H Q1 2014 CONF CALL NOTES

Strong growth in owned & leased segment segment drives better Q1 results

 

PREPARED REMARKS

  • Results: broad strength around the world based on strong top line RevPAR; owned & leased margins expanded; positive results from acquisitions/transactions; and managed & franchise fee growth
  • Group +9% US managed full service, occupancy levels higher and F&B up mid-single digits.  Total group production +11% in Q1 2014 while production was up MSD in Q2 2013 and HSD in Q3 and Q4 2013.
  • Group revenues booked in the quarter for the year +13% = stronger 2014 pace and 2015 pace +200 bps
  • Transient rate +6%
  • Transactions:
    • Hyatt Regency Orlando ~$55M of EBITDA in 2014, but 1/3rd of earnings in Q1
    • Hyatt San Antonio ~$25M of EBITDA in 2014 and 1/3rd booked in Q1
    • Playa: Hyatt Zeba and Zolara Brands performing well
    • Sale of 10 assets to RLJ, continue to manage - purchased in 2011, rebranded, and recycled
    • Sold 50% JV interest in Hyatt Place Austin $7M of equity invested, received $25M of sale proceeds
    • Recycled Hyatt Regency NO, Waikiki, Seattle...
    • Pending: Hyatt Regency Grand Cypress Orlando for $190M expect to close in Q2, currently consolidated as owned and lease via capital lease, no change to reported EBITDA but Balance Sheet $190 cash, -$190M in debt and change in interest expense.
    • Other: currently marketing 9 full-service hotels
  • Return of capital: active in returning capital to shareholders during Q1 with over $85 million of Class A shares re-purchased since the beginning of the year at a weighted average price of about $52.00 per share. 
  • Ample liquidity and strong balance sheet which will allow Hyatt the flexibility to execute on opportunities
  • Trends: Group healthy, occupancy at record levels, strong ADR growth, F&B spend increasing limited supply.
  • Outside US:  Most regions stabilizing including China, opened 8 hotels in Q1 and 7 were in new markets
  • Q2: variability due to:
    • Easter shift
    • seasonality of 4 hotels in France, during Q1 France hotels were operating below trend by $15M, but in Q2 expect to earn in excess of threshold and will flow thru other income line but not expect.  But base management fees of $7M during Q2.

SUBMITTED QUESTIONS

  • Isolate Easter shift:  Full service managed +250 bps = $3-5M of EBITDA
  • Select service vs. full service:  select service underperformed because of renovations as well as poor weather in the East and Northeast regions during Q1
  • Group:  strength in SF, Orlando, San Antonio, and Chicago while WDC was weak, driven by Easter shift and strong production and minimal renovations impact
  • Currency negative impacts from C$, Mexican Peso and South American currencies
  • Asset recycling: additional hotels beyond 9 announced - remain opportunistic, no plans beyond current 9 listed assets.
  • Playa Resorts:  Q1 EBITDA $13M-15M for 2014, 1/3 in Q1, pleased with performance, 2 add'l hotels rebranded before year-end, early stage of investment, too early for long-term discussions
  • Four French Hotels - renegotiate contact:  no change to contract and structure but having discussions, so volatility to continue
  • Share repurchases - increasing all 2014 repurchase are Class A shares and 10Q will reflect share counts of Class A 42.5M and Class B 112.5M
  • Repurchase authorization - ongoing review, Board will address
  • Capital base - used to invest in business as well as return to shareholders, and currently doing both strategies.
  • Fees: How guide managed vs. franchise fees due to conversions - fees for 50% of the sold hotels moved/will move from managed to franchise and 200 bps of the increase in franchise fees during Q1 (of the 14% increase) are due to this shift in fees
  • Park Hyatt New York:  expect to open in Q3 2014 and will purchase 67% $250M commitment by Hyatt and will finance 50% of price and EBITDA impact negligible in 2014
  • Geographic focus - brand dependent but for
    • Full-service London, Miami, SF, HK, LA, Brand dependent
    • Select: Urban
    • Resorts: Mexico and Caribbean in NA with Playa     Thailand and China
  • Does the EBITDA growth of +14% in Q1 2014 imply a high single digit EBITDA growth for remainder of 2014 -- when compared to the slide during the analyst meeting where the compound annual growth rate in EBITDA for 2014-2016 was illustrated at mid-teens rate? No, should not read into that slide...nor does the slide imply any EBITDA growth rate guidance for the remainder of 2014.
  • $7.5B of asset value of owned hotels - include leased and/or JV assets (investor presentation slide page 88) does not include JVs nor leased hotels, excluded by design due to valuation differences.  

LIVE QUESTIONS

  • Margin improvement and flow through sustainable - strong rate growth in Q1 had significant impact.  Feel good but benefit costs will rise.
  • Asset recycling what does the market look like for full vs. select service? 
    • Buying: looking for unbranded or conversion opportunities in targeted markets.  Deals delayed or deferred are now coming to market, so overall volume very healthy. 
    • Sales side: process take 6-9 months to execute
    • No select service properties currently listed for sale, view as opportunity to expand institutional ownership - i.e., recent sale to RLJ.
    • Deployment back into select service - focused on urban developments
  • Group strategy and room allocation between group/transient; Group 40%-45% of total, group was very strong in Q1 and extremely encouraging for pace and future, as progress expect to see more rate movement, increasing opportunity of Hyatt Regency convention network.  Gov't business today <2% of business but in Q1 segment was up, so after declining occupancy and rate, finally turned higher. 
  • When prefer to sell vs. buy additional hotels - will be active on both sides through the cycle.  From asset and earnings perspective with both buys/sells then match funded, but looking to improve quality, plenty of time remaining in the cycle.
  • Any value to lightening up "owned" EBITDA as cycle progresses - mix will change over time.   
  • What is 2014 pace tracking vs. last quarter - increased 200 bps, similar to one year ago. 
    • Association business steady
    • Corporate increasing and technology (hardware, software, and consulting), manufacturing, pharma, insurance, and other financial services are very strong.

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