So/so quarter and guidance doesn't bode well for expensive stock.




  • Some markets were slightly softer then expected, but overall they were pleased with results.  Especially stronger banquet and group bookings.
  • 4Q RevPAR growth for recent acquisitions was nearly 13% in 2011
  • Strongest F&B quarter in 4Q, with higher banquet and meeting room revenue.  69% of F&B came from catering revenues which helped flowthrough.
  • FFO and Adjusted EBITDA were negatively impacted by the $15MM forfeiture fees from Grand Hyatt in DC
  • Special corporate led the way with a 6% increase in demand and a 5% increase in rate
  • Transient revenues increased 7% for 2011
  • ADR is still 13% below the prior peak level
  • Group business: 
    • Continue to see a shift towards the higher rated corporate segment from the discount channel.  First time that group revenue growth matched transient growth (at 6%) and expect that this trend will in continue into 2012. 
    • Association business lagged
    • Still down by more than 14% from peak level, due to 11% lower demand on rooms
  • 2012 revenue growth should be driven by growth in ADR and occupancy. 
  • Booking in 4Q were strong for both the quarter and future
  • Roughly 70% of their group nights are on the books for 2012.  Sees a 2012 ADR increase of 5%.
  • Seeing improvement in association demand
  • Expect an increase in transaction activity in 2H2012.  Guidance assumes no acquisitions.
  • Sheraton NY is due to be complete in June 2012
  • Continue to find construction returns to be attractive, yielding returns above their cost of capital
  • In the process of converting Helmesly into Westin Grand Central
  • 2012 renovations will include:
    • Room renovations at the New York Marriott Marquis, The Hyatt Regency in Washington, the Orlando World Center Marriott and the Ritz-Carlton Amelia Island as well as meeting space renovations at the Ritz Carlton Buckhead, New York Marriott Marquis and the North Tower of the Orlando World Center Marriott.
  • Expect a strong economic recovery to continue into 2012.  Low supply should lead to solid occupancy.
  • 1Q12 dividend of 6 cents
  • Believe that the lodging recovery will continue through 2012 and 2013
  • Top performing market was Hawaii: +23.6% - driven by strong transient and group demand. F&B increased > 18%. Expect it to be a top performing market in 2012.
  • Miami/ Ft Lauderdale was up 16.3%. Expect 2012 will be good.
  • Pheonix RevPAR:15.7% increase.  29% F&B growth in the Q.  Expect 2012 will be in line due to solid group demand.
  • Philadelphia RevPAR: +13.5%. ADR was up 12%. Strength in group bookings drove results.  Expect 2012 will be strong.
  • San Fran RevPAR: +11.2% (ADR 9%). Improvement by rate increase and business mix shift to higher rated segments.  Expect 2012 to continue to perform well.
  • Chicago RevPAR: 6%. Expect 2012 will be another good year
  • NY RevPAR: 5.4% (3% increase in ADR).  Results were below expectations due to lower rate growth. Expect 2012 to be solid.
  • DC RevPAR: flat (ADR down 2%). Soft group and transient group demand. 2012 will be a challenge.
  • Atlanta: RevPAR: -3.9%.  Lower Citywide demand.  Expect it to underperform in 2012.
  • Europe JV: Sheraton Roma negatively impacted Q - would have been +3% without the renovations there
    • 3-5% RevPAR growth is projected at the JV.  Their share of the JV is only 3% of their EBITDA.
  • $1.6MM of bad debt expense from American Airlines bankruptcy
  • Room flow through was 73% and F&B flow-through was 51% - significantly above their expectations
  • Unallocated costs increased 4% due to variable expenses
  • Utilility decreased slightly.
  • 2012 should have good flow-through.  Unallocated costs to increase more than inflation. 9% increase in property taxes.  Higher insurance expenses as well. 
  • Taxes are due to leakage from their leased hotels



  • Atlanta and DC market views:
    • DC is a great long-term market.  It's just not as volatile as other markets but generates strong long-term growth.  2014 Washington will benefit from the new convention center.  Folks are waiting for the opening of that convention hotel and therefore that will have a negative impact on 2012.  Expect to exit some of the suburban DC exposure.
    • Atlanta is losing convention share to Vegas as well as other markets. Would like to reduce their long term exposure to that market.
  • Some of their sale activity will be in West Coast markets - selling suburban hotels and airport hotels. Will also look to sell hotels where the EBITDA is back to peak levels from 2007 and therefore fell like there is less upside
  • View on peak margins:
    • Substantial room to growth their margins from here
    • Real estate taxes are an issue in 2012 but unclear if this is a long-term issue for margin
    • Real issue of reaching peak margins will be ADR growth
  • They expect flatish RevPAR for their European JV (below the JV's projections).  40% of the business to their Euro hotels comes from outside the EU.
  • Weaker flowthrough in 2012 vs. 2011 due to a large increase in real estate and insurance expenses
  • Group bookings look strongest in 2Q and 4Q  - so that may support some outperformance in those quarters margin wise, but expect a pretty even year
  • UUP has performed a little differently from overall growth.  Luxury has driven part of the outperformance of overall growth.  Other sectors have been more driven by transient demand, which outperformed group.  
  • This quarter was the first time that they saw a pickup in group which should help UUP RevPAR.
  • See no reason why HST's RevPAR won't be in-line or better than UUP RevPAR. Doesn't think that there is a material gap today vs. industry UUP.
  • Group business is not just about RevPAR growth but also about what it can do for F&B as evident in the quarter. Banquet business is very profitable.
  • REIT activity dried up in 2H11 because of their inability to issue equity to buy assets due to their stock prices. Seeing more private buyers.  There is a fair amount of debt available at more conservative levels than 2006 - at fairly attractive rates. 
  • Acquisitions for them will be mostly in the US.  Think that Europe will have some debt coming due that will be hard to refinance so that may lead to more distressed opportunities.  In Asia, their focus remains in markets like Australia.  In the US, their focus is West Coast and Miami. 
  • Have about 716MM shares outstanding.  They don't assume additional shares in their guidance
  • Expect NY to perform in-line in 2012 but their RevPAR will be impacted by ongoing renovations at Sheraton and W Union Square.  In some cases though, their work overlaps with work done in 2011- hence expectations of in-line performance. 
  • Expect modest to flat RevPAR growth in DC for 2012
  • Renovation impact YoY will be about a wash
  • Financials sector has been growing at a reasonably good rate.  Continuing to see corporate group business come back at their luxury hotels.
  • They are getting to the point in occupancy where they can push rate.  Roughly 50% of their 2012 booked group business was booked in 2011 and half before then. For business yet to be booked, they expect that rates will be higher. 
  • How much of their capex for 2012 is really catch up spend?  Seems like the number is 10% of revenues- which is elevated. 
    • Maintenance capex of $310-330MM is the normal level of capital that they need to spend (6% range)
    • $80-100M of acquisition capex was what they identified when they acquired the assets
    • ROI capital: confident that they will be able to get upper teens returns on those projects
    • They didn't stop investing in their properties during the downturn
  • International travel should continue to grow.  China and Brazil had the best growth.
  • Biggest issue for cost growth is what happens for wages.  For 2012, wage growth is projected to be slightly ahead of inflation. They are looking to keep their CostPAR slightly below inflation



