Hyatt Hotels Corp (H) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hyatt Hotel's Corporation first quarter 2011 earnings conference call.

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

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

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

(Operator Instructions)

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

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

Atish Shah, Senior Vice President of investor relations.

Please proceed, sir.

Thank you, Jen.

Good morning, everyone and thank you for joining us for Hyatt's first quarter 2011 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 that call, Mark and Harmit are each going to make remarks about our results for the first quarter, progress made during the quarter related 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 certain statements are not historical facts and are considered forward-looking statements.

These statements are subject to numerous risks and uncertainties as described on our annual report on form 10K and other SEC filings which could cause our actual results to differ materially from those expressed in implied by our comments.

Forward-looking statements in the earnings release that we issued earlier this morning along with the comments on this call are made only as of today May 3, 2011 and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You can find the reconciliation of non-GAAP financial measures referred to in our remarks on our web site 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 web site for 90 days.

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

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

Thank you, Atish.

Good morning and thank you for joining Hyatt's first quarter 2011 earnings call.

During the first quarter, we made significant progress towards our gaols for the year.

We managed the Company for the long term and are focused on two primary drivers of earnings growth.

Mainly improving results from existing hotels that we own, manage and franchise.

And second, expanding our presence by increasing the number of hotels around the world under our brands.

With regard to the first driver, results from the vast majority of our existing hotels increased during the quarter.

In North America, full service RevPAR increased approximately 8% despite significant renovations under way at several large hotels.

We saw strength in group bookings, which were up over 15% in the quarter for the quarter and solid growth in transient business at both convention and business hotels.

Service RevPAR grew almost 12%.

We seen consistent and significant cumulative growth in market share at a very large number of our select server hotels.

I'll talk more about our select service hotels in a few minutes.

Before discussing the performance of our international hotels, let me say that I'm relieved to report all of the members of Hyatt family, as well as all of our guests who were at our hotels in Japan during the earthquake and tsunami, and the subsequent earthquakes, are safe.

It's been a stressful time and those affected by the events in Japan are in our thoughts.

Despite this tragedy, and other world events, business in our international hotels was stronger during the quarter with RevPAR up approximately 7% in constant dollars.

RevPAR for our international hotels, was almost up 10% in constant dollars in the first quarter 2010 so the cumulative RevPAR progression is significant and reflects continued expansion of demand in many markets around the world.

With regard to expanding the number of hotels under our brands, we opened two hotels during the quarter in North America.

One of the hotels we opened is a full-service hotel that was converted from another brand and the other is a newly built select service property and both are franchised.

In addition to these openings, we recently announced the opening of a Park Hyatt in the Maldives that is a conversion from another brand.

We increased our signed contract base for future hotels during the quarter and at the end of the first quarter, the base was about 145 hotels which represents about 33,000 rooms.

Let me tell about you what's happening with our select service brands.

I'm happy with how Hyde Place and Hyatt Summerfield suites are developing as brands.

We started into the select service business about five years ago.

The upscale and extended stay segments have already had several established brands.

But we set out to create something really different.

The punch line is we developed a new and distinctive product in an entirely new and fundamentally different service model.

This was all based on significant market research.

We used our own capital to acquire and convert hotels into the first Hyatt place properties.

We put our money where our mouth was and demonstrated our commitment to the brands as we operated hotels side by side with franchisees.

We enlisted the help and support of some of the very best developers of franchise management companies in the segment and attracted dozens of franchisees into these brands that are new to Hyatt.

So, what's happened?

Well, we've had very strong customer response, very high levels of satisfaction with service and the overall experience.

We've seen widespread increases in market share across a large proportion of our properties in the segment.

We've had solid cumulative financial performance over a number of quarters, and we've enjoyed great support from developers and franchisees.

So, that's the story in short, a clear success story.

There are three things that I want to emphasize.

First, I think we got it right through research and the recognition that we serve at least two important customer basies.

Second, we rely on our service model to differentiate what we are doing for our customers.

Third, we're only just getting started.

So first, as to research.

We recognize that we had a strong presence with families and groups that use Hyatt place properties on the weekends.

We turned our attention to mid-week customers and we completely transformed our guest base over a two-year period.

We focused on who our target customers were and what they wanted.

We enlisted the guests, corporate travel managers, our own employees at the properties and perspective developers and franchise managers to develop, refine and evolve the product and the services that we were to offer over time.

We've completed designs for new rooms and some refinements to our public spaces and we've continued to refine what we're doing on the service side.

In short, we're not standing still.

We significantly expanded our business with corporate customers and this has expanded our total business volume with corporate travel managers across all of our brands.

