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Today we covered our short position in Darden Restaurants (DRI) at $45.78 a share at 10:31 AM EDT in our Real-Time Alerts. Solid alpha day for us in Darden. We'll book Hedgeye Restaurants Sector Head Howard Penney's 13th gain in 15 tries at immediate-term TRADE oversold. We remain bearish on the fundamentals. 


TRADE OF THE DAY: DRI - image001

FNP: Getting Closer To A Solution

Takeaway: The mgmt shuffle at Juicy is great news, but not unexpected. It's clear that CEO McComb supports the part of the business that matters most.

FNP announced after the close that LeAnn Nealz, President and Chief Creative Officer at Juicy Coture, is leaving the company effective March 1st.  This is absolutely positive news, but comes as no surprise to us as noted in our comments as recent as last month (see below). One of Juicy’s problems is that it has been run by a creative person as opposed to a business person. We’ve seen that strategy too many times in this business, and it always fails.


The reality is that in early December CEO Bill McComb inserted a business and operationally-focused leader (Paul Blum) between himself and Nealz – not exactly a great vote of confidence. It was clear that the two would gel and endure, or would disagree and she would leave. There was no question that Blum had McComb’s full support.


We continue to think that Juicy will be monetized to help pay down debt and allow investors to focus on Kate Spade – one of the fastest growing assets in retail.  To be clear, we’re not saying that getting rid of Kate is a catalyst. Everyone is expecting that – and in fact, if it does not happen then the price will take a hit (unless the brand is immediately returned back to profitability under FNP’s banner). But very few people call us asking about Kate, believe it or not. It’s all about Juicy. When people understand the sales and margin upside at Kate from what we see today, we think that we see the next leg of upside from where we are today.  







Takeaway: Getting closer to a sale of Juicy? Regardless of the decision, we think the team has focus. Only good can come from that.

Reuters just noted that FNP is exploring alternatives, including a sale, of Juicy Coture. It says that the company has been having discussions, but has not yet made a decision.


This is completely in-line with our thesis on the company, that Juicy has gotten to a point where disposing the asset and paying off debt will allow FNP to focus on its crown jewel – Kate Spade – which is one of the fastest-growing assets in retail. At the same time, it will have Lucky Brand to continue its role as the annuity in the portfolio to help fund Kate’s growth prospects.


It’s easy to get hung up on internalizing near-term growth and margin performance – a hundred million in revenue here or there, or margins plus or minus a point or two. That seems like a lot in a given reporting period.


But with Kate, the company is en route to adding another $1bn+ in revenue and doubling margins. Will COH or KORS double margins? Not when they’re sitting at 31% and 20%, respectively. In fact, we’d argue that COH and KORS margins will converge closer to 25% over the next 2-3 years.  Kate should get close as well from its current margin rate of around 12% (fully loaded).


Kate is doing it right. The company has been investing capital consistently back into building the operating platform to aggressively gain share. Some of that base investment tapers off as the company moves into adolescence. Our point is that in looking at what the company is capable of, think big. This is not about a few points of comp here or there.


We know that we sound like a broken record with our bull call on FNP. But quite frankly, it is a great story worthy of being a bull.


The company is hosting an analyst meeting for Kate Spade in 1Q where the growth opportunity should be more apparent to the investment community.


As for Juicy, we’re often asked “is it really worth anything?”, our answer is ‘definitely’. Think of all the times people chalked up certain consumer brands as being dead. It happened at FNP, actually, when the company owned Mexx – which was a far bigger dog than Juicy. We hate to pick a multiple out of the air in valuing assets, but does 0.5x sales sound in the ‘fair’ category? Sure, it's consistent with past transactions in retail. We wouldn’t be shocked by more. That suggests about $250mm, which could repay 65% of FNP’s debt.


(If the table below is tough to read, let us know and we'll send the file).


