In preparation for MAR's FQ4 2013 earnings release tonight, we’ve put together the recent pertinent forward looking company commentary.




  • Occupancy rates at MAR hotels are nearly at record levels in North America, well ahead of industry averages.


  • Transient business benefited from improving mix as high-rated retail business was very strong.
  • Looking to shift more and more of that transient business towards higher-rated segments in the hotels


  • North America Group revenue pace for the Marriott brand for the fourth quarter is up nearly 7% due to a strong short-term booking.
  • 2014 group booking pace for the North American company-operated Marriott-branded hotels is currently up 4% to 5%
    • 4% or plus 4.5% for next year is overwhelmingly volume, not rate. Rate is up very modestly, 1-ish% or 0% to 1%.
  • Seeing more corporate business such as training meetings and new product launches.
  • 60% of 2014 group business is already on the books
  • Expect system-wide RevPAR at North American hotels will likely increase at a 4% to 6% rate in 2014, with the improvement largely coming from rate.
  • Smaller the group, probably the stronger, but seeing improvements really in all segments


  • Weak government demand. RevPAR in downtown D.C. declined about 1.5% while RevPAR at MAR hotels across the greater Washington market declined 6%.


  • In Europe, 4Q RevPAR growth should improve as comparisons get easier in the U.K.
  • In Europe, strong performance in Eastern Europe offset declines in London, enabling +2% RevPAR. 
  • Constant-dollar RevPAR to increase at a low single-digit rate at our European hotels in 2014


  • Modeling a mid-single digit RevPAR growth for 2014 on easy comps
  • Constant-dollar RevPAR in the Middle East will likely remain challenged. 
  • Unrest in Egypt reduced RevPAR in the Middle East by 3%.


  • 2014 constant-dollar RevPAR in the Caribbean and Latin America market to grow at a mid-single-digit rate.
  • Favorable leisure demand drove RevPAR up 7% as greater numbers of groups and leisure travelers enjoyed the resorts in Cancun.


  • Expect mid-single-digit constant-dollar REVPAR in 2014, constrained a bit by recent supply growth


  • Expect roughly 100 basis points of margin improvement for the full year.


  • 4Q North America RevPAR to increase 4.5% to 5.5%.


  • Expect very strong performance at our hotels in New York, Boston, San Antonio, and New Orleans and expect more hotels globally will be paying incentive fees during the year.


  • Expect G&A spending to grow more slowly in 2014.


  • Expect to return roughly $1 billion to shareholders through share repurchases and dividends in 2013 and expect to continue to repurchase shares in 2014.


  • There's no real change in trend lines on attritions or cancellations. Obviously, in the Washington market the whole government shutdown had some impact.


Still a lot of post Q1 uncertainty




  • Signficant operating leverage in the recovering economy
  • 2013 was a 'new era'
  • US wholly owned EBITDA:  best EBITDA in 5 years
  • Arena will be completed in 1H 2016, could be used for additional convention space
  • Hotel Delano remodel will be completed in Sept 2014
  • 80,000 players visited a MGM property in 2013
  • Completed deep piling on MGM Cotai; have been working on basement substructure; will increase scope/complexity on entertainment options; increased project cost from $2.6BN to $2.9BN; will open in early 2016
  • PG County:  will open in 2016
  • Will seek opportunities in S Korea and Japan
  • Very strong LV convention business in 1Q
  • Strip flow-through 70% (above 50-60% target) - if you adjust certain items, it is within that 50-60 range.
  • Strip REVPAR: +1%, slightly better than guidance; booked more in the quarter for the quarter 
  • 1Q convention mix:  22% (peak levels for any 1Q), almost fully occupied at convention space
  • 1Q:  expect REVPAR +10% YoY
  • 2014 convention mix: 15.5%-16% (approaching peak levels)
  • Aria:  $6MM higher hold benefited EBITDA; F&B increased 11% (higher banquet/buffet revenue)
  • Sold 11 units at Mandarin Oriental ($22MM revenues); 18 units closed in January
  • $1.2BN available liquidity RC; $1.45 BN at MGM China RC
  • 4Q $127MM domestic capex 
  • FY 2013 domestic capex: $324MM - in-line with guidance
  • 4Q other capex:  $4MM MGM Macau, $51MM MGM CHINA 
  • FY 2013 other capex:  $35MM MGM Macau; $204MM MGM Cotai
  • 2014 domestic capex:  $350MM ($75MM LV arena, $170MM PG MD) 
  • 2014 other capex:  $70MM (MGM MACAU) $500MM (MGM cotai)
  • MGM CHINA:  mass volume +12% YoY;  slot handle increased 16% YoY; continued remodel/refurbishments; 
  • CNY was very successful in Macau and Las Vegas
  • Great CES show; very strong month of conventions in January, another strong month in February, successful Super Bowl and March is looking good
  • Continue to focus on FCF


