VIDEO | Keith's Macro Notebook 4/30: MONTH END #BUBBLES US HOUSING


Seemingly not the focused management we knew at PENN - already experiencing miscues. Rent escalator in doubt to soft regional trends. Acquisitions the only positive catalyst but tough to predict.




  • First full quarter of operations
  • Two items to highlight and guidance deviations...
  1. incorrectly E&P dividend would be fully diluted and new guidance reflects updated calculation
  2. adjusted EBITDA line was $3m higher as didn't account for dividends to employees


  • 2% escalator is in 2014 guidance - how confident of escalator given PENN guidance?   On the cusp of the rent escalator, decided to leave in $1m of escalator as too early to decide if will/will not occur.  Wait until end of 2nd quarter, past calendar and weather impact - if PENN performs as guided then rent escalator at risk.  However, when two Ohio properties open, will help 1.8x calculation - assuming stabilization.  
  • Restate acquisition commentary and expectations - not really able to comment, but fully engaged in building and growing GLPI.  Comfortable and confident will get another transaction done and closed this year...
  • Don't have large operations, therefore not much to discuss as numbers are numbers and not able to talk about all the potential, forward drivers...
  • Acquisitions has operating environment changed landscape and willingness to engage in sales discussions of gaming is in a near-term cyclical vs. structural - hundreds of independent gaming properties...someone always needs to sell.  No reason to believe opportunity has changed and no reduction in conversations.
  • Iowa situation - are there any remedies to reinstate or achieve favorable outcome?  GLPI completely on the outside and along for the ride with PENN.  IRGC actions are outrageous and illegal, appalling.  A preliminary ruling by the court is the charity, PENN & GLPI would never have contemplated.  Peter's encouragement for PENN is to take legal actions to and thru every venue possible...hope and expectation PENN will fight to the last breadth.  Iowa is a disgrace...
  • Possible counter party, participant in NY?  Challenging to figure out, some surprised by location, situation needs to flush out.  Had conversations with multiple parties...could partner and support an operator with financing. 
  • Florida - Mohegan Sun as operator, participated in bidding process but did not prevail at Miami Jai Alai facility.  As looked at property, GLPI did not see upside to support purchase price.
  • Greenfield opportunities - actively engaged and attuned.
  • Look at Atlantic City - not interested at these price levels
  • CZR's Tunica - not interested in that property, a few properties have their interest but not at these price levels -- not interested in antiquated properties on verge of extinction
  • Views on other OpCo/PropCo transactions - anyone who believes process is easy is confused.  Don't have the insights into roadblocks at other operators.  Took PENN three years to deal with internal roadblocks.  Any operator looking at a spin today, has a long and time consuming process ahead. 
  • Base case for acquisition timing and process - Casino Queen not the typical transaction because transaction solved covenant issue, thus process was quicker than "normal" transaction.  Typical transaction is more lengthy - first, verbal & socializing; second, put to paper; third, think about and ask for terms sheet; and, finally ready to move forward to contract.
  • At what point announce a transaction - not announce until signed purchase transaction
  • Non gaming opportunities - always challenged to keep machine growing, but will stick close to knowing what they know easily...but a few years down the road could see GLPI expanding investment focus because such is owed to shareholders to keep machine growing.
  • TRS EBITDA - guidance built conservatively for those two markets?  Guidance built on Q1 2014 trends and draconian view of Baton Rouge and Perryville.  Will wait for Q2 results to adjust TRS view and guidance



In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance




  • MIXED:  PNK posted lower revenues than contemplated by the Street but beat on EBITDA due to cost controls.  However, earnings had come down considerably as States released a continuous stream of soft gaming revenues through the quarter.  Cost controls were impressive but at some point someone needs to call out some of these gaming operators for the recurring "non-recurring" adjustments made (mostly up) to arrive at Adjusted EBITDA.

