Today RHP begins the process of redeeming the convertible notes that mature this Wednesday, October 1, 2014 as well as satisfying the derivative complex set-up to offset the dilution.  As result, the lower outstanding share count vs the Street should become more transparent.  


We reiterate our RHP – Best Ideas Long thesis as found in our Sept 18, 2014 note "RHP: RIDING THE GROUP HORSE TO HIGHER EARNINGS".  The majority of RHP’s revenues are from the group travel segment of the lodging industry.  We expect that segment to outperform sentiment over the next few years leading to higher EBITDA and FFO which should boost this undervalued stock.


  • The Convertible Notes were convertible through the close of business today (September 29, 2014) pursuant to the indenture.
  • Concurrent with the offering of the Convertible Notes, the Company entered into convertible note hedge transactions with respect to its common stock with counterparties affiliated with the initial purchasers of the Convertible Notes, for purposes of reducing the potential dilutive effect upon conversion of the Convertible Notes.
  • Today, (prior to the end of the current quarter), the Company will draw down $229 million (assuming no change since June 30, 2014) on its corporate credit facility (revolver) and hold the proceeds as “cash” as an asset on the balance sheet. 
  • On Wednesday, October 1, 2014 (Q4 2014), the Company will retire/payoff the Convertible Senior Notes with the "cash" (drawn off the revolver).
  • The equity share count should not increase materially despite the conversion due to the prior hedge transaction.


RHP is undervalued versus peers in our opinion.  Today, RHP trades at 11x 2015 EV/EBITDA versus the peer group average of 14x 2015.  RHP trades at a forecasted 2015 dividend yield of 5.5% versus 4.1% for peers.  Fair value for RHP is $66-68/share based on RHP reaching 13x EV/EBITDA valuation levels next year plus the current 4.7% current dividend yield (forecasted to increase significantly over the next six months).  Total return potential could exceed 40% over the next 12-18 months.


RHP is the REIT with the greatest exposure to the group segment which is where we see the most upside vis a vis Street expectation.  Thus, current earnings are likely to be exceeded and dividends raised.  RHP is undervalued versus its comp space and we see the potential for a total return of >40% over the next 12-18 months

Shares of Bloomin’ Brands Have Enormous Potential Upside Says Hedgeye’s Howard Penney| $BLMN

Retail - Department Store Deep Dive/Black Book

Takeaway: In this Black Book, we dive into everything from Dept Store current trends (survey) to what the group will look like in the next eco cycle.

Please join us Thursday, October 9th at 11:00 am ET for our Deep Dive on Department Store Fundamentals and Stocks. Relevant tickers: JCP, M, KSS, DDS, JWN, SHLD, TGT, WMT, TJX, and GPS.


Key Topics Will Include:

  1. What will the Department Store Landscape look like (physically and financially) when we transition into the next economic cycle?
  2. Detailed Revenue analysis for all the Department Stores – by category, consumer, and demographic.  Who has the most risk/upside based on where we are in the economic cycle?
  3. Margin Sustainability: Who has the most defendable margins and levers to pull in the event of a sales downturn?
  4. The importance of Financial Engineering to earnings algorithms.
  5. Current Business Trends: Results from our detailed 1,000 consumer survey. This is the 4th iteration of the survey that we started back in 3Q of 2013
    • Visitation statistics
    • and Mobile trends
    • Buy Online/Pick Up in Store – does anyone really use this? Which retailers have the competitive advantage?
    • Detailed category analysis – what retailers are top of mind in each category
    • Who wins on price, sales, selection, and quality.
  6. Real Estate Deep Dive
    • What does the competitive matrix look like across the space
    • Winners &  losers from a demographic and spending vantage point
    • Are department stores over or under-indexed to their target customer?
    • The JCP and SHLD affect – what do more store closures mean for other names in this space
  7. E-commerce – we’ll be releasing a much more in depth look at e-commerce across the retail space in a Black Book due out in the next couple of weeks – but we will preview that work with a focused look on the department store space. Most importantly which retailers have invested the capital needed to drive growth in this channel.

Call details to follow

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10-Second Takeaway: New Walmart CEO Doug McMillon Makes Saturday Morning Meeting Optional | $WMT

Takeaway: Walmart's move is a sign of the times.

Walmart’s new CEO has made its iconic Saturday morning meeting optional

  • "Walmart’s Saturday morning meetings have been a long-term fixture for the company. Once a month at 7:30 on a Saturday morning, the US retail giant’s top executives gather in an auditorium at its Bentonville headquarters. The required meetings have been described (paywall) as 'part evangelical revival, part Oscars, part Broadway show.' People bring their kids, and there’s a company cheer and awards for associates, as well as a more serious rundown of sales figures."
  • "But according to a recent speech by Walmart’s SVP of change management, Celia Swanson, one of new CEO Doug McMillon’s first actions as CEO was to make those Saturday meetings optional—for the first time in the company’s history."

