Hyatt Hotels Corp (H) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2016 Hyatt Hotels Corporation earnings conference call. My name is Sharon, and I will be your operator for today.

(Operator Instructions)

As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Miss Amanda Bryant, Director Investor Relations. Please proceed.

Thank you, Sharon. Good day, everyone, and thank you for joining us for Hyatt's first quarter 2016 earnings call. Here with me in Chicago is Mark Hoplamazian, Hyatt's President and Chief Executive Officer, Pat Grismer, Hyatt's Chief Financial Officer, and Brian Karaba, Hyatt's Treasurer and Senior Vice President of Investor Relations and Corporate Finance.

Mark is going to start by providing a high-level review of our results before covering a few key trends and drivers underlying our performance this quarter. Mark will also highlight how our performance is aligned with our long-term growth strategy. He will then turn it over to Pat to provide details on our financial performance during the quarter, and to provide an update on our full-year outlook, then, we will take your questions.

Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued earlier today along with the comments on this call are made only as of today, May 3, 2016, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You can find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at Hyatt.com under the Press Release section of our Investor Relations link and in this morning's earnings release. An archive of this call will be available on our website for 90 days per the information included in this morning's release.

And with that, I will turn it over to Mark to get started.

Thanks, Amanda. Good morning, everyone, and welcome to our first quarter 2016 earnings call.

First of all, I would like to take this opportunity to welcome Pat Grismer, our new CFO, to the call. Pat joins us from Yum! Brands, where he most recently served as CFO for the past four years. It's great to have you here, Pat.

This morning, in addition to providing an overview of our first-quarter results, I'll share our perspective on underlying booking trends for transient and group business and also outline the progress we're making with key initiatives and how they support our long-term strategy. I'll then turn the call over to Pat who will walk through more details of our results for the quarter, and our outlook for the remainder of the year.

As you can see from the results we released this morning, our business continues to perform well. During the first quarter, adjusted EBITDA increased 9% after adjusting for foreign currency translation and the net impact of transactions across the portfolio. The net impact of transactions primarily relates to the opening of the Grand Hyatt Rio de Janeiro in late March, and its related pre-opening expenses during the first quarter.

Importantly, we grew earnings in each of our business segments on a constant currency basis. This growth was underpinned by good RevPAR growth, strong momentum in new hotel openings, and ongoing disciplined cost management. Regionally, we delivered strong overall performance in our management and franchising operations.

The Americas enjoyed both strong top line and bottom line growth, whereas our Europe, Africa, Middle East and Southwest Asia region saw weaker top line performance, but strong EBITDA increase. Asia Pacific meanwhile enjoyed positive top line growth, but flat EBITDA on an as reported basis. Pat will provide more details on our performance by region later in the call.

First quarter comparable constant dollar RevPAR growth of 2.2% was led by our owned and leased portfolio in which we realized a solid 3.7% increase on a constant currency basis. More importantly, we grew share as measured by RevPAR index across the board, with our owned and leased hotels realizing the highest increases in the quarter.

I believe these results reflect the progress we're making to sharpen our brand positioning, refine our brand communications and improve our hotel operations. All within the context of fulfilling our purpose as a Company to care for people so they can be their best.

Margins at comparable owned and leased hotels were stable in the quarter at 25%. Pat will outline the drivers of our margin performance later, but I am confident that our teams remain very focused on managing costs and identifying revenue opportunities while protecting and enhancing the guest experience.

I am also very pleased with the progress we are making on new hotel openings, which remains an important driver of long-term growth at Hyatt. Between the first quarter of 2015 and the first quarter of 2016, our existing hotel base increased 9% from 567 open hotels to 618 open hotels, driving an increase of over 10,000 hotel rooms in the Hyatt system over the 12-month period. Substantially all of these new hotel rooms are third-party owned hotels that are managed or franchised by Hyatt.

This level of third-party ownership is also reflected in our executed base of contracts for future hotels. This opening pace and our executed base of contracts for future hotels demonstrate the confidence that developers have in our brands, and the potential for future earnings growth. 2016 is expected to be a year of record hotel openings at Hyatt, as we expect to open more than 60 hotels this year.

Through April, we have already added 21 hotels, representing over 4,000 new rooms to our system. One of the most notable additions was the March opening of our Company-owned and developed beachfront Grand Hyatt Rio de Janeiro in advance of the Olympic Games to be held in Rio later this year.

Now I would like to discuss some key trends in our business and some key drivers of long-term growth. First, I want to share our perspective on group and transient trends that we are observing in the marketplace. For the second year in a row, transient business, which accounted for about 50% of our US room revenue in the first quarter, was particularly strong in the quarter.