In this way, we significantly increased our mid-week market share for Hyatt Place and Hyatt Summerfield Suites and benefited the entire Hyatt chain by being able to serve more corporate customers in more markets and at more price points.

The Hyatt Place and Hyatt Summerfield suites have had an impact on our entire Company.

Second, as to service model, we've long believed that you must have a great product, but great and differentiated services are the most durable source of competitive advantage.

We eliminated many of the barriers that get in the way of being able to deliver authentic hospitality.

We developed extensive cross training for our hosts and allow them to stay with the guest through check in to buying a snack or a glass of wine, or enjoying a hot meal.

All able to be provided by a single gallery host.

The flow of traffic in our galleries, that's what we call the lobby in the high place, is conducive to interaction and ease of service.

And of course, our mission, which is to provide authentic hospitality by making a difference in the lives of those that we touch everyday, flows through the engagement that we have with our guests.

The result, extremely strong customer service levels and very high satisfaction with the service at our hotels.

Third, while we've made strong progress over the past few years, we're only starting to get going.

Under these two brands, we've opened 17 hotels in 2008, 19 hotels in 2009, 20 hotel in 2010, and a number of these properties are still ramping up.

Most of our comparable properties run sizable market share premiums to their competitive sets in their respective markets.

This premium is growing in many markets and we continue to fill out a large number of markets that will further enhance the strength of the brands.

In total, today we have almost 200 select service hotels in the portfolio.

Over 50 of which are owned by us.

Currently, all these hotels are located in the United States with almost all in suburban markets.

We're happy with this achievement, but as you know, we're in it for the long haul.

So, let's discuss where we're headed next.

As we all know the development climate for new hotels in the US has been weak over the last couple of years.

Despite the lower number of total projects under way, we are making progress with third party developers and have executed contracts for new-build domestic projects.

Supporting these efforts remains an area of focus for us.

We're particularly focused on urban projects and conversion opportunities in markets where we do not now have a hotel, as these will have the biggest impact on the ability to serve our guests.

Apart from urban markets, the opportunity and sub-urban markets in smaller urban centers remain strong for Hyatt as there are hundreds of markets around the US where we do not yet have a presence.

Outside of North America, we have Hyatt Place developments in a number of countries.

There are new Hyatt Place hotels under construction in India, for example, where there are more than a dozen projects for which we have signed contracts.

Having invested in more than a year in prototype and service model development for India, it's clear to us that while the Hyatt Place brand was developed to be a truly global brand, the key to our success would be to adapt to each of the markets in which we operate.

In India, this involved refinement and service delivery, a reconfiguration of the guest room in order to maximize building efficiency and the development of a different approach to our food and beverage offering.

Along these lines, we've recently added a team to focus on launching Hyatt Place and a few other markets with the same sensitivity and forethought that we applied in launching the brand in the US.

Our many years of experience and operating in places like China, India and Brazil have served us well as we evolved our brands in our Hyatt place and eventually Hyatt Summerfield Suites will nobody exception.

Let's talk about four notable recently announced hotel projects.

The first is the Hyatt place in Hawaii scheduled to open later this year.

The 425-room project is being converted from an existing independent hotel in Waikiki.

It will be our first Hyatt place in the state.

The second is a new Hyatt place developed in Costa Rica.

Upon opening in 2012, this will be the first property in Costa Rica for our company.

It will also be our second in Latin America after the expected opening of a Hyatt place in Panama that in 2012.

The third, is a Hyatt Place in Amsterdam to open in 2013 representing Europe.

The fourth is a joint venture with white lodging to build one of the first urban Hyatt Place properties in the United States in Austin, Texas.

We're very excited about expanding Hyatt Place into urban markets.

This is a great project, with a world class partner, in a fabulous market.

In total, we assigned contracts with over 50 select service project and pleased with the continued interest in development partners in these brands.

Hopefully, you can see why we're so excited about the future of these brands and why they represent the important aspect of our long-term strategy.

I also note, that the work we did on Hyatt place inspired us to apply some of those lessons when we developed and launched Andaz, but we can discuss that at some later date.

I want to talk for a moment about long-term earnings growth in two areas in particular.

The first one is the strength of our owned hotel portfolio.

The second one, is our belief that we are on the right path with regard to expanding our presence.

First, we own great hotels and some of the best lodging markets in the world such as New York, San Francisco, London, Paris, Chicago, and Seoul.

These hotels are positioned well and are in markets where we expect limited increases in new supply over the next few years.

As our group business demand continues to strengthen at many of these hotels, we expect to be able to realize both higher group and transient rates.

This gives us confidence with regard to sustainable pricing power in years ahead.

As you know, we're renovating several of our large owned hotels this year.

The renovations are progressing on track and on budget.

