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Gov't shutdown a headwind outlook generally positive


  • Strong demand in our transient business and better-than-expected short-term group bookings fostered solid rate growth across all segments of our business
  • We continue to feel very positive about the fundamentals in the business and our outlook
  • Benefited from mix shift in both transient and group segments.
  • Banquet sales drove higher F&B sales
  • Transient business:  demand in higher-rated retail segment was up +10%, while lower-rated special corporate, government, and other discount rooms fell 1%.

    Overall 3Q transient demand increased 4%.  The combo of mix shift and rate increases in every segment led to an overall rate increase of 4.3%, and 8.5% revenue increase. 

  • Group also benefited from mix shift.  Higher-rated corporate association business increased ~2%, while discount and government segments fell by +8%.  Overall demand fell by 2%.

  • Bookings in the Q for Q increased almost 12% compared to the prior year.  Booking also increased more than 9% for the 4Q.  Both rate and demand are running ahead for 4Q so group should be strong in the Q with revenues running up 6%.
  • Have an active pipeline of M&A deals. However higher competition and prices mean that they are not planning to acquire any more assets this year. However, they have a few assets for sale that may close by YE. Given the timing though, they have not factored that into their guidance.
  • Converted the Memphis MAR to a Sheraton, managed by Davidson Hotels. Conversion should create value when it comes to sell that asset. Successfully amended the Calgary Marriott hotel management contract, reducing their fees by $2MM. In conjunction with these transactions they also gained the rights to franchise 3 additional hotels, substantially improving that value of those hotels at the time of sale and advancing their strategy of obtaining franchise rights for hotels in the bottom half of the portfolio.
  • Outlook for remainder of the year
    • Transient and Group has continued to be strong but they will be impacted by the government shutdown
  • 2014: Believe that the fundamentals for their business continue to be attractive.  UUP supply growth will only average 1%. Only NYC and DC have supply growth in excess of the long term average. Boston, Hawaii, LA, and San Francisco have no UUP supply growth in 2014.
  • Business transient demand should accelerate next year as investment picks up. 
  • Group booking pace is solidly positive for 2014 as booking pace increased 16% in 3Q. F&B growth should also benefit from strength in their banquet business
  • Houston: best performing market, up 18.8% REVPAR; energy-related demand impacted transient group. Expect Houston to perform well in 4Q but not as well as 3Q.
  • San Fran: +15.8% RevPAR increase. Strong rate increase due to mix shift to higher rated transient and group biz.  Expect strong performance in 4Q
  • Atlanta: +15.5% RevPAR growth. Rate improvement was driven by compression in demand due to strong city wides. Should perform in-line in the 4Q.
  • Phoenix:  +14.5% RevPAR, outperformed the market significantly. They shifted mix into higher rated transient biz. Unlikely that the 3Q results will be sustained in 4Q but should still be strong.
  • LA: +13% RevPAR due to transient demand trends. Should remain strong in 4Q but weaker than 3Q due to renovations at Marina Rey Marriott.
  • Seattle: +12.2% RevPAR growth.  Group and transient strenght allowed for positive mix shift.  Should have good 4Q
  • San Diego: +10.3% RevpAR growth.  Due to strong group and transient. 4Q is expected to outperform.
  • NY:  +3.5% RevPAR growth. Still concerned by increased supply growth but thinks their hotels will perform relatively well.
  • DC:  -0.1% RevPAR.  Outperformed market REVPAR of -3.3%.  Expects to underperform in 4Q
  • Tampa & New Orleans:  -14%RevPAR - impacted by absence of certain hard convention comps. Expect Tampa to underperform while New Orleans should outperform.
  • Euro JV:  3rd Q ADR declined due to hard London Olympics comp but occupancy increased. Best performing hotels were in Amsterdam, Brussels and Milan.  Causiouly optimistic on the outlook for their European hotels.  Spain seems to have bottomed. UK economy is making a faster than expected recovery.
  • Conversion of the Sheraton hotel to an independant hotel increases the hotel's value but negatively impacted margins
  • RevPAR should be primarily be driven by ADR in 4Q but government shutdown in October had a 100bps negative impact in the 4Q


  • Booked about 2/3rd of their 2014 business and expect to be 70-75% booked by year end for 2014.  Up about 6% revenue wise on the books.  Very encouraged by the trends they saw this Q. Bookings in the Q for the Q were up meaningfully and for the 2H13 were up 10% and booking for a year out were up 16% vs. last year
  • Dividend will still generally be driven by their taxable income next year - driven by asset sales and performance
  • If the trends that they see today continue into 4Q and 2014, they would expect to see more balanced growth across group and transient business. Most of it should be rate driven. Occupancy growth in 2014 could be attributed to Group.
  • Leverage: 3.46x which is their lowest leverage in 20 years. Their goal is to be at 3.0x. When they sell assets they will use those to reduce debt and when they buy assets they will finance them with 75-80% equity until they reach their leverage target.  They believe that their equity issuance will likely be less going forward than ~$100MM per quarter
  • ROI investment hurdles vary depending on the cost and the certainty of returns. Ballroom additions are about high teens. Energy savings are north of 20%.  
  • Trying to sell assets in non-target markets where they expect lower growth.  When they sell assets in target markets, they have lower expectations for the sub market that the hotel is in.
  • They didn't meaningfully outperform in 3Q.  The change in 2013 guidance is solely due to the government shutdown. 
  • M&A thoughts: would like to be investing more but there haven't been a ton of assets come on the market in places they are interested in investing.  Transactions in the US are more driven by owner strategy. The level of activity that they are seeing is a little higher than last year.
  • Expect that the West will continue to be stronger than East since supply is lower and international demand is strong in the West as well.  East Coast is also suggesting that NY will continue to be hit by 7% supply additions in 2014 (2-2.5% on the UUP end). Washington will still face challenging headwinds in 2014.
  • Select service assets:  investment in this area takes supply risk into account but they are comfortable owning more select service in Urban assets
  • Swedish acquisition: the economy has been doing reasonably well and should continue to do well. Feel like they paid a 30% discount to replacement cost and around a 7% cap rate.
  • ADR is mostly driven by them raising prices but also from mix shift.  Mix shift should continue to help them next year.
  • There are always a few opportunities like Memphis & Calgary.  They see a few more of those types of redevelopment opportunities for next year.
  • Their maintenance capex should be consistent in 2014 with 2013. But the ROI capex is still TBD.  The acquisition capex should be down YoY.
  • In general corporate America is feeling a little more optimistic due to the economy improving. 
  • Thinks that 2014 asset sale goal will likely be in the range to slightly higher than the last few years
  • If they don't reinvest capital from asset sales into new 1031 exchanges then they need to dividend those out
  • Would not describe pricing for hotels as 2006/2007 levels.  They feel like prices are competitive but they are not crazy. Secondary markets are picking up and there has been more activity in Select Service - both areas they are not really interested in. There is less activity in Europe and its more driven by debt maturities
  • The recent offers that they have seen suggest that there has been a pick up in private buyers. There has been some recovery in the debt financing markets. 


