Hyatt Hotels Corp (H) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2009 Hyatt Hotels Corporation earnings conference call.

My name is Damali and I will be your operator for today.

At this time all participants are in listen-only mode.

Later we will conduct a question and answer session.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Atish Shaw, Senior Vice President of Investor Relations.

Please proceed.

Thank you, Damali.

Good morning, everyone, and thank you for joining us for Hyatt's fourth-quarter 2009 earnings discussion.

Here with me in Chicago today are Mark Hoplamazian, Hyatt's President and Chief Executive Officer, and Harmit Singh, Hyatt's Chief Financial Officer.

In terms of the format for this call, Mark and Harmit are each going to make remarks about our business after which we will take questions from the call participants.

Before we get started let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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, February 25, 2010, 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 www.Hyatt.com under the investor relations link.

An archive of this call will be available on our website for 90 days.

Additionally, a telephone replay of this call will be available for one week.

To access it dial 617-801-6888; the pass code is 859-31563.

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

Thank you, Atish.

Welcome to Hyatt's first earnings call following our IPO in November of last year.

We are very appreciative of the support that our new shareholders have shown for the Company and we will work for hard to continue to earn it over time.

We're going to be talking about the results for the fourth quarter of 2009 as well as the full year of 2009 during the call today.

But first I want to begin with a few important points about Hyatt and how we are running the Company.

We benefit from a rich history stretching back over more than five decades, the Company has always focused on long-term value creation and we continue that heritage as we build Hyatt for the next 50 years.

The last 18 months have reminded everyone in the lodging industry that the nature of the hotel business is both long-term and cyclical.

Many elements of the business, such as the usual life of a hotel, the term of the management and franchise agreements under which we work with owners and franchisees, and the development cycles for hotel properties involve and require a long-term perspective.

Hyatt's background and culture is focused on long-term value creation for our shareholders through cycles and our decisions will be driven by this context.

It's also true that from time to time capital can become very scarce very quickly.

Hyatt has historically maintained a prudent capital structure and we will do so in the future so that we will sustain access to capital through cycles, maintain flexibility and remain able to take advantage of opportunities as they arise.

We know that financial results can be volatile through cycles, especially if you're looking at quarterly information.

As you will hear from us this morning, we dedicate significant effort to generating strong results from current operations.

Having said this, investments that we make or actions that we take from time to time may have a negative impact on current or near-term reported earnings or otherwise negatively impact short-term results.

But in every case we will remain focused on long-term earnings growth and building shareholder value over time.

For example, we're committing capital to some major renovation projects for some of our owned hotels this year focusing on some key urban markets because we think that this is an attractive time to do this.

We think that completing these renovations in the near term will minimize the financial impact of having rooms out of inventory and will well position the properties for the future.

The renovations, however, will have a negative impact on results from those hotels in the near term.

I hope these -- I note these principles as they provide a macro context within which we will measure our performance over time.

One other thing to note about Hyatt is that we believe that owning hotels is supportive of our long-term goal, namely to drive preference for our brands, for several reasons.

First, it gives us another tool with which to support our growth and drive long-term shareholder value.

Second, we believe it makes us better hotel managers for hotels that we manage for third-party owners because of our experience managing hotels for our own account.

We like to say that we eat our own cooking every day.

Third, we believe ownership, particularly of certain strategic assets, gives us a tool to control the presentation of our brands to our guests.

Finally, operating leverage from the ownership of hotel properties will provide us with enhanced exposure to the results of our hotels over time.

As we look forward we expect to achieve earnings growth really through two principle avenues.

First, we are focused on improving the results of our existing hotels.

And second, we will increase our presence by expanding the number of hotels we have in markets in which we do not have a hotel and in markets in which we are under penetrated which includes most markets in which we operate at this time.

First, as to improving the results of existing hotels.

The key things on which we focus as an operating matter are our people, guests, brands and owners.

Simply put, great people lead to great guest service and customer satisfaction which leads to strong revenues and increasing market share which leads to superior financial results and ultimately to growth through the support of our hotel owners.

As to our people, we focus on the engagement of our associates.

We have specific initiatives at our hotels and in our corporate offices designed to enlist our associates to improve how we serve our guests and how we operate the Company.

We measure the engagement levels throughout the Company.

We have processes in place to support training for our associates and we work to ensure that each group within the Company is involved in identifying, through work plans, how they can improve the operation of the Company and the service of our guests.

Assessment of the engagement of our associates is a key driver of incentive compensation across the Company.

I'm happy to report that we saw a material increase in associate engagement in 2009 and we are applying ourselves to a number of initiatives to improve this further in 2010.

We pursue increased associate engagement within the context of a very special culture, one that has been enhanced and solidified over the past 50 plus years.

We refer to all of our associates as members of the Hyatt family because of the close relationships that have evolved and developed over many years.

As to our guests, we're committed to delivering the very highest levels of service and achieving the highest level of satisfaction for hotel guests and meeting planners as well.

We've realized material increases in guest service levels as well as levels of customer satisfaction among meeting planners in 2009.