Q & A

  • Quality of convention mix is improving in 2014 - higher banquet/catering/restaurant spending
  • Are more comfortable for 2014 LV REVPAR than they did before; strong in the year, for the year business
  • 2014:  50-60% flow through target 
  • Domestic hold was down a touch in 4Q except for Aria
  • Casino license renewal process for 5 yrs?  Misunderstanding of the issue.  Gov't always had the power to review after 5 yrs.  Govt is comfortable with system in place.
  • Most of 2014 REVPAR growth will come from rate
  • 2015 REVPAR will be better than 2014
  • 2015/2016/2017 convention pace is higher than previous 5 years
  • Airlift also higher; McCarran passengers increased 2%
  • Westjet increased 18 flights to Las Vegas
  • Confident Group business in 2014 will be better than in 2013
  • Lower provisions in 4Q?  Yes.  Some reversals.  Does not expect changes in 2014.
  • Luxury properties had pretty good strength; core properties continue to be challenged by consumer spend.  Correlation between ADR and spend is there.
  • Mandalay Bay/Luxor will have renovations
  • Monte Carlo/NYNY will be positively impacted by Arena and Linq projects
  • MGM China dividend policy:  up to 35% of profits
  • MD/MA:  will own a substantial portion; will use corporate facility for construction spending; try to keep balance sheet relatively neutral
  • Asset sales?  Recently sold some land on outskirts of Strip.  May consider further sales.
  • Borgata license:  dialogue continuing. In 1H 2014, will be back in front of NJ DGE commission.  
  • Vacation accrual reversal:  $4MM
  • LV Strip slot business:  up when the market is actually down
  • Overall slot business down due to the regional properties

$PBPB: Potbelly Goes Boom!

Takeaway: It pays to listen to Penney.

Potbelly is being taken back behind the woodshed today.


Shares of the sandwich maker are currently down well over 10%. Hedgeye Restaurants analyst Howard Penney added PBPB to our Best Idea List as a SHORT on 11/19/13. As he wrote then:


To be clear, we believe Potbelly is a solid company with a strong management team, but it should not be trading at a premium multiple to its aforementioned peers. With that being said, we would not be surprised to see PBPB decline by 30-40% over the next twelve months.


Meanwhile, Hedgeye CEO Keith McCullough shorted it in Real-Time Alerts last Thursday bringing an 11% gain to RTA subscribers.


$PBPB: Potbelly Goes Boom! - pb


Once again, it pays to listen to Penney.


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Solid Q4 and guidance. Balance sheet in great shape.




