Hyatt Hotels Corp (H) 2010 Q2 法說會逐字稿

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

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

Later we will conduct a question-and-answer session.

(Operator instructions).

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

I'd now like to turn the conference over to your host for today, Mr.

Atish Shah, Senior Vice President, Investor Relations.

Please proceed.

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

He 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 second 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 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 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 today are made only as of today, August 5, 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 28294225.

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

Thank you, Atish.

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

I want to begin by reiterating something we've discussed on our prior two earnings calls, and that is that we've established our goal at Hyatt to be the most preferred brand in each guest segment that we serve and we're happy to report today that we've made strong progress towards achieving that goal during the second quarter and we look forward to describing that progress during this call.

Let's start off with the second quarter operating results that we reported this morning, which in many ways reflect a continuation of trends that we began to see in the first quarter.

The improvements that we've seen in the business this year have been led by increased demand.

In fact, the second quarter occupancy levels as compared to the prior year increased in a majority of the hotels that we operate around the globe.

Additionally, year-over-year rate improvements that we begin to see in some markets during the first quarter continued into the second quarter as properties in a greater number of markets raised rates and shifted their mix of business.

We also continued to see a positive impact from recently opened hotels that are ramping up over their first couple years following opening or conversion.

Our flow-through is being helped by property-level expense management efforts that were put into place during the downturn.

Productivity gains continue to be made, resulting in margin improvement, which was especially good in light of the higher property occupancy levels and helped to offset lower cancellation and attrition fees as compared to the second quarter of last year.

And, while group rates at North American full service hotels showed an overall year-over-year decline during the second quarter, revenues were higher and group pays continued to improve as compared to first quarter.

Strengthening group demand is very important to us, given the large percentage of our group business at our North American full-service hotels, and this quarter was the second consecutive quarter in which group demand as measured by room nights in the quarter increased.

Strengthening group business is also important for us because it allows us to better manage yield relative to transient business as we see increased compression in hotels that have a mix of group and transient business.

We also expect to see higher corporate rates coming out of negotiations this fall.

There were two particular areas of relative improvement in the second quarter which I'd like to highlight.

These two areas, that is, select service and international managed and franchised hotels, were areas of strength in the quarter as well.

Our select-service properties continue to gain revenue share, driven by increased occupancy.

The occupancy gains that we've posted year-to-date, over 8.5 percentage points, show that customer demand for our brands continues to grow.

On the international managed and franchise side, the strong increase in RevPAR was driven by new hotels, particularly in the Asia-Pacific region, which are benefiting from coming out of a ramp-up, and strong economic growth in the region, as well as some locally oriented sources of demand such as the World Expo in Shanghai and the World Cup in Johannesburg.

Overall, while we were pleased with the performance in the quarter, we are still well below the business levels experienced at our prior peak two years ago.

As a point of reference, I'll note that first-half RevPAR at owned full-service hotels is approximately 15% below first half of 2008.

First half of 2010 operating margins at owned hotels were approximately 700 basis points below 2008 levels.

These reference points are a reminder that we have a long way to go before getting into the range of our prior peak earnings levels.

We plan for a variety of recovery scenarios, as we think it's important to be prudent, especially given the significant downturn that we've just experienced and the fact that macroeconomic indicators have been varied over the last few months.

The range of predictions of economic activity in the second half of this year in the US suggest that it will be important to maintain focus on operating as efficiently as possible.

I'd like to discuss our performance in the second quarter in the context of how we expect to achieve earnings growth over the long term.

As a framework for the discussion I will remind everyone that we expect to achieve earnings growth through two principal 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 are not represented or are under-represented.

As to improving the results of our existing hotels, we continue to make strong progress.

Our second-quarter results demonstrate that our focus on our people, our guests, our brands and our owners is working well.

I recently visited several of our properties in Europe and was delighted with the engagement of my colleagues as they fulfill our mission as a Company.

I spent time with the hotel teams at a number of our properties and with our European, Africa and Middle East division team in Zurich.

I also met with owners, developers and lenders in each of these markets.

The teams at our hotels are focused on continuing to deliver authentic hospitality, which we define as making a difference in the lives of the people that we serve every day.

For example, in each of Moscow, Kiev and Zurich, we have hotels that operate at the top end of their respective markets in terms of revenue index.

In each case, new hotels have opened or existing competitors went through massive renovations over the past 18 months, and we remain at the top end of those three markets.