In the US, transient room revenue at comparable US full-service hotels increased 9.8% in Q1. This performance is even more impressive when you consider that transient revenue was up 6.7% during the first quarter of 2015, which was essentially all driven by rate increase. Particularly strong transient markets in the quarter included Hawaii and San Francisco, which helped to offset relative softness in markets such as New York which continued to be under pressure.

Turning to our group business, group room revenue at comparable US full-service hotels was down 3.5% for the quarter. The timing of Easter predictably had a negative impact on group business. To put this in perspective, accounting for the shift in the Easter week, group room revenues would've been up over 1% in the quarter.

As we look forward for the remainder of 2016, transient business continues to be strong and our group outlook remains positive. Over three quarters of our group business forecasted for 2016 is already on the books. Compared to similar timeframes in 2015, we have about 4% more business on the books in the second quarter and over 10% more business on the books in the third quarter.

Booking pace at US full-service hotels is up in the low single-digit percentage range for 2016, which is consistent with where it was at the end of last quarter. With respect to 2017, group pace is up in the mid single-digit range, and about half of our 2017 group business is now on the books. In April our production for 2017 was up versus last year, which is especially impressive given that the first quarter pace for 2017 was already up mid single digits to last year.

Lead volume is very high, and the incidence of the cancellations remains low. As such, although group production for near-end business got off to a slow start in January and remains a bit sluggish, we look to the remainder of the year with optimism because we believe we will see constrained room block availability, and increased price realization opportunities over time.

We've seen a lengthening of the booking curve, which we believe is evidence that associations, in particular, are paying close attention to the occupancy levels, and are sensitive to the need to secure dates that they rely upon for their large gatherings. This period of high occupancy and constrained inventory, coupled with high transient demand, should provide us with revenue management opportunities over the remainder of the year.

Next, I want to take a moment to discuss our launch of the Unbound Collection by Hyatt in March. We are very excited about the new growth opportunities that this new collection brand affords us. As we work to become the most preferred hospitality brand, we remain committed to bringing our brands to life through powerful and distinct experiences.

We've described the Unbound Collection by Hyatt as a collection of stays, because we are focused on the type of experience and occasion of stay more than on the type of property or a particular product. The Unbound Collection by Hyatt will include a portfolio of new and existing upper upscale and luxury properties.

These hotels will maintain their distinct characteristics, while providing guests with our award-winning loyalty program, and providing owners with the benefits of our robust operational and marketing resources, and affiliation with a trusted high-quality brand portfolio focused on high-end travelers.

The Unbound Collection may include owned, managed and franchised properties, which will range from historic urban gems, to contemporary trend-setters. From boutique properties to beachfront resorts. In all cases, the properties will be story worthy, and will carry significant social currency as a core element across the Collection.

The newly acquired Thompson Miami Beach has been rebranded as the Confidante, making it the fifth property in the Unbound Collection by Hyatt. The other four properties include the Driskill Hotel in Austin, Texas, the Hotel du Louvre in Paris, France, the Carmelo Resort in Uruguay, and the Coco Palms Resort in Kauai which is expected to undergo a redevelopment and reopen in spring 2018.

The Confidante acquisition demonstrates well our perspective on capital deployment, which has been a strategic enabler of our growth. By using our balance sheet and by being active sellers and buyers of hotels, we've successfully expanded into key markets in which we had limited or no presence. Our asset recycling has also enabled innovation, and a great expansion of our talent base as we have welcomed great hotel teams into the Hyatt family.

Our acquisition of the Confidante exemplifies Hyatt's efforts to expand our presence in target markets. On previous calls, we highlighted Miami as a key expansion market for Hyatt, and we are thrilled to be able to add to our portfolio such a high-quality beachfront hotel with a very rich history. We also anticipate that the Confidante will benefit from our operational and marketing expertise.

Similar to the plan that we executed at the Hyatt Regency in Mexico City, after we acquired that property, we will increase the meeting space available at the Confidante as we know that we have unmet meetings demand for Miami Beach. We will refine the revenue management approach for the hotel as we welcome new guests into the Hyatt system and also introduce the Confidante to our Gold Passport members.

As we reflect on our hotel acquisitions over the last few years, we've demonstrated a clear ability to move the needle at properties such as the Hyatt Regency Mexico City, the Hyatt Regency Orlando, and the Driskill Hotel in Austin. On a stabilized EBITDA basis, we expect the Confidante to generate a high single-digit yield on our all-in investment.

As we look out over the near term, the hotel transaction market appears to be robust, and we intend to be an active participant, both as a potential buyer and a potential seller. Our strong balance sheet is an important enabler in that regard, and we remain committed to our investment grade standing in order to protect us.

