Hard to poke holes in the quarter and conference call commentary. Maybe incentive fees could've been a little better but overall MAR is executing operationally and from a shareholder perspective.




  • Past few weeks sensing tremendous optimism across all markets, all segments, all geographies
  • 30% of Industry big box (more than 1,000 rooms) development is under MAR brands  
  • Overall supply growth in NA market remains low due to tight financing, high construction costs, but CMBS market opening and banks interested in lending to limited service hotels due to higher  yields.  
  • 65% of NA pipeline hotels outside top 25 markets
  • AC hotels: 28 approved in US and 40 under discussion
  • Moxy: 12 in pipeline, first will open later this year, expect >100 Moxy assets in 10 years
  • Building three hotels in Brazil should be $150-$200 million over next three to four years with recycling sometime after opening.
  • Mexico: strong capital markets and new lodging REITs stimulating limited service development and MAR has 23 hotel open and 18 in the pipeline
  • Asia/Pacific: signed more new build upper upscale and luxury rooms in 2013 that any competitor, and 2014 looks just a strong
  • India: full-service difficult, Courtyard and Fairfield brands have 4,000 rooms in development
  • China: 25,000 rooms open, 35,000 in development pipeline
  • ME/Africa: Protea acquisition closed
  • 2013: 67,000 rooms signed world-wide and expect 2014 another record signing year
  • 45m Marriott Reward members = ~50% of worldwide occupancy
  • 40% of bookings from mobile devices
  • 6 year, 800 hotel Courtyard renovation which is increasing RevPAR and contributing to profitability
  • Marriott introduced new service initiatives for meetings business, new marketing campaign, and renovating guestrooms
  • Better transient booking trends and worldwide RevPAR = higher 2Q guidance
  • Courtyard: strong transient demand, lobby & room renovations
  • Marriott Brand RevPAR +8% = 300 ADR, cancellation below trend, F&B + 5%, group outperformed competition
  • Marriott brand group RevPAR ~500 bps across North America
  • US Government - demand stabilizing but not upturn yet, reducing Gov't occupancy in many markets
  • International RevPAR results:
    • Caribbean +10%. Mexico +13%, and Resorts +10% based on strong group and cold weather
    • Japan, Indonesia, Oz, Greater China (Shanghai & HK) +7%
    • Europe +4% based on UK +5%, Germany +4%, France -4%
    • Russia -1%
    • Egypt difficult
  • House profit margins +160 bps, despite higher utility costs high due to cold
  • WW House 130 bps
  • total fees +5%, base fees stronger RevPAR and -$2m f(x), constrained by slower NYC, WDC, New Orleas marktes - expect fee growth of low double digit rate
  • G&A lower based on timing items
  • Repurchased 7m shares = 355m during Q1
  • Q2 booking pace modestly higher YoY despite Easter, strength in corporate and leisure
  • Easter shift: added 100 bps to Q1 occupancy but likely -1% in Q2
  • Caribbean/Lat Am: double digit
  • Asia/Pac: mid single
  • Europe, Middle East, Africa, Russia, France & Egypt: low single digit growth
  • Group pace for Marriott during Q4 2013 was +4%, today +5% corporate even stronger
  • Pretea:  will add ~$15M and $7M of depreciation
  • G&A flattish
  • FY 2014 Adj EBITDA +9% to +13%
  • recycle 600-700m from asset sales and loans


