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




  • Even after adjusting for a lower tax rate and d&a, Q2 was very strong for Hyatt.  Adjusted EBITDA exceeded our estimate handily driven mainly by fees.  We were encouraged by the significant amount of stock repurchased during the quarter as the balance sheet remains underleveraged.   


  • BETTER:  Hyatt repurchased nearly $200 million of stock in the quarter (Hyatt had announced an additional $200MM increase in repurchase authorization in Q1).  Hyatt will continue to evaluate their capital allocation options.
  • PREVIOUSLY:  “So one think I would, just to note is that, our primary application of our capital base on our balance sheet is to support our growth, that's our number one priority. We have been, more formally over the last year, been in the market and repurchasing shares."


  • WORSE:  2014 bookings are trending near flat, lower than previous guidance.  Hyatt remains optimistic about 2015-2016 growth.
    • “Bookings for 2014 have increased by 10%. So the short-term booking trend is still very volatile. It's still very sensitive on a month-to-month basis and we continue to see that long-term bookings 2014, 2015 and even into 2016 look very healthy, look very promising. We don't see any issues there yet. Although, when you go back to last year August, September, October and you looked at 2013 and the booking trends were and compare it to where we are now with 2013, there has been quite of a wash, cancellation and push out into future years, and we continue to see that trend.”
    • “Overall, we see our booking experience as an indication that the booking window is lengthening.”


  • SAME:  2Q in the quarter for the quarter growth was 1%.  In the quarter for the year, bookings increased 6.5%.
  • PREVIOUSLY:  “As we look to the future, we're encouraged by several data points. First, group pace. Even though realized revenue for group business was down in the first quarter, overall group revenue production was up over 3% in the quarter.”


  • BETTER:  Strong transient demand was ahead of expectations.  Manufacturing, business serving the housing industry and technology segments continue to lead.
  • PREVIOUSLY:  “Second, transient demand, the overall business climate in the U.S. was strength in manufacturing, technology, housing and other sectors, is supporting robust transient demand levels. Therefore, while we expect group demand to improve relative to what we saw in the first quarter, we still expect transient business to be a stronger driver of improved results this year.”


  • WORSE:  Continues to be a challenging market, impacted by austerity measures, renovations and increased supply.  The outlook remains weak for 2013.
  • PREVIOUSLY:  In China, the focus by the new leadership on austerity has and will continue to hurt F&B revenue, in particular in the short-term.”


  • SAME:  REVPAR was stable in 2Q
  • PREVIOUSLY:  “In India, the economy is starting to stabilize, while the country enters a national political process leading up to general elections in 2014. Nonetheless, the positioning of our existing portfolio as well as the hotels expected to join our portfolio over the coming year in each of China and India is very encouraging.”


  • BETTER:  Impact from renovation of managed properties in 2Q was only $1MM
    • "We expect the impact to be towards the lower end of the previously mentioned $3 million to $6 million range per quarter for the next quarter or two. The impact is expected to decline as renovations of managed hotels are completed and year-over-year comparison issues recede.”
    • “I think the modeling disruption beyond the end of this year, we know now and we mentioned that the renovations in the key markets in Asia would continue into next year.”


  • SAME: Continues to be active.  They have four assets that are generating much interest in the transaction market.
  • PREVIOUSLY:  “Our intention is to continue to be active through the cycle on both the buy-side and the sell-side.”


PNK’s quarterly exclusions from adjusted EBITDA are material and consistent.


  • Consistent - Although not depicted entirely on this chart, over the past 8 years, PNK has excluded GAAP operating expenses from Adjusted EBITDA every quarter.
  • Material - “Non-recurring” operating charges have represented from 5% to 25% of company reported adjusted EBITDA.
  • Reducing EBITDA estimates by 5-10% to account for likely “non-recurring” items going forward would result in ½ to a full turn higher EV/EBITDA valuation
  • We will be looking at the other operators in upcoming posts.




If Hyatt could post these results and distribute this much cash back to shareholders every quarter, maybe there wouldn't be a 2 turn EBITDA valuation discount



"Our second quarter of 2013 reflected ongoing positive trends in transient demand at U.S. hotels and strong average daily rate progression.  Looking ahead, we remain focused on improving performance at existing hotels and expanding in new and attractive markets. We expect continued healthy levels of transient demand at U.S. hotels, and anticipate further rate growth. Over the short-term, we believe that U.S. group demand growth will be modest and that demand in certain markets, such as India and China, will be volatile. We remain confident in the long-term outlook for both transient and group segments."


