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BYD Q1 2014 CONF CALL NOTES

Borgata disappointing (in part to 1x online startup expenses) but overall at the top of guidance. 2014 guidance looks in line. Upcoming catalysts include big refi, Borgata property tax resolution (likely favorable and material), and less bad regional gaming revs.

 

 

CONF CALL

 

Core Operations

  • Cutting expenses in light of flat revenue environment
  • Recent Southern Nevada data points support stronger revenue outlook - job add, house price appreciation...within increased consumer confidence gaming spend should increase
  • Penny Lane rolled out to 15 properties with full roll out by end of the summer
  • B-Connected rolled out to all markets
  • Non-gaming amenities revitalization
  • Severe winter weather negatively impacted $10-$12M
  • Real Money On Line - Borgata brand capturing 1/3rd of NJ online revenue
  • Opportunities to expand land based operations -- looking at Northern California and South Florida
  • BS is strong and making progress, delevering and paid down $55M in Q1, estimated will save $80M in interest expense
  • $1.1B Federal loss carry forward
  • Use FCF to reduce debt
  • LT shareholder value - organic, on line, acquisitions. Will consider all opportunities and consider all options seriously.

Operating Results

  • Total Property Margins nearly unchanged YoY
  • Weather impacted results by $10-12M

 Las Vegas Locals

  • YoY comps more difficult but strength in destination business and core operations
  • 1Q maintained market share with flat reinvestment
  • Actively refining non-gaming amenities Gold Coast and Orleans room renovations, Sun Coast rooms later this year; Gold Coast meeting rooms this summer -

 Downtown Las Vegas

  • Capturing more walk-in traffic from Fremont Street
  • Higher yields on Hawaiian business

Midwest/South

  • ex weather Q1 2014 would have been closer to Q1 2013
  • modest YoY EBITDA growth will occur in 2H14
  •  B-Connected launched last few weeks in Louisiana, complete portfolio rollout by end of summer
  •  Also launching Penny Lane
  •  Kansas Star - phase 2 started = 150 rooms, double room count and $20M in non-gaming space (meeting, banquet space and equestrian facilities)

 East

  • Borgata operating loss due to 40" of snow
  • Philly impacted by 57" of snow vs. 8" in 2013
  • $2.5M higher utilities
  • $1.5M higher property taxes

On Line Gaming

  • lead NJ market since launch, combined market share = 40%
  • invested heavily in marketing and advertising - $2M from non-recurring one-time expenses
  • enhancing game content options
  • net-teller, prepaid service

Financial

  • reduced debt by $55M
  • available credit of $300M at Boyd, $35M Peninsula, and $20M Borgata
  • Boyd secured leverage 4.2x secured vs. 5x covenant
  • Total leverage 6.7x vs. 8.5x covenant
  • Peninsula 6.3x vs 7x covenant
  • Borgata had $114M of covenant EBITDA
  • CapEx $18M during Q1 including: $2M Borgata & $6M at Peninsula
  • Full year capex: $120M maintenance plus $20M expansion at Kansas Star

Q2 EBITDA Outlook

  • Las Vegas Local: in line
  • Downtown: in line
  • Borgata exceed prior year
  • Other US - YoY EBITDA declines similar to Q1 absent negative EBITDA weather impacts
  • 3Q anniversary Shreveport and IL VLT competition

Full Year Outlook

  • Las Vegas Locals: 2014 EBITDA growth should be similar to EBITDA growth 2013 vs. 2012.
  • Downtown: comparable
  • Midwest/South/Peninsula:  YoY growth in 2H 2014, $9.3m property tax adjustment at Blue Chip from Q4 in 2013 and not 2014
  • Borgata: even with 2013 results, not assuming any impact from property tax, but does consider ($3.5M) on line gaming loss in Q1
  • Recent trends: less optimistic about top end of guidance, therefore lower top end of guidance of EBITDA from $630M to $620M 

