Hyatt Hotels Corp (H) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hyatt Hotels Corporation first quarter 2010 earnings conference call.

My name is Jenn and I will be your coordinator for today.

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

We will be facilitating a question and answer session towards the end of today's conference.

(Operator instructions).

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

I would now like to turn the presentation over to Mr.

Atish Shah, Senior Vice President, Investor Relations.

Please proceed, sir.

Thank you, Jenn.

Good morning, everyone, and thank you for joining us for Hyatt's first quarter 2010 earnings call.

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 results for the quarter, progress made during the quarter relating to long-term value creation and recent business trends.

After the comments 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, May 6, 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 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.

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

To access it dial 617-801-6888.

The passcode is 44988295.

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

Thank you, Atish.

Good morning and welcome to Hyatt's first quarter 2010 earnings call.

As I noted on our year-end 2009 earnings call, our goal is to be the most preferred brand in each segment that we serve.

Our focus on associate engagement and guest satisfaction is ever-present and is the backbone of our efforts to increase preference for each of our brands.

We continue to support high levels of engagement among all of our associates and we enjoyed further improvements in guest and meeting planner satisfaction levels over the first quarter across the Company.

Operating results improved over the course of the first quarter as occupancy levels increased in many markets in which we operate around the globe.

Additionally, we began to see increased room rates in selected markets as individual properties shifted mix or were able to raise prices.

We saw solid margin performance in our owned hotels as we continued to focus on productivity and maintaining resources that are appropriate to our revenue levels.

In North America we saw an improvement in the volume of group bookings made during the first quarter as compared to what had been booked in the first quarter of 2009, while room rates remained under pressure.

Revenue share within individual markets improved in a number of our full-service hotels around the world and increases in revenue share were realized across a large portion of our select properties.

As we look at the results from the first quarter, it's important to keep two things in mind; first, the comparable period in the first quarter of 2009, one of the worst periods in our industry over a number of decades.

For example, our North American full-service managed hotel RevPAR in the first quarter of 2010 was approximately 20% below first quarter 2008 levels.

So we have, as they say, room to grow.

As you will recall, the first quarter of 2009 was characterized by a sharp drop in demand across most geographies, brands and price points with material declines in occupancies and rates, high group cancellations and attrition and a significant decline in forward booking activity.

The second thing to keep in mind is that we remain in an early stage in terms of overall economic recovery and growth.

It is true that the uneven signs of stabilization that we started to see early in the first quarter grew into a more consistent pattern of improving demand over the course of the quarter in an expanding number of markets around the world.

However, there are a number of macro factors including slow job growth in the US that inform our continued focus on operating costs and initiatives to increase efficiency over time.

While the positive year-over-year results in some of our key metrics in the first quarter are encouraging, the US hospitality industry is just now starting to show upticks from a severe downturn with many hotels in the industry still facing profitability and financing issues due to the material decline in operating performance and continuing challenges in the credit environment.

Outside the US the situation is better in a number of markets in which stronger GDP growth is sustaining better relative performance.

With that as a backdrop, I'd like to discuss our performance in the first quarter as it relates to how we expect to achieve earnings growth over the long term.

As we discussed on our year end 2009 earnings call, we expect to achieve earnings growth through two principal avenues.

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

Second, we will increase our presence by expanding the number of hotels we have in markets in which we are not represented or are underrepresented.

As to improving the results of our existing hotels, we made good progress in the first quarter.

As you may recall, the four things upon which we focus as an operating matter are our people, our guests, our brands and our owners.

As to our people, our continuing focus on associate engagement was supported by a number of initiatives.

We brought together all of our general managers of full-service hotels in North America in March for the first time since we celebrated Hyatt's 50th anniversary in September of 2007.

The level of enthusiasm was high, and there was an active discussion about initiatives relating to engagement of our associates and increasing guest satisfaction levels.

While we reviewed strategies to drive short-term meetings and other sources of revenue for 2010, much of the discussion was focused around ways in which we can, over the long-term, translate the special culture of Hyatt and the extraordinary efforts of our people into preference for our associates, our guests and our owners and franchisees.

As to our guests, our guest and meeting planner satisfaction scores continued to increase during the first quarter.

We also launched the big welcome back Gold Passport campaign, which will support our efforts to expand Gold Passport membership and enhance the value of Gold Passport for existing members.

