Hyatt Hotels Corp (H) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2016 Hyatt Hotels Corporation earnings conference call. My name is Sharon, and I'll 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, Mr. Brian Karaba, Treasurer and Senior Vice President, Investor Relations and Corporate Finance. Please proceed.

Thank you, Sharon Good morning, everyone, and thank you for joining us for Hyatt's second-quarter 2016 earnings call. I'm here in Chicago with Mark Hoplamazian, Hyatt's President and Chief Executive Officer, Pat Grismer, Hyatt's Chief Financial Officer, and Amanda Bryant, Hyatt's Director of Investor Relations.

Mark will begin the call by providing a high level review of our second-quarter results, before turning to a discussion about how we continue to drive preference on multiple fronts with our guests, shareholders and owners. Mark will then turn the call over to Pat, to provide details on our financial performance during the quarter, and to provide an update on our full-year outlook. We will then take your questions.

Before we get started, I would like to 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 this morning, along with the comments on this call, are made only as of today, August 2, 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 Relation's 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.

With that, I'll turn it over to Mark to get started.

Thanks, Brian. Good morning, and welcome to Hyatt's second-quarter 2016 earnings call. After some comments on our second-quarter results, I will provide an update on booking trends for transient and group business. Then I'll spend some time highlighting some of the efforts that we've undertaken to drive preference. I'll then turn the call over to Pat, who will walk through the details of our results for the quarter, and our outlook for the remainder of 2016.

So turning to our second-quarter results. Despite a slow down in RevPAR growth which emerged in the second half of the quarter, our business continued to perform well. Adjusted EBITDA increased 9.7% during the quarter, after adjusting for foreign currency translation, and the net impact from transaction activity.

I'm pleased with our results, in view of the challenges we faced over the past three months. Our thoughts are with all those impacted by the terrorist attacks and security concerns in Turkey, France, and other locations across the globe, as well as the violence in several cities in the United States. While I'm relieved that no members of the Hyatt family, and no guests were killed or injured in these events, our hearts are heavy with concern for all of those affected.

Beyond these terrible events, we're also contending with some other things that had a specific impact on our quarter. This includes the timing of Ramadan, substantial renovations at some large, key hotels in Europe, the Middle East and the US, as well as some impact from ongoing concerns regarding the spread of the Zika virus. Despite these headwinds, the underlying core of our business performed well, and we were able to drive profitability through brand differentiation, revenue enhancement, profitability initiatives, disciplined cost management and new hotel growth.

Our second-quarter systemwide comparable constant dollar RevPAR growth was 2.3%, including a solid 4.2% in the United States. I'm also pleased by the performance of our owned and leased portfolio, which grew RevPAR by 4.5% on a constant currency basis. Moreover as a Company, we grew market share as measured by RevPAR index across the majority of our hotels and overall for the sixth consecutive quarter.

Globally, our management franchising fees grew 2.7% on a reported basis. The Americas enjoyed strong growth, both on the top line and the bottom line, while our Europe, Africa, Middle East and Southwest Asia region, and our Asia-Pacific region experienced declines in both revenue and profitability. Pat will provide more details on our performance by region later in the call.

Turning now to hotel openings, which remain a key component of our growth strategy, we continue on track to open more than 60 hotels this year, which will be a record for the Company. We opened 15 hotels in the second quarter, including the Park Hyatt Mallorca, the Hyatt Centric Montevideo, our first Hyatt Centric property outside of the US, and the Hyatt Place London Heathrow, which marks the brand's introduction into the United Kingdom. We have now opened 30 hotels through the first two quarters of 2016.

Since June 30, 2015, we've increased our base of opened hotels by 8%, from 586 to 633 hotels. 20 of the 30 new hotels opened in the first two quarters of this year are Hyatt Place or Hyatt House hotels, including several dual branded properties including one at the Shenzhen Airport, which also marked the introduction of the Hyatt House brand in China.

Speaking of Hyatt House, the brand is enjoying strong momentum, as our pipeline includes 40 hotels and 6,000 rooms as of the end of Q2 2016, which represents approximately 60% of the existing Hyatt House base of hotels and rooms. We are particularly proud that in July, for the first time, J.D. Power recognized Hyatt House as the brand with the highest guest satisfaction among North American upper extended-stay hotel chains, demonstrating the resonance of the brand with our guests, and the overall strength of the brand which will support future growth.

Now that I've provided an overview of our second-quarter results, I want to provide you with some additional color on group and transient trends that we're observing at our full-service US hotels, which account for nearly 50% of our systemwide hotel revenue. During the second quarter, transient room revenue in full-service hotels in the US grew by 3.9%.

US full-service hotels group room revenue was up 3.5% in the quarter, boosted by the timing of Easter which fell in the first quarter of this year. If we adjust for the shift at Easter, US full-service hotels group room revenue would have been down slightly in the second quarter. One key issue to keep in mind is that we are lapping a very strong quarter in 2015, when our US full-service hotels realized transient revenue growth of over 6%, and group room revenue growth of approximately 10%.

