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Solid earnings and guidance boosted by lower CostPAR


  • Strong F&B flowthrough led to above consensus results, driven by better banquet business
  • Strong increase in demand in their group business accelerated in the quarter with occupancy increasing more than 5%.  Rate increase was 1.5%.  7% increase in group RevPAR this quarter which was better than transient growth
  • 6% increase in special corporate rates
  • Government business declined by less than 3%
  • Transient volumes decreased a little and overall transient grew just under 5% due to less availability of rooms
  • Total bookings for the remainder of the year are 7.5% of less year and revenue improvement should be 10%.  2013 should benefit from increased business spending.
  • Acquired Hyatt DC for a better price than the one they had orginally negotiated last year
  • Have one smaller asset under contract, which is expected to close in late summer.  Also actively marketing several additional properties which are expected to close during 4Q.
  • Seeing great results from our three recently redeveloped hotels, the Chicago O'Hare Marriott, the Atlanta Perimeter Marriott and the Sheraton Indianapolis, where RevPAR is running better than 35% ahead of three renovation levels
  • Doing some incremental renovations on the Helmsley, NY (lobby and new restaurant)
  • Expect industry fundamentals to remain solid for the remainder of the year
  • Believe that the growth cycle in lodging will be sustained
  • Individual market performance commentary:
    • Philadelphia:  Top performing market with RevPAR+ 23.7% (Occupancy: +13%, driven by strong group and transient demand, ADR: +4%). Results for the Q benefited from the 2011 rooms and meeting space renovations at the Downtown Marriott.  Excellent F&B growth. Expected to be a top performing market in 3Q due to strong group and transient demand, which should allow us to drive pricing.
    • Chicago:  RevPAR: +11.1% (ADR: +7% and Occupancy:+3%); both citywide and overall group demand were excellent. The increase in group business helped drive a 15% increase in F&B.  Expect hotels to underperform in 3Q due to lower levels of citywide and group demand YoY.
    • Boston:  RevPAR: +10%(ADR +8%; Occupancy +1.5%) despite the ongoing renovation of the Boston Copley Marriott.  Outperformance was driven by strong corporate group and transient business which allowed HST to shift the mix of business and benefit from rate compression.  Expect to have a strong 3Q.
    • Atlanta:  RevPAR up 8.3% (Occupancy: 4% and ADR: +1%).  Strength in citywide association and transient demand, while ADR increased over 1%. Expect to underperform in 3Q due to renovations at the Ritz-Carlton Buckhead and the Four Seasons.
    • San Francisco:  RevPAR +8.2% (ADR +7%). The improvement in ADR was driven by rate increases for both group and transient business and F&B revenues increased over 11%. Expect to continue to perform very well in 3Q.
    • New York:  RevPAR 4.8% due to growth in ADR.  Negatively impacted by the second and final stage of the rooms renovations at the New York Marriott Marquis and the Sheraton New York and a rooms renovation at the W Union Square.  The renovations at the Marquis included the addition of eight new rooms at a cost of under $300,000 per key but HST had to shut down the whole floor in order to finish the construction.  Expect better performance in 3Q.
    • Miami Fort Lauderdale: RevPAR -20bps (ADR +3%; Occupancy -3%). Weakness was due to less transient and group demand. Expect better performance in 3Q due to better group bookings.
    • Year-to-date: Los Angeles +10.6%. 
    • Our worst performing market has been San Antonio with a RevPAR decrease of 4.6%.
    • European JV: Results continue to exceed expectations.  Inbound travel to the Eurozone from the U.S., UK, Asia and the Middle East continues to be strong and as a major source of euro lodging demand. The Hotel Arts Barcelona, the Sheraton Warsaw and the Crowne Plaza Amsterdam, all had strong RevPAR increases for the quarter while Brussels and Madrid hotels struggled.
  • Comparable RevPAR should be driven by both ADR and Occupancy 
  • Continue to see improvements in catering, meeting room rental and audio-visual revenues, and better F&B margins.
  • SG&A and marketing,repairs and maintenance increased 3.5%, primarily driven by expenses that are variable with revenues (credit card commissions, guest reward programs and clustered and shared service allocations). 
  • Utility costs were down 3.5% and property taxes increased 6.6% while property insurance increased roughly 14%.
  • Expect unallocated cost to increase more than inflation particularly for sales and marketing where higher revenues will increase cost
  • Property insurance all renewed by June 1 - rate increases they received were only 7% vs the expected increase of 15%
  • Property taxes are only increasing 6% vs their prior expectation of 8-9%
  • Utilities will be down slighly for the year vs. prior expectations for a 1-2% increase 


