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.



Takeaway: We are revealing the results of our proprietary Retail Coffee Consumer Survey.

We will be hosting a call titled "Can McDonalds Get The Coffee Consumer In 2014?" on Tuesday, November 12th at 11:00am EST.


During the call, we will reveal the results of our proprietary Retail Coffee Consumer Survey.  Though the call is directly related to McDonald’s, the survey includes other top coffee retailers, such as Starbucks, Dunkin’ Donuts, Krispy Kreme, Tim Hortons and Peet’s.


Our research tells us that McDonald's (MCD) will make an aggressive push to sell more coffee in 2014.  We believe that capturing incremental market share in the coffee category will be one of management’s pillars for growth in 2014 and expect this to be a main topic at the analyst meeting on November 14, 2013.




  • How strong is the McCafé brand?
  • Who are the core McCafé consumers?
  • How will an aggressive McCafe campaign impact other parts of the business?
  • What happened the last time McDonald's went after the coffee consumer?
  • Who are the other key players in the coffee category segment and how will they be affected?



  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 934362#
  • Materials: CLICK HERE (slides will download one hour prior to the start of the call)


Please email  for more details.




Howard Penney

Managing Director


Keith's Macro Notebook 10/5: UK, US Dollar, Natural Gas

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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




  • IN-LINE:  While EBITDA came in short of our expectation, it was in-line with consensus. We had projected too high of a hold percentage and the hold/junket mix was unfavorable.  On a positive note, Q4 is off to a good start.



  • BETTER:  This property continues to outperform expectations with premium mass driving the business. 3Q EBITDA beat the Street estimate by 6%.  Visitation in 3Q increased 8% YoY to 46,000/day. 
  • PREVIOUSLY:  We're very much focused on one segment, the premium mass, whereby most of our competitors they have (been focusing) between portfolios (of segments)...Non-gaming improvement, really, really help us to improve our length of stay for those customers.


  • SAME:  Studio City remains on budget and on track to open in mid-2015 with clear progress being made on the main superstructure following the successful completion of the foundation and piling work. 
  • PREVIOUSLY:  Studio City, our unique cinematically themed integrated resort remains on budget and on track to open in mid-2015.


  • SAME:  MPEL is working hard to meet the opening date of mid-2014.
  • PREVIOUSLY:  The development of our Philippines project is also moving forward as anticipated with the opening date remaining unchanged at around the middle of 2014.


  • SAME:  Tower 5 at CoD will open in late 2016/early 2017.  The project will be focused on attracting premium mass and premium direct VIP business
  • PREVIOUSLY:  We anticipate starting construction on a fifth tower at City of Dreams before the end of 2013. This iconic development will provide another powerful lever to drive our premium mass business and expand our high-end patronage at City of Dreams, in turn enhancing property-wide return on invested capital.


  • SAME:  Board is crafting a dividend policy.  MPEL will update investors in Q4 2013 or Q1 2014. 
  • PREVIOUSLY:  I think the board is committed to look at a regular dividend policy because unlike some of our competitors, I think our board and the management team would prefer if we had stuck to one dividend policy. So we don't want to kind of make the decision like hastily. So anyways, it's going to be some time at the end of this year, early next year that we're going to sit down to discuss.


Solid but only in-line quarter. Q4 off to a good start



"Our committed focus on the mass market segments, particularly at the higher end of the market where we have a significant competitive advantage, continues to drive our Company's overall profitability and outperformance in the mass market table games segment. Our premium mass offerings continue to lead the way in Macau, with City of Dreams further extending its number one position in this increasingly important segment, as is evident in the property's leading mass market table yields....Clear progress is being made on the various and wide-ranging infrastructure programs both in Macau and regionally, which continue to support visitation and the mass market segments in general. The Macau market has delivered impressive growth year-to-date across all gaming segments, showing the market's unique position to cater to the expanding Asian middle class and, in particular, the inevitable shift to a consumer-led economy in China."