With respect to transient business, Atlanta and Orlando enjoyed the strongest transient quarter among our major markets, while New York and Los Angeles were down. Orlando experienced strong increases in transient rate, and Atlanta experienced increases in both transient rate and demand. RevPAR in New York declined due to decreased transient demand, even as we expanded market share in all but one of our comparable hotels. RevPAR in Los Angeles declined due to a renovation at the Concourse Hotel at Los Angeles International Airport, a Hyatt affiliated hotel that will be rebranded as a Hyatt Regency Hotel upon the completion of a comprehensive renovation.

As for our outlook for group business, although group activity weakened in the second quarter net of the Easter impact, our outlook for the third quarter and beyond remains positive. At the end of the second quarter, we had 10% more group business on the books for our US hotels for the third quarter, than we did at the same time in 2015 for the third quarter of 2015. For the full year of 2016, booking pace at US full-service hotels was up in the low single-digit range, although weaker than where it was at the end of the first quarter.

During the second quarter, in the quarter for the year production in the United States declined in the mid single-digit range, and total production for all future years declined slightly, when compared to results during the same period last year. The in-the-quarter-for-the-year production is not particularly concerning to us, as we attribute most of the decline to capacity issues. That is to say, we have more business on the books this year than we did last year, and we have space constraints in some of our hotels. To illustrate, approximately 40% of our, in-the-year-for-the year decline relative to last year is attributable to capacity issues at the Hyatt Regency Orlando. Our meeting space there, this year was already substantially booked in prior periods.

With respect to 2017, group pace in the US continues to be up in the mid single-digits range as it was last quarter, and approximately 60% of our 2017 group business is now on the books. For 2018, group pace is also up in the mid single-digits range, and approximately 40% of our 2018 group business is on the books at this time.

As we look ahead, we remain encouraged by the fact that lead volume is strong, group spending per room night increased over 3% in the second quarter, and group cancellation and attrition activity has been nearly flat. Nonetheless, we're paying close attention to booking activity, which has been uneven due to some volatility in the current environment. We remain focused on the fourth quarter in particular, given the timing of two Jewish holidays in the first half of October, followed by the US Presidential election in November, and the associated typical disruption to hotels in Washington, DC.

I would now like to highlight some of the efforts we are undertaking to drive preference with our guests, hotel owners and shareholders. I will address the growth of our base of executed contracts, our continued execution against our asset recycling strategy, and the success of our member discount program. The size, growth, and quality of our base of executed contracts is a reflection of the strength of our brands, and our success in driving preference with our owners.

I spent time in China during the second quarter, and I'm pleased to report that we continue to open very high quality hotels in key locations in China, that are positioned to perform well over the long-term. I visited new hotels in Chengdu, Guangzhou, and Shenzhen. And in my discussions with our development partners and owners, I was especially pleased to hear their interest in investing behind the Hyatt brand, as we continue to build out our presence in this critically important growth market. We believe we have excellent relationships with strong development groups, that have a strong capital base that allows them to continue to execute on their projects. As evidence of that, our base of executed contracts in China has increased over 6% compared to a year ago, even as we opened nine new hotels over the last 12 months.

During the second quarter, our base of executed contracts globally continued to increase, expanding from 260 hotels and 56,000 rooms, to 285 hotels and 61,000 rooms. Among the many hotel management deals we signed during the second quarter, we are particularly excited about the addition of the 892 room Hyatt Regency Sydney Darling Harbor. This hotel is being converted from a Four Points by Sheraton brand, following a transformative $250 million redevelopment and refurbishment, which will include a 24 story hotel tower with 222 additional guest rooms, additional meeting space, as well as a new restaurant and rooftop bar.

I have to apologize for all the sirens in the background. This is the first Tuesday of the month, and in Chicago, there is a test of emergency response, and apparently there are a lot of fire trucks on the street for some reason. Thankfully not coming for us, so sorry about that. So back to my comments here, so like this soon-to-be converted Hyatt Regency Sydney Darling Harbor, substantially all the rooms in our base of executed contracts are owned by third-party hotel owners.

Our base of executed contracts is now over 40% of our existing base of hotels. Earlier, I referenced that our portfolio of open hotels has grown 8% since this time last year, whereas our base of executed contracts for hotels has grown approximately 14% over the same time frame. We believe that our base of executed contracts positions us well to sustain strong expansion in the future.

Moving now from our base of executed contracts, to our asset recycling strategy, I want to highlight how our efforts are driving strong results. In late June, we completed the sale of the 184 room Andaz 5th Avenue for $250 million or approximately $1.4 million per key. As part of the sale, we entered into a long-term management agreement. The buyer is an existing owner of another Hyatt hotel, with whom we have an over 20 year relationship, and with whom we expect to do future deals.