FNP: Getting Closer To A Solution - lizsop





Takeaway: We expect FNP to undergo meaningful structural change in 2013 that will continue to unlock shareholder value.

Dinner with a management team rarely (if ever) shifts ones’ investment thesis on a stock, and our’s with FNP last night was no exception. But we definitely walked away with confirmation that the management team is deploying assets to the areas that will fuel growth, and will do what it needs to do in order to purge parts of the portfolio that are simply not working. The bottom-line is that we expect FNP to undergo meaningful structural change in 2013 that will continue to unlock shareholder value.     


The only negative point we could really think of is that with a ~20% hit to EBITDA guidance (Juicy plus general conservatism) and a resulting 12% increase in the stock price, it would be flat-out dishonest of us to not admit that this latest update started the clock and set expectations that something strategic will, in fact, happen this year. Fortunately, we think it will happen, and when it does the path to a $20 stock will be apparent.

In the process of reflecting on his current “State of the Industry,” CEO Bill McComb highlighted that apparel is becoming increasingly commoditized requiring brands to become more differentiated in a consumer-direct format with a focus in part on accessories to shape how he runs each of his portfolio brands for tomorrow. In listening to McComb talk strategyvabout the future of the business, he most similarly sounds like Dick Hayne of URBN. Not a bad stock chart overvthe past year to follow.


Here are a few musings from last night:      

  • As for branded commentary, while Kate continues to be the fastest growing, Juicy remains the most dynamic. McComb put new Juicy CEO Paul Blum in place to set a path for the brand’s approach to market and its product allocation/mix across categories. This leadership has been sorely missed in recent years, which has lead the brand to run astray under Chief Creative Officer Leann Nealz in 2012. Simply put, a creative designer has been running the brand, and our opinion is that she had too much latitude to skew the brand up and down in price point and age. The brand needs a business person to instill a process to methodically target a consumer and procure product accordingly. We’re not declaring victory for Juicy. But we think that it has more going for it today as it relates to touting leadership to make it salable.
  • The upshot is that Paul is setting the course, but that’s just the start. In order to execute effectively, 1) the role of Chief Merchant still needs to be filled, and 2) the chief creative visionary has to be onboard and willing to follow the course set before her. Any deviation there would likely result in a replacement.
  • At Lucky, it’s clear that the focus beyond core denim (i.e. more fashion product) is critical to driving store productivity from $460 up to and beyond management’s $650 per sq. ft. target. In addition, e-commerce will be the primary driver of comp over the next 12-months as the team integrates successful initiatives at both Kate and Juicy.
  • As for Kate, there’s a ton of moving parts over the next year or two that drive brand growth, but McComb remains focused on the bigger picture – investing to ensure the Kate Spade business achieves a critical mass not necessarily managing to profitability. We’re not talking about a $460mm brand at 10% margins getting to 12% overtime, but a path and vision for sub $500mm brand to ultimately achieve $3Bn in revenues at margins over 20%+. We don’t think that investors are looking at the big picture here with what this brand can become. Focusing on the baby steps is an opportunity cost.


As we look ahead to the upcoming catalyst calendar, we expect confirmation shortly that a Kate Spade analyst day will take place over the next 3-months. Given the transformation and multitude of moving pieces underlying Kate’s growth trajectory, the added detail and visibility will be a net positive in light of the discounted multiple the market assigns to this brand.

Prior to then, we wouldn’t be surprised to see the addition of a Head Merchant at Juicy. Beyond 3-months is when we suspect more significant divestiture events are most likely. Among the assets likely to be monetized first are the Adelington Group and then Juicy.

The impact of these events on the balance sheet and P&L would be substantial and set free FNP’s most important asset i.e. Kate Spade. Keep in mind that a 0.5x sales multiple on Juicy Cotoure would net $250mm, which would eliminate 65% of debt, and leave FNP with debt to total capital of under 15%. That’s definitely consistent with what investors want to see from an early cycle high growth story. A better informed market following a 1H analyst day is more likely to reward the remaining business with an appropriate market multiple, which could in turn reward investors with a 40%-65%+ return from current levels and a stock worth $20-$24 per share. FNP remains one of our top longs for 2013.



