Hyatt Hotels Corp (H) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2017 Hyatt Hotels Corporation Earnings Conference Call. My name is Stephanie, 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, Brad O'Bryan, Treasurer and Senior Vice President, Investor Relations and Corporate Finance. Please proceed.

Thank you, Stephanie. Good morning, everyone, and thank you for joining us for Hyatt's Fourth 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.

As we noted in our third quarter 2017 call, we've allocated more time to today's call for Q&A relating to our business and capital strategy. Mark will begin our call today with an overview of our fourth quarter and full year results followed by Pat who will provide additional details on our performance. Mark will then share perspective on our overall growth trajectory and our strategy to create long-term shareholder value. Pat will close out our prepared remarks with an update on our capital strategy, including our asset disposition plans and then summarize our guidance for 2018. We will then take your questions.

You'll note that we've provided a slide presentation on our Investor Relations website and a Form 8-K that will supplement our discussion today. We won't necessarily walk through each slide but we'll make reference to certain of the slides during our remarks.

I also want to note that all references to RevPAR results included in our discussion today are calculated on a comparable and constant dollar basis.

Before we get started, I'd 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 late yesterday, along with the presentation that supplements this call and comments on this call, are made only as of today, February 15, 2018, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of our 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 for the information included in last night's release.

With that, I'll turn the call over to Mark.

Thanks, Brad. Good morning, and welcome to Hyatt's Fourth Quarter 2017 Earnings Call. I'm happy to report that we finished 2017 with strong fourth quarter operating results and are expecting another solid year in 2018. We reported adjusted EBITDA of $179 million for the quarter, bringing our full year results to $816 million. Adjusting for the year-over-year impact of transactions and the Jewish holiday impact, our adjusted EBITDA would have increased approximately 11% on a constant-currency basis for Q4. Adjusting for the year-over-year impact of transactions, adjusted EBITDA would have increased by approximately 7% on a constant-currency basis for the full year, driven primarily by strong increases in management and franchise fees across all regions.

Systemwide RevPAR increased 3.8% during the fourth quarter, helped by the Jewish holiday shift, as Pat will discuss shortly. The strong fourth quarter performance lifted our full-year systemwide RevPAR growth to 3.3%. For now, 12 consecutive quarters, more than half of our hotels globally have gained share as measured by RevPAR index based on Smith Travel Research reports. Our track record of strong RevPAR results and consistent share gains demonstrates the strength of our brands around the world which is further evidenced by growth in new hotel openings and the continued expansion of our development pipeline.

During the fourth quarter, we opened 29 hotels, which is a new quarterly record for Hyatt, driving full year net rooms growth of 7% on a year-over-year basis. Our exceptionally strong fourth quarter opening pace lifted us to a total of 71 new hotel openings in 2017, which includes 48 select-service hotels opened around the world, reflecting 14% net rooms growth for our select-service portfolio. Included in our fourth quarter openings were 2 fantastic additions to our portfolio of Caribbean resort hotels: the 1,800-room Grand Hyatt Baha Mar; and Park Hyatt St. Kitts, which includes a Miraval life and balance spa. Also included in our fourth quarter openings were: Hyatt Centric Gran Via in Madrid, marking our return to mainland Spain; Andaz Singapore; and a number of Hyatt Place and Hyatt House hotels around the world, including 9 in international markets.

I'm very pleased to highlight that the fourth quarter marks 11 consecutive quarters of net rooms growth of 6% or higher. This performance is marked by a relatively low rate of attrition, which demonstrates the durability of our contracts, the strength of our owner relationships and the farsighted approach our developers take to secure attractive, new locations. And notwithstanding our record year of openings of over 13,500 rooms in 2017, we closed the year with a larger pipeline of signed deals amounting to 70,000 rooms up from 66,000 rooms a year ago.

We believe our consistent track record of strong openings and pipeline growth demonstrate robust global demand for our brands. As we look back at 2017, it shaped up to be a very good year for Hyatt, well above the expectations we had going into the year. Our strong finish in Q4 gives us confidence as we look forward to a solid year in 2018, including the continued evolution of our earnings to be increasingly fee-based.

I'll now turn it over to Pat to provide some additional detail on our 2017 results. After which, I'll provide some perspective on how we intend to sustain our growth trajectory over the long term. Pat, over to you.

Thank you, Mark, and good morning, everyone. Late yesterday, we reported fourth quarter net income attributable to Hyatt of $76 million and earnings per share of $0.62 on a diluted basis. Adjusted EBITDA for the quarter was $179 million, with systemwide RevPAR growth of 3.8% in constant dollars. The shift of the Jewish holidays into Q3 positively impacted Q4 systemwide RevPAR growth by approximately 60 basis points, equating to a $4 million increase in adjusted EBITDA compared to 2016. This was more than offset by a net decrease of $17 million as a result of transactions that took place during the year. Excluding these items, our fourth quarter adjusted EBITDA grew at a healthy rate of approximately 11% on a constant-currency basis. We are very pleased with this strong finish to the year.

I'll now highlight our segment results, starting with our owned and leased business, which for the second consecutive quarter accounted for slightly less than half of our adjusted EBITDA before corporate and other. Owned and leased segment fourth quarter adjusted EBITDA was down approximately 9% to prior year in constant currency. Sales of hotels during the year, along with the redemption of our preferred interest in Playa Hotels and Resorts during Q1 of 2017, reduced adjusted EBITDA by approximately $15 million in the fourth quarter. Excluding the impact of these transactions and the positive impact of the holiday shift, owned and leased segment adjusted EBITDA would have increased approximately 1% in constant currency. Comparable owned and leased RevPAR increased a strong 4.1% for the quarter, with the holiday shift delivering a positive impact of approximately 110 basis points. This is a larger impact and seen in our systemwide RevPAR results due to the higher proportion of group business in our owned portfolio.

I'll now turn to our managed and franchised business where we grew total fee revenue in Q4 by almost 13% on a reported basis and approximately 12% on a constant-currency basis compared to the same quarter in 2016. Full-year fee growth came in at just under 13%, inclusive of full year incentive fee growth of almost 16% led by strong hotel operating results and sustained momentum in new hotel openings.

I will now share additional perspective on each of our 3 regions, starting with the Americas, which accounted for approximately 70% of our management and franchising adjusted EBITDA in Q4. The Americas region drove increases of approximately 5% in constant dollars in management, franchise and other fee revenue and 6% in adjusted EBITDA. Comparable full-service RevPAR improved 3.3% in constant dollars. Excluding the impact of the holiday shift, RevPAR growth would have been 2.2%. Our U.S. full-service group rooms revenue increased 3.4% in the quarter, with most of the increase being driven by the holiday shift. Group room nights were up just under 1% with rate up almost 3%. U.S. full-service transient revenue increased 2% for the quarter, driven almost equally by occupancy and rate. Full-service group production was much stronger in the fourth quarter than we had expected, with production for all years up almost 10%. In the year, for the year business was up over 13% for the quarter. As we entered the year, 2018 group pace is up in the low single digits slightly ahead of our prior estimates, with almost 80% of the business on the books. 2019 group pace is down slightly, with almost 50% of the business on the books. And 2020 group pace is up almost 10%, with about 1/3 of the business on the books. Our select service hotels in the Americas delivered an increase in RevPAR of 4.5% in Q4. Our Hyatt Place and Hyatt House brands have now achieved 26 consecutive months of share increases as measured by Smith Travel Research. As further evidence of the strength of these brands, we opened another 12 select-service hotels in the Americas in the fourth quarter.

