Hyatt Hotels Corp (H) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2012 Hyatt Hotels Corporation earnings conference call.

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

Later we'll facilitate a question-and-answer session.

(Operator Instructions)

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

I would now like to turn the call over to Atish Shaw, Head of Investor Relations.

You may proceed.

Thank you, Frances.

Good day, everyone, and thank you for joining us for Hyatt's second-quarter 2012 earnings call.

Here with me in Chicago is Mark Hoplamazian, Hyatt's President and Chief Executive Officer.

Mark is going to start by making some brief comments and then we are going to read and respond to questions e-mailed to us this morning.

Finally, we will take live Q&A toward the end of the call.

Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements.

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

Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made of as of today, August 1, 2012 and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

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

An archive of this call will be available on our website for 90 days and a telephone replay of this call will be available for one week for the information included in this morning's release.

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

Thanks, Atish.

Good morning and welcome to Hyatt's second-quarter 2012 conference call.

I'd like to talk about three items today; one, some color on quarterly results and our perspective on business around the world; two, the $200 million stock repurchase authorized by our board of directors; and three, an update on our organizational realignment.

Starting with the state of the business around the world, I'll note a few things.

First, the markets in which we earn the significant majority of our adjusted EBITDA are doing well.

Business is solid and trends are positive.

Recent economic reports indicate challenges in consumer spending in many markets around the world and we know that the hospitality industry lagged the overall economy by about two quarters.

Having said this, the levels of economic activity for the primary customer segments that we serve, measured by employment data, corporate profits and higher-end leisure spend, continue to be relatively strong.

Second, it's important to note that from market to market and even within markets there's a lot of diversity in our business and the guests that we serve.

Many of our hotels have unique positioning through branding, location, design, innovation and service offerings, so we're confident our business can withstand market fluctuations.

So with that, let's start with the business here in North America, our largest region by profit measure.

We generate about two-thirds of our earnings in terms of overall adjusted EBITDA in North America.

During the quarter RevPAR increased over 8%, due primarily to strong transient demand and higher transient rates.

Occupancy levels approached 80%.

This is a return to peak levels.

Rates continue to be strong but are below peak levels in nominal terms.

Both corporate and leisure transient demand have led this recovery.

This was one of the few quarters since the downturn began that we saw transient rate growth outpace room night growth.

If current trends continue, we expect there to be more pricing power ahead, which should help drive margin expansion over time.

On the group side, both demand and rate increased.

In the quarter, for the quarter bookings were up by one-third versus last year.

In the quarter for the year bookings were up over 15%, with almost half the increase coming from higher rates.

Overall pace for the remainder of 2012 is up 5%.

There were two drivers of strong overall results in North America.

First, hotels coming off renovations, such as the Grand Hyatt, where we're seeing solid market share and RevPAR improvements.

And second, recently-acquired hotels, such as the three extended-stay properties in California and the group of hotels we acquired from LodgeWorks.

These properties are performing ahead of our expectations, as the Hyatt flagging has lead to nearly double-digit market share gains and strong RevPAR growth.

We're currently on track to exceed projected returns over time as these properties continue to ramp up.

From a market standpoint, Hawaii performed at the top end, with RevPAR up over 20%, and Washington DC performed at the low end, reporting a slight RevPAR decline, partially due to softness in the market and partially due to ongoing renovations of our managed hotels in the market.

Let me now move on to our business outside of North America, which represents about one-third of our overall adjusted EBITDA.

We own or lease 11 hotels and manage or franchise 100 hotels, including a number of hotels in which we have a JV interest.

Starting with Asia-Pacific, our hotels showed good results in the second quarter.

RevPAR was up over 10% in constant dollars.

We earn approximately 10% of our adjusted EBITDA from Asia-Pacific with about half of that coming from greater China.

Our hotels in China are doing reasonably well overall.

Some of our properties in cities such as Beijing and Shenzhen, saw double-digit RevPAR growth, but others, for example in Shanghai and Guangzhou, cities that have experienced increases in supply, are seeing slight RevPAR declines.

Japan and Korea and other key markets in the Asia-Pacific region were strong.

In our southwest Asia region, where we earn a little less than 5% of our adjusted EBITDA, we saw slightly positive RevPAR results.

Within this region India's seeing softness this year, but the GCC countries have been performing well.

I was in India a few weeks ago and despite the market weakness this year I continue to be very encouraged by the long-term prospects for our brands there.

I'm confident in the long-term trajectory of the country, and the impact of increasing levels of disposable income should have a positive impact on travel over the coming decade.

