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HYATT 3Q11 CONF CALL NOTES


"We saw strong RevPAR growth in the third quarter, especially at our owned hotels and those located in North America. In addition, performance at our comparable owned and leased hotels was strong, with margins expanding by 350 basis points. The significant renovations at five of our owned properties neared completion during the quarter and initial guest and meeting planner response has been overwhelmingly positive. We are enthusiastic about the anticipated long-term benefits of these renovations." 

- Mark S. Hoplamazian, president and chief executive officer

CONF CALL NOTES

  • Hyatt House brand will replace their current extended stay brand.  Expect it to cost franchise owners less than $1MM to convert to this brand.  Getting good feedback from owners and developers.
  • Renovation at their 5 large renovation projects are going well and are on schedule.  Early indications is that the renovations will produce a large premium.  Most of the rooms are back in usage although there is still public, meeting and restaurant space under renovation; this should not cause any disruption to their results.
  • 1/3 of their group business and virtually all of transient has yet to book for next year
  • Corporate rate bookings are just starting and while they hope for high single digit increases, visibility is limited
  • Maintaining a strong balance sheet and liquidity is a top priority for them
  • Timing of the Jewish holidays helped them in the quarter
  • 3 cents per share of favorable tax rate
  • Changes of the rabbi trust benefits have no impact on EBITDA and EPS
  • Displacement from renovations impacted RevPAR by 200bps
  • 100bps of the margin improvement was due to non-operating items 
  • Higher margins on F&B and other revenues helped their owned and leased portfolio
  • North American mgmt and franchise business
    • Group - roughly flat revenues with slightly higher rate offset by lower occupancy
    • Continued to shift customer base toward higher rated business.  Mix shift had a positive impact on F&B
    • Continued to shift business from opaque and 3rd party challenges
    • F&B and ancillary revenues increased per occupied room
      • Banquet revenues increased 7% on a per group night basis
  • 50% of their fee increase was from new and ramping hotels and half was from same store hotels
  • RevPAR growth was negatively impacted by N. Africa and Japan.  China was negatively impacted by difficult comps from the Shanghai Expo.
  • International fees increased almost 4% ex currency - would be up 10% if not for Japan and Middle East
  • First 9M: Average rates are still 10% below 2007 in North America.  Transient occupancy is above 2007 levels though. 
  • Outside of NA, ADRs are still 5% below peak levels in the 9M ended 9/30
  • One third of the adjusted SG&A increase was due to higher bad debt, 1/3 due to higher headcount, 1/3 due to inflation and higher business levels
  • Tax rate: mid 20 range excluding discreet items for FY11
  • Higher D&A FY estimate is due to Lodgeworks
  • Higher Interest expense for FY11 is due to new debt issuance

Q&A

  • Headcount increase does include the associates that came from Lodgeworks
  • Excluding one time items, SG&A is growing about 8%
    • Growth in headcount is demand base, wage inflation, merit increases, and increases in business activity
  • Park Hyatt NY: the developer has a defined price so there is no inflation risk to them. Looking at a 2013 completion date. 
  • Their investment portfolio has small strategic investments which will get wound down over time
  • 2012 capital investments will be lower than what they did in 2011 - since 2011 included 5 large capital improvement projects. 
    • Under $20MM of renovations for Woodfin properties, $70-80MM of maintenance
  • Owned and lease margins were due to property refunds (1/3 of the benefit)
    • Mix shift drives higher F&B and ancillary revenues and margins
  • Lodgeworks margin impact into their portfolio?
    • Just have a month of Lodgeworks in their results, but it should be accretive to their margins
  • They are bullish on NY in the long term. They have the benefit of 2 new Andaz property and the Hyatt they have is fully renovated and the other 2 are brand new product.
  • Europe: mid single digit in the quarter. Haven't seen any change in the recent weeks. Their presence in Europe is small - 5% of total room base (Germany, France, UK only).  
  • Extended stay - not seeing any significant change in length of stay
  • Share buyback as next round of lock ups expire:
    • They don't have a stock buyback plan
  • Use of cash?
    • Have commitments to several projects (NY for example)
    • Focused on enhancing presence in markets where they are not currently adequately represented
    • Looking at M&A opportunities (brand & M&A). M&A opportunities are to convert assets into Hyatt brands
    • Not really marketing properties for sale at this time 
  • There are large cities in the US e.g. Miami where they feel under-represented
  • A number of their hotels are still in ramping stages
  • Penetration with managed corporate accounts is rising with the growth in select service.  They are also seeing a web effect as they expand their market presence; they are also continuing to penetrate corporate accounts
  • Their comments re: peak RevPAR do not account for the shifts in their portfolio. 
    • So it's not really an apples to apples comparison since they have a lot more select service today

HIGHLIGHTS FROM THE RELEASE

  • 3Q statistics (YoY):
    • "Comparable owned and leased hotels RevPAR increased 9.2% (6.9% excluding the effect of currency)"
      • "Comparable North American full-service RevPAR increased 7.1% (6.8% excluding the effect of currency)"
      • "Comparable International RevPAR increased 9.6% (3.4% excluding the effect of currency)"
    • "Owned and leased hotel operating margins increased 600 basis points" 
      • "Comparable owned and leased hotel operating margins increased 350 basis point"
      • "Owned and leased expenses decreased 4.3% ...Excluding expenses related to benefit programs funded through Rabbi Trusts and non-comparable hotel expenses, expenses increased 3.9%"
    • Capex
      • Maintenance: $22MM
      • Enhancements in existing properties: $72MM
      • Investments in new facilities: $4MM
    • Balance Sheet:
      • Debt: $1.23BN ($1.4BN of undrawn R/C capacity)
      • Cash & equivalents: $690MM 
  • 2011 information/ guidance:
    • Capex: $390-400MM
    • D&A: $300MM
    • Interest expense: $60MM
    • Opening of 35 hotels (including Lodgeworks acquisition)
  • "The Company added 26 properties during the third quarter of 2011, including 19 properties acquired from LodgeWorks"
    • Purchase price: $661MM 
  • "One hotel, Hyatt on Capitol Square, was removed from the owned and leased portfolio in the third quarter of 2011. The lessor of this hotel exercised a termination right"
  • "Selling, general, and administrative expenses decreased by 14.7%... Adjusted selling, general, and administrative expenses increased by 14.8%"
  • "As of September 30, 2011, [Hyatt had] executed management or franchise contracts for more than 150 hotels (or more than 36,000 rooms) across all brands. Approximately 70% of the projected new hotels will be located outside North America."