Finally, I would like to highlight how new hotel development is contributing to our future growth. Our executed contract base is approximately 56,000 rooms and 260 hotels. At the end of the first quarter 2015, our executed contract base was approximately 55,000 rooms and 250 hotels.

With respect to openings, we've seen a steady increase over the past few years, 43 hotels in 2014, 49 hotels in 2015, and over 60 hotels expected to open this year. As this pace of opening has accelerated, we've been able to not just maintain but expand our executed contract base. We continue to see strong demand for our brands, and there has been a great deal of interest expressed in the Unbound Collection by Hyatt across the world since we launched the brand.

The hotels in our executed contract base represent over 40% of our existing hotel base and consist of high-quality hotels, the vast majority of which are managed or franchised properties with strong international representation. We expect this base to be a steady source of fee growth in the years ahead.

As you can tell from the first-quarter results, combined with the progress in expanding our portfolio of brands and hotels, we are enjoying strong momentum in realizing the substantial potential of our brands. And with that, I will now turn the call over to Pat who will go into more detail on the quarter.

Thank you, Mark. I am thrilled to have joined the Hyatt family, and excited to participate in my first quarterly earnings call with the Company. With the support of Hyatt's world-class finance team, I am learning the business rapidly, and I look forward to partnering with Mark and the leadership team at Hyatt to drive shareholder returns while sustaining high rates of growth.

I would also like to take this opportunity to introduce Brian Karaba, Hyatt's Treasurer and Senior Vice President of Investor Relations and Corporate Finance. Brian has two decades of lodging industry experience, and has been with Hyatt for the last eight years in positions of increasing responsibility.

I am delighted to have someone of Brian's caliber and experience partner with Amanda to lead Investor Relations, while maintaining responsibility for treasury and development finance. Brian and I look forward to meeting you in the weeks ahead. Today, I'll review highlights of our first-quarter performance and provide an update on our full-year outlook.

As Mark mentioned earlier, we reported comparable constant dollar system wide RevPAR growth of 2.2% in the first quarter, and sustained strong momentum in new hotel development. This drove a 9% increase in adjusted EBITDA, excluding a $4 million impact from foreign exchange and a $3 million impact from net transaction activity across the portfolio. As a reminder, this reflects our revised definition of adjusted EBITDA, which excludes stock-based compensation expense to be more consistent with the financial reporting practices of our peers.

For 2016, we expect stock-based compensation expense to be approximately $30 million which is unchanged from prior guidance. For modeling purposes, restated historical segment data can be found in our Fact Book, which will be posted on the Investor Relations section of our website later today.

Our owned and leased hotel segment, which includes our joint ventures and accounted for about 58% of our adjusted EBITDA before corporate and other expenses in the first quarter, delivered strong results in Q1 with adjusted EBITDA up 10% before the impact of foreign currency and net transaction activity. This included strong performance by the Hyatt Regency Mexico City, Hyatt Regency Orlando and Grand Hyatt San Francisco, and strong results from our hospitality joint ventures.

RevPAR growth at comparable owned and leased hotels increased 3.7% in constant dollars or 2.4% on a reported basis. These results are especially impressive in the context of last year's comp, as well as the adverse impact of the Easter holiday timing this year.

On a two-year basis, RevPAR at owned and leased hotels grew approximately 10% in the first quarter, a sequential improvement over the approximately 8% two-year RevPAR growth we achieved in the fourth quarter of 2015. Additionally, we estimate that the Easter holiday shift negatively impacted first-quarter RevPAR by roughly 150 basis points at our comparable owned and leased hotels, partially offset by an estimated 60 basis point benefit from the Super Bowl in February.

So adjusting for these two items, RevPAR at our comparable owned and leased hotels was up a healthy 4.6% in the first quarter. As Mark mentioned earlier, our owned and leased margins were flat for the quarter compared to the same period in the prior year, as decreased banquet revenue offset the margin impact of positive sales growth.

As I mentioned previously, our joint ventures delivered strong results in the quarter. More specifically, our pro rata share of adjusted EBITDA associated with our unconsolidated hospitality ventures increased approximately $5 million or roughly 20% in the quarter, driven by strong performance at our Playa joint venture.

All-inclusive resort demand has been very strong, and the Ziva and Zilara brands have been well received by Hyatt's loyal customers, and it benefited from Hyatt's unique strength in driving group business. Underpinning Playa's impressive first-quarter results were the reopening of Hyatt Ziva Los Cabos in September 2015, the opening of Hyatt Ziva Cancun in November 2015, and strong group business at the Ziva and Zilara properties in Los Cabos and Jamaica.

Turning to our managed and franchised business, I will talk briefly about regional performance starting with the Americas, which accounted for nearly 80% of our management and franchising EBITDA in Q1.

