Takeaway: Q4 decelerating from a strong Q3 but new shareholder friendly financial policy and embrace of asset light strategy the key takeaway

"Need to grow. Leverage balance sheet to drive growth.  Will see use of Balance Sheet to drive growth... so stay tuned"   -- New CFO, Tom Mangas



CEO Fritz:



  • Key Trend lines continued in Q3, driving long-term demand
  • More volatility around our world:  Europe, ISIS, Ukraine, Ebola
  • Pleased with Q3 results - revenue, EBITDA, RevPAR

Q3 RevPAR trends:

  • North America - sixth quarter of record performance ~9% 
    • Hawaii slow due to Japan slowdown; ex HI, NA +10% 
  • South America continues to struggle
  • Central America strong with Mexico very strong +20% 
  • Europe 6%; France & German good
  • A/ME ~5% 
  • China ~9%
  • Asia ex China: flat 
  • Thailand, Vietnam, Malaysia, Japan:  all soft

Outlook for Q4 and 2015

  • Q4: WW RevPAR 3% to 5%
  • 2015 outlook: initial RevPAR 4%-6%
  • Moving quickly toward target leverage
  • Asset sales - more key transactions moving forward, hope for more news before year end.
  • Net rooms growth 2%, below 4% to 5% set last year - slower than forecast. Longer development lead times.

Deliver Value

  • Technology innovations - keyless check-in
  • App to catalog rooms features, SPG members share unique needs & preferences = greater loyalty
  • B2B loyalty offering with SPG Pro, replaced legacy programs

Thoughts on India

  • Follows China and UAE
  • Extended time with local partners
  • Exceptional time: 2nd largest market behind China, Local optimism, global trends playing out locally & propelling middle class, challenging as a place to do business


New CFO, Tom Mangas:


Attracted to Starwood

  1. Brands & Properties
  2. Believe in global secular trends
  3. Confident in shareholder value creation
  4. Joining a winning team & "help accelerate plans to growth ahead of peers in years to come"



Group total revenue up low double-digits with room nights up high single digits and rate up mid-single digits.


Exceptional Q3 group book activity with IQFQ up double-digits and bookings made in Q3 for 2015 up high single digits as well as very strong group booking activity for all future years. 


Leisure and corporate transient travel segments were both up in the mid-single digits. 


For Q4: transient is shaping up to be strong with revenue on the books up low double-digits similar to the second and third quarters.


Transient and group growth projected in the mid single digits in Europe consistent with what we've seen year to date.  Expect transient and Asia-Pacific up mid-single digits but group will be down with weaker demand from Thailand and Malaysia. 


Fees in line with expectations

Core fees: +7.3% and Core Fees = better metric


SVO:  lower average price offset by higher number units sold



Balance Sheet:

  • increased repurchase authorization
  • bond issuance $650 million for repurchase activity
  • implemented Commercial Paper program
  • repurchased 10.4 million shares = ~$857 million ~ 82.57/share
  • continue to be in the market in 4Q
  • cash return $2.3 to $2.4 million by year end 2014
  • net debt / ebitda 1.4 vs. rating agency calculated 2.5x
  • target 2.5 - 3x on rating agency basis
  • Debt to EBITDA at high-end (3x) by year end
  • Comfortable with 2.5x to 3x leverage, could move higher over the longer term


Q4 2015 Outlook:

  • Reduction driven by f(x) rates = $10 million
  • Ebola, Middle East conflicts, China
  • Yom Kippur shift
  • Core fees 2% to 3% in Q4
  • Because of Comm'l Paper program, no longer planning a timeshare securitization


2015 Outlook:

  • Catalysts for strong outlook
  • But still cautious global travel outlook, group pace up L/M SD
  • Lapping $30 million of non-recurring fees
  • Headwinds from f(x)
  • No incremental EBITDA from Design hotels in 2015


Q: Footprint growth

  • Focus on conversions in North America & India, US business key is finding new ways to accelerate growth in specialty select segment.