As to our brands, they each continue to resonate well with travelers.

Of particular note, we're enjoying growing interest among guests, developers and franchisees for our three newest brands, Hyatt Place, Hyatt Summerfield Suites and Andaz.

This is, in part, due to the increase in the number of markets in which we have representation for those brands.

And as to our owners, we remain focused on delivering superior value.

I attended our select service owners meeting in Scottsdale last week.

A number of owners and franchisees, including many who owned hotels branded by us as well as hotels branded by others in the industry, spoke with me about Select Service performance and what they're seeing in the market.

I came away with two major areas of focus.

First, our continued focus on expanding into markets in which we are not represented is very important to our owners and franchisees.

We have seen continued revenue share penetration in markets in which we currently have a presence as we continue to expand.

Second, construction financing continues to be a major constraint for most developers looking at new development.

We continue to work on ways in which we can support and help our existing owners and potential new developers in their efforts to build new hotels.

We are doing this in ways that are responsive to individual developer needs because one size does not fit all.

Turning now to the second area, namely expanding our presence, we've made progress in both opening new hotels and announcing agreements for future additions to our portfolio.

We opened two Andaz properties in the US in the first quarter.

One is a newly built-out property on Wall Street, the other a conversion in San Diego, both being managed by us under long-term agreements and both new markets for the Andaz brand.

We opened five new rebuild Hyatt Place properties, four that are franchised and one managed, and three new markets for the Hyatt Place brand.

We added one of newly built franchised Hyatt Summerfield Suites property in a new market for that brand.

And we opened a newly constructed, full-service managed Hyatt Regency resort hotel in Clearwater, Florida, our first hotel in that market.

During the quarter we continued to work with third-party developers on new properties around the world and across all of our lodging brands.

For the most part people will be franchised or managed properties with some of them involving investment from the company through key money or other form of participation.

We've also increased our estimate of the number of openings for full year 2010 from more than 20 hotels to more than 25 due to conversions and because certain hotels are expected to open slightly earlier than previously expected.

I'd like to take a few minutes to discuss our opportunities in one market, in particular, namely India.

We are very bullish on the economy in India and our prospects in the country.

While we've managed hotels in India for more than 27 years, the accelerated economic development of the past decade, in particular, has created opportunities for Hyatt.

I visited some of our properties, our operating and development teams and a number of owners and developers last month.

India hospitality is well practiced and evident everywhere you look.

This is one of the key reasons I believe we will find great opportunities to build talent to help us serve guests in the market across all of our brands over time.

Over the next five years we expect to expand into 15 new markets as well as increase our presence in Delhi, Goa, Mumbai and Calcutta.

This expansion represents approximately one quarter of the hotels for which we had executed contracts as of year-end 2009.

These projects include Hyatt Place, Hyatt Regency, Grand Hyatt and Park Hyatt properties, but we do expect all of our brands to be represented in India over time.

I would like to talk a bit about one of the corporate goals that in mentioned on our year end 2009 conference call, that of managing our capital base by recycling our capital, by making new investments and by renovating existing assets.

First, in terms of recycling of capital, during the first quarter we sold the Hyatt Regency Boston, a hotel that we acquired in early 2009.

We sold this hotel subject to a long-term management contract and with a commitment from the new owner to make further investments in the property.

These are important elements of a transaction, as we are long-term believers in the Boston market and have a strong foundation for maintaining our presence over time.

This is a good example of how we expect to recycle capital over time in order to expand the presence of our brands or, in this case, preserve our position in the top 10 market in the US.

We've seen an increase in opportunities and more ways in which we may be able to assist existing owners who may be facing financing or other issues as we remain focused on maintaining and expanding our presence in key markets.

In terms of new investments, our year end -- on our year-end 2009 earnings call, I spoke about growing brand preference and the varied ways in which we hope to allocate capital to achieve that goal.

Year-to-date, given the quickly changing operating and financing environment, only a small number of deals have been done across our industry.

During this time we have looked at many opportunities across the globe and continue to evaluate qualified opportunities and remain poised to take advantage of them.

By way of reminder, the application of capital could be in the form of equity or debt, key money, loans or guarantees, depending on the needs and the situation.

In terms of renovations, Harmit will provide an update on how things are progressing this year.

So, to wrap up, we are encouraged by the economic activity that we've seen since the year began, and we continue our dedication to delivering value to our guests and our owners as well as to enhancing the value of our brands over the long term.

