Hyatt Hotels Corp (H) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2017 Hyatt Hotels Corporation Earnings Conference Call.

My name is Maryamma, 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, Amanda Bryant, Investor Relations Director.

Please proceed.

Thank you, Maryamma.

Good morning, everyone, and thank you for joining us for Hyatt's Second Quarter 2017 Earnings Conference Call.

I'm here in Chicago with: Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Pat Grismer, Hyatt's Chief Financial Officer.

Mark will begin our call today with a review of our second quarter, including highlights of our operating results and an update on our growth strategy and other business matters.

Mark will then turn the call over to Pat who will provide more detail on our financial results for the quarter, as well as an update on our full year outlook.

We will then take your questions.

Now before I get started, I would like to remind everyone that certain statements made on this call are not historical facts 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 3, 2017, 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'll turn the call over to Mark.

Thank you, Amanda.

Good morning, everyone, and welcome to Hyatt's Second Quarter 2017 Earnings Call.

We are pleased to report that in the second quarter, we sustained positive momentum from our first quarter, led by healthy holiday adjusted RevPAR growth and a record pace of new hotel openings.

Adjusted EBITDA for the quarter was $229 million.

As a result of loss adjusted EBITDA from transactions and the shift in the Easter holiday that particularly impacted our owned and leased hotels, Q2 adjusted EBITDA was up about 1% from last year on both a reported and constant-currency basis.

This was ahead of our internal expectations and has given us confidence to raise our full year outlook for both RevPAR and adjusted EBITDA, as Pat will outline later.

Our systemwide comparable constant dollar RevPAR increased 2.9%, led by increases in occupancy.

Looking at year-to-date, which eliminates the impact of the Easter holiday timing, our global RevPAR grew 3.8%, including a healthy 3% in the U.S. Based on Smith Travel Research Reports, more than half of our hotels globally gained share during the quarter as measured by RevPAR index.

These share gains, combined with our RevPAR growth, reflect the strong preference our brands have among consumers.

It's clear that travelers value our premium brands and distinctive service.

And judging from our pace of new hotel development, which is largely supported by third-party capital, we believe that owners are demonstrating their preference for Hyatt because they understand the value that can be created with Hyatt-branded hotels, given our unique positioning in the premium segment.

During the second quarter, we opened 22 new hotels and 3,366 rooms, a quarterly record for us, which represents 10% net hotel growth and 7% net rooms growth year-over-year.

Included in these openings are 3 debuts which we're particularly excited about.

The debut of the Park Hyatt brand in Thailand with the Park Hyatt Bangkok.

The debut of the Hyatt Regency brand in the Netherlands with the Hyatt Regency Amsterdam and the debut of the Hyatt House brand in Latin America with Hyatt House Mexico City Santa Fe.

We've now experienced 9 consecutive quarters of net rooms growth of between 6% and 7%, which speaks to the strong, sustained momentum behind our brands.

We also remain poised to enjoy another extremely solid year of openings with approximately 60 expected.

Even with the strong increase in openings, we've grown the size of our pipeline.

Our pipeline of signed deals now stands at 66,000 rooms, which represents an increase of over 8% compared to the same period last year.

We're well-positioned to continue the strong growth of our managed and franchised footprint into the future.

Before Pat provides you with more detail on our second quarter results and our improved outlook for the year, I'd like to spend some time highlighting our efforts to create shareholder value by shifting to more of a fee-based business over time, by executing against our asset recycling plan and by expanding our business.

And then I'll conclude with an update on our distribution channel strategy.

As we expand our footprint and brand reach, we are evolving our core business with a focus on the growth of our global base of managed and franchised hotels, which is allowing us to become more fee-based over time.

Looking at this quarter, total fee revenue for the company increased 12%.

If you look at this over time, our fees have grown at 3x the annual rate of our owned and leased adjusted EBITDA over the past 3 years, which has led our overall adjusted EBITDA profile to evolve quite significantly.

Just last year, in Q2 of 2016, our owned and leased business accounted for about 58% of adjusted EBITDA before corporate and other expenses.

In the second quarter of 2017, the owned and leased business accounted for approximately 53% of adjusted EBITDA on the same basis, a full 5 percentage points lower.

We expect this evolution of our adjusted EBITDA profile to continue, yielding a more compelling earnings profile, less capital intensity and higher total returns on assets over time.

Turning to asset recycling.

As we plan for growth, we look to our asset recycling program to provide the capital needed for strategic growth investments to expand our business.

As such, let me take a minute to update you on our recent transactions, specifically the 6 assets that we have been marketing for sale.

In May, we sold Hyatt Regency Grand Cypress in Orlando for approximately $206 million, subject to a long-term management agreement.

