SEC Tweets - Caveat Accredited Emptor

Takeaway: You can now purchase lots more risk for one million dollars than you could in 1982.

In yet another example of the disconnect between economic reality and government policy, the SEC has put out an Investor Education tweet on the topic of Accredited Investors.  Suffice it to say that we remain unimpressed.


In September, new rules eliminated the prohibition against general solicitation and advertising on certain private offerings – for regulatory geeks, offerings made in reliance on exemptions under Rule 506 of Reg D, and Rule 144 of the Securities Act of 1933.  This affects such offerings as hedge funds, private equity or venture capital funds, and the direct offering of certain privately-held securities.  


SEC Tweets - Caveat Accredited Emptor - 1mill 


Exempt private placements provide investors less information than IPOs and other publicly traded securities, and they often offer illiquid securities or otherwise higher-risk investments.  The private placement exemption relies largely on the investors being more risk tolerant and savvier than the average stock buyer – and wealthier.  And of course neither the issuer nor the SEC is responsible for providing investors with an analysis of the varying success rates of the broad range of private offerings, which cover everything from hedge funds participations, to seed capital for start-up ventures.


Under the rules permitting general solicitation these offerings will continue to be available only to Accredited Investors – the wealthier ones, remember.  What’s missing from the mix now is the previous gatekeeper requirement that the offering entity, or its placement agent, have a pre-existing relationship with the individual investor.  The theory was that investors would be shown deals that were appropriate to their situation, and the placement agent or adviser would take into account the individual’s overall financial picture, risk profile and other unique aspects of their situation.


We will not dive into the debate about whether this is a good idea – or, as some have called it, “open season” on unsuspecting individuals.  But we note that the fuzzy economics of the Accredited Investor standard pushes more of the risk in these investments lower on the investor food chain.


The release provides the following definition:


“An accredited investor, in the context of a natural person, includes anyone who:

  • earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
  • has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).

On the income test, the person must satisfy the thresholds for the three years consistently either alone or with a spouse, and cannot, for example, satisfy one year based on individual income and the next two years based on joint income with a spouse.”


The big change in the definition, as the release points out, is that under Dodd-Frank the value of the investor’s primary residence has finally been excluded from the net worth calculation.  This means, hypothetically, you could lose your summer house in the Hamptons to pay an equity call in a private equity fund, but not your pricey co-op hovel on Manhattan’s Upper East Side.


The release goes on to provide a sample template to help you calculate your net worth, to see whether you qualify to invest in one of the new hedge funds or venture funds that will soon be plastering banner ads across Twitter.  For our nickel, if you need an SEC release to teach you the concept of net worth, you probably don’t qualify to invest in anything (except maybe a third-grade education). 


When the general solicitation rule first came out back in September, we went after the Accredited Investor standard.  Once more, for good measure: the standard covers individuals with $200K in annual income ($300K jointly with spouse) or $1 million in net worth.  This financial standard was introduced in 1982.  The only change to the financial test for Accredited Investor is the removal of the primary residence form the net worth calculation.  The baseline net worth test, though, has not.  As we noted back in September, the 2013 equivalent of one million 1982 dollars is over $2.4 million. 


SEC Tweets - Caveat Accredited Emptor - dr5


This means that the SEC has actually increased your buying power in one key area: you can now purchase lots more risk for one million dollars than you could in 1982 when the standard was first introduced.  We recognize that the Commission is not traditionally home to high-level “quants,” but even without a degree in differential calculus you can see that your dollar now buys nearly two and one-half times the risk it did in 1982, for no greater likelihood of return.


This dismal message is brought to you as a public service – something the Commission wasn’t able to provide.

$M: We're Still Not Fans

Takeaway: We're not a fan of Macy's (M) by a long shot.

Hedgeye Retail Sector Head Brian McGough has some quick thoughts on this recent Macy's story in Women's Wear Daily.


$M: We're Still Not Fans - blo2

  • "Bloomingdale’s is back on the expansion path, with a 115,000-square-foot unit in the Glendale Galleria in Los Angeles set to open Friday."
  • "The Glendale site advances Bloomingdale’s strategy for opening scaled-down department stores and for trading up. It also marks the retailer’s first department store opening in three years."

Takeaway: We're not a fan of Macy's (M) by a long shot. But a massive redeeming factor that always makes us double check our thesis is the fact that it owns Bloomies. It's beyond debate that it is one of the best retailers in the apparel/accessories business. That said, it's not big enough to offset our view that Macy's Inc is nearing an ungrowable level of sales/square foot, margins are near peak, capital intensity is increasing, and expectations are high.


***Contact for more information.


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: The quarter's performance was in line with management expectations. Strength in higher rated transient and group business continued to offset weakness in government and discount business.  4Q numbers were lowered due to the government shutdown 


  • BETTER: Bookings for 2014 in 3Q were up 16% and 2/3 of 2014 Group business was on the books and that by year end that number will grow to 70-75%.  Currently, group revenues in 2014 are up 6% vs the same time last year.
  • PREVIOUSLY:  Looking out further into 2014, both group room nights and rate continue to trend ahead of last year.  Over 50% of the [Group] rooms that we would expect to do in 2014 are on the books.  We're continuing to trend ahead of where we were at this time last year for 2014.


  • SAME: 4Q bookings increased 9% where rate and demand are running ahead of last year.
  • PREVIOUSLY: Fourth quarter group bookings continue to be quite strong both in demand and in rate


  • BETTER: Bookings in the quarter for the quarter grew 12% YoY 
  • PREVIOUSLY: Short-term group will continue to be slightly weaker than last year.