And with that, I'll turn it over to Harmit to talk a little bit more about our results.

Thank you, Mark, and a warm welcome to those who have joined our first quarter 2010 earnings call.

I will be discussing our performance in the first quarter as well as recent business trends and providing information on full year 2010.

In the first quarter and adjusted EBITDA was $112 million compared to $91 million in the first quarter of 2009.

Excluding the impact of currency, this was an increase of 21.3%, largely driven by stronger performance at owned and leased hotels.

This increase reflects continued focus on the performance of our hotels, as Mark noted earlier.

Another factor contributing to the increase in adjusted EBITDA was a one-time benefit from a favorable settlement of approximately $8 million related to a construction dispute at one of our vacation ownership properties.

We also had a small increase in management and franchise fees in the quarter.

I'll now provide some detail about these improvements.

I'll remind you that during our year end 2009 earnings call, we stated that transient demand has started to come back, and we are happy to say this trend continued through the first quarter across all three business segments, that is, owned and leased hotels, North American managed and franchise operations and international management franchise operations.

Revenues from transient customers, both corporate and leisure, were up for the first quarter of 2010 compared to the first quarter of 2009.

On the group side, while revenues were down in North America as compared to the first quarter of 2009, the number of group nights sold increased by approximately 3% compared to the first quarter last year.

Now let's discuss the three business segments in more detail, beginning with our owned and leased hotels segment.

Overall, RevPAR for our full-service owned and leased hotels increased by 9% in the first quarter of 2010 excluding the impact of currency.

Over a third of the 9% increase was driven by our international owned hotels.

Results in North America were helped by the ramp-up in the performance of two hotels that were renovated 12 to 18 months ago.

Results were also helped by the Olympics that benefited our property in Vancouver.

Comparable owned and leased hotels margins increased 220 basis points in the first quarter.

Margin growth benefited from the two hotels ramping up from renovations that I've mentioned as well as our property in Vancouver.

Margin improvements at these three hotels represented almost half of the 220 basis point decrease in the quarter.

The remainder of the margin improvement was a result of strong revenue and productivity gains, especially in our international owned hotels.

This helps to demonstrate the operating leverage inherent in our business model.

We came into 2010 with continued focus on productivity, as we remain cautious about the level of demand and state of economic recovery, especially in the United States.

In the first quarter, we were able to manage expense increases to approximately 5.6% even as occupancy increased by 760 basis points.

However, despite focus on operating efficiently, we expect that our costs will continue to increase, driven by inflationary pressures.

While continuing our focus on productivity and expense management, we maintain our emphasis on guest service, as demonstrated by an increase in guest satisfaction levels across both our full-service and select service portfolios.

Next I'll talk about North America managed and franchised hotels.

First-quarter comparable RevPAR for full-service hotels declined 2.2%, driven by ADR, which declined 7.9%.

The number of transient room nights sold increased approximately 9% where transient rates declined slightly over 7% in the first quarter of 2010.

Our general managers continually manage revenues at their respective properties, and their focus on business mix, channels and the evolving levels of demand in each of the respective markets informs how they manage rates and bookings.

While the volume of group room nights sold increased during the quarter, overall group revenues declined in the mid-single digit percentage range due to declines in average rates.

Group revenue paid for 2010, as of the end in the first quarter, was down from last year while the rate of decline of group paid lessened over the first quarter 2010.

As compared to last year, in the quarter for the year bookings were significantly higher.

Group cancellations declined materially and are at pre-downturn levels.

Now let me turn to select service hotels.

Comparable RevPAR at our managed and franchised select service hotels increased 2.6% in the first quarter of 2010 compared with the first quarter of 2009.

Occupancy increased 870 basis points, but it was offset by a 10.7% decline in ADR as rates continued to be under pressure.

Many of our select service hotels continued to gain revenue share in their respective markets as the Hyatt Place and the Hyatt Summerfield Suites brand continued to build preference among guests and corporate customers.

We are also pleased to have reached a milestone in the quarter as well, opening our 150th Hyatt Place hotel.

Overall, fee income from North America managed and franchised operations were relatively flat.

Increased franchise fees resulting from unit growth and franchise hotels that have continued to ramp up were offset by a decline in incentive management fees.

Now let me turn to our international business segment.

On the international management franchise side, RevPAR increased 9.6% in the quarter excluding the impact of currency.