We've received great feedback from guests, meeting planners, potential owners and development partners, and I encourage each of you to stop in or stay in either New York and San Francisco to get a sense for those great properties.

We want to finish the renovations as quickly as possible.

In New York, in particular, business is generally stronger in the second half than in the first, so it makes economic sense for to us finish the project there as quickly as possible.

As such, and because construction is progressing well, we've accelerated some components of the renovation Grand Hyatt New York and now expect to finish the renovation a few weeks earlier than previously anticipated.

Overall, I'm very happy about our renovation projects.

Starting in the fourth quarter of this year, we expect higher levels of performance in earned results for two main reasons.

First, we expect higher revenues due to the upgrades to the rooms, meeting facilities and restaurants and hotels.

This could be significant because in most of the respective competitive sets, we will have the newest, and in our opinion at least, the best designed product.

Second, we expect these strong markets to continue to perform well given limited editions to supply over the next few years.

Our own hotel base also provides us a great tool in our efforts to expand our presence because we have such a diverse asset base from select service to luxury properties and in a variety of locations around the world, we have the potential to utilize the capital embedded into these assets in varied ways which leads to expansion of our presence.

I touched on this briefly, but let me talk about expansion briefly in a more general context.

As you know, we've opened many hotels over the last couple of years.

During the first quarter this multi year effort helped us show strong fee growth.

Overall fees grew almost 23%.

Much of the increase was due to organic RevPAR and margin growth, but 25% was due to new hotels that are ramping up nicely.

The growth in fees is the result of our expansion to better serve our customers, not a goal onto itself.

Our goal is to be the most preferred brand in each segment that we serve.

Growth in our presence across markets supports our efforts to meet this goal and growth in earnings over time is this activity.

As we continue to stay focused on meeting demand from our guests, we're opening new markets and impact is significant for us.

Since the beginning of 2009, we've opened hotels in 20 new markets for the Company.

This supports and enhances awareness of our brands, supports our efforts to improve guest loyalty and Hyatt's share of our most loyal guests spending on travel and also enhances the development profiles of the Company.

In this way, we're supporting our company-wide efforts to increase preference for our brands.

I'm very excited about our prospects and confident that the hard work and commitment by each member of the Hyatt family will continue to yield excellent long-term value growth.

With that I'll turn it over to Harmit.

Thank you, Mark, and a warm welcome to those who have joined our first quarter 2011 earnings call.

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

In the first quarter, adjusted debit Saturday was $109 million, a decrease of about 3% as compared to last year.

While performance for most of our hotels improved, we were negatively impacted by renovations.

Last year, during the first quarter, we also had an $8 million benefit from the settlement of a construction dispute relating to one of our time share properties, which impacts year-over-year comparisons.

Adjusting for the renovations this year and this settlement amount from last year, we estimate that adjusted EBITDA would have grown by approximately 14%.

I will now discuss our results in more detail for each of our three business segments.

Let me begin with our owned and leased hotel segment.

Excluding the impact of currency, RevPAR for our comparable owned and lease hotels increased by 1.4% in the first quarter.

RevPAR results were negatively impacted by the displacement of revenue of approximately 400 basis points due to renovations.

As you may recall, our first quarter 2010 RevPAR increased by approximately 8%, thanks in part to strong business in Vancouver and Miami as a result of the Olympics and the Super Bowl.

So, we're comparing to strong growth in the prior quarter.

Operating margins at comparable owned and lease hotels decreased 130 basis points in the first quarter.

Margins were negatively impacted by approximately 190 basis points due to renovation activity at owned hotels.

As a result, margins would actually have grown about 60 basis points adjusting for the estimated impact of the renovations.

Our focus on expense control and flow-through continues to drive our margins despite increases in costs due to rate inflation and higher occupancy.

Overall, owned and leased adjusted EBITDA decreased by 8.5% during the quarter.

The renovations adversely impacted owned and leased adjusted EBITDA by about $10 million in the quarter.

In addition, we had a smaller asset base in the first quarter 2011, versus 2010, due to asset sales over the last 12 months.

Specifically, we ended the first quarter 2011 with seven fewer owned hotels representing approximately 2,000 rooms as compared to the first quarter 2010.

Next I'll talk about the North American management and franchising segment.

First quarter, comparable RevPAR for full service hotels increased 7% or 9% excluding the impact of currency.

This increase was evenly split between occupancy and rate gains.

Renovations negatively impacted segment RevPAR results.

This is primarily offset by the timing of Easter, versus last year, was positively impacted segment RevPAR results by approximately 150 basis points.

Our full-service hotel experienced 11% increase in group revenues, with growth coming roughly equally from increased demand and higher rates.

The strength in the group business was the result of stronger independent booking by corporate groups and associations.

