• run with the bulls

    get your first month

    of hedgeye free


JOBS: Solid Improvement

For the second week in a row, the Department of Labor has put out data that shows underlying improvement in the labor market. The 4-week rolling average of non-seasonally adjusted claims, which we consider to be a more accurate representation of the state of the labor market, were down -4.2% year-over-year which is a sequential improvement versus the previous week's YoY change of -2.7%. This is good news, as it signals that the real labor market is, in fact, still strengthening.


JOBS: Solid Improvement - JS 1


Last week’s data was distorted by the incorporation of estimates for Connecticut and Illinois as both state offices were closed due to the snowstorm and unable to report official figures - meaning we had to wait for this week's data for a true update on the underlying labor market trend. All in all, the labor market shows solid signs of improvement 


JOBS: Solid Improvement - JS 2


JOBS: Solid Improvement - JS 7


Takeaway: HST's guidance was good and tone was positive. We like hotels right now and think MAR and HOT were too conservative with guidance.

Very upbeat conference call - certainly more positive than other lodgers - following solid quarter and guidance




  • Driven by solid group and transient demand they were able to significantly exceed the guidance they gave at this time last year
  • Calender quarter basis RevPAR increased by 6.8%. 
  • Sandy impacted RevPAR by at least 1% in 4Q
  • While occupancy exceeds 2007 levels by 50bps, they are still below their historic highs reached in the 90s
  • Key driver of their business was the more than 4% increase in their group room nights, which allowed them to price up other business
  • Group nights only increased 1.6% in 4Q but group revenues increased 4%. This was negatively impacted by Sandy.
  • Business generally shifted towards higher rated segments in the first 9M of the year but 4Q was discounted due to the storm
  • Transient increased 6% in 4Q
  • Average rates achieved in 2012 was 9% below their prior peak
  • Expect that supply in the UUP segment will continue to be constrained and demand will benefit from international visitation and group demand. Expect that RevPAR will be more driven by rate
  • Group booking pace is up 4% in room nights and 6.5% in revenues for 2013.  Expect a strong year for their group segments
  • Transient is also ahead of 2012 pace and expect a solid year
  • REVPAR:  March results are expected to slow due to the early Easter Holiday 
  • Remain focused on selling non-core assets and reducing their portfolio allocation to secondary markets. 
  • Transaction volumes in 2013 should be similar to 2012.  They expect to be a net acquirer in 2013, but their guidance doesn't assume any benefit from acquisitions. 
  • Should also benefit from over a 20% reduction in maintenance capex spending in 2013 and reduce ongoing business disruption.  Expect F&B and other to increase 2-4% in 2013.
  • Stock is currently trading at a 40% discount to their replacement cost and at their 10 year average multiple
  • Market color:
    • Seattle: 17.3% (9% increase occ./4% ADR). Top performer in 2013 due to transient & group demand
    • Hawaii: 12.3% (4% Occ/7% rate): Solid in 2013 due to good group bookings but may have 2H13 disruption from timeshare construction
    • Houston: 11.6% (6% occ/ 3% ADR): Good 2013 due to better demand allowing them to shift to better rated segments
    • San Fran:10.9%.   Expect a decent 2013, but impacted by renovation of Mar Marquis in 1H13
    • Boston: 10.3%; Expect another good year in 2013 due to group bookings
    • Chicago: 8.8%.  Continue to perform well in 2013 due to better business mix and more group business
    • NY: 1.7%: Sandy and renovations hurt their results.  Excluding downtown hotels, it would be 5.3% on a calender basis. Expect a very strong 2013.
    • DC: down 4.3%. Impacted by cancellations due to Sandy and renovation disruption. DC RevPAR was up 21% in January. Expect 2013 to be better than 2012 but weak due government budget cuts.
    • Orlando fell 3.9%
  • Expect Euro JV to have 2-3% RevPAR growth in 2013. 
  • Margin growth was impacted by Sandy and unfavorable holiday shift. F&B only increased only 1% and profit from F&B declined due to a difficult comp.
  • Property taxes increased 5% in the 4Q.  In 2013, expect RevPAR to be driven by ADR leading to good flowthrough
  • Unallocated costs to increase more than inflation in 2013.  Property insurance will also rise as will as property taxes (17bps).  Couple of initiatives from Brands will also pressure costs 10bps.
  • 2 items impacted comparability of FFO - 8MM gain on sale on land to JV in Maui. In 2013 the JV expects to start marketing the timeshare and their portion of expenses will be $4MM with no offsetting income.  Novotel Christ Church will reopen this year.  Combined, there are $19MM of FFO items in 2012 that will not be in 2013.
  • They recently moved to a calendar quarter year- they will provide comparable period comps when they report each quarter in 2013. 
  • Roughly 20% of FY EBITDA will be earned in 1Q; will provide quarterly guidance on their 1Q13 call