The Europe, Middle East, Africa region and the Asia-Pacific region were the best performing regions in the quarter.

The Asia Pacific region is benefiting from new hotels opened over the last couple of years that are ramping up, particularly in China.

I recently visited several of our hotels in China, including those in Shanghai, Beijing and Macau, where our hotel in the City of Dreams on the Cotai Strip is representative of our expansion plans in the region.

Our presence in each of these markets is strong, and one of the things that most impressed me was the amount of innovation taking place in this region.

For example, overall hotel design, food and beverage offering and meeting space configurations are all evolving rapidly in response to guest needs, and we are enjoying the benefits of having maintained a historically high level of innovation in the region.

There are also a few special factors that helped our results in the quarter, such as the lift in business in Shanghai due to the advanced planning for the World Expo which opened earlier this week.

Overall, international fees increased 16.7% in the first quarter of 2010 excluding the impact of currency, due to higher revenues at comparable hotels and increased fees from recently opened hotels.

Now that I've talked about our three segments, I'd like to talk about two other topics in the first quarter -- our balance sheet and SG&A expenses.

Our balance sheet continues to be strong, as we had $1.3 billion of available cash and debt of $850 million at the end of the first quarter.

We've continued to maintain an investment grade rating.

Moving ahead to SG&A, our adjusted SG&A expenses increased 12% in the first quarter due to a combination of factors including increased bad debt expense and professional fees.

We are experiencing ongoing SG&A expense growth due to higher compensation costs as we restore merit increases and incur higher travel costs as the people get back on the road.

I'd like to conclude by reviewing some information on how the remainder of the year looks for us.

We had previously provided some information on 2010 as it relates to CapEx and depreciation and amortization and interest.

These ranges have not changed since last quarter.

Two items that I'd like to talk about further are income taxes and renovations.

On income taxes we are expecting that the tax rate of our US income to be approximately 38%, the blended tax rate on our international income to be approximately 20% and certain fixed charges that could be slightly higher than 2009 levels.

As you read in our release, our income tax expense increased during the quarter as a result of the timing of some fixed tax charges.

The quarter to quarter volatility in rates may be significant due to the relatively low levels of pre-tax income in dollar terms combined with the impact of any discrete items that may occur during a given period.

In terms of renovations, we are investing significant dollars in large projects at some of our own hotels.

Some major projects that were completed over the last 12 to 18 months are ramping up nicely and contributed to the adjusted EBITDA and margin growth that we reported today.

We have also spent the last few months ramping up our work on renovation projects taking place this year.

As discussed in our year end 2009 earnings call, we expected the disruption associated with these projects to reduce rooms available for sale by an average of 400 per night from July through the end of 2010.

So, in summary, in the first quarter we saw signs of a demand recovery, especially on the transient side, solid growth in our international business and improved operating results from our own hotel portfolio.

Group business, which is a material driver of our overall business, is showing signs of firming up as we are seeing more booking activity but rates remain materially lower than last year.

With that I'll turn it back to Atish for questions and answers.

Thank you, Harmit.

For our question and answer session, please limit yourself to one question at a time, and we'll take follow-up questions as time permits.

Let's get started with the first question, please.

(Operator instructions) Josh Attie, Citigroup.

It looks like the ten owned international hotels had a really strong quarter.

Maybe you could talk a little bit about what drove some of that strength, aside from Vancouver.

Was it evenly divided across markets?

And do you think it's sustainable for the balance of the year?

You are right; we had a strong performance from our international hotels.

Let me just put some color on our own performance.

Overall, strong performance across the board.

Operating margins were up 220 basis points.

If you back out the three properties that we referenced, there was the Grand Cypress that was under renovation last year that has opened and is ramping up.

We had a Hyatt at West Hollywood that we converted to an Andaz, about a little over 12 months ago, and that has ramped up nicely during the last 12 months.

And then the Olympics helped us in Vancouver.

Outside this, the margin growth was largely driven by international hotels, both in terms of occupancy as well as rate increases.

And that was a big contributor of what we saw in terms of margin growth.

Stepping into year, we referenced the fact that we are going to be focused on making productivity enhancements, and that has come to bear as the quarter progressed.

As we look and consider the sustainability of this, a couple factors that need to be borne in mind.

First, there were some special factors that helped, especially relative to the three properties.

