67 WALL STREET, New York - December 6, 2012 - The Wall Street Transcript has just published its Gaming and Leisure Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Hotel Occupancy, Rates and RevPAR Trend Upward - U.S. Regional and Emerging Market Hospitality - Gaming Opportunities In Asian Markets - Macau VIP and Mass Market Gaming
Companies include: Starwood Hotels & Resorts Worl (HOT), Marriott International, Inc. (MAR), Host Hotels & Resorts Inc. (HST), Intercontinental Hotels Group (IHG) and many others.
In the following excerpt from the Gaming and Leisure Report, Rod Petrik, an expert analyst with Stifel Nicolaus, discusses the outlook for the sector for investors. Mr. Petrik's experience includes public and private debt and equity capital markets transactions, property development and acquisitions, permanent mortgage lending, workouts, real estate dispositions, and strategic and financial advisory assignments.
TWST: We recently finished up earnings for this group. What trends or themes stuck out for you?
Mr. Petrik: Again, there was a little bit of a disappointment as you saw RevPAR expectations for this year ratchet down. Again, a lot of them were calendar issues. More importantly, the fourth quarter is going to be very noisy because you have so much disruption from superstorm Sandy. Any company with exposure to the New York City area is going to have properties that have been out of service. Most of it will get covered with business interruption insurance, so I think the hotel companies will wind up coming out whole, but you're going to be spending money this quarter, some nonrecurring expenses; and then a couple of quarters down the road, you'll get your insurance proceeds, and it will be offset by nonrecurring income.
Still, there is noise because of the disruption. You have properties up and running in New York City; you're running full. So you have an offsetting benefit. Probably through the remainder of this year or maybe into next year, there's a lot of displacement. You take some rooms out of service, and everyone else is full. You have big groups from FEMA, the Red Cross, homeland security and insurance companies taking blocks of rooms. It's just going to be a very noisy fourth quarter.
By the time you get to the fourth-quarter earnings season, I think investors are going to give the hotel companies a pass on the fourth quarter because of the storm and are going to be more focused on the 2013 outlook and guidance.
TWST: Where are you pointing investors now? What are some of your favorite stories in the space?
Mr. Petrik: We're at a point where everything is cheap. Everything has been weak over the course of last week, and so when everything is sold off, I really like to buy quality names.
Our favorite lodging REIT is Pebblebrook (PEB). This was a blind-pool REIT four years ago, and I think it's done a great job building a portfolio in major markets, with a heavy emphasis on the independent boutique hotels. I think that they're probably one of the best asset managers in the space, with some of the best margins in this group.
On the C-Corp side, we continue to like Starwood. I have a sense here, at $50, I don't want to say you have a safety net, but the company has a share repurchase program up and running again last quarter. I think $49 and change is the trigger point, so I think $50 is a very attractive entry point. We look at the hotel business as a brand business and a global business, and I like the fact that Starwood has more than half of their EBITDA coming from international markets. They have some of the best brands in the business. The company is generating a lot of cash. The sellout of the Bal Harbour property in Miami is ahead of schedule, so they're going to be generating more cash. And historically, this company has done well by investors when it has cash, whether it's increasing their dividend payout or repurchasing shares. Those are really our top two names right now.
TWST: At the top, you talked about the fiscal cliff. What other kinds of risk do you see for this industry in addition to the big macroeconomic events?
Mr. Petrik: The problem that the global companies have - whether you are Starwood, Marriott, Hyatt (H), InterContinental (IHG) - is that you are open to a number of international markets. If things got worse in Europe, if there is a substantial slowdown in Asia or if something happens in the Middle East, anything like that could have an impact on global lodging demand.
On the plus side, I think North American companies such as Starwood and Marriott are trying to figure out ways to get a bigger exposure to South America, where the economy continues to grow. That's particularly true with Brazil, which is hosting the World Cup in 2014 and the Summer Olympics in 2016. I think there's going to be a lot of development over the next four years in Brazil...
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.