Q & A

  • Guidance: which segment drove cut to high end - all segments, across all aspects of business, not one specific segment.  Expect all segments to do better in Q3 and Q4.
  • How balancing investing for long-term vs. near-term earnings - loss in Q1 driven by start-up and launch advertising costs.
  • What seeing right now in regional landscape in April, specifically Kansas -- level of revenues at Kansas Star were down less than prior months, permanent casino opened just over one year ago to strong demand and visitation, thus after plateau, this is the reset/steady state operating environment.  Kansas Star is ~50% of all GGR in Kansas.  Expect uplift from add'l hotel rooms and meeting space.
  • Thus far in April - echo market commentary...slow because of tax-filing and Easter weekend.  Still looking for business uplift in May and June.
  • Midwest/South Segment Q2 declines similar to Q1 ex weather of $6M
  • Comps getting easier - what gives you confidence regarding 2H growth - Q3 and Q4 2013 was real degradation beyond normal seasonal slowdown, weakness in lower end consumer in 2013 and not expect add'l and repeat weakness in 2014.   While cautious thus far in April, some properties doing better than forecast. 
  • Las Vegas customer behavior - frequency is down, daily actual is up in Locals Segment and has been for past two years.
  • Board emphasis on shareholder value - takes many different forms, takes time to analyze and vet over short term and long term, makes correct for long term 
  • Borgata tax appeal - no estimate when appeal will run course

HST Q1 2014 - EARNINGS PREP

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

 

1Q14 CONSENSUS ESTIMATES

• Total revenues:  $1,264 million

• Adjusted EBITDA:  $293 million

• FFO:  $0.30/share

 

MANAGEMENT GUIDANCE

FY 2014:

  • Comparable hotel RevPAR - domestic: 5% - 6%
  • Comparable hotel RevPAR - int'l constant US$: 5.5% - 6.5%
  • Total comparable RevPAR - constant US$: 5% - 6%
  • Total revenues (GAAP): +2.9% to +3.9%
  • Total comparable hotel revenues: +4.3% to 5.3%
  • Operating profit margins (GAAP): 140-160 bps
  • Comparable hotel adj. operating profit margins: 60-110 bps
  • Adjusted EBITDA $1,350-$1,390 million
  • Net Income: $490-$527 million
  • Diluted EPS: $0.63-$0.68
  • FFO (NAREIT)/share: $1.39-$1.44
  • FFO (Adj)/share: $1.40-$1.44

QUESTIONS FOR MANAGEMENT

  • CapEx - total value of growth vs. maintenance capex programs?  ROI on renovations from last 2 years? 
  • Views on:
    • Washington DC
    • New York
    • Chicago
    • California: San Diego, Los Angeles, vs. San Francisco?
    • Urban vs. Suburban vs. Resort/Conference
  • Where are inflation pressures negatively impacting margins?
  • Does the company want to achieve a debt rating upgrade from BBB to BBB+ or A- ?
  • What is the Company's dividend strategy/policy - given the $0.01/share increase each of the past 13 quarters to Q1 2014's dividend/share of $0.14?
  • How much current cash is trapped overseas? How do you plan to utilize this cash?
  • 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?

RECENT MANAGEMENT COMMENTARY

RevPAR

  • Comparable same-store RevPAR was +6.6% (constant dollars), with room rate +4.4% and occupancy up 140 bps.
  • Actual RevPAR, which includes the 10 properties that were either acquired or under renovation last year, was +7.2%, with rate +4.7% and occupancy +180 bps.
  • Adjusted operating margins were +130 bps.
  • F&B revenue increased 6.1% during Q1 2014.

Group

  • About 70.0% of 2014 group business has been booked.
  • Group revenue is tracking +5.5%, with room nights up 3.0% and rate +2.5%.
  • Group revenue is still 10.0% below prior peak levels
  • Group revenues booked in Q4 for 2014 and 2015 exceeded the prior-year’s strong pace
  • For 2014, group booking pace is up 3% in room nights with average rates projected to be up in every quarter
  • More than 70% of our expected group rooms for the year have been booked
  • Revenues for the year up more than 5.5%, and we expect a solid year from our group segments

Transient

  • Strong demand in our higher-rated retail and corporate business, which increased more than 6.5%

Peak

  • 2013 results for portfolio RevPAR was $151 and occupancy of 76.0% versus prior peak inflation adjusted RevPAR of $178 and occupancy of 78.0%.
  • More room to grow before the portfolio achieves prior peak levels. 
  • F&B revenues are still roughly 10% behind 2007 level
  • Margins are still 300 bps below peak and profitability 15.0% on a non-inflation adjusted basis

Asset Sales

  • Disposed of nearly $700 million of assets over last 12 months.
  • Over the past 12 months, the company sold six hotels for $667 million.
  • Since the start of 2012, the company has sold $1.1 billion of assets.
  • Marketing additional assets but sale multiples could be in the low double digits as substantial capex is needed for several properties

Other

  • equity issuance this year should be minimal in the absence of significant acquisition opportunities, as HST is approaching its leverage target of 3x.”