Group revenue booked in the quarter for the quarter was up 15%, as compared with the first quarter last year.

Group revenue booked in the quarter for the year was up over 10%, as compared with the first quarter of last year.

Most of 10% increase is as a result of higher rates.

As for transient business in the quarter, revenues increased 6%, compared to the first quarter last year.

This increase was mainly due to rates which increased almost 5% versus last year.

Shifts in mix of business continue to drive rate increases.

Corporate rates from top accounts were up in the mid-single digit percentage range consistent with our expectations following corporate rate negotiations that wrapped up in the first quarter.

Let me turn to our select service hotels and the Hyatt Place and Hyatt Summerfield Suites.

Comparable RevPAR at a select service hotels increased 11.6% in the first quarter 2011 compared with the first quarter of 2010.

Occupancy rates and margins all increased.

Overall, fee income for North America management and franchising operations increased 13.3%, primarily as a result of increased base management and franchise fees.

Let me now turn to our international business.

In this segment, RevPAR increased 6.9% in the quarter excluding the impact of currency.

The Asia Pacific region continued to show strong improvement with strong RevPAR increases in China, Hong Kong and Indonesia.

First quarter RevPAR in China was up over 20%.

This is on top of the 30% plus RevPAR growth that we saw in first quarter of 2010.

One reminder, though, 2010 benefited from the Royal Expo in Shanghai, so this year the comparison will be tougher without the source of demand.

Results in Latin America were strong as well.

As to be expected, results in our Europe, Middle East and Africa region were weaker.

Overall, international fees increased 12.9% in the first quarter of 2010, excluding the impact of currency.

About a third of this increase, was due to a termination fee received in the first quarter and the remaining increase, a result of higher revenues and the continued ramp up of hotels added in prior periods.

Our portfolio in Japan and Egypt consists of 10 hotels.

We have 8 hotels in Japan and 2 hotels in Egypt.

All 10 are open and operating.

From a business perspective, while the situation is still uncertain in both these areas based on our current estimates, we expect fees from these two areas to decline approximately 30% or less than $5 million for full-year 2011 compared to last year.

Now that I've talked about three segments, I would lake to talk about three other topics.

The Hyatt Regency Minneapolis, SG&A expenses and 2011 information.

We contributed the Hyatt Regency Minneapolis to a newly formed joint venture during the first quarter and also assigned a $25 million loan to the joint venture.

We joined with partners who were excited to invest in the renovation and repositioning of the asset.

And in the process, retaining economic upside in the property through interest and joint venture.

We continue to manage the hotel and the long-term management agreement.

Our adjusted SG&A expenses increased 1.5% in the first quarter.

Our comparison was relatively easy, as we incurred higher bad debt expenses in 2010.

Without this favorable comparison, adjusted SG&A would have increased approximately 9%.

This increase mostly reflects higher compensation costs.

As to information about 2011, our information related to capital expenditure and interest expense is the same as last quarter.

Our expectation on depreciation and amortization expense has declined slightly due to the contribution of the Hyatt Regency Minneapolis to the joint venture I mentioned before.

Now, I will discuss operating performance at our own hotels.

As Mark mentioned, we accelerated the timing of the Grand Hyatt New York renovation.

The level of disruption will be slightly higher in the second quarter than it was in the first.

Specifically, we expect the renovations to have an approximate 500 basis point impact to RevPAR.

And between $11 million to $13 million impact to our overall adjusted EBITDA in the second quarter.

In the third quarter, we expect the renovations to have an approximate 100 basis point impact to RevPAR and in fact to adjusted EBITDA of less than $5 million.

Thus in total, our expectation for renovation deception is slightly higher than what we discussed on the last earnings call, or approximately 400 basis points to own and lease RevPAR and slightly over $25 million of adjusted EBITDA over the first three quarters of 2011.

In summary, during the first quarter, we saw improved demand and higher rates are North America business, continued strong growth across our international business and improved results from our own hotel portfolio despite the significant renovations under way.

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

Thank you, Harmit.

That concludes our prepared remarks.

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

We're happy to take your questions at this time.

Jennifer, maybe please have the first question.

Thank you, sir.

(Operator Instructions)

The first question comes from Joe Greff, JPMorgan.

With respect to your 2011 commentary about opening up approximately 15 hotels, is that a gross number or a net number and is there anything there that would suggest based on what you know that you that's a little bit more second half or back into the year weighted and then a quick follow-up.

Harmit, thank you for the commentary about the Hyatt Regency Minneapolis.

If you look at the last four quarters or if you want to go back to 2010, how much of that contributed to owned and leaped revenues and EBITDA?

Thank you.

Relative to your first question, the 15 number is a gross number.