In June, we also announced the $88 million acquisition of the 119 room Royal Palms Resort and Spa in Scottsdale, Arizona. We took over management of the Royal Palms on July 12, at which time it became part of The Unbound Collection by Hyatt. We plan on investing $5 million to cover conversion costs, and some capital expenditures for the hotel. We believe these two transactions, together with the $238 million acquisition of The Confidante hotel in the first quarter of this year, demonstrates successful execution of our asset recycling strategy. These transactions allowed us to add extremely high quality hotels in two key resort markets, build The Unbound Collection by Hyatt, and increase the future return profile of our portfolio.

If you take the purchase price, transaction costs, and capital improvement amounts that we've committed to The Confidante and the Royal Palms acquisitions, and then net out the proceeds from the sale of Andaz 5th Avenue, we will have invested approximately an incremental $100 million across these three transactions. When thinking about the prospective returns and the impact on our portfolio, we estimate that the net impact of these transactions will result in stabilized incremental annual EBITDA of approximately $17 million within a two to three year time frame. This represents a very attractive yield on our incremental capital investment.

So in summary, we were able to drive strong economics as a result of these asset recycling efforts, we introduced two new properties into The Unbound Collection in key resort locations, and we maintained long-term presence at Andaz 5th Avenue, while reducing our real estate exposure in New York City. We continue to observe a robust hotel transaction market, in which 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 rating, in order to protect this strength.

Finally, I want to provide you with an update on our member discount program, and how it is helping us drive preference with our guests and hotel owners. The program continues to drive engagement of our Hyatt Gold Passport members, while increasing penetration of our Hyatt.com distribution channel which is a cost-effective channel for us. Importantly, we do not believe member discount is negatively impacting our top line. In fact, a majority of hotels utilizing member discount rates are gaining share in both ADR index and RevPAR index compared to prior year.

Since the rollout of the program, over 70% of the revenue associated with member discount click-throughs, has been sourced from new or previously inactive Gold Passport members. Additionally, approximately 70% of those clicking through the offer are not actually booking the member discount rate, but are instead booking other existing rate classes on hyatt.com. As such, only 30% of those who click-through and book, actually booked the discounted rate. The pace of online Gold Passport sign-ups has increased over 4 times year over year. Also, over 40% of new or previously inactive members have made a repeat booking with us.

These data points confirm that we are driving engagement with our customer base, and succeeding in our efforts to increase their loyalty to Hyatt brands. The member discount program has also been successful in driving business to hyatt.com. Room revenue booked through hyatt.com has increased at a double-digit rate, and the overall channel mix related to hyatt.com has increased since launch.

So in summary, despite a challenging global backdrop to this quarter, we continue to grow our business and drive profitability. We expect a record number of openings in 2016, and our base of executed contracts is as robust as ever. We're very pleased with our continued execution against our asset recycling strategy, which has and we believe will continue to drive stronger asset returns, along with increased presence of our brands. And finally, our member discount program demonstrates our commitment to customer engagement and operational excellence.

As I reflect on how we are managing through volatile times in the world, I have to say I am inspired on a daily basis by the character and actions of the members of the Hyatt family. Our purpose as a Company is to care for people, so they can be their best, and I see this being fulfilled throughout our Company. This strength in our culture and people allows us to maintain focus on building value over the long term, even as we deliver on our commitments to our colleagues, our guests, our hotel owners and our shareholders in the near term.

So with that, I'll turn it over to Pat, who will discuss our quarter in more detail.

Thank you, Mark, and good morning, everyone. Today I'll review our second-quarter results, and provide an update on our full-year outlook. Earlier today, we reported second-quarter net income of $67 million or earnings per share of $0.49 on a diluted basis. This included adjusted EBITDA of $227 million, which was up 7% from prior year on a constant currency basis, and up nearly 10% from prior year when further adjusted for $5 million of transaction impacts which I'll discuss later. First I'll cover our owned and leased business, which also includes our joint ventures, and then I'll review the results of our managed and franchised business.

Our owned and leased business which accounted for about 58% of our adjusted EBITDA before corporate and other expenses in Q2 delivered a strong quarter. RevPAR at comparable owned and leased hotels increased 4.5% in constant dollars, led by very strong performance at our hotels in North America, notably our Hyatt Regency hotels in Mexico City, Orlando, and Atlanta, partially offset by soft results at our hotels in Europe.

In fact, RevPAR at our comparable owned and leased hotels in the Americas increased by an impressive 6.1% in the second quarter, more than offsetting a 4.4% RevPAR decline at comparable owned and leased hotels in Europe. And while our comparable owned and leased margins were flat to prior year at 27.6%, there were significant regional differences underlying this result, commensurate with the variations in RevPAR performance which I just described. In the Americas, comparable owned and leased margins improved by 60 basis points in the quarter compared to last year, offsetting a nearly 4 percentage point margin decline in Europe.