The second is the economic recovery and the recovery in our business is largely going to be driven by occupancy.

There's only so much we can do in terms of mitigating cost to offset volume.

So we will face cost pressures, largely driven by inflation and occupancy-driven increases.

If we have more rooms, we are going to have more housekeepers, for example.

So, while we'll try and sustain and manage cost by ensuring the staffing levels on a management basis in the hotels is maintained, I think nonmanagement staff over time we will need to add as the demand comes back.

When you look internationally, besides Vancouver, was the growth internationally evenly distributed across Asia, Middle East and Africa?

Or were some of those markets stronger than others?

We had -- the two regions I guess that performed particularly well across the portfolio, not just for owned properties but all of our managed properties, were Europe, Africa, Middle East and Asia Pacific.

And you have different dynamics in each of the countries within those regions, so I'm not going to try to go down into the low levels of detail on city by city or market by market.

But there were good dynamics in both regions, and we did see some rate improvement in selected hotels during the first quarter and certainly stronger demand in general.

And those trends basically have continued to date.

So I think that's the color that I can try to provide you in terms of the two regions, in particular, that performed best.

Just by way of reminder, we have 102 assets internationally.

Half of the portfolio is in Asia Pacific and a third of the hotels are in Europe.

And the Asian economies, in particular, are bouncing back nicely.

As you know, RevPAR being closely linked to GDP, that will benefit us as the economies recover.

And our business internationally is different from the US, it's more transient.

So while in the US group revenue contributes in the mid-40s in terms of total revenue, internationally our transient business which is coming back faster across the board, is the prime driver of our demand.

Kevin Milota, JP Morgan.

I know you gave some color in terms of pipeline, the 22 to 25 hotels for the year.

I was wondering how your internal unit expectations are trending for the future pipeline.

I know last quarter you had said 120 hotels, 27,000 rooms.

I was wondering if that's growing as we look forward.

Yes.

So as to the overall projects that we are working on, there's going to be openings and additions to those figures and statistics over time.

There will probably be variations quarter to quarter.

But what we will plan to do is provide more specific updates on an annual basis unless, of course, there are some material changes in one direction or another, in which case we'll make some comment about it.

With that said, with the $1.3 billion in cash that you have, how active are you with acquisitions at this point?

And also, is the development market starting to warm?

And how do you plan on using the cash for the year and the years to follow?

I mentioned that we are seeing more opportunities now than we did before, and that's true.

There's been a lot more activity.

And it spans, really, various types of potential investments.

One of the things that we see is that the needs and the opportunities are coming in different forms.

They are not, maybe, the traditional buy-sell kind of arrangements, and they also vary a little bit by depending on what market we are in.

So, for example, we are looking at -- we've got various forms of existing interests in owned hotels, both full-service and select service, including whole ownership through equity ownership.

We've got JV interest, we own debt, we've got team money and other kinds of investments in selected properties.

And we are looking at opportunities across all those different types of participation, both full-service and select service.

In particular, on the select service front, the developers' needs really vary significantly developer to developer.

And so what we're trying to do is customize how we participate in helping to support their efforts to get hotels underway.

And in terms of other investments on the full-service front, we continue to focus on trying to build our presence in major gateway cities around the world.

And that really has occupied most of our time and effort, and it does span all those various types of participations.

In terms of timing and pace of actual completions, I mentioned earlier the number of deals that have gotten done across the industry has been quite modest.

So there's just not been that much that's gotten completed to date, but we are actively engaged in pursuing a number of opportunities at this point.

Steven Kent, Goldman Sachs.

Just on the timeshare expense, I don't know if you mentioned it, Harmit.

Did you say why it was negative?

It was negative because -- let me explain.

We received approximately $8 million in settlement of legal claims arising from a construction defect from one of our contractors on the timeshare property in Sedona, which, by the way, is a great property.

Hyatt over the years corrected the defects and paid for them and has since sold the majority of the units.

And as we got these settlements we accounted for that as a recovery in cost of sales.

And that's where you see the credit, in the cost line.

If you could just talk a little bit about, Mark, maybe on, again, on the use of capital, would you consider actually taking bank positions or bank debt positions in order to create opportunity?

And maybe you could just give us some color there.

Sure, yes, the answer is we have in the past served as a lender, as a means of facilitating transactions, and we would do it again.