So, in this quarter, three of our properties left the system.

So, you can net that off for a net number.

In the quarter, we opened 2 properties, so the remaining 13 are staggered towards the latter part of the year.

Relative to your question about Minneapolis, in terms of the impact of Minneapolis on to a 12-month basis, again, Minneapolis, we haven't sold the Minneapolis property outright.

We have contributed the Minneapolis property to a joint venture, but the impact on EBITDA is expected to be approximately $3 million on an annualized basis.

Thank you.

We'll take the next question, please.

Your next question is from Steven Kent with Goldman Sachs.

Hi.

Mark or Harmit, could you talk about some programs you have to keep your expenses down or flat, especially in light of the SG&A increase?

Both at the corporate and the property level.

And the goal, I guess for me and for my model, is to see how much more operating leverage you could have as we roll through '11 and into '12?

So, if you could just lay out the programs, I think that would be helpful.

Great.

Good morning, Steve.

We've looked across really all areas of the P&L and operations in order to try to identify opportunities.

Our continued focus is not really changed since the last couple of years actually.

It's been consistent in how we're actually staffed and additions to management level staffing in particular have been consistently rigorous.

So, we are seeing some expansion because there is some increase in overall activity, but we continue to maintain as much discipline around that as we can.

The hourly additions to staff are really strictly in response to business and we are seeing some wage inflation.

I think on the other departmental costs though, a particular area of focus force, especially in a few markets outside of the United States has been around energy costs.

One initiative we've undertaken in India for example, where we have a joint venture in Mumbai for example, has been to invest in alternative energy programs and in India, they have a program where that investment allows to you offset by way of rate your energy costs.

It's not directly linked.

It's not as though the wind farm generates electricity that is tonight your specific property, but its a program that is sort of like a clearing house.

We believe that will tend to moderate our energy expenses.

We're focused on similar programs.

There are particular markets in the Middle East and in south America where there is the potential for energy cost shocks if you will, mostly around natural gas in south America, and electricity in the Middle East.

So, we continue to focus on identifying and implementing in those areas more solar and alternative energy investments similar to what I just described in India.

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

Sure, Steve, to questionable operating leverage, I'll try and address that and jump specifically to SG&A question but I think you alluded to it.

0n margins, just to remind everybody, we've consistently grown our operating and lease margins over the last five quarters, if you back our renovation impact and the one-time timings that we've had.

Our margins on a two-year basis for quarter one actually agree 170 basis points.

Again, if you exclude renovations and the one-timers.

In quarter one, there are three or four factors that impacted margins.

The first was renovations.

As I mentioned in my script, we expect to see and that adversely impact margins in quarter two and three.

Rate increases helped us and we expect this to be a positive factor especially as rate becomes a bigger contributor to RevPAR growth.

Mark talked about inflation and we're seeing inflation especially on wages, healthcare costs in the US and commodity costs, while we expect these pressures to continue, we expect to mitigate it to productivity and price management of ARPU offerings.

That's the way we're approaching expense and flow-through management which as you know is the way of life and something we demonstrated during the economic crisis.

Going back to your question about SG&A.

SG&A for the quarter was up 1.5 point, but if you adjust for bad debt expenses, you know that we saw in quarter one of last year, SG&A is actually up 9%.

The factors impacting SG&A are a couple.

One, we are seeing wage inflation.

Second, as we focus on expanding and Mark talked about what we're doing relative to that, we have added head count in the real estate theme our legal team, structure finance team and technical service team.

So that's a factor, but that comes with, growth and some travel costs.

I think these factors would continue and I think on the positive, you'll see over time more expansion and organic growth from the business.

Okay.

Thank you.

Your next question is from Chris Woronka, Deutsche Bank.

I just want to ask you if you're sensing any change in any of the incentives that you might be talking to developers about, if there's any changes in the financing environment that maybe make it easier for you to get deals done right now or just whether you're changing any of your strategies there?

Thanks.

Thanks, Chris.

We have for some time now been focused on how we can apply capital to try to prompt development.

So, I would say that the initiatives that we've undertaken that we've been working on are still being applied, which is to see how we can participate financially in getting development projects under way.

I'm now talking about the United States principally, and I would say that the pace and number of opportunities that we're seeing has absolutely increased.

We're much more active than we were a quarter ago.

A quarter ago we were more active than a quarter before that.

So, I really would say that the form of our participation has been varied already.

We've done preferred equity.

We've done made loans.

We've contributed key money.

We've also committed equity to projects.

So, we're already utilized a number of different avenues to actually get abreast of opportunities because that is he way in which they were presented.

So we will continue to remain flexible because the market does change and has changed.

I would not say that the construction lending market has changed materially.

