Hyatt Hotels Corp (H) 2010 Q4 法說會逐字稿

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

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

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

Later, we will facilitate a question-and-answer session (Operator Instructions).

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

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

Atish Shah, Vice President of Investor Relations.

You may proceed.

Thank you, Derrick.

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

As for the format for this call, Mark and Harmit are each going to make remarks about our results for the fourth 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.

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 17, 2011.

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 telephonic replay of this call will be available for one week.

To access it, dial 617-213-8052.

The passcode is 24193831.

And with that, I will turn it over to Mark to get started.

Thank you, Atish.

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

Before talking about our fourth-quarter results, I would like to begin with a few points about Hyatt and how we are running the company.

These points are a reminder of some things I covered about a year ago in our first earnings call following our IPO.

The principles that I reviewed then remain true today and continue to inform how we run Hyatt.

First, we manage Hyatt for the long-term.

We are in a cyclical business and most attributes of the business are long-term in nature, like the term of our management and franchise agreements, the development cycle for a hotel, the lifespan of a hotel property; and in Hyatt's case, the tenure of our leadership team.

Long-term to us does not just mean focusing on one lodging cycle, but rather looking ahead to multiple cycles over a span of decades.

We know that there will be volatility in business conditions and our financial results at given points in time, so we remain focused on doing the things we believe will create long-term value, and do not focus on quarter-to-quarter results to drive our behavior.

This perspective is evident in our culture.

It grounds our business strategies and manifests itself in our relations with our associates, our guests and our hotel owners.

Second, we have two primary drivers of earnings growth -- improvements in results from existing hotels that we own, manage and franchise in; and also, expansion of the number of hotels under our brands.

As to improving results from our existing hotels, we do this by focusing on our associates, our guests, our brands and our owners.

We've defined our mission around providing authentic hospitality.

We are a hospitality company.

And our formula is simple -- great people who give of themselves in service to others lead to great guest service and customer satisfaction.

This leads to sustained revenue progression and strong market-share performance.

This, in turn, leads to superior financial results; and ultimately to growth, as we garner the support of our satisfied hotel owners to invest in our brands.

Third, in terms of adding hotels under Hyatt brands, we are not pursuing growth for growth's sake.

We do it to increase preference for our brands.

Our goal as a company is to be the most preferred brand in each segment that we serve for our associates, our guests and our owners.

Our footprint remains very small relative to the strength of our brands, and we've identified the markets where, if we had presence, it would make a big difference to one or more of our customer bases.

Execution of this kind of growth is what we call good growth.

Fourth, we believe that owning hotels supports our overarching long-term goal of creating preference for our brands.

Ownership gives us another tool to support our growth in particular markets and drives long-term shareholder value.

Our extensive experience as owners makes us better managers of the hotels we manage for third-party owners.

These four points are key to understanding our framework for thinking about the company.

I provided this framework last year so that those in the investment community who were not familiar with Hyatt -- given our newness as a public company -- would understand our priorities and our approach.

I am pleased to say that during 2010 we made significant progress consistent with these priorities and approach.

I would like to offer a report card of sorts on how we've delivered in the context of our framework.

First, as to operating with a long-term perspective, as you may recall from my comments a year ago, I spoke about committing capital to renovating some of our own hotels, consistent with our management of the company for the long-term.

I'm pleased to report the customer response for the large-scale renovations we have underway has been excellent.

We've received very positive feedback on the design and scope of the work being done at the Grand Hyatt San Francisco, for example; on our innovative approach to food and beverage at the Grand Hyatt New York, which includes a new restaurant called "New York Central" that's suspended over 42nd Street; and a fabulous grab-and-go outlet called "The Market"; and on the master plan renovations underway at the Hyatt Regency Atlanta.

These projects are all being recognized by meeting planners and guests alike.

Upon completion, we fully expect these renovations will lead to three benefits.

First, a positive impact on customer, associate and brand preference.

New and refreshed facilities always have a great positive impact on the spirit of the teams in the hotels.

Second, increased investment in existing or new Hyatt-branded hotels by third-party owners.

We're already seeing this at the Hyatt Regency Chicago, which is about halfway through a full renovation, and the Grand Hyatt Kauai Resort, where our full renovation will be completed later this year.

And third, higher levels of revenue, market share and income at each renovated hotel.

In New York in particular, we expect the post-renovation impact in 2012 and beyond will be amplified, given the general strength of the market.

Apart from investments in our hotel properties, we are also focusing on professional development initiatives and customer data management initiatives that are designed to enhance what we are doing to serve our associates and our guests.

These are long-term initiatives that will make a significant difference over time in driving preference among our associates and guests, and we are fully committed to these efforts in the context of our long-term value orientation.

Second, I spoke about improving performance of our existing hotels.

I am pleased to report that during 2010 we did just this.