I'll now move on to our managed and franchise business in Asia/Pacific, a fast-growing region which accounted for about 19% of our management and franchising adjusted EBITDA in Q4. Revenue from management, franchise and other fees increased approximately 15%, and adjusted EBITDA increased approximately 16%, both when adjusted for currency. This performance was underpinned by continued upward momentum in new hotel openings, improved hotel profitability and sustained strength in RevPAR growth. Full-service RevPAR increased 4.3% in Q4, reflecting strength across the region with the exception of South Korea which continue to experience reduced inbound travel due to instability in the Korean Peninsula.

Now moving to our Europe, Africa, Middle East and Southwest Asia region, which accounted for approximately 11% of our management and franchising adjusted EBITDA during the fourth quarter. Rebounding from a weak 2016, revenue from management, franchise and other fees increased approximately 12% and adjusted EBITDA increased approximately 32%, both when adjusted for currency. This performance was driven by improved RevPAR growth in the region as well as reductions in SG&A spending. Full-service RevPAR increased 3.8%, reflecting strength across Europe, lapping weak results from 2016, somewhat offset by softer results in the Middle East and India.

Now that I've reviewed our operating performance, I'd like to highlight our progress on shareholder capital returns. During the fourth quarter, we completed share repurchases of approximately $188 million, bringing our full year share repurchases to approximately $723 million, the largest annual share repurchase program in the history of our company. In short, we delivered on our commitment to be a net seller of assets and return meaningful capital to our shareholders in 2017. Additionally, during the fourth quarter, we announced a new $750 million share repurchase authorization.

Before turning the call back to Mark, I'd like to briefly address 2 items that had a material impact on our reported net income for the quarter. The first is the sale of Avendra to Aramark, for which we recognized a gain of $217 million during the quarter as disclosed previously. The second is the significant impact of new U.S. tax legislation on our Q4 tax expense and effective tax rate. While the reduced U.S. corporate tax rate will have a positive impact on our tax expense going forward, the revaluation of our deferred tax assets and a onetime repatriation tax on foreign earnings results in a $110 million additional expense, primarily noncash and an effective tax rate of 74% for the quarter, driving our full year rate to 56%. Absent these tax adjustments, we would have finished the year with a full year effective tax rate of 37%, in line with our prior guidance. Both the Avendra gain and the U.S. tax reform-related charges are recorded outside of adjusted EBITDA and have been characterized as special items.

In summary, 2017 was a highly successful year for Hyatt in many ways, and we've entered the new year with positive momentum. Before I summarize our guidance for 2018, I'll turn the call back to Mark for some perspective on our long-term growth strategy.

Thanks, Pat. I want to begin by providing some historical context for Hyatt's growth and then discuss how we intend to sustain it over the long term and continue to unlock shareholder value.

As shown on Slides 6 and 7 of our supplemental presentation, we've significantly grown our global portfolio of hotels and achieved an even greater expansion in our new hotel pipeline, which will drive our future growth. As highlighted on Slide 6, our rate of new openings accelerated starting in 2013. When you combine this with the 12.6% compounded growth in our pipeline since our IPO in 2009, as shown on Slide 7, you can see that we have had tremendous momentum in signing new contracts for hotels which demonstrates the enduring strength of our brands. Our opportunity to continue to broaden our portfolio to better meet the needs of the high-end traveler remains robust as there are a large number of markets in which we have a relatively modest existing presence.

Our development momentum has been and continues to be a source of significant strength. When you combine the expansion of our hotel portfolio with the strength of our ongoing operating performance, fueled by RevPAR growth and hotel margin improvement, we've delivered double-digit compound annual fee increases since 2009, as shown on Slide 8, including as mentioned earlier, fee growth of just under 13% in 2017.

As you can see on Slide 9, this fee growth has driven an evolution of our earnings profile over time, with the fee business accounting for an increasing share of our earnings. For the full year of 2017, you see that our fee business drove almost half of our earnings. And during the last 2 quarters, fee-based income surpassed 50% of the earnings contribution before corporate and other. We expect this evolution to continue into 2018 and beyond and to accelerate due to the execution of our capital strategy, which Pat will discuss further in a few moments.

On Slide 10, I'd highlight that as a result of our focus on an efficient operating model, which drives both hotel and consolidated earnings, we've effectively leveraged our SG&A costs and achieved meaningful margin improvement over time.

Finally on Slide 11, you'll see our clear commitment to returning capital to shareholders over time, demonstrated most recently by our record level of share repurchases in 2017, which included repurchases of Class B shares. As a result of Class B repurchases as well as conversions and sales of Class B shares into the open market, there's been a significant reduction in the number of Class B shares outstanding over time while the Class A float has been maintained at a reasonable level.

I'd now like to share how we've evolved our long-term strategy to sustain the growth of Hyatt. What you see on Slide 12 is an update to the strategy overview that we presented at our Investor Day in November 2016. Internally, we call this The House of Hyatt and it identifies our key strategic areas of focus to deliver our vision and mission while fulfilling our purpose as a company.

What I would highlight here is that we've added the middle section of the House to better articulate the 3 strategic levers that create value for our colleagues, our customers, our hotel owners and our shareholders. They are: maximize our core business; integrate new growth platforms; and optimize capital deployment.

Slide 13 provides some additional detail on each of these, and I will spend a bit of time discussing each. Maximizing our core business is the key driver of our growth. This strategic lever encompasses the development, management and franchising of full service and select-service hotels. Our bread and butter, so to speak. And that, which has underpinned the great results we've delivered since our IPO. We've built a portfolio of brands that resonates with both owners and customers and have earned a reputation for excellence and super serving the needs of high-end travelers. We believe the World of Hyatt loyalty program reinforces brand preference amongst our most elite guests. And an increase of approximately 20% in new members over the past year supports that belief.

With the addition of new World of Hyatt leadership in 2017, we have a team that is intensely focused on delivering value and distinctive experiences for our members. We are confident in our ability to further enhance World of Hyatt to elevate the engagement of our loyal customer base. It happens that today, we are launching our first global World of Hyatt promotion for 2018, rewarding members with up to 1,000 bonus points per qualifying night between February 15 and May 15, 2018.

Turning to integrate new growth platforms. This strategic lever is a more recent area of focus for the company but one that we believe complements the strength of our core business and serves to enhance the value of being a loyal Hyatt customer. I've said before that we are focused on building and delivering experiences to the high-end traveler to increase the relevance of our brands and drive even higher levels of customer engagement and brand preference. Wellness and mindfulness are areas of increasing importance for consumers generally. And incorporating these areas of focus into the experiences we build and deliver for our guests is a key enhancement to the relationship that we are building with them. We also see wellness and mindfulness as an opportunity to fulfill our purpose to care for people so they can be their best.