  • DC impacted January RevPAR by 1%.  They had 9% RevPAR growth in January.
  • Have 75% of their group room nights for 2013 on the books already
  • Total portfolio guidance for RevPAR:  Would be surprised if it would be dramatically different from SS RevPAR guidance. Will  be seeing a huge Helmsley increase, so it should be a tad higher.
  • F&B revenue has been more difficult to forecast than in the past.  In 4Q, excluding NY & DC they would have been up 4% - in-line with the rest of the year.  Given the uncertainty, they have chosen to go with a 2-4% growth rate which is hopefully conservative. 
  • F&B margins are 26-27% in general but flowthrough should be well above that - around 30-40% due to expected strong group business
  • They have not assumed that the sequester issues snowball into a bigger issue outside of the DC pain they should feel (and have seen some evidence of that already). Think that most of the impact will be felt in the Upscale segment vs. UUP.  Things could get worse but based on what they see today, things are solid.
  • In 2013, they would love to sell at least what they sold in 2012
  • Haven't really seen any significant impact from the sequester over the last 45 days. For the last 8-10 months they have been seeing reduced bookings from government sources.  However, assuming the sequester is coming they assume DC will be weaker. Think that government business is 6-8% of their bookings but this is a lower rated segment which they hope to continue to shift away from.
  • Would like to get to 3x leverage 
  • Given that they are in the process of selling / buying assets they don't want to give quarterly guidance right now 
    • Sounds like something material is underway - no? 
  • At this stage they still want to reduce leverage rather than buy back their stock
  • There are fewer opportunities in Europe (M&A) than the US. They are focused to acquire assets in Germany and London since they feel under represented there.
  • Think that less construction disruption will provide more than a 25-30bps RevPAR tailwind this year
  • The US gateway markets (Miami, California and Seattle) are the markets they are most interested in. They continue to be very bullish on the Brazilian market- preferably in existing assets and potentially in limited service new construction. Australia is interesting given demand trends and low supply.
  • They are looking to do some more development in the US.  Urban Limited service is what they are interested - but they will not make a big move to development.
  • The dividend they pay is to offset their taxable income. However, when they are at a point in the cycle where they don't want to be an acquirer of asset and will continue to sell assets, their dividend will increase.
  • Boston, NY, DC, S. Florida, San Fran, Seattle, etc is where they are focused on owning assets. Would like the bulk of their EBITDA to come from those markets. They already have 75% of their EBITDA coming from those markets already but would want to be even more concentrated. Think that they can reach their goal from just divestment but they are pre-disposed towards growth.
  • Think that they would get at least another 25bps of rate improvement if they were investment grade rated. Being investment grade also gets them better capital access. During difficult times, HY markets can shut down.
  • Most of the M&A activity has been in gateaway markets so far, but feels like people are starting to look outside of those markets now. 
  • While they have done a few large deals, they have built the company through smaller transactions 
  • Special Corporate rate increases are generally 5-6% 