For example, we improved margins at are comparable owned hotels by 180 basis points on a full-year basis.

This achievement is particularly meaningful given that much of the topline improvements were from increases in occupancy during the year.

We also achieved significant market share increases at many hotels, including a very large proportion of our select-service hotels.

This is a particularly important area of performance as more and more hotel developers evaluate Hyatt brands for their properties.

Our margin and market-share improvement were the result of our focus on our associates, our guests, our brands and our owners.

As to our guests, we improved guest satisfaction and increased loyalty in 2010.

We saw higher satisfaction scores across our full-service and select-service hotels.

This is a particularly strong achievement, because some of our hotels are still ramping up post-opening or post-conversion, and three of our brands are still relatively new.

Higher levels of loyalty among our guests were demonstrated by an increase in new member enrollment in our Gold Passport program of almost 15%.

Third and fourth, we've made significant progress on expansion, asset recycling, and the application of capital -- all consistent with our framework.

A year ago, I discussed the importance of increasing presence in certain markets with high barriers to entry in gateway cities.

At that time, I stated that we would apply capital to secure hotels and accelerate our progress in these locations.

During 2010 we executed against these plans.

For instance, we increased our presence in New York from one hotel to three.

We also announced three more hotels which we expect to open in New York over the next several years.

Once this is accomplished, we will have increased the number of Hyatt brands represented in New York from just one to four.

I also discussed the importance of our group, association and convention customer base, and stated that we place a high priority on our performance in serving meeting planners and association executives.

During 2010, we announced our investment in the redevelopment of the Hyatt Regency New Orleans, a hotel that is primarily focused on serving our group customer base.

Based on the feedback we've received to date and the interest in the property shown by meeting planners with whom we are in discussions on booking at the property, we expect that the reopening of this hotel will further augment our convention and meetings business.

Last year, I spoke of our commitment to the Andaz and Park Hyatt brands.

During 2010, we opened new hotels under both brands, including the Andaz San Diego and Park Hyatt Aviara in Carlsbad, California, both which are conversions that we are proud to include in our portfolio of properties, as they are well suited to serving the relevant customer base for each brand.

In addition, we announced several new Andaz and Park Hyatt projects around the world, bringing the number of Andaz properties that are open or under development to 12, including the recently announced Andaz Shanghai; and the number of Park Hyatt properties open or under development to over 40.

One important point that I touched upon last year was our intent to recycle our capital and asset base by selling selected properties from time to time and applying the capital to new opportunities.

We successfully sold six full service hotels for total proceeds of approximately $240 million last year, and either deployed or committed to deploy capital as new opportunities for expansion, such as our investments in the Hyatt Regency New Orleans, and the Andaz Wailea in Maui, Hawaii.

Recycling our asset base in this way will help us achieve one of the strategic goals of expanding our presence in underrepresented markets.

Last year, I spoke about our focus on increasing preference for owners and developers to choose our brands.

I am pleased to report that our efforts have materialized in a significant expansion of our development activity around the world that are underpinned by a material increase in the number of executed contracts.

As of December 31, 2010, we had executed contracts for approximately 140 hotels or more than 32,000 rooms.

This represents an increase of over 15% in terms of hotels and over 18% in terms of rooms as compared with year-end 2009.

We are very pleased with this sign of increased confidence in our brands by third-party hotel developers and owners.

The expansion of our signed contract base is especially notable when you consider that we opened more than 30 hotels last year.

Approximately 70% of the potential new hotels represented by signed contracts are located outside of North America.

Our expansion plans represent potential entry into eight countries in which we do not currently have a presence.

One other fact that's notable about our base of signed contracts is that about three quarters of the projects represent new hotel developments that require little or no capital from us.

So, as you can see, we made a lot of progress in 2010 and all of it is consistent with the principles we laid out a year ago.

And those principles continue to inform how we run the company.

Now that we've discussed how we are running the company for the long-term and provided an update on our expansion plans, let's review the fourth-quarter results and how we've prepared ourselves for the years ahead.

During the quarter, we saw continuation of the operating trends we began to see earlier in the year, as business continued to strengthen across the system.

Almost 70% of our full-service hotels worldwide showed improvements in average daily rate.

Outside of North America, our hotels in Asia Pacific and Latin America -- led by those in greater China and Brazil -- showed strong RevPAR improvement.

Our select-service hotels posted solid results, with RevPAR increasing by about 9.5% versus fourth-quarter 2009, primarily as a result of strong occupancy gains.

The fourth quarter marked the second consecutive quarter of 9%-plus RevPAR growth with positive market share performance in a majority of our select-service hotels.

During the quarter, we also continued to execute on our strategy of asset recycling, as we sold four hotels for a total of $110 million.

The new owners have committed to invest more than $30 million to improve those assets.

And we will continue to have a presence in each of those markets, as we continue to manage or franchise each property.