As was the case in the first quarter, our joint ventures in total delivered strong results in Q2. More specifically, our pro rata share of JV adjusted EBITDA increased approximately $9 million or roughly 45% in the quarter, driven by an EBITDA increase of more than $6 million from our Playa joint venture alone. We could not be more pleased with the performance of our Hyatt Ziva and Hyatt Zilara all-inclusive resorts which are owned by our Playa JV. Adding it all up, adjusted EBITDA for our owned and leased business increased 8% in constant dollars.

As noted in our earnings release, this included a $5 million decline in adjusted EBITDA attributable to two non-comparable own properties, The Confidante and Grand Hyatt Rio. While these results were disappointing and below our expectations, we do not consider this performance to be indicative of the future earnings potential of these hotels. I'll now discuss each of these properties in turn.

We acquired The Confidante in the midst of strong market headwinds, with the Miami Beach hospitality market down approximately 6% year to date. Furthermore, the hotel's name change initially adversely impacted bookings and distribution. We've taken aggressive steps to address these issues, and we're already seeing positive results. And given our strong belief in the long-term potential of Miami Beach market, we will be adding meeting space to the hotel by the second quarter of 2017, as originally planned. As a result, we remain confident that we'll achieve our targeted returns for this signature property, one of the first additions to The Unbound Collection by Hyatt.

With respect to Grand Hyatt Rio, challenging macro issues including a volatile economy, and concerns regarding the spread of the Zika virus have created significant headwinds for this hotel in its ramp-up phase. Although it will take longer than we expected to achieve targeted returns at this property, our experience at Grand Hyatt Sao Paulo gives us confidence in the potential of our newest hotel in Brazil. We opened Grand Hyatt Sao Paulo in an equally challenging environment in Brazil in 2002. And after enduring a volatile ramp up period, the hotel became a financial success, and remains an iconic property in a key market for us. We expect Grand Hyatt Rio to follow a similar trajectory over time. Excluding the results of these two non-comparable hotels, our owned and leased business delivered adjusted EBITDA growth of nearly 12% in constant currency.

Now turning to our managed and franchised business. I'll talk about each of our three regions, starting with the Americas which accounted for over 80% of our management and franchising adjusted EBITDA in Q2. The Americas delivered a solid second quarter, with comparable full-service RevPAR up 3.4% in constant dollars, including an approximate 140 basis point benefit from the timing of Easter. Importantly, our hotels in the Americas continue to strengthen their competitive position, having gained share for 18 consecutive months.

In addition to the strong performance in Orlando and Atlanta as mentioned previously, our Hyatt Regency hotels in Miami, Dallas and Austin also enjoyed a strong quarter. On the other hand, RevPAR at the Concourse Hotel at LA International Airport and at the Hyatt Regency San Francisco Airport was negatively impacted by renovations during the quarter. And while concerns about the Zika virus adversely affected group bookings at Grand Hyatt Rio as outlined before, we're fortunate that we have not yet observed a meaningful impact at any of our other hotels in the region.

Our select service hotels turned in yet another strong quarter, with comparable Americas select service RevPAR increasing 6.9% in constant dollars, and approximately 60% of the hotels gaining share. Considering that comparable Americas select service RevPAR increased about 7% in the second quarter of 2015, our second-quarter results this year represent a two year stack of approximately 14% for the rapidly growing Hyatt Place and Hyatt House brands.

Moving on to our managed business in Europe, Africa, the Middle East and Southwest Asia which accounted for about 7% of our management and franchising adjusted EBITDA in Q2. The region had a soft quarter, with comparable full-service RevPAR declining 9.9% on a constant currency basis, including a nearly 4 percentage point unfavorable impact of a renovation underway at the Hyatt Regency Etoile, our largest hotel in Europe. 512 of Etoile's 950 rooms were under renovation during the quarter, and this extensive renovation will continue to impact the hotel's performance through the end of 2016.

The results for Europe, Africa, the Middle East and Southwest Asia also reflect a 120 basis point adverse impact from the timing of Ramadan, which we expect will reverse in the third quarter. Similar to Q1, areas of regional strength included Eastern Europe and India, while the performance of France, Turkey and the Middle East understandably weighed on the region's results. And finally, Asia-Pacific, which accounted for about 11% of our management and franchising adjusted EBITDA in Q2. Comparable full-service RevPAR increased 1.4% for the quarter on a constant currency basis, including an 80 basis point unfavorable impact from the implementation of a new value-added tax in China.

Seoul and Hong Kong each had a strong quarter, with Seoul enjoying favorable comparisons due to the impact of MERS last year, and Hong Kong experiencing strong group business. Conversely, we delivered softer results in Macau, which continued to be affected by the slow down of the gaming industry in China, and in Tokyo, where inbound tourism was negatively impacted by the strengthening yen.