  • Group business in 2012:  roughly 25% of that business was booked when rates were softer. Very little of that "soft" business left on the books for 2013.
  • Special corporate rates tend to be below rack rates, and given the amount of special corporate they had probably held back pricing a bit in the quarter
  • Expanded the scope of their Orlando renovation and the net effect of that including adding a bar/restaurant at the Helmslely should result in better EBITDA from these hotels going forward
  • Mid 13 range on their acquisition price
  • Attrition/ cancellation clauses: they are seeing the ability to negotiate better terms on these clauses where occupancy is stronger
  • More than 90% of their group business is already on the books for 2012 so they may not book as many rooms YoY as last year given the reduced capacity
  • RevPAR growth rate in the 4Q vs. 3Q? Don't necessarily see a big difference in trends between the 2 quarters
  • Do expect that a number of the hotels that they are marketing will close by the end of the year, however, only one of the hotels met the standard of being excluded from ongoing operations. 
  • Expectations for a pick of M&A activity in 2H12 have moderated, however, there are more opportunities in the market today. For the full year, they still expect to be a net acquirer of assets.
  • Washington market is closer to their prior peak than other markets, but the Hyatt DC is about 8-10% below prior peak. The upside from owning this hotel is the good location and their long term view on DC.  They believe that this will continue to be a very strong convention market.  Seeing increase in 2015-2016 booking volumes.  Expect to see an accelerated level of activity in that market in 2013.  The location is also in the heart of convention activity in town. 
  • Depending on where pricing goes will influence whether they will be a net buyer or seller of assets
  • Wages and benefit increased a little more than 3% this past quarter, but on a per occupied room basis it was only about 1%. Expect that increases for the rest of the year will be a little north of 3% but on a per occupied room basis only about 1%. 
  • Is food inflation an issue?  HST actually had a margin improvement due to better menu management and procurement synergies.  They are not seeing food inflation as an issue.
  • Still expect the bulk of their investment to be in the US.  In Europe, they would be interested in London, Paris and Germany which they feel are more defensive and would perform better.  In Brazil, they would like to buy more full service hotels there.  They believe that there is also an opportunity in Select Service to capture the rising middle class.  In Asia, their efforts are mostly focused on Australia, Singapore and HK. 
  • Want to be a lower leveraged company then where they were at the last peak cycle - so at or below 3x leverage level 
  • Expect European RevPAR to be similar for the remainder of the year.  Expect similar 3-4% RevPAR growth for the full year.  Seeing relatively good group activity throughout Europe.  Seeing some benefit from weak Euro on US travel to the region. 
  • Major 2013 renovations planned? 
    • Nothing as major as the ones they had this year, although they would be surprised if one or 2 hotels don't creep into their capital plan where they see opportunity.  Think that that they are fairly caught up on capital projects.  Don't expect as much disruption next year. However, they are not done with their capital allocation plans so it's a bit early to say.
  • Some of their planned capital spend does consider improving assets that they want to sell so that they don't get dinged on the sale price.  Room renovations may not make sense since there are a lot of rebranding opportunities upon a sale but some things like roofs and maintenance do make sense. 
  • Last cycle they sold 35-36 hotels. Not sure that they will be as active of a seller but they do want to reduce non-core exposure.



  • "The increase in total revenues for the second quarter and year-to-date 2012 reflect the improved performance of the Company's owned hotels due to improvements in comparable hotel RevPAR of 6.1%... and year-to-date and improvements in comparable food and beverage revenues of 5.7%, respectively. In addition, the improvement in operating results for year-to-date 2012 includes operations for the ten hotels (nearly 4,000 rooms) acquired in the first half of 2011, which increased revenues by an incremental $56 million. If the Company reported its results on a calendar quarter basis, then comparable hotel RevPAR would have increased 6.8% for the second quarter 2012"
  • "On July 16, 2012, the Company acquired the 888-room Grand Hyatt Washington, D.C. for approximately $400 million....The acquisition has been funded with available cash and a draw under the revolver portion of the Company's credit facility. The Company intends to repay a portion of the revolver draw, as well as other debt, with proceeds from a five-year term loan currently under negotiation. The Company has received commitments from a number of banks"
    • Preliminary terms: 
      • $400MM
      • L+180bps (2.1%)
      • Closing by end of July  
  • "The Company continued to actively pursue its strategy of extending its debt maturities and lowering its overall cost of debt."
    • On June 7, 2012 the Company entered into a $100 million mortgage loan secured by the Hyatt Regency Reston and due in 2016, with an additional one-year extension at the Company's option
      • Terms: 1 month LIBOR+310bps (3.34%)
    • HST issued $650MM of debt in 1Q12 at an average interest rate on 5.3% and used the proceeds to reduce approximately $1BN of debt during the quarter, with an average GAAP interest rate of 6.8%. 
    • Proforma for the Hyatt DC acquisition and new term loan, HST will have $760MM of availability under its R/C, cash of $150MM and total debt of $5.3BN
  • In 2Q HST issued 3.1MM shares of stock at $15.75 with net proceeds of $48MM. $350MM of issuance capacity remains under the April 2012 Sales Agency Financing Agreements
  • Capex spend in 2Q12:
    • ROI: $50MM
    • Acquisition: $50MM
    • Renewal and replacement: $79M