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Takeaway: Strong Q3 results and Q4 outlook. More rooms booked for Q4/2015 at significantly higher rates. Street share count remains too high

Healthy group outlook


Colin Reed, CEO


Hotel Operations:

  • Operating Metrics up across the board
  • RevPAR driven by 3% occupancy, 5.7% ADR
  • Total RevPAR ~10%
  • Group: group room nights 31,000 more than YoY
  • Transient: room nights marginally down, less availability due to stronger group and 10,000 room nights out of service at Texan, ADR +$15 or 9.2%
  • Hospitality EBITDA:  Adj Margin 50bps
  • FCC Opryland settlement
  • Flow through ex "noise" 50%
  • Working to maximize efficiency and profitability
  • Decline in IYFY cancellations
  • Attrition levels declined

National  & Washington DC

  • City/Area better, while unpredictable due to Fed'l Gov't spending, outlook improving
  • National Harbor development refocusing attraction to area

Sales Production

  • In line with expectations
  • 390,000 room nights
  • Net room nights up
  • Booking pattern cyclical
  • During Q2: 640K nights booked, pulled forward
  • ADR for future year bookings is increasing


  • Performance strong
  • Largest convention center outside of Las Vegas
  • On pace to have best year ever
  • Q3: occupancy 80%
  • All trends better, shift toward premium groups
  • 33% Margin performance

Entertainment Assets:

  • Misunderstood by many investors
  • 43% QoQ growth in Adj EBITDA
  • Country music is driving Nashville
  • Tourist based growth driving Nashville and performance
  • Reviewing options to unlock value for shareholders

Balance Sheet:

  • Convertible Notes matured & settled on Oct 1
  • Cash settled 2.4 million warrants for $57.9 million

 Group Bookings:

  • More nights on the books for 2015 than had on the book for 2014 one year ago and at higher rate
  • Funnel is full
  • Appear to be improving
  • Into Q4, funnel is healthy
  • Confident Q4 will follow traditional pattern
  • See booking performance improve via working with manager
  • Plan mapped out to achieve historical production levels


Mark Fioravanti, Chief Financial Officer


Hospitality Segment:

  • Increased employee costs hindered margins

Balance Sheet:

  • Subsequent to quarter end, paid off convertible notes
  • Cancelled equal shares of common stock = no dilution


  • $2.20/share with remaining payment in January 2015 - revisit dividend in January 



Q: Group business - why not benefit more?

  • Seeing good performance, ADR up currently, 2015 pace strong, don't have new supply affecting, so should translate into good 2015 and 2016 - especially given current pace which is ahead for 2015 and 2016
  • 5.1 million room nights on the book for all future years

Q: Attractions segment - how to think about business vs. Nashville in evolutionary cycle against long-term growth?

  • RHP has 10% of Nashville room supply, but Nashville is experiencing extraordinary music base - not just country music all forms of music
  • Need to focus on airlift and infrastructure to get visitors and workers to downtown

Q: Trends for outside the room spend pricing?

  • Not looking at minimums.  Higher rates will generate higher out of room spend 
  • Not pricing a steak today for a stay four years from now, pricing F&B on <90 days until arrival date

Q: National margins?

  • Union costs (benefits), CITY booking costs due to incremental bookings, some one-time items in the prior year Q3

Q: Mix in Q3 2014 Group vs. Transient vs. 2013?

  • 75% Group / 25% Transient, Group slightly higher in 2014 than 2013.

Q: Booked room nights on forward basis?

  • More on books for 2015 than YoY forward basis and at higher rate due to corporate group.  Larger bucket of leads this year than last year about 8% higher and attrition rates lower.
  • 2015 mix likely 75% Group / 25% Transient


Here's Another Chart Showing Why Hedgeye's Howard Penney Is Bearish on Starbucks | $SBUX

Takeaway: Restaurants analyst Howard Penney recently added SBUX to our Best Ideas list as a short.

SBUX global traffic has now decelerated for five consecutive quarters, coming in at 1% in 4QF14.


Here's Another Chart Showing Why Hedgeye's Howard Penney Is Bearish on Starbucks | $SBUX - sbux


We remain the bear on Starbucks.


Takeaway: Clearly, the Republicans will gain ground in this election, but will it be as drastic as many pundits believe? We don’t think so.