The Americas delivered a solid first quarter, with comparable full-service RevPAR up 2.2%. Select service hotels were an especially bright spot in the Americas, with comparable RevPAR up an impressive 6.8% in the first quarter. Bearing in mind that comparable select service RevPAR increased about 10% in the first quarter of 2015, our first-quarter results this year represent a two-year stack of approximately 17%.

We are especially pleased that top line growth for our select service hotels again exceeded the industry benchmark for US upscale hotels as reported by Smith Travel Research this quarter, demonstrating that the significant momentum enjoyed by our Hyatt Place and Hyatt House brands in 2015 has sustained into 2016.

Our managed and franchised business in Asia Pacific delivered modest results in the first quarter, with comparable full-service RevPAR increasing 1.9% on a constant currency basis. Although RevPAR growth in Japan and mainland China was up in the mid single digits, RevPAR declined in Hong Kong due to inbound travel restrictions, and declined in Macao primarily due to lower visitation.

Our managed and franchised business in Europe, Africa, the Middle East and Southwest Asia, which accounted for about 8% of our management and franchising EBITDA in Q1, had a soft quarter as expected, with comparable full-service RevPAR declining 5.9% on a constant currency basis. These results were principally driven by three distinct subregions, France, the Middle East and India.

Our hotels in France suffered a double-digit reduction in RevPAR on a constant dollar basis due to a reduction in travel following the terrorist attacks in Paris last November, and the renovation of our largest hotel on the continent. The RevPAR of our hotels in the Middle East also experienced a double-digit decline in RevPAR, due to ongoing geopolitical instability in the region, low oil prices and reduced government spending.

India, on the other hand, remained a bright spot with RevPAR growth in the high single-digit percentage range, driven by increased transient demand across the country.

So to summarize our management and franchise fee business, total fee revenue in Q1 increased about 2% on a reported basis compared to the same quarter in 2015. However, when adjusting for currency impact and for license fees related to Hyatt Residence Club recognized in 2015, like-for-like fee growth was a respectable 5% this quarter.

Having covered the key drivers of adjusted EBITDA for the quarter, I would now like to turn your attention to one particular item below adjusted EBITDA which is our guarantee on certain managed hotels in France. In the quarter, we had a $4 million other loss compared to an $18 million loss in the first quarter of 2015. Of note, this quarter included a $19 million expense related to the performance guarantee for certain managed hotels in France which was offset by other items.

The performance of these hotels was impacted by the terrorist attacks in Paris, as well as a renovation at the largest of the four hotels. Nevertheless, results came in as anticipated.

While volatility in this line item is not unusual, I want to highlight that our guarantee expenses are expected to peak in the first and fourth quarters of this year. Our current expectations for guarantee expenses remain consistent with the disclosure in our most recent 10-K, which indicated total expenses in excess of $50 million for 2016.

Turning now to our balance sheet, which continues to be strong. In the quarter, we successfully issued $400 million of 10-year senior notes. Subsequent to the end of the quarter, we used the proceeds from this issuance to redeem $250 million in senior notes due later this year, and to complete our acquisition of the Thompson Miami Beach. Also as of quarter end, approximately $1.5 billion was available under our revolving credit facility, demonstrating strong liquidity.

After adjusting for the redemption of our August 2016 senior notes and the Thompson Miami Beach acquisition, we remain comfortably below our stated maximum leverage ratio of 3 times EBITDA as defined by S&P. We remain very committed to maintaining our investment grade credit rating.

Moving now from debt to equity. After higher than normal share repurchase activity in 2015 occasioned by high levels of liquidity from significant disposition proceeds from properties sold in 2014, our buyback activity in the first quarter of this year reflects a measured pace of repurchases and a meaningful return of capital to our shareholders, while preserving the flexibility to invest in new growth opportunities.

In the quarter, we repurchased approximately 1.5 million shares for $63 million. Through April 29, we repurchased another 400,000 shares for $21 million, leaving $295 million available under our existing share repurchase authorization.

In summary, our balance sheet provides us with a strong liquidity position allowing us to thoughtfully pursue our growth objectives while returning capital to shareholders. We believe this is a key competitive advantage as we head into a period where we expect to see increasing acquisition opportunities.

As we look out over the remainder of the year, our expectation for system wide RevPAR growth of 3% to 5% in constant currency remains unchanged. April results for our US full and select service hotels were strong.

The transient momentum from the first quarter has carried over into the second quarter, and approximately 85% of our group business for 2016 is already on the books which should provide opportunities to drive yield. Also keep in mind that quarterly RevPAR growth comparisons will get easier as the year progresses.

Moving on to owned and leased hotels, we expect continued strong performance in 2016, in particular, our hotels in Mexico City and Orlando should continue to perform very well.