- Mark S. Hoplamazian, president and CEO of Hyatt




  • New capex schedule on page 12 of release
  • 2Q strong:  higher rate, improved F&B and good flow through and earnings from newly renovated hotels
  • 5 owned & lease hotels each grew EBITDA by 50%
  • Strong Transient sectors:  manufacturing, housing, technology
  • Group business weak - timing of Easter partially offset lower govt group business
  • Group
    • In the quarter for the quarter growth: +1%
    • In the quarter for the year growth:  +7%, this pace has been maintained
    • 2014 bookings are flat - corporate associations doing well; govt/specialty groups lagging
    • 2015/2016 up
    • Expect DC in next 18 months to be weaker relatively; expect Chicago/Orlando to be stronger
  • 4 France hotels post conversion:  $5MM - base fees; $5-10MM incentive fees (expect more in 2nd/3rd quarters because of seasonally strong summer); because the annual guarantee is measured on a quarterly basis, Hyatt may be required to fund up to the guarantee level (e.g. 4Q) which could negatively impact incentive fees. Hence, $10-15MM euros in total fees in 1st year.
    • French hotels incentive fees:  $10MM in 2Q; $10MM or slightly below in 3Q, - $5MM adverse impact on 4Q
  • 5% of adjusted EBITDA from Greater China
    • China will continue to be challenging in 2013
  • 2nd half of 2013:  earnings from recently sold hotels will have a negative impact 
  • Baku/London:  difficult comps in 3Q
  • 1/2 Mexico resorts are all-inclusive
  • 3Q 2013:  20% equity stake in Playa for $100MM, $18-20MM EBITDA impact; ROI: mid-teens
    • Min return on convertible preferred equity: 10%
  • Have four hotels in the process of being transacted - (2/3rd of $25 EBITDA impact)
  • Recent MGM marketing deal:  activity levels are higher than expected

Q & A

  • Owned REVPAR:  50-100 bps impact from renovations coming back online
  • Govt remains weak; group nights fell by 50% (consistent with Q1); govt <5% of mix
  • 2Q managed property renovations:  $1MM; 1Q managed property renovations:  $2-3MM impact 
  • Group REVPAR - April: +20%, May: flat,  June: -3%
  • Transient REVPAR - April: mid-single digits, May/June: high-single digits
  • New York REVPAR:  up high single digits (mostly rate and driven by transient demand)
    • Additional supply seems to be getting absorbed
  • DC REVPAR:  up slightly, challenging environment, group is weak, 2014 pace down a bit, 
  • Easter shift impact from 1Q to 2Q:  $2-3MM impact, 130bps on Americas portfolio
    • Ex China, ASPAC REVPAR grew 5% (mostly by Japan)
    • Northern China the weakest; Southern China relatively positive REVPAR
    • Maintained comp set leadership in Beijing
    • Competitive environment in China
    • Supply issues in China?  will see new supply coming on
  • Europe - gateway cities strong;  
  • Middle East -strongest region
  • Southwest Asia - India REVPAR has been stable
  • Float:  higher than IPO time (44MM class A vs a little under 44MM Class A)
  • Reup Repurchase authorization?  Continue to evaluate.
  • Capex 2013:  Down from 275MM to 250MM due to timing.  Large owned renovations will be mostly completed.  Investment spending guidance is increased to $500MM because of inclusion of $325MM in Playa investment and $85MM acquisition of Driskol Hotel.
  • M&A:  no changes in price expectations
  • Continue to be active in M&A deals
  • Playa is in the market with a $650MM debt deal
    • 2H 2013 contribution will be 'modest'; closing date hasn't been finalized yet
    • Hyatt investment:  $160k/per key 
    • Impact of renovations in the coming years
  • No significant impact from wage changes

Early Look

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2Q13 GDP: Hurry Up and Wait

Takeaway: The path of least resistance here is to stick with the positive TREND slope of improvement in the domestic macro data.

Conclusion:  So, what do you do with a strong ADP print for July and a (expected) deceleration in a rearview looking 2Q13 GDP number within the context of the consumption and expectation dynamics highlighted below? 


In part, you wait for tomorrow’s update to our favored, high frequency read on the Labor Market in the NSA claims data and then you wait again for Friday and the monthly exercise in speculation and data myopia that is the Employment report. 