Bloomin’ Brands shares could be a good short at this price. 





Sell-side ratings on Bloomin’ Brands shares indicate a strong, bullish bias with 73% of analysts recommending buying the shares.  With casual dining sales trends deteriorating, we believe BLMN is a good candidate for investors looking for short ideas as earnings expectations are unlikely to rise from here.


The consensus Price Target, illustrated in the chart below, is below the price of the shares and we do not expect sentiment to rise much further.  Both the multiple (>1.5 turns above casual dining average) and the earnings estimate are not likely to have much upside. 


BLMN SHORT OPPORTUNITY - blmn target price



Private Equity Profit-Taking


Given that 66% of the company, or $2.5 billion in stock, is owned by private equity firms, it is unlikely that there will be a sea-change in sell-side ratings any time soon.  However, we would think that a private equity firm considering current sales trends would be glad to offload shares at $18, or 9.3x cash flow.


BLMN SHORT OPPORTUNITY - blmn valuation comp



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Slouching Towards Wall Street: Courting Trouble

Courting Trouble

"There is such a feeling among people, among regulators, among the political system all over the world, against the banking system, and I don’t think that’s going to change so soon."
- Sanford Weill

A fish stinks from its head – but it swims from its tail.

The markets need leadership from the political class, but they will only thrive once they regain the confidence of their weakest participants. When the small retail investor trusts the market, the world trusts the market. This is something even Sandy Weill understands.

So why doesn’t Washington?

This nation continues to suffer a twin crisis of leadership in Washington, and of confidence on Main Street. Congress and President Obama both deserve a sound thrashing for their refusal to introduce sanity to the financial markets. Six years into the Financial Crisis (and counting…) we are no nearer to a level playing field, to a powerful and effective regulator, to actively extricating Bad Actors from the industry or to creating transparency in the markets. Like so much else on your television screen today, this will not end well.

In a legal case that may determine the future of capitalism, a federal appeals court in Manhattan was the scene of a hearing last Friday which produced the bizarre spectacle of a government regulator coming to the succor of a company it has just charged with a billion-dollar fraud.

Our recent book, Fixing A Broken Wall Street (http://tinyurl.com/cqgter9) lays out the history of Citibank and its current SEC case in lurid and angry detail, and spells out its implications for America’s credibility. As the next chapter in this nasty saga is played out, the future of capitalism hangs in the balance.

Judge Jed Rakoff (pronounced RAKE-off) of the Federal District Court in Manhattan has criticized the SEC. In 2009 he refused to approve a settlement between the SEC and Bank of America over alleged misleading proxy disclosures when BofA acquired Merrill Lynch. Judge Rakoff argued that the settlement did not disclose who was responsible for the misinformation, that the settlement did not cure the problems the SEC claimed existed at BofA, and that the amount of the fine was miniscule, compared to the financial damage suffered. Adding insult to injury, the Judge observed that the fine was to be paid by the shareholders – the putative injured party.

In November 2011, Judge Rakoff rejected a proposed $285 million settlement of SEC charges that Citigroup had committed a $1 billion fraud. Rakoff complained that the settlement provided no details of the alleged behavior, no indication of the profits Citi earned from the transaction in question – and thus no measure of reasonableness of the settlement amount – no indication of which Citi employees or executives were implicated, and no provision for a cure of underlying problems that gave rise to the SEC case.

Judge Rakoff ordered the SEC and Citi to prepare for trial, saying it was in the public interest that the case be heard in full. No sooner was the ink dry on the Order, than the parties filed for injunctive relief. The SEC and Citi joined forces seeking a court order to require him to stand down. On Friday they had their day in court – literally.