Importantly, group revenue pace for 2016 at our US owned and leased hotels is up in the mid single-digit range. This remains above the pace for all US full-service hotels, and should yield margin improvement in the back half of the year.

To conclude, we are pleased with our results in the first quarter. Our growth is reflective of RevPAR and market share gains, continued positive transient demand and group pace, and what we expect will be a record number of new hotel openings for the Company. Our early results give us confidence in another year of solid growth for 2016.

I look forward to meeting you in the months ahead, and during the fourth quarter, we will host an investor day to discuss our long-term growth strategy and financial outlook. And with that, I will turn it back to Sharon for Q&A. Thank you.

(Operator Instructions)

Shaun Kelley, Bank of America.

Hey, good morning, everyone, and, Pat, welcome to the quarterly calls. If I could, Pat, I actually wanted to dig into one of the comments you made in your remarks about the guarantee on some of these hotels.

I believe that's related to a few different contracts in France. If you could just elaborate a little bit more on that, because I think there was a pretty substantial loss last year across those hotels as well, and I think we all know some of the destruction that happened in Paris this year. But is there any ability, given the size of the losses of those guarantees, is there any ability at all to get out of these contracts at any point?

Shaun, it is Mark. Let me provide a little background, because Pat's getting up to speed on the history in this, and I've got the history of it. So let me just go through it.

A couple things are at hand here. The first is that France has been very weak, December -- so there were terrorist attacks in November as everyone knows. And in December we saw a mid 20%s decline across our hotels in Paris.

The first quarter was a bit better than that. If you look at France overall, it was down about 16% for the quarter. But there were significant impacts there because the largest hotel in France, our largest hotel in France is the Hyatt Regency at Etoile, and it's 950 rooms and about 250 rooms were out of service in the first quarter for renovation. And we will have 500 rooms out of service in the second and third quarter for renovation.

And this is a renovation that we've been planning for some time, but it has been delayed in getting implemented, it's now underway. Public space renovation will begin in August, and the overall renovation is expected to be completed next year.

We don't have exact timing yet, it depends on how we move forward in terms of the room's turnover. So if you look at Etoile, for example, RevPAR at that hotel was down 30% in the first quarter, about two-thirds of that was renovation impact and one-third was market. The rest of France actually has done relatively better.

So if you look at [Conna and Nice] for example, they both had a strong quarter in the first quarter. So as we think about how this actually maps out, we look at last year, for example, in the first quarter, our guarantee payment then was $16 million and this year it's $19 million. Again, by way of description as I just gave you, the market is down and renovation is underway.

The timing of the guarantee payments is really heavily weighted towards the first quarter, and also the fourth quarter where as the second and third quarter are non significant. So that's the profile of it, just to give you some backdrop in terms of how to think about the numbers.

In terms of the how we are approaching this whole thing, we have had a significant number of challenges. Part of which has been market related and part of which has been timing of renovation, and so we're thrilled to be in this in the principal hotel, the large hotel, now. The product coming out the other side is dramatically improved, and I think from a guest satisfaction perspective, will do remarkable things for the hotel.

It happens that in part due to the unfortunate attacks, business is week at this point which is actually a really good time to be taking inventory out for renovation. So timing wise, probably a benefit in terms of having rooms out of renovation at this point.

So as we look forward, we have had an ongoing dialogue with the owners -- the owner of the hotels. And we continue to investigate alternatives to our current structure. But at this point, really what we are focusing on is getting through the renovation as quickly as possible and really doing everything that we can to improve operations along the way.

Thanks for all that clarity, Mark. And then just one very specific one, which would be where on the P&L business does this run through or what line item does this run through?

It's in other expense income and expense below EBITDA.

Great, thank you very much.

Sure.

Joseph Greff, JPMorgan.

Good morning, everybody. A few quick questions. What was the EBITDA multiple paid for the Thompson Miami?

And then, Mark, obviously the buyback slowed thus far in 2016 relative to what you have done more recently. Any particular reason for that?

Sure. So thanks Joe.

The Thompson -- the way we are approaching the hotel is that we've got some work underway already. We just closed, but we were preparing to get into the hotel. So the run rate earnings base was, I would describe it as lumpy over the past year by virtue of the fact that the hotel didn't really open until about 15 months ago or thereabouts.

So it's relatively new in its operation. And so, we will be in the property this year to convert some rooms to meeting space, and to open some other meeting space that had been planned and constructed but not put into service. So there's going to be some disruption this year.

So I think this year is going to be a startup ramp up and repositioning year for the hotel. So as we look at what the prospects are for the property, it's a really high-quality hotel in a great location with great facilities. And as we apply both our group effort as well as Gold Passport, we expect to see significant ramping over the next couple of years.