These metrics are an important part of the incentive compensation plan for our hotel teams.

In the United States we have a significant base of group association and convention customers representing close to 45% of our current revenue base in our full-service hotels in North America.

Our performance in serving meeting planners and association executives remains high on our list of priorities.

We've also taken a number of steps to enhance Gold Passport, our guest loyalty program, to focus on how we can better recognize and serve our most loyal guests.

As a result of some of the specific initiatives we undertook, including The Big Welcome contest, we expanded membership in Gold Passport by approximately 10% in 2009.

As to our brands, our focus is to ensure that our individual brands are serving the needs of the respective customer groups that we serve and that property economics represent attractive investments for owners and franchisees for each of our brands.

We can gauge our progress in strengthening our brands through expansion and through recognition.

On the expansion front, for example, Park Hyatt is growing in key markets with iconic properties in Shanghai, Beijing, Istanbul and Jeddah opening over the past 18 months.

Also there is continued momentum for the Grand Hyatt brand in Asia and Hyatt Place and Hyatt Summerfield Suites continue to gain traction in North America with 19 new properties opening in 2009.

We are also proceeding with plans to take the Hyatt Place brand into international markets beginning with India.

As to the Andaz brand that we launched in 2007, we have four Andaz properties open at this time with another opening later this year in New York and developer interest in this brand continues to grow.

As to recognition, our brands are resonating well with guests and we have received significant recognition by a number of leading travel publications.

As to our owners, including ourselves as we own 102 Hyatt branded hotels, we must deliver superior value.

We work to perform on the top line through revenue initiatives and to drive profitability through aggressive cost management while maintaining superior guest service.

We focus on increasing market share at each of our hotels in the markets in which they operate and we've made progress on this in each of the regions around the world in which we operate.

A majority of our hotels have gained revenue market share in their respective markets across our brands and in each region.

Market share performance is a part of the incentive compensation plan for each of our hotel teams.

As to expense management, we ramped up initiatives to control expenses during the third quarter of 2008 as we began to see pressure on rate and occupancy and as the financial crises around the world intensified.

We've increased productivity in the management of our hotels and, as an example of the progress that we've made across the system, we reduced comparable owned and leased hotel expenses by 4.4% in the fourth quarter of 2009 as compared to the prior year.

Margin performance in each of our hotels is a part of the incentive compensation plan for each of our hotel teams.

Having covered the areas on which we focus to drive improvements in results in existing hotels, let me turn to how we will increase the number of hotels we operate.

I just spoke about how we are working to deliver value to our owners.

Our ability to serve and attract third-party owners is a critical element of our future success because the vast majority of the new hotels that we will look to open in the future will be developed and owned by third-party owners and franchisees.

So, how are we going to pursue expanding the number of hotels we have?

The answer is through three models, namely ownership, management and franchising.

Most of our full-service expansion and some of our select service growth in places like China, India and the Middle East will be through agreements to manage hotels developed by third-party owners.

On some of the select service initiatives in emerging markets, and likely in some more developed markets outside of the United States, we are prepared to invest in joint ventures for the development of Hyatt Place or Hyatt Summerfield Suites properties.

As to select service expansion in North America, we will rely principally on franchising.

However, given the decline in the rate of new construction, we continue to work on ways in which we can apply capital to prompt construction of Hyatt Place and Hyatt Summerfield Suites properties in the near-term.

As to full-service development in North America, Europe and certain markets in South America, we will seek out management agreements.

However, we recognize that we have the opportunity, through the application of our capital, to secure hotels and accelerate our progress in many of the high barrier to entry markets in gateway cities on which we are focused for expansion.

This will be in the form of either buying hotels or otherwise utilizing our capital through financial participation of some kind to secure new properties.

To help to achieve our goals we increased our development staff and resources in 2009 and we enhanced our capabilities in our franchise and owner relations group to support our franchisees.

We added development professionals in Southeast Asia and in South America and continue to strengthen our corporate functions supporting the development teams in India and in China.

We've made strong progress in signing new management agreements for hotels in markets that are important for our brands, especially in India and China.

Our openings in new markets this past year are good examples of how we will continue to focus on key markets that will have a significant impact on preference for our brands.

I just returned from China yesterday where I was able to spend time with our teams in four new properties that we manage, all opened in the past year.

I visited the Grand Hyatt Macau, the Grand Hyatt Shenzhen and two Hyatt Regency properties in different parts of Hong Kong.

The general managers of these properties have an average tenure of service with Hyatt of more than 21 years, a level of tenure that's typical at the GM level across our full-service hotels.

We are working on expanding a number of existing owner relationships as we focus on expanding our presence in China.

For example, of the four properties I just mentioned two are owned by an existing owner.

Overall we currently have executed contracts for over 120 hotels across all of our brands and the vast majority of these contracts relate to managed and franchised hotels.

These hotels represent entry into about 10 new countries and into many new markets in which we are under penetrated.

