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




  • Total revenues:  $1,177 million
    • Owned & Leased Hotels:  $616 million
    • Other Revs from Managed Hotels:  $441 million
    • Managed & Franchised Fees:  $102 million
  • Adjusted EBITDA:  $234 million
  • EPS:  $0.45/share



Q2 2014

  • No specific guidance

FY 2014

  • Adjusted SG&A of approx $325 million.
  • Capital expenditures of approx $325 million, including about $150 million for investment in new properties.
  • The Company intends to continue a strong level of investment spending including: acquisitions, equity investments in joint ventures, debt investments, contract acquisition costs or other investments.
  • D&A of approx $375 million.
  • Interest expense of approx $75 million.
  • Open approximately 40 hotels



  1. Views on assets sales given strength in transaction market as well as hotel REIT share performance - one off vs portfolio transactions
  2. Where are inflation pressures negatively impacting margins?
  3. ROI on renovations from last 2 years?
  4. Discuss investment spending plans for the remainder of 2014.
  5. What is your goal in terms of fees vs owned EBITDA?
  6. What is the right leverage?  Current thoughts on share repurchases?
  7. Rate vs occupancy gains this year and where are we in the cycle?
  8. Actual RevPAR vs ST and competition
  9. Group outlook for Q3 and Q4 given MAR management commentary




  • Seeing both group and transient strength from sectors such as technology, pharmaceuticals, manufacturing and insurance.
  • Strong top-line results will result in realized strong owned and leased margin growth in the U.S.
  • Confident in the business trends in the U.S.
    • Occupancy rates are at record levels and continue to see strong average rate growth.
    • F&B business continues to improve.
  • Outside the U.S.
    • Positive demand growth
  • Second quarter comparisons will be tougher due to the timing of Easter and some quarterly variability in incentive fees as a result of seasonality and contract structure related to our management of four hotels in France -- which came into the system during the second quarter of 2013. As a result, incentive fee growth in the second quarter of 2013 was strong



  • Experienced strong group production in the quarter for all future periods
  • Group revenue booked in the quarter for the year increased over 13%, translating into improved pace for this year
  • Group pace for 2015 has increased about 200 basis points over the last quarter from about 5% to about 7%.
  • Demand remains relatively robust
  • Group pace for the remainder of 2014 and into 2015 is healthy
  • San Francisco, Orlando, San Antonio and Chicago were strong.  D.C. continues to be relatively weak.
  • Increased demand in corporate and association business, see healthy levels of businesses into 2015 and 2016
  • Pace has increased over the last quarter probably in the range of 100 basis points to 200 basis points, something like that. Similar to the expansion in the 2013 pace expansion which was about 200 basis points quarter-over-quarter
  • See a continuation of group into the second quarter and in the future periods and a long look at pace going out into 2015, 2016 and into 2017 as well, the view is for some very healthy numbers, which leads to a lot of confidence in group.
  • The opportunity is there because transient is strong to now really focus on rate, both in the transient side as well as in the group side.


  • Flow through on the mix of RevPAR that is mostly rate would be north of 60%
  • Internationally, roughly 40%, 42% of our revenue is non-rooms revenue.
  • Domestically, F&B is less, so room revenues to F&B is probably around 70/30.


  • China appear to be stabilizing relative to a volatile 2013 and realized solid overall RevPAR growth in China

Preferred Acquisition Markets

  • Focused and actively looking gateway city opportunities in Europe, in the U.S., and Miami and Los Angles remain high priorities

Park Hyatt New York

  • Commitment to purchase the hotel upon completion at a fixed price of $375 million - 210 keys, so about $1.8 million a key
  • Hyatt is a two-thirds joint venture partner in the JV that has a commitment to buy the hotel
  • Expect to open the hotel in the third quarter (was previously mid-year).
  • Hyatt will purchase a two-thirds interest in this hotel upon completion, so roughly, $250 million commitment.
  • Will look to finance the acquisition -- in the range of 50% of the purchase price with debt.
  • EBITDA impact, de minimis in 2014.

Modeling (EBITDA) Adjustments

  • The Hyatt Regency acquisition in Orlando, will be a net $45 million of incremental
  • Playa EBITDA is $13 million to $15 million for 2014, about a third of that was generated in the first quarter. Have an additional two hotels towards the end of the year that will be rebranded and converted once renovation is completed