  • Strong performance from properties that have benefited from recently completed renovations, and for year-to-date results, $61 million of incremental revenues from the Grand Hyatt Washington and the Hyatt Place Waikiki Beach, which were acquired in July 2012 and May 2013, respectively.
  • For the third quarter and year-to-date 2013, average room rates improved 4.8% and 4.3%, respectively, while occupancy improved 0.5 percentage points to 78.4% for the third quarter and 0.8 percentage points to 76.8% for the year-to-date. Comparable food and beverage revenues increased 3.1% and 3.4% for the quarter and year-to-date, respectively. 
  • For the two hotels acquired and five hotels sold in 2012 and the first three quarters of 2013, the Company's net income decreased $1 million in the third quarter 2013 and increased $9 million for year-to-date in the aggregate for operations of these hotels compared to the As Adjusted 2012 results. Similarly, Adjusted EBITDA decreased $5 million in the third quarter 2013 and increased $6 million year-to-date for these transactions. weakest for the year. Comparable hotel adjusted operating profit margins for the third quarter 2013 were unchanged 
  • Subsequent to quarter end, on November 1, 2013, the Company sold the Portland Marriott Downtown Waterfront for a price of approximately $87 million, which includes $4 million for the furniture, fixtures & equipment replacement fund. The Company will record a gain of approximately $40 million in the fourth quarter.
  • Year-to-date, the Company has completed renovations of 6,600 guestrooms, over 345,000 square feet of meeting space and approximately 90,000 square feet of public space. 
  • Capex summary:
    • Redevelopment and Return on Investment Expenditures (RIO): 3Q: $24MM. 2013E: $90-$100MM
    • Capital Expenditures for Recent Acquisitions: 3Q: $7MM ; 2013E: $40-45MM
    • Renewal and Replacement Expenditures: 3Q: $76MM; 2013E: 2013E: $280-300MM
    • New Development: Through its 50/50 joint venture with White Lodging Services, expects to open the Hyatt Place Nashville Downtown on November 12, 2013. 
    • Ground Lease Extension: The Company reached an agreement with the city of Houston for a new 40-year lease for the Houston Airport Marriott, which was set to expire in 2019. In addition, the ground lease expense as a percentage of revenues has been reduced. Under the terms of the agreement, in 2014 the Company will invest over $35 million to renovate and enhance the hotel, including a complete renovation of the guestrooms and public spaces, as well as elevator and systems upgrades.
  • The Company has worked diligently to maintain a strong balance sheet with a low leverage level and balanced debt maturities. On September 30, 2013, the Company redeemed $200 million of the 6.75% Series Q senior notes at a premium of $2 million. Since January 1, 2012, the Company has reduced its total debt by $1.2 billion, decreased its weighted average interest rate to 4.9% and extended its weighted average debt maturities to 5.5 years. As a result of these efforts, on an annual pro forma basis, which excludes debt extinguishment costs, cash interest expense decreased to approximately $210 million compared to cash interest paid of $317 million in 2012. As of September 30, 2013, the Company has approximately $354 million of cash and $771 million of available capacity under its credit facility.
  • In 3Q, HST issued 6.0 million shares of common stock, at an average price of $18.39 per share, for net proceeds of approximately $109 million. These issuances were made in "at-the-market" offerings pursuant to Sales Agency Financing Agreements with BNY Mellon Capital Markets, LLC and Scotia Capital (USA) Inc. The third quarter issuances completed the sales under these agreements, which had a combined total capacity of $400 million.
  • On August 29, 2013, the Company's joint venture in Europe acquired the 465-room Sheraton Stockholm Hotel in Stockholm, Sweden, for approximately €102 million ($135 million). In connection with the acquisition, the joint venture entered into a €61 million ($81 million) mortgage loan that matures in 2018 and bears interest at an initial rate of 5.87%. The Company contributed approximately €14 million ($19 million), which includes its portion of closing costs, for its one-third interest in the joint venture. The Company drew approximately €15 million ($21 million) on its credit facility to fund this transaction.
  • On October 22, 2013, subsequent to quarter end, the joint venture sold the Courtyard Paris La Defense West – Colombes for €19 million, for an estimated gain of €2 million.