When I asked the teams how we were able to sustain market leadership, the consistent answer is that it's about our people, our culture and our brand of authentic hospitality.

This is a clear example of how we will continue to drive performance at our existing hotels for the benefit of our owners.

As for the second avenue for growth, namely increasing our presence through expansion, we've made much progress in this area over the last few months.

In terms of openings, we opened 12 hotels during the quarter, all of which are managed or franchised.

There were several notable additions in this group, including a recently built full-service hotel in Miami.

This is a franchised hotel and an example of our plans to grow full-service franchising.

We also converted an exist during luxury resort in Carlsbad, California to a Park Hyatt Hotel that we are managing, representing our 25th Park Hyatt globally and one of the first Park Hyatt conversions in some time.

We also opened a newly built Hyatt Regency golf resort in Curacao that we are managing.

This is a new market for us in the Caribbean.

Finally, we opened nine newly-built franchised select-service properties, including six Hyatt Place properties and three Hyatt Summerfield Suites properties.

These 12 new openings showcased the renewed development focus we put into place a few years ago.

It also demonstrates the commitment to our brands by various third-party owners.

10 of the 12 hotels that we added are franchised hotels, which is an example of our success in developing this relatively new avenue of growth for us.

After the close of the quarter we opened one hotel that I'd like to highlight, the newly built Andaz on Fifth Avenue in New York, directly across from the New York Public Library.

We developed this hotel because we are committed to expanding our presence in one of the most important lodging markets in the world, namely New York, devoting our own resources to the ongoing development of the brand in order to define it and showcase it appropriately in showing our commitment to the Andaz brand to potential third-party owners and developers.

I'm pleased to say that the hotel has turned out great and is an excellent flagship for the Andaz brand.

It has opened in an improving New York lodging market, and we are already seeing the benefits of the investment in terms of the level of developer and third-party interest in the Andaz brand.

In terms of expansion plans for the future, we have made several announcements since the beginning of the second quarter, including the development of the first Hyatt Place in Latin America, the first Hyatt-branded hotel in Panama, in fact.

We also announced four management agreements for Andaz hotels that we expect to be built in the years ahead, one each in the Netherlands, China, India and Turks and Caicos, bringing the total number of open or in-development Andaz hotels to 11 in six different countries within the three years since we launched the brand.

After the close of the quarter, we announced the redevelopment of the Hyatt Regency New Orleans.

This hotel was closed after Hurricane Katrina.

We've been working with the ownership group for some time on their plans to renovate, re-program, reposition and reopen the hotel.

With approximately 1200 rooms and 200,000 square feet of meeting space and exhibit space, this will be an important and improved hotel that will be able to host in-house groups upon its reopening in the fall of 2011.

This hotel will create new jobs in the region as well as exciting new opportunities for current Hyatt team members.

As part of the recapitalization of the hotel and in conjunction with the signing of the long-term management contract, we are investing $60 million for a preferred equity stake in the property.

Our investment is a reflection of the importance of the property to our Company, our convention and meeting guests and our belief in the long-term viability of the market.

This transaction is a good example of how we can use our capital to meet the specific needs of owners and developers in order to expand our presence in markets that are important to our existing and desired customers.

As you will recall from my comments on prior earnings calls, we are firm believers in the recycling of capital.

This means that at any given time we may be buying or selling hotels in order to put the capital that we have invested in hotel properties to work for us.

For example, we are currently exploring the sale of 11 properties consisting of approximately 4500 rooms.

While we have decided that it is not essential for us to own these hotels over the long-term, we do intend to keep them in the portfolio as either managed or franchised Hyatt-branded properties under long-term contracts if we do sell them.

Some of these hotels require capital expenditures over time, and their sale will be contingent upon a new owner committing to invest capital into the property.

We are seeking owners who share our long-term vision and may be willing to expand with us in other ways in the future.

Achieving a very good price is important, of course.

And, given that we are in a position to be selective, we will be highly disciplined during this process.

We expect this to be a multi-month process, and we will announce completed transactions upon closing.

So, to wrap up, we continue our dedication to delivering value to our guests and our owners as well as to enhancing the value of our brand.

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

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

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

In the second quarter, adjusted EBITDA was $135 million compared to $[125] million (sic -- see press release) in the second quarter of 2009.

Excluding the impact of currencies, this was an increase of 11.8%, driven by stronger performance at owned and leased hotels and higher management and franchise fees.

