construction at River City will cause some disruption at the property
  • Boomtown Reno: will get $13MM on closing 
  • Carry costs for AC will be much lower in 2012 and beyond. They are retesting the market for the sale of the asset.

Q&A

  • L'Auberge impact of floor improvements? 
    • 12% of the floor out of pocket in the quarter
    • Cost of additional labor to make up for the disruption
    • Disruption ended right before NYE's
    • This has been the first floor update the property has had since opening 7 years ago
  • Touched a bunch of areas around Lake Charles and will start a room refurbishment in 2012.  The rooms are due for a face lift?  It will have an impact not to have the rooms available all of the time. 
  • They do expect margin expansion in 2012
  • New Orleans: Have seen a tailing off of revenues over the last 4-5 months.  They are very much engaged in driving profitable revenue growth.  Replaced all the carpeting at the property.  They are also continuing to take cost out of the business.  He's bullish on N.O. and thinks that they can do better there in 2012.
  • Minimum $125MM VLT investment required in Ohio.  They will clearly meet/exceed the minimum investment requirement. Still working on scope of the property. 
  • Expect to be open in Baton Rouge prior to Labor day in full fashion - sometime in August
  • The bridge closure hasn't been a windfall but has helped a little
  • River Downs: Market is very much centered around Cincinnati...Will pay attention to what happens in Kentucky and that will impact investment there.
  • Margaritaville will be on their side of the river.  Introduced a new brand concept for Boomtown in early 2011. 
  • In Vietnam, the government is working on finalizing a tax rate for that market, but expect it to be a reasonable rate. 
  • Corporate expense in the quarter?
    • They are religious about removing non-value added expenses, including corporate.  They have also settled a number of items. 
    • In the past, a lot of properties functioned individually and they changed that to allow properties realize improvement by using scale of the organization
  • The Madison house issue was settled and lowered their assessment in AC and therefore will have lower property taxes
  • Big focus on being shareholder friendly. Believe that their current team can handle more assets and leveraging their skill set over a large base of operations.
  • St Louis, 10% decline in YoY expenses? 
    • Have a service pod, based in St Louis, helping all of their mid west properties
    • Thinks that most of the improvements seen so far will be sustainable in 2012
    • Need to take into account some seasonality though
    • Some construction disruption will impact them. They are adding some rooms there - 200 in the 2H of 2013
  • They do not have an obligation to put in any more capital into ACDL.  They do need to raise additional capital ( a working capital facility) 
  • All the changes they are implementing are not one time 
  • They are going out for hard pricing on the River City hotel
  • RevPAR was up 5% in the quarter
  • Belterra's market includes Hollywood, Rising Sun, Horseshoe in Louisville
  • Closely engaged at their online gaming options

 

HIGHLIGHTS FROM THE RELEASE

  • "Fourth quarter revenue and Consolidated Adjusted EBITDA growth was primarily driven by the continued solid performance of the Company's St. Louissegment, which consists of River City Casino, Lumiere Place and Four Seasons Hotel & Spa.  Operational improvements at L'Auberge Lake Charles, Belterraand Boomtown Bossier City properties, as well as a significant reduction in corporate overhead, also contributed to the results."
  • "The St. Louis segment continued to ramp up during the fourth quarter, with further maturation of River City and expense discipline across both properties."
  • "L'Auberge Lake Charles' fourth quarter 2011 performance is impressive considering the disruption from the casino floor improvements made during the quarter.  We completed the replacement of all casino carpeting and slot bases and renovated the property's high limit slot and table game areas to better accommodate L'Auberge Lake Charles' higher end guests.  As a result of these projects, the property's average slot count was reduced by 203 units or 12.7% during the fourth quarter, including a closure of the high limit slot room for 70 days.  Additional operating expenses were incurred in an effort to minimize the impact of the casino floor refresh program on guest experience."
  • "In the fourth quarter of 2011, Boomtown New Orleans began to face difficult comparisons due to elevated local economic activity created by the Deep Horizon oil spill cleanup and recovery efforts late last year.  We have made significant strides containing costs to mitigate the effects of changing market dynamics in New Orleans, but we recognize additional efforts are needed to drive profitable revenue increases at Boomtown."
  • "Corporate overhead expense reductions were driven by efforts to eliminate non-value added expenses at the Company's Las Vegas headquarters, as well as a ramp up of cost savings related to the Company's shared service center supporting our properties in the Midwest and Louisiana."
  • "In the first quarter of 2012 we will begin the first phase of an $82 million expansion at River City by commencing construction on a 1,700 space covered parking garage. A comprehensive plan will be implemented to minimize disruption to the property during construction of this first phase.  Construction of the second phase, comprising of a 200-room hotel tower and a multi-purpose event center, will commence at the end of 2012 and is scheduled for completion in late-2013."
  • "Opening of L'Auberge Baton Rouge by Labor Day 2012."
  • "Construction on the Ho Tram Strip project in Vietnam by Asian Coast Development (Canada) Ltd., in which the Company acquired a 26% ownership stake in August 2011, also continues to make significant progress.  The first phase of the development, the MGM Grand Ho Tram, is scheduled to open by the end of the first quarter of 2013." 
  • AC update: 
    • "In December 2011, Pinnacle reached an agreement with the Madison House Group to terminate its lease obligations in Atlantic City. "
    • "In December 2011, Pinnacle reached a settlement on property tax appeals with the City of Atlantic City." Which will result in an $8.2MM cash refund in 1Q12
  • Sale of Boomtown Reno expected to close by mid 2012. Buyers have a 1 year option to purchase the gaming license and adjacent land.  PNK no longer expects to close on a separate transaction to sell the access land and will continue to market it. 
  • "During the first quarter of 2012, the Company committed to invest $2.0 million in Farmworks, a land re-utilization project in Downtown St. Louis.  Pinnacle will receive credit for approximately $10 million towards its obligation to invest $50 million in St. Louis as a result of this transaction."
  • "In October 2011, the Company entered into a settlement with the Port of Lake Charles whereby the Company swapped land parcels and will receive $2.5 million of credits on its L'Auberge Lake Charles property rent payments. The Company recorded a gain of $3.2 million in its 2011 fourth quarter operating results related to this settlement. This gain is reflected in write-downs, reserves, and recoveries."
  • 2012 Capex: 
    • Maintenance: $50-70MM
    • Expansion: $230-240MM
  • "Capitalized interest in the 2011 fourth quarter, related to the Company's L'Auberge Baton Rouge growth project and ACDL investment, was $5.1 million."