And in June, we sold the Hyatt Regency Louisville for approximately $66 million, subject to a long-term franchise agreement.

Negotiations on the other four assets continue to progress and we presently expect to close on those sales before year end, with 2 assets subject to regulatory approval.

Sales of these four properties are expected to generate over $200 million of pretax sales proceeds.

As we continue to execute against these asset sales and as our accelerated share repurchase program comes to a close this month, we fully expect to be a net seller of assets for the year and to return a substantial amount of cash to our shareholders over the balance of the year through further share buybacks.

We remain committed to driving shareholder value through disciplined execution of our asset recycling program and ongoing capital returns to shareholders.

As strong as the pace of our hotel development is, and while it remains a powerful engine of future growth, our growth potential is not limited to traditional hotel space.

We have a unique relationship with high-end travelers and it's our mission to satisfy more and more of their travel and experience needs.

And we can do so by extending our brands beyond traditional hotels.

During our Investor Day in November of last year, we outlined our focus on building, buying and partnering to super serve the high-end traveler and extend into lines of business -- into new lines of business, rather, just as we did with our investment in Playa to enter and transform the all-inclusive resort experience with our Hyatt Ziva and Hyatt Zilara brands.

An important step came in January with our acquisition of Miraval Group, signaling Hyatt's entrance into the high-growth wellness and mindfulness space, which has particular appeal with the premium travel segment.

Although it's still early, Miraval's operating results have exceeded our expectations thus far and we are on track with our expansion plans.

Another space which has relevance for our long -- for our target customer is private accommodations, essentially longer-term stays at luxury and upscale homes and villas.

This is another fast-growing travel segment which has the potential to extend the Hyatt brand beyond traditional hotel space, and is a fantastic fit with the Hyatt portfolio and our brand positioning.

And so last week, we made a strategic minority investment in the Oasis Collections, a curated marketplace that blends the value and authenticity of private homes with the service, quality control and amenities that are not typically found in online home rental offerings.

We look forward to expanding our knowledge about this segment from our partners at Oasis.

Even though we are at an early stage, we believe this category has the potential to serve new stay occasions for our customers and to add meaningfully to Hyatt's growth over time.

We are also evaluating other opportunities which we believe are complementary to our hotel business, will resonate with our unique customer base and will add to our growth story.

And we look forward to sharing our plans as they come to fruition over time.

Finally, before turning the call over to Pat, I wanted to address our distribution channel strategy.

This strategy includes a focus on driving bookings through Hyatt channels so that we can build stronger relationships with our guests.

For example, we recently extended My Hyatt Rate, our member discount, to new markets, optimized the hyatt.com booking path and added new features to the World of Hyatt mobile app.

At the same time, we recognize the value OTAs play in keeping Hyatt top of mind for guests who might not be frequent travelers or who otherwise have a reason to book through OTA sites.

As such, I want to share an update on the status of our approach to positioning Hyatt to utilize third-party distribution channels effectively and efficiently.

We recently agreed to build our existing relation -- to build on our existing relationship with booking.com by implementing new initiatives intended to increase efficiency and flexibility while driving demand.

Additionally, we've had very productive discussions with Expedia and have agreed in principle on terms that optimize how we go to market and enhance our partnership.

We expect that Hyatt Hotels will continue to be distributed on Expedia platforms without disruption while we finalize our agreement.

We value these key partnerships with Expedia and booking.com, and we remain focused on providing the best guest experience while we optimize outcomes from our hotel owners.

To wrap things up, we're very pleased with the first half of 2017 and have increased confidence in our full year performance.

Our brands are outperforming the competition in every region and we continue to penetrate key new markets for our guests.

Our financial results are strong.

Our development pipeline remains robust and we are executing against our asset recycling strategy.

And we are taking deliberate steps to extend our business into new areas of growth.

Together, we believe these efforts are positioning us to create meaningful engagement with our customers and significant value for our shareholders now and into the future.

And with that, I'll now turn the call over to Pat.

Thank you, Mark, and good morning, everyone.

I will begin by providing more detail on our second quarter results and we'll then share an update on how we're thinking about the balance of 2017.

Earlier today, we reported second quarter net income of $87 million and earnings per share of $0.68 on a diluted basis.

Adjusted EBITDA for the quarter was $229 million, on comparable systemwide RevPAR growth of 2.9% in constant dollars.

Because the timing of the Easter holiday was favorable to Q1 and unfavorable to Q2, it's helpful to look at year-to-date results.

Year-to-date through the second quarter, we delivered comparable systemwide RevPAR growth of 3.8%, contributing to 9% adjusted EBITDA growth, both in constant dollars.

Overall, we are very pleased with these results.

