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This Is the Scary Stock Market Chart Giving Perma-Bulls Heart Palpitations

Takeaway: A frightening chart in the context of near-universal bullishness on U.S. equities.

Editor's note: Below is a brief excerpt from a recent research report written by Hedgeye senior macro analyst Darius Dale. You can read the note in its entirety here. On the house. If you would like to learn more about leaving the vulnerable consensus herd once and for all and become a subscriber to the fastest growing independent research firm in America click here.

Remember Late-2007?

The current stock market trajectory overlays almost perfectly with its late-2007 analog – which is the last time consensus was as wrong on the outlook for domestic economic growth as they are today.


This Is the Scary Stock Market Chart Giving Perma-Bulls Heart Palpitations - 5



Takeaway: Should report a decent 3Q. FY 2014 yield guidance range may be narrowed but the focus will be on the undervalued Prestige combo in 2015

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release tonight.



Please see our note:  http://docs.hedgeye.com/HE_NCLH_EarningsPrep_10.29.14.pdf

We Think Gravity Wins, Sell Europe

Takeaway: As Europe’s economy slows, we think gravity wins this time – sell European Equities.

Over in Europe, Germany's DAX barely finished up +0.16%, but Italy (down -1.64%) Spain (down -1.41%) and France all turned red.


That's weird. We thought ECB President Mario Draghi said he has banned deflation.


Bottom line: As Europe’s economy slows, we think gravity wins this time – sell European Equities.


We Think Gravity Wins, Sell Europe - 10.29.14 Sell Europe


Takeaway: It gets worse in West Africa before it gets better, but the risk remains low for migration of ebola outside the current outbreak zone.

Our Healthcare team's call yesterday afternoon with Dr. Jeffery Shaman helped put the ongoing ebola outbreak into a realistic perspective. Below are the links to the replay and materials, as well as our takeaways.



Materials:  CLICK HERE 



  • CDC reports new cases by country.  The rate of change drives forecasting models (with adjustments) and small changes matter.  The forecasting models Dr. Shaman uses are based on those used in weather modelling. 
  • Before there is a change in the trajectory of the outbreak, we need to see a “massive influx” of equipment, care workers, and money (i.e. pictures of transport planes on TV) 
  • Things will get much worse in West Africa in the near term before we can contemplate the 12-18 months it will take to bring the ongoing outbreak under control.  This story will be around well into 2015.
  • The risk is low, but will rise, for migration of ebola out of West Africa.  This outbreak is unique in terms of the high population density and mobility versus the location of prior outbreaks.  Dr. Shaman included some interesting data on this topic.
  • Donate money to Doctors Without Borders; they seem to be the only ones who know what they are doing. 



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. 


“With changes in the composition of our hotel portfolio both owned hotels and joint venture hotels, we will experience volatility in reported quarterly earnings” -- Mark Hoplamazian




Quarter Review

  • O&L RevPAR: over two-thirds due to higher ADR, Seoul & Bishkek continue to underperform. Improving F&B results and trends.
  • Margins outside the U.S. impacted by specific market issues.
  • Group rooms revenues >9% driven by rate also drove 6% greater banquet revenue and spend/group room night  SF, SA,
  • Transient +7%, rate 9.1%  
  • Group production +2%; in aggregate lapping Q3 2013 was 9%  
  • ADRs IQFQ +12%
  • Group pace 8% for 2015 at end of Q3, ended Q3 with 2/3rds booked for 2015.
  • Mgmt Fees: decline due to French hotels, higher system RevPAR and 23 more managed hotels    
  • IMFs:  increased 25%, about half due to two hotels
  • Franchise Fees: 80% due to higher RevPAR

Select Service Portfolio

  •  Hyatt Place: service model is most important and central feature to system.
    • RevPAR +10% CAGR past few years, more than 200 hotels, opened 10 in 2012, 20 in 2013 and 17 thru Q3 2014. Now in nine countries.
    • New contracts = 65% increase in room count base in 21 countries in urban markets. 
    • Average ADR today 25% greater than prior hotels due to urban locations.
  • Hyatt House: home like environment and space, causal interactions, contemporary but not edgy. 
    • RevPAR 8% CAGR over past two years. Updating space and programing design.
    • Executed contracts = 50% increase over current room base
  • Used corporate capital to develop, will continue to invest in urban locations