The pricing on these assets was strong, as they sold at a blended cap rate of approximately 5% of 2010 net operating income.

In terms of future asset sales, relative to the exploration that we started last year on a group of 11 assets, we may sell one more asset which would conclude that process.

Last quarter we completed a strong year of openings by adding six hotels owned by third-party owners.

The six included three full-service properties in Park City, Utah; Dusseldorf, Germany; and Pune, India.

Each of these is a new market for Hyatt.

Our hotel in Park City was a conversion, and the hotels in Germany and India are newly built.

We opened three select-service properties, all Hyatt Place hotels, in North America.

These new property openings are very encouraging to our team members around the world, as they represent new professional development and promotion opportunities.

We are very proud of our culture and believe in promoting from within, and supporting our growth is a key part of providing new opportunities for our associates.

During January I met with all of our full-service hotel general managers in North America, and experienced firsthand just how committed and excited our leaders are in the field.

We discussed our goals for 2011, and our GMs were pleased with the clear and consistent approach to our business and our goal-setting.

In short, our four property-level goals are as follows -- first, to increase market share; second, increase hotel profitability; third, to increase associate engagement; and fourth, to achieve higher levels of customer satisfaction.

In addition to these four property-level goals, our corporate teams are aligned on two additional goals, which are to expand our presence in key markets and to proactively manage our capital recycling program and deployment of capital in new projects.

Collectively, these six 2011 goals are essentially identical to the goals of the past two years, and directly aligned with the two avenues for creating value -- namely, improving results in existing hotels and expanding our presence.

The members of the Hyatt family have never been more committed to our future than they are today.

The power of a community in which there is clarity of purpose, common goals and shared values, is tremendous.

And we see the results as each member of the Hyatt family continues to contribute to our success in improving the performance of opening and operating hotels and adding to [what would be] our already strong expansion plans.

I'm highly confident in our ability to achieve our goal of being the most preferred brand in each segment that we serve.

With that, I will turn it over to Harmit to talk more about our results in 2011.

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

I will be discussing our performance in the fourth quarter, as well as recent business trends, and will conclude with information on full-year 2011.

In the fourth quarter, adjusted EBITDA was $118 million, an increase of over 13% compared to last year.

This increase was led by stronger performance at owned and leased hotels.

For the full year 2010, adjusted EBITDA was 17%, which is especially strong given that we sold assets through the year and were impacted by renovations during the second half of the year.

As you know, we have three business segments -- owned and leased hotels, North America managed and franchised operations, and international managed and franchised operations.

I will discuss our results in more detail by business segment.

Let me begin with our owned and leased hotels segment.

Excluding the impact of currency, RevPAR for our comparable owned and leased hotels increased by 4.4% in the fourth quarter of 2010.

RevPAR results were negatively impacted by approximately 400 basis points, due to renovations at five owned properties.

Operating margins at comparable owned and leased hotels increased by 210 basis points in the fourth quarter.

Approximately half of the reported margin improvement was a result of improved operating performance.

The other half was due to items such as property tax refunds at a few hotels and other nonrecurring items.

Margins were also negatively impacted by approximately 150 basis points due to renovation activity at owned hotels.

Overall, owned and leased adjusted EBITDA increased by 17.6% during the quarter.

The increase was offset by a lower number of owned hotels as a result of our asset recycling strategy, which included several property sales during 2010.

In addition, the renovations adversely impacted owned and leased EBITDA by almost $10 million in the quarter.

For full-year 2010, comparable owned and leased margins increased by 180 basis points, demonstrating our ability to realize solid flow-through as revenue recovers.

Next, I'll talk about the North America segment.

Fourth-quarter comparable RevPAR for full-service hotels increased 3.8%, excluding the impact of currency, with over 70% of the growth driven by average daily rate increases.

Our full-service hotels experienced a 3% increase in group room nights with room rates up 1%.

The strength in the group business was a result of stronger end-of-period bookings by corporate and specialty group business.

Looking ahead, much of our group business for 2011 is already on our books.

I commented on our last earnings call that over 70% of group business is typically on the books prior to the year of realization, and this year is no exception.

The group revenue pace for 2011 is positive.

Group revenue booked during the fourth quarter of 2010 for 2011 was up over 20% as compared to group revenue booked during the fourth quarter of 2009 for 2010.

As for transient revenue, slightly higher rates resulted in higher revenues compared to the fourth quarter of 2009.

On the transient side, last quarter was a busy time for rate negotiation with some of our larger corporate accounts.

As a reminder, corporate negotiated business segments represents approximately 10% of our business in North America.

With the majority of the negotiations complete, we expect a mid-to-high single-digit increase in corporate rates in 2011, which is in line with what we stated on our last earnings call.

Realized rates will of course vary depending upon mix of account, geography, and demand patterns.

