Confusing and disappointing quarter presents buying opportunity?


"Our first quarter of 2013 reflected continued improvement in average daily rates with comparable owned and leased average daily rate increasing 4% excluding the impact of currency. We continued to see strength in transient demand, however group demand declined, in part due to the timing of Easter as compared to the prior year."


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




  • For US full service hotels, transient was strong and transient revenue represented more than 50% of room revenues in the quarter in the Americas owned/leased portfolio revenues. Transient room revenue increased 8% with half of the increase due to demand and half due to rate.
  • Group segment: represents about 45% of their room revenues of US managed hotels.
    • Decreased 6% - all due to occupancy decreases, rate was up 2%. Flat group revenues in Jan & Feb and a 20% decline in March. 2/3rd of the occupancy decline was due to renovations (San Diego, DC and Dallas) hotels. Other factors contributing to the group level declining included the timing of Easter holiday and some cancelled business in connection in with which we were unable to fill gaps in our patterns.
    • In the quarter for the quarter booking were down 12% and in the quarter for the year bookings were down 8%.

    • Government related group demand was particularly weak - down 50% in the quarter and represented half of the decline for bookings for the year 
  • Had $4MM for termination and contract modification fees in 1Q12 which were non-recurring. Renovations at ASCPAC hotels also impacted results by $2MM
  • Several hotels also left the system which negatively impacted results by $1MM
  • Excluding the F&B impact, margins would have increased 100bps
  • Higher property taxes are an area of pressure as are healthcare costs which are rising above inflation
  • Group revenue production was up over 3%.  Bookings for 2014 and beyond were up 13%. Much of of the weakness on the short end was due largely to government business. Group pace for the final three quarters of 2013 is up in the mid single digit % range as of the end of the first quarter
  • In April, Group business increased 15% as compared to booking made in April 2012 - partly due to Easter timing
  • Booking window is lengthening
  • Expect group business to improve QoQ but still expect transient demand to be the driver for the Q
  • Expect geo-political volatility to continue
  • In China, austerity measures will continue to impact F&B revenues in the short term
  • Expect the impact of issues already mentioned to be at the lower end of the previously mentioned $3-6MM range over the next 2 quarters.  They also expect to begin to realize fee growth this year and they increased their guidance for new hotel openings from 30 to 35.
  • Paid a 10% cap on the Driscoll on TTM  basis
  • Sold 3 limited service hotels at a 7.5% cap rate on TTM NOI
  • The JV hotel that they disposed of in Asia had an imputed multiple of north of 20x
  • Continue to be active in repurchasing their stock - $16MM post Q close was purchased
  • Their obligation to purchase tendered notes is conditional on Hyatt issuing new debt at satisfactory terms



  • Impact of renovations and Easter on NA RevPAR: 
    • Easter (200bps impact in the Q)
    • Renovations (150bps in the Q)
    • They maintain the hotels in the comp set unless more than 25% of the rooms are out of service
  • Managed hotel renovations
    • NA renovations finish in the 3Q and 4Q
    • Asia renovations continue through 2014
    • Fee distruptions start to subside in 3Q 
  • ASPAC region:
    • if you take out the renovation impact out, the ASPAC RevPAR results would have been up 2%
    • Japan was up in the high single digits
    • HK was weaker - had renovations; same is true for Taipei and Singapore which also had renovations
    • China was down 8%: North China down over 10%, South China only down in the low single digits and East China down in the mid-high single digits
      • Lots of this is due to supply issues and austerity
      • Diplomatic travel and other travel to Beijing decreased in 1Q but that's starting to improve. Significant diplomatic flow of bookings at their hotels is really improving
      • Supply absorptions vary across regions
  • Group business:
    • Group exposure in the US: 45% for full service managed.  Slightly less for owned portfolio.
    • Outlook for 2013 is improving but short-term bookings are concerning.  
    • Group bookings are up mid single digits for the remaining 3 Q's of the year. 
  • Their float has actually expanded over the last 15 months
  • $100-120MM of investments relate to JV projects like Andaz Wailea
  • Incentive fees: 37% of NA hotels are paying incentive fees... 
  • Their M&A focus remains on gateway cities in US and Europe and increasing their resort presence.  Pursuing sale options for 6 full service hotels currently.  Overall they are encouraged by the transaction activity they see in the market.
  • Didn't buy the Driscoll with the goal of owning it forever
  • Affordable Care Act impact on their business: they have already absorbed some of the costs of broader costs. Expect HC costs to continue to exceed the rate of inflation for the next few years. Implementation costs are also evolving now, so a lot of things are still unclear. 
  • Owned portfolio: London had a really tough quarter - was down almost 10% while the US was up 4%. 
  • A couple of the resort markets where they had group weakness - were already in weak markets and then the impact of the group weakness was exacerbated.
  • Modeling disruptions for Asia will continue into next year. They will continue to try to provide visibility on that.
  • In terms of their owned portfolio, they are largely through the large renovations. No plans for big renovations in the foreseeable future.
  • Encouraged by what they are seeing on the group booking side, and the transient bookings are a source of huge support
  • For things that they can predict and have a perspective on, they have started to give more guidance around. Don't want people to be hyper-focused on the quarter but rather focused on the outlook for several years. 
  • The multiple of their business is the lowest amongst all public companies - partly due to their lack of given guidance
  • Plan to give more details about their outlook over the next few years
  • The disruptions they saw in 2011 and 2012 are much greater since they were on their owned portfolio. The renovations now are focused on very large hotels with lots of Group and therefore a lot of F&B business so the impact on mgmt fees is pretty high.
  • Why isn't their owned portfolio benefiting from the renovations they undertook in 2011-2012. They saw a lot of that benefit in 2012. They had about $25MM of disruption in 2011. 
  • EBITDA associated with the 6 hotels they are marketing is about $25MM (in 2012)
  • The net result is to see booking pace up 6% for the year -when you wash out April strength with March weakness from the holiday shift. Total production on group was up 3.4% for the year.
  • In 2012 Government business was about 5% and in 1Q it was 2% (but bear in mind that it was down a lot too). They don't expect further declines off of currently levels.
  • Vast majority of their owned portfolio is in the US. 