  • Mexico Hyatt Regency
    • $20 million renovation, new F&B offerings, earnings performed in line, expected $20 million of EBITDA
  • $325 million investment in Playa
    • Ziva and Zolara: converted 2 properties, will have 4 more by end of 2015.  Additional openings on time and on budget. 
    • Adj EBITDA $13-$15 million but will be at lower end of range - not include impact from hurricane in Los Cabos
  • Orlando Hyatt Regency acquired $717 million, expect to earn $55 million in adjusted EBITDA
  • Acquired Grand Hyatt San Antonio expect $27 million EBITDA in 2014, expansion of convention center in 2015, outlook is better.
  • Portfolio 4 France Hotels: under performing thus far, earnings 5 million Euros per year.  IMFs slower than expected.  Expect to pay 20 million in guaranteed performance payments in 2015.  Finalizing renovation plans so short-term negative impact. Guarantee payment in 2015 30-35 million Euros, upon completion better performance and lower guarantee fees.
  • Park Hyatt NY: early but performing in line; expect ADRs $1,000/night and currently in line with expectations.  Add'l rooms coming on line.
  • On track to meet/exceed but for French hotels.

Recap of Recent & Possible Activity

  • Sold Park Hyatt WDC $100 million, 15x LTM
  • 7 add'l full service listed for sale = $35-40m LTM EBITDA
  • 38 select service hotels sold for $590 million to Lone Star = $45 million adjusted EBITDA
  • Addl 6 select service = $5m LTM EBITDA
  • HRG $220 million including development stake
  • 3 JVs sold hotels = $36 million of equity proceeds and unconsolidated JV debt dropped by $34 million, blended multiple 11x LTM EBITDA
  • During Q3 2014, net impact on O&L EBITDA = -$7m offset by JV hotels, in aggregate = -$4m and lower EBITDA margin
  • Several pending sales not included in the $8 million impact on owned/leased variability: 
    • 38 SS (LoneStar):  $10m of EBITDA (generated in 4Q 2013)
    • 7 full service, 6 SS:  $7m EBITDA (generated in 4Q 2013)
  • Actively seeking acquisitions


Q: Expense growth at non-comp hotel base?

  • Variance: newly opened = ~$2m as well as mix off assets and seasonality sold hotels with mid-high 30% margin hotels vs. Orlando & San Antonio hotels had mid-20% margins (less than 15% of EBITDA for two assets in Q3)
  • Will see this dynamic over the next few quarters due to portfolio changes
  • Park Hyatt NY also negatively impacted due to opening mid-August

Q: Group Pace in 2015 up nicely, drivers/markets?

  • Consistent room demand from associations across many markets, so further out bookings, pace evolution due to higher association advanced bookings.  Corporate rates up IQFQ also healthy 2015 corporate rate growth.  ADR progress 7% to 8%.  Concentrated with Tech firms, tech consulting firms and health care increasing - leading growth.  Manufacturing, pharma very strong. 

Q: CFO search - hamper acquisitions/dispositions?

  • Function & Role more integrated across Hyatt, still looking

Q: Transient nights down, group up -- why mix shift, future?

  • Saw shorter term group IQFQ include more significant F&B, banquet requests so total revenue of group > transient, so trading into group, transient mix very high occupancy in 80%s -- not fundamental change in mix.  Mixing/revenue yield matching rate vs. total revenue.

Q: Limited/Select service - interest to add 3rd or 4th brand, consider buying a brand?

  • Need critical mass and coverage is important, need urban footprint to drive brand performance.
  • Have and would consider buying a brand and converting assets/properties.

Q: Margin expansion US vs. Int'l - how long lagging International margins?

  • Ex two hotels Int'l segment margins increased nearly in line with US margins. Impact of each of those will lap in Q1 2015, so more normal YoY comparisons.

Q: Orlando purchase to round out convention hotels - helping pace?

  • Hotel already operating at strong demand level and strong market position, improving via the rotational element of Orlando based conventions - will work to reprogram asset.

Q: French hotel impact - incremental 2015 costs?

  • Short term more difficult, market conditions challenging - two hotels in Paris and two in south of France. Less demand from high-end Europeans, Russians, as well as significantly slower Paris based groups.  Looking at expense controls. F&B largest negative variances, high fixed cost operations vs. high variability of banquets and F&B.
  • Anniversary of transaction is May - so timing of payments vs calendar years. Impacts in "Other Income/Loss" line so not included in Adjusted EBITDA reconciliation.
  • Increase in 2015 due to step-up of guarantee and renovation

Q: Margins - sale of select service and segment margin erosion?

  • Select service margins mid-30% range

Q: CFO search - internal vs. external?

  • search parameters very broad
  • specific hotel experience not required
  • timing is difficult due to calendar, may get pushed into 2015

Q: Expectations for ROIC on ramping assets?

  • Consider Orlando, San Antonio and Mexico City - building base and stronger foundation.  Mexico City >10%, Orlando ~7-8%, San Antonio ~10% on total acquisition value = $275 million.