The SEC argued that Rakoff’s rejection of the settlement “conflicted with a century of judicial practice” (NY Times, 9 February, “Judge’s Rejection of Citigroup Deal Is Heard on Appeal”) and that “The court failed to give the SEC any deference.”

Regulatory agencies obtain court orders so they can enforce the terms of a settlement in the event of repeat infractions, and courts routinely sign off on settlements. In practice, though settlements contain language prohibiting repeat violations, those terms are never enforced. Firms can repeat the same violations and only have to pay another settlement. Since they settle “without admitting or denying” the allegations, you cannot say legally that a firm “committed fraud” and you especially can’t say they “committed the same fraud again.”

The theory behind settlements is judicial economy: court hearings drain taxpayer money and lengthy proceedings tie up critical legal resources. Outgoing SEC enforcement chief Robert Khuzami came to the Commission vowing to obtain more, and bigger settlements. Khuzami has won lots of settlements – and headlines. But the willy-nilly settling of every fraud case has gotten to the point where, far from preventing fraud or punishing crime, the government has become a partner in the questionable dealings of the world’s largest financial institutions.

Where’s the political will to force change? Look at another recent example and cringe.

HSBC bank is the third-largest publicly-traded bank, and the sixth-largest public company in the world (Forbes, 2012.) The bank recently agreed to pay a $1.9 billion fine and acknowledged that for years it permitted “narcotics traffickers and others to launder millions of dollars” throughout its global system. “Millions” is an understatement.

The Justice Department says HSBC took in more than $ 15 billion in unexplained cash deposits “in Mexico, Russia and other countries. In some branches the boxzes of cash being deposited were so big the tellets’ windows had to be enlarged” (The Guardian, 14 December 2012, “HSBC Money Laundering Fine.”) Entities for which HSBC is reported to have laundered funds include Colombian and Mexican drug gangs, and the Iranian Revolutionary Guard – the backers of Hezbollah (see our Screed of 23 July 2012, “50,000 Dead Mexicans Can’t Be Wrong.”)

The $ 1.9 billion settlement represents about 25% of HSBC’s annual profits, so it will have little effect on the bank’s operation. Senior HSBC executives said they were “profoundly sorry.”

There is a high likelihood that HSBC’s money laundering activities were implicated in the murder of US citizens. Mexican and Colombian drug gangs have killed tens of thousands of Mexicans and Colombians, but they also kill US citizens. Since the drug money in question originated in street sales in the US, there is an inevitable link, not merely to the killing of the odd DEA agent or border

police officer – and not only to Mexican-American gang members in Los Angeles – but to street violence here at home. We wonder why the politicians who are challenging the President’s drone memo are not calling for harsh measures against HSBC.

Oh – silly us! Now we remember.

Assistant US attorney general Lanny Breuer said the consequences of criminally prosecuting HSBC would be “dire” – it would cost jobs and risked destabilizing the global banking system.

As to the jobs issue, we are confident the FDIC could figure out a way to keep HSBC’s domestic US business humming – a perfect opportunity to bring Sheila Bair back as Treasury Secretary. As to the global piece, we are not sure how the government defines “destabilize,” when the global banking system is already the prime conduit for funneling cash to Iranian-funded terrorists and Mexican drug lords. This is no doubt a highly specialized use of the term, a degree of nuance known only to legal minds on the level of Mr. Breuer’s. What practitioners call “a term of art.” Where’s the political will to do something about failures in the system?

In 1998, Citigroup sprang whole into glorious, robust life, born from the mind of Sanford Weill like Botticelli’s Venus. It was ably midwived by Alan Greenspan and Robert Rubin, while the slap that started it breathing was administered by President Clinton. This entailed revoking the Glass Steagall Act and ultimately led to the Commodity Futures Modernization Act, making it illegal for the government to regulate the futures markets. It’s been Off To The Races ever since.