You know, we've had to get creative about how we can actually support and participate in some projects in order to get them going by virtue of the fact that construction financing is still hard fought.

We're benefited by the fact that we work with really world class developers who got great reputations and so forth, so I think we enjoy through them and sometimes directly the benefits of having very good access to capital, but generally speaking the construction lending market hasn't moved positively in a material way.

So, that's how we've applied ourselves and how we continue to.

Your next question is from Mark Strawn, Morgan Stanley.

Question on your Select Service performance.

Looks like the RevPAR gains have been occupancy driven over the last couple quarters.

Are you starting to see increased pricing power in that segment?

How should we expect that to trend going forward?

We, actually happy to report, Mark that if you look at the disclosure in the earnings release that we put out, you'll see both in the owned and leased hotel section that we are realizing increases in ADR as well as occupancy growth.

So, we absolutely are seeing rate relief and as we continue to build the occupancy base that I described earlier when I was talking about select service, we believe that that'll continue to be an area of focus for us and something that we should be able to realize.

But if you look at the first quarter in particular, in the exhibits to the earnings release, you'll see that we've posted some good ADR increases so far.

Great.

Thanks.

As you move into the stronger periods occupancy wise, you think there's still room to grow the occupancy base in that segment as well?

I think the fact is that we've evolved the occupancy side through the strategies that I described earlier, that is both mid-week and weekend based business for Select Service and I think that mix-wise, my guess is that we'll see some additional ramp up for new properties that have opened in the past 12 to 24 months.

So, I would say that there are opportunities for increases in occupancy mostly by virtue of coming into those markets.

But mix-wise for comparable properties, my guess is that the kinds of rate increases versus occupancy increases that we saw in the first quarter will continue.

Great.

Thank you very much.

Your next question is from Bill Crow, Raymond James.

Also on the limited select service side.

Can you talk about where the RevPAR index is for your couple of brands there where it was a year ago or two years ago, any thoughts about who you might be gaining market share from?

And then just as a follow-up, I think to paraphrase the prepared remarks, you discussed that starting the fourth quarter RevPAR growth should start to gradually improve across the portfolio.

I think that was owned and leases portfolio.

Does this imply we expect similar growth rates in Q2 and 3 that we saw in the first quarter?

I'll take the first question regarding the select service evolution and RevPAR.

So, we have a real significant sort of fundamental change in the positioning of Hyatt Place and Hyatt Summerfield Suites from the time we launched those brands.

We fundamentally looked at a different competitive set actually, so we had old statistics dating back relative to a very different competitive set.

We just included very different brands when we launched the brands relative to where the properties were positioned previously.

So I can't give you any meaningful comparatives because frankly, you're dealing with apples and appears.

Secondly, philosophically, we actually don't really focus on time and attention on trying to aggregate market share statistics because really the relevance of market share is in a market by market basis, so what we focus on is how individual properties are performing in their respective competitive sets within their respective markets.

I wouldn't direct you to really focus any attention on chain-wide or brand-wide kind of market share statistics because we really don't see that that's meaningful.

What we really focus on is on breadth.

That is how many of our properties and their respective markets are actually gaining share and what do those increments look like and why?

We break it down and stay very focused on weekday versus weekend share and a lot of what we focused on, as I mentioned earlier, has been to expand mid-week share while continuing to maintain our share on the weekends.

So, essentially what we do when we sit down each quarter is we lack at how we're progressing and we look at the breadth and look at property basis.

I'm not going to really direct you to any chain or brand-wide statistics.

Bill, regarding your second question, which I think you're really trying to understand the positive impact that we expect once the properties that are being renovated when they come back into service, I'd say the positive impact of our renovation was driven largely by two factors.

There is a market factor or market effect which is largely going to be positive in our view, and that is largely because our properties under renovations are located in good markets and key gateway cities.

As we're seen over the past few quarters, these markets namely San Francisco, New York as an example continue to grow.

And then the reduction in supply, in short, we believe will drive demand especially for newly renovated property like ours.

The second factor is what I describe as the renovation factor which has a direct impact given the renovations.

That essentially that we believe our newly renovated hotels, the newer restaurants, newer rooms.

We expect to gain market share in the relative competitive set.

Our past experience indicates strong returns for renovation projects, which essentially we believe will drive higher RevPAR index, and we are confident we'll be able to grow that.

In terms of the specific question relative to the quarters it's difficult to predict and explain by property.

Again, as we get closer to when these properties come back into service, we'll be in a position to give you specifics.

We think over time, there's positive impact of these renovation.

In fact, all these renovations beginning probably towards the latter end of quarter three and continuing forward from them.

We'll take the next question, please?

The next question is from Shaun Kelley with Banc of America.

Just wanted to ask a little bit more.