So I mentioned during my comments that we expect to get to a high single-digit EBITDA yield on the property once we get it stabilized, which we predict would be a few years from now. So that's the progression that we see.

In terms of the buybacks, they slowed a lot. It's also true that a year ago, we had -- we carried a lot of cash, a lot of liquidity, into 2015 from 2014 by virtue of the significant dispositions that we had in the fourth quarter, especially the select service portfolio. So that's one key driver of that.

And I think the second thing is, as we have often said, one of the benefits of having a share repurchase program is that you've got some variability in how you apply it. In the sense that if there are other opportunities that present themselves, apply liquidity to growing the business. And we obviously did that by virtue of the Thompson deal

And as I said, things are active right now. They are much more active this year than they were last year. So we're paying a lot of attention to our liquidity profile relative to potential both acquisitions and dispositions.

Thanks.

Bryan Maher, FBR Company.

Good morning. Quick question. You talked a little bit in your prepared comments about the transaction market being active, and I think all of us who follow the space can see some of that activity certainly.

But can you tell us what you're seeing in the way of pricing? Who the buyers are showing up as, are they sovereigns, our they Asians, are the private equity? And what kind of product and geography are they looking for most?

I'd say it's a -- in the sense that there has been a lot of initiatives undertaken by either developers of properties or owners who are not necessarily long-term holders of hotels. And we've just see more supply come on the market by really driven by those kinds of owners.

There was a brief wave I guess, I don't know if you'd call it a wave, a brief peak of activity earlier in the year, in the beginning mid part of the first quarter that was REIT driven. But what we're seeing now is more individual-owner driven private-capital driven supply.

In terms of the buy side, well I will come back to value in a second. But in terms of the buy side, REITs are not really active, at least we don't see them active in the deals that we are pursuing. There are private parties, some foreign and some US private equity, that are active. And in some cases high net worth individuals, as well as family office like buyers both in the US as well as non-US.

I would say that the there is a ongoing demand that we see or activity base amongst Middle East sovereign and in some cases Chinese potential buyers. The issue there is that they tend to be more marquee properties, not necessarily trophy all the time, but marquee properties. And I think that the interest is in securing yields coming out of really high barriered entry markets, so even though yields remain relatively low, the quality of the property and the quality of the market is really the driver of that.

So in terms of pricing, really haven't seen significant changes. Yes, it's true that the cost of debt is gone up a bit, but for a lot of the kinds of buyers that I just described, I am not sure that that is the principal driver of value. And so, we haven't seen a appreciable move in pricing one way or the other.

And just about on the select service side, are you seeing any movement there, and how does that play into your select service brands?

Any movement in terms of transactional activity, you mean?

Correct.

The market has changed significantly over the last 18 months. I think there was a wave of private, mostly private REIT, private capital, private REIT capital, that was driving a huge amount of liquidity into the space, and at that time, yields -- debt yields were low. So there was a huge amount of activity in 2014, that's slowed down over the course of 2015 and you see it remain at a relatively low level.

I think that there are some transactions that are occurring in some key markets that are still -- that reflect a pretty healthy market for those kinds of hotels. But the market profile in the activity basis really fundamentally changed over the last 18 months.

And from our perspective, we've got some development underway. And we're always in the market for good assets that we could buy as long as we can convert them, and as long as they fit with our brands. But we haven't seen a lot of those kinds of opportunities over the last six to nine months.

That development you just mentioned, is that on your own balance sheet or is that with an affiliated party?

It's almost always with JVs where the JV partner is the developer. So I've mentioned a couple of times in prior calls that we have done some deals with White Lodging. We built -- the they built the Austin Hyatt Place which was then subsequently sold.

We just opened the Hyatt Place Hyatt House dual branded property in Denver with them. And we've got JVs in Brazil and Mexico, and we've got hotels under development there. But we're not actually building those hotels ourselves, we've got development partners are actually doing the work.

Thanks, that's helpful.

Okay.

Bill Crow, Raymond James.

Good morning, guys. Let me follow up with that on the one specific question on the Park Hyatt, which is, is there a fear on your part that maybe the time is -- the clock is ticking here for an exit from ownership and how do you feel about that property? Then I want to touch on San Francisco after you answer that.

Okay. On the Park Hyatt New York, the hotel has I think done a great job of coming into the market and establishing a presence in the market. As you know, as many of you know, the market is very competitive, but we've been able to really establish a special position. So that's been great.

New York has not had -- we've not had the wind at our back the entire time. But the hotel continues to evolve and build its guest base, and it's going well.

In terms of timing, we always felt that this hotel given the type of asset it is and given the building that it's in and the location that it's in, that it would be one of those assets that endures from a value perspective through cycles and over time. So I would say I am not particularly anxious at the moment, because I think that it's one of those unique properties that I think will always garner a lot of attention and retain value.