  • Rate growth in group and transient segments
  • Outperformed industry by 140bps in REVPAR in 4Q
  • 2013 F&B increased 4% driven by strong catering activity (+4.8%)
  • Room nights grew in transient/group in Q4 by 3.5%
  • Group momentum picked up in Q4; Group REVPAR up 6.5% in Q4
    • Corporate/association +7%, discount demand -5%; favorable mix grow results by ~+3%
    • Sequester/shutdown impacted -1.5%
    • Group will improve in 2014
      • 70% booked
      • +5.5% revenues
  • Transient - higher retail/corp business was up +6.5% 
    • Rate up 4%, revenue growth 7%
    • Higher-end demand up 9%, overall transient REVPAR 4%, revenues up 7.5%
  • 2013 REVPAR - 2% below peak 2007; on an inflation-basis, 15% below 2007 peak
    • 2013 occupancy exceeded 2007 peak
  • 2013 F&B/group - 10% below peak 2007
  • 2013 adjusted margins:  300bps below peak 2007
  • 2013 comparable hotel adjusted operating profit:  15% below peak 2007
  • Supply in industry will fall below long-term target in near term, excluding New York
  • New Nashville hotel:  fantastic start
  • Powell Hotel 
    • Will be rebranded as UUP hotel
    • Retail space cost $42MM
    • $365,000 per key
  • 6 Transactions in last four months:  5 NA, 1 Europe for ~$540MM
  • Lodging recovery progressing well
  • West Coast: +8.1% REVPAR (ADR: +5.6%), continued mix shift from contract to higher-end transient business
  • San Fran:  +14% REVPAR (+13.7% ADR)
  • San Diego:  +10% REVPAR (+4.6% occu); F&B: +11.6%
  • Hawaii: +2.5% REVPAR, construction of timeshare impacted results; 
  • San Fran, Seattle, Hawaii will outperform in 2014
  • San Diego, LA will perform in-line in 2014
  • New Orleans:  +22% REVPAR (+20.5% ADR) - benefited from 3 strong, high-rated medical city-wide events
  • Houston: +14.3% REVPAR (+15.7% ADR)
  • San Antonio:  +12.5% REVPAR, strong group ADR; expect REVPAR to be negatively impacted by renovations in 2H 2014
  • Philly:  +16.9% REVPAR (+12.3% increase in demand)
  • Boston:  ~+11% REVPAR
  • NY:  +3.9% REVPAR; market REVPAR: -0.1%
  • DC:  +1.8% REVPAR; +8.8% REVPAR comparable hotels in downtown, -6.5% REVPAR decline in VA/MD surburbs 
  • Expect 2014 East portfolio to outperform due to Super Bowl
  • Calgary:  +13.8% REVPAR
  • Latin America:  +7.1% REVPAR
  • Asia/Pacific: +7.0% REVPAR
  • International:  unfavorable FX impacted REVPAR
  • JV:  +5.1% REVPAR in constant euros
    • Expect better performance in 2014 
    • Encouraging signs in Europe
  • 54.2% flow-through in F&B
  • Still room in occu growth particularly in Group but 2014 REVPAR will be driven mostly by rate
  • 21% of FY EBITDA will be in 1Q 2014
  • $310MM cash
  • Debt - $4.1BN
  • Weighted average debt maturity: 6 years
  • Year-end leverage is lowest in the industry

Q & A

  • A hair on the conservative side for 2014 guidance
  • Other revenues (e.g. spa):  15-20% below 2007 peak; has been lagging
  • F&B revenues:  up slightly in occupied room nights
  • Looking to outsource restaurants to 3rd party- profits will increase but revenues will be lower
  • Leverage goal:  3x; at end of 2013, fairly close to 3x
  • 2012 group rate: +2.7%-+2.8%; 2013 is similar
  • Will be active in transaction market in 2014; want to be a net acquirer
    • Particulary in Europe (i.e. Germany, Spain), but not in London
  • Powell Hotel value of retail too high?  Have already received unsolicited offers for higher than the $42MM they paid
  • HST underperformed compared to C-corps
  • Dividend yield: +3%; expect dividends to grow
  • Disciplined in acquisitions
  • NY: high level of supply but bullish on the market
    • Will outperform portfolio due to Super Bowl, Citywide and strong Group activity on the books
    • Renovations will help too
  • 2014 dispositions:  should be in-line with 2013
  • Q1 REVPAR:  stronger quarter relative to rest of quarters in 2014; will be at high end of 5-6% REVPAR range 
  • 4Q group room nights growth was great; revenue booked for 2014 in 4Q is up YoY
  • Marriot Marquis DC will adversely impact results in 2H 2014 - but captured in the 2014 guidance


Takeaway: We are increasingly of the view that the PBoC might be setting up to ease monetary policy over the intermediate term.



  1. Monetary conditions in China are easing dramatically.
  2. Chinese economic growth is slowing fairly dramatically.
  3. Neither the Chinese equity market nor the broader commodity complex seem to care that Chinese growth continues to slow – which, until very recently, was in stark contrast to trends across mainland credit markets.
  4. As such, we are increasingly of the view that the PBoC might be setting up to ease monetary policy over the intermediate term.
  5. All told, we aren’t yet ready to change our investment outlook for Chinese financial assets and/or consensus “China plays”. For additional color on what it means to be allocated to our LONG “New China” vs. SHORT “Old China” theme, please refer to our JAN 15 note titled, “ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET?”.