The judicial economy argument for settling cases is to keep court resources available for really important matters. Under this rubric, there can be no more important use of judicial resources than to determine whether Citigroup committed financial fraud. This is the entity for which major laws were uprooted, new laws brought into existence, and the entire structure of the marketplace and the economy turned on its head. The Citi case is a veritable laboratory of 21st-Century American Capitalism. The transaction that laid the foundation for the contemporary financial marketplace – and for the crisis that continues to plague us.

We say America is entitled to the full story on Citi. A full hearing should determine whether such an entity should – or even can – exist; whether it is possible to implement sufficient internal controls; how such an entity should be regulated – or whether it is ultimately not possible to oversee a marketplace dominated by behemoths. It would also reveal weaknesses in the current regulatory regime and help create a roadmap to restructuring the SEC. No wonder the unholy alliance of Citi and the SEC are desperate for a court-ordered stay.

Folks, it doesn’t get more important than this.

A strong decision in favor of Judge Rakoff will lay the groundwork for the incoming SEC chairman to get serious about restoring credibility to the markets, and should send the same signal to Congress. A decision against Judge Rakoff will be clear abdication – the regulatory equivalent of the Lehman bankruptcy.

Our lawyer friends think we’re overreacting. They say it will be tough to convince a court to push back against a federal judge. We hope they’re right. Until then, we seek in vain for a policy of Zero Tolerance.


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



OVERALL:  WORSE: While Hyatt remains focused on managing their business for the long term, the weak margins on owned and leased, and sluggish international results were a little disappointing




  • SAME:  Hyatt feels the US will have a good year while some international markets like Baku, India, and select Chinese cities will continue to be under pressure due to supply absorption, renovations, and macro issues.  Overall, there will be more volatility in the 1st half of 2013. Hyatt does believe that the current lodging cycle will last another several several years
  • PREVIOUSLY:  "In the coming quarter and then into early 2013, we're likely to see a carryover of the same type of issues that we saw in the third quarter... We do think that there are some signs of a more modest overall growth trajectory. Longer term, we continue to feel very confident about the strength of our brands and about the prospects for the industry."


  • SAME:  Large hotels in Washington, DC and San Diego, and large Grand Hyatt hotels in Asia will comprise the major renovations in 2013. 
  • PREVIOUSLY:  “Fee growth will be negatively affected in the short-term by ongoing renovations at large managed hotels, notably in the fourth quarter we expect the Grand Hyatt, San Diego, the Grand Hyatt and Hyatt Regency hotels in Washington, D.C., and the Hyatt Regency Dallas to be under renovation. As we look to next year, several of our large Grand Hyatt hotels in gateway cities in the Asia-Pacific region are planning renovations. These renovations are great for our brand presence and for our guests and for the owners over the long term, but do lead to short-term impact on RevPAR and fees."


  • BETTER:  Hotel Nikko earned over $10MM in adjusted EBITDA from May-December, ahead of its $8-10MM guidance.  Hyatt expects +$20MM in adjusted EBITDA in 2013. 
  • PREVIOUSLY:  "The Hotel Nikko acquisition in Mexico City which we acquired and rebranded as the Hyatt Regency in Mexico City this past May is performing well.  We're on track to begin renovations to this property next year."


  • BETTER:  During 4Q, Hyatt approximately $101MM of stock, which is more than they've repurchased all year.
  • PREVIOUSLY:  “We've approximately $131 million remaining under our authorization. We remained committed to a balanced strategy of investing in growth and also returning cash to shareholders when appropriate."


  • SAME:  SG&A guidance of $305MM for 2013 is close to adjusted 2012 SG&A of $303MM.
  • PREVIOUSLY:  "We expect the realignment savings to continue into 2013, partially offset by wage and other cost inflation, and the selected increase in resources as we allocate some resources towards growth initiatives. Overall, we expect the net impact to result in sort of a flattish SG&A growth in 2013."