  • Why were fees not higher given RevPAR results?  Incentive fees are lumpy, greater weakness in WDC and NY which are strong fee earning markets, new supply in NYC negatively impacting results  Thailand RevPAR -20% in Q1 and impacted fees
  • Edition construction costs - believe fully reflective
  • Potential for big acquisitions to jump start AC, Edition, Proteia?  Today pleased with new platforms for growth and outlook - open Miami and Clock Tower in NTM, more hotels in pipeline.  AC brand is sizzling in the US (30 signed and 40 in discussion) will see higher level of activity.  Pleased with Protea, Gaylord and AC - each is own story.  Maybe a little early in Spain.  Protea good because 10x multiple and will add accretion impact but also leadership team will bring accelerated growth across Africa.
  • Wintrop won't impact MAR.
  • Protea leased assets, look to sell over time - prefer management contracts vs. leases because leases difficult to recycle, do not prefer lease transactions but like variable and revenue share lease with Protea.
  • Development in Brazil on/off balance sheet - 3 assets on MAR balance sheet. Seed select service in Sao Paolo (Fairfield) and Rio de Janiero (2 Courtyards) and already signed several new management contracts.
  • Brazil - Rio is perplexing...5 hotels open, 10 hotels in pipeline, not seeing strength for limited service brands, akin to investing in new growth platforms
  • Share repurchase - scorecard: in the middle of the cycle, not the end.  No comments on 15/16 guidance, but drivers of growth - revpar, unit growth, G&A, great capital leverage to continue for next several years, thus convinced stock is reasonably priced and a strong buy today vs. outlook and macro environment.
  • Government comps - see easier comps due to actions in 2013 to cut government groups during Q2, Q3 and Q4 in 2013.  Stayed and Paid in 2014 will be +10% in 2H14.  Total Gov't volume -15% as hotels yielding out Govt for higher ADR Transient.
  • Group booking trends for Q4 2014 - seeing group booking trends higher, up 5% vs. 2013 for 2013.  In Q4 2014 seeing flat, so first 3 Qtrs of 2013 trending +8%.
  • Incremental group demand, what is greater confidence by group - broad optimism.  In the US, confidence about economic recovery vs. last few years.  Less Gov't & fiscal overhang.  Corporations looking to invest in business via meetings, travel, etc.  
  • Marriott Brand Group share is up 500-600 bps, taking significant group share.
  • Raising Dividend - Board meeting in May, historically raise dividend in line with growth...payout ratio 30-35% of earnings.  Not anticipate a meaningful shift of capital from share repurchase to higher dividends.  Shareholders PREFER consistent return of capital to shareholders but mixed view on methodology and mix.
  • Group vs. Transient and RevPAR performance - 1 year ago discussion of secular shift away from group to transient, MAR rejected those conversations, but today evidence illustrates Group is recovering as it has in the past -- but slightly more modest recovery because RevPAR recovery has been slower this time.  Group doesn't outperform until Transient weakens.  Want to see Transient continue to outperform.
  • NYC vs North America - supply related and is there a segment difference?   For MAR, Q1 2014 RevPAR 1%.  Difficult comps to Hurricane Sandy and potentially some negative weather, surprised how little impact weather impacted Nationwide RevPAR but negative Chicago and NYC RevPAR.   NYC supply growth of 10% and occupancy still runs 85%.
  • Where in the cycle re-evaluate share repurchase as well as leveraging cash flow and ebitda over the cycle - historical view of holding cash (actually increases WACC) and thus view of buying stock into cycle downturn (2007), entered downturn at 3.5x debt/ebitda, was 5x in 09 and stock was $11 but didn't have powder to buyback the stock.  General approach increase nominal debt but not leverage levels 3x - 3.25x but sensible to bring down to 2.75x - 3x
  • When will limited service developments open the US - 65% of signings today outside top 25 MSAs; new limited service supply open in 2015 but not seeing full-service supply growth
  • Close Miami Edition sale, shortly after opening in Q4 2014, then close on sale of NYC Edition ClockTower in Q1 2015.
  • How frame Rate vs. Occupancy for remainder of 2014 -  occupancy higher in Q1 due to Easter shift, interested and focused in driving rate.
  • Managed Hotel Incentive Fees - where expect end of 2014.. inching or hockey-stick higher?  Good start with 300 bps increase in Q1, expect IFs to continue to grow, not yet growing 20% - still a challenging line to guide.  Expect low double digit growth rate for 2014 full year.  More comments at September analyst meeting.
  • Group commitment to higher F&B spend - Q1 actual +8% vs. RevPAR, Group F&B +10% and Outlets +7%.  F&B budgets finalized just prior to group arrival.
  • Operating margin growth of 160 bps in line with plan and how view for remainder of year - Q1 margin performance modestly better than forecast despite higher utility costs in Northeast, still keenly focused on expanding margins.


Takeaway: This cartoon was initially posted on Monday April 28, 2014.

U.S. GDP just posted its smallest gain in three years, growing at only a 0.1% annual pace in Q1. Hasn't Hedgeye been warning about this?