Fees were higher partially as a result of the 34 hotels that we have opened since midyear 2009.

I will now provide some details about these improvements.

In general, across all three business segments, Owned and Leased hotels, North American Managed and Franchise Operations and International Managed and Franchise Operations, revenues from transient customers, both corporate and leisure, were up for the second quarter of 2010 compared to the second quarter of 2009.

On the group side revenues were up in North America by approximately 10% as compared to the second quarter of 2009 as a result of the number of group room nights sold increasing by over 13% compared to second quarter last year, offset by a small decline in rates.

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 9.5% in the second quarter of 2010, excluding the effect of currency, with similar growth progression in North American and international owned properties.

Results in North America were helped by individual events in some markets, including the U.S.

Open, which was held in our hotel in Monterey, California, and the G-20 Summit, which helped results at the Park Hyatt Toronto.

We are also pleased with the 130-basis-point increase in operating margin at comparable owned and leased hotels in the second quarter.

The margin improvement was a result of continued productivity gains evidenced by the decline in cost per occupied rooms as well as continued improvement at our hotel under renovation in 2009.

Productivity gains continued for the first quarter as we were again able to manage expense increases to approximately 5.3%, even as occupancy increased by 730 basis points.

These margin improvements more than offset the negative impact of lower cancellation and attrition fees that represented approximately 40 basis points of margin in the quarter.

Next I'll talk about North America Managed and Franchised hotels.

Second-quarter comparable RevPAR for full-service hotels increased 6.4%, driven by occupancy, which increased 550 basis points.

About 35% of North America full-service hotels showed rate increases in the quarter, which compares to about 15% showing increases in the first quarter relative to the prior year.

And, in June, our overall rate growth was positive as compared to last year.

In terms of business by customer segment, on the transient side room nights sold increased approximately 4%.

Transient rates improved at convention and business hotels, but declined at resort properties, thus were flat for the quarter.

The group revenue pace for 2010 as at the end of the second quarter is now higher than last year, having turned positive in June for the first time in 19 months, thanks to the in-quarter for the year bookings, which was significantly higher than last year.

Last year, we experienced significant cancellation in the second quarter, while this year we saw greater demand level from both associations and corporate segments with more short-term business being booked in the year for the year.

And looking out a bit further, in-the-quarter bookings for all future periods were up approximately 35% compared to the second quarter of 2009.

In terms of group rate, while it declined in the low-single-digit percentage range in the second quarter, we are working to achieve higher rates when possible.

For example, for group business booked in the quarter for the quarter, rates were up 5% versus business booked in the quarter for the quarter last year.

Visibility on group remains low as booking windows are short.

Almost 50% of the group of bookings in the second quarter had arrival dates within three months.

This is about the same percentage as in the first quarter of this year, so the booking window has not lengthened.

If you look back a few years at 2007, for instance, about 30% of the group bookings in the second quarter were for arrival dates within three months.

So again, we are operating with lower visibility.

The availability of room and space at hotels, type of group business and general uncertainty in the economy are factors contributing to the shorter lead times.

Now let me turn to select-service hotels, expanding on what Mark said earlier.

Comparable RevPAR at our managed and franchised select-service hotels increased 7.8% in the second quarter of 2010 compared with the second quarter of 2009.

Occupancy increased 860 basis points but was offset by a 4.6% decline in ADR as rates continue to be under pressure.

The occupancy gains were driven by a number of initiatives that we and our third-party owners are taking to increase midweek corporate transient business.

Overall, fee income for North America Management and Franchising operations increased 8.3% as a result of increased base, management and franchise fees.

Now let me turn to our international business segment.

On the International Managed and Franchise side, RevPAR increased 17.5% in the quarter excluding the impact of currency.

There are significant regional differences in performance between regions.

The Asia-Pacific and Europe, Africa and the Middle East regions were strong performers in the quarter with rates up in the low-single-digit percentage range in both regions.

The Asia-Pacific region is benefiting from revenue growth at hotels in Shanghai, Beijing, Hong Kong and in other cities in which our hotels continue to ramp up.

As result, RevPAR in China increased over 50%.

The EMEA region benefited from stronger results, particularly in Europe and Africa.

About 45% of our international hotels showed rate increases in the quarter, which compares to about 35% showing rate increases in the first quarter relative to the prior year.

And overall, rate growth was positive in the quarter as compared to last year.