For your reference these hotels represent more than 27,000 rooms and the majority of these hotels, about 55% by hotel count and about 70% by room count, are full-service international properties, the vast majority of which are managed properties, that will support progress towards our goal of being the most preferred brand in a number of important high-growth economies.

We're rigorous in assessing what we count in our inventory of hotel projects and we take into consideration the status of financing and state of progress in each of the developments.

Our bar is high because we apply resources based on the likelihood of successful completion of hotels under development.

So, how will the two avenues for growth, namely improving results in existing hotels and expanding our presence, be supported into 2010?

The answer is that we've established goals for our general managers and for the Company in 2010 that are directly aligned with these two avenues of growth.

There are six areas of focus, four of which are goals that our teams hotel teams are responsible to deliver with support from corporate teams and two of which are overall corporate goals.

Each hotel team is responsible for, first, increasing the engagement of their associates; second, increasing the guest service and customer satisfaction levels in their property; third, increasing their share of revenue in their market; and fourth, maximizing operating profit margins for their property.

The two other goals that are overall corporate goals are, first, to further expand our presence by increasing the number of Hyatt branded hotels; and second, to actively manage our capital base to support our overall goal as a company which is to drive preference for our brands.

As to expansion of our presence, I've already covered how we are pursuing new management and franchising opportunities around the world.

As to the application of our capital, we think about three avenues -- first, we plan to recycle the capital currently invested in our owned hotels; second, we plan to invest in our owned hotels are way of renovation and in some cases expansion; third, we intend to invest our cash and utilize our debt capacity to support our expansion.

Let me address recycling capital.

Simply put, we want to put the capital that we have invested on our owned hotel properties to work.

We plan to recycle that capital by selling selected properties from time to time and applying that capital to new opportunities, or alternatively to engage in structure transactions in which our hotels can be used as a capital base to support acquisition and/or development activity.

The timing of dispositions, structured transactions and acquisitions is uncertain, but we are actively engaged in looking at a number of potential opportunities at this time.

We will not be able to perfectly match disposition and acquisition activity, but the overarching idea is to put the capital that we have to work over time to support our expansion.

As to investments in our existing hotels with renovation capital, Harmit will review some specifics relating to our capital plans for this year in a few minutes.

Other investing activity will come in various forms.

While not an exhaustive list, this could include investing in debt, acquiring individual properties, entering into joint ventures for the development of properties, acquiring groups of hotels and the like.

As to investment in or assumption of debt, we will not be lending for the sake of lending but rather to secure new property or to participate in the recapitalization of an existing hotel.

So, as we enter 2010 we are clear about our priorities and clear about how these near-term priorities relate to our long-term goals.

We believe that these areas of focus will drive long-term earnings growth and will enhance shareholder value.

I'd like to spend a minute to talk about current trends and what we're seeing in the business.

At present there are mixed economic signals in the US.

As to international operations, we are seeing some relative improvements in selected markets, especially in emerging markets such as China where economic stimulus from the government has created support for commercial activity.

In general occupancies on the transient side have shown some signs of improvement over the last few months, but rates are still under pressure.

On a year-over-year comparative basis, cancellations in group business have slowed and we saw a sequential reduction in the rate of decline in group bookings during the final months of 2009.

These trends continued into 2010.

We expect that the US economic outlook during the first half of this year will continue to be characterized by mixed signals.

As to the industry dynamics, historically the lodging industry has been correlated to GDP growth with a lag of two to three quarters.

Positive RevPAR comparisons for group business will likely trail transient recovery and the rate of supply growth has declined.

The timing and magnitude of the impact of these dynamics are difficult to note.

So, rather than focusing on the specific timing of an inflection point for a recovery in the lodging sector, we remain focused on delivering value to our guests and to our owners and to applying ourselves to enhancing the value of our brands for the long-term.

With that I'll turn it over to Harmit Singh, our CFO to talk a little bit about the fourth quarter and 2010.

Harmit?

Thank you, Mark and a warm welcome to everyone on our first earnings call.

I will be discussing our performance in the fourth quarter, sharing with you our perspective on our balance sheet and capital structure, and will also provide some information on 2010.

In the fourth quarter adjusted EBITDA was $104 million compared to $97 million in the fourth quarter of 2008.

Excluding the impact of currency this was an increase of 4.3% which was largely driven by lower selling, general and administrative expenses and higher management and franchise fees in our international business when compared to the fourth quarter of 2008.

We reduced costs across the board and had lower bad debt expense, $1 million in the fourth quarter of 2009 compared to a bad debt expense of $19 million in the fourth quarter of 2008.

After excluding the change in bad debt expense adjusted EBITDA declined 9.5% in the fourth quarter of 2009.

Let me tell you about our earnings mix in 2009 before the allocation of corporate overhead.

Just over 60% of our adjusted EBITDA came from owned and leased hotels around the world, almost 25% through North American management and franchising and just under 15% through international management and franchising.

Across all three business segments owned and leased hotels North America and international, the demand picture is getting better, but rates remain below prior periods on a global basis.