10-Second Takeaway: New Walmart CEO Doug McMillon Makes Saturday Morning Meeting Optional | $WMT - w1

10-Second Hedgeye Retail Takeaway

It's been some time since Sam Walton famously wrote:


"If you don't want to work weekends you shouldn't be in retail."


Over the years, Walmart's mandatory Saturday morning meeting has morphed from a deep dive on numbers into a "dog and pony" show complete with celebrity acts. In 2008, the meetings moved from weekly to monthly. Now? Optional for all...


It may just be a sign of the times - heck even baseball, hot dogs, apple pie, and Chevrolet have become passé. But, according to the report, McMillon has taking the onus upon himself to reinvigorate an institution that has more or less become irrelevant.

Monday Mashup: BLMN, SBUX and More

Investment Ideas

The table below lists our Investment Ideas as well as our Idea Bench -- a list of potential ideas that we are in the process of evaluating.  We intend to update this table regularly and will provide detail on any material changes.


Monday Mashup: BLMN, SBUX and More - 1

Notable Callouts

We added BLMN to the Investment Ideas list as a long in a note last Thursday.  CLICK HERE to access the note.

Recent Notes

09/22/14 Monday Mashup: PBPB, TAST and More

09/24/14 SBUX: A Well-Timed Transaction

09/25/14 BLMN: Same As It Ever Was

Events This Week

Tuesday, September 30th

DPZ TAG Fall Consumer Conference

DENN, BJRI Wells Fargo Securities Retail and Restaurants Summit

Chart of the Day

Monday Mashup: BLMN, SBUX and More - 2

Recent News Flow

Monday, September 22nd

  • JMBA announced the launch of a new line of cold-pressed juices that will initially focus on the Southern California markets with the product becoming available in Northern California by mid-October, and eventually rolling out across the Jamba system in 2015.
  • THI announced it will celebrate National Coffee Week (beginning September 29th) with $1 any size coffee across select cities.
  • DFRG celebrated its expansion within the D.C. market with the newest opening of its Double Eagle Steak House at CityCenterDC.  This opening marks the 11th Double Eagle restaurant and the 43rd restaurant overall for DFRG.
  • BOBE was upgraded to neutral from underperform at CL King.

Tuesday, September 23rd

  • DRI issued an open letter to shareholders highlighting "Starboard's troubling, inconsistent, contradictory and misleading statements."
  • PLKI introduced its new southern inspired Beer Can Chicken which will be available through October 25th for just $3.99.
  • SBUX announced it will purchase the remaining 60.5% share of Starbucks Japan in a two-step offer process.
  • LOCO opened its first restaurant in Visalia, CA.

Wednesday, September 24th

  • PZZA mentioned positively at Longbow Research, reaffirming its $63 PT.
  • BWLD upgraded to buy from hold at Miller Tabak with a $170 PT.
  • BOBE Activist Sandell Asset Management filed an amended 13D in which it noted it has been contacted by firms interested in the food products division and real estate.
  • EAT Maggiano's introduced its new "Lighter Take" menu which includes new preparations of classic, Italian dishes with at least one-third fewer calories than the original recipes.
  • DRI Activist Starboard Value issued a letter to Darden shareholders in which it "condemns the current board's series of desperate tactics aimed at trying to confuse shareholders by repeating obviously false statements about Starboard's nominees and their turnaround plan for Darden."

Thursday, September 25th

  • BOBE The WSJ reported six firms are interested in buying Bob Evans real estate, including Spirit Reality, American Realty Capital, Store Capital and National Retail Properties.
  • JACK debuted its new late night instant win game, Jack's Muchie PeelTM.
  • BLMN JP Morgan reaffirmed its overweight rating and increased its PT to $22.
  • WEN introduced three new BBQ Pulled Pork offerings: the BBQ Pulled Pork Sandwich ($4.49), the BBQ Pulled Pork Cheeseburger ($4.99) and the BBQ Pulled Pork Cheese Fries ($2.99).

Friday, September 26th

  • DRI ISS recommends for all twelve of Starboard's nominees for Darden, concluding that "significant board change is warranted."

Sector Performance

The XLY (-1.6%) underperformed the SPX (-1.4%) as both casual dining and quick service stocks outperformed the XLY Index.


Monday Mashup: BLMN, SBUX and More - 3


Monday Mashup: BLMN, SBUX and More - 4

XLY Quantitative Setup

From a quantitative setup, the sector turned bearish on an intermediate-term TREND duration.