  • The increase in total revenues for the fourth quarter and full year 2012 reflect the improved performance of the Company's owned hotels.... In addition, full year 2012 revenues benefited from the results of the ten hotels (nearly 4,000 rooms) that were acquired during 2011 and the acquisition of the Grand Hyatt Washington on July 16, 2012. These acquisitions increased revenues by an inremental $99 million for full year 2012.
  • Hotel RevPAR for the Company's joint venture in Europe increased 2.0%
  • 4Q Capex: 
    • Redevelopment and ROI ($22MM); Three properties with recently completed extensive redevelopment work, the Atlanta Marriott Perimeter Center, the Chicago Marriott O'Hare and the Sheraton Indianapolis, have performed exceptionally well, as RevPAR increased an average of 41% for full year 2012 compared to the pre-construction period in 2010
    • Acquisition ($39MM); HST completed the renovation of almost 750 guestrooms and opened the new concierge lounge in the Harbor Tower of the Manchester Grand Hyatt San Diego.... and began a $23 million renovation to all 888 rooms of the Grand Hyatt Washington. 
    • Renewal & Replacement ($121MM):  Major renewal and replacement projects completed during the fourth quarter included 459 rooms at the Washington Marriott at Metro Center, the 504-room North Tower of the Orlando World Center Marriott and 130,000 square feet of meeting space at The Westin Kierland Resort & Spa. 
  • Capex guidance for 2013:
    • Redevelopment and ROI: $90-100MM
    • Acquisition: $40-50MM
    • Renewal & Replacement: $270-290MM
  • On November 9, 2012 the Company entered into a joint venture with Hyatt Residential Group (the "Maui JV") to develop, sell and operate a 131-unit vacation ownership project in Maui, Hawaii adjacent to the Company's Hyatt Regency Maui Resort & Spa. The Company contributed a combination of land and cash to the Maui JV in exchange for a 67% membership interest and recognized a gain on the sale of land of $8 million. In addition to any profits from the sale of timeshare units, the Company also expects to benefit from synergies created with the existing hotel. Construction has begun and the project is expected to open in late 2014. 
  • On January 11, 2013, the Company sold the 1,663-room Atlanta Marriott Marquis...for ...$293 million and will recognize a gain on the sale of approximately $21 million in the first quarter 2013. 
  • On November 15, 2012, the Company sold its 94.8% interest in the 424-room Toronto Airport Marriott for proceeds of approximately CAD32 million ($32 million).
  • On November 30, 2012, the joint venture acquired a portfolio of five hotels consisting of 1,733 rooms in Paris and Amsterdam for approximately €440 million ($572 million) and the payment of an additional €10 million ($13 million) for the FF&E replacement fund. The acquisition was financed, in part, through the issuance of a €250 million ($325 million) mortgage loan by the joint venture. The Company's equity contribution of approximately €70 million ($90 million) to the joint venture in connection with this acquisition was funded with proceeds from the repayment by the seller of a €62 million ($80 million) note receivable that the Company had initially purchased at a discount of 38% in 2010, along with available cash.

Buyem: SP500 Levels, Refreshed

Takeaway: This is only the 3rd oversold cover/buy day our models have signaled in the past 35 trading days.



Let me re-phrase that: Buy Consumption, Short Commodities (and proactively manage the risk of the range).


Strong Dollar is finally getting oil. That was the only big headwind we had left in our model for both Asian and US #GrowthStabilizing. We understand our models are different. And we are comfortable with that. This is only the 3rd oversold cover/buy day our models have signaled in the past 35 trading days.


Across our core risk management durations (TRADE, TREND, and TAIL), here are the lines that matter to me most:


  1. Immediate-term TRADE overbought = 1530
  2. Immediate-term TRADE support = 1502
  3. Intermediate-term TREND support = 1458


In other words, you buy securities that are signaling immediate-term TRADE oversold here, then you wait. If the Dollar was being debauched and Oil was ripping, the title of this note would probably say sellem. Not happening; neither is inflation.






Keith R. McCullough
Chief Executive Officer


Buyem: SP500 Levels, Refreshed - SPX


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.


Takeaway: NSA claims show underlying improvement in the labor market for the second week in a row.

Last week's initial claims data was distorted by the DOL's incorporation of estimates for CT & IL as both state offices were closed due to the snowstorm and unable to report official figures - meaning we had to wait for this week's data for a true update on the underlying labor market trend.   With non-seasonally adjusted claims registering further sequential improvement, this week's data indicate that labor trends continue to strengthen. 


Below is the detailed, weekly analysis of the the Jobless Claims data from our Head of Financials, Josh Steiner.  Email  if you would like to trial Josh’s work.   



Labor Market Improves Further In Latest Week

This week's backup in initial claims (SA) was a bit of a negative surprise, as the last four years have shown steady improvement throughout February. As a reminder, the seasonally-adjusted tailwinds will be coming to an end in a few weeks. 


Prior to revision, initial jobless claims rose 21k to 362k from 341k WoW, as the prior week's number was revised up by 1k to 342k.


The headline (unrevised) number shows claims were higher by 20k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 8k WoW to 360.75k.