In December occupancy rates in all three segments grew when compared to the prior year.

This was driven by transient demand which has started to come back albeit at lower rates than in the past.

We see the same dynamic so far in 2010.

First let me talk about our owned and leased hotel segment which, excluding our unconsolidated hospitality ventures, consists of 102 properties, about half of which are full service.

Of these full-service properties most are located in North America with 10 hotels in international locations.

Overall RevPAR for our full-service owned and leased hotels decreased by 6.1% in the fourth quarter of 2009 excluding the impact of currency.

Our international owned hotels realized an increase in RevPAR excluding the effect of currency during the fourth quarter of 2009 which offset some of the decline in RevPAR at our North America owned full-service hotels.

RevPAR for our owned select service hotels declined 9.7% in the fourth quarter of 2009.

Comparable owned and leased hotel operating margins declined 220 basis points in the fourth quarter.

The impact of lower RevPAR was partially offset by a decrease in costs.

Costs decreased due to reducing and reduced staffing levels and lower food costs.

Overall our costs in our hotels declined while occupancy increased in the fourth quarter of 2009.

During 2009 we were also able to increase customer satisfaction measures while reducing costs.

Overall during 2009 we reduced expenses for our comparable owned hotels by $168 million.

We believe that we have done a good job on our cost containment programs at owned hotels, but recognize that we're near the end of the one-way runway in terms of expense cuts.

(inaudible) recovery in our industry is widely expected to be occupancy driven at first, and because we do expect to see some cost increases in 2010, including increased wages, we expect that margins will be under pressure in 2010 even as we focus on additional productivity gains.

Next I'll talk about North American management franchise hotels.

In North America we have [115] full-service hotels and 175 select service hotels.

Fourth-quarter comparable RevPAR for full-service hotels declined 11.1% mostly driven by rate which declined 9.8%.

Transient occupancy was up representing the third consecutive quarter of year-over-year transient occupancy gains.

But transient rates experienced declines in the low double-digit percentage range in the fourth quarter of 2009.

Group occupancy declined as did group rates, at our full-service hotels in North America other revenues, including food and beverage, typically represent about 40% of total revenues.

Overall F&B revenues were negatively impacted by less group business and lower F&B spend by groups.

The good news was that group cancellations declined considerably in quarter four 2009 when compared to quarter four 2008.

That trend has continued into 2010 with cancellations continuing to decline relative to last year.

As Mark mentioned, almost 45% of our revenues at our full-service hotels comes from group business.

We are starting to see a reduction in the rate of decline in group bookings when looking at sequential booking activities since October of last year.

However, there will be some lag before group bookings translate into positive year-over-year RevPAR comparisons given the typical group bookings cycle for large meetings.

Now let me turn to select service performance.

All our select service hotels are located in North America at this point in time.

Comparable RevPAR at our managed and franchise select service hotels declined 11.9% in the fourth quarter of 2009 compared with the fourth quarter of 2008.

Occupancy increased 80 basis points, but that was offset by a 13% decline in ADR.

Our select service portfolio continues to gain market share following the completion of significant renovations associated with converting AmeriSuites properties to Hyatt Place branded properties from 2006 to 2008.

While we're maintaining our strong market share on the weekends, we have increased our revenue market share during the weekdays.

More recently the rate of decline in RevPAR for select service properties has narrowed significantly compared to prior periods.

We added a net 17 select service hotels to the portfolio last year most of which are franchised.

Fee income for North America management and franchising operations declined 6.5%.

The decline in base management fees was partially offset by better franchise fees due to unit growth and lower decline in incentive fees.

It is also pertinent to note that in 2009 we earned incentive fees from about 35% of our third-party owned North America full-service hotels.

Now let me turn to our international business segment.

As of December 2009 we have 108 full-service hotels in our international segment, all of which are managed other than two franchise properties.

International business makes us more transient weighted as group only represents about 20% of the business.

Other revenues including F&B represent about half of total revenues at international properties.

Our international portfolio is weighted towards Asia with almost 50% of the international properties in that part of the world.

Our second highest concentration of properties is in the Europe, Africa and the Middle East region with over a quarter of our international properties.

On the international management franchise side RevPAR decreased 5.5% in the quarter excluding the impact of currency.

The best performing regions in the quarter were Europe, Middle East and Africa where we saw RevPAR growth compared to 2008, and Asia-Pacific where we saw a smaller decline than that of international segment overall.

Our international business has started to show signs of RevPAR recovery excluding the impact of currency.

RevPAR growth was positive in December thanks to better occupancy.

For your reference, about one-third of all international properties showed RevPAR growth, excluding the impact of currency in the fourth quarter of 2009, with more than 50% of the properties showing RevPAR growth in December.

We added several notable hotels on the international side last year and overall opened hotels in three new countries.

International fees increased 8.3% in the fourth quarter of 2009 excluding the impact of currency primarily due to high incentive fees earned as hotel profitability improved.

In 2009 we earned incentive fees from over 80% of our international hotels.