  • "Looking ahead, we continue to focus on improving performance at existing hotels and expanding in new and attractive markets. Owned hotels that have recently undergone renovations are performing well, particularly in New York and San Francisco. As the year progresses, we expect margins to improve as we benefit from increases in average daily rate."
  • Adjusted EBITDA was $131MM and adjusted EPS was $0.09
  • Comparable owned and leased hotel RevPAR increased 4.5% (4.4% excluding the effect of currency)
    • Revenue for comparable owned and leased hotels was negatively impacted by a decline in group room revenue and lower banquet revenue.
  • Owned and leased hotel operating margins increased 20 basis points.... Comparable owned and leased hotel operating margins were flat in 1Q13
    • Excluding expenses related to benefit programs funded through Rabbi Trusts and non-comparable hotel expenses, expenses increased 1.6%
  • Comparable systemwide RevPAR increased 2.4% (3.2% excluding the effect of currency)
    • RevPAR was negatively impacted by renovations at certain managed hotels and the timing of Easter.
  • Comparable U.S. full service hotel RevPAR increased 2.7% in the first quarter of 2013  
  • Eight properties were opened. As of March 31, 2013, the Company's executed contract base consisted of approximately 200 hotels or 45,000 rooms.
  • Hyatt repurchased 664,951 shares of Class A stock at a weighted average price of $41.32/share, for ~ $27MM.
  • On April 30, 2013, the Company's Board of Directors authorized the repurchase of up to an additional $200 million of common stock.
  • "Our global realignment has been completed and we are seeing the benefits of increased adaptability and innovation. We are operating under a structure that is able to be leveraged as we continue to expand. We believe that our current run-rate in SG&A is at a normalized level and we continue to maintain discipline on expense growth."
  • Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA decreased 11.1%... primarily due to asset sales and weaker performance in certain international markets.
  • Americas Mgmt & Franchising Segment:
    • Group rooms revenue at comparable U.S. full service hotels decreased 5.8%.... Group room nights decreased 7.4% and group ADR increased 1.7%
    • Transient rooms revenue at comparable U.S. full service hotels increased 8.0%....  Transient room nights increased 3.7% and transient ADR increased 4.1%
    • Revenue from management and franchise fees was flat.... Fees were negatively impacted by the previously mentioned renovations at certain managed hotels, contract change or termination fees received in the prior period and fewer managed hotels in the first quarter of 2013 compared to the same period in 2012.
    • Adjusted EBITDA increased 4% YoY
  • Southeast Asia, China, Australia, South Korea and Japan (ASPAC) Management & Franchising Segment:
    • RevPAR was negatively impacted by renovations at several hotels.
    • Revenue from management and franchise fees decreased 13.6%.... Fees were negatively impacted by a contract termination fee received in the prior period and the previously mentioned renovations.
    • Adjusted EBITDA decreased 18% YoY
  • Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management Segment:
    • Revenue from management and franchise fees was flat in the first quarter of 2013 
    • Adjusted EBITDA increased 33%
  • Capital expenditures: $43 MM (Maintenance: $14MM; Enhancements to existing properties: $20MM; Investment in new properties: $9MM)
  • M&A transactions:
    • Acquired The Driskill in Austin, Texas for approximately $85 million
    • Sold three select service hotels, with an aggregate of 426 rooms, for approximately $36 million.
    • Sold its interest in a joint venture for a nominal amount. The joint venture owned one ASPAC hotel which the Company continues to manage under a long-term agreement. As a result of this sale, the Company's pro rata share of unconsolidated hospitality venture debt was reduced by approximately $23 million.
    • Entered into long-term management agreements for four hotels in France. In conjunction with the agreements, the Company entered into a seven year performance guarantee.
  • Subsequent to the end of the quarter, Hyatt :

    • Announced that it will redeem its outstanding 5.750% Senior Notes due 2015, of which an aggregate principal amount of $250 million is currently outstanding, on May 10, 2013. Redemption price is expected to be approximately $281 million.
    • Commenced a cash tender offer to purchase any and all of its $250 million 6.875% Senior Notes due 2019.
  • 1Q13: Debt of $1.2BN; Cash: $330MM and short term investments: $457MM
  • 2013 guidance: 
    • Adj SG&A: $305MM
    • Capex: $275MM
      • Including approximately $100MM for investment in new properties, such as Grand Hyatt Rio de Janeiro, Hyatt Place Omaha and other properties
    • Investment spending: $100-120MM
    • D&A: $340MM
    • Interest expense: $70MM (excluding impact of 2015 and 2019 Note redemptions)
    • Hotel openings: 35


Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more