The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -4.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -2.7%. This is good news, as it signals that the real labor market is, in fact, still strengthening.




























Joshua Steiner, CFA



HOUSING: Is Momentum Slowing?

The market’s response to Toll Brothers’ (TOL) earnings yesterday was not pretty, but it’s not a cause for concern like many would like to think it is. Housing sales volume continues to increase with the MBA mortgage purchase applications index having printed 20% over the last five weeks. Mortgage insurers, large cap banks and select regional banks (MTG, BAC, TCB) all stand to benefit from the recovery in housing. Title insurers like FAF and FNF are also levered to a recovery in the purchase market.



HOUSING: Is Momentum Slowing? - purch yoy shark



Mortgage production revenue, however, will likely see a decline quarter-over-quarter as we move further into 2013. So the question remains: can housing survive the recovery without quantitative easing from the Federal Reserve? The answer is yes, with the reason QE is being removed is because of underlying strength in the economy. If the economy isn’t actually strengthening, then it’s back to the drawing board.


HOUSING: Is Momentum Slowing? - mortg production revenue


HOUSING: Is Momentum Slowing? - qe vs rates


The Cheesecake Factory should continue to outperform its peer group in casual dining.  The stock has underperformed the market of late as broader industry concerns have weighed on sentiment but we continue to see this as the best long opportunity in the category. 


Macro Challenging But Company Performing


While the macro environment remains difficult, The Cheesecake Factory continues to perform strongly from a top-line perspective.  4Q12 same-restaurant sales grew 1.3% at The Cheesecake Factory and declined -3.2% at Grand Lux Cafe.  Consensus was looking for +1.7% and -1.6%, respectively.  Overall comps grew 0.9% but there was a -60bps impact from Hurricane Sandy.  The consolidated comp, excluding the impact of Sandy, is estimated by management to have been 1.5%.  The Street was looking for 1.5% system same-restaurant sales in 4Q.  We believe the strong performance in 1Q, while facing strong macro headwinds, is a positive indication of the strength of CAKE’s business.





Showing Resilience in Difficult Macro


While the stock price reacted negatively to the company guiding below Street expectations, the same-restaurant sales performance versus the Knapp Track industry benchmark was approximately +160bps.  The company guided to 0-1% comparable sales growth in 1Q13, including one-time items impact of 95bps.  Our expectation, based on casual dining trends in 1Q to-date, is for that outperformance versus Knapp to sequentially expand in 1Q by 0-50bps.  Over the last few quarters, CAKE has established strong outperformance versus the industry and we expect that to continue in 1H13.


The management team faced down three questions on the earnings call on current sales trends.  Despite the noise in the 4Q12 results and difficult comparisons versus a 53rd week in 2011, the underlying business trends of this company have been in line with our expectations. 


International development should continue to drive a greater portion of earnings growth, expanding margins over time.  The company announced a new international development agreement yesterday while reporting that the sales performance of the international restaurants is exceeding expectations. 



Margin Expansion Story Intact


Restaurant-level margins expanded by 90bps in the fourth quarter and we expect continuing margin expansion throughout 2013 as food cost inflation expectations are declining.  International growth, as we mentioned above, should also add to the growth of operating margins this year.





Attractive FCF Yield


Cash flow from operations was $195 million in 2012.  The company allocated roughly $86 million to capital expenditure, implying free cash flow of $109 million for the year.  We estimate that 2013 free cash flow will come in at roughly $100 million, which implies a FCF yield of ~6%.





For 1Q13, comparable sales growth is being guided to as 0-1%, including the closure of a Hawaii location due to fire and snowstorm Nemo in the Northeast.  The combined impact is estimated to be 95bps.  Adjusting for the impact of the storm, underlying trends at The Cheesecake Factory seem to be accelerating on a two-year average basis.


1Q13 earnings guidance is $0.40-0.43 per share.  The storm has cost the company roughly $0.01 in EPS. FY13 EPS guidance is for 12-15% growth, or a range of $2.10-2.18, based on an annual comparable sales range of 1.5-2.5%. 


Commodity inflation is expected to be 3%, lower than prior expectations of 3-5%. 


The company plans to develop between 8-10 new stores in 2013, or 5% growth, having opened 10 new locations over the last 15 months.



Howard Penney

Managing Director


Rory Green

Senior Analyst


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.