Now let me turn to our select-service hotels under the Hyatt Place and Hyatt Summerfield Suites brands.

Comparable RevPAR at our managed and franchised select-service hotels increased 9.5% in the fourth quarter of 2010 compared with the fourth quarter of 2009.

Occupancy rates and margins all increased.

As Mark mentioned, we are pleased with the performance and relative market share increases realized by our select-service hotels, both for the quarter and for the full year of 2010.

Overall, fee income for North America managed and franchised operations increased 4.3% primarily as a result of increased base management and franchise fees.

In terms of incentive management fees, approximately 30% of full-service hotels in North America paid incentive fees in 2010.

Let me turn to our international business.

In this segment, RevPAR increased 9.2% in the quarter, excluding the impact of currency.

The Asia-Pacific region benefited from significant revenue growth at hotels opened over the past two or three years that continue to ramp up.

RevPAR increased in greater China by almost 30%, benefiting from the World Expo.

We also experienced strong RevPAR growth in other Asia-Pacific region countries such as Singapore, Korea and Indonesia.

Across our international portfolio our strong food and beverage business continued to perform well in the quarter.

Food and beverage and other revenue represent almost 50% of our international revenues.

During the fourth quarter these revenues increased approximately 6% to a level similar to 2008 levels.

Overall, international fees increased 7.5% in the fourth quarter of 2010, excluding the impact of currency, as a result of higher revenues and continued ramp-up of hotels added in the prior periods.

The number of international hotels paying incentive fees in 2010 was about the same as that in 2009, at about 80%.

Now that I've talked about our three segments, I would like to talk about three other topics -- SGA expenses, special items, and an update on our debt balance.

First, our adjusted SG&A expenses increased 10.3% in the fourth quarter, primarily due to higher incentive compensation and increased travel expenses due to more development activities.

This level of increase was expected, as we've added to our corporate teams in select areas to support higher levels of development activity.

As to special items, the two most significant special items during the quarter were as follows -- first, losses in the aggregate amount of $37 million were recorded as a result of impairment charges for timeshare [inventory] and two joint venture properties; second, a $20 million gain as a result of the sale of three assets during the quarter.

Third, with regard to our debt balance, we paid down a $31 million property mortgage and ended the quarter with approximately $770 million of debt.

Next I will review some information about 2011 related to capital expenditure, depreciation and amortization, and interest expense.

On capital expenditure we expect to fund between $380 million and $400 million this year.

This is higher than our 2010 expenditure, for two main reasons.

First, the fielding of the renovations currently underway at five of our owned hotels is such that capital expenditures are expected to be higher this year than last.

Second, during the latter part of 2011, we expect to begin renovations at a few additional owned hotels.

While we do not anticipate these renovations to significantly disrupt revenues, given that we 're scheduling most of the work to be done during the slower months, the capital expenditures for these renovations are above and beyond what we would consider a normal maintenance plan.

Upon completion of these renovations in late 2011 and into 2012, we expect that our owned hotels portfolio will be in excellent condition as they will be new or refreshed.

As far as the impact of the renovations to operating performance at our owned hotels, our expectation is consistent with what we discussed on our last earnings call.

We estimate that during the first three quarters of 2011 the cumulative negative impact of the renovations at our five owned hotels will be approximately 300 to 350 basis points to owned and leased RevPAR, and approximately $20 million to $25 million of EBITDA.

This impact will be front-loaded, with the biggest impact in the first quarter.

Five other pieces of information relating to 2011 -- first, I estimate our depreciation and amortization expense is between $280 million and $290 million.

Second, interest expense is expected to be approximately $50 million.

Third, this year we plan to open about 15 hotels.

Fourth, given the level of activity in our development area, we expect to update the number of executed contracts on a quarterly basis during future earnings calls.

And fifth, as you think about 2011, it is important to look back to 2010, keeping in mind two items -- first, our owned and leased portfolio changed over the course of the year due to the timing of our asset recycling activities.

For example, on the hotels that we sold during the fourth quarter, the 2010 full-year pro forma EBITDA would have been approximately $7 million.

Second, we had some one-time factors in 2010 such as a timeshare settlement which increased EBITDA in the first quarter, and nonrecurring items, which helped margin growth in the fourth quarter.

In summary, during the fourth quarter we saw improved demand and higher rates in the North America business, continued strong growth across our international business, and improved results from our owned hotel portfolio despite the significant renovations underway.

Before I turn the call over to Atish, I want to mention one item that relates to a question that we received during our last earnings call related to lockups on our shares.

As you may recall, holders of our Class B shares have certain registration rights.

We recently received a request from trustees [of trust] for the benefit of certain [principal] family members, to file a shelf registration statement with the SEC covering approximately 12.8 million shares.

Further details regarding this registration request are included in the Form 10-K that we expect to file later today.

And with that, I will turn it back to Atish for questions and answers.