This is due to the effect that internationally, unlike in North America, fees for many of the hotels are largely linked directly to profit without an owner's [priority return].

Now that I've talked about our three segments, I'd like to talk about two other topics in the fourth quarter -- special items and our SG&A.

During the fourth quarter our earnings were impacted by four non-cash special items totaling $22 million pretax.

This included $12 million of asset and hospitality (inaudible) payments and $9 million of provision on hotel loans.

For your reference our total loan receivable balance, excluding one senior loan secured by an asset in Hawaii, is less than $120 million.

Our adjusted SG&A expenses declined 24% in the fourth quarter and 17% for the year or about $50 million on a full-year basis.

Overall we were successful in reducing cost beginning in the fourth quarter of 2008 as we aligned cost throughout the organization to a reduced revenue base.

We also reduced sales and marketing costs to respond to the much reduced revenue level.

While we don't expect similar reductions this year we're very focused on holding costs in line, but expect compensation expense to increase as we face some various inflation in 2010.

Moving ahead to our balance sheet and capital base, we view our strong liquidity position as an advantage and plan to use this capital base to support our expansion and achieve our goal of driving brand preference and growing long-term shareholder value.

In 2009 we further strengthened our balance sheet through a number of pre-IPO transactions, specifically we raised over $750 million through a private placement of common stock, extended and amended our revolver in July, and issued $500 million of senior unsecured notes in August.

We also paid down approximately $250 million in debt.

As a result at year end we had about $1.3 billion in cash and undrawn debt availability of $1.4 billion.

At year end we had about $850 million of debt at the end of 2009 with less than $150 million of maturity through 2012.

I'll note that net cash provided by operating activities continues to be strong; it was $276 million last year.

We also maintained our investment grade rating through 2008 and 2009.

As we build a long-term capital structure our intent is to be investment-grade through all economic cycles.

We also want to ensure access to diverse sources of funds in a timely manner and on favorable terms in order to support our strategic objectives.

In our earnings release we provided some information on 2010 that I'd like to discuss in more detail.

We plan to spend $270 million to $290 million on CapEx in 2010 which is about 30% more than last year.

This includes roughly 4% to 5% of owned hotel revenues on maintenance CapEx.

In addition to maintenance CapEx, we plan to spend capital against some large renovation projects at several of our key owned hotels.

We are starting major renovation projects at the Grand Hyatt New York and the Grand Hyatt San Francisco.

We view this as a good time to invest capital and to important hotels in high barrier to entry markets.

Both of these projects will begin over the summer and continue into the third quarter of 2011.

We anticipate that there will be disruption to business and estimate we'll have about 400 rooms on average out of service per day in the second half of the year.

We also have renovation projects that are taking place at a number of other properties, but these will cause less disruption to business than the other two noted above.

In terms of other information with 2010, and our earnings release we have provided a range of estimates for depreciation and amortization and interest expense for the year.

We haven't provided an effective tax range, but I wanted to take a minute to explain how you can think about taxes.

We expect the tax rate on our US income to be approximately 38% and the blended tax rate on our international income to be approximately 20%.

In addition, we have certain fixture tax charges each year which we believe will approximate 2009 levels.

While we're not providing revenue and earnings guidance, I would note that one point of global RevPAR exchange equates to between $10 million to $20 million of adjusted EBITDA for the Company.

Whether the impact on adjusted EBITDA is at the low or high end of the range depends on the mix of rate and occupancy, the geographic weighting of the RevPAR change and the mix on type of hotel.

On foreign exchange we do not hedge our operating results, but don't expect foreign exchange to impact our 2010 adjusted EBITDA significantly.

So in summary, in the fourth quarter we started to see signs of a demand recovery on the transient side and some positive signs in our international business, while the group business and rates in general and have not picked up yet.

As a result RevPAR recovery, which we define as positive year-over-year growth, is still not evident for the Company overall.

We have a business model that has significant operating leverage in it, especially as the economy and the industry rebound in the long-term.

This coupled with a strong balance sheet will allow us to invest and grow the business for the long term.

With that I'll turn it back to Atish for the question and answer.

Okay, thank you, Harmit.

Let's get started with the question-and-answer session.

Damali, may we please have the first question?

(Operator Instructions).

Jeff Donnelly, Wells Fargo.

Good morning, guys and I guess welcome to the fold.

Mark, you certainly went through a lot in your comments about capital allocation and I think maybe it would be helpful -- I'm not sure if you're able to do this for us, but help people build a better understanding on how you think about where you put that first dollar and the opportunities.

Are you able to rank for us right now your opportunity set say between brand or hotel acquisitions, management franchising, bridge financing and I think you kind of touched on -- or even just reinvestment in your own hotels.

Are you able to rank for us, as I said, how you look at those?

Sure, good morning.

The fact is that the way in which we invest our capital is really part of the overall approach that we have to growing the Company and expanding our presence.

So, yes it's true that we are committing capital to the renovation and supporting our existing hotels.

And we will continue to do that as we described earlier in the call.