Acquisitions & Dispositions

  • Expect to close (during Q2 2014) on the purchase of the Hyatt Regency Grand Cypress in Orlando, Florida for $190 million.
    • This hotel is currently consolidated as an owned and leased hotel pursuant to a capital lease.
    • There will be no change to Hyatt's reported adjusted EBITDA as a result of the acquisition.
    • From a balance sheet perspective, Hyatt will pay $190 million in cash and reduce debt on balance sheet by $190 million.
    • 2014 interest expense estimate reflects this purchase
  • Hyatt signed a definitive agreement for ILG to purchase Hyatt Residential Group for approximately $190 million.
  • In addition, ILG will acquire Hyatt’s interest in a joint venture that owns and is developing a 131-unit vacation ownership property in Maui, and will reimburse Hyatt an additional approximately $35 million.
  • Currently marketing nine full service hotels in North America for
    a potential sale.
  • The Company expects that a significant number of new properties will be opened under all of the Company's brands in the future.
  • As of March 31, 2014 this effort was underscored by executed management or franchise contracts for approximately 240 hotels (or approximately 54,000 rooms) across all brands.
  • Subsequent to Q1, an unconsolidated hospitality venture sold Hyatt Place Austin Downtown (296 rooms). The Company received approximately $25 million for its equity interest. As a result of this sale, the Company's pro rata share of unconsolidated hospitality venture debt was reduced by approximately $18 million. The Company continues to franchise the hotel.
  • Expect to open 40 hotels in 2015. Opened about 50 hotels last year.

Target Markets

  • Very deliberate - the key global full-service markets are London and Miami, San Francisco, Hong Kong, Los Angeles
  • Select service properties - focus remains on urban development and with respect to resorts
  • Playa focused on Mexico, and the Caribbean in North America.


  • Hyatt Regency Chongming, 235 rooms
  • Hyatt Place Dubai/Al Rigga, 210 rooms
  • Hyatt Place Portland, 130 rooms
  • Hyatt Regency Tianjin, 306 rooms
  • Hyatt Place Dongmen, Shenzen, 144 rooms
  • Hyatt Atlanta Perimeter at Villa Christina, 177 rooms
  • Hyatt Place Flushing, 168 rooms
  • Park Hyatt Viena, 143 rooms
  • Andaz Tokyo Toranomon Hills, 164 rooms
  • Hyatt Place Champaign/Urbana, 145 rooms
  • Hyatt Place Washington DC/US Capital, 200 rooms


Balance Sheet

  • From April 1 through April 25, 2014, the Company repurchased 500,529 shares of common stock at a weighted average price of $53.91 per share, for an aggregate purchase price of approximately $27 million.
  • As of April 25, 2014, the Company had approximately $101 million remaining under its share repurchase authorization.
  • May 16, 2014, the Company announced the Company's Board of Directors authorized the repurchase of up to an additional $300 million of the Company's common stock. The Company currently has approximately $385 million remaining under its repurchase authorization.

Poll of the Day Recap: 68% are Bullish on China

Hedgeye senior macro analyst Darius Dale has gone from being bearish on Chinese stocks to bullish. In the video below, Darius outlines how both fundamental research and quantitative signals support his bullish thesis.


Today's poll asked if readers are Bullish or Bearish on Chinese equities. At the time of this post, 68% of voters are Bullish, and 32% are bearish. 


Cast your vote below.


VIDEO | #Q3Slowing: An Excerpt From Hedgeye's Macro Theme Call

Hedgeye CEO Keith McCullough reviews one of our top Q3 2014 macro themes during our July 11th conference call with institutional subscribers. The presentation detailed the three most important macro trends we have identified for the quarter and related investment opportunities.

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Cartoon of the Day: GDP Reality Check

Takeaway: US GDP for the first half of 2014 is 0.87% annualized (Old Wall was looking for +3-4%) and is slowing again sequentially in Q3.

Cartoon of the Day: GDP Reality Check - GDP cartoon 07.30.2014


While RevPAR may have been slightly disappointing to some investors, mix and law of averages suggest potentially better RevPAR for Hyatt and Hilton.




MAR posted a strong quarter all around although expectations were high and recent Smith Travel Research numbers suggested a higher RevPAR estimate and result. HLT and H look good into their prints this week as we believe the read through is actually positive.  HLT’s mix should provide better RevPAR than MAR and HOT (who was also lower than STR) while Hyatt should benefit from the outperformance of its portfolio and lower investor expectations.  Moreover, the law of averages suggest with two of the four major branded hotel companies already posting lower than STR RevPAR, the probability of better RevPAR from the other two rises.



In our July 10, 2014 note “LODGING: STRONG EARNINGS SEASON” we noted “very strong Q2 RevPAR translates into upside revenue and EBITDA revisions for the lodging operators and REITs” and highlighted, “we believe HLT and H have the most upside versus current consensus estimates and even we might be conservative.”


Following MAR earnings release, we feel strongly that HLT and H will beat earnings expectations.  MAR gave some explanation as to why their North America RevPAR trailed the Smith Travel numbers and it certainly resonates that it’s not a perfect comparison.  However, we still believe that H and HLT should outperform MAR and HOT on North America RevPAR.



