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We detailed our expectation for a #HousingSlowdown in our 2Q14 Macro themes call  - CLICK HERE - and (TEASER) we’ll be launching comprehensive coverage of housing in the next few weeks. 


The housing data of the last few days continues to offer further, positive confirmation of the marked, and geographically pervasive, slowdown in housing demand. 


Home price growth follows the slope of demand and current demand measures (Existing/Pending/New Home Sales) continue to flag while mortgage application data thru mid-April is signaling a further deceleration in forward transaction activity.   


That the deceleration in activity is occurring in the face of both the positive shift in weather and declining interest rates makes it that much more notable. 


While weather probably exaggerated some of the underlying weakness to start the year, we continue to think that the collective impact of stagnant income growth, declining affordability, a reversal in institutional interest, and the implementation of QM regulations will serve to pressure housing demand over the intermediate term. 


Below we provide a summary highlight of the recent data: 


APRIL DATA:  The NAHB HMI and weekly MBA mortgage data represent a couple of the most real-time measures of existent demand/sentiment trends and both continue to signal weakness.


  • Mortgage Applications:  The composite mortgage application index declined 3.3% WoW as the Purchase Applications and Refinance sub-indices hit new lows in YoY growth.  As it stands, Purchase Applications are down -19.3% off peak and -18.5% YoY while refi activity is down -71% YoY!

 HOUSING: HICCUP OR HARBINGER? - Mortgage Apps 042314


  • NAHB HMI:  Headline NAHB confidence increased 1pt MoM in April vs the downwardly revised March print with builder confidence flat or down across geographies with the exception of the Northeast.  Confidence in the West region slid for a third consecutive month, continuing its expedited 26 pt drawdown from a peak reading of 71 just three months ago. The composite index is now down 10 points off its December peak of 57.







MARCH DATA:  Home price growth decelerated and both Existing and New Home Sales slowed sequentially in March.  The slowdown, coming post the weather inflection, was again pervasive across geographies, further confuting the "its the weather" in isolation thesis.   


  • Existing Home Sales:  Existing Home Sales declined -0.2% MoM and -8% YoY – accelerating 70bps vs the -7.3% decline in February.  Sales were down across geographies with the West region again leading the declines

HOUSING: HICCUP OR HARBINGER? - Existing Home Sales by Region march



  • New Home Sales:  New Home sales declined -13% YoY, marking the 1st month of negative year-over-year growth since September of 2011.   The Northeast was the lone region recording a MoM increase in sales while year-over-year sales growth declined across all geographies.

HOUSING: HICCUP OR HARBINGER? - New Home Sales by Region


HOUSING: HICCUP OR HARBINGER? - New Home Sales by Region march



  • Corelogic HPI:  The preliminary estimate is for a sequential deceleration of 160bps in home price growth in March – the slowest pace of growth in 13 months and the largest sequential deceleration since June of 2006 .  As a reminder, the march/april data will be the first to reflect any early impacts of QM implementation, which went into effect on January 10th.    




Christian B. Drake



Coffee Prices Go Gangbusters, Fed Says Eat an iPad

Takeaway: That cup 'o joe is gonna cost you.

Approximately 100,000,000 Americans drink coffee. Every day. That’s a lot of latte macchiatos. Unfortunately, for coffee lovers looking to get their fix, prices are rocketing higher.


Just yesterday, coffee prices spiked another 7%. That brings coffee’s year-to-date gain to over 90%. (No, that’s not a typo).


Coffee Prices Go Gangbusters, Fed Says Eat an iPad - coffee spot


Incidentally, historical pattern-search trend analysis from Eidosearch this morning ranks CME coffee futures (KT) as the most bullish 1-month set-up of any market-level indicator.     


Coffee Prices Go Gangbusters, Fed Says Eat an iPad - coffee


No worries. The Fed says to go eat a REIT or an iPad. 


Coffee Prices Go Gangbusters, Fed Says Eat an iPad - coffee usd table

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Coffee Prices Go Gangbusters, Fed Says Eat an iPad - coffee prices 04.21.2014


Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.