In terms of where we will likely end up applying capital, either as a geography matter or as a customer base matter, a couple points to point out.

First, there are a number of markets in which we're working on expansion through management and franchising arrangements.

And those are markets in which we are not necessarily needing to actually apply capital.

And in other markets, I would say notably in North America and Europe where we have higher barrier to entry markets in which we would like to expand, those would be more likely places where we would apply capital.

We're focused on driving long-term returns and we think that the ability to actually accelerate what we're doing in some of those critical markets in which we don't have a current presence or in which we're under represented would be appropriate for us to apply capital to get into.

In terms of the customer bases, we have a significant group base and we want to continue to support that.

We remain focused on trying to expand our resort portfolio.

And with respect to business transient hotels or hotels that principally serve business transient guests, that would really be the gateway cities that I mentioned before in terms of our area of focus.

So, that is, by way of geography and by way of customer bases, how we're thinking about applying capital.

And then I guess maybe as you kind of had to roll it forward for us, I guess how do you think about then where you'd like to take your mix of the business itself either on an asset basis or an earnings basis in this coming cycle?

I'm just thinking out several years.

I guess do you hope to deemphasize on the real estate component or emphasize the international market exposure?

Are you able to give some metrics of maybe targets you'd like to get to?

Yes, we don't really have a target mix predefined.

What we do is think about the application of capital, recycling our existing capital invested in our owned hotels, as well as applying cash and proceeds from debt, to really drive preference for our brands.

So that's really going to drive our decision making.

And we will certainly turn over the capital that's invested in our existing portfolio through the recycling that I described earlier.

But the actual mix will be a result of the opportunity that we see over time to continue to improve and drive our preference.

So we don't have a target mix in the future.

It's true that we are seeing and meeting with some success in how we are going about expanding our management franchise base, so we do expect to see growth in those -- in that segment of our business.

But in terms of managing to our target mix, that's not the way we think about it.

And just a last question maybe in two parts and I'll yield the floor.

Is just over the next few years are you able to give us a sense of the volume of assets that you are looking to sell?

And then maybe separate from that, can you talk about the depth of opportunity there is for Hyatt, particularly at the higher price points, to maybe accelerate conversions and the hurdles to making that happen?

Sure.

With respect to dispositions, one key principle that we have in mind is that the sales of property should really support future growth.

So what we will be doing is looking to either structure transactions that allow us to utilize our existing hotels to provide a capital base to help support future growth or sell assets for cash to be able to redeploy the cash.

But it's really going to be in the context of helping to support growth over time.

So I would say that the volume of transactions on the disposition front will be driven more by the opportunity set that we see over time and how we're able to apply capital.

With respect to conversions, we do expect to -- and we are focusing on conversion opportunities.

That is also an area in which the application of capital will matter.

The transaction volume for what I would say typical whole asset sales has not really been significant and not been growing significantly.

Having said that, there are a number of other types of transactions including the potential to participate in recapitalizations of existing hotels or otherwise participate in the financing structure for existing hotels.

And that may very well be a part of how we approach conversion opportunities over time.

Thanks.

Joe Greff, JPMorgan.

Good morning, guys.

Thanks for including some I guess what we would characterize as pipeline data.

Regarding the 27,000 rooms in that pipeline we'll call it, how much have you committed in terms of capital or some sort of financial support to that, and how much of that hits in 2010 and which I'm presuming would be above and beyond that CapEx guidance?

And then my next question, other than New York and San Francisco (inaudible) renovated hotels, can you remind us what the other three are?

And then my final and third question, can you just comment on the level of churn or removals of the existing hotels?

You obviously did a very good job in the fourth quarter in terms of growth equaling net additions, how do you think about that going forward?

Thank you.

Joe, hi, this is Harmit.

We'll try and deep dive on the question.

The first question I think you asked was relative to how much of our own capital we committed on the 27,000 rooms or 120 hotels we talked about.

The quick answer to that, as Mark mentioned, most of the growth that we've referenced is on the management and franchise inside.

So the amount of capital we committed is marginal.

On your second question relative to -- that was the CapEx.

Your second question related to the projects -- we talked about two projects in 2010, these projects mentioned were the Grand Hyatt in New York and the Grand Hyatt in San Francisco.

We've got three other hotels in essence, largely the Park Hotel in Chicago, the Hyatt Regency in Atlanta and the Hyatt Regency in San Antonio where we are undertaking projects in 2010.

These projects, we believe, will continue into 2011.

And you've got our track history and relative to capital spending over the last couple of years.

In 2009 we spent about $216 million in CapEx, in 2008 our expenditure was in the approximate ranging of $250 million or so.

I think the other question you asked was about removals of properties or properties leaving the system.

To a certain extent those are not easily predictable over time.

But we -- in some cases historically they've been removals or situations in which we have moved on from a property where we have had some brand compliance issues.

But it's also true that there are owners that have some measure of differing levels of financial distress and that may impact removals over time.

But again, it's very difficult to predict that.

So, hard to be more specific on that for 2010.