All in, as we highlighted in Monday’s Note - U.S. Growth - #TRENDing – with the research and risk management signals both still aligned on the pro-growth side, the path of least resistance here is to stick with the positive TREND slope of improvement in the domestic macro data until something changes.  


Below is a review of this morning’s GDP data along with some summary commentary: 




2Q13 REAL GDP:  1.7% QoQ (vs. revised 1.1% prior and 1.0% expected)

1Q13 Revision:  Revised down to 1.1% from 1.8%


C:  Consumption growing +1.8% QoQ, decelerating 50bps sequentially.  Contributed 1.22% to Total GDP.

I:  Investment growing +9.0% QoQ, accelerating +4.3% sequentially.  Contributed +1.32% to Total GDP 

G:  Government less of a drag in 2Q13, growing -0.4% QoQ vs. -4.6% in 1Q13.  Contributed -0.08% to Total GDP on the quarter.

NX:  Total Exports growing 5.4% QoQ (vs. 9.5% for Imports).  Net exports contributing -0.81% to Total GDP vs. -0.28% last quarter. 


Inventories:  Inventories provided a positive contribution to GDP of +0.4.  Down from a positive contribution of +0.9 in 1Q13.


Inflation:  The PCE Deflator printed at its second lowest level ever, coming in at 0.8%, helping to support real consumption growth


Final Sales (GDP less Inventory Change): Growth in Real final Sales accelerated to 1.3% in 2Q13 vs 0.2% in 1Q13


Final Sales to Domestic Purchasers:  Reminder - this metric is a measure of GDP excluding both exports and changes in Inventories. In measuring total U.S. demand from both domestic and international sources, arguably, it offers the cleanest read on the health of the domestic private sector. Growth in Final Sales to Domestic Purchasers accelerated to 2.0% from 0.5% in 1Q13.   


Benchmark Revision:  This benchmark revision is interesting, but not particularly investible.  Below we provide a summary review of the methodology changes from Bloomberg Economist Joseph Brusuelas along with a comparison of the Pre and Post revision GDP estimates from the BEA. 


Consumption:  Consumption growth decelerated 30bps sequentially in 2Q13. The deceleration, however, was fairly well advertised and not unexpected alongside the rising savings rate, lagged impacts of fiscal policy changes, and the difficult 1Q13 comp in which consumer spending benefited from the special dividend bonanza and compensation pull-forward in December 2012 ahead of impending fiscal cliff related tax law changes. 


We continue to think the upside in Disposable Personal Income, and Consumer Spending by extension, will be constrained in 3Q13 as well given the ongoing reduction in the federal workforce and the implementation of furloughs for the balance of the fiscal year.   That said, it’s now August and 2Q13 is rearview, 3Q13 is a third gone, the real-time labor market data remains positive, seasonality will turn positive in September, and we’re close enough to annualizing the fiscal policy drags for it to become a tractable narrative for investors. 


Expectations:  With consensus growth expectations for the balance of the year at a moderate 2.30 and 2.60 for 3Q13 & 4Q13, respectively, the setup isn’t as asymmetric to the upside as it was back in December.  Also, congress will likely re-emerge as a negative headline catalyst in the coming weeks as budget and debt ceiling rhetoric crescendo’s yet again. 


Meanwhile, flows to U.S. assets remain ongoing and Investor Sentiment, as measured by the II Bull/Bear Survey, showed bulls dropping back below 50% in the latest reading.  On balance, the balance of risk in the market from an expectations perspective is less clear than its been.  From here, it gets a little more interesting.     



2Q13 GDP:  Hurry Up and Wait - GDP Summary Table


2Q13 GDP:  Hurry Up and Wait - GDP Revision Bberg Table With Citation


2Q13 GDP:  Hurry Up and Wait - GDP Revision Comparison


Christian B. Drake

Senior Analyst 


In preparation for MAR's F2Q 2013 earnings release tonight, we’ve put together the recent pertinent forward looking company commentary.