Overall, international fees increased 18.5% in the second quarter of 2010 excluding the impact of currency, as a result of the impact of revenue improvements I just noted.

We also had higher incentive management fees.

Now that I've talked about our three segments, I'd like to talk about three other topics -- our balance sheet, SG&A expenses and our tax rate.

Our balance sheet continues to be strong, as we had $1.6 billion of available cash, including approximately $400 million in short-term investments at quarter end.

Moving ahead to SG&A, our adjusted SG&A expenses increased approximately 5% in the second quarter due to a combination of factors, including higher incentive compensation costs and professional fees.

On income taxes we've benefited from the release of a $7 million valuation allowance against certain foreign net operating losses as a result of tax planning strategies that we continue to execute against.

This equates to about $0.04 per share in the quarter.

Keep in mind that the volatility in our tax rate from quarter to quarter can be significant, given the size of certain discrete items relative to our current level of earnings.

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, depreciation and amortization and interest expense.

As a reminder, this information is based on our current asset ownership.

If we elect to sell or acquire properties, this figure or these figures would be impacted.

We have tightened the range on expected CapEx to $270 million to $280 million.

Most of that expenditure will take place in the third and fourth quarter as renovation spending at several of our larger owned hotels ramps up.

These projects are currently tracking on time and on budget and will continue into next year as planned, particularly the large renovations at the Grand Hyatt properties in New York and San Francisco.

Our estimate of depreciation and amortization expense remains the same at $285 million to $295 million, and our interest expense range has been slightly lowered to $50 million to $55 million.

So, in summary, in the second quarter we saw signs of demand improvement in North America's group and transient business, firming rates on the transient business side, solid growth in our international business and improved operating results from our owned portfolio.

With that I'll turn it back to Atish for the Q&A.

For our question-and-answer session, if you could limit yourself to one question at a time, then we'll be able to come back and take follow-up questions if time permits.

So with that, let's get started with the Q&A.

(Operator instructions) Joe Greff, JP Morgan.

Can you just talk about your unit growth expectations for this year, maybe in relation to how you expected the footprint to grow since three months ago?

And would you expect, given all the things that you're doing with the brands and some of the positive traction you're having on all these initiatives, would you generally expect that unit growth to accelerate through next year into 2012?

And then I have a follow-up question on expenses for Harmit.

With respect to growth in openings this year, we said during the last call that we expected to open more than 25 hotels, and I think that's our current outlook.

That was an increase from the prior estimate that we had had, which was more than 20.

Part of that has to do with some conversions, part of that has to do with some uncertainty about exactly when properties that are under construction will complete and, therefore, be able to open.

So that remains our current expectation and outlook for this year.

In terms of what this may look like over time, we haven't really put an estimate out for '11 and '12 yet.

The key issue from our perspective is that there are a number of hotel projects that are underway, and as we get closer to the end of this year and to the beginning of next year, we'll have a better estimate for construction completion dates and the like for projects that are underway at this point.

And, Harmit, the owned and leased hotel expenses, looking back to the second quarter, increased at a much lower pace than what we were modeling, and that's despite what seemed to be solid increases in occupancies.

When you're looking at the owned and leased base of hotels, how do you look at expenses increasing, particularly if we are running at a higher occupancy level?

Are you looking to add more staff and more FTEs at your owned and leased properties?

Sure.

You are right; our owned and leased expenses for the quarter were up 5.3%, and are substantially lower than occupancy.

Again, it's a factor of a couple of things.

As you know, over the last couple of years we've put productivity measures in place.

Given the uncertainty, especially in the US, about economic recovery, we continue to focus on costs in a way that we don't compromise providing a service to our consumers.

Relative to our expense projections, we expect expenses to continue to increase, largely because we believe there will be wage inflation.

We hadn't taken merit increases last year.

We restored bonuses from that perspective.

So I think you will see increase in expenses continue.

Relative to your question about staffing, we're [currently] (inaudible) on staffing.

I think at a management level at a hotel, increasing headcount is going to be something that we are going to be mindful of.

So we are going to keep that at current levels, at least in the short term.

In terms of hourly staff, that's more of a available expense, and we are beginning to see in our staffing increase for that group of our colleagues, largely because it's going to be -- the recovery so far has been demand driven.

Now, the key question is going to be, relative to our profit flow-through, is going to be how rates progress over the next six to 12 months.