THE HBM: GMCR, SBUX, PEET, MCD, RRGB

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Consumer

 

According to the Office for National Statistics, the number of people claiming jobless benefits in the U.K. during the month of January rose by 6,900 to 1.6 million, the highest since January 2010.

 

 

Comments from CEO Keith McCullough

 

Consensus news-flow is still focused on Greece, weird:

  1. JAPAN – the Nikkei busted a surprisingly bullish move = +2.3% overnight as the Yen remained under central planning pressure (-0.2% at 78.15 USD/YEN); the Nikkei getting squeezed like France’s CAC did right up to its long-term TAIL of resistance (TAILS: Nikkei = 9397, CAC = 3556) is what it is – largely a Pain Trade that tends to capitulate as the end of the rally nears. We’re long China, short Japan.
  2. OIL – Brent or WTI, take your pick – both are in what we call a Bullish Formation (bullish TRADE, TREND, and TAIL) – and both have a systematic ability to infect (slow) Consumption growth both in the US and around the world. Feels like Q1/Q2 of 2011 all over again where consensus is still anchoring on the last 2 quarters of US GDP growth being good (it was).
  3. 10yr – the bond market says Growth Slowing is a bigger problem than inflation rising. UST 10yr is now breaking my only line of remaining support (1.96%) into a Bearish Formation (bearish yields on all 3 risk mgt durations – TRADE, TREND, and TAIL), so this will be a very interesting day. Bond yields breaking down have front run US Growth expectations for a long time now.

 

S&P futures excited about something that I can’t see. Last price doesn’t lie though; neither do lower long-term highs.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: GMCR, SBUX, PEET, MCD, RRGB - subsector

 

 

QUICK SERVICE

 

GMCR: Green Mountain has announced an expansion of its line of Keurig Single Cup Brewers with the addition of the Keurig Vue brewer.  The Keurig Vue brewer is designed with the ability to brew “stronger, bigger, and hotter”.

 

SBUX: Starbucks will open stores in the majority of Target stores across Canada.  Under the terms of an agreement between the two companies, 125-135 Target locations will feature Starbucks licensed stores.

 

PEET: Peet’s Coffee reported 4Q EPS of $0.42 versus $0.43 consensus.  COGs (coffee and milk) weighed down earnings but management backed its 2012 outlook.  The company expects to earn between $1.70 and $1.80 per share, which implies 14% to 21% growth over 2011 EPS of $1.49.  The company guided to 4% coffee inflation in 2012.

 

MCD: The Ukrainian Journal is reporting that the second busiest McDonald’s outlet, after the Moscow Pushkin Square location, is in Vokzaina Square in Kiev.

 

 

CASUAL DINING

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

RRGB: traded down -1.6% on accelerating volume.

 

THE HBM: GMCR, SBUX, PEET, MCD, RRGB - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


Early Look

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