  • Comparable RevPAR came in at 5.9%- lower than the 6.25-6.75% range that HST guided to on their 3Q call
  • European JV RevPAR only increased 1% on a constant Euro basis
  • 2012 Outlook & Guidance:
    • Comparable RevPAR: 4-6%
    • Operating profit margin: +140 to 230bps
    • Comparable hotel adjusted operating profit margins: +25 to 75bps
    • Adjusted FFO: $0.97 to $1.04
    • Adjusted EBITDA: $1,090 to $1,145MM
    • Interest expense: $362MM ($32MM of non-cash)
    • D&A: $650MM
    • Income taxes: $9MM
    • Capex: 
      • Investment in ROI expenditures of $155-175MM
      • Acquisition projects: $80-90MM
      • Renewal and replacement: $310-330MM
    • Dispositions: $100 to $115MM in 1H12

Lower-Highs: SP500 Levels, Refreshed

POSITION: Long Energy (XLE)


So I’m long inflation (Energy, Gold, etc) and that has a tough time on US Dollar up days. This we know.


What we don’t know is what central plan is coming down the pike next. Rather than pay people to sniff around Washington for me, I let the market tell me what the people that know think they know. That’s the best I can do.


Across my risk management durations, here are the lines that matter to me most right now (see chart): 

  1. Immediate-term TRADE resistance = 1360
  2. Immediate-term TRADE support = 1345
  3. Immediate-term TRADE support = 1329 

I have 2 different TRADE lines of support because I have been forced to measure a hyper short-term duration in order to solve for how extended the market is (standard deviations of risk) from my intermediate-term TREND zone.


In other words, if 1345 snaps, 1329 is in play, fast. If it doesn’t, I still think we keep making lower-highs versus the last Policy to Inflate lower long-term high of 1363 (April 2011). Inflation expectations rising slow growth.


Enjoy the chase,



Keith R. McCullough
Chief Executive Officer


Lower-Highs: SP500 Levels, Refreshed - spx.02.14.12


The Macau Metro Monitor, February 14, 2012




Galaxy Vice Chairman Francis Lui Yiu Tung said the government should consider relaxing its current restriction that only allows local residents to be employed as croupiers.  “Human resources will be in high demand as there are many big projects, not just for the gaming industry, going on or to be completed in the next couple of years,” Lui said, adding that while Macau’s unemployment rate remained low at just 2.1%.  “Local citizens working as croupiers should be given the chance to be promoted. But when they get promoted, who’s going to fill their positions? I think [the government] should think about letting us hire imported workers as croupiers,” Lui suggested.

Meanwhile, Lui also said his company would focus more on non-gaming attractions in art, culture, conventions and leisure in the second phase of its Cotai project to bet on the “growing” family tourism business.  Although Lui declined to say what type of non-gambling attractions his company is having in mind, he mentioned that shopping and culture are in high demand, whether it is from tourists or locals.
Lui also forecast Macau GGR to rise 18-25% in 2012. 



On February 8, 2012, following Mr. Okada’s lawsuit, WYNN received a letter from the Salt Lake Regional Office of the U.S. Securities and Exchange Commission requesting that, in connection with an informal inquiry by the SEC, WYNN preserve information relating to the donation to the University of Macau, any donations by the Company to any other educational charitable institutions, including the University of Macau Development Foundation, and the Company’s casino or concession gaming licenses or renewals in Macau.  WYNN intends to fully comply with the SEC’s request.



Visitors in package tours surged by 51.5% YoY to 794,636 in December 2011.  Visitors from Mainland China (574,427); Taiwan (48,071); and Hong Kong (40,203) soared by 57.7%, 135.8% and 13.8% respectively.  At the end of December 2011, number of available guest rooms of hotels and guest-houses totaled 22,356, up by 2,265 rooms (+11.3%) YoY, with that of 5-star hotels accounting for 63.5% of the total.  The average length of stay increased by 0.05 night to 1.5 nights. 

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