I'll now highlight our segment results, starting with our owned and leased business, which as Mark noted, accounted for approximately 53% of our adjusted EBITDA before corporate and other expenses in Q2.

Owned and leased segment adjusted EBITDA was down approximately 8% to prior year in constant currency.

Excluding the impact of the change in our ownership of Playa Resorts, owned and leased segment adjusted EBITDA was down approximately 4% in constant currency.

This was led by a decline in comparable RevPAR of 1.2% at owned and leased hotels.

Compared to our systemwide average, Easter timing had a more pronounced effect on our owned and leased hotels because we have a higher exposure to group business in our own portfolio.

Excluding the Easter timing impact, our owned and leased hotels grew RevPAR by 0.5% in the second quarter.

This was generally in line with our expectations as we enter the quarter given a challenging lap at Park Hyatt Zurich, as well as general market softness in San Francisco where we own the Grand Hyatt and lease the Hyatt Regency.

Adjusting for the Easter timing impact and excluding these 3 hotels, our owned and leased segment grew RevPAR a respectable 1.9% in the quarter.

Turning now to our managed and franchised business.

As Mark discussed earlier, our total fee revenue in Q2 increased approximately 12% on a reported and constant-currency basis compared to the same quarter in 2016.

This included a $5 million one-time fee related to a management agreement termination for a hotel conversion to franchised.

We are especially pleased with our strong growth in incentive fees, up about 12% versus prior year, reflecting outstanding effort by our hotel operating teams to drive property-level profitability.

With now four consecutive quarters of high single to low double-digit growth in our fees and with the strength of our development pipeline, which is substantially all managed and franchised, as Mark mentioned, and with our commitment to more holistic asset recycling going forward, we expect this strong momentum in our fee business to continue.

I will now share additional perspective on each of our 3 regions, starting with the Americas, which accounted for nearly 80% of our management and franchising adjusted EBITDA in Q2.

The Americas delivered another solid quarter, with management, franchise and other fee revenue up over 9% and adjusted EBITDA also up over 9% versus last year.

Comparable full-service RevPAR increased 1.6% in constant dollars and substantially all of the RevPAR increase was driven by rate.

Excluding the impact of Easter, RevPAR growth would've been 3.2%.

In the U.S. specifically, comparable full-service hotels experienced RevPAR growth of 1.3%.

Adjusted for Easter timing, that number was 3.1%.

As anticipated, due to holiday timing, our group rooms revenue in the U.S. declined about 2% in the quarter, driven by lower room nights.

Looking at year-to-date results, which helps to normalize for the holiday shift, group rooms revenue in the U.S. grew about 3%.

Group production continues to be mixed.

In the second quarter, U.S. group production for all years was up approximately 5%.

However, similar to Q1, in the year for the year business continued to lag last year by approximately 6% in Q2.

Nonetheless, at the end of Q2, more than 90% of our projected full year group business was already on the books.

As we look out into the future, 2018 group pace is up in the mid-single digits, with over 60% of the business on the books.

2019 group business group pace is down in the low single digits with just under 40% of the business on the books.

And 2020 group pace is up almost 10%, with about 1/4 of the business on the books.

Transient rooms revenue in the U.S. benefited from the holiday-driven pullback in group business, increasing approximately 2% in Q2.

Within transient, both the business and leisure segments performed well in the quarter with resort locations performing particularly well.

Year-to-date, U.S. transient rooms revenue grew about 1% with growth in both the business and leisure segments.

Our select service hotels continued to perform well in the Americas, with comparable RevPAR up 1.8% in Q2, with more than half the increase driven by rate.

In the U.S. specifically, our select service hotels grew RevPAR by 1.5%.

We have now gained share at our select service hotels for 20 consecutive months, as measured by Smith Travel Research, demonstrating strong consumer preference for our Hyatt Place and Hyatt House brands.

And this is translating into strong owner preference for these brands as well, as we opened 14 select hotels in the Americas in the second quarter and are on pace to have a record year of select hotel development in 2017.

I'll now move on to our managed and franchised business in Asia-Pacific, which accounted for about 13% of our management and franchising adjusted EBITDA in Q2.

Revenue from management franchise and other fees increased approximately 21% and adjusted EBITDA increased approximately 37%, both when adjusted for currency.

Our rapid expansion in the region was the main driver of these impressive results as approximately 40% of the increase in adjusted EBITDA was driven by fees from new hotels.

Comparable full-service RevPAR increased 7.2% in Q2 due primarily to strength in China, Hong Kong and Japan.

In fact, China hotel RevPAR increased over 11%, driven mainly by occupancy gains.