And then in the earnings release, Harmit, when you're talking about the balance sheet, you talk about having short-term investments of approximately $400 million.

That's a different definition than what you have put into 1Q earnings release.

Is there a difference there?

And if there is a difference, what is that?

Sure.

The difference is largely when we reflected the cash and cash equivalents.

Say, the last quarter, I think the figure was more like $1.3 billion.

It basically referred to our investments which are under 90 days, so largely overnight funds, money market funds.

As things have stabilized, we've started investing with a longer tenure relative to some of the investments and the short-term investments largely relate to investments over 90 days but with a maturity of 24 months; but again, investments that are liquid.

So it's cash that's available if we need to use that cash for purposes of running the Company over the long-term.

Steven Kent, Goldman Sachs.

Mark, can you talk a little bit more about uses of cash?

You are obviously sitting on a very large amount of cash right now.

We just want to know, if you are starting to see transactions happen, do you think that the opportunities will be greater in 2011 than they have been in 2010?

And then, can you just give us a sense as to what you're seeing or what your expectation is on (technical difficulty) group business and pricing for 2011?

I know it's early, you haven't started those negotiations.

But where do you think you're going to start or what is your first bid towards some of these corporations, especially given higher occupancy right now?

On the capital deployment front, as I mentioned on prior calls, we are focused across the capital structure of hotels or opportunities that we are looking at, so debt, equity or other types of participation.

And on the equity front, we already are a joint venture partner in -- and also a wholly-owned hotel, so we would do either.

An example, actually, that we just announced is -- and I talked about briefly is the New Orleans transaction where we provided preferred equity.

And while every single transaction is different, that form of participation is something that we're looking at in a number of other cases, as well.

And, it does relate to redevelopment of existing properties or development of new properties.

And so, we have a stepped-up level of activity in terms of our investigation of deployment of capital in that way, relative to, say, what was under investigation, say, a quarter ago.

So, the activity level is definitely higher, and we've got a number of things that we're working on right now.

Our practice, as you know, is to only go into detail on and announce things that are done.

So we have nothing further to talk about this point, but we are working on similar styles of transactions.

And with respect to the evolution of the opportunities over time, I do believe that there will be a further increase of activity and opportunities both in the latter half of this year and into 2011, and I think a lot of it has to do with people, owners and lenders alike, evaluating what their overall alternatives are.

And, at least based on what we are seeing to date, there has been more interest in trying to put a deal together to put an asset on to a different track, let's say, or bring in a partner in order to help recapitalize.

So I think it's very clear that, at least around our offices, we've got a lot more activity underway now than we did before.

With respect to the outlook on negotiations and group, I'll separate those two and just talk a little bit about the transient sort of corporate negotiations into the fall.

On the group side, I think I'll leave Harmit to make a comment about it.

As you know, we are working off of a relatively -- a very low base to begin with, so we actually expect to see rate increases through the negotiation season.

And it will vary a lot based on the individual account that we are talking about, what the industry has been and where they may be today.

It's very early days at this point, but the range of discussions ranges from low-single digits to low-double digits, and maybe our best guess at this point is somewhere in the high-single digits from a rate negotiation perspective for managed corporate travel through the fall.

But we've just now begun; it really is just a best guess at this point.

Harmit, do you want to make a comment on the group?

Sure, I'll make a comment on the group.

The only other thing on the corporate negotiation I'll say -- in terms of the sectors where -- that we see are looking up as we negotiate, really, the technology, the manufacturing and the financial segments are up.

Transportation is, overall, down.

So that's the only other color on the corporate side.

On the group side, Steve, to your question about '011, early days yet, largely because if you refer back to my script, I talked about the visibility and 50% of the bookings really being for within three months.

The one thing that is looking a little bit more positive is rates.

As I mentioned, in the quarter, for the quarter group rates were up 4%.

So as you look at '010 and the rates on the group side, they are more tracking in the lower double-digit up versus 2010.

Pace is still negative at this point in time, but again, that's largely because the visibility and the lead times is fairly short at this point in time.

Josh Attie, Citigroup.

Hi, thanks; it's Josh Attie and Michael Bilerman.

Could you quantify at all the EBITDA impact of the renovations in the back half of the year?

I know you gave the room count, but it would be helpful to also know what you think the overall financial impact would be.

Okay, sure, Josh, and this is specific reference to the five properties that we are renovating.