To summarize our management and franchised business, total fee revenue in Q2 increased about 3% on a reported basis, compared to the same quarter in 2015. Base and incentive fees remained flat, primarily due to the redevelopment-driven closure of the Hyatt Regency Century Plaza, as well as the conversion of four management agreements to franchise agreements. Franchise fees on the other hand, increased over 20%.

Having covered the key drivers of adjusted EBITDA for the quarter, I'd now like to provide additional color on one particular item, below adjusted EBITDA, which is our guarantee on certain managed hotels in France. In the quarter, we incurred a $10 million expense related to the performance guarantee for these hotels. This compares to about $1 million of income, which we recognized from the same performance guarantee in the second quarter of 2015. As mentioned earlier, the performance of these hotels was impacted by the renovation at Hyatt Regency Etoile, and was further affected by terrorist incidents in Paris and Brussels. Our full-year expectations for guarantee expenses are broadly in line 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. As expected in the quarter, we used the proceeds from our Q1 debt issuance to redeem $250 million in 2016 senior notes. Also as of quarter end, approximately $1.5 billion was available under our revolving credit facility, demonstrating strong liquidity. As a result, we were comfortably below our stated target leverage ratio of 3 times EBITDA as defined by S&P, and we remain committed to maintaining our investment grade credit rating.

Moving now from debt to equity. Our buyback activity in the second quarter reflected a measured pace of share 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 1.4 million shares for $68 million. Through July 29, we repurchased another 400,000 shares for $20 million, leaving $228 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 an increase in acquisition opportunities as Mark mentioned.

I will conclude my remarks with an update on our outlook for 2016. Based on current trends, and with the benefit of seven months of actual results, we are lowering and tightening our full-year RevPAR guidance, now expecting systemwide RevPAR growth of 2% to 3% in constant currency. In light of this revised RevPAR guidance for the year, we are reducing planned overhead spending, and are therefore lowering our adjusted selling, general and administrative expense guidance from $290 million to $280 million.

Separately, we now expect our capital expenditures for the year to total $260 million, which is down from our original expectations of $275 million. Finally, although our tax rate for the quarter was 24.7%, we continue to expect our full-year effective tax rate to be in the low 30% range.

To conclude, we're pleased with our overall operating results in the second quarter, as well as our efforts to drive brand preference. Our results reflect growth in RevPAR and market share, a robust development pipeline, a record number of new hotel openings, and continued, successful execution of our asset recycling program. We look forward to posting you on our third-quarter results in early November, and to hosting you in New York at our Investor Conference on November 22, when we will present our growth strategy and long-term financial outlook.

And with that, I'll turn it back to Sharon for Q&A. Thank you.

(Operator Instructions)

Thomas Allen, Morgan Stanley.

Good morning. Can you just talk about, on the G&A savings, can you just talk about -- and the CapEx savings -- can you just give some more color there? I mean, where are you finding places to save? You said it was driven by the lower RevPAR, but I just wanted to understand some more granularity? Thank you.

Certainly, Thomas. As it relates to SG&A, we're looking at balance-of-year discretionary spend. And so, we are deferring spending on certain projects, including professional fees associated with those projects.

We're also looking at slowing down backfill of non-critical positions here at corporate. And then, on the CapEx front, as we revisit the pace of corporate development activities, and what we reasonably expect to incur on the maintenance CapEx front, given what our trend has been year to date, we can see a path to lower CapEx spending.

That's helpful. And then, just on -- my second question, just on the direct booking push, you said -- I think Mark said some comments about how 70% of people who are going in, are attracted to the member discount rates are actually booking other rates. Can you just give us more clarity around that? Thanks.

Sure. So, we've got various rates deployed through our digital platform. And so, what we're seeing is that a majority of the people -- and the number is in the range of 70% who are clicking through and booking. So it's not just people who are clicking through, but actually who ultimately do book -- are exploring other rates while they're in the site, and then, ultimately booking a different rate -- a different rate than the member discount rate, which may have been the thing that attracted them to click through to begin with.

So, is it for a different class of room? Or, I mean, to me, it seems if -- I'm going to get -- I would go for the cheapest rate, so --?

Yes. It actually -- it spans across many different buying behaviors that relate to people who are booking actually for different time periods in different hotels, and across different rate levels. We're actually doing more work on this right now, to see if we can see other patterns.

But I guess, really the point that I would make is that we're -- our experience to date is that what we're seeing is increased -- an increased level of engagement and an increased level of usage of the Hyatt.com platform, whether it's through the app or through the website -- or through mobile or through the website on PC. And so, it's really driven higher market share or higher channel share for Hyatt.com overall. It just happens that the actual booking pattern isn't primarily of member discount-rated rates.

Great. Thank you.

Thanks.

Shaun Kelley, Bank of America.

Hi, good morning. Was wondering if you could give us a little bit more color about the -- some of the acquisition and disposition activities, specifically the Andaz 5th Avenue sold, and you guys gave a few metrics in the release on that. But it looks like that's actually at a discount to the cost that you constructed that hotel at. So, I'm sure there's a lot more color there, given all the puts and takes of any individual hotel, but any color on that?