• Total revenues:  $1,443 million

o Owned, Leased & JV:  $368 million

o Mgmt & Franchise Fees:  $239 million

o Vacation Ownership: $180 million

• Adjusted EBITDA:  $267 million

• EPS:  $0.56/share



Q1 2014:

  • Adjusted EBITDA $260-$270 million
  • RevPAR SS Company Operated Hotels 5%-7%, 100 bps lower in actual dollar exchange rates
  • RevPAR SS Owned Hotels Worldwide 4%-6%, 200 bps lower in actual current exchange rates
  • SVO earnings $40-$45 million
  • Management, Franchise Fees & Other Income 10%-12% increase
  • SG&A +3% to +5%
  • D&A $78 million
  • Interest Expense $30 million
  • Effective tax rate 33%                  
  • EPS before special items $0.53 to $0.56

FY 2014

  • Our baseline at 5% to 7% in global REVPAR growth and adjusting for asset sales
  • Dollar at today’s exchange rates
  • EBITDA in the range of $1.2B to $1.225B.


  1. Views on share repurchases given stock under performance vs peers (especially MAR)
  2. Please explain the rationale for low net debt and balance sheet leverage?
  3. Given the low net debt, does management expect a slowdown in lodging industry fundamentals or is the company positing itself for a large, platform acquisition?
  4. Views on assets sales given strength in transaction market as well as hotel REIT share performance - one off vs portfolio transactions
  5. Where are inflation pressures negatively impacting margins?
  6. Address the China concerns
  7. ROI on renovations from last 2 years
  8. Recent commentary from Delta Air Lines indicated strong price taking in April, May and June of this year, how does that compare with what the company is seeing for advance bookings?



  • 2014 owned hotel margin improvement - a little bit better performance in some of our European hotels, held back in Argentina, Mexico will improve, the U.S. will be okay, and Europe should be better.

Lodging cycle:

  • The lodging recovery in North America continued unabated, driven by strong corporate transient demand


  • Transient revenues have been growing at an 8% to 9% clip each quarter, powered by corporate and high-end leisure travel
  • Transient business is robust, growing 8% in 2013


  • Negotiated corporate rates are up in the mid-single digits for 2014
  • Group business is pacing up in the mid-single digits
  • Group pace for 2014 is pacing in the mid-single digits
  • We are starting to see the return of incentive travel

North America:

  • REVPAR at company-operated hotels grew 6.7% in Q4, we expect these trends will be sustained
  • North America picking up steam 
  • We’ve seen three quarters in a row of record occupancy
  • The lodging recovery in North America continued unabated
  • Owned hotels saw REVPAR up nearly 10% and margins up 350 bps
  • We expect North American REVPAR growth at the upper end of our 5% to 7% outlook range, with rate accounting for 75% to 80% of the increase


  • Full year 2013 REVPAR was up almost 2%, starting from a decline in Q1 to a more healthy 4% in Q4
  • Ended the year well, with REVPAR up over 4% in local currencies in Q4
  • Occupancy remained high, nearly 68% for the full year 2013
  • European economies remain fragile and the euro could still be an issue, we’re hopeful that the improving trend will continue
  • In Q4, we saw mid-single digit REVPAR growth in: Spain, Italy, and the U.K - only Germany was a little soft
  • We assume Europe REVPAR growth in 2014 will be at the low end of our worldwide outlook range
  • Europe also had a good January, but it’s the low season
  • We’ll have to wait until March and April to get a better sense of the European trend in 2014
  • We derived 12% of our 2013 fees from Europe

China/Southeast Asia:

  • China now represents a meaningful piece of our global business, accounting for 13% of our fee revenues
  • China is rebounding
  • Expect Asia REVPAR to continue to grow at the high end of our global REVPAR outlook range of 5% to 7%

Latin America:

  • REVPAR is forecasted to grow in the lower half of our 5% to 7% outlook range
  • Same-store owned REVPAR to grow 4% to 6% in local currencies globally, with margin gains of 75 to 125bps
  • Disparate results across the region
  • Mexico continued to rebound, starting with resorts and followed by urban locations
  • Brazil’s the outlook remains unclear but The World Cup should help Brazil and the Sheraton Rio is coming out of renovation
  • Argentina was still a mess and reaching the acute stag
  • Even with the most recent peso devaluation, the gap between the official and unofficial exchange rate remains large


  • In 2014, our capital spend in the hotel business will be about $400mm, lower than in prior years due to the tapering off of renovations


  • SG&A growth is expected to stay in the 3% to 5% range, even as we make infrastructure investments in growth markets and in new capabilities

Share buyback/dividends:

  • For 2014, we’ll work hard to continue returning cash to shareholders via - Ordinary dividends, Special dividends, and share repurchases
  • Four planned special dividends associated with the $500 million in cash from the completion of the Bal Harbour project.
  • We have a healthy dividend with an almost 50% payout ratio and a 1.8% yield
  • For 2013, repurchased 4.9mm shares for $316mm
  • The Company’s share repurchase authorization has increased by an additional $250 million. As of October 30, 2013, the total amount available under the authorization is approximately $614 million.

 Asset sales:

  • The (buyers) markets are becoming deeper, and there are more buyers now seeking to deploy larger amounts of money.
  • Used to be the public REITs buying single assets, we now see portfolio buyers, and we believe private equity buyers have returned and soveigns are definitely back.
  • This is prime time for asset sales and we intend to fully take advantage of it.
  • Cap rates: we’ve seen sub-5% cap rates on some of our better hotels and 6% to 7% on some of the more suburban and airport hotels.
  • We certainly don’t want to wait until the 11th hour. On the other hand, being patient in selling assets up until now, I think, has worked in the interest of shareholders, not the other way around


  • Our goal is to get to 80% from fees and 20% from our owned portfolio, and our vacation ownership/other by 2016
  • SG&A 3% to 5% growth is what we're targeting which should generate adjusted EBITDA of $1.2 billion to $1.225 billion.
  • Growing our RevPar by, call it, 5% to 7% this year, should generate fee growth in the 8% to 10%.
  • We have margin improvement at our owned hotels.
  • Balance sheet capacity gives us another $1 billion to $1.3 billion, which means capacity for either growth investments or returning capital to shareholder is approximately $3.3 billion to $3.6 billion over the three-year period, and then in addition to that, as we sell assets that gives us additional capacity.
  • About $3.3 billion in cash generation over the next three years, plus asset sales, coupled with asset light by 2016, means $2 billion or $3 billion of asset sales proceeds, $5 billion, $500 million net debt. 
  • Pipeline is 450 hotels, 105,000 rooms

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Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.




 • Total revenues:  $1,195 million

 o Vacation Ownership:  $576 million

 o Vacation Exchange & Rentals $393 million

 o Lodging $235 million

 • EBITDA $242 million

 • EPS $0.75/share



Q1 2014:

  • Adjusted EPS:  $0.72 to $0.75,
  • No share repurchases factored into guidance
  • Lodging RevPAR:  4% - 6%
  • Repurchased 700,000 shares at average $71.02/share through February 13, 2014

Full Year 2014:

  • Revenues:  $5.25 - $5.35 billion
  • EBITDA:  $1.215 - $1.24 billion, organic growth 6% - 8%
  • EPS:  $4.18 - $4.28, 17% - 21% from 2011 to 2015
  • Corporate & Other:  $122 - $125 million
  • Interest Expense:  $113 - $117 million
  • Weighted average diluted shares of 131 million


  1. Discuss current M&A pipeline and pricing vs. return expectations
  2. View on increasing dividend as compared to growth in free cash flow
  3. With the WYN stock trading near $73/share, what is managements view on stock valuation?
  4. Discuss recent credit trends within Vacation Ownership segment - receivables write-downs, reserves, and impairments?
  5. Plans for a time-share receivables securitization during 2014?