Monetary conditions are easing dramatically: One of the core tenets to our admittedly fickle, but decidedly positive bias on China in the YTD is our expectation that monetary conditions would ease as we progress through at least the first quarter. We’ve seen that play out in spades across money market rates and rates on fixed income securities – as evidenced by the demonstrable WoW improvement in repo rates, OIS and SHIBOR fixings. The MoM improvement in both ST and LT sovereign debt yields are also supportive.


IS CHINA ABOUT TO GET LOOSE? - China Money Market   Rates Monitor


With structural liquidity concerns remaining the biggest headwind to Chinese economic growth over the intermediate-to-long-term, any easing of monetary conditions is positive, at the margins, as the supply of incremental credit is both greater and cheaper. With almost half of Chinese GDP coming from fixed investment, the pace of credit creation and the cost of capital are arguably the two most important drivers of the marginal rate of change in Chinese economic activity.




Growth is slowing fairly dramatically: The aforementioned factor coupled with easy compares and GDP seasonality continue to underscore our positive growth outlook for China in 1H14E and the latest credit growth, foreign trade and FDI data is supportive of that view. That being said, however, China’s PMI data for JAN and FEB leave much to be desired in the direction of #GrowthAccelerating – at least on a sequential basis. The same goes for our favorite price-based leading indicators.


  • FEB MNI Business Sentiment Indicator… G -1
    • Current Conditions: 50.2 from 52.2
    • Future Expectations: 50.6 from 57.9
  • JAN Total Social Financing: 2.58T CNY from 1.23T… G +1
    • New Loans: 1.32T CNY from 482.5B
    • Non-traditional Financing: 993.4B CNY from 555.6B
    • Ratio of Non-traditional Financing to Total: 38.5% from 45.1%
  • JAN M2 Money Supply: 13.2% YoY from 13.6%... G -1
  • JAN FDI: 16.1% YoY from 3.3% vs. a Bloomberg consensus estimate of 2.5%... G +1
    • Shen Danyang, spokesman for the Ministry of Commerce, said "the double-digit growth provided the most solid and convincing response to doubts such as whether China still has a favorable investment environment and whether foreign investors are confident in China's economic prospects."
    • FDI into the service sector gained 57% to a record high of $6.33B, or 58.8% of the total
    • Manufacturing sector inflows dropped 21.7% to $3.47B
    • FDI from 10 major Asian economies rose 22%
    • FDI from the US rose 34.9%
    • FDI from the EU fell 41.3%
    • JAN ODI by non-financial firms increased 47.2% y/y to $7.23B - a sign more Chinese firms are investing abroad
  • JAN Exports: 10.6% YoY from 4.3%... G +1
    • Exports to the EU increased 19.2%, while exports to the US were up 10.7%. Exports to ASEAN were up 18.4%. Exports to Japan rose 16% and exports to the rest of the world increased 17.8%.
    • The export strength was particularly surprising given softer January data from Taiwan and South Korea. While there was more discussion about over-invoicing, exports to Hong Kong did fall by more than 18%.
    • Reuters cited comments from Ma Jiantang, head of the National Bureau of Statistics, who said that China will step up efforts to investigate and punish any cases of falsified statistics. He argued that when it comes to statistics, falsification can be considered as the biggest form of corruption. The article pointed out that the statistics bureau has previously vowed zero tolerance for fake data.
  • JAN Imports: 10% YoY from 8.3%... G +1
    • The strength in imports, driven by China's commodity demand (and particularly in copper and iron ore), was also surprising given the more sluggish domestic demand backdrop in recent months.
  • JAN Trade Balance: $3.7B YoY from -$5.7B… G +1
  • JAN HSBC Services PMI: 50.7 from 50.9… G -1
  • JAN HSBC Manufacturing PMI: 49.5 from 50.5… G -1
    • First contraction on this index in six months; below the flash reading of 49.6
    • Employment sub-index below 50 for third straight month and showed quickest reduction of jobs since March 2009
    • New export orders declined for second straight month
    • Output lowest in four months
  • JAN Official Manufacturing PMI: 50.5 from 51… G -1
    • Lowest reading since JUL ‘13
  • JAN Official Non-Manufacturing PMI: 53.4 from 54.6… G -1
    • Lowest reading ever in the SA series (since MAR ’11)