Meanwhile, RevPAR in Japan was up over 8%, offsetting softness in Korea as instability in the market diverted more Chinese tourists to Japan.

Now moving to our Europe, Africa, Middle East and Southwest Asia region, which accounted for approximately 7% of our management and franchising adjusted EBITDA during the second quarter.

Revenue from management, franchise and other fees increased approximately 3% and adjusted EBITDA increased approximately 4%, both when adjusted for currency.

Comparable full-service RevPAR increased 5.1% driven entirely by an increase in occupancy as average rate was marginally lower.

Stronger markets included the U.K., Germany, Turkey and India while the Middle East was softer, in part due to the timing of Ramadan.

Before leaving this region, I'll update you on the status of our guarantee related to certain managed hotels in France.

During Q2, we expensed $15 million under the guarantee.

And, consistent with prior guidance, we expect to expense approximately $80 million over the course of 2017 due to the impact of ongoing renovations at 3 of the 4 hotels covered by this guarantee.

As a reminder, this guarantee expense is excluded from adjusted EBITDA.

Now that I've reviewed our operating performance, I'd like to turn to capital deployment.

As Mark said earlier, we are on track to be a net seller of assets this year, which also puts us in a position to return additional substantial capital to shareholders through share repurchases.

You will recall that on our first quarter call, we indicated that the terms of our accelerated share repurchase precluded us from buying additional Class A shares until the expiration of this arrangement which we now expect will happen later this month.

On that call, we also announced a new $500 million share repurchase authorization, the single largest authorization in the company's history.

Given the timing of our asset sales and the conclusion of our ASR, we currently expect to be buying shares in the open market in the third and fourth quarters to add to the $348 million we will have repurchased this year upon the conclusion of the ASR.

I will conclude my prepared remarks by providing an update on our outlook for the year.

As Mark and I have mentioned throughout the call, we are very pleased with our results in the first 2 quarters of 2017 and are encouraged by our continued share gains.

At the same time, we are mindful of some of the headwinds we face over the remainder of the year, particularly with respect to close in group bookings in the U.S. Adding it all up, we are confidently raising our full year RevPAR growth outlook to a range of 1% to 3%.

This includes an expected relatively soft quarter in Q3 and relatively strong quarter in Q4 due to a shift in the timing of the Jewish holidays.

In fact, we expect that Q3 will be our weakest quarter of the year with respect to both comparable systemwide RevPAR growth and absolute adjusted EBITDA.

In Q3, we are challenged not only by the timing of the Jewish holidays but also by a tough comparison at Grand Hyatt Rio due to last summer's Summer Olympics.

Consistent with the change in RevPAR outlook, we are also increasing our full year adjusted EBITDA outlook to a range of $795 million to $815 million.

This EBITDA guidance range reflects improved operating performance, reduced foreign exchange impact and a $10 million reduction associated with the sales of Hyatt Regency Grand Cypress and Hyatt Regency Louisville.

Last quarter, we reduced our capital expenditures guidance from $430 million to $375 million, reflecting our success in entering into joint venture agreements for some of our corporate development projects and due to delays in other projects.

We are now further reducing our capital expenditures guidance to $350 million due to the hotel sales that closed in Q2 as well as continued success in identifying investment partners for certain corporate development projects.

We will continue to seek additional opportunities to reduce our direct investments in corporate development projects through asset sales and joint ventures over the next couple of years.

To conclude, Q2 was another successful quarter for us, which continued our momentum from Q1 and gives us increased confidence about the full year.

Our strong operational results, coupled with our continued execution of our capital strategy, has allowed us to create value for our shareholders on multiple fronts.

Overall, we expect 2017 to be another good year for Hyatt.

With that, I'll turn it back to Maryamma for Q&A.

Thank you.

(Operator Instructions) Your first question comes from the line of Michael Bellisario with Baird.

I had a question for you on the World of Hyatt program.

I guess maybe what benefits have you seen so far?

And have you seen any uptick in Hyatt loyalty member stays in terms of percentage contribution, whether demand or room nights?

Great, thanks, Michael.

Overall, we're really pleased with how World of Hyatt's evolving and how customers are responding to it.

Enrollments year-to-date are up significantly over last year.

And program awareness has been trending more positively than we expected since the launch of the program.

So we've seen very positive member responses, both in terms of acquisition of new members but also retention of members and their spend.

And we have also concurrently had an increase in our My Hyatt Rate or member discount rate over the course of this year.

And we've progressively been growing that, that segment of the business.

Over 70% of the bookings through the member discount is either new or a previously inactive World of Hyatt members.

And since the launch of the program, about half of those new and previously inactive members have booked more than once.

So we're seeing repeat business come from them.