Yesterday we hosted a call with highly regarded political pollster Scott Rasmussen to discuss today’s midterm elections.  In the link directly below, we’ve included a replay to the call as well as the presentation that Rasmussen prepared for the event.






Rightfully, Rasmussen argued that elections are always about the fundamentals.  Accordingly, one of the most relevant fundamental drivers in any national level election is the approval rating of the President.  Currently, President Obama’s approval rating is as close to as low as it has been since he was elected.  According to an aggregation of polls from Real Clear Politics, Obama’s approval rating is 41.9% and his disapproval rating is 53.4%. To put that in perspective, Obama’s approval rating is very similar to that of President Bush prior to the 2006 mid-terms.




As a result of President Bush’s low approval, among other factors, the Democrats saw broad based success in the 2006 midterms.  In aggregate the Democrats gained a net +31 seats in the House to take control, they gained a net +5 seats in the Senate with one Democratic getting elected as an Independent to effectively take control of the Senate, and they won a plurality of the 36 state governorships that were up for grabs.  As a whole, 2006 was a very convincing victory for the Democratic Party across the board.

Given that approval ratings for President Obama and President Bush were very comparable, there is no question that this race will be incrementally positive for the Republicans.  As goes the approval rating of the President, so too goes the fortunes of his or her party.  By and large, this is also what the consensus media outlets are reflecting.   Below are some of the headlines from around the country:


“On Election Day, GOP Confident, Voters Sour” – New York Times


“Where Did Obama Go Wrong?” – Washington Post


“Obama Will Leave the Dems in Shambles” – DC Examiner


The list could go on, but broadly speaking the mainstream media and consensus is extrapolating a sentiment reading from Obama’s approval data and predicting a dour night for the Democrats.  To some extent, the election will play out this way.  The question of course, as Scott Rasmussen raised on our call yesterday, is how motivated the anti-Obama vote becomes.  In essence, will the disapproval of Obama motivate Independents to vote against Republicans, or just discourage them from participating at all?

The generic polling data actually suggests the latter.   According to the Generic Congressional poll (a poll that asks the voter to simply choose between a party for their congressional votes) aggregated from Real Clear Politics, the Republicans currently have a +2.4 point lead.  To put this in perspective, in 2006, the year of the Republican bloodbath, the Democrats had a lead of +11.5 points going into the midterms.   




The other key fundamental data point to consider is that motivation among eligible voters does seem low.  According to a Gallup poll taken in late September, the percentage of people “extremely motivated to vote” sat at 32%, which is well below 50% in the same poll from 2010 and 45% in 2006.  There is no reason to believe that voters have become more motivated in the last month.

The takeaway, if there is one, is that while this will be a long night for the Democrats, it may not be quite as long as the herd in the consensus media is projecting.  Undoubtedly, the Republicans will gain seats in the House and likely win the Senate, but it may be a tighter margin than many expect as voting seems likely to fall across party lines with a broadly unmotivated electorate.  

So, could the so called “October Surprise” be the Democrats faring better than expected? Perhaps, although it is more likely that this is will conclude as a non-event election resulting in the Senate shifting to the right and no decisive mandate emerging for the Republicans.

As we head into the election tonight, there are three key battlegrounds that will provide early indications:


1. New Hampshire Senate – The polls in New Hampshire close at 7:00pm, and the Senate race here is currently in a dead heat.  While Scott Brown is enduring the “carpet bagger” label, he also has momentum on his side as he has narrowed the margin in every poll taken over the last six months.   If Brown wins this seat, it will be a very long night in the White House and for Democrats nationally.


2. North Carolina Senate – The polls in North Carolina close at 7:30pm, and this race is currently too close to call based on the polls. However, it has similar dynamics to the NH race in that Thom Tillis has been consistently closing in on incumbent Senator Kay Hagan over the last six months and likely has the benefit of momentum.


3. Georgia Senate – The Georgia polls close at 7:30pm eastern, and currently the Republican candidate for this open seat, David Perdue, has a lead of +3.0 points, which suggests he is likely to win this seat.  The read-through from this race will likely be his margin of victory.  If Perdue looks likely to win by a lot more than +3 points, it is likely indicative of broad based national Republican momentum.