  • "As we look at the U.S., we think it's steady as you go, good growth environment."
  • "We get about 10% of our fees out of Europe. It's still flat. The economies in Western Europe, Germany, France, some of those countries, obviously still have some structural issues to get through. Southern Europe, Spain, Portugal, Italy, suffering with high unemployment, so I think Europe's going to be kind of flat for a while."
  • "One area in Europe that is doing well is Eastern Europe, Russia, the 'stans', Georgia, those areas with the natural resources, commodities, continue to drive well and especially Russia seems to be doing well right now."
  • "China, same thing, growing middle class, growing business community, so a lot of new travel that's taking place in that part of the world. We think it'll be choppy, but over the long-term it's a great place."
  • [Long-term, short-term group bookings] "In fact, they were up significantly in the first quarter, the pace for 2014, and we saw big movement in the year for 2014 bookings.  On the shorter horizon, though, on what we call, in the year for the year, that short-term bookings, as we said in the first quarter, we are seeing a little hesitancy at corporate America pulling the trigger on those."
    • "For 2014, we'll probably have 40%, 45% of the group business on the books I would think. And so we're building that book and obviously by the time we get to the end of year we should be something closer to 70%, actually we could be 50%-ish now, maybe low 50% for the total business for 2014 that's already on the books."
  • "On DC, in referring to the government, I guess, DC obviously feels sequestration more than others. But it hasn't been a big mover. I think the government, quite frankly, started cutting costs and stopped traveling or slowed down their travel pretty dramatically in 2012...I think we talked in the first quarter that it's going to cost us 60 basis points to 70 basis points. That hasn't changed. We still see that probably holding up. I think DC, it's interesting as you look at DC, it kind of leveled off. And it's holding its own."


  • "Transient business was very strong, particularly nonqualified or retail-rated business as we eliminated discounts, pushed business into higher rated categories and raised rates."
  • "First quarter association group attendance exceeded our expectations, and association bookings for 2014 and beyond were very strong."
  • "Incentive fees exceeded our expectations, largely due to strong performance among our full-service hotels in the U.S., particularly in New York and Florida."
  • "Asia Pacific REVPAR should grow at a low single-digit rate, reflecting weak trends in Seoul and Beijing. We expect flattish REVPAR growth in Europe, low single-digit REVPAR growth in CALA, and high single-digit REVPAR growth in the Middle East. For you modelers, we estimate the shift in fiscal calendar will add approximately $20 million."
  • "We expect second quarter operating income will total $275 million to $295 million and diluted EPS will total $0.55 to $0.59. For full year 2013, we expect worldwide system-wide REVPAR to increase 4% to 7%. Fee revenue could increase 8% to 12%. We expect owned, leased, and other revenue net of direct expenses will decline 9% to 15% for full year 2013."
  • "We expect lower year-over-year termination and residential branding fees and higher pre-opening costs."
  • "We'll continue to manage our cash flows to a 3 to 3.25-type leverage ratio."
  • "As it relates to the $800 million to $1 billion to return to shareholders, we continue to look at that."
  • "Q3 is the relatively weaker time for group business generally. You're talking about the bulk of the summer being in that quarter. I think we'd be a bit more bullish about Q2 and about Q4 because of that kind of seasonality."
  • [Edition] "We have obviously intended to sell all three of these assets. For internal planning purposes and even more so for external expectations, we don't think it's wise to expect that there will be recycling of that capital until after they open, because before they open you have not just the ramp risk, but you've got construction risk and other things, which make a sale practically much more difficult."
  • "We would expect North America to be the stronger of the continents out there."
  • "When you look into 2014, certainly ObamaCare is the biggest new potential wrinkle in the cost profile. Our estimates today for the managed portfolio in the United States is about $60 million to $100 million, and that would be, oh, I don't know, maybe about half of a point, so a 50 basis point impact on margins....obviously these are system costs that will ultimately be borne by the hotel. We will pick up a share of that through incentive fees for the managed portfolio. We don't know what the number would be for the franchise portfolio, but in terms of number of rooms, the franchise portfolio is about the same as the managed portfolio in the United States, so the numbers could be around the same order of magnitude."
  • "We're more likely to see inflation go up than vice versa, and that will have some modest impact. On the other hand, with each passing year, more of the REVPAR growth comes from rates, and obviously a REVPAR coming through rate is better for margins then REVPAR coming through occupancy. And I think, guys, it's way too early to be giving guidance for 2014 and 2015, but I think our expectations would be that we will net-net see margin growth above 100 basis points in each of those years."


Morning Reads on Our Radar Screen

Takeaway: Here's a glimpse at what some of our sector heads are reading

Morning Reads on Our Radar Screen  - Screen Shot 2013 07 31 at 8.57.11 AM




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FHFA Nominee Mel Watt Won’t Get Vote Until September, Reid Says (via Bloomberg)


BlackRock Starts Retirement Indexes in Retail Asset Push (via Bloomberg)





Facebook Said to Plan to Sell TV-Style Ads for $2.5M Each (via Bloomberg)















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