Business Trends:

  • MIXED:  Trip frequency continue to decline, while spend per trip increased 6% YoY in 1Q.  The trip decline was even more evident in the markets with new competition.  Management indicated that Q1 softness continued into April.
  • PREVIOUSLY:  Similar to 2013, trip frequencies continued to decline with people visiting less often, while spend patterns have remained relatively stable.  Trip declines are particularly pronounced in the less than $100 average daily theoretical segment and end markets with new competition.

Marketing Spend:

  • BETTER:  Marketing reinvestment as a % of GGR was down 380bps YoY in 1Q.  There is still room for improvement.
  • PREVIOUSLY:  Continue to be very focused on driving profitable revenue and applying a rational approach to marketing spend. Reinvestment declined both in terms of dollars and as a percentage of gaming revenue, down 240 basis points year-over-year.

Database integration spend:

  • WORSE:  Too many excluded costs recently.  Integration of myChoice program into ASCA properties for 2014 and portion of 2015 benefit results in an upfront aggregate non-recurring charge of $5m in 2Q.  Another $5.1m in Player list amortization costs associated with ASCA acquisition excluded in 1Q.
  • PREVIOUSLY:  Expect this year to have roughly about $10 million or so that will be spent on that in 2014. It'll be largely done by the end of this year.

L'Auberge Baton Rouge:

  • SAME:  L'Auberge Lake Charles and L'Auberge Baton Rouge particularly did well on the cost side, boosting EBITDA and EBITDA margins.  L'Auberge Baton Rouge continued to ramp up its high end regional gaming volume. 
    • Market share increased 420 basis points from prior year with healthy growth from both the local and regional play
    • Hotel also continues to be a very good story with this property achieving the second highest RevPAR in the company.

River City:

  • SAME:  Had all-time high in revenues in March.  Combined with St. Charles, market share in St. Louis market increased 200bps.
  • PREVIOUSLY:  Continues to outperform the market with a 230 basis point improvement in market share during the fourth quarter.


  • SAME:  Struggled with polar vortex (~roughly $5m impact) but operational efficiencies led to a 680bps improvement in EBITDA margin.
  • PREVIOUSLY:  Performed pretty well in the face of a challenging environment, as our margins in the Midwest also improved despite a 4% decrease in net revenues.


  • BETTER:  $53m annualized as of Q1 2014 - includes $5m cost related synergies and  $11m of cost avoidance (healthcare benefit cost); expect more synergies ahead
    • Feel very confident in ability to meaningfully exceed the target of $40 million of annualized merger synergies.  In fact, PNK expects to exceed this $40 million number of implemented synergies by the end of 1Q 2014, with more to come. 
    • The loyalty program will launch in April, so haven't seen any impact at the Ameristar properties along those lines. VIP marketing, house coding our branch offices, all of those efforts are very early in the execution stage. Some are still in the planning stage, but we are beginning to execute most of our revenue synergies in the first and second quarter of this year.

New Orleans hotel:

  • SAME:  Will open this summer
  • PREVIOUSLY:  The project remains on budget and is expected to open early summer.

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Buy in May and Pray?

Client Talking Points

Month End

As the “Ides of April” come to a close, US Consumer (XLY) and Financials (XLF) lead the losers down -1.8% for April. On the other hand, slow-growth-yield-chasing Utilities (XLU) are up +4%. If buying inflation and slow growth ain’t broke, don’t fix it.


The Wall Street Journal is “cautious” on Twitter (TWTR) now – thanks for coming out. TWTR, YELP, and FB remain in Bearish Bubble Formations at Hedgeye! Buy in May, and pray? Not on the US consumer, social bubbles, or housing stuff – no thank you!