And a majority of our hotels are continuing to -- that are using member discount, are continuing to have improved RevPAR index.

So we believe that it's been constructive, both in terms of reengaging or engaging new customers, reengaging previously inactive customers within the World of Hyatt but also yielding positive results for the hotels that have deployed.

So I would say overall, we're really happy with how things are progressing.

The areas that I would say -- we established World of Hyatt as really a platform for engagement, understanding and experiences.

And in the understanding category, I would say that we have elevated the amount of engagement that we've undertaken to ensure that we're hearing what's going on amongst our guests.

And I would say across the tiers, it's been very positive and it's also the case that we can do better in fulfillment of benefits at each tier across the hotel portfolio.

So it's an area of focus for us going forward.

I think that it's something that we can continue to actually focus on and build on, and we're very excited about that.

Great.

That's super helpful.

And then just one other quick one.

Do you guys plan to integrate the Oasis Collections investment you just made with World of Hyatt?

Or is that going to stay separate?

I would say stay tuned to that.

We are evaluating the best way for us to actually create visibility to, and engagement with, our World of Hyatt guests for those kinds of offerings.

And -- but we do intend over time to create a channel through which they can -- the World of Hyatt members can have alternative offerings, in the style and manner of what Oasis does in their existing portfolio.

Your next question comes from the line of Bill Crow with Raymond James.

Mark, before I get to my question, could I just get a clarification or maybe a reminder, because I'm sure we've talked about it before, but -- why the performance guarantee is excluded from adjusted EBITDA and how that will trend over the next couple of years.

Well, I think the answer to the first part of that question relates to accounting policy, with respect to the nature of the guarantee.

And as the second, we're evaluating how this is evolving.

Don't forget that this is a particularly significant year of renovations.

And that's really what is driving the bulk of the guarantee payments this year.

We have had very significant rooms out of service at our largest hotel in that portfolio, which is the Hyatt Regency Etoile.

And now also the Hyatt Regency -- sorry, the Hyatt -- the Hôtel du Louvre, which is part of the Unbound Collection as well as the Grand Hyatt, the Martinez in Cannes.

So we have 3 hotels that are going through various stages of renovations.

But the peak of that really is this year.

And Bill, just to add to that, the guarantee does expire in 2020.

To Mark's point, we expect this year to be the peak year of guarantee expense.

We do expect a meaningful reduction in 2018 as the renovations are completed.

Great.

Let me turn in my question here.

It sounds, by your comments, Mark, that you're more definitively going down a more asset-light path and certainly this asset sales would seem to indicate that as well.

I think you said you're 53% owned and leased in the U.S. Can you kind of talk about how quickly that might evolve down to 20%, 25%?

How aggressive should we think about you being on asset sales as we think about '18?

Well, I think the best way to think about it is, as I described it, I think this is a general direction that's going to continue to unfold in the direction that we've already undertaken here.

Because the growth rate of our fee business just continues to expand and compound, which I think is really the key driver of this.

And I would say that our discipline around ensuring that we are not expanding our own portfolio or owned to stay, is at an extremely high level.

And so we will be making sure that as we go through and identify things that we feel are important for us as a means of growing a particular brand or growing in a particular location, that, that is self-funded as an absolute matter.

So I think what you can -- what we can say is that we will not be growing on the owned side and that our pace of growth on the management and franchise side will continue to be very healthy, not just because we continue to do well in our core operating performance.

You can see how our RevPAR performance has been compared to the rest of the industry over the last several quarters, but also because we are growing and adding new units at a significant pace.

The other thing, Bill, I would add is that, this year's decline in that percentage is more significant than we might see in a given year because of the net seller position this year, including the impact of the change in our ownership of Playa.

But to Mark's point, over the long run, given our commitment to disciplined and holistic asset recycling, we expect the primary driver of the reduction in that percentage to be the outsized growth of our managed and franchised business.

Your next question comes from the line of Shaun Kelley of Bank of America.

Mark, not to kind of belay the point that you just made, and make you repeat it again, but I do think it's really important here.

Because if we were to go back, I think over the last, call it, 5 to 7 years as a public company, for a lot of that time, it feels like Hyatt emphasized the importance of real estate and sort of kind of getting a message across to owners that you're committed to kind of working on the business together.

So I'm -- to the extent you've now mentioned in the prepared remarks and in the last question, I mean, is this -- it sounds like a really permanent change and a little bit of a change in the view towards sort of how you plan on allocating capital going forward.

Are we reading too much into that?

Or is that really what is actually going on here?

Well, I guess, I would say, to be directly responding to your question, I think you're reading a little too much into it.

Let me say that first, it's not a change in strategy which is really the reason I said what I just said.

It's really an elevation of discipline.

