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



Please see our note:

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:

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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

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