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The Macau Metro Monitor, August 6th, 2010



SJM has started putting up fences encircling an area near the Macau Dome, in Cotai. However, CEO So said no land concession approval has been received. So also said that its future Cotai resort  will maintain SJM's theme but with some "diversification".



As part of a facelift for Sydney's only casino, Star City, CEO Elmer Funke Kupper of Tabcorp Holdings Ltd said the company will send $146 million to woo high rollers from Crown Ltd, Macau, and Singapore.  The new look would include new luxury suites, private gambling rooms and its first two jet planes. The Star City refurbishment is being overseen by Larry Mullin, who joined the company from Borgata Hotel Casino & Spa.


Macau is no longer a top 5 destination for mainland visitors. According to the Visa and PATA travel association's "Travel & Tourism 2010 Outlook", the top 5 destinations this year are: Australia, Japan, HK , Singapore and Taiwan.


Here are our notes from the Hyatt Q2 conference call.



"We are pleased with improved transient demand experienced by many of our properties in the second quarter. At several properties, particularly those in international markets, average rate increases resulted in strong RevPAR growth versus the second quarter last year. Our fees increased over 16% due to RevPAR growth and new hotels in our portfolio. The group booking cycle continues to be short but we saw increased levels of booking activity for future periods during the second quarter. We experienced strong margin performance in our owned hotels despite the fact that the revenue increase was driven primarily by occupancy gains."

- Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation



  • "The Company has begun renovations at these properties [5]and expects that displacement, resulting from a reduction in daily room inventory of approximately 400 rooms on average per day through year-end 2010, will negatively impact owned and leased segment results in the third and fourth quarters of 2010."
  • 2010 Guidance:
    • Capex: $270-280MM
    • D&A: $285-295MM
    • Interest expense: $50-55MM


  • Improvements that they have seen in the business this year has been driven by better demand. Rate improvements that they began to see in the first quarter continued in the second Q.
  • Group rates still saw a YoY decline, however, group demand increased
  • Expect to see higher corporate rates coming out of rate negotiations later this year
  • International managed & franchise strength was helped by the World Cup in Johannesburg, Shanghai expo and new openings
  • Plan to achieve earnings results by improving performance at existing hotels and growing their base of rooms
  • After the close of the quarter, they opened the Andaz on 5th Ave in NYC
  • Investing $60MM in a New Orleans asset in the form of preferred equity which will help redevelop the property
  • Exploring the sale of 11 properties / 4,500 rooms. Plan to keep them in the managed portfolio and sell them to owners who will invest in the assets. Expect the sale process to take several months.
  • Fees were partially higher by the increased number of rooms in the segment
  • Revenues from transient customers were (leisure and corporate) up 10% YoY, due to a 13% increase in rooms sold
  • Owned & Leased:
    • Results in NA were helped by the US Open (CA) & G20 summit in Toronto
    • Margin improvement was helped by productivity gains 
    • Lower cancellation and attrition fees YoY impacted margins by 40bps
  • Full Service North American mgmt/franchised - 45% of hotels showed rate increases. In June, rates were positive overall.
    • Corporate hotels were up while resort were down on rate
    • Group bookings pace is now ahead (from June)
    • In the quarter, bookings were up 35% for future quarters
    • Group rates were down in the single digits this q, but are up 5% on forward bookings made in the quarter
  • Booking window hasn't changed, so they are operating with low visibility
  • Select Service hotels:
    • Occupancy gains were driven by initiatives to increase midweek corporate and transient business
  • International business mgm'd & franchise:
    • Europe and Asia were very strong
    • RevPAR in China increased 50%
    • 45% of their hotels showed rate increases in the Q (compared to 35% in the first quarter)
    • Europe & Africa were strong
  • Higher incentive comp and professional fees drove the SG&A increase