That's the first point I would make.

Secondly, I would just point out one thing and I think this is a key issue, key point.

So Pat mentioned in his prepared remarks that we've now been expanding share for Hyatt Place and Hyatt House for 20 consecutive quarters -- sorry, months, I meant to say, sorry.

And the growth of that -- of those brands has been really significant.

I would just like to say that that's not happenstance.

It's not by coincidence and by luck that, that had actually occurred.

We actually were aggressive in -- through use of capital, to significantly expand those brands.

And we did that in a very deliberate way, to get the critical mass and to start to penetrate urban markets.

So if you go back and take a look at where we've invested capital, behind -- what brands we've invested behind.

We invested -- our activity base has been very high in Hyatt Place, Hyatt House urban projects.

We've recently undertaken a couple of Hyatt Centric projects to get that brand primed and get some key markets served.

And we put money into both resorts and into convention hotels.

But let me stick with Hyatt Place and Hyatt House for a second.

My point is that the use of capital in getting into new markets and expanding the brand does actually matter.

It matters to the long-term performance of those brands, it matters to the momentum behind those brands, it matters to developer and owner confidence in how we are approaching those brands and the relative importance that we put behind it.

It matters in every one of those regards.

So what I would say to you is, I think we are very happy with our core operating performance.

But I would say, that in some measure, it's because of how we've been able to grow those brands and the proposition behind those brands, in part because of how we've used capital.

Now with respect to Hyatt Place and Hyatt House, it happens that we are at a point where we don't feel the need and we don't believe we will need to make the kinds of significant investments we've made historically, to really -- in those -- at that size, to continue to build the momentum of the brand.

What we're finding is, really great opportunities to secure fantastic sites.

But increasingly, one of the reasons why our CapEx keeps -- our outlook keeps coming down is because we're finding that those sites are really desirable to third-party developers and we're partnering with them, we're selling them -- selling some of those projects off, again releasing capital.

So we don't -- we never had a desire to be utilizing capital or making investments for the sake of it.

It was always in the context of gaining key destination, key -- entering key markets or having a key destination that we could serve.

In those -- in that regard, I would point out the Hyatt Regency Orlando, a critical convention market for us.

The Hyatt Regency Mexico City, a top 5 NSMA in the world that we had to get penetration to.

And then on the resort side, Playa, a new segment, plus other investments in resorts have led us to really fill out key locations.

At every single one of those, we didn't sit back and say, geez, we love that hotel asset, we're going to go buy it, just because we love it.

We love it because of what it does to our brands and the proposition to our consumers.

I appreciate the detailed and lengthy response.

And then, I guess the second piece of it is, so you hit on a few of the key buckets, right, resorts, the select service side.

Where do you think that leaves you with as it relates to, let's just kind of call it, the big full service type things, those types of assets can soak up, they can take up a lot of capital.

Are you comfortable with where the portfolio is right now?

You got into some of the big group markets, like you mentioned Orlando, of course.

Or is that part of this as well, in terms of you kind of have what you need to kind of get in the markets that you want to be?

Or do you still think you might need the capital on the balance sheet side for what you want to do in full-service?

So we're continuing to look at some key destinations or key gateway cities.

We continue to look at opportunities on the group side, on the convention hotel side in particular, and on resorts.

However, in every single one of these cases, we are 100% dedicated to self-funding all of it.

So we are not looking to expand the portfolio by virtue of those investments.

If we find something that we find is meaningful, and will have a big impact on our customer proposition in the portfolio, we will be aggressive about pursuing it.

But we will self-fund.

And Shaun, just to add to that.

That includes how we're thinking about investments in new lines of business or new platforms.

As was the case with Miraval, to a large extent, it was in fact the change of our ownership in Playa that funded that investment, making other investments going forward to extend the reach of the Hyatt brand.

We look at our owned and leased portfolio as a source of funds.

It's currency in effect, to underwrite the growth of our business.

Got it.

So when you say self-funding, you really mean, no change in net?

You will sell something in order to put the proceeds back into something else, but no change in sort of your net, let's call it, asset intensity position from here, is that right?

That is exactly right.

And again, to clarify our net seller position in 2017 is designed to offset what was a net buyer or net investment position in 2015 and '16.

Your next question comes from Joe Greff with JPMorgan.

Just with respect to the performance guarantees, the $80 million.

How much of that was extended thus far this year, just pro rata?

In the second quarter, it was $15 million.

I don't recall offhand, year-to-date.

I can get back to you on that.

Okay, great.

And just, with respect -- thank you.

With respect to the EBITDA guidance delta now versus 3 months ago, I know you don't break it out by segment.