FLASHBACK: Icebergs  - GDP cartoon 04.28.2014

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VIDEO | Keith's Macro Notebook 4/30: MONTH END #BUBBLES US HOUSING

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Seemingly not the focused management we knew at PENN - already experiencing miscues. Rent escalator in doubt to soft regional trends. Acquisitions the only positive catalyst but tough to predict.




  • First full quarter of operations
  • Two items to highlight and guidance deviations...
  1. incorrectly E&P dividend would be fully diluted and new guidance reflects updated calculation
  2. adjusted EBITDA line was $3m higher as didn't account for dividends to employees


  • 2% escalator is in 2014 guidance - how confident of escalator given PENN guidance?   On the cusp of the rent escalator, decided to leave in $1m of escalator as too early to decide if will/will not occur.  Wait until end of 2nd quarter, past calendar and weather impact - if PENN performs as guided then rent escalator at risk.  However, when two Ohio properties open, will help 1.8x calculation - assuming stabilization.  
  • Restate acquisition commentary and expectations - not really able to comment, but fully engaged in building and growing GLPI.  Comfortable and confident will get another transaction done and closed this year...
  • Don't have large operations, therefore not much to discuss as numbers are numbers and not able to talk about all the potential, forward drivers...
  • Acquisitions has operating environment changed landscape and willingness to engage in sales discussions of gaming is in a near-term cyclical vs. structural - hundreds of independent gaming properties...someone always needs to sell.  No reason to believe opportunity has changed and no reduction in conversations.
  • Iowa situation - are there any remedies to reinstate or achieve favorable outcome?  GLPI completely on the outside and along for the ride with PENN.  IRGC actions are outrageous and illegal, appalling.  A preliminary ruling by the court is the charity, PENN & GLPI would never have contemplated.  Peter's encouragement for PENN is to take legal actions to and thru every venue possible...hope and expectation PENN will fight to the last breadth.  Iowa is a disgrace...
  • Possible counter party, participant in NY?  Challenging to figure out, some surprised by location, situation needs to flush out.  Had conversations with multiple parties...could partner and support an operator with financing. 
  • Florida - Mohegan Sun as operator, participated in bidding process but did not prevail at Miami Jai Alai facility.  As looked at property, GLPI did not see upside to support purchase price.
  • Greenfield opportunities - actively engaged and attuned.
  • Look at Atlantic City - not interested at these price levels
  • CZR's Tunica - not interested in that property, a few properties have their interest but not at these price levels -- not interested in antiquated properties on verge of extinction
  • Views on other OpCo/PropCo transactions - anyone who believes process is easy is confused.  Don't have the insights into roadblocks at other operators.  Took PENN three years to deal with internal roadblocks.  Any operator looking at a spin today, has a long and time consuming process ahead. 
  • Base case for acquisition timing and process - Casino Queen not the typical transaction because transaction solved covenant issue, thus process was quicker than "normal" transaction.  Typical transaction is more lengthy - first, verbal & socializing; second, put to paper; third, think about and ask for terms sheet; and, finally ready to move forward to contract.
  • At what point announce a transaction - not announce until signed purchase transaction
  • Non gaming opportunities - always challenged to keep machine growing, but will stick close to knowing what they know easily...but a few years down the road could see GLPI expanding investment focus because such is owed to shareholders to keep machine growing.
  • TRS EBITDA - guidance built conservatively for those two markets?  Guidance built on Q1 2014 trends and draconian view of Baton Rouge and Perryville.  Will wait for Q2 results to adjust TRS view and guidance



In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance




  • MIXED:  PNK posted lower revenues than contemplated by the Street but beat on EBITDA due to cost controls.  However, earnings had come down considerably as States released a continuous stream of soft gaming revenues through the quarter.  Cost controls were impressive but at some point someone needs to call out some of these gaming operators for the recurring "non-recurring" adjustments made (mostly up) to arrive at Adjusted EBITDA.

Business Trends:

  • MIXED:  Trip frequency continue to decline, while spend per trip increased 6% YoY in 1Q.  The trip decline was even more evident in the markets with new competition.  Management indicated that Q1 softness continued into April.
  • PREVIOUSLY:  Similar to 2013, trip frequencies continued to decline with people visiting less often, while spend patterns have remained relatively stable.  Trip declines are particularly pronounced in the less than $100 average daily theoretical segment and end markets with new competition.

