Hyatt Hotels Corp (H) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q3 2011 Hyatt Hotels Corporation earnings conference call.

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

(Operator Instructions).

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

I would now like to turn your presentation over to your host for today, Mr.

Atish Shah, Senior Vice President of Investor Relations.

Please proceed, sir.

Thank you, Chanae.

Good morning everyone and thank you for joining us for Hyatt's third 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.

During this call Mark and Harmit are each going to make remarks about our results for the third quarter and progress made towards creating long-term value.

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 considered forward-looking statements.

These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, our quarterly reports on Form 10-Q and other SEC filings 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, November 2, 2011, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at Hyatt.com under the financial information section of our investor relations link and in this morning's earnings release.

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

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

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

Thanks, Atish.

Good morning, and thank you for joining us.

During the third quarter, we saw a continued increase in business levels compared to the third quarter of last year.

Despite disruptions to our business due to renovations at several owned hotels and lower demand in Japan and certain parts of the Middle East, RevPAR increased almost 6% on a worldwide basis, excluding the impact of currency.

For the Company overall, our adjusted EBITDA grew over 20%.

Our earnings growth over time is driven by performance in our existing hotels and growth in the number of hotels under our brands.

And we've made strong progress on both fronts this quarter.

As to existing hotels, financial results improved over last year as a result of RevPAR growth in a large number of the markets in which we do business, a 350 basis point increase in operating margins at our comparable, owned and leased hotels, and strong flow-through to operating profit.

Our focus on efficient operations in our hotels has remained at a heightened level in part due to the continuing uncertainty as to the level of corporate and consumer confidence and the potential impact that that may be have on demand in the future.

Our management and franchise fees are higher both because of higher revenue earnings at existing hotels as well as the addition of newly acquired or opened hotels.

During the quarter, we welcomed 26 hotels to our portfolio, including 19 that were part of the LodgeWorks transaction.

We added two properties in the greater New York area, Hyatt 48th and Lex, in midtown Manhattan, and Hyatt Place Long Island, in Riverhead, New York.

We also opened four Hyatt Regency hotels and one Grand Hyatt hotel during the quarter -- two in China, two in India, and one was a conversion to a Hyatt Regency in Dar es Salaam, in Tanzania.

We also announced a number of exciting new projects around the world, including a Grand Hyatt located in the Bahamas, a Park Hyatt in Vienna, Austria, and both a Hyatt and Hyatt Regency in Vladivostok, Russia.

Each of these is a new market for us.

Overall, as of the end the third quarter, our signed contract base for future hotels exceeded 150, representing more than 336,000 rooms, which is a small increase from last quarter and net of the openings I noted above.

After the end of the quarter, we announced several important openings.

We opened Hyatt Regency New Orleans, a fully redeveloped 1,200 room hotel.

Many of you may be familiar with the story of this hotel that was devastated by Hurricane Katrina.

In the aftermath of the hurricane, the hotel served as the base of operations for the City of New Orleans and for FEMA.

Today, it's a symbol of the future prospects for New Orleans.

The road to reopening was long and I'm very proud of our team there, especially our general manager, Michael Smith, who served at the hotel during the hurricane and is leading the property into the future at this time.

Without the dedication and passion of Michael and his team, and that of our partners in the property, the hotel would not be where it is today.

The hotel has been transformed.

It's off to a great start, and we feel very good about our investment in the property.

We also opened the 307-room Andaz Shanghai in the dynamic Xintiandi neighborhood, our first Andaz hotel in the Asia Pacific region.

I've just came back from Shanghai and I believe the hotel is a great introduction of the brand to Asia as well as an exciting alternative for travelers to Shanghai.

And we just opened the 306 room Park Hyatt Abu Dhabi, a fantastic, beach front luxury hotel, in an important global market, another new market for us, just in time for the Formula One race this month in Abu Dhabi.

In addition to our progress in operations and new developments, I'd like to provide an update on three items that are important to us as we create long-term value for share holders.

The first is the closing of the LodgeWorks transaction and progress made to date.

The second is the launch of our Hyatt House Brand.

And third, the current status of the renovations at five owned hotels that have been underway for approximately a year.