Monday Mashup: BLMN, SBUX and More - 5

Casual Dining Restaurants

Monday Mashup: BLMN, SBUX and More - 6

Monday Mashup: BLMN, SBUX and More - 7

Quick Service Restaurants

Monday Mashup: BLMN, SBUX and More - 8

Monday Mashup: BLMN, SBUX and More - 9


Howard Penney

Managing Director


Fred Masotta


LEISURE LETTER (09/29/2014)



  • Sept 29 - Oct 2: G2E Las Vegas
  • Tuesday: Sept 30: Frontline video on Macau 
  • Tuesday, Sept 30:
    • JPM Securities: FCH, AHT
    • DB Leveraged Finance: WYNN, MGM, CHH, FCH, RHP
    • TAG Fall Consumer Conf: LVS, WYN, MTN
  • Wednesday: Oct 1
    • DB Leveraged Finance: PENN, BYD, SGMS
    • TAG Fall Consumer Conf: LVS, WYN


MGM & 2282:HK (GGRAsia) Hundreds of MGM China Holdings Ltd casino employees on Sunday protested for higher salaries and changes to the company’s bonus policies. The protest was officially called by a group of MGM China employees and was supported by labor activist group Forefront of the Macao Gaming. Organizers said about 500 people joined the demonstration, while the police put the figure at 240. The workers demanded equal pay for equal work and a full smoking ban inside casinos. Protest organizers said that if their demands were not met, they would consider organizing new demonstrations during the upcoming National Day “Golden Week” holiday, starting on October 1.

Takeaway:  Analysts have raised labor forecasts but are the high enough? 


MPEL – Melco Crown (Philippines) Resorts Corp on Monday said there is not yet any opening date for its casino resort City of Dreams Manila. “Please be informed that aside from previous disclosures to the exchange stating that City of Dreams Manila is set to open this year, there is nothing fixed or concrete to report at this time,” Melco Crown Philippines said in a filing to the Philippine Stock Exchange. Melco Crown Philippines said in Monday’s filing it would disclose updates on the opening date of City of Dreams Manila “when a material event occurs”. The US$1.2-billion casino resort will feature up to approximately 365 gaming tables, 1,680 slot machines and 1,680 electronic table games upon opening. 

Takeaway: Back in July, we warned investors we were hearing the opening would be delayed until December. 


PENN & GLPI– Polk County District Court Judge Eliza Ovrom heard final oral arguments from (PENN) Argosy Sioux Fall's Attorney Mark Weinhardt and other attorneys in the complex, multi-party case. The Argosy wants Ovrom to overturn a series of actions by the Iowa Racing and Gaming Commission, restore the gambling boat's state license and take away the license the Argosy claims was improperly awarded to the Hard Rock Hotel & Casino Sioux City.  Iowa Assistant Attorney General John Lundquist, who represented the IRGC, argued while Murray was given multiple chances to change events, that doesn't apply to the Argosy case, he said. "The law doesn't give (Argosy) the opportunity to keep coming back to this court and asking for relief and asking for relief until it gets the answer that it wants," Lundquist told Ovrom.

Takeaway: Argosy trying to regain its license despite testifying it failed to renew its licensing agreement in a timely manner. 


WYNN – suing prominent short-seller Jim Chanos for slander. Mr. Wynn and his company are suing Mr Chanos, founder of New York hedge fund Kynikos Associates LP, in the United States and the plaintiffs allege that sometime in April Mr. Chanos falsely accused Mr. Wynn and his company of violating the US Foreign Corrupt Practices Act, and are claiming an unspecified amount of damages.

Takeaway: If nothing stuck with Fairfax Financial, it's not likely to stick here.  


BEL:PM – announced the unitary price for the 3.26 billion shares in Premium Leisure Corp that Belle is selling at PHP1.65/sahre (US$0.02). Belle agreed to sell up to 490 million additional shares of Premium Leisure for the over-allotment option. The overall shares equal to almost 12% of Premium Leisure’s outstanding shares. The sale will reduce Belle’s stake in the firm to slightly above 77%.


H – has outlined a series of ambitious targets for 2020 to reduce water and energy use and boost sustainability in other areas, with the aim of becoming a blueprint for the sector.  The targets include cutting energy use and greenhouse gas emissions per square meter by 25%, reducing water use per guest night by 25-30% and recycle waste sent to landfills by a minimum of 40%. The company also pledged to source more than 50% of its seafood sustainably, use LEED or an equivalent certification for new projects and ask suppliers to have sustainability policies in place by 2017.

Takeaway: Going green to make green


H – agreed to pay $1 million to 98 Boston-area housekeepers who were fired five years ago and replaced by lower-paid, outsourced workers, at the time triggering a backlash that drew national attention -- and a stern scolding from Governor Deval Patrick. The agreement with Local 26 comes as Hyatt is vying to operate a 1,000-room hotel at the expanded Boston Convention & Exhibition Center planned in South Boston. 