And, as I referred, the renovations are picking up as we speak.

From a RevPAR perspective, we think for our owned and leased segment, RevPAR is going to be impacted between 200 to 250 basis points.

And, if I just take you back to what we had indicated in terms of the sensitivity on RevPAR, one point is anywhere between $10 million and $15 million on an annualized basis.

We think the EBITDA, in fact, is closer to $10 million or so in the second half of the year.

And you also said that some of those reservations could spill into 2011.

Is that just, do you think, first quarter of 2011, or how much does that go into 2011?

I think, broadly, for above part of the year, Josh, as we think about it, especially in the two key properties of New York and San Francisco.

So, they all should be finished by the end of the first quarter of '11?

No, it's above part of 2011, so we believe this will continue towards the -- to the late second half, closer to quarter four of 2011.

Smedes Rose, Keefe, Bruyette & Woods.

I just wanted to go back to your asset sales.

So you haven't really bought anything, but you've got some properties out there.

I'm just wondering; do you see this more of a seller's market right now, just given there's been a lot of firming in transaction prices?

And also on that, can you comment on your property in San Diego?

There's been a lot of media stories about Doug Manchester trying to sell it.

There were some thoughts that you guys might try to put it in a JV, and that seems to maybe not be the case.

I'm just wondering, given that it's such a large property for you, maybe you can just speak to that a little bit.

Sure, thanks, this is Mark.

I think, with respect to asset transactions, both purchases and sales, I just want to put it into context.

So, first, by way of reminder, we have a big asset base.

We have over 100 hotels that we own, plus JVs on top of that.

And we, as regular matter, evaluate our properties on a case-by-case basis.

The idea of potentially selling some properties really is considered in the context of ongoing evaluation that we do.

The issues that we obviously will address are the obvious ones -- price, management or franchise agreement term and terms, who the partners are.

There are several dimensions of that -- what their philosophy is with respect to their own time line in ownership, how much capital they're prepared to put into the property.

And also, one of the key things that we look to is making sure that we expand the base of owners of Hyatt branded properties so that we can work with them on new opportunities going forward as an existing owner as opposed to initiating transactions with people who don't have an experience with us.

So there's some element of that that I think factors into our thought process.

With respect to buyers and seller's market, our notion is that we have a significant investment already in owned hotels, and our idea is to actually put that capital to work for us.

So think of it as increasing the velocity of that capital.

We are going to actually utilize it to make new investments.

The timing, of course, is very difficult to match up between the purchase and sale.

So that's why, as a regular matter, we have been, will be and will continue to be evaluating alternatives as we go forward.

So, hopefully, that gives you some context for the asset sale process at this point.

With respect to San Diego, yes, we were in discussions with the current owner group, the Manchester Financial Group, and those discussions are no longer active.

We are the manager of the hotel, and we will have an ongoing presence there.

It's a great hotel in a great market and an important part of how we serve our convention and meeting customers.

So that's really what we are focused on going forward.

Ryan Meliker.

I just wanted to follow up a little bit little bit on what Smedes was just asking with the dispositions.

Can you just give us a little bit more color on why you selected these 11 hotels?

You indicated that [there] might need some CapEx, but you've obviously got enough cash on your balance sheet.

You've indicated that your strategy is not to become a sole operator, and these are assets that you already own.

It seems like, unless you view now the time to sell, which I think maybe you can make the argument that now is the time to sell, I'm just not quite sure why you are taking these 11 assets to market right now.

So maybe you can give us a little more color on that.

Thanks.

Sure.

So, as I mentioned, we look at and evaluate our assets.

It's really not a designation of 11 properties that we are trying to sell us portfolio.

We've looked at individual properties.

The properties that we are evaluating or looking -- exploring the potential sale of right now, they tend to be in suburban or secondary urban markets.

And they are Hyatt and Hyatt Regency-branded properties, in the Midwest and on the West Coast.

Some of them have capital needs and so forth, and it is true that we have the capital to put into those properties.

And if we continue to own them, we will invest in them.

It really does come down to value at the end of the day and whether a potential acquirer is -- whether the whole package of what they offer is compelling for us.

We look at it relative to the value of the properties in our hands over time, and we certainly look at it relative to peak earnings and what the properties were able to generate through the last cycle.

So I guess you should think about our activity both on the disposition and acquisition side as occurring through cycles.

So we're actually not sitting here trying to do particular market timing.