First, the LodgeWorks portfolio, on which we closed in the third quarter, includes 19 hotels that we acquired with one additional closing in the fourth quarter.

As a part of the LodgeWorks transaction, we acquired franchise and management rights for these hotels as well as for an additional four hotels that will continue to be owned by LodgeWorks.

Of these four additional hotels, two joined our portfolio in the third quarter, one in the fourth quarter, and one, which is still under construction, is expected to join in the first half of 2012.

While it's only been two months since we closed on the transaction, the transition of these properties into Hyatt went smoothly and performance has been in line with our expectations.

We are encouraged by levels of corporate business booked at these properties as a result of inclusion within Hyatt, and incremental Gold Passport penetration at the acquired hotels.

We expect the properties to do even better, once the re-branding effort is complete.

In connection with the transaction, several key people from LodgeWorks joined the Hyatt family and we're very excited about their ability to help create more development opportunities for our brands.

Overall we're very pleased with the financial performance to date, and the impact on our brands, but most importantly we're thrilled to welcome the talented and experienced professionals from LodgeWorks who will further enhance our activities in this area.

Now on to the launch of Hyatt House.

During the quarter, we unveiled Hyatt House, a completely new take on the extended stay experience.

We spent more than nine months doing primary customer research and talking to our guests, corporate customers, owners and developers and then committed to a new direction for our extended stay brand presence.

Our completion of the LodgeWorks transaction significantly accelerates our expansion plans.

The new concept features unique design and service elements intended to create a social and contemporary residential environment.

The name Hyatt House is of historical significance to us, as it was the name of the first Hyatt hotel that opened over 54 years ago.

We plan to rebrand the entire portfolio of Hyatt Summerfield Suites as well as the extended stay hotels that we recently acquired from LodgeWorks to the new Hyatt House brand.

The conversion costs for owners are expected to be less than $1 million per hotel, which will be phased in over time.

In some cases, we will accomplish the conversions concurrently with major renovations as is the case for the three extended stay hotels in California, formerly known as Woodfin Suites, that we acquired last May.

The costs to renovate and transform these properties to Hyatt House is consistent with our prior estimate for renovation costs.

For our owned Hyatt Summerfield Suites and Sierra Hotels, we expect to convert the hotels to the Hyatt House brand over the course of the next 12 to 18 months.

In addition, we've made strides in launching Hyatt House in international markets.

In India we have several extended stay properties under development, which we will open as Hyatt House hotels.

In China we recently announced a Hyatt House development in Shanghai which is scheduled to open in 2014.

We expect a Hyatt Place to open in Shanghai in 2014 as well, making that city the launch pad for our select service platform in China.

We expect to have all Hyatt Lodging brands represented throughout China and India.

During my visit to China last month, it was clear to me that there's great enthusiasm and significant potential for our select service brands there.

With a growing number of domestic affluent travelers and the increasing importance of new urban centers there's a large and growing market for these hotels.

I recently attended an owners' advisory committee with owners and developers of our select-service brands and the reaction to Hyatt House is very positive.

We've benefited from extensive input and advice from these owners over the years and we're very fortunate to have some of the very best developers in the industry as supporters.

We've also received feedback since the launch of Hyatt House from large select service developers with only limited extended stay presence who said that they are interested in working with us to develop Hyatt House properties.

We feel very good about the prospects for developing more Hyatt House properties with them in the future.

Our approach to new brand development is working well, for Hyatt Place, Andaz, and Hyatt House, we designed new guest experiences powered our associates and we created purpose-suited product features all based on extensive customer research and input from developers and owners.

We followed that with a commitment of our own capital to launch these brands.

One of the key reasons we have a commitment from third party developers is that we're putting our money where our mouth is.

Based on the ramp up that we see in Hyatt Place and Andaz properties, and the reaction from our guests and from developers, we're confident that Hyatt House has a great future.

In short, I believe Hyatt House, in combination with the former LodgeWorks platform and resources, is a great opportunity for the Company, and one that positions us well for the next wave of hotel development in the US and the growing demand for extended stay markets in international markets.

The third point, relating to long-term value creation, that I noted is the renovations in progress at five of our owned hotels.

The projects are mostly complete and tracking on time and on budget.

Guest feedback and meeting planner response has been extremely positive.