*please note that some of the above commentary is sourced from StreetAccount






IS CHINA ABOUT TO GET LOOSE? - China Iron Ore  Rebar and Coal YoY






Neither the Chinese equity market nor the broader commodity complex seem to care that Chinese growth continues to slow: In spite of what we’d argue is a continued deceleration in Chinese economic growth in the YTD, both the Chinese equity market and the broad commodity complex have been absolutely melting up in recent weeks (the latter in accordance with our #InflationAccelerating theme). Historically, Chinese A-shares have tracked both the slope of reported Chinese economic growth and expectations for said growth quite well and we don’t have any reason to believe otherwise in this instance. The Shanghai Composite Index is up +6.9% MoM vs. an Asia-LatAm sample mean of -0.1% and the CRB Index is up +7.6% MoM aided by broad-based reflation across the individual markets.








IS CHINA ABOUT TO GET LOOSE? - Brent Crude Oil Levels


The one market that seems to have been the last hold-out is the Chinese credit market, which has been aggressively deteriorating since NOV on the back of liquidity headwinds and growth concerns. It would, however, finally appear that credit spreads have finally inflected, though it’s far too early to tell if a sustainable trend is in place given the likely cash flow pressures perpetuated by the aforementioned ramp in borrowing costs.




As such, we think the PBoC is setting up to ease Chinese monetary policy: Tuesday’s surprise $8B repo aside, the PBoC dropping its “prudent” policy bias in favor of an easing bias would certainly seem to be an increasingly probable event over the intermediate term. That would certainly be in line with the broad economic policy loosening we’ve seen in recent weeks, including: issuing private banking licenses, relaxing capital requirements for SMEs, and loosening curbs on insurers investment portfolios among other things.


Moreover, the recent decision out of Beijing to accelerate capacity reductions in industries suffering from broad overcapacity might actually be a net positive in the sense that it frees up the PBoC to get looser, at the margins, without having to worry about reflating what it routinely identified as “excessive credit expansion” per its 4Q13 Report on Monetary Policy. Additionally, [purposeful] CNY strength and soft PPI trends (down YoY in JAN for a 23rd straight month – the longest period since 1997-99) should keep inflation under wraps for now, though those tailwinds are likely to be offset by increased import price pressures and easy compares by 2H14E at the very latest.








While an outright reduction in either the benchmark lending or deposit rates is unlikely over the next 3-6M (on hold since JUL ’12), we are increasingly of the view that the PBoC might be setting up to reduce reserve requirements or implement targeted LTV ratio adjustments. Also, extending and expanding the existing de facto “cap” on money market rates might be something they wish to explore in order to support China’s [relatively] fledgling economic expansion – which the PBoC agrees is not yet on “stable footing”.


All told, we aren’t yet ready to change our investment outlook for Chinese financial assets and/or consensus “China plays”: For additional color on what it means to be allocated to our LONG “New China” vs. SHORT “Old China” theme, please refer to our JAN 15 note titled, “ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET?”.






Best of luck out there,




Darius Dale

Associate: Macro Team

Inflation Deniers

Takeaway: Numbers don't lie, people do.

It was another no-bid day for the credibility of the US Dollar yesterday. The supreme Janet Yellen regime is transitioning away from being data dependent on inflation and employment and shifting towards price fixing – or rate targeting.


Down Dollar and Down Rates?  That simply means slowing real growth and rising Gold prices. Gold is up +10% year-to-date.


Inflation Deniers - Headsand

Oil joined the inflation party yesterday, ratcheting the CRB Commodities Index up another +1.8% to +6.8% year-to-date. Compare that to Consumer stocks which are down -3.5%.


Nat Gas? It is going completely kaboom...up a blistering +37% year-to-date.


That has to be “deflationary” right? Right? $110 Oil too. It just has to be. The government says so.

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