And then, I just wanted to clarify as sort of my follow-up, you said I think $17 million of incremental EBITDA from some of the M&A activity. Is that primarily from the contributions on a run-rate basis for the Royal Palms and The Confidante? Is there anything else that's adding to that?

Okay, great. Thanks.

So, on the Andaz 5th Avenue, the hotel was originally developed to be -- actually two things. The first was a 144-room hotel, along with a 40-unit residential development. And subsequent to the time that we completed the hotel, the residential market in New York was really in bad shape. So, we actually ended up operating the hotel as a 184-room hotel. And that's really the key change in our, really, assumption, versus putting the hotel into use once it was opened.

And what we found is that the hotel performance and the hotel positioning in the market was enhanced by the retention of the residential units within the hotel inventory, because they're sold as suites, in effect. And so, that's really the major difference in the underwriting. So our original development was maybe at a higher price per key, in part because we built out resi within the building, but ended up running it as hotel rooms. But we are very pleased with the yield that we achieved on the disposition and the overall value.

With respect to the $17 million net increase in run-rate earnings from the three deals, it just strictly relates to the three deals. So we've taken out the earnings from Andaz 5th Avenue, and we've added -- so we've taken out the earnings from Andaz 5th Avenue, recognizing that we will continue to earn management fees under a long-term management agreement. And then, we've added the EBITDA from both the Royal Palms and The Confidante.

In both cases, we've got plans under way to, in some cases, put some capital into the respective hotels, and to change some of the bases on which we're operating the two hotels, and including pulling them into Hyatt channels. So we have expectations that we're going to be able to enhance earnings for each of those two hotels over the next couple years. So the number -- the $17 million figure is really a couple years out, once we get to stabilization on -- post making some capital investment, plus some changes in operating practices.

Okay. And, Mark, just any color you could give us explicitly on how the cap rate or the EBITDA multiple for the Andaz 5th Avenue looked? I just think it's a benchmark transaction for a lot of people who are pretty focused on that market.

Sure.

And if not, then maybe at least magnitude-wise relative to where you guys currently trade?

Yes. No, I'm happy to provide you a little bit of color. So, if you look at the total earnings that say the EBITDA level for the property on a trailing basis, it was in the range of $10 million. And if you then recognize that some portion of that will be retained through a management arrangement -- management agreement rather -- that will hopefully give you some measure for what -- how the trade can be viewed. So if you look at it on an NOI basis, it's somewhere between 3% and 4% cap rate, on an NOI basis.

Great. Thank you very much.

Sure.

Jeff Donnelly, Wells Fargo.

Good morning, guys. Actually just, Mark, sticking with the Andaz quickly, I'm just curious, was that a broadly marketed transaction, or was that one that you just went direct to the ultimate buyer?

We ended up in a dialogue with the buyer, with whom we've had a very long-time relationship, because we -- first of all, they're an existing owner, and secondly we've had discussions with them about other projects around the world. They had expressed an interest in this particular hotel, and that evolved into a discussion with them about them being the owner.

This is a particularly important property for us because it's really a very important brand representation for us, in a critical location, in a critical city. So they are really a superb ownership group. They have demonstrated a great commitment to our brands in maintaining the other hotel that they've got with us. And the fact that we think we are going to be growing with them in the future, all pointed to a very sensible transaction.

So we did not widely market the property. This is really the evolution of a discussion that we had with a very close partner.

Thanks. And I guess more broadly, should we expect that your pace of owned hotel dispositions could, I guess, decelerate at this point in the cycle, or do you continue to see opportunities to recycle capital?

The latter. We're active, and in discussions on a couple of different situations on the disposition side. And likewise, we're continuing to see really interesting opportunities on the acquisition side.

So, we've always said that we're not trying to market time, and we also benefit from having a portfolio that includes a number of hotels that I think retain and have very strong inherent value, no matter where we are in the cycle. So our ability to trade through the cycle, and be able to recycle, is alive and well. And we're seeing an increased level of activity on both sides.

And just one last question, if I could, is just concerning the regional demand impacts you've referenced in your remarks, such as Paris or some of the Zika affected territories. In both cases, do you feel, from what you're seeing, that you've already experienced the worst of the demand erosion from those events? So while it's certainly down year over year, I guess, maybe put it differently, do you think it's worsening sequentially, or do you think that's really behind us and you can see a time maybe next year where you begin to rebuild demand?

Well, let me just start the answer, but let me turn it to Pat who has got at least a little bit of an update on what's happened in the aftermath of Nice, which I think maybe will provide you with some reference point there. I would say that some of what we saw in France and our performance there was in part driven by a significant renovation impact. So I think that we're seeing sort of an outsized decline in the short term, relative to a market that's also down. So it's a weak market situation, by virtue of some disruptions and security issues, but also exacerbated by the reno.