The key issue there is not putting ourselves in a position in which we are going to be a passive provider of capital with a hope and a prayer to get to something that we can actually execute on and convert into something that would be additive to our portfolio.

We have to have some very clear visibility to how we would do that and have some measure of control over getting from here to there.

But the answer is certainly, yes, we would consider doing that.

And we have looked at a number of situations in which different pieces of capital stacks are needing to be replaced or refinanced or recapitalized.

And that's why I said before, the forms of the transactions that we are seeing are not typically traditional buy-sell arrangements, but rather structured deals or participations in one or another layer of the capital stack.

Ryan Meliker, Morgan Stanley.

Hey, guys, I just had a quick question I was hoping you could help me with.

Looking at your comparable North American select service RevPAR up almost 3%, I'm wondering if you can tell me, are you guys gaining market share within your limited service and select service markets, or is it that your markets are doing that much better than the rest of the industry?

I think FTR said the upscale segment was down, what, 3% in the first quarter.

So this is 600-BP improvement from that.

Just color on how do you were driving that RevPAR growth would be helpful.

We have over 150 Hyatt Places and over 300 Hyatt Summerfield Suites open and operating right now in a number of markets around the US.

So we have pretty wide coverage in many different markets.

We don't, however, have a significant number -- in fact, we really don't have material urban properties at this point in time, something that we continue to focus on as we expand our brand presence around the country.

So I provide that as a backdrop so that you understand that it's a pretty widespread coverage that we've got at this point.

And the answer is that, if you just look at how we have performed and how the progression of our RevPAR over time, what that looks like relative to the upscale segment, it's pretty clear that we are gaining share.

And I think the fact is that the network effect of having an increasing number of hotels in different markets, allowing guests to be able to stay with us when they are traveling in different markets, is important not just to the itinerary, transient guests, but also the corporations who are looking for managed corporate travel arrangements with us.

So I think that all of those things have led to better performance and also better penetration.

We actually really evaluate market share or revenue share market by market, and so we are very focused on how we are doing within a given market, within given competitive sets.

That's really our focus, and we've made good progress.

So we're happy with where we are headed.

As I said, if you just look at it relative to how upscale has performed by FTR standards over time, we're happy with the progress that we are making.

So with that being in mind, with such strong outperformance in those brands and, like you mentioned, a focus on trying to get into urban markets, are you starting to see increased demand to what you had seen in the past for some of these select service brands that you're trying to grow?

Any color on the breakdown of the pipeline that you were just discussing in terms of any increase in select service?

We started off the program to build out Hyatt Place and Hyatt Summerfield Suites with a group of developers that we felt would be able to do multiple properties and be able to support our brands well.

And that effort is now roughly three years and running.

And so we continue to work with those developers as well as new developers who have expressed interest in doing properties with us.

As I mentioned before, though, a lot of focus and attention among the development community for select service properties is around financing.

And the construction financing market remains very constrained.

So I would say that there's continued strong interest in our brands, not just because I think we are demonstrating that we can perform in markets in which we are opening and the ramp up for recently opened properties has been going well, but -- so if the demand has been maintained, but really the key issue for us and our focus and attention right now is to figure out how to facilitate new development.

And a lot of it is focused around how we provide capital and how developers can actually capitalize on new construction, which remains really challenging.

The only thing I would say is we don't have any select assets open yet outside the states.

If you recall, we talked about the fact that we have entered into a joint venture with a partner in India.

And the demand in emerging countries, especially India, for Hyatt Place continues to be strong.

So there is, clearly, interest from third-party developers in some markets outside the US.

David Loeb, Baird.

Harmit, I wonder if I can just have you drill down a little more on the construction renovation dislocation.

I appreciate the information about the rest of this year, particularly the second half, but can you talk a little bit about what the rooms out of service last year were?

I'm particularly interested in first quarter, to understand about the speed in -- or I guess relative to our expectations -- in owned hotels, but also second quarter and in the second half, relative to what you will have out of service.

Before I answer that, I just wanted to close out a question you asked last time.

You talked about the impact on -- the moderation of deferred gains.

We had mentioned it was not material.

The amount is approximately in the region of $2 million to $3 million.

It's not material, it's a small amount.

I just wanted to close that out.

Is that per year?

Yes, on an annual basis.

Great, thank you though.

That doesn't count as two questions for me.

I just wanted to put that on the table.