While it's still early days, we're starting to see the benefits of these renovations, as hotels are starting to see RevPAR index growth, higher levels of interest among meeting planners, and indications that the renovated hotels will be even more appealing to transient and group guests for 2012 and beyond.

Overall, most of our rooms are back in service, with the exception of those at the Hyatt Regency Atlanta, which we expect to complete by early next year, as originally planned.

From a revenue displacement perspective, because we had rooms out of service in the fourth quarter of last year, we do not expect to see any additional negative impact from displacement on a year over year comparative basis going forward.

Some of the other properties in this group of five still have public, meeting, and restaurant space that's being renovated and re-concepted, but, again, we don't expect a net negative impact from this going forward.

Before I conclude, I would like to quickly provide some thoughts on the future.

We continue to be mindful of mixed macroeconomic signals in the market, volatile financial markets, and other macro areas of focus and concern, including the European sovereign debt crisis and the difficult work of the super committee in Washington, DC.

To date, these factors have not had a significant impact on the US lodging industry's top-line performance.

Visibility to the future continues to be limited as booking windows continue to be tight.

About one-third of our group business and virtually all of our transient business for 2012 has yet to book.

Corporate rate negotiations have just begun.

And while we hope for high single digit percentage rate increases because of relatively high levels of industry occupancy and continuing limited new hotel supply growth, the fact is that visibility is limited.

In this environment, we continue our focus on operational excellence and efficiency while remaining committed to serving the needs of our guests.

We are in a very strong position, and continue to thoughtfully manage through the current environment.

Maintaining a strong balance sheet and liquidity position remains a priority for us.

Our brands are performing well, and the focus on our associates is yielding great results, both in established markets as well as in new markets in which we are opening hotels for the first time.

We continue remain optimistic about the long-term future for the Company.

Limited levels of new supply growth in North American should support higher average rates in the years ahead, even with modest real GDP growth in the United States.

Our executed contract base is strong, with high quality development partners and financially strong owners.

This base of new hotels represents meaningful expansion potential into new markets particularly given the size and span of our existing portfolio.

Our asset profile, diverse business model and geographic mix should help us continue to create long term shareholder value.

With that, I'll turn it over to Harmit to take us through the business results and provide some additional color on the quarter.

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

I will be discussing our performance in the third quarter and information on full year 2011.

In the third quarter, adjusted EBITDA was $135 million, an increase of over 20% as compared to last year, and almost 50% higher when compared to third quarter 2009.

The significant increase was a result of strong performance at owned hotels and an increase in fees earned from managed and franchised hotels.

Our performance during the quarter benefited from the timing of the Jewish holidays as compared to last year as well as the recent acquisition of hotels from LodgeWorks.

Earnings per share for the quarter, adjusted for special items, also grew over 150% as a result of the increase to adjusted EBITDA and certain items representing approximately $0.03 per share that favorably impacted our effective tax rate.

Also to clarify, changes in value of the Rabbi Trust securities have no impact on our adjusted EBITDA and earnings per share.

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

Let me begin with our owned and leased hotel segment.

Excluding the impact of currency, RevPAR for our comparable owned and leased hotels grew by almost 7% in the third quarter.

Results were negatively impacted by the displacement of revenue due to renovations which amounted to over 250 basis points of RevPAR.

RevPAR growth was driven approximately 40% by rate gains and approximately 60% by the increase in occupancy.

Operating margins of comparably owned and leased hotels increased by 350 basis points in the third quarter.

Over 200 of the 350 basis points was due to strong flow through.

We efficiently managed our cost per occupied room despite high levels of demand relative to recent past third quarter periods.

About 100 basis points of the margin improvement was due to nonoperating items such as property tax refunds.

Owned and leased adjusted EBITDA increased by over 26% during the quarter, representing an increase of over $20 million as compared to last year.

The primary reason for the increase was stronger levels of performance across the owned and leased portfolio, with higher RevPAR, more F&B revenues, and higher margins on both the rooms and food and the beverage side.

The displacement due to renovations adversely impacted owned and leased adjusted EBITDA by an estimated $5 million while changes in our owned and leased portfolio resulted in a net benefit of approximately $2 million during the quarter.