I also want to comment on continental Europe.

We earn about 10% of our adjusted EBITDA from this area.

Over half of this 10% is earned from hotels located in key markets in France and Germany.

These countries and markets have held up well, with RevPAR up in the low to mid single-digit percentage range.

France has benefited from inter-Europe travel around the Olympics and our hotels in Paris are up in the mid to high single digit-percentage range year over year, even with the tough comparison due to the Paris Air Show last year.

Our hotels in Paris are well positioned, which results in steady performance, even in the face of economic challenges elsewhere.

We earn a very small adjusted EBITDA from Southern Europe with limited presence in Italy and Greece and currently no presence in Spain or Portugal.

Latin America was a stellar performer in the second quarter.

Our RevPAR growth in the second quarter was in the high teens percentage range.

As a reminder, we currently generate less than 5% of our adjusted EBITDA from Latin America.

While it is still early, our newly acquired hotel in Mexico City is performing ahead of expectations, as year-to-date RevPAR in this market is up in the 15%-plus range and we expect a similar progression for the balance of the year.

As to the development climate around the world, we've not experienced any notable changes over the last few months.

In North America it's still tough to get financing for most new-build projects.

Some deals are getting done, but fewer and far between and only when sponsor market location and brand are all best-in-class.

We continue to work with great partners to try to create new opportunities in markets in which new Hyatt presence is important, and increasingly those are urban markets for our select service brands.

Around the world the prospects for expanding our presence continue to be bright.

Our base of contracts grew again this quarter to 175 hotels.

As a reminder, this number represents executed contracts and our belief that financing is in place or likely to be put into place.

Almost all of these 175 hotels will be managed or franchised.

About one-third are under construction right now.

If you look at our full-service management contract based in China about half of these hotels are already under construction.

In India we've not yet seen a slowdown, but we would not be surprised if development lead times are stretched a bit and some projects delayed, as interest rates have increased this year for most borrowers in that market.

We're increasingly focused on conversion opportunities around the world with some concentration in both North America and Europe.

My second topic is the $200 million share repurchase that our board authorized.

We have always maintained that the Company would review the potential of returning capital to shareholders from time to time.

The announcement today is consistent with that view and reflects the Company's active posture toward creating shareholder value.

The authorization itself, as well as the timing and the size of the authorization, reflects our considered determination of what's in the best interest of the Company and its shareholders at this time.

There are three things I would note in relation to the repurchase authorization.

First, the board and management team are focused on creating long-term value for shareholders in various ways.

A share repurchase provides an additional tool in our set of tools to create value for shareholders by returning some capital.

The authorization acknowledges the Company's awareness that a return of capital to our shareholders is a part of an overall capital allocation strategy.

Second, we're confident that we can pursue a return of capital to shareholders at this time without compromising the Company's ability to execute on its long-term growth strategy.

And third, we believe that acquiring the Company's stock is a compelling value proposition.

As we've described in the past the hospitality industry is, by its nature, a long-term business and a long-term mindset is the best path to building a successful company and shareholder value.

Our assets, both the hotel properties themselves and our management contracts and franchise agreements, are long term and our relationships with our associates, hotel owners and customers are long term as well.

At the same time, we recognize that having a long-term perspective did not preclude a review of our balance sheet profile in the context of shareholder value.

We depend on support from our capital providers and shareholders and -- to execute on our plans, and providing a return of capital is consistent with our approach.

As a reminder, since we've gone public we've invested more than $1 billion in the renovation or acquisition of assets net of dispositions.

We've made investments across brands and regions in a variety of forms.

We've recycled out of some investments as well.

This is the beauty of our business model and approach, as we can be and need to remain flexible, nimble and responsive to opportunities when they arise.

Lastly, I'd like to provide an update on our announcement last quarter that we are realigning our organization to position Hyatt for the future.

The realignment has been progressing well, with a number of new appointments announced, along with processes designed to streamline how we operate.

While certain details are still being worked out, we are on track to begin operation under the new structure during the fourth quarter.

Ultimately, the new organization structure is designed to allow us to be more nimble, more responsive, more agile and we believe that these are organizational attributes that are critical to our success in a rapidly changing world.

We reported some costs associated with the realignment and we anticipate that there will be additional costs incurred before year-end.

And with that, I'll turn it back to Atish for the Q&A.

Thanks, Mark.

That concludes our prepared remarks.

For our question-and-answer session we'll start with some questions that we received this morning.