  • SAME: ADR was up due to mix but demand was down by 2% due to weak government business.   
  • PREVIOUSLY: Room nights are probably about flat, but we've got a pretty solid rate increase for the second half of the year.  We are also pleased with the strength of our higher-priced group segments, as the weakness in demand has been largely focused in the lower-rated discount segment.


  • SAME:  Transient demand in 3Q increased 4%.  Transient revenues gained 8%.  Higher rated retail segment demand increased 10%, while lower-rated segment demand decreased 1%.  Outlook for 2014 is quite positive. 
  • PREVIOUSLY:  Advanced transient bookings continue to look quite solid.  Transient pricing should also begin to accelerate further.


  • SAME:  HST issued 6MM shares of common stock, at an average price of $18.39 per share, for net proceeds of approximately $109MM.  The third quarter issuances completed the sales under their financing agreements, which had a combined total capacity of $400 million.  No new agreement has been announced.
  • PREVIOUSLY:  If you look at it for the rest of the year, we're forecasting that we'll issue another 5 million shares for the rest of the year.


  • CHANGE:  HST completed the purchase of one asset in the Q but doesn't expect to complete any more acquisition in 2013.  HST sold a small JV asset in October and expects to close on a few other asset sales before year end.  Sounds like they will more of a net seller than buyer
  • PREVIOUSLY:  We are hopeful of completing at least a couple more sales over the course of this year.  We will be intending to put about a handful of properties on the market in the fall with the goal of selling all of them. Still hope to be a net buyer.


  • BETTER:  Best performing market in 3Q.  +18.8% REVPAR (+0.60% OCCU, 17.8% ADR).  Shifted mix to higher-rated segment.  Q4 will be good but not as good as 3Q due to cancellations in group business related to the government budget crisis and fewer 4Q citywide events. 
  • PREVIOUSLY:  We expect Houston to continue its robust first half growth trends, as solid group and transient demand will continue to facilitate a shift in the mix of business to higher-rated segments.


  • SAME: +12.4% REVPAR (+2.1% OCCU, +9.6% ADR); mix shift to higher-rated retail segment.  HST expects Seattle hotels to have a good 4Q, with solid group room nights on the books to create compression to drive rate.
  • PREVIOUSLY:  We expect our Seattle hotels to have a good third quarter due to a solid group base on the books and strong transient demand, creating compression that will drive group and transient ADR.


  • SAME: +15.5% REVPAR (+6.1% OCCU, +5.8% ADR).  Strong city-wide events drove performance.  Do not expect Atlanta to outperform in 4Q due to the absence of a major city-wide event.
  • PREVIOUSLY:  We expect our hotels to continue to outperform in the third quarter due to a strong city-wide calendar.


  • SAME:  +15.8% REVPAR (+1.9% OCCU, +13.3% ADR) - mix shift to higher-rated transient/group business. Expect 4Q to perform well.
  • PREVIOUSLY:  With continued high transient demand, we expect our San Francisco hotels will see strong results in the third quarter.


  • SAME: +13% REVPAR (+1.6% OCCU, +10.9% ADR) - strong transient demand; expect strong transient demand to offset weaker group booking pace and the scheduled rooms’ renovation at the Marina Rey Marriott.
  • PREVIOUSLY:  We believe that Los Angeles should also experience third quarter – solid third quarter as transient demand strength persists.


  • SAME:  +3.5% REVPAR (FLAT OCCU, +3.2% ADR).  HST is still concerned with supply growth in market and its impact on ADR. But expects its portfolio to outperform the greater New York market.  NY supply will grow +7% in 2014. 
    • 3Q should continue to hold up relatively well when compared to the New York market.
    • Supply growth in New York will be fairly considerable next year. I think we're looking at numbers that approach 7%, which is a pretty big number, especially given the amount of supply that has hit over the course of the last three years there.
    • We'll find that New York is still going to be not as strong as we'd like it to be because of the supply coming into the market.


  • SAME: -0.1% REVPAR (+1.1% OCCU, -1.5% ADR)- upper upscale hotels outperformed the market index. Expects DC to underperform the market in Q4 and for 2014. 
    • Given the continued weakness in government travel, we expect our hotels in DC to underperform the portfolio in the third quarter.
    • As it relates to D.C., we're still not seeing group bookings or convention bookings picking up for 2014. I think the general sense was that 2014 would be relatively flat to 2013.


  • SAME:  +2.8% REVPAR (+4.1% OCCU, -2.3% ADR in constant euros).  ADR declined in part to tough London comps.  Strong group and citywide events.  HST is cautiously optimistic on European hotels.
  • PREVIOUSLY:  We remain cautiously optimistic about the third quarter for our European hotels. We expect to see some occupancy increasing, while ADR will likely decrease due to the inflated rates during the London Olympics last year.


  • SAME:  Comparable hotel food and beverage revenue grew 3.1%, driven by increases in banquet sales. Expects continued growth in 2014 outlook driven by banquet activity.
  • PREVIOUSLY:  We are not forecasting F&B and other revenues to increase at the same pace as the second quarter....We're estimating in our guidance that food and beverage could range from 2.5% to 3.5%. The midpoint of that is obviously 3%, so that would suggest that we'd be about equal with what we achieved in the first half of the year.

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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.



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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