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HYATT 4Q11 CONF CALL NOTES


“We are pleased to see sustained transient business travel around the world in the fourth quarter. Demand from this segment was the primary driver of our results in 2011. Though group demand in the U.S. was stronger in the fourth quarter of 2011 than in 2010, corporations remain cautious about making longer-term commitments and this continues to limit visibility into forward bookings.”

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

CONF CALL NOTES

  • Their major renovations have been on time and on budget and expect results from those hotels to increase over time as people see the improvements
  • Going forward, you are likely to see Hyatt use their capital to secure international growth - Europe and Latin America
  • Their contract base is 35% of their existing portfolio, up from 28% 2 years ago.  Most of them are full service and require little capital from Hyatt.
  • 10% of their total EBITDA comes from Continental Europe (France, Germany, Switzerland)
  • Their strategy is to control costs and keep balance sheet flexibility
  • Transient business revenues in the Q were up 13%. Corporate rate increases are up in the mid single digit range for 2012.
  • Corporate group demand was stronger than demand from association business and other group segments
  • Booking in the Q for 2012 were up 8% vs. this time next year.  70% of their business for 2012 was already contracted at rates that were 4% higher than 2011.
  • RevPAR was negatively impacted by Japan, North Africa and Shanghai - excluding these regions, RevPAR would have been up 7%.  IMF were actually negatively impacted by these regions.  Excluding these regions it would have been up 3%
  • Tax benefit: $13MM related to foreign tax credit and $11MM benefit from the settlement of a foreign tax issue
    • Further details will be available in the 10k which will be filed later today
  • 2012 tax rate: low 30's excluding discrete items.  Don't expect the impact from discrete items to be as material in 2012 as in 2011.
  • Spent $60MM less on capex - variance is due to timing on a land purchase and cash payments on construction
    • $65MM of their capex for 2012 is carryover from 2011
    • $35MM on new investment on properties developed by them

Q&A

  • There is a lot of in the period production versus visibility into future bookings
  • Pace for 2012 is in the low to mid single digits.  70% of the bookings are already at 4% higher than last year.  40% of the business for 2013 is booked and 25% of the business for 2014 is on the books.
  • There has been a proclivity from meeting planners to book things closer to the date.  Hence there has been more in the quarter for the quarter bookings.
  • Select service - experienced occupancy impairment due to bathroom renovations - about 150bps of impact on RevPAR
  • Lodgeworks has not had any negative impact for their portfolio.  That portfolio is actually doing quite well.
  • Need more urban representation for their select service brands and that will start to change this year as more of their new stuff opens.  It's also an area of focus for them.
  • Lodgework's RevPAR isn't in the comparable RevPAR #
  • They are seeing some interesting opportunities on the select service side.  Deal activity in the 2H11 was low in the US - more outside of the US
  • 50% of their margins growth for last year were due to 1x credits.  
  • Cost per occupied room decreased 2% in the quarter
  • Atlanta still had some rooms out of service, but the Atlanta market had negative high single digit RevPAR so that didn't help
  • Was there still some renovation impact in the quarter?
    • Atlanta hurt them
    • Select segment bathroom renovations hurt them
    • These 2 items hurt RevPAR 200-250bps (2/3 Atlanta)
    • NY & San Fran had a great quarter YoY - "as expected" and close to what they underwrote
  • Their presence in Europe is just city center high end hotels.  They don't serve local markets. So they have seen demand for their hotels hold up. 
  • NA managed portfolio is 45-50% driven by group business
  • 2011 displaced EBITDA from renovations was $25MM for the first 3 quarters and a tiny bit in 4Q
    • They expect to get that back and then some over time. Underwrote returns in the high single to mid teens.
  • Their SG&A was up 7% for 2011.  4Q had some 1x bad debt recoveries that were one time.
  • Rio - they have been actively engaged to secure entitlements to proceed with that development.  They are in talks to get debt financing. Plan to complete that project well ahead of Olympics.
  • Lodgeworks conversion costs of $15-20MM. They also are converting the Woodfin hotels - also $15MM of cost. 
  • Expect to be active on the M&A side on both ends.
  • Expect to be an investment grade company - 3.5x leverage or better
  • Why so much cash on the balance sheet?
    • They have some forward commitments for $600MM (more disclosure in the 10K)
    • Their capex should be funded from cash from operations
    • Their intent is to use their cash to grow the business
    • Opportunities in lodging tend to come in large chunky sizes - so they like having the flexibility to act
  • Lodgeworks - paid 16.5x for that deal which was highly dilutive?
    • Their deals aren't trades and it will take time for them to make a return.  
    • They don't look at the multiple they paid but what it will do for the company over time.  The number of their managed corporate accounts have increased significantly over the last few years as a result of growing select service.
    • The property level multiple they paid was much lower - 16.5x includes SG&A and other fees paid
  • They are very bullish on NY long term
  • Group component of their owned portfolio is about 40%
  • They are modifying their format for the next quarter to be primarily Q&A.  All questions will need to be submitted by 8:30am with the name of the questionaire not disclosed.  There will be live Q&A afterwards.

HIGHLIGHTS FROM THE RELEASE

  • Adjusted EBITDA of $143MM came in $3MM below consensus 
  • Adjusted EPS of $0.31 isn't comparable to anyone's estimates since it includes a $28MM tax benefit.  Our 'normalized' EPS calculation was $0.11, assuming a 35% tax rate and an addback of the $4MM of asset impairment charges in the quarter.
  • Comparable 4Q RevPAR stats:
    • Owned & leased: +6%
    • NA full service: +6.5%
    • NA select service: +5.5%
    • International: +2.9% (3% ex FX impact)
  • There were 7 property additions in the quarter
  • “In New York City, we have four new or recently renovated hotels that have opened within the last 24 months. The momentum continues with several hotels in development that will double our presence by 2014, giving us an extremely well-located, essentially new property portfolio representing almost all of our brands in New York City within two years.”
  • Owned & Leased:
    • "Excluding expenses related to benefit programs funded through Rabbi Trusts and non-comparable hotel expenses, expenses increased 2.4%"
    • "As part of the acquisition of assets from LodgeWorks, the 150-room Hyatt House Boston/Burlington was added to the portfolio. The property was previously managed by the Company."
    • "One hotel, Hyatt Regency Crown Center, was removed from the portfolio, as the lease agreement expired."
  • NA  Management & Franchising portfolio changes:
    • Hyatt Regency New Orleans (managed, 1,193 rooms)
    • Hyatt House Philadelphia/King of Prussia (managed, 147 rooms)
    • Hyatt Place Waikiki Beach (franchised, 191 rooms)
    • 2 hotels were removed (including Hyatt Regency Crown Center)
  • International Management & Franchising portfolio changes:
    • Park Hyatt Abu Dhabi Hotel and Villas (managed, 306 rooms)
    • Andaz Shanghai (managed, 307 rooms)
    • Hyatt Regency Danang Resort and Spa (managed, 295 rooms)
    • Hyatt Capital Gate, Abu Dhabi (managed, 189 rooms)
  • Pipeline of 170 hotels (or more than 38,000 rooms) with approximately 70% outside North America.
  • 4Q Capex: $115MM
    • Maintenance: $43MM
    • Enhancements: $68MM
    • Investments in new: $4MM
  • Debt: $1.2BN; Cash & equivalents: $530MM; Short term investments: $590MM
  • 2012 guidance:
    • Capex: $350MM
    • D&A: $350MM
    • Interest expense: $70-75MM
    • Hotel openings: 20