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

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 

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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




Norwegian Cruise Investors to Sell $600 Million of Shares (via Bloomberg)





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)















HLF Saga Continues

Herbalife has been heavily covered by media and investment research over the past six months but the math suggests that buying the stock here may be a risky proposition. 2Q13 earnings impressed to the upside, but we believe further increases in earnings and/or the implied multiple being assigned by the market are unlikely over the next six months. The chart below illustrates our quantitative view of the stock; the stock is currently near the high end of its immediate-term TRADE range (overbought) with support at $54.59 and $47.64 (intermediate term TREND).  


HLF Saga Continues - hlf levels



Fundamentals Coming Out of the Shadows: In March, the multiple expansion thesis seemed credible and has played out to a degree (chart below). There are some valid concerns being raised by activists in the stock such as the FX rate being used to account for Venezuelan cash balances but, all in all, the company produced impressive results for 2Q.



What we liked:

  • EPS beat by almost 20% supported by better-than-expected revenue growth
  • Total volume points grew by 13.5%
  • $183 million in free cash flow
  • Share buy-back resuming, included in guidance
  • May buy back more than guiding to, given “under-levered” balance sheet


What we didn’t like:

  • Operating income growth of 3% versus sales growth of 18.1% (last Q 26% and 17%, respectively)
  • SG&A margin going to 32.8% of sales from 30.3% in 1Q and 29.7% in 2Q12

HLF Saga Continues - hlf valuation


Rory Green

Senior Analyst

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