Our investment in the Miraval brand provides an exceptional and highly desired offering specifically focused in this space. And the Miraval brand, combined with the Exhale brand we acquired in 2017, provide a platform upon which to expand and differentiate in this space.

We view alternative accommodations as another area of interest to our customers and have thus made a small investment in Oasis to explore how we can integrate these differentiated travel experiences into the Hyatt portfolio. We are continuing to evaluate other opportunities to extend the Hyatt brand into new experiences that complement our business and provide new ways to engage with our customers.

Our final lever to unlock shareholder value is optimize capital deployment. This lever has long been an area of focus for Hyatt and includes the substantial asset recycling we have successfully executed, which has facilitated the expansion of our traditional hotel management business into markets where we were underrepresented. It has also been the catalyst for our entry into new lines of business, such as our investment in Playa Hotels and Resorts, which enabled our entry into the all-inclusive resort space with the launch of Hyatt Ziva and Hyatt Zilara brands.

In the past 12 months, we brought even more discipline to this lever, increasing shareholder returns while maintaining alignment with our growth strategy. We've recognized the opportunity to reduce our overall asset intensity by monetizing certain high-value properties and using the proceeds to both underwrite new growth investments and return capital to shareholders while still maintaining a substantial balance sheet that allows us to continue fueling the growth of our brands through ongoing asset recycling.

As you know, we announced last quarter our intent to sell $1.5 billion of our owned real estate assets by the end of 2020. And I'm very pleased to say that we are making good progress on that commitment.

I'm now going to turn the call back over to the Pat to provide more insight into these plans and also summarize our guidance for 2018.

Thank you, Mark. As we indicated during our third quarter call, we'll be spending a bit more time on today's call to provide additional details regarding our plan to sell $1.5 billion of our owned real estate assets within a 3-year period. You'll recall that we initiated this plan in October, with the portfolio sale of Hyatt Regency Scottsdale and Royal Palms Resort and Spa for a total sales price of $305 million. Before outlining our plans to sell another $1.2 billion of assets to achieve our $1.5 billion target, I want to remind everyone of the rationale for taking these actions as outlined on Slides 14 and 15.

As we indicated when we first announced these plans, we believe this initiative will unlock shareholder value: first, by monetizing higher EBITDA multiple assets whose cash flows are not fairly valued by investors; second, by providing substantial funds for future growth investments and return of capital to shareholders; and third, by accelerating the evolution of Hyatt's earnings profile toward more fee-based earnings.

With respect to our asset disposition commitment, we believe a target of $1.5 billion will achieve a meaningful reduction in our owned real estate portfolio while preserving balance sheet capacity to fuel ongoing growth through disciplined asset recycling efforts. In addition, we are confident that we can execute this program within a 3-year period. It's also important to remind everyone that this program is separate from and incremental to our ongoing recycling efforts.

I'll now provide an update on the progress we're making. We've been working closely with 2 brokers to evaluate our portfolio of assets, identify the likely pool of buyers and assess the overall market for various asset types. Through this process, we concluded that there would be a high level of demand for our high-quality hotel assets, and that the particular assets we've identified for near-term sale would garner interest from multiple parties and command strong pricing. Based on this analysis, we arrived at a specific near-term sale plan and a short list of longer-term targets for eventual sale. Our near-term plan is to execute on what is initially being packaged as a portfolio transaction involving 3 hotels. 2 of these assets, Andaz Maui and Grand Hyatt San Francisco, will be considered part of our $1.5 billion asset disposition program based on the nature and value of those hotels. The third asset, Hyatt Regency Coconut Point, will be treated as part of our asset-recycling efforts.

You'll recall that during our third quarter call, we discussed 4 pending asset sales that were part of asset recycling and would complete our net seller commitment for 2017. At that time, we expected that we would close on 2 of those sales by the end of the year with the other 2 shifting into 2018. Of those 4 properties, we sold the Hyatt Regency Monterey Hotel and Spa in early November. For various property specific reasons, we've chosen to remove the remaining 3 assets from our sale efforts and replace them with Hyatt Regency Coconut Point, which has an expected value that is in excess of the anticipated collective value of the 3 unsold assets that were previously listed for sale. Andaz Maui and Grand Hyatt San Francisco are assets with robust market values given extremely high barriers to entry in those markets and the unique opportunity they offer potential buyers to own some of the best beachfront in Maui and an iconic high-performing hotel on Union Square in San Francisco. We currently expect that the proceeds from the sales of these 2 hotels, when combined with the proceeds from the sales of Hyatt Regency Scottsdale and Royal Palms Resort and Spa we completed in Q4 of 2017 will surpass $1 billion in aggregate proceeds against our commitment to sell $1.5 billion in assets over a 3-year period.

Our brokers have been working with potential buyers for the portfolio of 3 properties and we've recently received first-round bids which are in line with our expectations for these high-quality assets. We anticipate finalizing definitive agreements to sell these assets in the near future and would expect to close on the sales of these properties no later than the second quarter.

The sale of Andaz Maui and Grand Hyatt San Francisco would result in a reduction of annualized adjusted EBITDA, ranging from $40 million to $50 million out of an estimated $60 million to $75 million annualized adjusted EBITDA impact of remaining asset sales as shown on Slide 15.

And you also see on Slide 15, we expect the valuation of hotels comprising the remaining $1.2 billion of gross sales proceeds to achieve our $1.5 billion disposition goal would be a trailing EBITDA multiples averaging at least 15x. You'll also see on that slide that the estimated tax impact of these transactions has now been reduced, from a previously estimated 20% to 25% to 10% to 15%, largely as a result of recently passed U.S. tax legislation.

Our intent regarding the use of proceeds from the sell down remains consistent with our prior guidance. We intend to use the proceeds to support a combination of investments in the growth of our business and return of capital to shareholders. As Mark mentioned earlier, we are actively looking for investment opportunities which could include both traditional hotel platforms and investments in new lines of business. Slide 16 shows some of the criteria we use in assessing these growth investment opportunities. Meanwhile, we also remain committed to the return of capital to shareholders which I'll discuss further in a moment.

Before turning to 2018 guidance, I'd like to reinforce what Mark spoke about earlier regarding the evolution of our earnings profile with our fee business now expected to contribute more than 50% of our earnings before corporate and other going forward. As I mentioned a few minutes ago, one of our objectives in completing this sell down plan is to accelerate that evolution toward more fee-based earnings. And as you see on Slide 17, we expect the execution of this element of our capital strategy combined with the ongoing growth of our fee business to result in as much as 60% of our earnings derived from our management and franchising business in 2020.