We do have a perspective on what the assets are likely worth to us over time, and that's really going to serve as the benchmark for how we will evaluate decisions.

And so, we do expect to be active both on the purchase and the sale side of the equation through cycles, so I look at this as sort of normal course of business for us.

So, just ask a little differently, so is there something different about these 11 assets that you've chosen to take to market than some of your other full-service Hyatt and Hyatt Regency-branded properties located in the Midwest and West?

Yes.

I think it's a variety of things.

Part of it relates to the markets that they are in and whether there are better owners for those assets.

In some cases, we will likely sell assets and convert what is currently a managed property into a franchise property, and the capital available for franchise properties is different in different markets.

And so that would be a way to tap a new source of capital and develop a relationship with some franchise owners that we may not already have as owners of Hyatt-branded properties.

So that's, at least in part, what does drive our investigation of potential sale of these assets.

Great, that's helpful, thanks a lot.

Janet Brashear, Sanford Bernstein.

On the topic of capital recycling, if your portfolio is still successful, you have more financial flexibility that you have even now.

I know you are hoping for more buying opportunities closer to 2011.

If they don't emerge, I'm wondering what your options are, if you will deploy capital further in equity investments.

You mentioned that you had been doing that, but the overall level has been fairly modest compared to your capacity.

Will you ramp that up substantially, or will you prefer to keep your powder dry for whenever the markets change or the opportunities emerge?

So, I think the answer is that we will continue to evaluate it based on what we see happening in the marketplace.

I think the incidence of actually putting capital as equity participant in the deals, as you pointed out, we haven't made a lot of announcements on those types of deals, but we are continuing to see more opportunities.

And we are of the belief that we will actually both see more opportunities and execute on more of those during the course of this year.

In terms of -- so, yes, we expect to actually step up our activity on that basis.

And it will be focused on markets in which we really want to grow our presence or establish a presence if we don't have one already.

But beyond that, it's really difficult to try to map out a framework for what we will be thinking and doing in the first quarter of '11 or thereafter, because it will really depend on the market at that time.

What about on the renovation front?

When you cycle through these five, are there more in waiting that you would spend capital on, or do you feel like you're pretty caught up?

Janet, this is Harmit.

To answer your question, the five are the big ones that we wanted to go after.

We also have a reasonable asset base.

So, if the 11 assets that Mark talked about, we believe, don't trade over time and there is capital required for it, we will reinvest that capital.

We also have a couple of other assets.

And again, we are in the middle of our budget cycle for 2011.

Given your question about cash and availability of cash, it's something that we will take a look at.

Again, the basic idea here is, given that we are the largest owners in our system, it's important to set the standard from that perspective.

So making sure we reinvest behind the assets especially, and position the assets for a recovery down the road in terms of economic recovery as it comes I think is important for us.

David Loeb, Robert W.

Baird.

Mark, you've talked a bit about what will fuel your growth and how you are using capital to do that.

We know about some of the components of that.

Clearly, you've talked about acquisitions.

We know about your role with Chesapeake.

Earlier today, Hersha talked about key money to convert two choice branded hotels in one building to a Hyatt Place.

I'm interested in basically a couple of things -- one, what other kinds of investments you're looking at and what other ways you are looking at incenting owners and franchisees to get involved with your hotels.

And specifically, do you have a budget for that?

Is there an amount of capital that you're looking to deploy?

I mention that because Marriott has given some parameters about the free cash flow they have available to that.

So a couple of things -- one is we have a committed debt and equity, and in the case of the New Orleans transaction that I mentioned earlier, preferred equity piece.

And as I said, we already have debt interests, equity interests, JV interests and whole ownership in our portfolio, so we've got experience across all those various structures.

So, having said that, I do think it is true that the number of opportunities that involve more structured deals, preferred equity or a structured piece of paper within a given capital, and existing capital structure, seems to be what is more common and certainly represents more of the opportunities that we are now investigating.

So I would say that it's going to look different in each case because there is no cookie-cutter kind of approach, which leads me to the second part of your question, which is a budget for it.

We have a number of markets in which we are looking to expand or gain some presence if we don't have a presence there as it is.

So there's a significant number of places in which we have an opportunity to actually use the capital to really have a meaningful impact on our expansion of presence.

And so we don't have a fixed budget in mind for it.

We think about the capital that we currently have, the cash that we have on our balance sheet, as available for this kind of investing in addition to looking at acquisitions and multiproperty deals, if they become available.