Okay.

Thank you, Harmit.

That concludes our prepared remarks.

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

We are happy to take your questions at this time, so Derrick, may we please have the first question?

(Operator Instructions).

Joe Greff, JPMorgan.

How are you guys thinking about the growth in SG&A in 2011?

And then with respect to your 2011 CapEx program, how much of that relates to maintenance, or what we would consider the non-revenue-enhancing capital spend?

Thank you.

Hi Jeff, this is Harmit.

In response to your question on SG&A, SG&A for the quarter was up 10% in 2010.

And for the year SG&A is up in 2010 relative to '09 about 8%.

As we think about '11, we believe we will have -- we continue to have inflation in terms of merit increases.

We believe that we will be adding some incremental resources relative to supporting the development activities, largely in the areas of real estate, finance and legal.

And you know, we look at our headcount on a very thoughtful basis.

And the headcount that we add incrementally is truly driven by growth in other related activities.

Relative to your question about 2011 in terms of our renovation, our maintenance CapEx that we're looking at is between 5% and 6% of owned hotel revenue.

That's the number we have.

So broadly, if you look at our expected capital expenditure program, over $380 million to $400 million, about 20% or so of that will go against maintenance.

The balance is largely towards capital, to enhance existing properties, five of which we've talked about and a few others that we are doing in 2011.

Can you let us know what those other properties are in that latter part of 2011 -- the other owned assets that are getting renovations?

Yes, well they are largely -- if you go back to the program where we are exploring the sale of 11 assets, this capital program is largely for all the assets that we have decided not to sell.

As you know, when we talk about the 11 assets, we said these assets required CapEx.

And we were looking for partners that could come in and help fund the capital.

Given that we have decided not to sell these assets for the time being, we feel it important to bring these assets up to brand standards, and so that when the economy fully recovers in 2012 and beyond, [aid] these assets up to brand standards, and more importantly are able to provide our customers the expectations that they desire from the Hyatt brand.

Josh Attie from Citi.

Could you talk about what the business momentum has been, maybe, in January and early February?

There's been some noise in the numbers from bad weather.

But if you can look through kind of the renovation impact, what's kind of the underlying business trends early this year?

You know, like the others, the weather has hurt us.

We've also had renovation.

And I said earlier, the impact of renovation in the first quarter is going to be a little higher relative to the rest of the year, just because we are taking advantage of A) the [momentum of] renovation and B) the slower topline growth.

Internationally, the trends that we are seeing in the quarter continue.

And overall, relative to our performance, North America looks slightly hurt relative to the weather, but international continues to chug along.

And when you think about assets that you could sell over time, how do you think about the limited-service portfolio that you own?

Is that a portfolio that you view as core and want to hold onto?

Is there some strategic reason you need to own it?

Or is that a portfolio that you could see yourself selling down the road?

Josh, it's Mark; good morning.

Thanks for the question.

The answer is that we believe that the select-service portfolio that we currently own is really a great source of capital for us over time.

So we don't view it as forever ownership; we view it as really a capital base that we can hopefully find good ways to redeploy to help continue to support development, especially in our select-service brands in North America, but also for other opportunities.

So we were looking at it as really a source of capital, and possibly to utilize some of those properties in efforts that we are pursuing to try to prompt new development of select-service properties in North America.

Great, thank you.

Chris Woronka, Deutsche Bank.

Just a quick question on -- in the fourth quarter, can you share with us what percentage of your business was on the books maybe prior to 2010?

I'm really just trying to get a sense for the underlying rate growth.

And maybe if you can just extrapolate that into 2011?

What percentage of what you have on the books was maybe booked in what you consider to be a weaker period?

Yes, you know, as I mentioned earlier, Chris, the business that is in our books as we step into 2011 is about 70%; is a little over 70%.

And that's in line with our expectations.

You know, that we have not -- if you look forward, traditionally the business in 2012 and 2013 -- it's a little difficult to predict because the visibility continues to be lower.

The windows haven't lengthened from that perspective.

But traditionally at this time of the year one would see about 40% of the business for 2011 booked and about 25% of the business for 2013.

(multiple speakers) great.

Yes.

Can you share with us maybe how the rates look on that, overall?

You know, again, we had -- I mentioned about the fact that the business on the group side that was booked in two thousand -- in quarter four of 2010 for 2011 grew about 20%.

I would say that of that 20%, 50% was driven by demand and 50% was driven by an increase in rates.

Okay, very good.

Thanks.

Harry Curtis, Nomura.

Good morning.

Just a follow-up on the maintenance CapEx question.

Beyond 2011, if we used 5% to 6% of owned revenues, should that maintenance CapEx level range somewhere between $100 million and $150 million going forward?

Yes, Harry, this is Harmit.

Traditionally, if you look at the last couple of years, our maintenance CapEx has been in the 4% to 5% bucket.