Specifically, the hotels that we added since last year, such as the hotels from LodgeWorks, the extended stay properties in California that we acquired, and the Andaz Fifth Avenue, which is ramping up since opening last summer, more than offset adjusted EBITDA of hotels that we sold.

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

Third quarter comparable RevPAR for full-service hotels increased over 7%.

As I mentioned, the timing of the Jewish holidays as compared to last year had a slight positive impact to RevPAR results.

On the group side, our full-service hotels experienced roughly flat group revenues, with higher rates offsetting slightly lower volume.

Major renovations at our large owned hotels negatively impacted group revenues in the quarter.

We continued to shift the mix of our corporate -- of our customer base to a higher rated business.

This means more revenue from corporate and association group during the quarter and less specialty and other group business which is typically lower rated.

This shift in mix also had a positive impact on our food and beverage results at our hotels.

In terms of booking activity during the quarter, group revenue booked in the quarter, for the quarter, was up about 15% as compared with the third quarter of last year.

Group revenue booked in the quarter for the year was also strong, up about 10% as compared to the third quarter of last year.

As for transient business in the quarter, revenues increased 12% compared to the third quarter of last year.

This increase was split about two thirds due to demand and a third to due to rate gains.

We continued to shift more business away from lower discount, promotional, and opaque third party rates to higher rack and corporate negotiated rates.

As we did last quarter, we continue to see an increase in food and beverage revenues and ancillary revenues, on a per-occupied room basis, at North American full service hotels.

Specifically, all three measures, outlet revenue per transient room night, banquet revenue per group room night, and other operating revenue per occupied increased.

Banquet revenues in particular increased in excess of 7% on a per group room night basis, as compared to last year.

This is a result of a mix shift to higher rated group business as mentioned earlier.

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

Comparable RevPAR at our select service hotels increased almost 9% in the third quarter of 2011 compared with the third quarter of 2010.

This was impressive as it comes on top of high levels of RevPAR growth of over 9% in the third quarter of 2010.

This was primarily driven by occupancy, but efforts to increase corporate rates resulted in approximately 3% rate growth.

Overall, fee income for North American management and franchising operations increased 8% with about half of this increase driven by increased fees from existing hotels and the other half due to increased fees from new or ramping hotels.

Let's now turn to our international business.

In this segment, RevPAR increased over 3% in the quarter excluding the impact of currency.

RevPAR growth was negatively impacted by declines in Japan and North Africa.

Also as expected, RevPAR results from China were muted by the difficult comparison as a result of the 2010 World Expo in Shanghai.

International RevPAR growth, if we were to exclude Japan, North Africa and Shanghai, would have been approximately 10% excluding the impact of currency.

Over a two year period, international RevPAR, excluding the impact of currency, increased nearly 20%.

Overall, international fees increased almost 4% in the third quarter of 2011 excluding the impact of currency.

Our third quarter comparison was difficult due to the impact of the World Expo and by the events in Japan and North Africa.

Excluding these impacts, our international fees were up 10%.

I would like to take the opportunity to frame our business results versus those results in 2007.

Our portfolio mix has changed over the last few years so the comparison is approximate, but we believe helpful.

For the first nine months of this year, occupancy levels for our full-service managed hotels in North America are roughly the same as those in the first nine months of 2007.

Average rates though are still off by almost 10% as compared to 2007.

On the group side, both occupancy and rates are still behind 2007 levels while on the transient side occupancy is slightly above 2007 levels, but rates are still off.

Outside North America with occupancy and average rates during the first nine months 2011 were less than 5% behind those during the first nine months of 2007.

Therefore, across regions and segments, there remains a significant runway to return to peak levels.

Now that I've talked about our segment results, I would like to talk to you about four other topics -- our balance sheet, SG&A expenses, tax expenses, and 2011 information.

During the quarter, we took actions to strengthen our balance sheet by issuing $500 million of senior notes at attractive five and ten year rates.

At a time of market uncertainty, we were able to execute well and lock in low pricing on capital that we expect to put to work to generate strong returns for our share holders over the long-term.

During the quarter, we also amended and restated our revolving credit facility.

We increased the size to $1.5 billion, extended the maturity date to 2016, and secured more favorable terms, a good trifecta.