But relative to how you were thinking about things internally, I'm presuming that was more in the management and franchised segments versus the owned, leased and joint venture.

And then just with respect to the, increasing the annual guidance that more relate to, I'm presuming, 1Q and 2Q upside, correct?

Yes, actually let me get back to you, first on the Constellation question.

So in the first quarter, our guarantee expense was $26 million.

And in the second quarter, it was $15 million.

And we're expecting approximately $80 million for the year.

So with respect to the update to our outlook for the year from an adjusted EBITDA perspective, there are really 3 primary contributors.

The first, and I would say the most important, is improved operating performance.

So based on the strength of our Q1 and Q2 results relative to our original expectations, we adjusted up.

We also saw some relief on the ForEx front.

So less ForEx pressure than we were expecting at the beginning of the year.

And then the final piece is directly related to the 2 asset sales which closed in the second quarter, the Grand Cypress and Louisville.

Combined, having a $10 million adverse impact to full year adjusted EBITDA.

So those are the 3 drivers.

Your next question comes from Thomas Allen with Morgan Stanley.

Just following up on those questions around the guidance.

If you look at the new full year RevPAR guidance range of 1% to 3%, in the first half you did 3.8% RevPAR growth.

The low end of that would imply a significant deceleration or even a decline in RevPAR in the second half.

So should we be all kind of leading to the high end of the range and kind of how should -- what considerations should we be thinking about?

Thank you.

Not necessarily.

We guide -- or we provide guidance that we have a high degree of confidence we can achieve and we're at the midpoint of the year so still 6 months to go.

And we've signaled that Q3, we expect, will be our weakest quarter of the year.

So I think once we close out Q3 and we report results, we'll have much better visibility to full year results.

We'll probably be in a position to tighten that range.

But I would not indicate at this stage as to whether we're going to be at the middle or high end.

We are confident that we are going to deliver in the range of 1% to 3% for the year.

We're very pleased with our results year-to-date and we're optimistic for the balance of the year.

I would just say, I'd briefly -- sorry, Thomas, that on the Q3 and Q4 profile, one of the issues in Q3 to remind -- to remember rather, is that, 2 things.

One is -- I'm specifically talking about group business now.

So group pace for Q3 was challenged from the beginning of this year.

So it's not a surprise to us.

Part of that is that we're lapping a very strong Q3 group performance last year and a shift in the Jewish holidays.

So I think the combination of those 2 things is influencing how we're thinking about Q3 and Q4 in that profile.

That's helpful, thank you.

And just 2 follow-up questions.

One, could RevPAR be negative in the third quarter?

Or is that a reasonable expectation?

And then, two, I think a follow up on the EBITDA guidance question.

Did you raise your expectations for 2 -- second half EBITDA, after the strong first half results?

Or was the raise purely a reflection of the, kind of the beats in the first half?

Thank you.

Yes, first, with respect to Q3.

I would say that it is unlikely that our systemwide RevPAR, comparable RevPAR, will be negative.

However, we are expecting owned and leased to be weaker than systemwide, but not necessarily negative.

And then as to the adjusted EBITDA, I would say that our guidance raise was largely informed by year-to-date performance versus necessarily raising back half expectations.

Your next question comes from Carlo Santarelli with Deutsche Bank.

Pat or Mark, I want to just clarify one of the comments that you made about kind of the cadence of EBITDA in the 3Q and the 4Q.

I believe you said that the 3Q would be the weakest of the year from a RevPAR and EBITDA perspective.

Were you making that reference as it pertains to EBITDA from a growth perspective in terms of weakest of the year, or from an absolute dollar perspective?

Absolute.

Okay, great.

That's helpful.

And then going back, Mark, to some of your prepared remarks you talked about the Oasis Collection, and then you mentioned afterwards that you were evaluating some other complementary investments.

Just in terms of scope and size of those potential future investments, is there anything you could say that might be able to help us think about them a little bit?

I think it's difficult to characterize because as things evolve over time, we'll evaluate the -- what we believe the impact to be on, really expanding the relationship that we have with our guests.

And so it might be that we identify relatively larger investments over time.

But at this point, we've made -- we made a beginning -- taken a step down the path of creating a very clear position in the wellness and mindfulness space.

And we're really happy with how that's going so far.

It's likely that we will continue to invest behind that, not just in the Miraval brand itself, but probably in other respects as well.

And we are, right now, in a design phase with respect to programming that we can pull into Hyatt-branded hotels, but unique content that's allowed through our ownership of Miraval.

So some of what we're doing is actually building off of resources that we've already obtained.

So not all of it's going to be through acquisition.

So by way of reminder, we said we're going to build some, we're going to buy some and we're going to partner in some cases.