And the same actually -- almost exactly the same thing happened in the Middle East, where we had our largest hotel in the Middle East was under renovation in the quarter, the Ramadan -- the change in Ramadan timing hurt the quarter, so the market was down. So I just think we had a couple of specific things that were particularly outsized, which is why you see our -- the difference between very, very strong performance in the US versus weaker performance around the world, in part, driven by these particular things.

And just to build on Mark's comments, when we look at the performance of our hotels in the areas or the markets that have been disrupted by these external events, we're not seeing a level of performance that is materially different from general market behavior, with the exception, as we've mentioned, our Etoile hotel, Hyatt Regency Etoile in Paris due to the significance of the renovation impact.

But to add a little bit more color and context to what has happened in the wake of the terrorist attacks in Nice, we did see, understandably, rather significant cancellations of reservations that had been made for the months of July and August. And when we look at general market data for the upper-scale segment in Nice, what we're seeing is that the market is down about 25% since those attacks. And we're seeing similar outsized impacts, if you will, in Turkey as another example.

But the other thing that I want to mention here is that, while these are very significant events, and not in any way to understate the impact of these, these businesses are relatively small from an EBITDA perspective. And to put them into context, when you look at Istanbul as an example, that market represents less than 5% of our adjusted EBITDA for our Europe, Africa, Middle East, Southwest Asia segment, which itself, as I mentioned earlier, accounted for less than 10% of Hyatt Hotels [core] -- total adjusted EBITDA.

That's helpful. Thank you.

Joseph Greff, JPMorgan.

-- everybody.

Hi, Joe.

Mark, just to understand better your full-year 2016 RevPAR guidance or expectation, is the reduction entirely related to transient demand in the US, and say what we can characterize as these regional one-offs because of terrorism events, and that group is relatively unchanged? Or how do you think about those different buckets?

Yes, I think that's generally accurate, Joe. And the reason is that while there are some possible disruptions, there is some uncertainty with respect to the fourth quarter, for some of the reasons that we mentioned on the group side. But frankly, a huge proportion, something like -- I think it's over 95% -- it's just under 95% of our total group business for the year is already on the books, so -- relative to our forecast.

So I guess what I would say is, the variability that we are in effect building in relative to the remainder of the year is mostly a reflection of how we see the evolution of transient for the remainder of the year. And the fourth quarter could be an incremental boost or a drag, but I don't think it's going to have a significant -- I mean, it can't have a significant total impact, given the proportion of our group business that's already booked.

Great. Thank you.

Sure.

Carlo Santarelli, Deutsche Bank.

Hey, guys. Thanks for taking my question. Mark, could you talk a little bit about what you're seeing in the development landscape domestically, and how the tenor of those conversations have evolved here, as we've moved through the year?

Sure. I guess what I would tell you, first and foremost, is that the pace of signings has clearly increased, and we are active across all of our brands. Hyatt Place and Hyatt House are particularly strong. So we had a significant number of signings that came through, and got finalized in the second quarter. And about somewhere in the range of 60% to 65% of those were Hyatt Place and Hyatt House branded property. So we see continued strength there.

The fact is that construction costs are increasing everywhere, especially in the United States in a number of the key markets, where a number of our hotel deals are signed up. So we've a big urban expansion of Hyatt Place and Hyatt House, which we're in the middle of, which is great. But it is also true that developers are under a bit more pressure because of increased construction costs.

Financing tends to be relatively stable, has been relatively stable, rates have come down. Availability has been maybe a little tighter, but overall, I would say a very healthy level of activity. And I would say the same has been true in China.

India has been, I think, really more tepid over the last several years because of a persistent decline in the market there. Of course, recent results have been really strong, and we're seeing a clear recovery in the market. So I think that will tend to bolster future development activity, assuming that the borrowing rate from money starts to stabilize there, and comes down a little bit.

So I would say, generally speaking, I'm really encouraged, and actually very happy with the progression of the base of executed contracts we've got.

Great. Thank you very much.

Sure.

David Loeb, Baird.

Hi, Mark. Just to continue down the development pipeline, you added 5,000 rooms [that's a lot] this quarter. Can you just talk a little bit about how much of a capital commitment you're making for those, and what's the breakdown in the pipeline between franchised and managed?

I don't have a franchised/managed breakdown for you off the top of my head, but we can do a little research on that, and maybe answer it while we're on the call, or if not, subsequent.

I would say that the level of financial commitment has been quite modest. We have had a few deals in which we have participated, or committed to participate, in the capital stack for development, let's say. And, of course, there are deals in which we've deployed key money.

There are some other deals in which we have secured sites, and then flipped those projects to developers. And that's also been a very effective way in which we've been able to move the pipeline along, very cost effective, and also it allows us to actually target specific markets in which we want to have representation by brand, and then be able to get, enlist some good partners to then take the projects over and build those hotels.