Now on to guidance. As context for how we're thinking about 2018, I'll outline our ongoing earnings growth model, as shown on Slide 18, which excludes the impact of asset dispositions. With the outsized growth of our managed and franchised business, we now expect this portion of our business to deliver more than half of our total EBITDA before corporate and other going forward, excluding the impact of transactions and foreign exchange. More specifically, from our managed and franchised business globally, we expect a combination of unit growth sustaining at 6% to 7% annually, coupled with near-term RevPAR growth ranging from 1% to 3% annually to yield 4 to 6 percentage points of total annual adjusted EBITDA growth. As for our owned and leased portfolio, assuming a stable asset base and assuming the same RevPAR growth of 1% to 3% annually, we're anticipating 1 to 4 percentage points of total annual adjusted EBITDA growth, again excluding the impact of transactions. For both our managed and franchised and our owned and leased businesses, we're assuming that we are able to hold margins flat in an environment of relatively modest RevPAR growth.

Adding the growth contributions of these 2 businesses with the expectation of SG&A leverage delivering another 1 percentage point of total annual adjusted EBITDA growth, we see our business delivering 6% to 11% total adjusted EBITDA growth annually, with the key variables being RevPAR growth and margin performance in any given year. While annual guidance will vary from year to year depending on market conditions, the point of sharing this growth model is to demonstrate that we can sustain mid-single to low double-digit adjusted EBITDA growth again before the impact of asset dispositions and any new investments. As shown on slide 18, this is consistent with the average compound annual growth we've demonstrated since our IPO in 2009.

Turning to guidance specifically for 2018, I want to be clear that the guidance we are providing today does not yet factor in the new revenue recognition accounting standard that became effective January 1, 2018. We are in the process of finalizing the adoption impact and revised accounting requirements which will be fully disclosed with our first quarter results, at which time we'll update our 2018 guidance to be compliant with the new standard.

As we've disclosed in previous SEC filings, the change in treatment of existing deferred gains which were amortized into fee revenue and the unamortized deferred gain balance which will be recorded as an adjustment to retained earnings upon adoption will comprise the largest impact to our adjusted EBITDA results. During 2017, amortization of those gains amounted to $25 million. And the amount that is assumed for 2018 and the guidance we are now providing is approximately $31 million. This amortization is a noncash item. And as we will be restating historical financials to reflect this new accounting standard, this change in accounting will not materially impact our adjusted EBITDA growth rates.

In addition, the guidance I'll be providing this morning does not include the impact of any asset sales during 2018. When those transactions and any other transactions we may undertake are completed, either by way of additional sales or investments in the business, we will update our full year guidance accordingly. You can find details of our 2018 guidance on Slide 19 and also contained on our earnings release filed late yesterday.

But I'd like to highlight a few of the items. We expect full year 2018 systemwide RevPAR growth to range from 1% to 3%. Similar to 2017, we expect RevPAR growth in the U.S. to be lower than RevPAR growth internationally. We expect adjusted EBITDA to range from $805 million to $825 million, again excluding any impact from revenue recognition or new transactions in 2018. It's important to provide some context for this number as we completed another transactions during 2017 that have a significant impact on our year-over-year earnings progression. The net impact of all 2017 transactions totals approximately $67 million on a year-over-year basis. Excluding that impact and the $2 million favorable impact from foreign currency, our adjusted EBITDA is expected to grow by about 7% to 10% versus 2017, as shown on Slide 20, driven heavily by the strength of our fee business as discussed earlier.

I would like to note that the quarterly spread of our earnings in 2018 will look very different than it did in 2017 with Q1 being our weakest quarter. Of the $67 million of full year transaction impact I just mentioned, we expect approximately $38 million to weigh on our reported first quarter adjusted EBITDA. Excluding this impact, Q1 is expected to be flat to slightly positive to prior year, including the negative impact of Easter timing with solid year-over-year growth coming in each of the remaining quarters.

Capital expenditures are expected to be approximately $350 million for the year. By way of reminder, our Miraval redevelopment efforts in Austin, Texas and Lenox, Massachusetts will be a significant driver of CapEx in 2018 with expected openings of Austin by the end of 2018 and Lenox during Q2 of 2019. While these properties will not contribute to earnings in 2018, we expect them to generate significant earnings in the range of $20 million to $25 million on an annualized basis after opening. These earnings, combined with the earnings from our Tucson location will deliver a high single digit yield on our total investment in Miraval before considering new incremental Miraval growth opportunities as we seek to leverage the brand. This is broadly in line with our original expectations.

I'll briefly comment on our tax guidance as shown on Slide 21. You can see we are guiding to an effective tax rate of 27% to 31% for 2018, reflecting the lower federal tax rates combined with state rates and certain federal deduction limitations. Our 2018 cash tax savings resulting from the recently enacted tax reform package is expected to be approximately $20 million to $25 million which will provide more cash available for reinvesting in the growth of our business and returning capital to shareholders.

Next, I'd like to highlight our expected 2018 unit growth which we expect to be approximately 60 hotels with net rooms growth in the range of 6% to 6.5%. Hotel openings in 2017 exceeded our expectations with a number of hotels opening in December that we had previously expected could move into January. When you combine that with our expectation of a particularly high level of rooms growth in 2019 given the shape of our development pipeline, you'll see, as indicated on Slide 22, that 2018 will be an anomaly in the context of our long-term system growth. We had a high degree of confidence in maintaining strong rooms growth over time given the strength of our development pipeline and the momentum of our brands around the world.

I'll close my comments on 2018 guidance by addressing the important topic of returning capital to shareholders, some highlights of which are included on Slide 23. As of the end of Q4, we had $864 million remaining on our existing share repurchase authorization, demonstrating our commitment to continue to be active in returning meaningful capital to shareholders. Going forward, we intend to do that in 2 ways. The first is by way of a quarterly dividend, which we announced with our earnings release after close of trading yesterday. We intend to begin paying the dividend during the first quarter of 2018 with a targeted quarterly dividend of $0.15 per share for both Class A and B shareholders of record on March 22, 2018, with payment expected prior to the end of March. We believe our liquidity profile and the strength of our growth model supports this new form of shareholder capital return. In addition to our dividend, we expect to continue to be active in returning capital to shareholders by way of share repurchases. Between the 2, we expect to return a minimum of $300 million to shareholders in 2018. To be clear, this is the minimum level of return we expect to provide over the year and could be in excess of that level depending on the cadence of our asset sales and new growth investments.

I will conclude my prepared remarks by saying that we're extremely pleased with our 2017 results across multiple dimensions: RevPAR growth, new unit openings, development pipeline expansion and fee growth, which gives us confidence that 2018 will be another good year. We are quickly making meaningful progress on our targeted reduction of owned real estate and expect to successfully execute on that commitment while continuing to invest in the business, grow our brands and create more value for our shareholders.

Now I know I've covered a lot this morning and we appreciate your time. As Brad mentioned at the outset of the call, we've intentionally left an extended period of time to take your questions on any of the topics we've discussed this morning. Thank you, and with that, I'll turn it back to Stephanie for Q&A.

(Operator Instructions) Your first question comes from Bill Crow with Raymond James.

I really appreciate the lengthy discussion and the additional report items that you provided. I wanted to touch on the asset sales. And our sources are indicating, and I think your comments seem to support, the fact that maybe the $1 billion sale was coming quickly here. So that brings up a couple of questions. First of all, you talked about the cadence of returning capital to shareholders. How would that change if you were able to get that done in the next quarter or so? And number two, is there another tranche of assets waiting to be sold behind that? And how should we think about that?