Q: Q4 2014 share repurchase 4-5 million shares

  • In market, more programmatic approach - get to about $500 to $550 million of repurchase activity in Q4 2014.

Q: Capital returns - higher leverage, balance return of capital vs. acquisitions?

  • Value BBB rating on debt, see company to be in the BBB zone of 2.5x to 3x, with asset sales drop below, with acquisitions get above but always track back into the zone. 
  • Will look at acquisition opportunities - especially on asset light basis.  As business mix shifts to asset light and lower volatility, then take leverage ratio up. 

Q: Dublin Westin Leasehold to franchise?

  • Not well structured, HOT carried volatility, covert lease to other agreement to mitigate volatility.

Q: G&A guidance increase - other lumpy items?

  • Mobile check-in technology largely all the increase, no mechanism to recover the expense over next few quarters.

Q: How much expect North America / International growth to slow in Q4 and 2015? 

  • Deceleration given geographic mix. Still see NA strong mid-single digits in Q4, seeing some weakness in Q4, shift in Citywides into Q3.  Q3 positive impact from Ramadan. Yom Kippur shift in 2014.  Good IYFY, Q4 general weaker for HOT, but momentum is still there for 2015.

Q: Citywide shift from Q4 to Q3?

  • Yes, shifts from Q4 into Q3.

Q: 2015 outlook weakness, why?

  • China pressures on ADR, lapping Sheraton Macao ramp, World Cup.  North America will be strong in same zone as 2014.  4% to 6% range is attractive and good start. 

Q: China

  • Momentum still exist in China, huge outbound travel.

Q: Time share - why sales slowing & current inventory?

  • Sold much of inventory, thus change in pace, need to find balance sheet friendly ways to maintain SVO.  But don't want SVO to be major growth engine, goal not to grow business but need sufficient inventory to maintain momentum.

Q: Q4 slowdown, not one-off, how comfortable lead to reacceleration?

  • In any quarter, numbers move around a bit = variance around mean. Growth in revpar is via rate. 

Q: China pipeline vs. year ago?

  • Seeing a tendency for hotels to open 5-6 years versus 2-3 years, small number of developers with financial difficulties...not a huge number, some financial stress exists.

Q: In quarters same-store revpar vs. fee growth - why fee growth trail revpar growth?

  • See growth when growth in revpar... if not, then 1x fees or new hotels entering at a lower rate.  Slightly more select service hotels coming on line but mgmt fees getting better.  So function of 1x moves.

Q: IMFs lower, imply lower new hotel margin growth - how frame for 2015?

  • Continue to grow, significant non-U.S. contracts based to IMFs  85% of total IMFs from outside North America.

Q: Design Hotels - economics, strategy, opportunity?

  • Looking at ways to bring value to hotels, only recent had full conversations with Design Hotels senior management.

Q: View on SVO/timeshare?

  • Too soon to comment, clearly have world-class vacation ownership business. Will evaluate more intensively in near future.  Needs capital, not sure how to "square circle as move to asset light".  Stay tuned.


Shiller Warns U.S. Home Prices Could Go 'Negative Nationally' [Flashback: We Were First]

Takeaway: We were first and we remain the bears on the U.S. housing market.

Home price growth, as measured by the Case-Shiller 20-city composite, slowed for a ninth consecutive month, decelerating -120bps sequentially to +5.6% year-over-year. The rate of deceleration in August is largely consistent with trend as the last four months have been -150bps, -130bps, -130bps and -120bps as the rate of improvement in HPI has decelerated from +12.4% YoY to +5.6%.


For the record, Hedgeye managing director Josh Steiner highlighted back in August why we were (and remain) bearish on the U.S. housing market. 


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September's Polar Vortex? Durable Goods/Retail Sales Slowing into 4Q

Headline durable goods declined -1.3% sequentially, the second consecutive month of negative growth, and decelerated on both 1Y and 2Y basis. 


Sure, the drop in commercial aircraft orders and communication equipment (both volatile components) led the softness but, overall, it just wasn’t a strong report.  Almost every sub-aggregate reported negative MoM growth and most decelerated on a year-over-year and 2Y ave basis as well. 