I think if I caught it right in the prepared remarks, you talked about your group revenues in the quarter actually outpacing transient.

That seems to be a little different than what we've heard from a number of the other hotel operators.

So wondering, I guess, first off if there's anything specific in terms of specific markets or hotels that might be driving that, and then secondarily, I think bigger picture looked like rate and occupancy was about 50-50 in terms of your mix and RevPAR this quarter.

Just wondering if you think that rate can continue to be at least half the balance for you going forward?

Thanks.

In terms of, Shaun, relative to the group business, our group business continues to recover, and we actually are fairly optimistic about the future group revenue, you are right for the quarter was strong.

It grew 11%.

Largely driven by corporate and associations, which were fairly strong for the quarter.

They were mitigated to the extent of the government business which is slightly softer.

Pace for the year continues to improve at the end of March with a little over 2% and, we now have approximately a little over 80% of the business booked for 2011.

You know that number was close to 70%, last quarter.

And the business we'll be booking for 2012 on the group side, we believe, is being booked at rates and the group business for the year in 2011.

So, we think that the trajectory of growth in the country, and you're right, relative to your second question on rates and the occupancy mix, the occupancy mix was more 50-50.

We expect that as the hotels fill up and occupancy tends to climb, given the fact that we've just completed our rate negotiation on the corporate side and I mentioned earlier we negotiated rates in the mid to high single digits, that should have a positive impact on rates over time.

So, our expectation is that rates would be major contributor and RevPAR growth in the future period.

Your next question comes from Patrick Scholes, FBR Capital Markets.

Good morning.

Could you just give us a little more color on how your hotels in New York city performed in 1Q as well as your expectations for New York city in 2Q and 3Q?

Thank you.

Well, let me just comment on the first quarter and say that weather was a big factor in New York in the first quarter.

Overall, the market was not nearly as strong as I think a lot of people expected.

And that is consistent with what we saw.

We obviously have been very dedicated to and focused on our renovation activity at the Grand Hyatt New York.

So, I think the fact is that the overall market was somewhat negatively impacted again by virtue of weather.

We've got two Andaz properties in New York.

We have three total properties in New York.

The two Andaz properties, one of them opened in the first quarter of 2010.

The other one opened during the summer of 2010.

So, those properties are still ramping up.

We don't really have good comparable information there.

That's what we saw in the first quarter.

Okay.

Thank you.

As far as expectations for 2Q and 3Q, are things booking, picking up versus 1Q?

Stay tuned.

We'll talk more about that in the next call.

Okay.

We'll take the next question, please.

Your next question comes from Smedes Rose, KBW.

I just want to go back to an earlier remark you made on working with developers to help expand your presence.

And I guess particularly more on the limited service side.

When you look at your pipeline now, can you give sort of a percentage of the rooms that you're sort of involved with either through med financing or preferred equity or some of the other sources you mentioned?

I don't have a specific for you as a proportion of rooms and so forth, but what I would say is that many of the projects that we have signed off over the last year or so have involved some form of support from us.

And so, I don't think it's exhaustively every one of them, but quite a few of them.

We also I had mentioned a couple of times that we view our investment in our existing flex service properties.

We have more than 50 of them in our own portfolio as really potential source of capital in the sense that we really think that we may be able to use some of those properties to help prompt capital formation at a time when it's still difficult to get a construction financing.

So, we continue to look at a wide variety of types of opportunities.

We've been very flexible with how we applied ourselves.

I think the white lodging joint venture in Austin is another example of that.

And so we will continue to look at providing capital.

We kind of view this as really applying really good money after really good money.

In other words, we really see and can show to ourselves and others that the progress of the brands is unambiguous and we are investing behind further expansion of those brands so we really feel confident about the investment behind the brands.

I think the fact is that at a time when there is a shortage of construction financing, this is an appropriate time for to us step up and provide some capital.

Again, we view it as providing good money after good money.

And so, we will continue to focus on those kinds of projects, and of course we look back over the past year or actually more like two years, when you look at the projects invested in, they have fall noon the targeted areas that we established and that we talked about before.

One, is Gateway city properties.

The second is group properties.

The Hyatt Regency New Orleans is the most recent example of supporting that and we're obviously putting money into some existing group-oriented properties like Hyatt Regency Atlanta through the renovation there.

The third is resorts and the fourth is select service.

Those are the four areas that we continue to remain focused on.

After the select service in particular, very much view of providing capital to get development under way is an important factor in supporting growth going forward.

Smedes, we have said in the past that about one-quarter of our executed contract base represents our projects that we have some type of participation in.

That's what we said in the past.

We don't have an updated number.

That gives you a ballpark.

Thank you.

Thank you.