Q: Group room nights & ADR vs. peak on portfolio basis?

  • Total group revenues tracking below peak, aggregate occupancy above peak in almost every market, demand strength increasing... serial and steady improvements, continued demand support and rate realization.

Q: Guidance - view on guidance vs. moving parts?

  • Offering more complete and exhaustive detail in transactions and history


Takeaway: Nothing wrong with this story and execution - except the valuation

Proving consistency wins the race



  • Better results due to stronger RevPAR growth
  • RevPAR: Transient >8% while Group >10%  IQFQ very strong
  • Leisure demand extraordinary:  RevPAR 10% for Marriott, 9% for Courtyard
  • Catering +6% in Q3, increasing F&B minimums and catering prices as well
  • Washington DC:  strong special corp group business IQFQ
  • Europe:  Paris, Vienna, Munich & Istanbul strong
  • Profit Margins:  Domestic +240 bps while Worldwide +200 bps
  • IMF: driven by strength across North America
  • OL&O Revs: strong RevPAR 
  • G&A: did not assume $4m Venezuela currency nor $6m bonus compensation
  • Group Rev: improvement steady but flat YoY; less occupancy compression; 
  • Strong Transient demand = 5-7% RevPAR in 2015, largely coming from rate
  • Indonesia weak
  • Caribbean & Lat AM bookings +15%, Mexico very strong (Cancun) but Central America weak
  • Africa: Protea on track and expect $12m EBITDA for 9 mos 2014 - but Ebola risk.  Occupancy at 11 Nigerian hotels declined. 
  • Middle East: Egypt recovering, mid-high teens in MEA region

ceo- ARne Sorenson


  • Room Rates - compression driving room rates, rooms booked in Q3 for future periods rates +7%
  • Supply - don't believe supply >2% until 2016 or 2017   
  • Transactions - result in renovations and relicensing fees
  • Brands - Q3 Ritz RevPAR index increased >200 bps vs comp set = add'l incentive fees
  • Signed 60k rooms YTD, expect 80k-90k rooms by year end

Next Generation of Travelers:

  • Opened first Moxy, 40 Moxy by 2017
  • AC Hotels, 37 hotels in NA pipeline, 30 more in talks
  • Mobile: mobile booking & mobile check in

Outlook 2015

  • Global uncertainties = No EPS guidance yet
  • NA occupancy rates strong;  Group booking +4% for MAR brand, NA room rate expansion, transient demand, improvement Rate driven
  • Europe: supply growth but stable; weakening Germany; soft France; strong Group from Rugby and World Cup
  • Asia: middle single digits constant $ similar to 2014, China remain good/strong, not reigning in expectations on RevPAR
  • Caribbean & Latin Am: mid-single digit RevPAR growth
  • MEA: mid-single digit/high-single-digit easy Egypt comps
  • Remain bullish: strong/great demand, price aggressively.




Q: Transient demand, Group demand - how balance?

  • Business transient very close-in, virtually no business transient on the books for 2015.  At record occupancy levels today.  Upside to group, building demand trends. See nothing to moderate demand trends.

Q: International outlook - what gives confidence vs. macro backdrop?

  • RevPAR outside U.S. modestly lower, more difficult to predict global RevPAR. Europe muddle along. Russia weakest market (17 hotels, -20% RevPAR in Q3) not assuming Russia changes for better. Egypt: expect RevPAR better, during Q3 Egypt +100% RevPAR). Mexico very strong.  Central Am & Brazil less well.  Solid performance in China & India.

Q: China/India differential opinion?

  • Impact of supply growth - nothing new, supply increasing with middle class and global tourism. Supply trends stable to contracting.
  • Impact residential real estate/new intakes - watching, concerned, but not escalating to watch list. Domestic travel and outbound travel growing strongly.

Q: Lifestyle Brands - activity/desire for MAR lifestyle brands?

  • In stage where competitor launches new brand and sign conditions. Not seeing impact to AC, Edition, Autograph or Moxy - still strong appetite. Autograph growing in U.S. and Europe.

Q: Group business vs prior comps?

  • Group pace built over last three quarters, building today, plenty of runway, up 4% YoY

Q: Transient demand, leisure demand strong - ability to push down against OTAs?

  • OTAs more relevant to leisure than business/group. Leisure demand recovering but sell rooms the way customers want to purchase.

Q: Key money/incentive concerns?

  • Highly competitive, trends not new, longer term focus and more disciplined in value/ROI calculation.  Branded co's are managed with long-term view.

Q: Timing of fees Q3 vs. Q4?