On your question about dislocation last year, I would say, other than the two properties I referenced, there were not a lot of other properties that were under major renovation.

So it was largely Grand Cypress and the conversion of the Hyatt West Hollywood into the Andaz.

I'll provide a little bit more color.

The Andaz Hotel in West Hollywood opened in January of last year, so we had no rooms out during the course of the year there.

And the rooms renovation at Grand Cypress ran -- I don't remember the precise timing, but it was more in the first half of the year than the second half of the year, as I recall.

But I don't think it was an enormous number of rooms that we had out at a given point in time.

So I guess, then, the conclusion is that the RevPAR results, in particular, in the first quarter were really strong at all owned hotels.

Those two contributed somewhat to better performance, but it sounds like it was other hotels -- and Vancouver, of course, as well -- and then in the second quarter there isn't anything unusual like that because you will have lapped the ramp in Hollywood and the Grand Cypress would be a waning impact.

Is that fair?

That's right.

It's less of an impact in the second quarter.

For Grand Cypress first quarter tends to be strong, given the seasonality there.

So it's less of an issue going into the second quarter and beyond.

It's really a first-quarter dynamic.

Shifting from a net positive in the first half to a net drag in the second half because of the 400 rooms out of service?

That's right (multiple speakers) yes.

I think that's directionally correct.

So, yes, I think conceptually that's accurate.

Right, but was there anything else that we're missing?

Because it seems like the owned results were exceptionally strong.

And it sounds like that wasn't really all just Vancouver or construction comparisons; it sounds like there was just broad-based strength as well.

The only other thing, if you recall, I talked about was international.

International is exceptionally strong, and -- both occupancy and rates.

Outside that, as the business came back in our owned portfolio in North America, we have maintained staffing.

But if occupancy continues to increase, maintaining that is going to be tougher.

William Florida, Advisory Group.

I just wanted to ask about the SG&A.

There was an increase, somewhat.

Are you guys resuming normal business, some special costs?

And is this at the target level now?

How do you see it going forward?

Again, in reference back to the quarter, SG&A was up approximately 12%.

A piece of that increase was driven by bad debt charges that we took.

I'd say 50% of that was largely bad debt, and the other 50% was driven by increase in compensation, some costs related to being a public company and professional fees.

Again, as the year progresses, we will have cost inflation largely in the form of merit increases that we didn't have last year, increased travel and some increase in costs, given the fact that we are a public company.

So we've seen what I call the trends being maintained.

Kevin Milota, JP Morgan.

I was hoping you could give some color, just probably an update for us on the unconsolidated joint venture debt.

It's broadly the same that we had at the end of the last quarter, which is, I think, in the region of -- it's in the low 500, approximately $517 million, $520 million.

And it's actually going to be in the Q that we file later today.

William Florida, Advisory Group.

On the group demand, this seems to be the main external barrier to profitability now.

I'm just wondering if you can explain a little what has to happen in the US group travel market to drive some good returns.

Let me just make a comment about what's behind group demand so you can maybe put this in the context of the overall economy.

It is true that the in-the-year, for-the-year bookings that we've seen have gone up significantly.

Of course, they've gone up significantly, A, from a low base but, B, it's partly reflective of the fact that there have been -- there's evolving demand but still some reluctance and evidence that people aren't making longer-term commitments.

So that's really the key issue.

And I think that what's going to be necessary in order for the longer-dated bookings to really become -- first of all, for that to grow in visibility and, secondly, for that to really grow over time, corporations need to have more confidence and more -- an ability to have better visibility to what's coming, both in terms of economic evolution but also in terms of -- I think employment is a key issue, principally because it's a signal -- in the US, at least, it's a signal of demand for their products.

So when you think about the derived demand among our corporate customers, I think that, once -- if we were to see more significant job growth over time and more visibility and stability in terms of economic recovery, that's going to be the principal driver for making longer-term commitments and lengthening the booking cycle because the booking cycle remains pretty short at this point.

I guess the related topic is that transient demand has certainly increased, and I think that, once you get to a point where transit demand continues to increase over time and occupancies tend to start to grow over time, then there will be consciousness about lack of availability and the need to actually secure space again on a longer-dated basis.

So I think the key -- it sounds fairly simplistic; but I think the key, frankly, is better visibility to sustained economic growth and job growth.

We appreciate everyone joining us this morning, and we look forward to talking to you in the future.

Thank you.

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