Market Trends

  • San Francisco:  mix shift to higher-rated transient and group
  • San Diego:  strong group & transient
  • Hawaii: occupancy -430bps due to timeshare construction at the Hyatt Hotel in Maui
  • Due to the negative impact of the unfavorable exchange rates this quarter, nominal comparable international hotel RevPAR grew only 0.9%
  • Expect European joint venture hotels’ RevPAR to increase from 2013 levels, but will continue to unde rperform our total portfolio in 2014

SAM: Impressive Results on Easy Comp; 2H More Challenging

Takeaway: Q1 strong on easy comp; on balance we like SAM's ability to navigate its growing pains -- the remainder of the year will be more challenging

SAM had a strong quarter of results for what is typically its smallest quarter of revenue in the year: it grew net income 20.3% to $8.3M (albeit on a very easy comp of -7.8%) on net revenue of $183.8B, or +35.2% Y/Y, which beat our estimate of $177.1B (+30.0%).

 

There were lots of exciting offerings in the quarter:  it introduced a new spring seasonal Samuel Adams Cold Snap, late in the quarter launched Samuel Adams Summer Ale; and launched Samuel Adams Rebel IPA.  The strong volume performance in the quarter (+32% Y/Y) clearly got a lift from this suite of products (alongside strong performance from Angry Orchard, Twisted Tea and the launch of Twisted Tea Lemonade), however going into the remainder of the year the company will get less of a benefit as it does not plan to launch any more seasonals.    

 

To support these launches SG&A was bumped up significantly in the quarter, to +32.8% or $77.1M, which was also against a light comp of +16.8% in the prior year quarter (avg last year was 23.8%). 

 

Other Notables:

  • Company achieve price increases of ~ 2%
  • Gross Margin was down in the quarter by 70bps Y/Y to 49.2% on higher input costs
  • Operating Margin grew 20bps Y/Y
  • Tax rate increased to 37% versus 28% in the year-ago quarter
  • Company maintained the FY Gross Margin range of 51% to 53%
  • Company maintained the FY diluted EPS range of $6.00 to $6.40
  • Company narrowed its FY Capital Expenditure range to $160M to $200M versus previous guidance of $160M to $220M

We continue to like SAM but are cognizant that Q1 had relatively easy comparisons. We expect SAM’s GM in particular to be challenged over the remaining quarters on more difficult comps and rising input costs. We also expect shipping costs, which fall under Advertising and Promotional Spending (up a significant 41% in the quarter Y/Y) to remain elevated as the company cites less availability of carriers.

 

We’re seeing strong demand across the portfolio, but cognizant that the company will experience growing pains as it expands its brewing capacity. Rising input costs will also be a headwind and the company must manage its advertising throughout the year after an impressive rollout of new products in Q1.

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst


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STAY SHORT OF CONSENSUS ON ABENOMICS

Takeaway: We reiterate our call for continued consolidation in the “Abenomics Trade” with respect to the intermediate term.

CONCLUSIONS:

 

  1. We reiterate our call for continued consolidation in the “Abenomics Trade” (i.e. short JPY/long Japanese equities) with respect to the intermediate term. We continue to think both the fundamentals and the crowded nature of positioning in this trade warrant said consolidation.
  2. Specifically, our models call for Japanese economic growth to slow sharply here in 2Q (in line with official estimates), which should weigh on structural inflation expectations and risk appetite among Japanese investors – effectively underpinning a domestic bid for the JPY. Refer to our 2/19 note titled, “MORE CONSOLIDATION ON THE WAY FOR THE ABENOMICS TRADE?” to review this thesis in more detail.
  3. Externally, we continue to pound the table on the non-consensus view we’ve held all year: accelerating inflation will slow domestic economic growth, at the margins, throughout the balance of 2014. Furthermore, we anticipate that this catalyst will result in decidedly easier monetary policy out of the Federal Reserve – which may manifest in particularly dovish forward rate guidance, or an outright “un-taper” by the mid-to-late summer. Refer to our 4/16 note titled, “10 SCARY CHARTS ON US GROWTH; 5 NOT-SO-SCARY CHARTS ON CHINESE GROWTH” to review this thesis in more detail.
  4. The catalysts outlined in point #3 should continue to result in global selling pressure on the USD – which continues to careen to the downside as a leading indicator for this fundamental backdrop. That’s directly bullish for peer currencies, including the JPY; what’s bullish for the JPY continues to be bearish for the Japanese equity market given the tight inverse correlation that remains in place (YTD r² = 0.70).
  5. Long-term/low-turnover investors should continue to remain in the trade or remain on the sidelines in advance of what we anticipate will be far better entry prices on the short side of the JPY and long side of the Nikkei/TOPIX at some point over the intermediate term. When analyzed in the context of our forecasts for Japanese GDP and CPI, the BoJ’s downwardly revised growth forecasts and stagnant inflation forecasts at today’s non-event BoJ meeting lead us to believe that they are likely to expand their QQE program sometime in mid-to-late 3Q – well after it has become clear to consensus that the Yellen Fed isn’t the hawkish institution consensus currently assumes it is.