  • Some movement between quarters but expectations about the same.  But on a full-year basis, quarter ago looking at full 2% RevPAR range, now narrower RevPAR range results in lower fee range.

Q: Int'l RevPAR higher than competitor's view?

  • Different distribution systems/network and different asset footprint

Q: Unit growth for 2015, how much is US/Int'l?

  • US 50-60% and Int'l 40%-50%, actual 54% and 46% outside at the moment.

Q: China, if slip, change to RevPAR outlook?

  • 8% of total fees Asia and ~50% from China, so 2014 could see more than 4% from China, not likely to move the outlook if China RevPAR changes

Q: Group commentary 2015 for Marriott brand - % booked in 2013 vs. 2014?

  • For 2015: 35-40% on books before 2013; 60% booked in 2014, and in the year for the year.

Q: Group bookings in 2014 for 2015:  higher rate, F&B, etc?

  • Every month group ADR for 2015 improved.  Up 2% in rate alone at current time.  Group bookings in Q3 14 for all future periods, all rates up 7%.
  • F&B influenced by volume and current conditions than pricing at time booking
  • Booking pace one year ago 4% at flat ADR, today similar pace but up ADR

Q: CapEx for Miami EDITION and Marriott Residences?

  • $230m for EDITION Hotel and $100m for Marriott Residences (65% of units sold today).  Hotel scheduled to open next week.  Total on Residences will be $150-$170m.

Q: IMFs - in 2007 included $70m Courtyard fees, how close to receiving IMFs from Courtyard?

  • Currently receiving $1.6m from 120 Courtyard Hotels in Q3 2014, large portion not likely to pay in Q4 due to timing.  During Q3 about 50% of hotels paying IMFs

Q: O&L renovations, how many of leased hotels under renovation and impact in 2015 as they come out of renovation?

  • Entire leased portfolio is 35 to 40, have about 6-10 hotels under renovation - no significant disruption or addition to revenues

Q: 2015: is there an inflection for higher IMFs across portfolio?

  • Look back to analyst day slide deck for trajectory

Q: Group - what's happening in market, cancellations?

  • Always a bit of arbitrary, seasonality, perfect Q3 holiday timing in calendar. It would be wrong to think that a weaker Q4 is a precursor to future trends.  Early 2015 looks strong and better.  Sept 2015 not as good a calendar as Sept 2014 for group.

Q: Fee guidance and deferral items?

  • Deferred base fees from sale of an asset are rare and will call out. Not include in assumptions, projections

Q: US supply growth acceleration - what percent capturing?

  • MAR opening more into limited service, approvals increasing.  Believe 25% of all hotel construction is headed to MAR affiliated brands.

Q: China pipeline to fruition? 

  • 65% of pipeline is under construction, matter of timing of delivery. Not seeing any fallout trend. 
  • Added 3700 rooms to development pipeline in Q3. MOUs might be slower but warnings not proving out. But at the moment, developers likely to take longer to get to opening. So could be some risk to delayed/extended opening dates.

Q: Deferred base fees in prior guidance?

  • $6 million in guidance, $9 million subordinated not in guidance

Q: Deferred fees - how much of base portfolio is subject to performance minimums?

  • Related to one or two limited service portfolios, relates to how portfolios perform over time, could be choppy. 

Q: Int'l inbound travel up 8% in H1 2014 - seeing any change in the velocity of in bound travel?

  • Not seeing any slowdown in inbound U.S. Int'l travel either on the East nor West Coasts.

Q: Ebola impact?

  • Impact: couple of million dollars of hotel revenue which is a rounding error in overall schematic. Not seeing impact to travel trends nor bookings.

Q: Special corporate rate negotiations - expectations from buyers?

  • Special corporate rates were up less than their hotel as whole special corporate volumes would've been flattish maybe down a little bit and rack rated business would have been up substantially both in terms of room nights and in terms of rates
  • Thinks that will continue into 2015 

Q: Where were group room nights rate compared against last peak in 2007/2008?

  • Group volume still as mix of total hotel business still 100 bps lower than prior peak not by a lot but rate unsure. 

Q: Group pace for 2015?

  • Revenue pace up 5% for 2015

Q: China exposure - less exposed to mixed use projects?

  • Current distribution at the top end with Ritz, JW Marriott and much less in upscale area and limited service sectors.  More heavily concentrated in Shanghai and Beijing followed by Shenzhen and Guangzhou.

Q: Mobile penetration?

  • Booking more, more widely adopted, expect greater usage especially higher if Marriott reward member.

Q: Market to market on fee differential on hotels that have changed hands/traded?

  • Franchise fees up 50 bps over past couple of years and apply only to new development or new owners. 

Early Look

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