Again, our view was to access the capital markets such that we are poised to take advantage of opportunities in the months and years ahead.

As of September 30, we had cash, cash equivalents, and investments of approximately $1.2 billion.

We also had access to our credit facility for another approximate $1.4 billion at the end of the quarter.

Our adjusted SG&A expenses increased approximately 15% in the quarter.

Approximately a third of this increase is due to bad debt expense and performance-fueled charges related to two properties, a third due to increased head count driven by our growth initiatives and a third due to inflation and increased business levels.

Next I want to discuss our effective tax rate.

We reported a third quarter negative effective tax rate that resulted in a benefit of approximately $5 million primarily from discrete items.

This represents about $0.03 per share.

Recall that we calculate our effective tax rate based on full year forecasted rates and that in accordance with accounting rules certain tax adjustments must be treated as discrete items which affect only the quarterly tax rate.

Our full year forecasted tax rate percentage is currently in the mid-20% range excluding discrete items.

As for 2011 information, we have updated this information to reflect transactions completed in the quarter.

We have fine tuned our capital expenditure estimated to between $390 million and $400 million.

Our expectation on depreciation and amortization expense has increased to approximately $300 million primarily due to the LodgeWorks transaction.

Our estimate for interest expense has increased to approximately $60 million primarily as a result of our recent debt issuance.

Inclusive of the acquisitions completed in 2011, we have already added 32 properties to the portfolio, as at the end of the third quarter.

We expect to open several additional hotels in the fourth quarter and end the year with over 35 hotels added in 2011.

In summary, during the third quarter, we saw successful execution of the LodgeWorks transaction, and a $500 million debt issuance.

Higher levels of demand and stronger rates at hotels in North America despite the tail end of rooms displaced due to renovations.

Strong margin growth at owned properties, continued expansion of our presence around the world with new hotels added in China, India, Tanzania, and the US.

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

Okay, thank you Harmit.

That concludes our prepared remarks for this morning.

For our Q&A session, please limit yourselves to one or two questions at a time, and we will take follow up questions as time permits.

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

Chanae, may we please have the first question?

Your first question comes from the line of Janet Brashear with Sanford Bernstein.

Please proceed.

Thank you.

Harmit, the question's for you.

On SG&A, you said that a third of the increase had to do with head count.

I'm wondering if you can tell me, does that include the new LodgeWorks executives?

And then also what is your target for SG&A and for overall operating margin?

Thank you.

Sure, Janet, you're right, a third of the SG&A increase was driven by head count, and that headcount does include the associates that have come on board from LodgeWorks.

Our SG&A, if you exclude the one time, I would describe the bad debt expense and performance cures as really onetime events, is running at approximately a little over 8% on a year to date basis.

And it's really driven by two factors.

It's driven by the fact that we've added heads, which are really growth related, so we've added folks in the real estate team, in legal, and financial support to grow from that perspective.

The associates we have brought on board from LodgeWorks.

The rest is largely I would say inflation related and it's really driven by wage inflation, merit increase and benefit costs, as well as costs related to incremental business activity.

We're mindful of ensuring, like we do on the owned hotels expenses, ensuring that we drive productivity across our overhead base and we're looking at how to simplify processes, eliminate duplication, and basically be nimble so that in the event demand levels change, we're able to minimize costs at any point of time.

Thanks, Janet, we'll take our next question, please.

Your next question comes from the line of Josh Attie with Citi.

Hi, thanks.

Could you update us on the Park Hyatt New York's development project, in terms of the cost and the timing versus budget?

Sure, Josh, it's Mark, good morning.

By way of reminder, the transaction for the Park Hyatt New York is a defined price for the hotel to be delivered by the developer.

And we are a joint venture participant with the developer in the take out, so we expect to close on that basis upon completion of the hotel.

There's -- a completion date for the hotel has not been firmly established at this point, but I believe based on construction schedules and so forth we're looking at early 2013 and so far the structural work on site is progressing and progressing well actually.

And separately, can you tell us what's driving the volatility in the marketable securities portfolio quarter to quarter?

Does that portfolio include equity securities?

Sure, Josh, this is Harmit.

Yes, we do have some investments in our equity securities, this represents a small percentage of our total investments on an overall basis.