And if you look it up -- you know, an average owned revenue base of about $1.8 billion to $2 billion, it's in the $80 million to $100 million on a broad-based basis.

So yes, there's a bit of a peak in '11, but I think, as one mentioned, we expect the pace to normalize once we've completed the renovation in the assets we just talked about.

That's great.

And my follow-up question is, if you could talk about the international segment in the fourth quarter?

Strong RevPAR growth; EBITDA growth lagged a little bit.

And wondered what drove that?

And what your expected flow-through on the international side should be like in 2011 and beyond?

Thanks.

Harry, good question.

You know, relative to the performance in quarter four, largely the performance in quarter four for international was driven by two factors.

One, we received or we owned in '09 quarter four, branded residential fees -- they go into the base, so to make the comparison, this is more of a one-time collection, so they make the comparisons a little tighter when you compare quarter four '10 versus quarter four '09.

And the second issue, relative performance or expenses in international were -- that in quarter four '10 we again accrued incentive compensation in line with strong performance.

And the increase in that expense caused the EBITDA to be a little softer than what you compare relative to the RevPAR growth.

Relative to your question about margin flow-through in international, you know, in this, margin is really segment margin, which is defined as EBITDA over fees.

I think the year for '10 margins was more like 64%-65%.

And that's what the general trend has been over the last couple of years.

And as you look into 2011 with respect to your accrued incentive comp on the international side, would you expect it to see a little more smooth recognition over the four quarters in 2011?

Yes, I would say so.

Okay, thank you.

Shaun Kelley, Bank of America.

Just a question on sort of the international stuff, really on the pipeline side, first of all.

Could you give us any more color in terms of -- obviously you saw a big improvement year-on-year in your pipeline hotels -- how much of that is now coming from Asia-Pacific?

And if you can break that down maybe just a little bit more by region for us?

Yes, good morning, it's Mark.

So, a couple of evolutions in our pipeline over the course of the year.

We've got, if you look at our -- the composition today, it is -- relative to a year ago, it is higher in full-service projects than it was.

That's partly the result of opening select-service hotels that were in the pipeline at the end of 2009.

It's clearly more international than it was at the end of 2009; we have more multi-property developers represented in the pipeline.

And if you look at the aggregates for properties within the pipeline, and if you looked at India and China, that represents about 50% of the base of signed contracts that we've got today.

So, those are the key evolution -- points of evolution in our pipeline year-over-year.

And just to clarify there, the 50% -- is that similar, would that be -- you said contracts -- would that be similar in rooms and hotels as well, directionally, at least?

I don't spend as much time tracking (multiple speakers)

It's roughly the same.

It's roughly the same.

That's helpful.

And then just one other one, on the international side if I may.

You gave some of the mixes in terms of how many of your North American hotels were paying incentive fees, and your international hotels were paying incentive fees, but could you remind us how far North America is off the peak?

That would be helpful.

Thanks.

Yes, again, if you define peak as '07, we had 59% of the hotels in North America paying incentive fees at that point of time.

So we have a ways to go, and it will take a bit of time to get there.

International, as you know is a little different, where we don't necessarily have the return thresholds that you have in North America.

So international peak, again defined as '07, is a little north of 90%.

So we are closer in international than we are in North America.

Thank you very much.

Jeffrey Donnelly, Wells Fargo.

Good morning guys.

A question for Mark.

I'm curious, do you believe Hyatt's distribution system is at a -- I guess, a minimum scale necessary in most markets or segments to be competitive from an efficiency standpoint?

What I mean by that is, for example, some of your larger competitors are contemplating rolling out, for example, like new customer-facing initiatives.

Do you have the base that's large enough to spread those costs over the life -- still be competitive from an expense standpoint?

Good morning, Jeff; that's a great question.

You know, I looked at many of these issues several years ago when I first joined Hyatt, and really wanted to understand scale and what the impact of scale is on the business.

And I am more than convinced that we have sufficient scale to be able to continue to innovate and be able to deliver, differentially.

Now, it may be delivered differently.

What we're doing may be delivered differently.

And we may actually have different resources.

So we really do rely on our local teams to be making a lot of decisions and showing their own initiatives.

The tools that we are providing to them, and the initiatives that we have underway -- and I would count this both in the context of human capital development, as well as analytics and customer data management -- are really important areas of focus for us.

We've spent a lot of time over the last 18 months mapping out our future in these areas.

And we've got a lot of focus and attention applied to them right now.

And we analyze how we are performing in these dimensions, I would say more on the customer-facing initiatives than on the human capital initiatives, because our ability to actually compare ourselves on that dimension is somewhat more limited.

But we have enough multi-property, multi-brand owners to be able to understand how we are comparing in many of those important dimensions.

I would say one other thing, and that is when we look at -- you know, distribution is the term that is often used for breadth of coverage.