So I would say that the way in which we think about what's available for it is not relative to operating cash flow; it's really relevant to the balance sheet capacity that we already have.

Which is clearly ample, so this could be big chunks with acquisitions or entity-level investments, but it can also be a lot of little chunks with key money for individual assets?

Yes.

Look, we are trying to be responsive to put people need; so yes, we've done key money deals.

We've done structured investments and the like.

And we will continue to do that because we need to be responsive to what people need and are looking for.

The deal that we ended up concluding with the ownership group in New Orleans took some time, actually, to put together because the evolution of the debt markets really caused a lot of restructurings of that transaction from inception to final closing.

And it's really -- we just simply have to be both responsive and creative about how we participate in what's happening.

The only other area of growth for us is the select-service portfolio.

You referred to the deals that were announced earlier today, but construction financing on the select side, at least in the US, has completely evaporated.

And given the strength of that portfolio in terms of performance, you have seen from the numbers and given that there's little financing available, that's the other piece that we are taking a hard look at, especially with owners and developers who are willing to expand with us for the long-term.

That's very helpful, thank you both.

Chris Wronka, Deutsche Bank.

You look forward a couple of quarters.

I'm kind of curious as to what your internal expectations are for Asia relative to the US in terms of RevPAR growth, and also maybe how the booking windows differ in these two areas.

Sure; thanks, Chris.

In terms of outlook, the progression in China, in particular, has been significant, obviously.

It's really been a very strong period.

So there has been, is now a significant sort of momentum in terms of what's going on in those markets as an economic matter.

The Chinese government seems to have worked its way through the big stimulus they put into place last year and migrated that towards what they are trying to do now, which is a more sustained growth rate over time.

So that's all beneficial.

The World Expo in Shanghai has had a significant impact, obviously.

So I think that the reality on the ground is quite different there than had been pretty much everywhere else.

There are other areas of strength internationally, in Europe and Latin America and so forth.

The Middle East, at least in the Gulf region, continues to be less robust from a year-over-year comparison perspective.

In terms of evolution and what this looks like over time, remember that there's a significantly lower group component in our international operations.

So, while in the US in full-service hotels, it's in the 45% to 47% range, somewhere in there, for group business it's really very small internationally.

So the booking curve, so to speak, or the outlook tends to be quite short.

And as Harmit mentioned, actually, in his comments, the booking window for our own group bookings is quite short, remains quite short.

So I think that, both in the markets in which we have group concentration, the booking window has shortened up, and internationally it remains short.

William Florida, Advisory Research.

Yes; that's been answered.

Thank you.

Robert LaFleur, Hudson Securities.

When we talk about deploying your capital for growth opportunities, we tend to focus a lot on domestic markets and opportunities there.

I was wondering if you could talk a little bit about the breakdown of opportunities you see between domestic markets and overseas markets and how those opportunities might differ qualitatively.

Are you seeing similar kinds of opportunities, or are the characteristics of the opportunities you are seeing in international markets dramatically different from what you're seeing here in the US?

Sure, there are similar opportunities that are available mostly in Europe, I would say, in terms of capital deployment.

So the nature of utilizing capital, either by way of key money or an investment to support ownership or a developer or capital in a deal to actually provide capital for redevelopment of a property -- those are the sorts of things that we do see.

But that's principally in Europe.

I would say that, in India we've already announced -- and we are a JV owner in India.

We've already announced the commitment of capital to a joint venture to build the select-service properties, Hyatt Place properties in India.

So that's more of a traditional equity-based JV commitment.

And, in Latin America, we are looking at opportunities now that will look like JV-like commitments.

We already are a JV owner of our hotels in Mendoza, Argentina and Sao Paulo in Brazil, and we are seeing more opportunities to involve ourselves and provide capital in order to prompt redevelopment of existing properties, but also development of new properties.

So those are the key things that we already have in place and that we are looking at, and it's principally, as I said, in Europe on an active basis now, mostly for management deals, less so for acquisitions, although we are also looking at and for acquisition opportunities in India, as I mentioned, on the JV basis and in Latin America also on a JV basis.

Well, thank you very much for joining us today.

We appreciate your time, and we look forward to talking to you in the future.

Thank you very much.

Thank you, ladies and gentlemen, this concludes today's conference.

Thank you again for your presentation.

You may now disconnect, and have a great day.