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Initial Claims: Two Steps Back, One Step Forward...

Takeaway: The labor market catches its breath this week with modest sequential improvement.

Editor's note: This is a complimentary excerpt from a research note written by Hedgeye's Financials team. For more information on how Hedgeye can help you click here or ping sales@hedgeye.com.

Recent Pressure Abates

Labor market data had been deteriorating steadily for the last 4 weeks in a row. This week it got slightly better. The year-over-year rate of improvement in rolling NSA initial jobless claims accelerated to -5.5% from -5.1%, marking an inflection from the decelerating trend we had been seeing for the previous month. On a one-week basis, the rate of improvement was fairly impressive at -7.9% vs -0.9% the week prior. As a reminder, we monitor deviations from the trendline rate of improvement in claims as the best real-time indicator for labor market turning points. It's important to remember that claims hit a frictional support level of ~300k, so as the data approaches 300k the rate of improvement should be expected to converge towards zero. We're mindful of this, which is why we look for trendline deviations.

 

Initial Claims: Two Steps Back, One Step Forward... - stein2

The Numbers

Initial jobless claims (SA) fell 3k to 336k from 339k WoW, as the prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 2.5k WoW to 338.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -5.5% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.1%

 

Initial Claims: Two Steps Back, One Step Forward... - stein1

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MAR 4Q 2013 CONFERENCE CALL NOTES

Conservative Guidance, Bullish Commentary - stronger corporate group pace plus strengthening rate = upside leverage to the cycle

 

 

CONF CALL

  • Protea:  will close April 1 2014; paid 10x EBITDA
  • Transactions to date:  completed London Edition (netted $240MM), Renaissance Barcelona sales (netted $60MM, closed in Jan 2014)
  • US supply grew <1% in 2013
  • STR US 2014 supply forecast:  +1.2%
  • AC brand:  1st opening in early 2015
  • MOXY - have 12 in pipeline and 15 in discussion; expect 150 MOXY hotels in Europe in a decade
  • China:  economic growth has moderated; aggressively pursing domestic leisure market  
  • Worldwide STR REVPAR for MAR brand:  increased 1% full point in 2013
  • In last 7 wks, did $880MM in transactions
  • Expect $1.25-1.5BN in share repurchases in 2014
  • All Marriot branded hotels (500) will be available for mobile check-in in 2014
  • Unit growth is sustainable in developed and developing world, including US
  • Q4 Fee revs strong -  better REVPAR in international markets and strengthening group business in NA
  • Better branding fees and profit from leased hotels added $0.02
  • G&A:  $0.06 unfavorable from certain items
  • Tax line helped 4Q by 3 cents due to several discrete items
  • NA
    • Strong REVPAR in San Fran, Houston and Miami
    • NY had tough comps due to Hurricane Sandy
  • Bookings pace for MAR brand was up 4% for 2014 - similar to what they reported in 3Q.  Corporate group pace at 10%.  Since corp demand is quite short-term, the trend is very encouraging for 2014 
  • Group performance outperformed competitiors in 2013
  • 4Q Europe REVPAR:  +3% 
    • UK: +6%; Germany: +9%, Caribbean/Latin America:  +4% (constant currency), ME&A: -9%, Asia-Pacific:  +5%, Greater China: +3%
  • NA incentive fees: +34%; outside NA incentive fees:  -2%
  • FY 2013 worldwide incentive fees: 39% (32-33% in 2012)
  • 2014 REVPAR outlook:  Mid-single digit in Asia/ME; low single digit in Europe; high single digit in Caribbean/Latin America
  • 2014 incentive fees growth:  Low double digit rate
  • Outlook reflects lower termination fees, slightly higher preopening expenses, stronger profits from owned/leased and affinity credit cards
  • 1% REVPAR 2014 outlook sensitivtiy:  $20MM in fees, $5MM owned/leased line pre-tax
  • Plan to renovate several owned hotels; build the Fairfield Inn in  Brazil to launch that brand and to complete Protea acquisition
  • Sept 8 Analyst Day Washington DC Marquis hotel

Q & A

  • 2014 looking a lot like 2013
  • About 3,000 hotels in US;  expect DC to continue to be weak
  • MAR Marquis DC:  not likely to be terribly impactful
  • D&A changes - more transparency and better comparability
    • Contract amortization line broken out in CF statement
  • 4Q G&A unusual items:  Through 3Q, 33,000 signed rooms. By end of year, had 67k rooms; the record quarter signings drove more legal costs ($8MM), transaction costs related to Protea ($10MM), writeoff/impairments ($6MM)
    • Ex items, about $3-5MM of G&A above previous 4Q guidance
  • 2014 Group trends (does not include new DC hotel):  first 3Qs (+6%), 4Q weaker
  • Great December period for 2014 bookings
  • 2014 Non-room revenues will grow a few tenths of a % faster than REVPAR
  • Full-service/select-service:   full service doing better than select service - partly due to distribution and strong group business.  Residence Inn may be at lower end of REVPAR guidance.
  • Brand growth:  top-end brands + Courtyard
  • EDITION sales:  long list of bids for London
  • NY EDITION:  will open 1Q 2015 (about $350MM)
  • Miami EBITION will close for $200-230MM in late 2014.
  • European REVPAR guidance conservative?  Well, last year, Euro REVPAR was only up 1.5% YoY.  3%ish guidance is about right. 
  • Possibly more Courtyard sales in Europe:  $20-30MM each
  • 2014 REVPAR will be driven by rate
  • Group business always lags
  • There is more growth opportunities in US

The Most Important Macro Theme Right Now

Takeaway: We're banging this drum loud and hard. For good reason.