We are required to mark this to market on a quarterly basis.

What we try and do, if you look at the special items, Josh, we exclude this so that we reflect ongoing earnings from ongoing operations, and directly to your point, it's largely driven by what is happening in the marketplace.

Are any of these strategic investments, or I guess how do you look at that portfolio?

It's basically a small list of strategic investments that over time will whittle down.

Okay, thank you.

We'll take the next question please.

The next question comes from the line of Patrick Scholes with FBR Capital Markets.

Please proceed.

Hi, good morning.

Good morning.

I wasn't quite sure about this in your prepared remarks.

Could you just go over again what, if any, plans you have for larger scale renovations for next year, and how should we think about 2012 CapEx in relation to this year's amount?

And then, I don't think, also, you mentioned what was the margin impact in the third quarter from the renovations that were finishing up?

Thanks.

Steve, hi.

It's Patrick.

Hi, Patrick.

Sorry.

It's all right.

The question, let me address both your questions, first capital for 2012.

We're in the early days for planning of capital for 2012.

We'll definitely provide you a range in February.

The total Cap Ex investment will be lower than what's reflected for 2011 largely because 2011 had the renovations that Mark referenced related to our five big hotels which are largely complete, and the figure broadly was about 40% off the $400 million that you have for 2011.

In terms of large scale renovations for 2012, while we are in the early planning stages we don't expect large scale renovations in our projects.

Our properties are largely fresh from that perspective, we do have some renovations planned for the Woodfin properties; Mark mentioned that.

You have the disclosure relative to that; it's going to be under $20 million, so not a lot.

I think you should just incorporate probably 5% for maintenance which broadly ranges between $70 million and $80 million annually.

Your second question was relative to renovations impact in quarter three.

The renovations impact on margins in quarter three was less than 100 basis points.

Okay, thank you for the color.

Thanks, Pat.

We'll take our next question please.

The next question comes from the line of Carlo Santarelli with Deutsche Bank.

Please proceed.

Hi, guys.

Thanks.

Obviously your margins in the owned segment were very strong both sequentially and year over year.

How much of that do you attribute to the changing mix or maybe some of the renovations, and how much of that do you believe to be sustainable here on a go forward basis?

Hi, Carlo, that's a good question.

Margins in our business, if you reflect what's been happening over the last couple of quarters, continuing increase, as I mentioned earlier, I would say approximately a third of the margins were relative to property refunds.

We do have property refunds.

We've seen some last year, we've seen some this year.

It just happened this quarter, so when you compare quarter over quarter it's a one-time event.

I would say that the rest of it was largely driven by the portfolio.

And it's driven by a couple of factors.

First the margin increase is broad based so it's not a few properties driving it, it's across the board, both North America and international.

Secondly, mix shift, which is trending towards higher rated group and transient business, has driven higher room and food margins.

And we continue, as we've done in the past, to drive productivity through effective cost control.

Our cost per occupied room increase was less than half of the occupancy increase we saw in the quarter.

And margins year to date I think are approximately about 21% during the peak period I would say in the, in 2007, and 2008, our margins tracked in the mid 20%s, so we have significant room to grow.

But the fact that you have to just bear in mind is that our asset base has changed over the years, but we think that we can adjust in case of changes in demand and continue to drive productivity over the long-term.

That's very helpful.

Thank you.

Thank you.

We'll take our next question, please.

Next question comes from the line of Shaun Kelley with BAML.

Please proceed.

Hey, guys, thanks.

Just wanted to actually maybe follow up on that previous question.

So Harmit, as you think about layering in LodgeWorks into the portfolio, sort of the shifting mix, how should we think about the potential for owned and leased margins?

Is that margin, is that deal going to end up being margin accretive, and going to help you guys out, or is there something in the mix there that we should be a little bit more cautious on as we thinking about margins in the future?

It's early days yet, we just have a month of LodgeWorks results in our business, but I think overall the LodgeWorks transaction should largely help, margins over the long-term, so it should be accretive.

Okay that's helpful.

Secondarily, just you guys have added a lot of hotel capacity in New York City or are in the process of doing so.

New York's got a lot of supply growth elsewhere, so we get a lot of questions on kind of the outlook for New York specifically next year.

