The pundits have been predicting slot price declines yet after some pressure, slot ASPs remain resilient



There are a number of factors that should be pressuring slot ASPs.  Yet as the chart shows, ASPs are climbing again after 2 ½ years of flattish pricing.  We’re not ready yet to call an end to pricing pressure for the following reasons: 

  • Over the last 4 years, there has been a convergence movement between the best and worst performing products.  Even the smaller fish are producing decent products (Ainsworth, MGAM, Aruze, Speilo).  In 2008, we estimate the top 5 manufacturers accounted for 97% of shipments vs. 94% in 2011 and it continues to slip.  We think that in 2012, the top 5's share will fall to below 90%, due to Spielo's large share of the Canadian replacements.
  • Large new openings mean bigger discounts.  New markets that are opening are lower priced markets.
    • IL:  mid $12k
    • Canada:  better than IL but likely below $14k
  • Given the poor macro environment, there is some trading down for product that has less bells and whistles, unless the game is really a hit




In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • BETTER:  Performance in the owned portfolio was stronger than expected, benefiting from renovated assets and strong flow through. Less international and, especially, European exposure was evident.  Announcement of the buyback also lent confidence to management's positive outlook.


    • SAME:  The remainder of 2012 is up 5% with a little less than half coming from rate. 
    • PREVIOUSLY:"Our group pace for 2012 is currently up in the mid single-digit range with one-third of that increase due to increase in rate."


    • SAME:  Still on track to open 20 hotels in 2012
    • PREVIOUSLY:"We expect to open more than 20 hotels this year, including our first select service hotels outside of the US."


    • SAME:  They still expect Lodgeworks to generate roughly $40MM of EBITDA in 2012 and produce cash on cash returns of 10% in the future
    • PREVIOUSLY: "The former LodgeWorks Hotels are doing very well, on track to exceed our original forecast and showing strong RevPAR and market share performance.  We expected that we would generate roughly $40 million of EBITDA this year; we're on track to do that."


    • BETTER:  Mexico City is performing ahead of expectations with YTD RevPAR tracking up 15% YoY and they expect to trend in that range for the balance of the year.  Maintained that the property should do better than $8-10MM of EBITDA in 2012.
    • PREVIOUSLY: "The market RevPAR progression expected this year is about 10% and our hotel [Hyatt Regency Mexico City] is up over 20% RevPAR was year-over-year through April. With respect to Mexico City, we expect this year to earn somewhere between $8 million and $10 million in EBITDA from the property."


    • BETTER:  At June 30th, Hyatt has 175 signed contracts with 39,000 rooms.  Roughly 75% of the pipeline is located outside of NA.
    • PREVIOUSLY: "We have signed contracts for more than 170 hotels representing over 38,000 rooms. On a hotel basis it's about 37% of our hotel base. On a rooms basis it's about 30% of our room base. Over a third of those properties are under construction and about 80% of the contracts for these hotels and the pipeline require little or no capital from us. About 70% of them are outside of North America and about 50% of the total are in China and in India."


    • LITTLE BETTER:  Adjusted SG&A only increased 6% vs. 13% (excluding special items) in 1Q.  However, 2Q included a $2MM bad debt reversal benefit, but even so, the increase would have been 9% YoY.  The $320MM of guidance implies a 13% YoY increase on 2011 clean #'s.  
    • PREVIOUSLY: "We expect the increase in second quarter adjusted SG&A to be similar to the increase we saw in the first quarter, excluding the special items. For the full-year, we expect total adjusted SG&A to increase in the low teen's percentage range versus 2011."


    • SAME:  Forward bookings for 2013 progressed to 50-55%.  They mentioned that they may be acting less aggressive in shoring up forward bookings given the strength in business transient and expectations for rising ADRs.
    • PREVIOUSLY: "I would say as I think about the bookings, for 2013 and 2014 continue to grow. 2013, I think we probably have about 45% of the business on our books. And 2014, we probably have 30% of the business on our books. And, rates are picking up, I mean, rates are up 2%, when you compare this for the bookings this time last year. So I think overall trends are looking decent."


Solid beat on strong RevPAR



“Our second quarter results were strong, with Adjusted EBITDA increasing over 19% compared to last year. RevPAR increased over 8% in North America as we experienced strong transient demand. Owned and leased RevPAR grew over 9% in constant dollars as we benefited from last year’s significant renovations. Our international hotels continued to perform well, with RevPAR up over 8% in constant dollars"


- Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation



  • Markets in which they earn the significant majority of their EBITDA are solid. Level of economic activity for the sectors that they serve remain strong. 
  • 2/3rds of their EBITDA come from North America
    • Occupancy is back at peak
    • Transient rate growth outpaced room night growth
    • If trends continue, pricing power should increase
  • Seeing solid RevPAR improvement from renovated hotels and acqisitions.  On track to exceed projected returns on their acquisitions.
  • DC has a small RevPAR decline
  • Internationally:
    • Asia Pacific: +10% (in constant dollars), 10% of EBITDA and 50% of that from China
    • Shanghai and Guangzhou are seeing slight RevPAR declines
    • In the Southwest Asia region, they saw slightly positive RevPAR. India was soft.
    • Continental Europe (France & Germany 50%): 10% of EBITDA.  Benefiting from intra-Europe travel during the Olympics. Hotels in Paris are doing well. Earn very little EBITDA from Southern Europe.
    • Latin America: Less than 5% of Adj EBITDA. Newly acquired hotel in MC is performing ahead of expectations with RevPAR +15%
  • It's still tough to get financing for new builds in NA
  • 1/3 of their pipeline is under construction and 50% of their pipeline in China are under construction.  Some slowdown in India construction given financing constraints in that market.
  • Feel that stock buybacks are a compelling value at current levels
  • Re-alignment of their organization: designed to allow them to be more nimble in a rapidly changing world 



  • To the extent that a Class B shareholders would be interested in selling their stock they would consider it in the same light as Class A buybacks. As of now though, they have received no interest in Class B shareholder selling their stock
  • Board believes that a buyback is more appropriate given their share price
  • They have not yet repurchased any shares under their reauthorization
  • Their focus is to maintain investment grade throughout cycles. So they need to stay below 3-3.5x leverage.
  • SG&A: Guidance is in-line with what they communicated on their 1Q call. It's too early to comment on the impact of their realignment on SG&A.
    • They benefited from the timing of certain expenses falling in 2H12
    • 2H12: Adjusted SG&A guidance of $162MM.  3Q will have a low double-digit increase and 4Q will have a mid-single digit increase.
  • T1 (Top 10) markets were up 10% in the Q.  The next 10 were up over 7%.  Expect strength in the top market to spill over to secondary markets.
    • Austin: 10% growth
    • San Antonio: mid-single digits
    • Seattle: mid-teens
    • Tampa: mid-single digits
    • Columbus: up slightly
    • Minneapolis: up in the teens partly due to renovation benefit
  • Renovation benefit in 2Q?
    • 200bps of RevPAR growth from renovations in NA. RevPAR would have been 6.7%.
  • F&B revenues were lower - they didn't get hit as much during the renovation period so the comp was higher
  • Occupancy is already at peak levels in their owned portfolio. Are starting to see rate benefit from that.
  • There are some renovations underway in San Diego and DC.  Likely to see some impact from the renovations in 2H.  They are managed properties. They are finishing up renovation of public space of their Grand Hyatt in San Fran.
  • China slowdown? No, they haven't really seen a general slowdown
    • Double-digit RevPAR growth in Beijing but Shanghai was more muted
    • Shenzen is up 13-14%
    • Guangzhou is down YoY
    • Still view that China is undersupplied for the long term
    • 50% of their hotels in China are under construction - they have not seen any impact of development activity
  • Don't have huge presence in Europe. 
    • German hotels: +5%
    • UK: +10%
    • Paris: +6%
    • Baku: huge supply increase and more coming so that will negatively impact them
  • FX impacted them by $4MM in the quarter. For the FY, they expect a $10MM FX impact.
  • New York - any impact as a result of Euro crisis and currency?
    • Their business in NY from Europe have not seen an impact from UK but a slowdown from Spain
    • Given where the bulk of their guests come from, they haven't seen much of a slowdown
  • 4,000 rooms opening this year
  • Overall pace of signings should be very good in 2H based on the level of activity that they are seeing
  • Have nothing being marketed by a 3rd party brokers. It's probable that they will sell something small by year end.
  • Had a little over $500MM committed to several projects: more than 50% is due to Park Hyatt NY and Hawaii JV with Starwood Capital
  • Will likely apply 50% debt at the property level for Park Hyatt NY
  • Lodgeworks: Really happy with the portfolio which is tracking ahead of expectations
  • No financial impact of union boycott
  • Realignment costs include professional and accounting fees as well as separation costs.  50/50 in 2Q are cash vs. accrual.
  • Too early to tell how corporate rate negotiations for 2013. Most of them start in late fall. Tone of early conversations is an understanding that rates are heading higher as occupancies increase.
  • Short term bookings are very strong.  In the Q for the Q bookings were up 25%. In the Q for the year bookings were up 15%. Booking pace was up about 5% for the year 2012 with 50% coming from rate. 50-55% of 2013 of group business in on the books vs. 45% last quarter. 
  • From time to time they get more aggressive on expanding group bookings but they have not done so recently
  • Pace numbers also progress a change in policy as well as progression. They could be more or less aggressive in pursing that business.
  • Transient: they continue to focus on driving more corporate travel managed accounts and corporate business vs other lower rated channels
  • Mix shift more towards group/corporate vs. association business. 
  • When / where will SG&A stabilize? Takes some time to integrate all the people that they absorbed through Lodgeworks.  Expect that SG&A increases will moderate in 2013 and beyond.
  • Capex needs: 5% of owned revenues for maintenance... so $250MM baseline capex
    • Park Hyatt commitment of $250MM but if they leverage the project, their commitment will be reduced to $125MM if they get financing (end of 13/early 14 funding)
    • Waikiki: $75-100MM commitment
  • Expect $40MM of EBITDA on a net basis from Lodgeworks, and expect that they will trend up to a 10% cash on cash yield. Also expect a 10% yield on the CA hotels. Their renovations at those hotels have been a little delayed but the RevPAR ramp has still been good. Mexico City: $8-10MM of EBITDA contribution and so far transition to Hyatt has gone very smoothly.  Expect to shift more of that mix to business.  
  • Woodfin renovations will begin this year, so there will be some disruption 
  • Spent $1BN on acquisitions and renovations since going public and did about $700MM of EBITDA in 2008 before going public. 