Thank you, Bill, for your question. First, as to the cadence of asset sales and the implications for the timing of our shareholder capital returns, it's really premature to give specific guidance on that given that we're in the throes of finalizing the transaction. It has always been our policy that we defer providing details on timing of proceeds and use of proceeds once we've completed those transactions. But as I indicated in the prepared remarks, there is a relationship between the timing and the magnitude of our shareholder capital returns and the timing of our asset dispositions as well as the timing of any new growth investments. So we would anticipate that with the successful completion of these very significant asset sales that we would be in a strong position to deliver above the $300 million guidance we've given for share repurchases in 2018. As to whether or not this could lead to bringing another tranche of assets forward to sell, we're not planning to do that at this stage. And I think it's premature to give any guidance to that effect. When we committed to this $1.5 billion sell down on our owned and leased portfolio, we did that on the basis of our belief that, that would be meaningful and yet preserve for us significant balance sheet capacity to continue to recycle assets in ways that drive the growth of our business as we have successfully done for many years. We also felt that in an environment that can be uncertain, that it was prudent to commit to something, that we had absolute confidence we could do. So we're really very much focused on completing this asset disposition program, and we're not committing to anything beyond that at this stage.

All right. That's helpful. If I could just ask a follow-on question. If I look at Slide 13 where you have to maximize your core business and to integrate the new growth platforms, et cetera, the one I'm challenged by is the integrating the new growth platforms. It's not the integration, but really measuring the success of those acquisitions, those investments. And so what do you use to measure? Is this an ROIC? How do you gauge the ultimate success of these investments and wellness and experience and your employee satisfaction, et cetera? How do you kind of gauge that from a financial perspective?

Bill, it's Mark. So what I would say is, it will depend on the type and nature of the investment that you're talking about. In relation to the acquisition of businesses, we will be looking for -- we will be looking at returns on that investment. And that will vary depending on the type of business that we're talking about, so that's the direct return. But the broader value proposition here is to identify things that actually relate to and are relevant to our customer base and our core business. Because what we don't intend to do is build a large portfolio of activities that are completely divorced from -- they may be good businesses under themselves, but that might end up being divorced from our core business. On the contrary, what we're doing is actually buying and investing things that are relevant to our existing customer base and present opportunities to enhance the offerings that we make available to our members, World of Hyatt members, as well as our in-hotel offerings, whether they be products or services. So that additional increment, that's where the integration piece comes in, will result in stronger value proposition for our members, our World of Hyatt members, which will lead to better membership growth, a greater share of wallet and, ultimately, more significant relevance and frequency of contact with our best guests. So those are all measurable activities that are in the dimension of the integration piece. With respect to Miraval specifically, we said that, and Pat reiterated today, that we believe that excluding any of the other ways in which we can and plan to pull programming into our hotel offerings and into World of Hyatt offerings that the investment by itself we underwrote to be able to be generating a high single-digit rate of return on our invested capital. And as Pat noted, we are on track to be able to do that. We're currently in the middle of redeveloping 2 resorts to -- that add to the brand. We opened a new Life in Balance Spa as part of the Park Hyatt in St. Kitts. And there are other opportunities that we are evaluating right now for Miraval that would be additive to that rate of return that was only referential to the performance of the 3 destination resorts, Tucson, Austin and Lenox, Massachusetts. So that's at least as to that investment and the others, right now, are relatively modest investments in Exhale and Oasis. So we will talk about those once we have more proof points to demonstrate how we're pulling those into the World of Hyatt program.

Your next question come from Patrick Scholes with SunTrust.

Just a quick question. I noticed there was some executive turnover in the quarter, some longtime Hyatt employees. What was the rationale behind that?

Thanks for that. So the organizational changes that we've made were really focused on really providing more focus to how we go to market on revenue-related functions and how we continue to support growth. So those are the 2 principal areas of focus that we have in mind. We have, under the commercial services area that we've created that will be overseen by a new Chief Commercial Officer, we've pulled together various functions, revenue-focused functions, sales, marketing, revenue management, digital, as examples, and integrated them into one area that will increase our agility and our response rate with respect to cross functional trade-offs that we've seen. The integration of those functions has elevated over time and we want -- we believe that having them led in one area is an important dimension of that. We've also simplified the structure to have all operations within one area, one functional area that's led by our Global Head of Operations. And so that means that we have put together in one place our select-service activities with our full-service activities and our franchise oversight with our management business to better leverage and be effective in how we provide what will be, over time, an increased level of franchise support for our franchisees. I would say that we are in a position to do that because we have very strong development teams around the world that have generated and really been successful at creating the -- all of the pipeline statistics that you've heard of us talk about this morning. And secondly, we've got a strong internal transactions team that we will continue to be able to leverage with respect to the capital strategy development that we've got under way. So we believe what we end up with is a more focused, a simpler and an enhanced capability at the end of that organizational shift.

Your next question comes from Joe Greff with JPMorgan.

In describing the assets that you recently put up for sale, it sounded encouraging that buyer interest was relatively strong. Can you talk about in this first round, in its first phase, the profile where you're seeing this buyer interest are strongest?

Sure. The answer is -- it's broad. So I would say, really, the types of buyers and the location of buyers is diverse. So it's U.S. and non-U.S. It's institutional and hotel specific. Public and private. So the answer is it's across many different dimensions. There's no -- it's not particularly narrow at this point.

Okay. Great. And then, Pat, a question for you to make sure I'm interpreting all the stuff right. In 2017, the owned, leased and joint venture portfolio generated EBITDA of $290 million. If we subtracted $52 million of EBITDA from these owned, leased and joint venture hotels that were disposed at the course of the year, that totaled $52 million, that gives us the base from which we should think about growing the owned hotels, right? I'm not missing anything else within that?

That is correct. And the guidance we've given doesn't take into account any new transactions.

Any additional ones, right.

Typically, it's happening 2018, correct.

And then I -- you guys gave a lot of information, and which we appreciate. And Pat, you mentioned earlier, I think a comment about the first quarter in terms of your expectation. Can you repeat that? I actually just missed that.

Yes. We do expect our first quarter of 2018 to be the weakest of the year largely as a consequence of the overhang from transactions completed in 2017. So what I had indicated was that, of the $67 million that is the full year impact of those transactions, that a fairly healthy percentage, approximately $38 million, will fall on Q1. When you remove that impact, what we're expecting is that adjusted EBITDA will be flat to slightly positive to prior year and it does reflect the adverse impact of Easter holiday timing.

Your next question comes from Shaun Kelley with Bank of America.

I just wanted to go back to sort of the capital return program after the asset sales here. So Pat, if I recall correctly, I think you outlined that there's sort of a target. And I know this is over the whole program of maybe 70% or so of the asset sort of -- or of the asset sales being returned as capital and then the remainder being reinvested. Is that sort of the right ballpark for what we're going to see here out of, let's call it, the incremental $700 million or so that we should receive out of what you've identified here for 2018?