We'll take the next question, please.

The next question is from Joshua Attie with Citi.

The 19 million class B shares registered earlier this year are obviously a big overhang.

As more stock unlocks over the next several years, is there any thought being given to putting an organized or regular sale program in place just to give public investors some visibility and some comfort that their value will be protected as insiders sell down?

Let me just provide an update on that subject.

We indicated on the last call that we received registration requests and we did, in fact, file a shelf registration statement on February 25 on behalf of certain Pritzker family stockholders for 19.4 million shares.

That's what Josh just referred to.

We're not really able to comment on the Pritzker family stockholders contentions with respect to their shares.

And so, I don't have a further update.

What I would say is that it's really their decision because it's their shares that are now registered and the profile of shares that are able to be registered in the future is available if you look through our 10K, but we would plan to notify all shareholders of any developments requiring disclosure by way of public filing or announcement.

So, that's what we can tell you at this point.

Okay.

Thanks.

A question on the renovation disruption.

Guidance for the amount of lost EBITDA went up, is that a function of the markets doing better and therefore had those hotels been open they would have earned more or that because some of the work you're doing is more disruptive than you thought it would be?

It's a very good question, and the quick answer for that is we act waited the renovations into quarter two.

Quarter two is a strong quarter for us.

Like most of North America, that's from a seasonality perspective it was a strong quarter.

Because we're taking more rooms and taking approximately 20 more rooms, 20% more rooms out in quarter two relative to quarter one, that's causing the slight increase in both RevPAR and EBITDA projections through the end of quarter three.

Okay.

Thanks.

And just one more question.

Harmit, I think you said in your prepared remarks, that there was a termination fee in the first quarter.

Can you just quantify that and tell us where it was on the P&L?

Yes.

The termination fee was in the incentive fee line in the P&L.

It was largely a hotel outside North America that we terminated and the impact that is under $2 million.

Great.

Thank you very much.

Great.

We'll take the next question, please.

The next question is from Harry Curtis, Nomura.

Good morning.

In your last earnings call, you mentioned that during the latter part of this year you're going to begin renovation as the a few additional hotels.

I wonder if you could discuss the extensiveness of that, how many you're likely to undertake in the next phase and what sort of EBITDA impact that's going to have over some expected period of time?

Thanks.

Thanks, Harry.

The answer is that we do have some other projects planned for the year.

They will probably begin during the course of the year.

They're not all sort of weighted into the very end of the year.

They are full renovations for in most cases, it's slightly different by property, so I'm not going to try to go through the list and try to decipher for new which properties we're doing public space, but generally speaking we're talking about room renovations and some space in a couple of cases.

The answer is that we have not really provided any specific estimates around disruption because we don't expect there to be significant material disruption.

We're going to try to plan it and time it such that we minimize such in any event.

So that's really -- that is how we're planning to do it.

It'll be, as I said, over the course of the year, as opposed to very focused and concentrated in one particular time period.

It's about four or five properties in total, and yes, we would characterize them as more typical of the renovations that we conduct from year to year as opposed to the five-owned hotels that are slightly different because of their scope that we call that separately.

So, no meaningful EBITDA impact then?

Right.

Yes.

Okay.

Perfect.

Thank you.

Thank you.

We'll take the next question, please.

The next question is from Chris Agnew, MKM partners.

Thank you very much.

Good morning.

Given your comments on the tough development financing environment and how actively are you pursuing conversions?

How would you describe the opportunities there and do you see that changing?

Thanks.

Sure.

The answer is we continue to pursue conversion opportunities.

The conversion opportunities inherently by their nature are opportunistic.

We talked earlier about the conversion of the Hyatt Place in Waikiki.

We also opened a conversion hotel in first quarter in Tulsa.

And I also talked about a conversion in the Maldives.

So we've obviously had conversion activity across our brands and across our regions.

It is, they can be really wonderful opportunities to quickly gain presence because in the case where you got development cycles that can last, can be three to four years of development time from inception to breaking ground to opening a hotel.

The ability to get into a market where you can convert a hotel is great.

The issue there is often times you're dealing with a variety of tradeoffs and those compromises is really what you have to actively manage in terms of what brand representation.

And also just how we actually participate in a given market.

I would say that the activity basis is higher than we have seen if before, than it was say, a quarter ago or prior to that time.

The opportunities themselves remain very opportunistic and therefore they are somewhat hard to predict in terms of how many we may be able to execute over the course of a given year for example.

Hopefully that gives you a little bit of color.

Thank you very much.

We are at the top of the hour, so we will conclude at this time.

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

Thank you very much.

Ladies and gentleman, we thank you for your participation in today's conference.

This concludes the presentation and you may now disconnect.

Have a good day.