Takeaway: Hyatt making nice with the Boston union as a way to secure future growth in the city.


CCL/NCLH – Ebola Fears Prompt Cruise Ships to Cancel West Africa Port Stops (Cruise Critic)

Three cruise lines, Regent Seven Seas, Seabourn and Fred Olsen, have canceled port calls in West Africa, due to the outbreak of Ebola in the region.  Seven Seas Mariner will overnight in Tenerife and call on Lanzarote instead of Dakar, Senegal, on October 17 and 18, on its 21-night Lisbon to Miami cruise. Fred. Olsen has also substituted stops in Dakar and Banjul, Gambia, with longer time in the Canary Islands for its November and December itineraries on Braemar. Seabourn substituted ports in Spain on Sojourn's Barcelona to Cape Town itinerary.

Takeaway:  Itineraries shifting 


CCL  Water Spout Causes Emergency Protocol on Costa Fascinosa (Cruise Critic)

Water spout in the Mediterranean caused Costa Fascinosa to list suddenly, causing emergency procedures to go into effect.  A "very limited" number of passengers asked for medical help, the line said, but no serious injuries were reported. The ship's voyage to the Greek Isles is still underway.

 Takeaway:  Minor incident 


CCL – Australians booking with Cunard in 2015 +40% (Seatrade Insider)
Comments from Cunard international development director David Rousham:

  • Australia is now the cruise line’s third largest source market after the UK and the US, with a far higher proportion of first-time Cunard cruisers than any other country.  
  • 61% of Australian guests booked on cruises on Queen Mary 2 this year had been newcomers to the brand, compared to an average of 38% across other nationalities.   
  • 39% of Australians on Queen Victoria had been first-time Cunard customers, more than double the average of 18% for other nations. Onboard Queen Elizabeth this year, newcomers have accounted for 43% of Australian guests, compared to an average of 29% for other nationalities.
  • Demand for world cruises is particularly strong, with Australia ranking as the second largest source market on the cruise line’s three 2014 voyages, representing 28% of guests compared to Britain at 40% and the US at 18%.
  • Fly-cruise program doing well

Takeaway:  Optimistic commentary on Australia but the spotlight will be on whether the UK momentum is sustainable for Cunard.


RCL -  Royal Caribbean International will kick off a five-day WOW Sale Sept. 27 that offers on-board credits up to $200 per stateroom, 50% reduced deposits and combinability with other deals.  New individual and named group bookings made in the US and Canada with required deposit from Sept. 27 through Oct. 1 offer $50 on-board credit per stateroom for cruises up to five nights, $100 on-board credit per stateroom for six- to nine-night sailings and $200 on-board credit per stateroom for cruises 10 nights and longer.  The WOW sale applies to all open Royal Caribbean International sailings, based on availability, except Quantum of the Seas and Anthem of the Seas.

Takeaway:  Another WOW sale


Insider Transaction:

SGMS - CFO Scott Schweinfurth exercised 5,914 options and then surrendered 1,914 shares on September 25, 2014.   


China Tax Cuts – (China Securities Journal) China may announce measures including tax cuts to manage economy with targeted easing approach as 3Q economic growth expected to slow.

Takeaway: Reserve rate and tax cuts, China pursuing all measures to stimulate growth.  Could growth be slower than the 7.5% forecast?


Tokyo Casino Outlook Clouded  (Reuters) Plans to open Japan's first casino in Tokyo before the 2020 Olympics are becoming increasingly unlikely, with developers facing skyrocketing building costs and a city government that no longer considers casino development an economic priority.  Previous Tokyo governors had supported plans for a casino. Current governor Yoichi Masuzoe, who took office in February, however, said in June that pursuing a casino was "not at the top" of his agenda. Tokyo government officials say the governor appears to be overwhelmed by preparations for the 2020 Olympics, and has put the casino plans on the backburner.

Takeaway: Japan is in the stocks...

Protest in Hong Kong – (BBC) On Saturday and Sunday, thousands of pro-democracy protesters are blocking Hong Kong's streets, shutting down the territory's business hub and ignoring appeals to leave. Protesters - a mix of students and supporters of the Occupy Central pro-democracy movement - are angry at Beijing's plans to vet candidates for Hong Kong's 2017 leadership elections. They want a free choice of candidates when they cast their ballots for the chief executive - something Beijing says is out of the question. More than 200 bus routes have been cancelled or diverted; some subway exits in protest areas have been blocked. Several banks have suspended operations in affected areas. 

Takeaway:  The protests were large and further protests are expected during National Day. As a result, officials with the Hong Kong city government canceled the planned October 1st National Day fireworks show.  Could some Hong Kong visitors stay longer in Macau?


Macau Unemployment Rate remained stable at 1.7% between June and August.

Takeaway: and most of the "unemployed" are probably making money somewhere...


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

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