Lodging Segment:

  • In the Hotel Group, revenues were up 10% reflecting higher RevPAR, adjusted EBITDA increased 3%, offset by nearly $7 million in higher marketing expenses.
  • Domestic RevPAR grew 4.7% in Q4 on the strength of our upscale Wyndham brand, which grew 10.5% for the quarter and 12.4% for the full year
  • International RevPAR continues to run at lower rates due to expansion of our lower RevPAR brands in China
  • Hotel Group will see first ever umbrella marketing program with a national advertising campaign in the spring 2014.
  • Redirecting resources to strengthen Wyndham Rewards Loyalty Program.
  • Increasing incentives for franchisees to achieve enrollment targets.
  • European markets appear to be on the upswing and through January, bookings at each of our European brands were ahead of 2013.

Vacation Exchange & Rentals:

  • Exchange and Rentals revenues excluding FX increased 3% - average exchange members increased 1.6% but revenue per member fell 1.8% while average net price per vacation rental increased 4.4% on flat volume. Introduced dynamic pricing earlier in 2013 at UK cottage and Dutch park segments.

Vacation Ownership:

  • WVO revenues increased 12% and EBITDA was up 19% based on sales of $53 million were up 12%.  Receivables write-offs decreased 12% to $68 million and provisions of $73 million were down from $89 million in the prior year.


  • Foreign exchange negatively impacted quarterly results by $14 million.
  • Our FCF guidance remains at a target of $750mm as stronger business performance will be offset by higher inventory spend (manage inventory spend to $150mm as a five-year average starting in 2011) and the $40mm increase in cash taxes


We’re taking CCL off the Best Ideas List as a Long.



Following a near 20% increase in stock price over the past 6 months, CCL’s valuation of 16x 2015 EPS looks fair.  Near-term risks include:  1) continued choppiness in Caribbean pricing for the industry and 2) increased Macro risks including consumer spending pressure and higher oil.  We remain constructive over the intermediate term as CCL yields should outperform Street expectations as the brand continues to regain lost value and brand rebuilding costs should abate.  


Q2 Caribbean pricing remains a headwind for both companies but Europe is a positive offset for RCL




  • RCL:  Neutral
  • NCLH:  Negative 



We are not expecting much change to RCL’s 2014 guidance but Q2 could be lower than consensus.  NCLH still has the most risk to 2014 yield guidance.  



  • North America
    • As Chart 1 shows, FQ2 sequential pricing jumped into positive territory thanks to a rebound in Alaska pricing (although numbers are skewed due to absence of Celebrity in the Caribbean for May/June).  In the Caribbean, sequential pricing was flat; on a YoY basis, pricing remains lower in the double digits for FQ2 and FQ3.
    • Quantum pricing for Nov/Dec remain unchanged
    • Pullmantur pricing steady

Chart 1


  • Europe
    • Chart 2 shows strong YoY pricing for FQ2.  In Chart 3, on a sequential basis, there was a price drop in FQ2 but that is more than offset by gains in FQ3 and FQ4.
    • RC brand – pricing up high double-digits for F2Q and high single/low double digits YoY for F3Q-F4Q 
    • Overall, Celebrity pricing improved in late April.  There was some discounting for FQ2.
    • Azamara pricing was mixed
    • Pullmantur pricing showed good growth considering very easy comps.  The Baltic/North Sea regions particularly stand out.
    • Anthem pricing for 2015 remain unchanged

Chart 2



Chart 3


  • Asia/Australia/South America
    • Slight growth in RC brand and Azamara pricing


Chart 4 shows NCL pricing continue to be under pressure for FQ2

  • Caribbean
    • Will the bleeding stop?  FQ2 Pricing continued its descent in late April. 
  • Alaska
    • Pricing stabilized in April.  On a YoY basis, pricing remains modestly lower.
    • NCLH has 10% and 18% exposure to Alaska in FQ2 and FQ3.
  • Europe pricing looks outstanding for the summer
  • Hawaii FQ2 summer pricing was weaker in late April

Chart 4






Survey has suggested mixed signals for RCL in the past 6 months





Survey has been bearish on NCLH since the 02/12/14 survey



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