  • BETTER:  Up 4% in 2013 (half rate/half occup), compared with 'very low single-digit' growth in 3Q. Technology, retail, and manufacturing were the strongest groups.  December bookings were the best they've seen since 2007 and January momentum was also good.
  • PREVIOUSLY:  "In the third quarter and heading into fourth quarter, definitely a slowdown in the rate of growth in group bookings for corporate customers. And I think a lot of that has to do with uncertainty due to the fiscal cliff, the election and the like. Government business was particularly weak, it was down in the third quarter for us significantly, so if you look at our third quarter results we had a slight decline in room nights for group bookings for the quarter. More than a 100% of that decline was derived from government business. Part of that is demand and part of it was yield-management decisions that we undertook to actually trade away from some of that business, so some unusual short-term impacts from the government side."


  • SAME:  Beginning to lengthen, but still seeing a barbell booking pattern between short term corporate bookings in a 90 day window and association business out a year or 2. 
  • PREVIOUSLY:  "We have a bit of a barbell going on in the sense of very different dynamics, short term among corporate groups and longer term among associations."


  • LITTLE WORSE:  Despite a solid January, oversupply and austerity measures will pressure China performance. They anticipate that some of this will ease as the year progresses
  • PREVIOUSLY:  "RevPAR performance is expected to be weaker in China given the political changes. In addition, Beijing has seen a drop in corporate business which has been postponed until after the elections. We've seen a tightening of government spending, particularly in the south of China. Once the election is over, we anticipate corporate demand will return to more normalized levels."


  • SAME:  Continued weakness seen in various India markets.
  • PREVIOUSLY:  "India RevPAR was also weak due to additional supply and the decrease in demand as a result of slowing economic growth. Most markets are not expected to see a rate increase as a result of the increased supply, near term, such as Mumbai and Delhi."


Weak owned and leased margins and international headwinds produce an uninspiring quarter


“Looking ahead, we are focused on growing our market share, increasing owned and leased margins, improving results at recently renovated and newly acquired hotels, and continuing to support expansion of our brand presence around the world. We expect that there will be headwinds in some markets, but given our concentration of earnings in the U.S., and the diversity of our business model, we look forward to a year of stable growth"


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




  • 4Q demonstrated strength in some areas and challenges in others
  • RevPAR outside the US was more muted and varied.  Market specific factors, non-recurring events (China gov't transition), and difficult comps negatively impacted the Q
  • 9 hotels will be converted to their management by mid-2013 in Europe, including 4 in France. 
  • Host JV marks their first new investment in timeshare in the last several years 
  • Anticipating several more years of growth in the lodging cycle
  • Invested ~$250MM in hotels developments this year that will help grow their management fees over the next few years
  • Anticipated earning low teens returns on their New Orleans hotel but now think it will be in the high teens
  • Cash on Cash yield is already over 10% on the California assets they had acquired (they had expected 10%).
  • On Lodgeworks, they earned $45MM net of overhead in EBITDA, better than their expectation
  • Earned over $10MM in EBITDA and expect over 2x that in 2013 on Hyatt Regency Mexico City  
  • Hyatt Birmingham in England - think that they can exceed $5MM in EBITDA in 2013 which is what they originally underwrote. 
  • Group pace for 2013 is up about 4%. December was their busiest group production month since 2007 and January was good as well.  40% of the group production in January was for the next 90 days.  The booking window is beginning to lengthen although close-in bookings still account for a large portion.
  • ADRs are still below prior peak levels in nominal levels
  • Renovated hotels will provide them outsized growth in RevPAR in the future
  • Expect a margin impact from the renovation of hotels, some new supply growth in certain international markets like Baku, high insurance growth, lower F&B growth...expect more impact in the beginning of the year and think it will lessen as the year progresses
  • They are marketing a portfolio of 6 US hotels that generate $25MM of EBITDA.  If they sell the assets, they will maintain management contracts. 
  • Plan to make acquisitions as well and JV investments in the US, Latin America and Europe.  Looking to put over $100MM in these types of projects. The market is more active than what it was before.
  • Their focus is to invest in gateway cities to increase their presence but are open to other types of investments.  The acquisiton of Hyatt Birmingham for less than 9x EBITDA is a good example. 