 

JAPAN GIP MODEL

STAY SHORT OF CONSENSUS ON ABENOMICS - JAPAN

 

STAY SHORT OF CONSENSUS ON ABENOMICS - 1

 

STAY SHORT OF CONSENSUS ON ABENOMICS - 2

 

STAY SHORT OF CONSENSUS ON ABENOMICS - 3

 

STAY SHORT OF CONSENSUS ON ABENOMICS - 4

 

US GIP MODEL

STAY SHORT OF CONSENSUS ON ABENOMICS - UNITED STATES

 

STAY SHORT OF CONSENSUS ON ABENOMICS - GROWTH

 

STAY SHORT OF CONSENSUS ON ABENOMICS - GDP COMPS

 

STAY SHORT OF CONSENSUS ON ABENOMICS - INFLATION

 

STAY SHORT OF CONSENSUS ON ABENOMICS - CPI COMPS

 

RECENT JAPANESE HIGH-FREQUENCY ECONOMIC DATA

Industrial Production trends cooling off:

STAY SHORT OF CONSENSUS ON ABENOMICS - 6

 

Retail Sales pull-forward ahead of the April 1st consumption tax hike:

STAY SHORT OF CONSENSUS ON ABENOMICS - 7

 

Manufacturing PMI tanking as Abenomics fails to deliver the necessary structural reforms that can sustain Japan’s economic recovery:

STAY SHORT OF CONSENSUS ON ABENOMICS - 9

 

Services PMI trends decelerating from apparent frictional resistance:

STAY SHORT OF CONSENSUS ON ABENOMICS - 10

 

Consumer Confidence tanking as rising inflation takes a healthy bite out of the consumer’s wallet:

STAY SHORT OF CONSENSUS ON ABENOMICS - 11

 

Business Confidence following suit as the consumption tax hike is spread throughout the supply chain:

STAY SHORT OF CONSENSUS ON ABENOMICS - 12

 

Export growth mirroring the dollar/yen rate to some degree:

STAY SHORT OF CONSENSUS ON ABENOMICS - 13

 

Import growth surprisingly cooling in the YTD, but ripping alongside global energy prices in the most recent month:

STAY SHORT OF CONSENSUS ON ABENOMICS - 14

 

Inflation continues to accelerate and is poised to gap up as the consumption tax is largely passed on to consumers:

STAY SHORT OF CONSENSUS ON ABENOMICS - 15

 

Real wages are feeling the pinch of stingy Japanese corporations and policies to tax & inflate out of Tokyo:

STAY SHORT OF CONSENSUS ON ABENOMICS - 16

 

Feel free to ping us with any follow-up questions. Have a wonderful evening,

 

DD

 

Darius Dale

Associate: Macro Team


Poll of the Day Recap: 61% Say $TWTR May Be Down, But It Ain't Out

Takeaway: 61% YES; 38% NO

Shares for Twitter have been tanking amid the company’s disappointing earnings report. Prices are currently hovering around $38.

Poll of the Day Recap: 61% Say $TWTR May Be Down, But It Ain't Out - 6

 

That’s why we asked you in today’s poll: Will shares of Twitter ever surpass its record high of $74.73?


At the time of this post, an optimistic 61% of voters leaned YES; 38% NO.


Most every YES voter agreed that “ever” is a long time, but ranged in their approximate time it might happen:

  • “It'll definitely hit its $70+ price, probably even within the next 5 years.”
     
  • “Twitter is a long-term game changer. It got ahead of itself on price, but ‘ever’ is too long to think ‘never.’”
     
  • “Twitter is a powerful platform that is here to stay. I don't see any other platform capable of taking away their clients (celebrities, media, companies, etc..). That content alone is worth many billions that Wall Street has down played. Twitter will inevitably take this to the next step and monetize.”
     
  • “Probably back there within 2 years.”
     
  • “Twitter isn't going anywhere anytime soon. Valuation got ahead of itself. But as the business grows, it likely gets above $75 at some point. Just look at PCLN after the dotcom bubble...”
     
  • “Could be 10-15 years though!”

Conversely, one NO voter said, “I agree that ever is a long time, but something new will likely come along and replace Twitter.”

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