Durable goods ex-Defense & Transports were down -0.5% sequentially, Core Capital Goods dropped the most in 8 months and Durables ex-Defense & Aircraft – i.e. the stuff the average household purchases – was down for a second consecutive month - the 1st such instance since the polar vortex/weather distortion peak in Jan/Feb. 


It’s worth noting also that the rise in consumer credit has followed the slope of durable goods consumption in recent quarters as household spending on durable goods has helped buttress soft’ish growth in services/non-durables consumption.  A retreat in durables spending would weigh on both credit growth and aggregate PCE heading into 4Q.  


So, while the labor and income data has held steady, the spending and mfg data is slowing from a second derivative perspective as we head into 4Q.   


If you agree with our view that it's the rate of change, or slope of the line, that matters in front-running market and economic inflections then the traversing from “Good” to “Okay” in the domestic macroeconomy as the preponderance of the ROW transitions from “Okay” to “Poor”  as growth slows and disinflation predominates is not your cue to buy the top end of a late-cycle rally with leverage.


A lot of myopic speculation coming down the pike with the Trick-or-Treat double header of FOMC & 3Q GDP on deck to close out the week……     


"Learn to separate the majors from the minors. A lot of people don't do well because they major in minor things."


September's Polar Vortex?  Durable Goods/Retail Sales Slowing into 4Q - Durables Ex Def   Air


September's Polar Vortex?  Durable Goods/Retail Sales Slowing into 4Q - Core Cap Goods


September's Polar Vortex?  Durable Goods/Retail Sales Slowing into 4Q - Revolving Credit vs Durables


September's Polar Vortex?  Durable Goods/Retail Sales Slowing into 4Q - Eco Summary 102814


September's Polar Vortex?  Durable Goods/Retail Sales Slowing into 4Q - Durables Table



Christian B. Drake



Takeaway: We like the valuation but struggle to find a catalyst

"Easy pickings and no hard work, life doesn't work like that...  hang in long enough to get lucky"  -- Peter Carlino


Happy to report a good quarter.


$6m higher variance to guidance

  • Rents from Columbus & Toledo $700,000 better
  • Perry & Baton Rouge $1.3 million
    • Perryville cannibalization due to Horseshoe opening was less but not changing outlook
    • Baton Rouge performing better, not sure why, market seems more rational on marketing spend and reinvestment
  • 1x income tax true up for 2013 = ~$2 million
  • accruals for executive bonus, which is dependent on acquisitions, revered ~$2 million from bonus due to Meadows lawsuit.


Meadows Acquisition

  • Interest was robust from operators
  • Discovered financial information was unreliable & false
  • Forced to end operator discussions
  • Approached Cannery, no response
  • Filed Suit including: fraud & breach of contract
  • Seeking returns of $10 million consulting fee as well as potentially cancellation of purchase
  • Not take lawsuit lightly
  • Due to lawsuit, will not comment further



Q: Regional gaming outlook, state of industry, easier comps?

  • Appears to be a bottom in the market, not robust recovery, no shortage of people on the floor, but industry not collapsing, will settle out over time 

Q: Deal flow, process, timing & pace of transactions

  • Unique issues with Meadows and transaction, have general view that no deal is better than a bad deal, will proceed with great caution for shareholders
  • Recognize what PENN did to split off the REIT changed industry, elevated the value of others as well and have some companies and assets trading at comps to GLPI which makes acquisitions more difficult - others applied unrealistic multiple to valuations
  • Will work to identify an operator in advance at a known price

Q: Need to add more people for add'l due diligence?

  • Due diligence not a staffing issue, rather unique representations that were cause for concern
  • Always use outside resources to evaluate transactions

Q: Accelerated views on acquisitions outside of regional gaming?

  • Way too early to look beyond regional gaming for acquisitions

Q: Thoughts on impact from National Harbor on Perryville?