It's not just numbers of hotels but it's also, in which markets are you represented?

And what do you have there?

So I think that the location and quality of the services that we are providing and the properties that we've got allow us a representation or an awareness of our brands that is important, and is prominent, no matter the -- in terms of total numbers in many places, we have fewer hotels.

So I guess I would say that the combination of the kind of coverage that we've got, as well as -- to be direct about my answer to your question -- yes, the minimum scale that I think is required to actually spool up and make those investments, I think we are well covered.

Thank you.

In fact, in some ways I would say that some of the initiatives that we are undertaking, require you to really be nimble and very responsive and have a second nature sort of rapport with individual leaders and individual hotels.

And we are still the size that will allow us to do that.

Great, thanks.

Smedes Rose, KBW.

Hi, good morning, it's Smedes.

I just had a question about costs at the property level.

It looks like they increased about 4% for your owned hotels last year.

I'm wondering, is that a similar kind of pace that you would expect to see this year?

Yes, you know, we are -- again, as we think about '11 inflation across -- cost is our prime focus.

The costs that we expect to go up in North America, for example, relate to health costs.

Healthcare costs are up.

We are trying to offset that by being very thoughtful on how and when we add headcount.

And energy costs across the globe are expected to increase.

We have various energy savings programs that we are executing globally.

We have energy audits across our hotels.

Some of our hotels are undertaking solar installations.

For example, our Hyatt Regency in Scottsdale implemented their solar program.

Our Grand Hyatt in Dubai, for example, did something very similar.

We have some hotels that are -- have been LEED certified, so that is, again, our focus.

And for example, our hotel in Singapore -- the Grand Hyatt -- implemented a tri-generation project which is basically using one fuel source to generate heat, power and cooling, and is using waste heat generated from gas engines to try and convert that to heating and cooling.

So there are various energy-saving programs that we are focused on.

And then commodity prices, given the scale of our food and beverage operations internationally, that's an area of focus.

We think we can offset that, if the need arises, through pricing.

So again, we expect the cost pressures to increase slightly relative to what we have seen, but we are confident we have mitigating programs around them.

But I mean, aren't the -- isn't the bulk of costs around labor?

I guess I was sort of specifically wondering more about pressure on wages versus insurance or energy.

Is there -- given the recovery in the economy, is there pressure on those?

Yes, you know, there is a bit of pressure.

But our expectation is that the growth in 2011 is going to be driven more by rate than occupancy.

And because 2010 is a different story where occupancy drove most of the growth.

So we did have to add incremental [ally] staff on a variable side.

So we've maintained the focus but we expect the revenue to be driven more by rate than occupancy in '11.

All right, thanks.

And then Mark, you had mentioned that your pipeline is shifting more to full-service as the select-service properties have opened.

What percentage of it now is what you would characterize as full-service?

We haven't provided that and I don't have the data at this point.

Yes, it's about -- Smedes, it's about 70%.

It's roughly the similar number to the percentage that's international.

Okay, thank you.

David Loeb, Baird.

Good morning, gentlemen.

Harmit, I appreciate you giving us some clarity on the displacement in EBITDA in the fourth quarter of [around 10], and the margin in RevPAR numbers seemed to triangulate on that.

Can you give us an idea about how much EBITDA you think will be displaced in 2011 because of the renovations?

Yes; EBITDA, David, is about between $20 million to $25 million.

That will hurt our owned and leased segment.

And as I mentioned earlier, we think the impact will largely be felt more in quarter one and quarter two.

So if you're going to split it between quarter one, quarter two, quarter three, I would say it could be, the mix will be more like 40% in quarter one, 30% in quarter two and 30% in quarter three.

The fact of the matter is, the number of rooms that we are taking out of inventory for renovation purposes, relative -- in quarter one for example, relative to quarter four -- is up by about 20%.

Great, okay.

And the comparable North American full-service RevPAR increase of 3.9% -- I assume there was some impact, but not the 400 basis point impact of renovation on that number, given that that's a broader base.

But still, even adjust for that -- what do you think of the trend, the fact, that the limited-service was so much stronger?

Is that something you expect to see going forward?

Or was that a one-quarter anomaly related to comparisons or something else?

Yes, specifically relative to your question on full-service for North America, the impact -- we gave a number of 400 basis points.

That was largely owned portfolio.

The impact on North America was a little less than the 400; more in the 300, 350 kind of range.

In terms of your question relative to the difference -- and Mark talked about renovations happening on the managed side.

For example, Hyatt Regency in Chicago underwent renovations in '10.

So there are hotels we manage which are also being renovated -- had been renovated during 2010.

Relative to the difference between full-service and limited-service, we have seen more of market share growth in our limited service segment, and it's been sustained over the last couple of years.

So we feel great about the brand.

And just go back to history -- we've been able to continue to sustain the market share growth that we've seen over the last couple of quarters.