The only other general comment I'd mention, Joe, if you look at our owned portfolio -- and this is more about spending capital dollars -- we have 102 owned assets.

The bulk of that, which is 55 of our assets, are select assets, largely assets that we acquired and then converted -- acquired from Marriott and then converted to Hyatt Place.

And we spent quite a bit of capital in renovations between 2006 and 2008.

So the bulk of our portfolio, especially on the select side, is largely refreshed.

And on the full-service side, despite the crisis over the last 18 months, we have been spending on renovation projects and we continue to do that over the next two years.

So the overall portfolio is in good shape.

Great, thank you, guys.

Josh Attie, Citigroup.

Thank you.

I have two questions.

First, did you mark up the tax basis in your assets at the time of the IPO?

And if you didn't, is there anything you could do to sell assets tax efficiently?

And also what's the status of the Waikiki loan?

Is it paying cash and is it current and has that loan been evaluated for a possible impairment?

Josh, specifically on your first question, did we mark up the tax basis, the answer is -- in doing the IPO the answer is no.

On your question relative to Waikiki, the loan's being serviced, the property is performing relatively well to service the loan.

And in terms of any impairment risk, we don't believe at this point there is any impairment risk on Waikiki.

So when you think about asset sales of something that you might have a built in gain, how do think about mitigating the tax hit?

There are a couple of different ways you can approach it.

One is through exchanges of various types and the second is through partnering -- structured transactions where you may be able to contribute assets to either joint venture or partnership entities to create capital for future growth.

So those are the primary ways in which you can do it.

Obviously each individual asset has got its own unique attributes.

And we have a long history of dealing with our own asset base over a long period of time.

So, we would apply ourselves to look at the specific circumstances for each transaction won by each.

Okay, thank you.

Rose Smedes (sic), KBW.

Hi, good morning.

It's actually Smedes Rose at KBW.

I was just wondering if you could share us what percentage of your workforce at your owned hotels in North America is unionized.

And then also, you may have given this, but given that group business is such a big part of your overall bookings, could you share with us some of the pacing of where group bookings are this year versus last year and trends and cancellations?

Yes, the quick answer to your question in terms of the unionized basis, 25% of our 45,000 employees.

That's overall though, that's not necessarily just our owned hotel base, which we don't have handy at the moment.

Okay.

And then on the pace of group bookings?

Yes, let me -- give you a profile of our group business and then give you a perspective on how we see it.

Overall, as we mentioned, group revenue in North America represents about 45% of total revenue and an important component of our business.

Group business is a significant contributor to our F&B and other revenues through catering and outlet revenues.

One of our strengths is our strong partnership and relationship with associations and meeting planners and our ability to select large groups well.

We have nine hotels with over 1,000 rooms which makes us an attractive option for meeting planners.

There have been some mixed signals on group business, while overall group revenue on the books for 2010 is below 2009, the decline has been lessening since about October of 2009.

In the last four months we have booked something in the range of one-third more group revenue for 2010 than the same period in the prior year.

We look for our Meeting Promise and our Great Happens campaigns to continue to build upon short-term booking momentum that we have seen over the last few months.

Cancellations have reduced significantly, as we have referenced.

We recognize in the first half of 2010 will be some -- compared to periods last year where group business is already on the books from before the significant downturn began.

So overall rates remain down year-over-year in the fourth quarter and the trend continued into 2010.

In summary, as we look at the group business it's difficult to predict outcomes for 2010.

The group is driven by corporate profits and outlook as well as demand for association business and there is uncertainty about the months ahead.

And that's how we look at our group profile.

All right, thank you.

Steven Kent.

Good morning.

Can you just talk a little bit more about international?

And Mark, maybe you could just address how this business is going to grow?

Because it seems to me that this is really the growth driver for the Company over the next couple of years.

And I just want to understand a couple points.

One, is this primarily -- when you're seeing this strong RevPAR you're seeing international for international?

What I mean by that is this Asia for Asia or Middle East for Middle East customers and is that more sustainable?

Also, the structure of the contracts, I think, Harmit, you mentioned that they start to pay right away and is that how all of them are, especially on the management side, really being structured?

And then it just seems like they're more profitable just because the percentage coming from bank led, etc.

And does that offset some of the higher expenses, Harmit, that you mentioned you expect in North America for --?

So overall couldn't we get EBITDA margins to increase over the next few years as international becomes a bigger portion of the mix?

Thanks, Steve.

First of all -- the first part of your question related to international growth as being the growth driver for the Company over the next couple of years.

I think it is true that we will see growth both in terms of existing hotels -- performance in existing hotels internationally and when you look at additions to the chain likewise.

It's not certainly the only area that we're focused on though because assuming that there is a sustained recovery in the -- over the next several years, we do have significant operating leverage inherent in the ownership of our owned hotels.

So that would -- as I mentioned before, we really see it as two growth drivers, two primary growth drivers.

One is results from existing hotels, which are more focused on North American ownership than international.

And then unit growth.