  • Expect a decline but reasonably modest.  Don't believe significant impact on Perryville, more likely negative impact on Horseshoe and Maryland Live

Q: Potential for competition in the market, impact on competitive advantage?

  • GLPI mgmt not convinced BYD and PNK will convert/establish a REIT - too difficult a process.  Look forward to competing.  Expect GLPI will be better rated credit, better rent coverage and lower leverage -- so GLPI a better more formidable competitor

Q: Financing capacity available as long as Meadows transaction up in the air?

  • No limit on size or number of deals, expect to finance 50% debt and 50% equity.  Don't feel their capacity is limited 

Q: Rent escalator, subject to adjustments - is the escalator day-to-day?

  • Press release data is unadjusted.  Within Master Lease calls for various adjustments, will be close, encouraged may still receive escalator.  Need final results from PENN through October 31, 2014

Q: Business attributes of non-gaming acquisitions.

  • Theater chain is not priorities 1, 2, or 3
  • Have looked at some other things, not a priority
  • Take 3x's the effort to think about opportunities outside of gaming

Q: Identifying an operator on the front end, limit GLPI on large portfolios?

  • Yes, a complexity and reality. Need to demonstrate ability to handle large acquisitions. Will consider using TRS to facilitate trade as well as loan structuring opportunities as well. GLPI well equipped to handle complex transactions

Q: Upstate NY opportunities?

  • Provided build to suit package to one operator in the Southern Tier area. Would like to own on the backside of construction.  Disclosed Traditions in Binghamton area

Q: Other green field opportunities?

  • Not many in limited license jurisdictions. Green fields few and far between

Q: ISLE - what factor influenced decision to outcome?

  • Unable to answer, if a property is out there, considered alive and simply won't comment.  GLPI looked.  Not comment further?

Q: Meadows - attempt to recast acquisition price?

  • Owners not willing to talk from get go. 

Q: Aging of database and demographic changes?

  • Younger people will gamble but not on same games their parents played. Seeing evolution of gambling, albeit slowly. Seen shift from tables to slots, now seeing shift back to table games

Call Today | Ebola is in New York City; Should We Be Worried?

Takeaway: Our Healthcare team has extended the invite for this event. Feel free to call in today at 1pm EDT

Call Today | Ebola is in New York City; Should We Be Worried? - HE H ebolanyc

The Hedgeye Healthcare team will be hosting a specialist call with Dr. Jeffrey Shaman today at 1:00pm EDT to learn more about  the current Ebola virus situation in the U.S. and specifically New York.  


What are the real versus perceived risks? Will things get worse? How will we know when its getting better?   


Dr. Shaman will provide an informed perspective to better understand recent developments, including the global response in Africa, the handling of confirmed cases in the U.S. and Spain, the naming of a Ebola Czar, as well as what we should expect in the immediate future. We'll discuss Dr. Shaman's research on forecasting and controlling the ongoing outbreak in Africa, the probability of a significant outbreak outside of Africa, and the timeline for bringing the disease under control, which Dr. Shaman estimates will take another 12 to 18 months.   




In the interest of public service, this call will be open and free of charge.

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 651216#
  • Materials: CLICK HERE (the slides will be available approximately one hour prior to the start of the call)

Contact for more information.




Dr. Shaman is an Associate Professor in the Department of Environmental Health Sciences at Colombia University, a junior faculty fellow of the Earth Institute, a faculty fellow of the Institute for Social and Economic Research and Policy, and a member of the Center for Environmental Health in Northern Manhattan. He is also affiliated with the International Research Institute for Climate and Society.  Dr. Shaman received a BA in biology from the University of Pennsylvania, and an MA, M.Ph. and PhD in climate science from Columbia University. He was a NOAA post-­-doctoral fellow in climate and global change at Harvard University.


His research interests include: infectious disease, vector and pathogen ecology, health in the indoor and built environment, large-­-scale climate dynamics, the hydrologic cycle, and climate and disease forecast. Much of his present research focuses on developing model-­-inference systems for the forecast of infectious diseases, including influenza, West Nile virus and Ebola. 

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