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Here are our notes from the Hyatt Q2 conference call.

 

"We are pleased with improved transient demand experienced by many of our properties in the second quarter. At several properties, particularly those in international markets, average rate increases resulted in strong RevPAR growth versus the second quarter last year. Our fees increased over 16% due to RevPAR growth and new hotels in our portfolio. The group booking cycle continues to be short but we saw increased levels of booking activity for future periods during the second quarter. We experienced strong margin performance in our owned hotels despite the fact that the revenue increase was driven primarily by occupancy gains."

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

HIGHLIGHTS FROM THE RELEASE

  • "The Company has begun renovations at these properties [5]and expects that displacement, resulting from a reduction in daily room inventory of approximately 400 rooms on average per day through year-end 2010, will negatively impact owned and leased segment results in the third and fourth quarters of 2010."
  • 2010 Guidance:
    • Capex: $270-280MM
    • D&A: $285-295MM
    • Interest expense: $50-55MM

CONF CALL NOTES

  • Improvements that they have seen in the business this year has been driven by better demand. Rate improvements that they began to see in the first quarter continued in the second Q.
  • Group rates still saw a YoY decline, however, group demand increased
  • Expect to see higher corporate rates coming out of rate negotiations later this year
  • International managed & franchise strength was helped by the World Cup in Johannesburg, Shanghai expo and new openings
  • Plan to achieve earnings results by improving performance at existing hotels and growing their base of rooms
  • After the close of the quarter, they opened the Andaz on 5th Ave in NYC
  • Investing $60MM in a New Orleans asset in the form of preferred equity which will help redevelop the property
  • Exploring the sale of 11 properties / 4,500 rooms. Plan to keep them in the managed portfolio and sell them to owners who will invest in the assets. Expect the sale process to take several months.
  • Fees were partially higher by the increased number of rooms in the segment
  • Revenues from transient customers were (leisure and corporate) up 10% YoY, due to a 13% increase in rooms sold
  • Owned & Leased:
    • Results in NA were helped by the US Open (CA) & G20 summit in Toronto
    • Margin improvement was helped by productivity gains 
    • Lower cancellation and attrition fees YoY impacted margins by 40bps
  • Full Service North American mgmt/franchised - 45% of hotels showed rate increases. In June, rates were positive overall.
    • Corporate hotels were up while resort were down on rate
    • Group bookings pace is now ahead (from June)
    • In the quarter, bookings were up 35% for future quarters
    • Group rates were down in the single digits this q, but are up 5% on forward bookings made in the quarter
  • Booking window hasn't changed, so they are operating with low visibility
  • Select Service hotels:
    • Occupancy gains were driven by initiatives to increase midweek corporate and transient business
  • International business mgm'd & franchise:
    • Europe and Asia were very strong
    • RevPAR in China increased 50%
    • 45% of their hotels showed rate increases in the Q (compared to 35% in the first quarter)
    • Europe & Africa were strong
  • Higher incentive comp and professional fees drove the SG&A increase

Q&A

  • Still expect to open 25 hotels this year
  • Expect expenses to continue to increase (bonuses and wage increases). Will keep staff constant for the short term, aside from cleaning staff - which varies with occupancy. Flow-through will depend on what ADRs do
  • M&A/ Uses of cash?
    • Focused across the capital structure 
    • Does believe that in the 2H2010 and 2011 there will be a pick up in M&A
  • Corporate group pricing and volumes in 2011
    • Working off a low base to begin with, so they definitely expect to see rate increases, but the amount depends on the account - range is low single digits to double digits. Expect high single digit increase
    • Still early to talk about 2011 - 50% of their bookings are within a 3 month window
  • RevPAR impact of 200-250bps by the renovations. Some renovations can push into 4Q2011
  • Property in San Diego and rumors around it?
    • They were in discussions with the current owner group (Manchester group) but there is nothing going on at this point
  • It's important for them to exit the base of Hyatt owners
  • Feel like they have a significant investment in hotels already and want to increase the velocity of recycling their capital
  • Why did they select the portfolio of 11 assets to take to market now?
    • The properties tend to be in suburban or secondary urban markets in the Midwest and West Coast
    • Some of them have capital needs
    • It comes down to value for them and their peak earnings potential
    • Part of it is that they can use this as an opportunity to get some more franchisees out of these properties
  • The 5 assets that they are currently renovating were at the top of their priority list, not sure if there are other big ones to come yet
  • Progression in China has been very significant so far. There is a significantly lower group component internationally - so the outlook is quite short. In NA, group business is 45-47% of total.
  • Thoughts on investing internationally vs. domestically?
    • Already announced a deal in India and are working on a JV deal in South America
    • Internationally, they are mostly JV deals.