H Q2 2014 CONF CALL NOTES

Q2 Group shift (impacted f&b too) plus international (Seoul and Bishkek) drag down an otherwise good quarter – asset sales and more buybacks forthcoming. Outlook positive



PREPARED COMMENTS

 

Q2 Results & Outlook

  • RevPAR results driven by ADR increase
  • Owned & Leased: negative comp due to calendar and strong results at 5 hotels in 2013. 
    • Margins: Americans +100bps  Outside Americas -400 bps (Seoul and Bishkek were poor)
    • Q2 Group RevPAR +1.5%, impacted by Easter but H1 Group RevPAR +5.1% YoY 
  • Fees:  No fees at four French hotels in 2Q vs YoY.   Difficult Q/Q comparisons for the French hotels will continue through 2014.
  • Outlook:  60% of 2015 on the books, pace up in Q2.  Catering pace +10%

Growth & Trans

  • 8 of 9 hotels remain on market, decided to take 1 asset off the market.  The 8 hotels earned $40 million in EBITDA in 2013.
  • 42 of 44 select service hotels recently listed for sale, earned $45 million of EBITDA on LTM minus management fees. 
  • On track to close on Hyatt Residental Group with ILG. 
  • Maui Property $35 million sale at cost
  • ILG will pay ongoing fees per licensing agreement
  • Acquisitions: actively seeking  
  • Gateway: Park Hyatt $375 million plus pre-opening expense, expect to open in August. In discussions to revise acquisition, may acquire 100% of the hotel at original contract value plus $10m to $15 million = $385 to $395 million.  May purchase for all cash.  Allow for deferral of gains on sales if purchase 100%.

Capital Allocation

  • Remains unchanged.  Grow business and finding opportunities to recycle capital back into the business.
  • Acquisitions via dispositions (disposition proceeds used to buy acquisitions)
  • Expect to return capital to shareholders via repurchases. 
  • Maintain investment grade credit rating - keep gross debt / adjusted EBITDA below 3x.
  • Ample disposition proceeds to fund acquisitions, so expect to continue to return capital to shareholders via share repurchases.

 

Q&A

  • Group business - was Easter shift the driver of under performance?
    • America's full-service segment RevPAR negative impact by 250 bps
  • Group trends for rest of the year?
    • Select service RevPAR is a proxy for transient demand and transient demand quite strong, Q3 more transient led, while Q4 more corporate and leisure led demand. 
    • Encouraging signs for association and corporate lead times into 2015 - expansion of booking curve
  • Group pace for H2?
    • H1 Group revenue +5%, pace 8% for 2015 
  • O&L RevPAR vs STR?
    • O&L in 2013 +7%, exclude two hotels outside Americas then 80 bps improvement in aggregate - actual RevPAR at two assets was -10%.
  • Margins? 
    • Q2 2013 margins up 230 bps, market specific Seoul and Bishkek Kyrgyzstan (-250 bps)  Seoul new supply, Bishkek demand issues due to US military airbase shutdown.
  • Playa Resorts
    • $4 million of JV EBITDA vs. $13-$15 million for 2014, now at the low end of the range. Focused on getting assets up and running.
  • Asset sales/recycling?
    • Select service - too early in process to comment but likely a six month process.  Could be one large portfolio or three portfolios of 32, 6, and 4 assets.  Older assets.  Hyatt House brand for past six years. 
    • Full service - expect six to nine months from listing to closing.  Listed in Q1 and expect similar timing.
  • Capital Allocation?
    • Dynamic process weight current commitments vs. future opportunities
  • Opening Pace?
    • Executed contract base remains strong, contract base is seasonal - more signings toward year end. Overall level of activity in India abated pending election, now moving from concern to optimism.  China remains consistent, more activity with select service brands, evolving.
  • Other Income line composition in Income Statement?
    • $20 million from sale of Hyatt Place in Austin - looking foward, difficult to forecast due to equity and cost methods of accounting
  • Hyatt Residential Group details and sales?
    • Time share 2% of total Adj EBITDA in 2013
    • Going forward: licensing fees of couple million per year
  • Recent Acquisition proformas?
    • Hyatt Regency Orlando on track to earn $55 million  San Antonio doing slightly better than expectations.
  • Park Hyatt NYC proforma expectations?
    • Return in high single digits, remains current expectation, will go through ramp up, encouraging partnerships
  •  Seoul & Bishkek issues - when do comps get easier/anniversary?
    • Seoul - comps easier in Q4 2014, on going market challenges due to North Korea and travel issues for Japanese and Chinese traveler into South Korea.  So market issue will not get easier anytime soon.
    • Bishkek - less than $5 million in 2013 EBITDA.  Difficult due to limited market and loss of US Foreign Service/Diplomatic/Military travel.
  • 2015 Group Pace Commentary - below peer pace estimate for H2 2014?
    • Short term bookings of IQFTQ - hopeful bookings will come through.
  • Asset sales - buyer universe for limited service buyers and valuation expectations?   Tax implication for portfolio sale?
    • Buyer universe:  know the public REITs, non-listed REITs, private equity
    • Not trying to tee-up deals for tax deferral but rather manage in normal process of acquisitions and dispositions.
  • Group demand duration?
    • Look to be on the ascension of group demand and progression for group, demand building on its own and not recovered on rate

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