And you guys have a mixed bag because you obviously should have a renovated hotel kind opening up and helping you out.

What's your outlook for New York for 2012, and particularly should we expect some -- to be a little bit more cautious in the first quarter because we tend to see some seasonality in the market?

This is Mark.

The dynamics in New York are interesting.

We are quite long on New York, because we think that long-term the prospects are very, very good.

And there's been a lot of discussion about potential new supply or new supply that's coming on line.

The aggregate numbers, as is often the case, are difficult to interpret, so you really have to see what kind of supply, where.

There are a number of different submarkets within New York.

So we're quite bullish on the market long-term.

We have the benefit I think of having really essentially new hotels represented in the marketplace.

We have two new Andaz properties that are a year and a year and a half old, respectively, or a little bit more that maybe.

The Grand Hyatt New York will by the end of this year from a public space and meeting space perspective be fully renovated and essentially fully refreshed.

The Hyatt on 48th and Lex is a brand new hotel that just opened.

The Hyatt Union Square that's opening is also a brand new hotel.

We're going to have really very strong presence with completely refreshed and new product in the market.

And so while we'll likely see some ebbs and flows on a quarter over quarter basis just based on what's happening in general market conditions, we actually feel strongly that our prospects there are very strong and we should be able to actually continue to penetrate the -- our customer base and others traveling to New York by virtue of what we're offering.

So I think our perspective is very positive long-term.

Great.

Thank you very much.

Thanks, Shaun.

We'll take our next question please.

Next question comes from the line of Bill Crow with Raymond James.

Please proceed.

Hi.

Good morning.

Two quick questions for you.

First of all, any commentary of what's going on in Europe, and we heard from a peer that Europe is starting to weaken.

The second question is whether you are seeing any change in the length of stay at your extended stay properties.

Oftentimes that can be a harbinger of future economic change.

Thanks.

Let me take the question in Europe.

Our quarter three RevPAR growth in Europe was in the mid single digit, so slightly higher then what we have seen in International business.

We've seen really no change, seen similar trends continue into recent weeks.

Just so that I can provide you some color on our presence in Europe, overall, our presence in Europe is small.

If you look at our total room base, we have 5% of our room base invested in Europe.

And our presence in Europe is largely concentrated in Germany, France, and in a few markets in the UK.

We don't have, for example, a hotel in Spain, so over time, you'll see us expanding our presence.

We'll probably apply some capital given the credit environment in Europe over the long-term.

With respect to the length of stay question, I don't know specifically, but I don't believe there's been a significant change in length of stay.

Okay, thank you.

Thanks Bill.

We'll take our next question, please.

Next question comes from the line of Steve Kent, with Goldman Sachs.

Please proceed.

Hi, could you just talk a little bit more about your views on repurchasing more shares as another lockup is going to start to expire soon, and how you're balancing the idea of liquidity for stock buyers versus the desire to buy back shares when they come out.

Good morning, Steve, it's Mark.

The answer is that we don't have a program or a plan.

The stock repurchase that we effectuated earlier this year was really a unique opportunity and so we would really have to assess that over time, but really not -- nothing on the planning horizon for stock repurchases at this point.

Okay.

Thanks, we'll take our next question, please.

Next question comes from the line of Harry Curtis with Nomura.

Thank you.

Good morning, just following up on that question, so you've got a reasonable amount of liquidity on your balance sheet now, you'll add another $200 million to $300 million next year.

If you don't have any plans -- official plans for share repurchase over the next 12 months, can you give us a sense of kind of your shopping list of what you'd like to do with the liquidity that you do have?

Sure, good morning, Harry, it's Mark.

A couple things.

One is, we obviously have commitments to developments that we've already talked about in New York, Wailea and some others, so we're -- we will be deploying capital in those opportunities.

Our focus remains very much the same as it has been which is really focusing on enhancing our presence in the places where we really need it the most.

For us, at least, there are a lot of those.

So the shopping list as you just described it really relates to where we can make the biggest difference in terms of expanding where we are serving Hyatt guests that are traveling to places where we don't have a significant presence.

As you can see from the LodgeWorks experience, good opportunities can come with some scale.