No matter what the particular timing happened to be at a given moment in the cycle. So not really too anxious about it at this point.

Okay. On San Francisco, a two-part question. I think you indicated that the first quarter benefited 60 basis points from the Super Bowl.

As you look around the suburban assets that you have, and you have a fairly extensive presence out there, anything on the demand side in tech related areas that is interesting or would provide us some insight into what's going on the activity levels there? And then the second part of the question is, how big a headwind are you facing on the group pace for next year based on your exposure in San Francisco?

So, couple things. One is, San Francisco has been a remarkably strong market. The city itself has been remarkably strong, and I would say the whole region has been very strong. Yes, the first quarter was significantly benefited by the Super Bowl, but I would say consistently we've seen really good demand, both group and transient.

Transient demand this past quarter was particularly strong. So I would say it's been actually nothing but good news out of San Francisco for the last probably six to eight quarters on a steady positive progression. So that's my overall assessment of what's going on in the market.

We don't really have -- our group pace for this coming year that is 2017 is quite strong. And demand for 2017 bookings continues to increase. So I don't really have any particular concerns about either San Francisco in particular or other things that I am seeing that cause me anxiety at this point.

And, Bill, just to add to what Mark has said. When we look at our first-quarter group production, specifically for the key business segments within group, what we see for corporate high-tech and electronics is actually growth in the quarter.

Okay that's helpful. Thanks guys.

Sure.

Smedes Rose, Citi.

Hello, thank you. I wanted to ask on your Miami acquisition, I think you bought it from a private equity fund that was run by a member of Pritzker family. And I'm just wondering, is that fund a potential source of future acquisitions, you mentioned looking at acquisitions at this juncture as well?

We are seeing opportunities I would say broadly. So I am not going to comment on specific sources or specific properties that we happen to be looking at or that are coming to market. So I would say that there has been a diverse group of potential sellers in the marketplace.

Okay. And then on your Rio, you talked a little bit about long-term broadly your return expectations at that property. It sounds like there's quite a long time to get it up to where you think you can stabilize. So on your Rio development, could you talk about maybe your thoughts there on what kind of returns that investment could yield over the next year or couple of years or your thoughts around owning the asset?

Yes, so the comments that we made earlier, just to be clear, were about the Miami Beach acquisition. We didn't make any comments about Rio and what we thought the return profile might look like.

I think the issue for Rio right now is simply that underlying demand is challenged in terms of business demand. And transient demand is has been relatively stable, and of course this year will be an unusual year because of the Olympics. We have some experience in this.

About 15 years ago, we open the Grand Hyatt Sao Paulo, and we are a 50% owner of that hotel with a family that actually was the developer of the hotel. Sorry for the sirens in the background. I promise they are not coming for us.

So I guess what I would say is, if I think back to the opening of that hotel and the market conditions that applied to that time, they were really tough. And it took us at least four years to get to a point where the hotel was really starting to operate, and start to grow and build on its strengths. We could very well face the same issue in Rio.

I think this year will be very tough year, other than the Olympics, which will obviously be a positive. I think it will be a positive in a couple of dimensions, one is obviously demand and revenue, but secondly exposure. So we are focused on making sure that we get a lot of exposure for the hotel, both transient and group.

It's on the beach, and it was designed to be a significant meetings hotel as well. So we're going to have both good drivers on the business side and the transient side. But I think this year is going to be overall a pretty tough year in Brazil.

And, Smedes, just to build our Mark's comments. In his prepared remarks, Mark referenced the pre-opening expenses associated with the Rio opening which weighed on first-quarter results. We are expecting, outside of that pre-opening period, the hotel to be about breakeven for the year.

Thank you. And then just a final one on the share repurchase, could you just break down the repurchase of the A and the B shares, the amount by sector -- segment?

All of the shares that were repurchased year to date 2016 our A shares.

Okay, thank you. Okay.

Thomas Allen, Morgan Stanley.

Good morning. In the prepared remarks, I believe, Pat, you said that transient momentum continued into Q2. Can you just give us some more color just around general business trends in April, and how they compared to the first quarter? Thanks.

I would say -- so it's Mark again. I'd say what we've seen is pretty good transient momentum through into April in the US, in particular. Both select service and full service. The select service is just continuing to enjoy just tremendous momentum.

It's -- when you look at select as a driver of overall transient mix for us, it's been significant. If you look at year over year, we have 13% in growth from the first quarter of last year to this year in a number of properties, and 14% number of rooms in Hyatt Place and Hyatt House.

We had some renovation impact in the first quarter. We also had renovation impact in the first quarter of last year. But I would say overall, that there has been great momentum there. So we are seeing a lot of great transient demand supporting Hyatt Place and Hyatt House performance, and we're seeing margin expansion in those brands as well.

