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Solid Q4 tempered by modest guidance outside of the US.




  • In 4Q last year, projected 5-7% REVPAR growth for 2013.  GDP in 2013 was slower than in 2012 and REVPAR growth reflected that.
  • Latin America:  +1% 
  • Mexico REVPAR continued its rebound
  • Brazil uncertainty with elections
  • Argentina:  a mess with currency issues
  • Egypt:  civil war affected visitation
  • Dubai/Gulf:  booming business
  • China: +2% REVPAR in 2013; market did not rebound as much as HOT hoped due to govt austerity, flooding in Sichuan, bird flu scares in East, soft govt business
    • 13% of fee revenues
  • Asia (ex China): REVPAR up 7%:  strong performance in India; adverse FX impacted REVPAR by 80bps
  • Strong corporate transient demand in NA
  • 15 more properties coming to Africa in next few years
  • Residental sales at Bal Harbour did well;  Bal Harbour essentially sold out. 
  • Asset light:  sold 6 hotels and one non-core asset for total of $263MM
  • SVG share of occu stayed consistently above 50%.  Global sales organization posted another year of double digit growth as well and for 2014 is set to bring in more than twice the revenue than it did in 2009.
  • Repurchased 4.9MM shares for $216MM
  • 2014
    • US set to improve
    • Europe will muddle through another year
    • Customers telling them they are adding staff and plan to travel more
    • China
      • 2nd and 3rd tier city development continues
      • Good sales momentum in Chinese corporate accounts
      • Strong Chinese outbound travel
  • Mobile accounts for 42% of site visits to Starwood, up from 16% two years ago
  • Mobile bookings growing 5x faster than web bookings did 10 years ago
  • New technology:  smart check-in
  • 2013 FX headwind: $17MM
  • 2013 US REVPAR:  6.3%
  • 4 condos left to sell at Bal Harbour
  • Sold a hotel for over $1 million per key
  • Net debt:  $528MM
  • Sale of St. Regis Bal Harbour added another $200MM to cash balance in January
  • No longer report out Bal Harbour profits:  will be ~5 MM in 2014
  • Expect NA REVPAR trends (6.7% REVPAR) to continue; supply subdued, occu continues to climb helping ADR too
  • Negotiated corp rates: up mid single digits for 2014
  • Group rates:  up mid single digits for 2014
  • Canadian business remains sluggish and the weakening Canadian dollar will also be a drag. 
  • NA REVPAR 5-7% outlook:  rate will account for 75-80% of the increase
  • Despite the Harsh weather, January REVPAR at Company-Operated hotels in North America was up almost 8%.
  • Q4:  saw mid single digit REVPAR growth in Spain, Italy and the U.K.  Only Germany was a little soft,  offset by strong growth across eastern Europe.  Occupancies continue to rise which is a good sign, and rate growth could accelerate.  Nevertheless assume Europe REVPAR growth in 2014 will be at the low end of worldwide outlook range.  Europe also had a good January but it's the low season.  
  • China:  expect to outperform in 2014
  • China:  On track to get 200 operating hotels in near future
  • Expect 2014 REVPAR growth in China to pick up from the Q4 trend of 3.1%
  • Expect Asia REVPAR to continue to grow at the high end of global REVPAR outlook range of 5 to 7%
  • Middle East and Latin America:  expect REVPAR at the lower half of 5-7% range
  • Mgmt and franchisee fees:  45% from US, 12% from Europe; 40% of fees from growth markets
  • 85% of incentive fees outside of US; >75% of international hotels pay incentive fees vs 25% in US
  • Expect Bal Harbour to be fully done selling by 1H 2014
  • M&A:  next 18-24 months could be prime time for asset sales.  They intend to be active in the market.
  • Cash flow priority:  1st is to pay down debt and achieve BBB rating
  • Will move to a quarterly div payment schedule in 2014
  • Will be aggressive buyers of stock.  614MM in buyback authorization availability

Q & A

  • No buybacks in 4Q; hurting the stock?
  • Reducing capital spending on owned hotels as they finish renovations
  • On pace for $750MM in asset sales per year ($3BN by 2016)
  • Transaction market:  markets are becoming deeper. More buyers. Private equity/sovereigns are back.
  • Sheraton:  50% US, 50% non-US
  • Group:  return of incentive travel in Europe; higher volume of smaller meetings
  • China:  no crackdown on luxury
  • Half hedged to euro exposure at $1.36
  • A plus or minus 1% move of the dollar uniformly against other currencies is still about 5 million.
  • Portfolio sales may pick up
  • Any future portfolio sale would therefore mark a significant uptick in that demand
  • Will do a timeshare securitization in 2014 - around $250MM
  • D&A guidance for 2014:  It includes the proportion of the JVs so it's going to be higher than what you're seeing on our balance sheet...It will be a little higher because it's going to reflect the investments we've been making both in the renovations we've been doing and some of the technology...normalized will be +5-6%


Outside of the now ubiquitous ‘weather’ caveat, it’s hard to paint the January Retail Sales data with a panglossian brush. 