So I would say it's possible that we will make more sizable investments over time, but I think in the nearer term, it's more about building out some additional capabilities in a couple of core areas.

Your next question comes from Stephen Grambling with Goldman Sachs.

Following up on the asset intensity and natural shift to more fee-based business.

Does this shift make you reevaluate what the right leverage ratio is to the business?

And what level of cash should be deployed back to shareholders?

Not at this stage, Stephen.

I would say, because we see this as more of an evolution versus a sharp change in direction, if you will, we're comfortable with where we're at from a leverage perspective.

Obviously, what's important to us is having the flexibility to invest across the cycle.

So maintaining an investment grade credit rating is important in that regard.

So we don't see that changing in the near future.

I guess more theoretically or fundamentally, do you believe that the fee-based business offers greater visibility, less volatility and potentially greater leverage?

Yes.

I think that conceptually, that is correct.

But I wouldn't say that we're there just yet.

But we -- as Mark said in his prepared remarks, over time, we do expect the profile of our earnings to become more compelling.

And that means better predictability, less volatility.

And you're right, that would tend to support higher levels of leverage.

It's also more compelling because it's the result of continued growth in our platform and in the portfolio and continued good operating performance.

I would say it's compelling because of what's actually going on in the business itself.

Fair enough.

And then as a follow-up, maybe how should we be thinking about a normalized CapEx run rate longer-term?

I know there's a lot of one-time things to be considering in any given year.

But what would you view as kind of an appropriate normalized rate?

It's really tough to say at this stage, Stephen, for the reasons you mentioned.

Our CapEx profile is impacted to some extent by the timing of certain corporate development projects.

And depending on the timing of our efforts to bring in investment partners and how that may change the profile of CapEx over the next few years, so really difficult at this stage to provide an outlook.

But we certainly will provide an outlook for 2018 in the early part of the year.

Your next question comes from Patrick Scholes with SunTrust.

I'm curious on where you stand with enacting some of the cancellation restrictions that 2 of your peers have recently enacted.

It seems a bit of a, it might be a bit of a prisoner's dilemma for a company like yourself.

Where does Hyatt fit in to all of that?

Thanks, Patrick.

Appreciate the question.

First and foremost, I just want to make it clear that we as a company have an operating philosophy where decision-making is delegated in large measure to our hotel teams.

And we do that because we think it allows us to be more nimble, more responsive real-time and appropriately localized to the local market requirements and so forth.

So in that vein, just wanted to say that ultimately, our hotels, at the hotel level, that our teams manage cancellation policies, of course with input from corporate and with input from our revenue management teams at the corporate office, but they have the final call.

Now what I would say is, in that same vein, about 40% of our total full service hotels in the Americas have already moved their cancellation policies to be at 48 hours or more.

There's a significant portion of those hotels, over 60 of them that have cancellation policies in excess of 48 hours.

So I guess what I would tell you is that, I know there's been a lot written about these company-wide corporate policy decisions that have been undertaken.

What I will tell you is that I'm pleased that this is another area -- yet another area where I think our -- the strength of our local teams and the philosophy with which we operate the company allows us to be in the market and participating in what makes sense real-time.

With respect to whether we look to establishing a change in corporate policy, it's something that we will evaluate over time.

But please know that we've been already active in the marketplace.

Your final question comes from Smedes Rose with Citi.

I wanted to follow up just on your earlier remarks about moving to more fee-driven business.

And then, curious, do you feel like over time you'll need to develop or acquire more brands that are maybe sort of on a larger scale than what you might achieve as kind of a Miraval or Oasis?

Or do you feel like you're really touching the customer segments that you want to serve so fully, right now?

Yes, thanks, Smedes.

I guess what I would say is, the way you asked the question, you said, do I feel like we will need to?

I think the answer is no.

I think the -- our -- I guess we're demonstrating that our model's working.

Our focus on the high-end customer is working and how we go to market is working.

So my feeling is that I don't see it as a necessity.

However, we have in the past, been active in looking at brands.

We've acquired some brands historically.

And we would be very open to that.

I think it would be -- it could be, depending on what it is and where it is, and it could be an attractive alternative for us.

And to the point that you made, it would also tend to accelerate the path that we're on, which is towards a more fee-based business.

So that's another motivator for us to stay attuned to what's going on in the, on the M&A front.

And make sure that we're aware of possibilities that could fit for us.

The lens through which we will look at that is, our focus on the higher-end traveler and our current brand portfolio.

But, so hopefully that will give you some color.

Thank you very much, and we look forward to hearing from you and take your questions.

Any follow-ups, give us a call and we will speak with you again next quarter.

Thank you.

This concludes today's conference call.

You may now disconnect.