  • Still expect to open 25 hotels this year
  • Expect expenses to continue to increase (bonuses and wage increases). Will keep staff constant for the short term, aside from cleaning staff - which varies with occupancy. Flow-through will depend on what ADRs do
  • M&A/ Uses of cash?
    • Focused across the capital structure 
    • Does believe that in the 2H2010 and 2011 there will be a pick up in M&A
  • Corporate group pricing and volumes in 2011
    • Working off a low base to begin with, so they definitely expect to see rate increases, but the amount depends on the account - range is low single digits to double digits. Expect high single digit increase
    • Still early to talk about 2011 - 50% of their bookings are within a 3 month window
  • RevPAR impact of 200-250bps by the renovations. Some renovations can push into 4Q2011
  • Property in San Diego and rumors around it?
    • They were in discussions with the current owner group (Manchester group) but there is nothing going on at this point
  • It's important for them to exit the base of Hyatt owners
  • Feel like they have a significant investment in hotels already and want to increase the velocity of recycling their capital
  • Why did they select the portfolio of 11 assets to take to market now?
    • The properties tend to be in suburban or secondary urban markets in the Midwest and West Coast
    • Some of them have capital needs
    • It comes down to value for them and their peak earnings potential
    • Part of it is that they can use this as an opportunity to get some more franchisees out of these properties
  • The 5 assets that they are currently renovating were at the top of their priority list, not sure if there are other big ones to come yet
  • Progression in China has been very significant so far. There is a significantly lower group component internationally - so the outlook is quite short. In NA, group business is 45-47% of total.
  • Thoughts on investing internationally vs. domestically?
    • Already announced a deal in India and are working on a JV deal in South America
    • Internationally, they are mostly JV deals.

Chart of The Day: High-Low Society

Giving Americans who live on fixed incomes a ZERO percent rate of return on their hard earned savings will continue to have many unintended consequences, for an “exceptional and extended” period of time.


40.8 MILLION Americans, and counting…



Keith R. McCullough
Chief Executive Officer


Chart of The Day: High-Low Society - 9

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Europe by the Charts

Below we provide a number of charts we’ve been looking at recently in Europe. Taken together, we’ve been impressed with the fundamental data from Europe over recent weeks (especially compared to the US).  However, we caution that:

  1. August Data - we expect to see a sequential slowdown (month-over-month) in the fundamental data following the exuberance of the World Cup.
  2. Comparisons  - European markets will be pinned against significant macroeconomic headwinds in the back half of 2H10, including suppressed growth, consumer demand, and confidence as a result of government austerity measures.
  3. Housing - continued downward pressure on the housing market, in particular in Spain and the UK.
  4. Legacy - ongoing uncertainty about European bank exposure to sovereign debt, which were largely unaccounted for in the 91 bank stress test, and continued fiscal and political weakness throughout the region (more recently seen in Hungary).

On the margin, we maintain a bullish bias on German Equities (EWG) and the British Pound (FXB).


See our commentary below on the charts:

  • Eurozone (16) Confidence has improved over the last three months. Can this trend be sustained, especially post the World Cup?

Europe by the Charts - m1

  • The DAX and FTSE are trading above our intermediate term TREND lines, a bullish leading indicator. We’re still looking for the FTSE to confirm its move on a TRADE basis (3 weeks are less) before we act in the Hedgeye Virtual Portfolio.

Europe by the Charts - m2

  • PMI Services have largely declined for western European economies over recent months, especially in Italy and UK. Germany and France, on the other hand, have shown strength and we’ll be looking to the next two months of data to determine a trend. We continue to believe that should Western European economies slide, Eastern Europe will follow due to its trade dependence on its western neighbors.

Europe by the Charts - m3

  • While the Manufacturing sector contributes a much smaller share than the Services sector across European economies, the manufacturing PMI is nevertheless an important leading indicator that we follow. Here, Germany is leading its peers.  Overall, we’d expect manufacturing to slip before services in 2H10.

Europe by the Charts - m4

  • Germany is one economy in Europe that we have a bullish bias on. For now, business confidence (below) and consumer confidence surveys have been decidedly bullish since the beginning of 2009. The recent weakness in the EUR-USD (compared to recent years) has bolstered sentiment for Germany’s export oriented economy.

Europe by the Charts - m5

  • One number we focus on is factory orders. On an annual basis we continue to caution that the recent moon shot numbers need to be considered in light of the compare—rock bottom trough levels. This “easy” compare will fade in September. However, the most recent data on a month-over-month basis saw factory orders improve 3.2% in June.  

Europe by the Charts - m6

  • The cash for clunkers programs issued in 2009 throughout European countries boosted sales for German automakers. Reviewing Q2 earnings calls from European automakers, sales were largely mild or flat on the continent, with sales growth particular strong from China. Due to the headwinds we’ve presented, our fundamental outlook suggests that demand from Europe and the US should stay low or erode further.  

Europe by the Charts - m7

  • On the TAIL (3 years or less) this chart below will continue to be an important one to return to. We expect Asia (in particular China) to increase its market share of imports from Europe as exports to the US decline.

Europe by the Charts - m8


Matthew Hedrick


Hyatt's 2Q results beat the Street's EBITDA estimate due to a $6MM Rabbi trust benefit. While the results were still "good," they lacked the "wow" factor from their 1Q, and RevPAR didn't show the same sequential acceleration as those of other lodging companies.