On the full-service front, we clearly saw positive transient demand in April, continuing into April. I would say it's mixed in the rest of the world. We could go market by market, but I would say for sure that the US has been the stalwart.

Helpful, thanks. And then in mid April, you guys put out a press release highlighting how Hyatt Gold Passport members can get a discount when they book direct. I think a number of your peers have done similar promotions. Any commentary around maybe initial views on how it's going and the thought process behind it? Thanks.

Sure. So we actually started this -- we kicked this off in April of 2015 in pilots. We tested this in a number of markets, actually eight markets in total. There were seven markets in the US and one market in Australia.

And we really tested what -- how -- what the profile was going to look like before we decided to take it nationally. And it was really a program focused on driving loyalty and customer engagement.

So the kinds of things that we saw over that test period -- so we took it national in the US just a couple of weeks ago. So we really don't have any meaningful data from that launch at this moment.

But if we look back over the eight markets that we had tested, we had a very significant increase in Gold Passport sign-ups, member sign-ups. So engagement levels were really high. Sign-ups are up over 100% year over year in the markets that we are testing.

And the other thing that was interesting and really important for us to assess is that we're trying to make sure that this is in essence cannibalizing bookings that would otherwise be made by our Gold Passport customers. And what we found is that a majority, a clear majority, of the bookings relate to either new members or previously inactive Gold Passport members. So it's having the intended effect of bringing more people into the program and increasing their activity base.

And we've been tracking a number of metrics over the last eight months, namely RevPAR index for the hotels in those respective markets. And we haven't seen any impact, in fact, in several cases the index in individual hotels is up. So that was an important factor.

Finally, consistent with our philosophy, hotel teams -- this member discount rate is actually a yieldable rate, that is it's a manageable rate by the hotels. So they are not required to sell the member discount rate at any given point in time, and the level of discount that they apply is actually in their hands. Now we've got recommendations for them and we've modeled how they should be thinking about pricing in different points in time based on data that we've got, that we've analyzed, but otherwise it's really in their hands.

So I would say across the board, it's been actually a remarkably positive test case so far. And that's really the approximate reason why we elected to roll it out more broadly.

Very helpful, thank you.

Sure.

Sharon, we have time for one more question.

Steven Kent, Goldman Sachs.

Hello. It seems like your peers had much weaker transient business then what your posting, but then they said they had stronger group business. Why do you think you're doing so much better than the peer group on the transient customer?

And I wasn't sure earlier, Mark, you said transient was up a lot. And it wasn't clear if that was on volume, and you were getting the pricing power and getting elasticity, or both? Or was it just volume? So maybe just some more color on that would be helpful, and thanks for letting me ask a question.

Sure. So first of all, just the answer the last piece of it, demand was up 6.5%, and ADR increased, this is in the US that is, the US full-service hotels, and rate increased 3%. a little over 3%. So it's both, both demand and ADR. I mentioned that this lapse first quarter of last year which was up in the mid 6%s, 6%, 7% or something like that, almost all of which was rate.

So we're seeing some great compounding effect here. I think that the portfolio is -- a couple things going on. First, you've got a significant expansion in the number of markets that we're serving. A lot of that has to do with the significant increases that we've had in Hyatt Place and Hyatt House properties around the country in particular.

The rates of growth in hotels at 13% and rooms at 14% in our select service business over the last year are pretty significant. And that's all gross equaled net in this case. So there's not really any material attrition or a culling going on because our property portfolio is relatively fresh.

And in addition to that, we had something like 19 hotels out in renovation last year and I think the number is in the mid 20s this year. In terms of number of Hyatt Place and Hyatt Houses that are out for renovation. And so, the net effect over the years was positive though because the hotels that were renovated last year have done really, really well. So there was a pickup probably about 50 basis points or something like that in RevPAR performance in the first quarter, the net effect of that renovation impact.

So we've got significant expansion in a lot of key markets, and a lot of urban markets. This has been a deliberate part of our growth strategy. And in addition to that, we're renovating a significant chunk of the hotels that needed to be renovated. So I think that that's one major driver of all of this.

So we've been paying attention to the network effect of how this all works for us. And we've also been able to add some additional full-service hotels and some additional resort properties over the course of time, and that's actually enhanced the value proposition for Gold Passport customers.

So we're seeing a confluence of both the brand portfolio working for us, as well as the royalty program and Gold Passport driver for transient. So it's been a good period.

Okay, thank you.

Sure.

We have no further questions. At this time, I will turn the call over to the presenters.

Great, thank you, everyone, for joining us today. We look forward to talking with you soon. Goodbye.

This concludes today's conference call. You may now disconnect.