Shaun, I don't believe we've ever given specific guidance as to the use of proceeds, allocating it according to a certain percentage split. What we have said consistently is that the proceeds from this $1.5 billion sell down program will be used for 2 purposes. Our first preference or priority will be given to growth investments because -- don't forget that Hyatt is a growth company, first and foremost, and we have a strong track record of reinvesting capital to sustain the growth of our company. And so that will be an important part. And then we do expect to continue what has been a good track record of meaningful shareholder capital returns. It's difficult, if not impossible, to establish how that might break out because it is, to a great extent, a function of the opportunities that we identify to grow our business when they'll come along and how large they will be. So we're really focused on those 2 buckets and no specific allocation at this time.

Okay. Great. And then maybe could you just help us like philosophically then, to the extent you are returning capital, obviously, you've now initiated a dividend which is great and we would assume that you're probably going to grow that over time. But how do you think about sort of the question in these types of recycling scenarios is always sort of the same, programmatic versus opportunistic repurchases. Just kind of what's the company or board's philosophy at the highest level right now as it would relate to that?

Well, first to clarify, we don't think of the $1.5 billion program as recycling. That is separate and distinct. So $1.5 billion represents the gross cash proceeds from the sale of specific owned real estate. And those proceeds after tax will be used for the 2 purposes as I mentioned before. In addition to that, we do expect ongoing recycling. And we've highlighted that in this portfolio of transactions we're looking at currently, 1 of the 3 assets, Hyatt Regency Coconut Point, will be characterized as a recycling asset. What that means is that the proceeds from that particular transaction might be used for recycling. I think in the case of that specific asset though, given that it represents the completion or the conclusion of our net seller commitment in 2017, I would say a large chunk of those proceeds would go toward shareholder capital returns in 2018 assuming that transaction is consummated.

Did you have a separate question about the type of share repurchase engagement that we would have? Is that part of your question?

Yes. I get that I used the wrong word, sorry. I didn't mean -- we're just crossing the beams on that. I'm really trying to get at, if you guys have $500 million and you've identified it for repurchases, what are you going to do? Like how are you going to return it?

Yes. What we've said in the past is we are not going to get into details with respect to how we go about our share repurchase activity. You can imagine why, which is we don't think that's necessarily constructive from our perspective. So the fact is that we have available to us many different ways in which we can repurchase shares. Some relate to the potential to use programmatic activities and others relate to more opportunistic, but we're not going to get specific about how.

Your next question comes from Jeff Donnelly with Wells Fargo.

Mark, I apologize if I missed this in your earlier remarks. But how did you guys think about the decision to initiate the common dividend as a means of returning capital versus the share repurchase?

We had -- this question has come up in the past about are we considering a dividend or would we consider a dividend. And the answer has always been, we would and we have. And we -- I think it's a natural outgrowth of this evolution of our earnings profile in a -- towards more fee-based earnings where the volatility is inherently lower, the predictability of free cash flow is a bit higher. And also, by recognizing that with respect to the cash flow generation of the company, we continue to have significant ongoing recurring cash flow from which we can reliably pay a dividend through the cycle. And so we feel like the evolution of the company in terms of the earnings mix and our -- and given the sustained magnitude of our total return of capital to shareholders, we felt that this was an appropriate time to move to introduce the dividend. So it's really those factors that drove it.

And I apologize for jumping around. But just another question on -- you had picked up a management assignment at Grand Hyatt Baha Mar. That's a pretty big hotel. Those management assignments don't come along often. So can you maybe talk a little bit about what was entailed in securing that assignment? If there's sort of key money or equity investment? I'm just curious if there's any details you can share.

Yes. I'm not going to go into the details of the structure of what we did there. But what I will say is that project has lived a few different lives over the course of our involvement and actually lived a few different lives prior to the course of our involvement. So many of these large-scale resort locations, especially in the Caribbean, they're hard to execute. And I think the answer really is you have to have perseverance, but also I think the ability to practice empathy and truly understand what the needs of the developers are. And in this case, ownership transferred during the course of the construction of the project. And we ended up having to pivot what it was that we were going to do on site with the new owner. It happens that we have some history with the new owner. And so we're known to them and they are known to us, and I think that definitely helps. So I think a lot of it has to do with staying agile and being responsive to changing needs, and this one had many, many changes in the needs over time.

And just back on asset sales. Concerning the $1.5 billion of asset sales, is taking back management and/or franchise an imperative in those cases for you guys?

Absolutely. I don't -- we don't see any hotels in the portfolio that we would turn around to, as part of this program, and say we're going to sell it without regard to ongoing involvement and maintaining the branding.

And maybe just the last question on operating profit. Thinking about the owned and leased hotel margin, I think it's about 24%. That's a little lower than what we see from some of the full service hotel REITs. I'm wondering what might be holding that back? Do you guys see opportunity to drive margin on your owned and leased hotels? And I guess maybe as a follow-up to it, for the assets that you guys have flagged for sale, do they have a materially different margin behavior than your larger portfolio?

Jeff, actually, we see continued margin improvement opportunity in our owned and leased portfolio. And we've been very pleased with the productivity gains that we've realized in the last couple of years as we have implemented new process and discipline around opportunities to drive revenue and to reduce cost. With respect to the fourth quarter results in particular, I would say given the strength of our RevPAR growth in the quarter which -- for owned and leased was 4.1%. What you saw by way of margin improvement was lower than we would normally expect or we would see with that level of top line growth. And that's because in the quarter, we identified some opportunities to make some targeted investments at a handful of hotels that deliver a payback within a 2-year period, specifically some reorganizations of different groups. And so that did weigh on Q4 results. And therefore, the margin progression versus prior year. But it does set up those hotels for improved profitability going forward. And so we continue to feel very good about the margin profile and the continued opportunities to drive margin. And with respect to the hotels that we are marketing, absolutely, those are ones that we anticipate will continue to show margin gains.

Your next question comes from Thomas Allen with Morgan Stanley.

I was -- actually, just a follow-up to that last point, that was going to be my question. So how much were those investments in the fourth quarter? Because I was surprised when you said that RevPAR was up 4% and EBITDA was only up 1% adjusted for transactions.

Yes. Thomas, there are actually a couple of things happening with the owned and leased segment, one of which is the margin performance. The impact of the O&L margin for the quarter as a result of those specific investments was about 100 basis points. But in addition to that, there were certain year-over-year SG&A costs that fall below restaurant margin in the owned and leased segment P&L that did weigh on the year-over-year comparison. One was related to a credit we had in 2016 that we were lapping, and the other was related to a onetime guarantee expense that we took in 2017. And so a combination of one-timers, laps as well as these margin-related investments tended to distort overall owned and leased margin and EBITDA performance for Q4.

Helpful. And then just on your hotel openings in 2017. I think you had started off the year expecting 60, opened up 71, impressive outperformance. Was some of that -- did construction kind of open more on time than you expected? Or were there higher conversions? Or any other things that are worth highlighting?