STR RevPAR for Q2 2014 was as follows for North America.




The STR data when paired with the lodging operators' North America rooms data results in implied RevPAR for the lodging operators.  There are obviously other variables so the comparison is only a guide.  Geography, comp mix, and Canadian exposure will all impact the comparison.




Based on this math, the implied Q2 2014 RevPAR for MAR was 7.6%.  By comparison, MAR reported 2Q 2014 actual North American RevPAR of 6.0%.  Implied Q2 2014 RevPAR for HOT was 6.8%; however, HOT reported 2Q 2014 actual North American RevPAR of 5.7% (6.3% in constant dollars).


Unlike Marriott and Starwood, Hilton has a significantly greater portfolio exposure to the upscale segment, which experienced the strongest increase in RevPAR during Q2 2014.  Based on this analysis, Hilton’s implied RevPAR is 7.5% and Hyatt’s implied RevPAR is 6.9% for Q2 2014.




Given the recent commentary from Hilton management regarding lift in group bookings, a stronger outlook for the Big 8 assets, as well as management’s incentive to under promise over deliver, coupled with Blackstone’s shared interest in a beat and raise story, we reaffirm our positive conviction on Hilton into the earnings print – we predict Hilton will go 3 for 3, with a 3rd straight beat and raise in only its third earnings report as a public company.


In addition to Hilton, we also like Hyatt into the earnings print.  Similar to Hilton, Hyatt has sizable room exposure to the upscale segment with 25% of total rooms.  We have confidence in Hyatt’s ability to continue to drive superior RevPAR performance at Andaz and Park Hyatt (categorized as luxury) as was the case during Q1 2014 when RevPAR at Andaz was +13.6% and Park Hyatt was +9.5%.  Finally, we believe Hyatt like Hilton will also benefit from continued strong fee growth due to RevPAR growth and new hotel openings. 

Darden $DRI: Light Gets In

Takeaway: Clarence Otis is stepping down as Chairman and CEO of Darden Restaurants.

Editor's note: This note was originally published July 29, 2014 at 07:30 in Restaurants. Hedgeye restaurant analyst Howard Penney has been a leading and vocal critic of Darden management, in particular CEO Clarence Otis.

“There’s a crack in everything.  That’s how the light gets in.”

-Leonard Cohen


Here is the good news: Clarence Otis is stepping down as Chairman and CEO of Darden Restaurants and the company will separate the Chairman and CEO roles.  Otis will continue to serve as CEO until his successor is appointed or by December 31st, 2014.  A search for his replacement will begin immediately.


In addition, Darden announced it will nominate up to nine of its independent directors for election at the Annual Meeting on September 30th, 2014, effectively giving Starboard three seats on the Board.  Darden continues to pursue a proxy settlement with Starboard, but the two sides have been unable to come to an agreement. 


Starboard needs to get control of this company – and they know it.


The joy of this news is tempered by the fact that Charles Ledsinger, Independent Lead Director, will become Non-Executive Chairman of the Board, effective immediately.  In our view, Ledsinger represents part of the old guard at Darden which oversaw substantial value destruction at the company, including the sale of Red Lobster.  Rewarding him this role should be temporary, because the company needs wholesale changes.


Mr. Otis and the current board were once considered the biggest obstacle to our long thesis.  The shift is beginning, but how far will the company go?  Mr. Otis dug his feet in to fight off the activists and leaves a lasting impression on the company, with the Red Lobster fiasco being his signature dish.  It will take time to fix the disaster he created.


But that’s the past.


Darden has essentially given Starboard three seats on the Board, but the activist wants more.  In fact, they've publicly shared their intentions to replace the entire Board.  This makes a settlement unlikely and while we doubt they'll gain all twelve seats, we'd be willing to bet they get the majority (at least seven) of them.  If this comes to fruition, we could see more wholesale changes on the way, including a new Chairman and management team.  As it stands, we think these three are strong potential candidates for the following roles:


Chairman of the Board: Jeffrey Smith (Managing Member, CEO and CIO of Starboard Value)


Chief Executive Officer: Brad Blum (former President of Olive Garden and Starboard consultant)


Chief Operating Officer: Bob Mock (former Executive VP of Olive Garden and Starboard consultant)


Restoring Olive Garden to the most respected brand in casual dining is the first thing any new management team must do.  While there are other things that need to be done as well, we suspect that bringing in two seasoned restaurant executives like Brad Blum and Bob Mock to reshape the company, specifically Olive Garden, would not only be well-received by the street, but also by current employees of Darden.


While there is still much uncertainty, today’s news is a significant step in the right direction.  This is the first crack to open up in Orlando and while there’s some light, we know the future can be much brighter.


More needs to be done.


Call with questions.


Howard Penney

Managing Director




Fred Masotta



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