Marketing Spend:

  • BETTER:  Marketing reinvestment as a % of GGR was down 380bps YoY in 1Q.  There is still room for improvement.
  • PREVIOUSLY:  Continue to be very focused on driving profitable revenue and applying a rational approach to marketing spend. Reinvestment declined both in terms of dollars and as a percentage of gaming revenue, down 240 basis points year-over-year.

Database integration spend:

  • WORSE:  Too many excluded costs recently.  Integration of myChoice program into ASCA properties for 2014 and portion of 2015 benefit results in an upfront aggregate non-recurring charge of $5m in 2Q.  Another $5.1m in Player list amortization costs associated with ASCA acquisition excluded in 1Q.
  • PREVIOUSLY:  Expect this year to have roughly about $10 million or so that will be spent on that in 2014. It'll be largely done by the end of this year.

L'Auberge Baton Rouge:

  • SAME:  L'Auberge Lake Charles and L'Auberge Baton Rouge particularly did well on the cost side, boosting EBITDA and EBITDA margins.  L'Auberge Baton Rouge continued to ramp up its high end regional gaming volume. 
    • Market share increased 420 basis points from prior year with healthy growth from both the local and regional play
    • Hotel also continues to be a very good story with this property achieving the second highest RevPAR in the company.

River City:

  • SAME:  Had all-time high in revenues in March.  Combined with St. Charles, market share in St. Louis market increased 200bps.
  • PREVIOUSLY:  Continues to outperform the market with a 230 basis point improvement in market share during the fourth quarter.


  • SAME:  Struggled with polar vortex (~roughly $5m impact) but operational efficiencies led to a 680bps improvement in EBITDA margin.
  • PREVIOUSLY:  Performed pretty well in the face of a challenging environment, as our margins in the Midwest also improved despite a 4% decrease in net revenues.


  • BETTER:  $53m annualized as of Q1 2014 - includes $5m cost related synergies and  $11m of cost avoidance (healthcare benefit cost); expect more synergies ahead
    • Feel very confident in ability to meaningfully exceed the target of $40 million of annualized merger synergies.  In fact, PNK expects to exceed this $40 million number of implemented synergies by the end of 1Q 2014, with more to come. 
    • The loyalty program will launch in April, so haven't seen any impact at the Ameristar properties along those lines. VIP marketing, house coding our branch offices, all of those efforts are very early in the execution stage. Some are still in the planning stage, but we are beginning to execute most of our revenue synergies in the first and second quarter of this year.

New Orleans hotel:

  • SAME:  Will open this summer
  • PREVIOUSLY:  The project remains on budget and is expected to open early summer.

Buy in May and Pray?

Client Talking Points

Month End

As the “Ides of April” come to a close, US Consumer (XLY) and Financials (XLF) lead the losers down -1.8% for April. On the other hand, slow-growth-yield-chasing Utilities (XLU) are up +4%. If buying inflation and slow growth ain’t broke, don’t fix it.


The Wall Street Journal is “cautious” on Twitter (TWTR) now – thanks for coming out. TWTR, YELP, and FB remain in Bearish Bubble Formations at Hedgeye! Buy in May, and pray? Not on the US consumer, social bubbles, or housing stuff – no thank you!

US Housing

There’s a nasty weekly mortgage demand print this morning out of MBA (total, purchase + refinance, index) slammed for another -5.9% loss after last week’s -3.3% drop. Rates Down = Demand Down – Janet? Our Q2 Macro Theme of #HousingSlowdown remains intact. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


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


Rates Down, US #HousingSlowdown Accelerates - Janet? @KeithMcCullough


"The ability to honestly and quietly reflect on one's life is one of the most powerful tools for personal growth." - Richard Carlson


Venezuela will raise the minimum wage by 30% on May 1, President Nicolas Maduro has announced. The increase is below the level of annual inflation, which official figures put at 56.2% for 2013.The announcement comes after almost three months of mass protests against Mr. Maduro's government triggered by rising inflation, shortages of some basic goods and a high crime rate. (BBC)


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