Yes. I think Pat actually mentioned this. We went into the year looking at the profile of openings and there were a number of hotels that were due to open towards the end of the year, which we didn't really expect would actually pull into 2017 but we expected to open early in 2018. So we did get some benefit from completion, I guess -- timely completion of some of the hotels. So that was probably the principal issue between our going in expectation and the final result.

Your next question comes from Carlo Santarelli with Deutsche Bank.

Would you guys mind commenting a little bit just on the differentiation in your group pace for '18, '19 and '20? And maybe if you can, talk a little bit about what the comparable group pace looks like? I'm assuming the pace you're providing right now is kind of an all-in number.

No. This is -- the numbers that we're providing are comparable. So just to respond to that right off the bat. Let me give you some color on all of this because there is -- there are a few moving pieces. First of all, in terms of composition, corporate was quite strong in the fourth quarter relative to association business. That was particularly welcomed in places like New York, San Francisco and Chicago, which I think had particularly strong corporate demand. The sectors within corporate that are -- that really showed well in the quarter were consulting, banking and finance and technology, which were all up in the quarter. And the other area that we also saw some strength in, in certain markets was local association and special interest group demand, which was up over 3% in the quarter. The other thing I would say is that we saw a real change in the quarter for the quarter bookings or in the quarter for the year, I guess -- it's the fourth quarter, which have seen some relative improvement over the course of the year. And so that level of short-term bookings, which -- a lot of which is corporate, has actually been relatively healthy towards the end of last year and into the beginning of this year. So that's actually encouraging to us as well as the statistic that Pat mentioned which is total production for all periods was up over -- which was up almost 10% in the fourth quarter. A very healthy level. As we head into 2018, our pace expanded a bit. It's still low double -- low single digit rather, and it expands a bit sequentially. The key to us, though, is that as we looked at the year and we looked at the patterns that remained in the year and we looked at the level of tentative leads that we've got and we looked at the inherent dependency on in the year -- for the year bookings, which is lower as we sit here today than it was a year ago heading into 2017, all of that together tells us that we should have a much better opportunity to really manage -- revenue manage more assertively throughout this year. Thanks to how we're set up on the group side heading into this year. If you think about -- a couple of specific areas where I think there's either short-term positives or negatives, there's some strength that we're seeing in citywide bookings in places like Orlando, Chicago and the L.A. area, L.A. and Long Beach. And then I would say, there are some other markets where we should expect to see some change in pattern like Miami Beach Convention Center reopening later this year, Moscone in San Francisco reopening later this year. We have a new convention hotel in Seattle, over 1,200 rooms opening in 2019. And expansion of the Seattle Convention Center will come in 2019 as well. So as we look out, we see that there are a lot of individual markets that will have their own patterns and so forth. But the overall macro picture, while I think 1 quarter or 2 is -- it's not enough data points for us to declare it a trend, I would say we're cautiously optimistic as we head into this year. '19 is down a bit and 2020 looks strong. But really relative to the amount of business on the books in those 2 years, I think it's too early for us to make any hard declarations about how those years will progress.

Your next question comes from Stephen Grambling with Goldman Sachs.

As you think about the value of the remaining owned assets not being marketed relative to what has been sold, is there anything preventing you from extracting similar value? And then I recognized the industry conventions to look at the EBITDA multiples on these transactions. But what would be the stabilized free cash flow yield on the assets sold to date? And how do you think about the remaining owned assets' free cash flow contribution versus asset life?

That's a lot in that question. Maybe Pat and I will tag team this. So I think with respect to the yields or the multiples and so forth, which is where -- the second set of questions that you asked, we reported on the annualized earnings impact from dispositions once we announce transactions. And we will continue to do that for transparency and just providing you the data. So I think you can go back and see what levels of multiples that we have realized from prior transactions. With respect to how you think about free cash flow yields, we -- one of the key factors that we do take into account on all dispositions, whether it's part of the permanent sell down asset base or the recycling asset base, has to do with what capital expenditure profiles look like for the subject hotels. So one of the things that we are taking into account as we progress our planning with respect to the transactions or dispositions, is what's coming in and where that leaves us with respect to commitment going forward. What I would say is that we have seen, with respect to run rate, existing portfolio spending, it's been stable or declining as opposed to growing. Most of the growth that you've seen has to do with specific individual projects that we're putting money into, which are new ROI projects like the redevelopment of the 2 Miraval assets, for example. The first question you asked, I'll leave to Pat.

Yes. Stephen, with respect to the remaining assets in our owned and leased portfolio after we complete the $1.5 billion sell down, what I would say is that, as you know, with this program we're focusing on what we've characterized as lower yield assets or conversely, higher multiple. And today, what we've said is that of the $1.2 billion remaining value to be realized through sale, we are targeting an average multiple of at least 15x. And so when you think about that and how that's going to play out and what that will mean for the remaining owned and leased portfolio versus where we are today, we would expect that portfolio to be higher yield and lower multiple. And the reason we're focusing on it this way is that, as we're thinking about how best to unlock shareholder value with this sell down program, we want to put ourselves in a position where these transactions are clearly accretive. That's why we're focusing on the lower yield, higher multiple properties. And what remains will be lower multiple, higher yield. And I really can't give any more precise guidance than that conceptual thought at this stage.

No. That's perfect and maybe -- go ahead.

I was just asking about -- sorry, that we've got -- I think, we published, and you will exceed on our K, details on what properties we own and where. There remain a number of properties in very, very high barrier-to-entry markets. So what I would say is that while I agree with everything Pat just described, it's also true that there will likely be other pockets of asset ownership in our portfolio that would also attract higher relative valuations over time. What we are going to do or have done and continue to do is assess what makes sense with respect to full realization of value. We're not going to rush to judgment and not plan for and be in a position to maximize value realization over time.

That's very helpful. And maybe one quick follow-up asking the long-winded question more distinctly. How should we think about the long-term CapEx requirements of the management franchise business versus owned business when you hit your target mix?

Well, we would expect ongoing CapEx to come down. I mean, our CapEx today is dominated by CapEx against our owned and leased portfolio. Whether substantial redevelopments as are underway for the Miraval properties or ongoing renovations, which can be lumpy but can be quite significant. And so as we sell down our owned and leased asset base, we would expect our ongoing CapEx to decline. Specifically in relation to managed and franchised, we do expect, over time, as has been the case in recent years, there will be situations where it makes sense for us to provide some measure of capital support. Not that it necessarily flows through our capital expenditures, but whether key money or other forms of support in order to secure projects that are high value that will persist. We don't necessarily see that increasing, but if -- when you look at the shape of our portfolio today versus where we see it headed, what we would describe as ongoing CapEx will come down over time.

Yes. I would just only add to what Pat just said that we also do spend capital dollars on initiatives and tools and resources for World of Hyatt engagement with our guests and so forth. And some of that is the subject of the application of some of the Avendra funds that we have available to us. We are looking at new projects at this time to finalize plans to make new investments, mostly focused on mobile and digital resources. And those -- that spending is not currently included in any of the CapEx guidance that we've provided.