If the Republicans do well in those three races, you can probably head to bed early.  If not, it may be a long and very interesting night.


Daryl G. Jones

Director of Research


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BABA: The Good Before the Bad (F2Q15)

Takeaway: F2Q15 results look good at face value, but confirm our concerns of mounting risks within its model, which may become more evident shortly.


  1. QUARTER LOOKS REALLY GOOD AT FACE VALUE: BABA beat both top and bottom line estimates, with revenue growth accelerating across each of its segments.  Gross Merchandise Value (GMV) also accelerated on a y/y basis alongside accelerating growth in the TTM total in Active Buyers on its sites. 
  2. BUT CONFIRMS OUR CONCERNS WITH THE MODEL: GMV/active buyer declined on a y/y basis for the first time in its reported history, alongside an acceleration in the percentage of Mobile GMV transacted on its sites.  We believe these two factors are related, and correspond to the rise of the weaker Chinese e-commerce consumer.  As we mentioned in our most recent note (below), if GMV/Active buyer is on the decline, then the average buyer (and their ad clicks) are worth less to the vendors on BABA’s sites who are advertising to them.  That means growing pricing pressure across its core marketing business (~60% of total revenue). 
  3. WITH A NEW CONCERN EMERGING: The only thing that is keeping us on the sidelines on the short side is the migration of GMV from Taobao to Tmall, which is a massive tailwind for the company since BABA collects commissions on Tmall transactions.  While commission revenues remained strong (nearly doubled y/y) with Tmall GMV % up 5 percentage points y/y, that percentage remained relatively flat over the past two quarters.  We’re not sure what the ceiling is for Tmall GMV %, but unless we see a material uptick from here, commission revenue growth will slow precipitously; making the growing pressure in its marketing segment more evident.

BABA: The Good Before the Bad (F2Q15) - BABA   GMV per buyer 3Q14

BABA: The Good Before the Bad (F2Q15) - BABA   Mobile GMV   3Q14

BABA: The Good Before the Bad (F2Q15) - BABA   Tmall GMV   3Q14


For more detail on our bearish long-term thesis, see link below.  Let us know if you have any questions, or would like to discuss in more detail.


BABA: Leaning Short, But...

10/21/14 07:02 AM EDT




Hesham Shaaban, CFA


Keith's Macro Notebook 11/4: Yen | Oil | Sectors


Takeaway: HPI deceleration is beginning to flatten out. Coupled with easing demand comps, this development makes us less bearish on the margin.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 




Today's Focus: September CoreLogic Home Price Report

CoreLogic released its monthly home price report for September earlier this morning. Unlike S&P/Case-Shiller, which is a rolling 3-month average repeat sales index, CoreLogic is a single month index released on a one-month lag. Essentially, it gives you information 2-3 months more current than what you get from Case-Shiller. 


Corelogic reported home price growth slowed -20bps sequentially to +5.6% YoY in September vs. +5.8% in August.  There are a few notables in the release worth highlighting:


  • Volatility:  The now serial volatility in the data extended into September as July was revised to 6.4% (from 6.8%), August was revised to 5.8% (from 6.4%) and the September actual of +5.6% YoY came in almost a full percentage point below the econometric projection issued last month. 
  • Projection:  The projection for the national series is for a 0.1% MoM increase in October which equates to a sequential acceleration in prices +6.0% YoY.  They have been making a false prediction of acceleration in their projection for a few months now.  In contrast, the Ex-Distressed series is projected to decline -0.8% MoM (largest sequential slowdown since 2011) with the YoY decelerating -60bps to +4.6%
  • ROC:  September marks the 7th consecutive month of deceleration in HPI from a rate of change perspective.  However, the rate of change in the second derivative (ie. the 3rd derivative) in HPI is slowing – whereas the monthly decelerations were on the order of -100bps from February to June, they have slowed to just -60bps and -20bps in the last two months, respectively.   
  • Slope Surfing:  While a slowing macro environment remains a discrete risk to the housing market, a fledgling stabilization in HPI alongside easy demand comps and significant YTD underperformance for housing related equities has us significantly less bearish currently than we were 10 months ago when we turned negative on the complex








About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."


Joshua Steiner, CFA


Christian B. Drake

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