JANUARY WEAKNESS:  The weakness in auto sales was well telegraphed and drove the decline in the Headline reading for January, but December was revised lower as well and the softness was pervasive with the primary sub-aggregates (Ex-Auto’s, Ex-Auto’s & Gas, Control Group) declining across every rate of change measure – MoM, YoY, 2Y ave. 


With respect to calculated GDP, the Control Group decelerated 60bps and 70bps on a YoY and 2Y basis, respectively, while the -0.3% MoM decline was the largest since December 2011.


UPHILL BATTLE:  Labor market trends remain okay and the anniversary-ing of the ending of the payroll tax holiday in 2013 should serve as a modest support to retail sales growth this year.


However, with wage growth (at ~2%) running at a negative spread to consumption (at +3.6%) and the savings rate holding little incremental downside (ie. little upside for consumption) the outlook for a material acceleration in retail sales isn’t particularly strong. 


Further, If housing continues to decelerate and stocks fail to repeat last year’s performance, luxury and higher end durable sales, driven principally by the top income quintiles, may reverse the notable acceleration observed in 2013.   


PERFORMANCE RISK:  More broadly, a deceleration in sales alongside burgeoning inventory levels at the retail level does not generally augur rising profitability.  


Sequential deterioration in operating performance has already begun to manifest in consumer companies in 4q13 earnings and is likely to continue if #InflationAccelerating continues to play out.     


As we’ve been highlighting for 6 weeks now, growth isn’t falling apart (yet) but the slope of growth is definitely decelerating on the margin – and macro alpha is (still) typically a game of divining better/worse, not good/bad. 










Christian B. Drake





LO: Weighing in on Menthol – Expert View from Washington

We’ve retained a top Washington law firm involved in tobacco public policy to assess the details of the FDA's action on menthol.


This assessment is a comprehensive look at the key issues under the FDA microscope and is a must-read for current and prospective tobacco investors – particularly LO as the menthol leader. The work succinctly sizes up the regulatory environment and provides a roadmap and time frame for assessing the menthol-related risks.  


Key considerations in the report include:

  • Findings on scientific, economic and political considerations to influence the FDA
  • Status of the FDA’s consideration to regulate or ban menthol
  • Make-up of the public comments on menthol
  • Roadmap for timing potential regulatory action

Lorillard remains our preferred Big Tobacco company on the long side. We will present our updated thoughts on LO on March 4th.


If you would like a copy of the expert report or access to our upcoming call, please contact us at or .



Matt Hedrick


Tobacco, Alcohol, Food and Beverage

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Short: SP500 Levels, Refreshed

Takeaway: Given US #InflationAccelerating and consumption #GrowthSlowing, I am not convinced my @Hedgeye TREND support of 1785 holds.

Editor's note: This complimentary market note from CEO Keith McCullough was originally published February 12, 2014 at 10:57 in Macro. Click here for more information on how you can subscribe to Hedgeye.



While being short into the tail-end of a market v-bottoming off the YTD lows was painful yesterday, that doesn’t mean our bearish call on consumption growth ends. If you want to be long, buy commodity inflation and/or slow-growth (bonds) assets.


That’s what’s working.


Across our core risk management durations here are the lines that matter to me most:

  1. Immediate-term TRADE overbought = 1837
  2. Intermediate-term TREND = 1785
  3. Immediate-term TRADE support = 1729

In other words, SPX is making lower-highs on lower-volume signals than we are seeing on the down days (Top 5 Volume Days of 2014 were all down days).


Given US #InflationAccelerating and consumption #GrowthSlowing, I am not convinced my @Hedgeye TREND support of 1785 holds. This is materializing into a very different setup vs. what our process signaled in 2013.


If they snap 1785 again, there’s no support to 1729. On a move like that, risk will most likely happen fast.



Keith R. McCullough
Chief Executive Officer


Short: SP500 Levels, Refreshed - keith

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Got Bonds?

Client Talking Points


The Yen is looking more bullish versus Janet Yellen’s Burning Buck by the day. It's up another +0.5% versus the US Dollar and is now a bullish TRADE and TREND signal developing @Hedgeye with USD/YEN resistance at $102.98. A stronger yen is bad news for the Nikkei which is down -1.8% to -10.8% year-to-date.


With the S&P 500 flat yesterday, the CRB Index powered forward again for another +0.5% gain to +4.3% year-to-date. A breakout in commodity inflation is easily the biggest risk to the US consumer. That's where most of our short ideas are right now.


Pretty simple one here. The Yellen Fed has 0% credibility on fighting inflation. Bonds trade with growth expectations, so we buy bonds as long as we see US #GrowthSlowing and 10-year yield TREND resistance of 2.80% still intact.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


COMMODITIES: continue to inflate, outperforming US stocks by a widening margin (CRB Index +4.3% YTD) @KeithMcCullough


Failure happens all the time. It happens every day in practice. What makes you better is how you react to it. -Mia Hamm


Comcast agreed to acquire Time Warner Cable for $45.2 billion in stock, a surprise deal that combines the two largest U.S. cable companies and creates a bulwark against competition from phone and satellite providers.

[video] Keith's Macro Notebook 2/13: YEN COMMODITIES BONDS

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