And to build on what Mark has said here, it's true that deployments of Avendra CapEx aren't included in our guidance. We're in the process of developing specific plans around how we're going to spend that money. And we do expect that a very significant portion will be applied to digital and mobile. Those amounts that we spend on capital assets will reside on our balance sheet. And therefore, will be recorded as capital expenditures. The associated depreciation expense and any ongoing operating expense associated with those investments will be characterized as special items. And therefore, will sit outside of adjusted EBITDA. So just as the proceeds and the associated gain were characterized as special, the outflows, whether depreciation of capital expenditures or ongoing operating expenses, will likewise be characterized as special.

Your next question comes from Chad Beynon with Macquarie.

Within the fourth quarter and 2017, you had pretty strong dollar growth and percentage growth within the incentive management fee line item. And historically, this has not been as important of a contributor. But as you move towards the asset light, I think, everyone's focusing more on this. Can you give any more color just in terms of maybe the percentage of assets kind of what's going on, why you're seeing the growth that you're seeing right now this year above your peers? And then more importantly, for your 2018 growth algorithm, if you're factoring in discontinuation?

Yes. Thank you, Chad, for the question. We're certainly very pleased with the level of incentive fee growth we've seen this year. And that is a function, not only of what you would normally expect by way of RevPAR growth and unit growth, but importantly, profitability improvement at our managed hotels. I mentioned earlier the significant focus that we've brought to profitability improvement, whether top line driven or middle of the P&L driven, and that is not exclusive to our owned and leased portfolio. We're equally focused across all of our managed hotels to leverage the best practices, specific opportunities that have been identified, applying consistent tools across the portfolio to deliver that level of profitability improvement. And we do see that materialize in the form of much higher incentive fees. We have not included that in our ongoing growth model. So we're expecting -- what we're assuming for purposes of an ongoing model is that we are holding margins more or less constant, and so we're not necessarily expecting that in the ongoing model. That's not to say that we aren't anticipating incentive fees will continue to increase, it just may not be to the same extent as we saw in 2017. But our 2018 guidance for fee growth specifically does assume continued improvement in incentive fees, but we are not guiding as to a specific growth amount.

Okay. Great. My follow-up is just a housekeeping item. You noted in your 2018 outlook you're looking for an effective tax rate of 27% to 31%. Any reason why you're a little bit higher than your peers? And if this could end up being conservative?

Yes, I mean, I can't speak to what's happening with our peers, but I know well our situation. And when you think about the global portfolio of earnings, we do have a certain percentage that is taxed here in the U.S. But we do have international income taxed at various rates depending on the jurisdictions where that fee income is earned. And so it really is a blend of U.S. and international, but also incorporates state tax and that's all working in this range that we've given of 27% to 31%. I would point out, however, that as we disclosed in our K, we are taking a provisional approach in establishing those estimates, both for 2017 and for 2018. Because as the weeks go by, we continue to learn a lot more about various aspects of the new tax legislation that do have some effect to how we account for and quantify various effects. So we do expect, over the course of the year, to tighten that range. But we felt that it was prudent, given where we're at in the process, to go out with a range of 27% to 31%. The other thing I would highlight is that it's not just the headline corporate rate that has changed, but there are also certain other provisions that are unfavorable and those are incorporated into the guidance that we've given.

Your next question comes from Michael Bellisario with Baird.

Just wanted to close the loop on CapEx and dig a little deeper. Can you maybe break out the various buckets of spending for '18 that are in that $350 million guidance range you gave?

Certainly, Michael. I think it's important to recognize that the key driver of the year-over-year increase in CapEx is the timing of our Miraval Resort redevelopments, that will be over $100 million in 2018. And when you take that out, when you take over the -- take out the year-over-year increase, we're really looking at total CapEx that is roughly flat. So that's really what I would highlight. We have not taken into account any reductions in CapEx related to the expected sales of owned and leased hotels. So as we progress throughout the year, as has been our practice, as transactions happen, we will be updating various dimensions of our guidance. CapEx would be one.

Got it. That's helpful. And then just kind of bigger picture. As you think about long-term strategy for Hyatt, where does select-service sit within the platform today and over the next however many years, especially as your focus is kind of shifting a little bit more toward the higher end and the higher-end customer today?

Yes. Select-service -- thanks, Michael. The select-service business has been a key driver of success in a few different dimensions. The first is, it's really accelerated our ability to develop presence in a bunch of markets where we didn't have any presence previously. Part of that has to do with the fact that the overall development activity associated with the select-service hotel was it's more modest in scale and complexity than building a large, full-service hotels. And so as a consequence, there are more -- there's more capital -- diversity of capital available and more locations where you can actually establish a location. So it's been absolutely critical for us. We see it as one of the key growth drivers of our plans in some of the fast-growth countries in which we have a strong presence, thanks to our full-service business like: China, I would say is principally -- principal among those; and India as well, where we see quite a few new openings of Hyatt Place and Hyatt House hotels. So I would say it's been critical for us with respect to our presence in distribution. The second dimension that's been critical in the United States is that it has allowed us to expand our market share and our activity base with large corporate accounts because they are looking for diversity of product type and price point with respect to the various types of travelers that they've got traveling. So I would say select-service integrates beautifully into the rest of our portfolio. And Hyatt Place and Hyatt House are positioned at the high end of their respective segments. So as far as we're concerned, it definitely supports our focus on the high-end traveler because the brand positioning for each of them is targeted at the high end -- higher end of the segments in which they compete.

Your last question comes from Smedes Rose with Citi.

I was just wondering if you could give us a reminder. What do you see as the total investment in Miraval including the build-out that you've talked about this year? I know you said it's a high single-digit return, but on what investment?

Yes. We expected by the time the resort redevelopments are completed at Lenox and Austin on top of what we initially invested and the subsequent build-out in Tucson, it will be in the range of $375 million.

Okay. And then just also a little bit of a reminder here. What is the timing on the contracts in France? I think you gave some guidance as to what the losses there will be this year. Is this the last year for those or do you have more guarantees?

Unfortunately, the guarantee extends through May 1, 2020. However, we do expect that after 2018, when the renovations are substantially completed, that we will see meaningful reductions in the annual guarantee expense. So we had guided for 2017, $80 million. The number came in a bit below at $76 million. We've guided 2018 to be in the range of $65 million to $75 million. That includes not only what slipped from 2017 to 2018 by way of renovation delays, but also the adverse impact of the strengthening euro. So we do expect that 2018 will be another year of pretty significant guarantee expense, but that we will see a meaningful reduction beginning in 2019 and then that guarantee will end May of 2020.

Stephanie, before we close the call I'd just like to make one further comment which is just to say, in summary, that we're really pleased with our performance and our momentum heading into 2018. It's clear to us that our success is really driven by all of the members of the Hyatt family who continue to fulfill our purpose to care for people so they can be their best. And we're really pleased to have received a great recognition announced this morning that Hyatt is in the Top 10 Best Places to Work in the Fortune Magazine ranking. So thanks to all the members of the Hyatt family and also thanks to all of you for joining us for this extended session this morning. Stephanie, back to you.

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