#InflationAccelerating remains our  #1 non-consensus Macro Theme.

 

The Most Important Macro Theme Right Now - hair

 

Check out the CRB Index which closed up another +1.1% yesterday. It’s now up almost +8% year-to-date (and it’s still only February). Compare that with the S&P 500 which fell -0.65% yesterday and is down -1.1% YTD.

 

Gold? It rose another +0.2% to over +9% YTD.

 

What's that? Consumer Discretionary has fallen -3.2% YTD? Exactly. There’s no question that inflation is a tax on U.S. consumption expectations. 

 

The Most Important Macro Theme Right Now - XLF 10Y


Keep a close eye on the Financials (XLF). As the US Dollar and Rates go, so goes the Financials (they were down -1.4% yesterday) and the market. The long-end of the yield curve needs to rise for the XLF to work – not get “rate guided” down by un-elected bureaucrats in Washington.

 

Got US #GrowthSlowing yet?

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[video] Keith's Macro Notebook 2/20: #INFLATIONACCELERATING YEN XLF


INITIAL CLAIMS: RECENT PRESSURE ABATES

Takeaway: The labor market catches its breath this week with modest sequential improvement.

Two Steps Back, One Step Forward ...

Labor market data had been deteriorating steadily for the last 4 weeks in a row. This week it got slightly better. The year-over-year rate of improvement in rolling NSA initial jobless claims accelerated to -5.5% from -5.1%, marking an inflection from the decelerating trend we had been seeing for the previous month. On a one-week basis, the rate of improvement was fairly impressive at -7.9% vs -0.9% the week prior. As a reminder, we monitor deviations from the trendline rate of improvement in claims as the best real-time indicator for labor market turning points. It's important to remember that claims hit a frictional support level of ~300k, so as the data approaches 300k the rate of improvement should be expected to converge towards zero. We're mindful of this, which is why we look for trendline deviations.

 

The Numbers

Initial jobless claims (SA) fell 3k to 336k from 339k WoW, as the prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 2.5k WoW to 338.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -5.5% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.1%

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 1

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 2

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 3

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 4

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 5

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 6

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 7

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 8

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 9

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 10

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 11

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 12

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 13

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 19

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 14

 

Yield Spreads

The 2-10 spread rose 3 basis points WoW to 242 bps. 1Q14TD, the 2-10 spread is averaging 243 bps, which is higher by 2 bps relative to 4Q13.

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 15

 

INITIAL CLAIMS: RECENT PRESSURE ABATES - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


GLPI 4Q 2013 CONFERENCE CALL NOTES

First one out of the block - not too shabby

 

 

CONF CALL

  • 4Q:  3 months of operating results from Hollywood Baton Rouge and Perryville
  • 4Q:  2 months included for real estate entity
  • Columbus/Toledo variable rent:  less than 10% of total rent
  • Rent coverage expected to exceed 1.8%
  • Rent escalator will begin on Nov 1, 2014
  • 2 OH race tracks will open Fall 2014

Q & A

  • Pleasantly surprised with strength of Perryville
  • Baton Rouge will improve as L'Auberge Baton Rouge property ramps up
  • Horseshoe Baltimore competition is reflected in 2014 guidance
  • Non-gaming acquisitions?  Not soon.
  • At least a few years of 'happy entertainment' before thinking about outside of gaming
  • Pretty confident more transactions will be done this year
  • People more interested in talking with GLPI given tough gaming environment; focused on rent coverage
  • Investment opportunities:  Independent properties that are owned by families, trusts, etc.
  • Queen acquisition:  GLPI loan 7% has a 5% spread on revolver (2%)
  • No pushback on GLPI; just ongoing conversations 
    • Number of opportunities haven't changed given environment
  • AFFO reduction due to PENN stock options: $12MM in 2014 and more reductions in years farther out
  • May be included in other indices; will approach relevant parties
  • Need to raise equity to fund new transactions?  Yes.  Leverage ratio goal is 5.5x.  Currently, under 6x.  Expect to reach investment grade.
    • Expect revolver to be around $200MM by end of 2014
  • Private transactions/greenfield development projects (e.g. MA) are most likely for transactions
  • Rent coverage across each property:  range from 1.4X to 3.5X
  • When looking at potential transaction, will access risk of gaming market, heath of earnings, margin trends, will set target rent coverage of 2x
  • Run rate on taxes:  40% on TRS

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