  • Why are comparable hotel margins down in light of the good RevPAR growth?
    • Non-operating items like insurance and taxes impacted margins by 200bps, about 50% of which is non-recurring.  Excluding these items, margins would have been flat
    • F&B spend is also weak as groups are still cautious on what they spend
    • Also faced tough comps from last year
    • If you look at CostPAR, its been flat since 2007.  So they have found enough productivity measure to maintain flat costs for their full service hotels. For select service, their CostPAR has actually declined.
    • That said, there will be volatility Q to Q but more stable results over the course of the year
  • Are large groups the weakest segment of group?
    • Seeing strength in tech, retail, and manufactoring sectors
    • January is up 7% in bookings relative to last year
  • The net impact of Sandy was negligible
  • EMEA - growth ex bad debt would have been 50% less of a decline. The recovery was $2MM.
  • Why don't they pay dividends?
    • Think about their capital as a means to grow their business as their first objective
    • Have project capex commitments of over $500MM to be deployed over the next few years
    • They did repurchase stock in 2011 and 2012
    • They will consider all forms of capital returns to shareholders
  • Repurchase activity is opportunistic
  • IRR threshold varies depending on the form of the investment and project type/location.  Make sure that investments are good on a risk/reward basis and increasing their presence in key markets.
  • Expect to make $100-120MM of JV projects
  • $550MM of JV debt
  • Class B shares are not only owned by Pritzer shareholders, including Goldman.  Have 2 Pritzers on their Board of 12 members. The Pritzer family members do not have any access to information that other Board members don't have and non-board members have the same information as all other shareholders.
  • Continue to focus on SG&A and margin improvements
  • Openings this year should be 50/50 between US/international and 2/3 should be managed
  • Mid-summer 2013 for the opening of their Grand Wailea property- 2 Q's behind schedule - they changed the composition of rooms and suites and started selling residentials.
  • Park Hyatt NY should open in 2Q14
  • Why were incentive management fees down in 4Q?
    • Weaker results in certain international markets
    • Renovations in their managed portfolio
    • Continued bumpiness in 2013 to be expected
  • Slowdown in capex corresponds to the fact that their owned hotel renovations are substantially complete; hence, the slowdown in 2013.  Maintenance remains at 5% of revenues.
  • Birmingham - purchased at 50% of replacement cost.  Only have 3 properties in all of the UK.  Lots of group activity at that hotel. The hotel was in receivership when they bought it. Want to control their presence in that market.
  • Expect continued issues in Baku and India. Some markets in China have oversupply as well. 
  • They are seeing more of a barbell distribution on the short end of the booking end and also a year or 2 out - largely associations. 
  • Group strength is in the smaller meeting sizes and smaller groups. Large groups are lagging.
  • Demand in NY is holding up quite well despite supply growth
  • Given the Sandy premiums coming through, it's likely that insurance premiums will continue to rise
  • The insurance amounts had a true up in the Q 
  • December was one of the best Decembers that they've had since 2007. They do feel better about group now than last Q
  • While the booking window is lengthening, they still see a major amount of activity for the next 90 days.
  • Have had a more pronounced drop in government business on the group side



