HYATT Q4 2014 CONFERENCE CALL NOTES

OPENING REMARKS

  • Executing on asset recycling program
  • Sold $1.6b of assets in 2014 at 13x EBITDA
  • Accelerated plan to sell almost all of limited service hotels in Q4 due to favorable conditions
  • Grown market share in limited service - grown number of properties by 50% since IPO
  • Owned portfolio continues to evolve to stronger, higher quality, and more strategic hotels
  • Pulled 4 more hotels off the market
  • Return of capital - in Q4 repurchased $215m in stock, most were class A purchased in the open market
  • $69m more repurchased in Q1 through last Friday
  • Q4 earnings came in below expectations due to: 1) $22m in non-recurring stock comp expense, 2) transactions - $8m negative impact for Q4 adjusted EBITDA, 3) $3m negative Fx impact, 4) some weakness in international hotels
  • Stock comp should run $2-3m per year going forward
  • Occupancies are at record level in United States
  • Group revenue would've been up 3% if you exclude 3 problem markets - don't see the Q4 problems persisting
  • Group should continue to recover in 2015 and beyond in US
  • Eurozone underperforming except UK
  • Middle East saw drop in inbound from Russia
  • Eastern Europe not good
  • Weak market conditions in HK and Seoul
  • Margins in Americas higher than elsewhere:  up 50bps vs down 240bps
  • Excluding Seoul, margins would've been flat YoY on owned
  • F&B revs were flat despite higher occupancy driven by a handful of hotels - should track RevPAR over time
  • NYC - 2 Hyatt hotels in the comp base
  • NYC represents 9% of adjusted EBITDA
  • 9 hotels in total in NYC
  • Big supply growth will continue to negatively impact those hotels
  • Hyatt Centric - full service lifestyle brand. First ones will open in Chicago and Miami in Q2. Should have 15 by year end.
  • 2015 - 1/3rd of business is outside of the USA. 2015 EBITDA could be impacted by $20m of Fx versus in 2014
  • $70m negative EBITDA impact on 2015 due to H being a net seller in 2014 - $25m in Q1 and Q2 and $20m in Q3
  • By year end, 20% of hotels will have been open less than 3 years

 

Q&A

  • Q4 timeshare is a good run rate since sale was early in Q4
  • NYC is primary destination for inbound traffic from Europe - started the year weak but compare is tough (Superbowl last year)
  • Centric will have 3 ownership structures - Hyatt owned, Hyatt managed, and franchised
  • Will continue to use balance sheet to fund growth
  • No time pressure on redeploying asset sale proceeds for 1031 purposes
  • No CFO update
  • Sees active transactions market continuing - Hyatt will be active on the buy and sell side
  • 2015 should be as active as 2014 on the transactions front - while H was a net seller in 2014, they don't know on which side they will come out
  • Will look at property purchases, management deals, and brand acquisitions
  • Tax rate for 2015 mid to high 30s%
  • Most of the capital for new Centric's will be more related to signage and promotions
  • Owned and lease margin decline of 50bps is a comparable so asset transactions did not have an impact
  • RevPAR and profits will be positive in Seoul sometime this year
  • 4 deals pulled off the market - price, contract structure, capital commitments into the hotels, other development opportunity are the 4 criteria looked at
  • India has been under pressure for 3 years but negative progression is slowing - new government and lower oil prices are helping
  • Slowdown in development in India
  • China - no real slowdown in hotel development
  • NYC down 20% in RevPAR to start the year - outlook for the year is still positive though
  • Franchise fees up 35% in 2015 - conversions, new franchise hotels, same store growth

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