So, with respect to the growth and performance that we may see, it is true that local demand for Chinese among Chinese hotels and Indians among Indian hotels is growing.

And the local markets -- local economies -- secular growth in those economies continues to be relatively high.

It's also true that the proportion of stimulus that was provided in those economies or at least in China has been relatively higher as a proportion of total GDP.

So that's really part of what's been driving the commercial environment especially in China.

In terms other structure of the agreements.

Yes, in general the incentive fee structure for international full-service hotels involves a participation in a measure of hotel profitability from dollar one of whatever the measure happens to be as opposed to from an after hurdle rate.

And given the relative strength of food and beverage revenues it is a significant additional component piece of total revenues.

And in many markets outside of the US we see both food and beverage revenues being significant, but also margins for food and beverage operations being material so that is a driver of profitability that helps to buttress incentive fee income over time.

Steve, the only other thing I'd say is the way we classify and report our segments the management franchise piece of international is a separate segment, but we have within our own portfolio we have 10 international hotels.

So if you look at our international base, broadly 20% of our revenues are international and about one-third of our earnings comes from international.

And that's just a combination of what comes out of the (inaudible) franchise business and the owned portfolio.

Okay, thank you.

And, Smedes, in case you're still on the line, you had asked about North America owned union and the number is roughly the same as the number we gave you for North America overall, so 25%.

And Operator, we'll take the next question, please.

Bryan Maher, Collins Stewart.

Thanks, guys, and good numbers out of the gate.

As it relates to this international exposure and growth, as we go through the next couple of quarters do you intend to break out the RevPAR rate in occupancy for each of the regions as opposed to just reporting it internationally?

At this point our thinking is we're not going to do that.

We do give data at a property level in terms of the number of properties.

But we're not necessarily going to separate the RevPAR information at a regional level.

And then just as an aside question, I was a little bit surprised to see you say that Europe and Middle East seemed to outperform Asia in the fourth quarter if I got that correct.

Is that right?

That's right.

And have you been seeing some of the recent trends that we're seeing over in Asia which is roughly 10% of RevPAR in December and 20% of RevPAR in January?

It's -- again, it's a difficult for us to comment on January, but we did reference the fact that a bulk of our portfolio saw RevPAR growth in December and internationally and Asia is a big piece of our international representation.

I would just point out one -- provide one other reference point, which is relative to the macro statistics for these markets there are a couple things that you need to need to bear in mind as you look at the year-over-year comparisons.

One of which is you'll remember that the terrorist attacks at the end of November last year in India caused a significant decline across the board in the Indian market in December and January.

So that will tend to inform what year-over-year comparisons look like in that market.

And the second thing that I would note is that Chinese New Year actually fell in February this year as opposed to January of last year.

So that's another factor when looking at the macro statistics that you should bear in mind.

Okay, thanks.

Very helpful.

David Loeb, Baird.

Good morning.

I wonder if I can try to pin you down a little more, Mark, about acquisitions and the structured transactions and the like.

Do you think you will deploy a significant amount of your cash or credit capacity in the next year for acquisition transactions?

I think it's obviously difficult to say.

The fact is that the activity that we're seeing is in more structured deals and opportunities to participate in capital structure, recapitalizations and the like, and less in maybe what most people would consider to be traditional sale of -- transacting of whole assets.

So, the fact is that we're seeing more activity in the structured transaction environment over time, but obviously transaction volume for whole properties hasn't really increased or isn't apparent yet in the marketplace.

So, based on that it's difficult to say.

We are looking at applying capital to some development initiatives.

One example of this is the joint venture that we announced last year to develop Hyatt Place properties in India.

But there may be other projects that we can apply ourselves to in that same vein, but it would be with partners.

But in terms of overall prognostication, very difficult to say.

Are you actively bidding now?

Do you have letters of intent or contracts outstanding now?

We've got a lot of things that we evaluate over time and continue to and when we've got something to report that's more definitive we will.

But so there's a constant din of activity in evaluating opportunities.

And on the disposition side, you mentioned structured transactions, does that include, for example, expanding your relationship with HPT or are those kind of sale-leaseback transactions?

Is that what you mean?

Or are you talking about more joint venture or other kinds of transactions?

You know, the kinds of things that we've been thinking about really relate to either joint ventures or other ways in which we can utilize existing assets to create capital to help support development or to help support acquisition activity.

So it would be more along those lines.

Okay.

One housekeeping question and then I'm done.

In the fee line can you just quantify how much is in there that would be non-cash amortization of gains from assets that you've sold and taken back management contracts?

Yes, we don't have it off the cuff, but we can quantify for you, David, probably in the next call.

That would be great.

Or if you could get back to me about the number from last year that would be great too.

Is it a significant number?

I know it's nowhere near as big as Starwood's, but is it a significant number, generally?

No, the answer to that, no.

Okay, great.

Thank you very much.

Thank you for your time, David.

And we've hit the end of our time allotted today.

So thank you very much for participating.

We appreciate your interest in the Company and we look forward to speaking with you soon.

Thanks very much.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

And have a great day.