And, David, what I would add to what Mark has said, with respect to what accounts for the meaningful increase in our overall development pipeline, the single biggest contributor would be the hotel in Sydney, at about 1,000 rooms. So that was a nice addition to our pipeline in the second quarter. And then, I would say, broadly, the momentum we're seeing with our select service brands, Hyatt Place and Hyatt House.

And finally, David, about 80% of our pipeline is managed hotels, managed rooms.

That's great. That's very helpful.

And one more topic -- you do continue to buy back stock. Certainly, returning capital to shareholders is a positive, but there's a price of the liquidity of the shares, which has been decreasing over time. Can you just talk about how you view that trade off, and how this ends?

Yes. Actually, as we have continued to repurchase a meaningful amount over the last several months, we have not seen a substantial impact to daily trading volumes. In fact, there was a period of time where we actually saw daily trading volumes increase. Things have leveled off in the last couple of months, but it is something we're watching very closely. But the level of share repurchases does not seem to have materially impacted the marketability of our stock.

Is there a point at which you think it might, or where you're going to stop buying back stock because you're concerned about the liquidity?

Not in the near future. I would say it's a couple of years out before we reach that point. And between now and then, there could be changes in ownership of B class, for example. We just don't know.

Okay. Great. Thank you.

Bryan Maher, FBR and Company.

Good morning. I was wondering if you could just expand a little bit more on your interest in the -- the Unbound property in Miami -- and what kind of drew you to that? Was it because you wanted an Unbound property there? Was it pricing? Was it something else? I know you have the Centric property right nearby there.

Yes. So we've been actually keen to get into the Miami Beach market for years. We had a hotel that was affiliated with Hyatt some years ago in South Beach, and then we got the Hyatt Centric, as you pointed out.

The thing that we really wanted to secure is a hotel that would have both transient and group capability, and The Confidante actually satisfies that perfectly. And it's beachfront; it's actually very well-positioned beachfront, with great facilities as they stand. We're also creating some additional meeting space in the hotel because we see significant group demand for that market, and very significant Gold Passport demand for that market from a transient leisure perspective, which we've not been able to satisfy for years.

So I would say this has been very high, and we've talked extensively over time about priorities with respect to application of capital. And Miami has always been either number one, or number two, or number three on the list for some time now.

So the hotel itself fits our profile perfectly, from a customer base perspective. And the history of the hotel, and the way -- the thoughtful way in which it was redeveloped -- allows for a positioning of that property to really refer back to a golden age of Miami Beach, and maintain a very distinct identity. And we did not feel that taking that positioning, and converting it to a pre-existing [hard] brand was really a smart decision. And so, we felt that it was a great addition for the Unbound Collection, because we really do see a very rich storyline in the property.

So, for us, it was a really important market, a perfectly suited hotel, which, of course, needs changes to both how it's operated, but also what the facilities look like. And that's why our optimism for the future is so great, no matter that it's been a tough market to be in so far.

And other than adding the meeting space, I mean, how much do you think you'll be spending on the property, and what might need to be done to the property to get it to the level where you'd be satisfied?

There are some other soft goods changes, some of which were actually embedded in our purchase price, so not an incremental capital from us, and others of which we will make some tweaks to over time, but not material. So it's really -- the fundamental change is really the addition of meeting space. That's the key one.

And I think the positioning of the property, even though the initial conversion -- or transition is what I meant to say -- from a digital channel perspective prove to be challenging or painful because of the name change of the hotel, we're starting to see real momentum. And its new identity is really coming to be known in the channels that are relevant and important for that hotel. So again, some of the investment that we'll put behind us is in marketing, not really in further capital.

Yes, thanks. That's helpful.

And, Sharon, we'll take our last question now.

Smedes Rose, Citi.

Hi, thanks. I just wanted to ask you -- the equity earnings line that was quite high, at least relative to our expectations. And I think you mentioned how much the Playa contribution in the quarter -- it was $6 million -- is that what you said?

That is correct. $6 million of the $9 million increase in that line, as part of adjusted EBITDA.

And just going forward -- so it sounds like the Playa contribution was significantly higher year over year, which I guess makes sense, given your efforts with those guys. I mean, how should we think about that line item over the course of the year, or as you just -- sort of big picture, next year, like I mean, where do you think that could go? And I take it it's primarily driven by your participation in the Playa profits?

That is correct, although I think it's fair to characterize this year's performance as a year of outsized growth, for a couple of reasons. The first is that last year we had a resort closed following a hurricane, and there was significant renovations undertaken, and the property was reopened late in 2015. So we have the lapping benefit of that reopening this year.

In addition to that, we had some significant new hotel openings last year. And we're getting the benefit of the ramp of those new properties, and I would not necessarily expect that level of improvement into 2017.

Okay. Thanks.

Thanks, Sharon, and thank you, everyone, for joining us today. We look forward to talking to you soon. Goodbye.

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