HYATT 3Q2010 CONF CALL NOTES

The following are our notes from the Hyatt conference call that just ended.

 

"During the third quarter, RevPAR, margins, and fees increased as a result of improved demand. Higher levels of corporate and group business resulted in improved performance at convention and business hotels in particular. International hotels continued to perform well as occupancies and rates increased in several regions, contributing to fee growth of approximately 25% in the quarter."

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

HIGHLIGHTS FROM THE RELEASE

  • "Net income attributable to Hyatt included a favorable impact from special items of $21 million after-tax, or $0.11 per share, during the third quarter of 2010 compared to a favorable impact from special items of $5 million after-tax"
  • "During the third quarter, we opened three hotels, including Andaz 5th Avenue in New York City, an owned property. In total, we expect to open approximately 30 properties in 2010. In terms of future expansion, last month we announced the development of Andaz Wailea Resort and Residences in Maui, Hawaii, which is scheduled to open in 2012. Also, during the last week we announced the development of three new hotels in New York -- Park Hyatt New York, Hyatt 48Lex, and a Hyatt property near Union Square. Also, the major renovation of Grand Hyatt New York is progressing well. We are excited about increasing and improving our presence in key markets in the years ahead."
  • "Capital expenditures during the third quarter of 2010 totaled approximately $60 million, including approximately $6 million for investment in new properties."
  • Other activity in the quarter:
    • "Invested $60 million for preferred equity in the Hyatt Regency New Orleans re-development."
    • "Sold two aforementioned properties (Hyatt Regency Greenville and one non-Hyatt branded property) for $20 million."
    • "Conveyed Hyatt Regency Princeton to the lender, resulting in a reduction in debt of approximately $45 million."
  • Debt: $800MM and Cash & equivalents: $1BN

CONF CALL NOTES

  • Occupancy levels increased in 75% of their portfolio
  • In NA ADR increases came from a mix shift towards higher rated transient and group business
  • Owned portfolio had strong flow through
  • Asia Pacific is benefitting from continued ramp up of newly opened hotels
  • In China they have 22 hotels under development and 11 hotels currently open
  • The Andaz in Waikiki will have a residential component - expect to invest $90MM in this development.  They are working with Starwood Capital
  • Will acquire a Park Hyatt when its complete in 2012 in NYC for $365MM - will own 2/3rds - just over 200 keys
  • Sold the Hyatt Greenville to an existing franchisee who will invest money to upgrade the property
  • Plan on selling 11 hotels so that they can free up capital to recycle
  • Results in NA were negatively impacted by renovation at 5 of their hotels. Margin improvement was due to continued productivity gains.  They managed expense increases to 4.4%. Lower cancellation and attritution fees also negatively impacted margins
  • NA managed and franchised hotels:
    • 60% of the hotels showed rate increases in the quarter
    • FS hotels experienced a 20% increase in room nights at flat room rates compared to last year, as a result of strong turnout for business on the books and near term booked business
    • F&B increased 8%
    • Group rates will lag prevailing rate
    • Transient demand - saw a 4% decline due to an increase in occupancy due to short term bookings.  Business hotels showed better performance.  Booked more business directly vs. through third party internet channels.
  • International mgmt and franchised: 
    • Asia Pacific continues to benefit from China RevPAR growth of 50% - Shanghai World Expo driven
    • In other Asian regions RevPAR grew 5-7%
    • Southeast Asia region lagged others in growth
  • Special $35MM gain on debt extinguishment on Hyatt Princeton when they conveyed the hotel back to the lender
  • 5 Large renovations are going well and some of them are approaching completion. Estimate that the renovations impacted EBITDA by $4MM and RevPAR by 175bps.  4Q impact is expected to be about 350bps to owned and leased RevPAR and $8MM of EBITDA.  The higher impact is due to markets performing better.  Renovations will impact the first 9 months of the year in 2011. Estimate that the cumulative negative impact will be 300-350bps of RevPAR and $20-25MM of EBITDA
  • Owned and Leased EBITDA will also be impacted by assets sold/conveyed in the quarter - so this quarter the impact was roughly $5MM

Q&A

  • Expect a high single digit unleveraged return on the NY Park Hyatt and a low double digit return on the Hawaii project.
  • Hawaii Andaz - Residential 38 units, 290 rooms
  • They are in early stages of corporate rate negotiations. Their goal is to get a high single digit rate increase while corporates want flat to decreased rates.
  • There is nothing that restricts them for establishing a dividend policy. The reason they have a no dividend policy is because they feel like they have more attractive uses of deploying that capital
  • Costs for 2011 on Owned & Leased portfolio
    • Focused on increasing productivity, but they are starting to add hourly staff given the increases in occupancy. They are still tight on management staffing
    • They are giving merit increases in salaries
    • Bonuses have been re-instituted
    • Energy costs and HC costs are not really controllable
  • How did resorts vs. urban/convention hotels perform?
    • Leisure side was weaker. So urban and convention hotels outperformed
  • Much of their international development are driven by third party development
  • Why are they spending $1.6MM per key in NY, can't they buy something for less?
    • Very limited pool for brands that were available for conversion and that were for sale
    • There are also a number of residential units in the building that they will release for sale when the market recovers
  • Started this year with 1 hotel in NY and will have 5 within 2 years - with hotels that are all new or newly renovated
  • What comps are they using for Park Hyatt?
    • Will be at the top of the luxury market in NY
    • Over 700 SQFT per room
    • over 25% suites
    • Looked at rates in 2006-2008
  • Any markets in China that are starting to be overdeveloped?
    • maybe in the short term but over time they feel like there will plenty of demand
    • Many hotels they are building are in "secondary" emerging citites