- Lawrence Ho, CEO of MPEL




  • Mass market segment continues to set new records
  • Continue to lead in mass table yield
  • Visitation to Macau has been robust in the last few months
  • Studio City:  on track to open mid-2015; upon opening, will significantly increase exposure to mass market
  • Tower 5 at CoD:  will open in late 2016/early 2017.  
  • CoD Manila:  365 gaming tables; over 1,680 slots/ETGs
  • Will look at Japan opportunity
  • Groupwide EBITDA:  negatively impacted by win rate (Held higher in revenue share VIPs, held lower in rolling volume VIPs), $10-15MM adverse impact
  • 3Q Hold-Adjusted (2.85% hold rate) EBITDA: $315MM
  • 4Q guidance:  D&A: $95-100MM, corporate expense: $22-24MM, net interest expense: $30-32MM (finance lease interest of $10MM relating to CoD and $10.6MM interest with Studio City--took into account $11MM in capitalized interest related primarily to Studio City

Q & A

  • Luck-adjusted margins at Altira: 13%, CoD: 32% (up 200bps)
  • VIPs moving towards revenue share (2/3-70% of VIPs)
  • Increase in premium mass customers at every property in Macau
  • Dealer labor regulations:  govt will not change existing policy on local hiring as dealers, govt confident there will be enough people.
  • Have done a good job optimizing rooms and tables
  • Macau only has 25k rooms (1/8 of Vegas); need more rooms in the market to keep up with demand
  • Greatest visitation has come from the Lotus Bridge
  • 3Q VIP market share:  3Q rolling chip volume share dropped because of some shifts from VIP to premium mass. However, they saw RC volume share improving in October.
  • Table cap:  Until 2022, there will be 1,800 tables for 5 mega resort projects
  • CoD Manila:  working hard to open around mid-2014
  • Tower 5:  will be focused on premium mass and premium direct VIP business
  • CoD Premium Direct VIP %:  15% (last year) to 20% in 3Q 2013
  • Philippines capex:  $60MM increase in construction budget ($620MM to $680MM)
    • Believes they will grow the Philippines market
  • Discussing a dividend policy: will announce in Q4 2013 or Q1 2014.  Will take into consideration impact from potential Asia opportunities (Japan, Korea, Taiwan).
  • Japan:  closest that Japan has ever gotten in liberalizing the gaming market; have received calls for partnerships
  • VIP market:  gradually picking up relative to 2012; Chinese economy is growing again. Junket liquidity has been stable and getting good funding.
  • CoD visitation trend:  visitation in 3Q increased 8% YoY to 46,000/day.  Did not really impact revenue. 
  • Gaming taxation in Philippines:  PAGCOR has loosened slot caps and table caps.  They are working on the tax issue. Hope for a resolution at end of year or early 2014.
  • Henquin:  may strike agreements with current developers on that island to build more hotels
  • Grand Prix in Macau (2 weekends):  do not see much impact on visitation; length of stay will be key
  • 3 slot parlours closing Nov 26 
  • VIP/Mass breakout: 135/30 (Altira); 205/250 (CoD)
  • Nothing unusual with overhead, debt provisions
  • Minimum bet on mass tables:  premium mass area min bet are increasing because average bet size have gone up
  • Growth in mass business:  not because VIP players dropping down into mass
  • Premium mass customers are much more sophisticated than junket players who just want to gamble/go to clubs

Currencies Matter

Client Talking Points


A big time (read: 16-year high) #GrowthAccelerating data point out of the United Kingdom this morning with a Services Purchasing Manager's Index (PMI) for October of 62.5. Boom. All of the austerity whiners and Keynesians out there who don’t like #StrongPound should feel shame. The Pound Sterling is up +0.5% versus the US Dollar. We remain long of it.


The Dollar is failing at its intermediate-term TREND line of resistance again this morning with no support to the TAIL risk line of $79.21. Meanwhile, Bloomberg is running a ridiculous headline that the Fed’s policy should be “prolonged” to “stoke growth.” Huh? In related news, Rates Down, Dollar Down still means US Growth expectations down. See our chart of the day and US economic history for more information.


One of the stealth leading indicators for the credibility of US Growth’s slope (accelerating or slowing) is the one that is most hostage to domestic supply and demand. Natural Gas got crushed for a -7.8% loss last week. It's down another -1% this morning. It's officially bearish TREND now here at Hedgeye.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.


WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


There is a gaping divide between how Global Macro practitioners view the world and how academic economists view the world...@HedgeyeDDale


"Man will never be able to build a flying device like a mosquito. I look at nature's complexity and think, man has the intelligence of mold growing on an apple." -Ray Dalio


You have a 1 in 2,067,000 chance of dying in a plane crash and a 1 in 423,548 chance of dying from falling out of bed. (

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