• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

In preparation for HOT's 2Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary

INVESTOR DAY (JUNE 20)

  • "We're the biggest in China by a wide margin. We have 200 hotels coming up in China."
  • "We are roughly in that 10% range and fees coming from Greater China. Our pipeline, 40%-60% of it is now Greater China. So you can see that it will grow. So it's not inconceivable that China will get to 20%, somewhere in that range at some point in time."

GS LODGING, GAMING, RESTAURANT & LEISURE CONFERENCE (JUNE 4)

  • "We have just announced that we will redeem our 2013 debt early by the end of June."
  • "9% of our profits are exposed to the Europe per se."
  • "So we've been hedging about half our euro profit exposure each year, not a directional bet, just a fixed variable approach, and we happen to have
    hedged about half our exposure for 2012 at $1.44. So that will certainly help us mitigate some of the impact this year."
  • "We are reinvesting in our own hotel portfolio. That will probably continue for another year."
  • "Typically, we spend about $100 million a year on the pipeline, so to speak, whether it's key money here or a mezz loan there."
  • "Our goal is to stay investment grade through cycles. We're there with the next paydown. We pretty much brought our debt down to levels where we want it to be. We think, over time, the ratings will all line up at BBB."
  • "We do expect to pay a good dividend. We've announced our dividend policy. Our dividend will grow with earnings, and we announce that every year as to sort of what the dividend is going to be some time later this year. But we've clearly stated that our dividend is going to be a certain percentage of our EPS and therefore as EPS grows you should expect our dividend to grow."
  • "We had cash on the balance sheet at the end of the last quarter. So, we're using some of that cash to redeem our debt early.  We have a share buyback authorization already; we've had it for a while. I think the timing of our share buyback is going to be linked more to assessment of intrinsic value than any kind of trigger around asset sales and so on."
  • "The rate part of the RevPAR is where all the action is going to be in the next couple of years especially in the developed world."
  • "Corporate negotiated rates always take a little while to catch up, but they are beginning to catch up. We've had some rate increases in the negotiated rates."
  • "You have old group business that you booked at lower rates that needs to fall off and that's beginning to happen and then you do want the group business to come back in a reasonable way so that you get that base load of business that allows you to reduce your dependence on some of the lower-rated channels and that mix shift is happening and it's really – as it happens more and more that you start getting more and more rate flexibility."
  • "No hotels are being built as we speak in the U.S. or Europe. There is really no financing available to build full-service hotels."

1Q CONFERENCE CALL YOUTUBE (APRIL 26)

HOT YOUTUBE - hot2

  • "Primarily driven by rates, we expect RevPAR growth momentum to be sequentially stronger from Q1 to Q2."
    • "Rate in the first quarter was roughly 50/50 and we're heading towards more like a 60%-plus rate to occupancy mix as we head into the latter part of the year."
    • "Occupancies are getting to the point where rates should begin to move more than it has to date. It's clearly helped by the fact that the business we're now booking on the group side is clearly at a much higher rate. Recent group bookings have been at rate increases that are in the range of 7%, 8%, 9%. The corporate negotiated rate business that we're getting this year is 6%-plus more than last year."
  • "Despite continuing concerns around the outcome of the French election or Spain's refinancing needs, we are seeing improving business trends in our key European markets. These trends would suggest that RevPAR growth in Q2 should approach 4% in local currencies from under 2% in Q1. We are currently tracking at a 4% level in April."
    • "We see strong booking confidence across Germany, the U.K., and early signs of a pickup in Italy. Booking windows are also returning back to normal. Based on what we are seeing, we would expect the European recession to be shallow, as some economic forecasters are now predicting. As such, we are more confident today that the second half in Europe will be better than the first half, helped along by easier comparisons."
  • [Asia] "We expect a sequential acceleration in Q2, with RevPAR growth returning to a double-digit pace."
  • "In the Middle East and Africa, we saw big jumps in RevPAR in March, as North Africa started to lap the start of Arab Spring events of last year. However, in absolute terms, business is still weak in countries like Egypt, where the situation remains unsettled for travel. Saudi and the Gulf, on the other hand, are on a strong cyclical recovery track, and sub-Saharan Africa is delivering solid double-digit growth. As a result, we expect RevPAR growth to accelerate in this region in Q2."
  • "You might recall that last quarter we suggested that 2012 had more potential to surprise to the upside than to the down side. We still believe this."
  • "Commercial real estate loans in general and especially construction loans continue to decline. So supply is tight and it looks set to stay that way for a while, but demand in North America, Europe and Japan has continued to build. Companies are profitable and in great financial shape and they're in search of growth."
  • "We also expect best ever performance in rooms growth in 2012 outside of their home markets."
  • "Although there have been concerns about the real estate sector in China, the pace of hotel signings and openings remains steady and strong, especially in tier two and tier three markets, where we have been focused for the past few years."
  • "We expect things will pick up as the Central Bank is entering an easing cycle. Indonesia and Korea are booming, up 15% in Q1. Japan continues on its recovery track with double-digit growth as we lapped last year's earthquake tsunami impact. We expect Asia to finish 2012 as our second largest division accounting for 20% of profits."
  • "All indications are that Latin America will remain our fastest growing region."
  • "Significant renovation reduced Q1-owned EBITDA by approximately $5 million and we expect a similar impact in Q2."
  • [Vacation ownership business] "We remain on track to deliver over $100 million in cash from this business in 2012."
  • [Bal Harbour] "To date, we have closed on 138 condo units, 102 this year and 36 last year. 32 units have been sold but not yet closed. As such, the project will be over 50% sold and closed by the end of this quarter."
  • "In Q1, we received over $260 million in cash from closings. As we look ahead, sales momentum is looking good."
    • "A new positive trend is that we're seeing a sharp increase in interest from North American buyers who accounted for 50% of sales in Q1. The South American season starts in another 45 days as their winter begins. We expect a very good selling season."
  • "We remain steadfastly focused on holding cost in line. Run rate costs are only increasing in Asia and Africa, where we continue to invest in infrastructure to support our growth. For the year, we are still targeting a 4% to 5% increase."
  • "We now forecast Bal Harbour will deliver $300 million in cash in 2012."
  • "In terms of assets sales, we are always exploring opportunities to sell our owned hotels at attractive prices to high quality, long-term owners. We have several conversations currently underway. We expect some or all of these transactions to close later this year."
  • % of properties paying incentive fees:  "typically on the international side, that number is always in the 70%, 80% range. On the U.S. side, I think we're probably still in the 30% to 40% range."
  • "In terms of the renovations, it's a comprehensive set of renovations. It's the luxury collection, as Fritz said, is about $100 million out of that. But then we have other big hotels like the Sheraton Rio coming up for renovation later this year. The Westin, which is 1,000 rooms in Atlanta, under renovation. So those are pretty sizable underway. We do have some more coming up in the next year, so the St. Regis in New York is up for a pretty major renovation potentially next year, and a few other hotels."