We are looking at both -- have, continued to, and will continue to look at opportunities both on the brand side as well as on the real estate side, the real estate side obviously being focused exclusively on conversion of properties to Hyatt brands.

And for that, as I said before, that can take significant capital from time to time.

It is true that we got a recycling strategy in place with respect to our existing properties.

We are really essentially -- we have obviously great diversity of property types and geographies and a really good collection of assets both on the full service and select service side.

We're always monitoring the market, even though we're not actively marketing properties with brokers at this time, we're always paying attention to what the dynamics are and what the interests are in different parts of our portfolio because no matter where we happen to be in the cycle, there will be -- likely be opportunities from time to time to execute on sales, so we will also be paying attention to the sales side, not just the buy side.

So specifically as a follow-up, do you feel that you're pretty well represented both in cities and by brands in the US?

Are you more interested in enhancing your presence internationally?

We have, there are examples of major cities in the US where we don't believe we have got sufficient representation at this point.

When you look at large cities like Miami and Los Angeles, for example, we have relatively limited presence in large cities along those lines.

And if you look at it by segment, there are a number of cities in which we would like to expand our convention presence.

We've talked about a number of them before.

And internationally, Harmit mentioned this, we've got really a significant number of markets that are open from a Hyatt brand perspective in Europe.

And so while we've got very strong -- well, we've got very strong representation in some key gateway cities there now, we lack, completely lack representation in others.

So those are the, that's the primary hit list that we have been and we will continue to look at.

That's great.

Thank you.

Thank you.

We'll take the next question, please.

And the last question comes from the line of Janet Brashear with Sanford Bernstein.

Please proceed.

Janet?

I don't believe Janet is on the line, Operator.

I am, but my second question got answered earlier.

Thank you.

Oh, okay.

Great.

If there are any more questions at this time operator, we can take them.

Your next question comes from the line of Joe Greff with JPMorgan.

Please proceed.

Good morning, everybody.

Mark, all year long your select service segment has grown RevPAR at a faster pace than the full service segment.

Can you talk about the drivers there, and your expectations going into next year?

Do see that trend continuing?

And then my second question, Harmit, related to your nine month to date comment by segment about the transient rate still being off, nine months to date 2011, versus nine months to date versus 2007.

What's the exact EDR in both periods, and have you adjusted for portfolio changes within that comparison?

Thank you.

Good morning, Joe, it's Mark.

With respect to the select service evolution, I would say a number of the properties in our portfolio -- I don't mean owned portfolio, but system wide -- are at various stages of still ramping because we obviously added a number of hotels over the last several years.

I think that the dynamics that we see, which is really part of the rationale for expansion in select service in general is that with more coverage in different markets and at different price points, which is for us what the one big benefit from having select service representation, really makes a difference in our penetration of managed corporate accounts, and so that's really the area that we've focused on.

We talked last year about the fact that when we subsegmented our occupancy performance, and our business performance, we recognized that we really needed to stay very focused on midweek occupancy and share.

And really the principal driver of that was really through managed corporate accounts.

So our penetration with managed corporate accounts will continue to rise.

I think the addition of the LodgeWorks properties and entering different markets, new markets, will certainly have a further impact on that.

So there's some ramping of properties that are penetrating their specific markets, there's some element of a network effect just covering more and more markets, and finally I would say the further penetration of the corporate -- managed corporate accounts is really a company-wide phenomena, that is it's benefiting Hyatt at large, including significantly our select service hotels.

Those are our major ramp ups and penetrations, dynamics that we're continuing to see at this point.

So hopefully that will give you a little color as to why you're seeing what you're seeing.

And specifically your question about transient rates, transient rates broadly are in the low double digit in terms of ADR, down versus 2007.

I don't -- in terms of portfolio adjustments, no we haven't adjusted for portfolio at this point of time.

Thank you.

We'll take the next question, please.

At this time, there are no additional questions.

I would now like to turn the call over Mr.

Atish Shah for closing remarks.

We appreciate everyone joining us this morning, we thank you for your interest in Hyatt Hotels and look forward to talking to you in the future.

Have a great day, goodbye.

Thank you for your participation in today's conference.

This concludes the presentation, you may now disconnect, have a great day.