  • 4Q highlights:
    • Adjusted EBITDA of $147MM and adjusted EPS of $0.20
    • Comparable owned and leased hotel RevPAR increased 7.5%
      • "Benefited from solid demand and to a limited extent from renovations completed in prior periods"
    • Owned and leased hotel operating margins decreased 10bps
    • Comparable U.S. full service hotel RevPAR increased 5.8%
    • 6 properties opened
    • Repurchased 2,779,038 shares of Class A stock at a weighted average price of $36.34 per share, for approximately $101 million
  • Expect to open over 30 hotels in 2013, including the conversion of four iconic hotels in Paris, Nice and Cannes to Hyatt brands
    • ~1,700 rooms, "more than double our presence in France and is a meaningful expansion of our coverage in continental Europe"
  • "Revenue for comparable owned and leased hotels was negatively impacted by weak performance in certain international markets and lower relative growth in non-room revenue at U.S. hotels"
  • "Excluding expenses related to benefit programs funded through rabbi trusts and non-comparable hotel expenses, expenses increased 4.3% ....Comparable expenses were negatively impacted by insurance costs."
  • Changes to the owned & leased portfolio in 4Q:
    • Hyatt Regency Birmingham (owned, 319 rooms): $43MM purchase price
    • Andaz Amsterdam (leased, 122 rooms)
    • Closed on the sale of 8 select service hotels (1,043 rooms) for approximately $87MM and will continue to manage these hotels under long-term agreements.
  • Americas Mgmt & Franchise segment:
    • Group rooms revenue at comparable U.S. full service hotels increased 3.3%. Group room nights increased 0.4% and group ADR increased 2.9%
    • Transient rooms revenue at comparable U.S. full service hotels increased 6.9%. Transient
      room nights increased 2.1% and transient ADR increased 4.7%
    • Portfolio changes in the Q:
      • LA Hotel Downtown (franchised, 469 rooms): This property is expected to be rebranded Hyatt Regency Los Angeles Downtown upon completion of a renovation
      • Hyatt Place Los Angeles/LAX/El Segundo (franchised, 143 rooms)
      • Hyatt Place San Jose/Pinares (managed, 120 rooms)
      • 3 properties were removed
  • Southeast Asia, China, Australia, South Korea and Japan (ASPAC) Mgmt and Franchising Segment:
    • Adjusted EBITDA increased 7.1%
    • RevPAR for comparable ASPAC hotels increased 3.1% (2.9% excluding the effect of currency)
    • Revenue from management and franchise fees was flat
    • 1 property was removed
  • Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management Segment
    • Adjusted EBITDA decreased 36.4, impacted by a bad debt recovery in the fourth quarter of 2011
    • RevPAR decreased 0.8% (increased 1.1% excluding the effect of currency), "negatively impacted by lower performance in markets in the Middle East and in Gulf Cooperation Council countries"
    • Revenue from management and franchise fees decreased 5.3% 
    • Additions: Park Hyatt Chennai (managed, 201 rooms); Andaz Amsterdam (leased, 122 rooms); Hyatt Place Hampi (managed, 115 rooms)
  • Adjusted selling, general, and administrative expenses decreased by 2.6%
  • "As of December 31, 2012 this effort was underscored by executed management or franchise contracts for approximately 200 hotels (or approximately 45,000 rooms) across all brands"
  • Capex of $91MM: Maintenance ($42MM); Enhancements ($39MM); Investment ($10MM)
  • From January 1 - February 8, Hyatt repurchased 12,123 shares of Class A common stock at a weighted average price of $37.95 per share, for approximately $0.5MM. "The Company has approximately $63 million remaining under its current share repurchase authorization."
  • In 4Q, Hyatt "formed a joint venture with Host Hotels & Resorts to develop and operate a Hyatt Residence Club in Maui, Hawaii. The Company expects to invest approximately $40 million in the vacation ownership property"
  • "Subsequent to the end of the quarter, the Company closed on the sale of three select service hotels, with an aggregate of 426 rooms, for approximately $36 million"
  • Total Debt: $1.2BN, Cash: $413MM and short-term investments of $514MM
  • 2013 guidance: 
    • Adjusted SG&A: $305MM
    • Capex: "$300 million, including approximately $120 million for investment in new properties, such as Grand Hyatt Rio de Janeiro, Hyatt Place Omaha and other properties"
    • D&A: $340MM
    • Interest expense: $70MM