Owned and Leased Hotel revenues of $483MM were materially lower than we estimated primarily due to weak F&B and other revenues. Owned and leased EBITDA also missed our mark.  Here are our takeaways:


The not so great:

  • ADR was lower than we estimated – given that Hyatt’s ADR was only down 40 bps for full service owned hotels, we expected slightly positive ADR this quarter.
  • Unlike Host and HOT, Hyatt didn’t experience strong growth in their F&B and other revenues.  We estimate that this category was up about 1% YoY
  • Pro-rata share of JV properties was flat YoY at $18MM compared to a 40% YoY lift last quarter

On the positive end:

  • CostPAR was down 5.9%, compared to  down 5.3% in 1Q09 on a much tougher comp.  In 1Q09, CostPAR was down 2.1% vs. being down 6% in 2Q09.
  • Put another way total implied costs increased only 3% YoY despite the large occupancy increase

Management, franchise, incentive & other revenues were $2MM below our estimate, but margins on the business were much better.  Thus, EBITDA contribution was $3MM higher than we expected.  If you take the difference between the $64MM of fee revenue and $59MM of EBITDA, the implied costs of the business were only $5MM.  This compares to $12MM of implied costs last quarter and $40MM of implied costs in 2009.


Other stuff

  • If not for the $6MM Rabbi Trust benefit, Adjusted EBITDA would have missed the street by $2MM. Well, at least now we know that 3Q09 was negatively impacted by $7MM of rabbi trust expenses – so the clean SG&A comp is $59MM.
  • D&A was $5MM below our estimate- not sure why it would have declined $4MM sequentially either
  • Interest expense was $3MM lower than our estimate


There are plenty of reasons for optimism and pessimism.  Optimism is winning for now


Looking at the price action yesterday, I had to scratch my head.  MSSR and MRT were up on big volume following their earnings releases the day prior.  Although McCormick and Schmick’s saw a 100 bp improvement in two-year average same-store sales, the 4% decline in comps was below expectations.  Furthermore, guidance for the year was lowered across the board; revenue guidance was lowered by $10 million and EPS guidance was lowered by 5 cents on both sides of the range.  Management said that the guidance revision was “based upon the impact of the Gulf oil spill on the second quarter and the uncertainty of the potential effect the publicity centered around the Gulf oil spill may have on our business for the second half of the year”.  Since the earnings call, there have been several positive news items emerge about the progress being made to “kill” the Macondo well in the Gulf of Mexico.  With certain areas of the Gulf of Mexico being given permission to resume commercial fishing, perhaps this incrementally positive news is being taken on board by investors.  However, public perception of Gulf sea food safety will likely take some time to recover, irrespective of FDA assurances. 


MRT saw a deceleration in two-year average top line trends when adjusted for the 2% Easter-related calendar shift.  The 7.1% headline number certainly was an upside surprise, and the 5.1% underlying comp was about in line with Street expectations.  In terms of the guidance management provided, however, it seems that they might have a difficult time meeting it.  3Q and fiscal year guidance assumes significant improvement in two-year average trends.  To accomplish a 4% same-store sales number in 3Q (the low end of the +4% to +6% guidance), two-year trends need to sequentially improve 310 bps from the 7.1% print (410 bps from the underlying 5.1%).  The low end of the full year +4% to +6% comp guidance target will require an additional 400 bps in two-year average trend improvement in 4Q. 


Despite the +7% to +8% same-store sales growth during the last two weeks of July, the recent choppy nature of sales at MRT (as described by management during the earnings call) is a reason for concern.  Based on management commentary during their recent earnings call, there is nothing specific that seems to support the notion that comps will level out at a strong level rather than the “soft” levels seen in late June and early July.  It is possible that there are initiatives or strategies that management did not disclose, but as yet the source of their confidence is unclear.  It is possible that the improvement in business travel reported by some lodging companies, and cited by Morton’s, has buoyed investor sentiment toward companies with exposure to this group.  The relative outperformance of PFCB yesterday lends credence to this view – about 30% of the Bistro’s tickets are driven by business spending.


In other news, an article on nrn.com entitled “Consumer Rank Favorite Restaurant Chains” had some interesting data points on the consumer.  Specifically, the article says that the Market Force survey indicates that one in four consumers plan on eating out more in the coming months and they are driven to brands showcasing strong consumer service elements. 


 TALES OF THE TAPE - stocks 85


Howard Penney

Managing Director





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