  • "Comparable owned and leased hotel RevPAR increased 7.6% (9.4% excluding the effect of currency)"
    • "Comparable North American full service hotel RevPAR increased 8.7% (8.9% excluding the effect of currency)" 
    • "Comparable international hotel RevPAR increased 3.8% (8.5% excluding the effect of currency)"
  • "Owned and leased hotel operating margins increased 320 basis points"
  • "Most of our hotels in China continued to show solid results, with a sequential increase in year-over-year RevPAR growth for comparable hotels in the second quarter. In addition, results from our hotels in Europe, which are primarily located in gateway cities such as Paris and London, remained good, despite the economic uncertainty in the wider region."
  • "Group rooms revenue at comparable North American full service hotels increased approximately 6% in the second quarter of 2012 compared to the same period in 2011, as a result of strong corporate revenue offset by slightly lower association revenue."
  • "Transient rooms revenue at comparable North American full service hotels increased approximately 10% in the second quarter of 2012 compared to the same period in 2011, driven by strength from corporate customers."
  • There were 4 franchised properties and 1 owned property added in 2Q and 1 international managed property was removed. 

  • "Looking ahead, we are encouraged by recent trends in transient travel and positive group pace as compared to last year."
  • "Our base of executed contracts for future openings is the largest it has ever been – at 175 hotels (39k rooms). We are on track to open over 20 hotels this year, including our first select service hotel outside the U.S... Approximately 75% of the future expansion is expected to be located outside North America."
  • "Our organizational realignment is progressing well and slated for completion during the fourth quarter of 2012."
  • "Adjusted selling, general, and administrative expenses increased by 5.7%, in the second quarter of 2012"
  • "The Company’s Board of Directors authorized a repurchase of common stock of up to $200 million"
  • $62MM Capex in 2Q: Maintenance:$20MM; Enhancements to existing properties: $32MM; Investment in new properties: $10MM
  • At 6/30/2012: Cash: $400MM; Short term investments: $500MM and Total debt: $1.2BN
  • 2012 Guidance:  
    • SG&A: $320MM
    • Capex: $360MM
    • D&A: $360MM
    • Interest expense: $70MM

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.

Lin-Life Support

LINsanity is on life support.

Modell's NYC

Lin-Life Support - 8 1 2012 12 37 27 PM


In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • WORSE:  A pretty big miss and back half numbers look like they are coming down.  Margin improvement stopped this quarter as ASCA has pretty much gotten its costs as low as they can go.  Consumer is under pressure to some extent and July faces a difficult calendar comp. 





    • LITTLE WORSE:  Capex estimate increased to $560-580 million (includes $32.5MM purchase price to Creative) from at least $500 million previously.  The new estimate included additional F&B amenities and higher % of new gaming machines vs old.  Target opening of 3Q 2014 remains on track.
    • PREVIOUSLY:  Completion: 3Q 2014/ Capex: >$500MM (minimum investment requirement)


    • SAME:  ASCA took control of the property in May.  Demoltion and site grading was also completed in May.
    • PREVIOUSLY: "In Springfield the demolition and site grading are almost complete. We expect to take control of the property by the end of May." 


    • WORSE:  Increased competition drove ASCA Kansas City 2Q EBITDA down 13% YoY
    • PREVIOUSLY:  "I think another quarter or two and we'll start to get a more stabilized trend line of what things are going to look like, but we're very encouraged by the strength of our Kansas City property. We've always said it's the best quality property in the market, it's the furthest away from the competition and I think we're going to do just great."


    • Worse:  While management was cautious during their Q1 call they definitely noticed a downtick in Q2
    • PREVIOUSLY:"I don't think consumer confidence has seen a huge boost... They've had lower utility bills this year versus last year where they've had a little bit higher gasoline prices. Employment is changing in some respects in some of the markets. But I think ... people are still being a little guarded with how they're spending. I don't see long-term trend lines developing yet."

CRR: Feeling The Pressure

We’ve been bearish on CARBO Ceramics (CRR) for a few weeks now and last week’s earnings confirmed our concerns over demand for ceramic fracking proppant in the energy space. The stock sunk from $83 a share to $68 a share and has continued to sell off since then.


Hedgeye Energy Analyst Kevin Kaiser sees further contraction in CRR as ceramic proppant becomes more commoditized. We doubt that CARBO Ceramics can continue to trade at a 12x multiple on forward P/E as the downfall continues. Like other players in the energy space, CRR needs to lower guidance for the back half of 2012 and into 2013 as margins decrease and proppant costs come down. Looking at the chart below, you can see what the future holds for CRR.



CRR: Feeling The Pressure - CRR peforward

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 80.52%
  • SHORT SIGNALS 78.67%