US Housing

There’s a nasty weekly mortgage demand print this morning out of MBA (total, purchase + refinance, index) slammed for another -5.9% loss after last week’s -3.3% drop. Rates Down = Demand Down – Janet? Our Q2 Macro Theme of #HousingSlowdown remains intact. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


Rates Down, US #HousingSlowdown Accelerates - Janet? @KeithMcCullough


"The ability to honestly and quietly reflect on one's life is one of the most powerful tools for personal growth." - Richard Carlson


Venezuela will raise the minimum wage by 30% on May 1, President Nicolas Maduro has announced. The increase is below the level of annual inflation, which official figures put at 56.2% for 2013.The announcement comes after almost three months of mass protests against Mr. Maduro's government triggered by rising inflation, shortages of some basic goods and a high crime rate. (BBC)


Soft top line but very good cost controls. Comments on April softness and apparent low enthusiasm for REIT spin were only conference call negatives vs investor expectations.




  • Belterra Resort:  continue to improve facility; very competitive part of country
  • Belterra Park:  within 60 mins of Belterra Resorts
    • F&B offerings received well
  • 2 primary goals:  Revenue synergies, marketing expense discipline
  • New myChoice program:  Owner's club positive response 80%, ASCA guests positive response 86%
  • 2 St. Louis properties will be connected by loyaty card program by end of June 
  • Trip frequency continue to decline, while spend per trip increased 6% YoY
  • Bad weather impacted 1Q
  • Markets with new competition:  double digit declines in trips
  • Bossier/Southern Indiana - particularly tough environment due to competition
  • Marketing reinvestment as a % of GGR:  down 380bps YoY
    • Rightsized media spend; 
    • no more launch mode out of Baton Rouge
    • Eliminated low margin programming
  • ASCA Black Hawk:  made adjustments to reinvestment that led to 28% decline in marketing spend and 11% EBITDA improvement YoY; also implemented improved hotel yield system earlier in April 
  • St. Louis
    • River City:  all-time high revenues in March
    • ASCA St. Charles:  had benefit of entire quarter with new hotel yield system; Early results are positive with a 5% increase in RevPAR and healthy increases in hotel cash revenue.  Combined both properties increased market share by over 200 points during 1Q
  • East Chicago:  highest table game share since 2011 due to increased programming; slot share increased as well
  • Vicksburg:  Heartland Poker Tour contributed to highest table share ever at 65%
  • Impact of Winter weather on 1Q EBITDA:  $5m (most felt in Midwest)
  • South segment demand performed better than Midwest
  • Broad softness in visitation in April:  Easter holidays usually softer week.  Spring Break softness but more encouraged in the past week as business picked up.  
  • Another record cash flow quarter at Baton Rouge
  • myChoice at ASCA integration for 2014 and portion of 2015:  upfront aggregate non-recurring charge of $5m
  • Synergies:  $53m as of Q1 2014 - includes $5m cost related synergies and  $11m of cost avoidance (healthcare benefit cost); expect more synergies ahead
  • Belterra Park opening this weekend alongside Kentucky Derby
  • Revamped New Orleans hotel will open this summer
  • Paid down $260m in term loans; completely paid down term loan B1 loan; term loan B2 now under $1bn
  • REIT comments:  
    • Appreciate shareholder feedback
    • REIT idea not new idea
    • Currently focused on successful ASCA integration
    • Will evaluate ways to enhance shareholder value

Q & A

  • Corporate expense: $20m per quarter, good run rate
  • Softness in beginning of April but encouraged by launch of myChoice on ASCA side (10 days into April)
  • Have not seen increased promotional activity in Belterra market
  • ASCA legacy properties:  promotions steady
  • Marketing efforts done extremely well.  Not focused on mass market guests (promotional business)
  • NY:  not focused on specific region.  cash-on-cash return: minimum of 15% required;  will explain on 2Q CC if they decide to move forward from June 30 deadline
  • Delevering a priority
  • Level of future reinvestment:  early in the program in understanding sweet spot of where marketing reinvestment % should be 
  • Japan: not interested

Chart of the Day: $TWTR Revenue Estimates (Hedgeye vs. Consensus)

Chart of the Day: $TWTR Revenue Estimates (Hedgeye vs. Consensus) - 777



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