Are you also seeing demand trends broaden out to more typical select-serve markets?

Can you repeat that, David?

I guess what I'm getting at is, is this all market share?

Or are you also seeing demand trends increase outside of the kind of key gateway coastal markets and Chicago -- two markets where select-service is more prominent?

No, I'd say a lot of what we've been seeing and a lot of the progression that we've enjoyed I think is really the result of the -- coming into our own, so to speak, in each of the markets in which Hyatt Place and Hyatt Summerfield Suites is currently competing.

I think the response to the brand has been strong.

But I wouldn't say that it's by virtue of a cascade out of the key urban markets into suburban markets as much as it has been, really, an evolution and a strengthening of our performance on a hotel-by-hotel basis.

What we look at, when we look at how -- the way in which we approach this is to take a look at how we are performing across two really distinct customer bases that we serve in select-service.

The first is business transient guests in midweek, and then families, really, on the weekend.

And we evaluate what we're doing and we have different programs relative to each.

And it's important to us to actually maintain and grow our share for each of those.

And what we've seen is a significant increase in both of those dimensions.

But I would say that given the conversion of the properties and the brand to the Hyatt Place brand and the Hyatt Summerfield Suites brand, a bigger proportion of the increase has really come from the midweek business transient guests.

And we are continuing to push that.

It's an important factor in terms of how we are competing with respect to corporate travel managed business.

That's very helpful.

Great, thanks.

Janet Brashear, Sanford C.

Bernstein.

Thank you.

Could you give us some insight into how you establish and maintain your brand standards?

The genesis of the question is coming from looking at your recent sales of the Chicago area hotels.

And when I look at the sales price, it comes out to about $62,000 a room, which was a gain and a good price for the market, but is a very low price for a full-service hotel.

And even adding in the CapEx the owner plans to put in, you get to about $80,000 per room of value.

And I'm wondering if these hotels can represent your brand well.

Thanks, Janet.

Obviously this is highly market-specific as you pointed out.

And I would say the key from our perspective in judgments that we've made about what to sell and with whom to do the deals, has really been around making sure that we are aligned with new ownership on what's possible and what we can sustain.

And so we spend a lot of time with the new owners of our properties, and they've committed a significant amount of money, as you pointed out.

And we believe that with the property improvement plan that we developed and had in place before we actually took the properties to the market, that we can get to brand standards that will represent the Hyatt brand well in those markets.

We are responsive to the kind of demand that exists in each of these markets, and is quite different.

The demand in Rosemont looks different than the demand in Lisle or Deerfield.

So some of what we do in those properties will vary depending on what kind of customers we are serving.

So I think that it really is a -- it's a balance of which customer base you're serving in which markets, and then how to actually represent the brand to our standards in order to serve them.

And we believe we can achieve that with the deals that we've done.

Bill Crow, Raymond James.

Good morning, guys.

A couple of questions real quick here.

I think if I heard correctly, you are expecting to open 15 hotels this year -- 2011.

That just seems a little bit low relative to 140 signed contracts.

Could you talk about that?

And what sort of acceleration we should anticipate in 2012 from an opening perspective?

And then, Mark, I'd like to get your initial thoughts on Marriott's timeshare strategy that they unveiled earlier this week.

Thanks.

Sure.

I think on the opening front, the fact is, as we discussed before, a lot of what we have in our pipeline are full-service projects that are under development.

Many of them are newly built properties.

And one of the things that we obviously cannot predict is conversions along the way.

We had [core] properties that we converted in 2010, for example.

We don't forecast conversions.

So the 15 that we estimated really relate to properties that have an opening schedule, that are under development at this point.

So I think the key for understanding the pace and the profile is really that.

And there's no question that some of the slowdown in select-service development is coming through some of the opening schedule for 2012 -- 2011 is what I meant to say, sorry.

And it's really premature for us to start talking about 2012 openings.

As you probably understand, a lot of these development projects ebb and flow over time.

So any estimate that we would give you now would probably need to get significantly updated.

And there would be a lot of turnover in it over the next 12 months.

So we'll reserve that for later.

And in terms of the second question, Marriott's strategy with respect to their timeshare business, I really don't have a comment with respect to what they've done.

I think it's a very different business than what we have.

And so therefore no comment on what they've done and whether that makes sense for them or not.

I think for us, we have a high quality, small portfolio of residential properties in our Hyatt Residential Group.

And we continue to focus on our participation in that business, really, as attendant to full-service development.

And making sure that what we do in that business actually supports what we're doing on the full-service hotel side -- that's really been our philosophy for the last several years, and continues to be so at this point.

Great, thank you.

Thanks, and given that we are at the top of the hour, we want to thank everyone for joining us this morning.

We look forward to talking to you in the future.

Thank you very much for your time.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation; you may now disconnect.

Have a great day.