The first general category was on the topic of share repurchase, first question being, how do you balance the limited public flow with the share repurchase authorization, can you or are you thinking of repurchasing any of the class B shares held by insiders?

The authorized repurchase program is for common stock, which includes both A and B common stock.

To the extent that a class B stockholder expresses an interest in selling we would consider repurchasing their shares in the same way that we would consider repurchasing A shares.

And while we typically don't comment on things like this, in this case I can tell you that as of now we have not heard any indication from class B stockholders of any interest to sell their shares.

We won't be providing further information on this except to report stock transactions in the future, if any.

We don't know which class B of shareholders, if any, would want to sell and therefore we cannot predict the class A, class B mix in the repurchase of shares.

Next question is, to the board consider a dividend as a means of returning capital to shareholders?

Yes.

So the board believes a share repurchase is appropriate given the current trading levels of our class A common stock.

A dividend at a future date is not ruled out, although we believe that a repurchase makes more sense at this point given the variety of factors that we refer to, including business results, value in the stock, current balance sheet profile of the Company and our overall capital and growth strategy.

Have you begun buying back stock given the recent share authorization?

No, we have not yet repurchased any shares.

The authorization is effective at this time.

What do you think the right long-term leverage level is for the Company with the 10-year rate below 1.5%?

We've addressed this in the past.

Our focus has been to remain investment grade through cycles and this is particularly important because we want to maintain flexibility in being able to take advantage of opportunities from time to time.

There are many factors that go into the ratings assessment, one of which is leverage, and the leverage levels that are typically cited for investment grade levels for us are somewhere between 3 and 3.5 times leverage.

Our actual leverage is going to vary over time just depending on where we are in taking advantage of opportunities.

We're currently rated investment grade by both Moody's and S&P and if you look at the rating system we are two notches above sub investment grade levels.

That's great.

We received several questions on SG&A expenses and so why don't we address all of that topic in a complete way.

Mark, you want to start that one?

Yes, let me just make a couple of comments and then I think, Atish, you should give some specifics on the quarter dynamics.

So we provided full-year guidance on SG&A and it is in line with what we communicated on the last quarterly call.

We're looking at a number of initiatives -- business process streamlining initiatives as part of our realignment as I described before, but it's really to early to say what impact those initiatives may have.

There are definitely quarterly variations, some of which Atish will address right now, but we remain focused on ensuring that the allocation of spending is oriented toward advancement of our growth strategy and our overall goals.

Okay.

Getting into the specifics on adjusted SG&A, first thing is to recall that these are adjusted numbers versus the GAAP numbers and the guidance we provided was on adjusted SG&A for the full year.

In the second quarter our adjusted SG&A was $74 million and that was below our initial expectations.

We benefited from a $2 million bad debt reversal, as well as the timing of certain expenses, which moved into the back half of the year.

And the choppiness in our adjusted SG&A from quarter to quarter reflects the impact of certain unique items, some variability in spend and seasonality, and certain timing-related items caused certain expenses to move again into the back half of the year.

If you look at the full year, our adjusted SG&A guidance is $320 million.

That represents about $163 million of expected adjusted SG&A in the back half of the year and that's in line with what we said before on a full-year basis, as Mark just said.

In terms of the quarterly progression, we anticipate the third quarter will have a higher year-over-year growth rate than fourth quarter as a result of the timing.

Third quarter should be up in the double-digit percentage range -- low double-digit percentage range and fourth quarter adjusted SG&A should be up in the mid single-digit percentage range.

So hopefully that provides some good clarity on SG&A.

Moving ahead, the next question was on the operating performance so the question was, you have highlighted the strong recovery across gateway cities, maybe discuss the fundamental picture across tier two and tier three cities in the US.

We've witnessed an acceleration of operating fundamentals across higher beta markets as US shop growth improves.

And I'll take that one.

I think the question is a good one.

In terms of the top 10 markets in North America they are performing quite well so those tier one markets were up over 10% in the second quarter.

The remaining markets, these tier two and tier three cities, are quite strong as well.

They were up in the 7 percentage range.

Half of that was due to rate growth.

I think the expectation is that the strong performance in the primary markets will continue to spill over into the secondary markets and to other parts of -- the secondary and tertiary markets.

And Mark, if you have any specific data you want to add?

First and foremost I would just remind everyone that averages lie.

There's not enough nuance in data to really get a clear picture because each market is really unto itself.

Let me just actually give you some specific market examples just to give you a little bit more flavor and color.

If you look at a market like Austin, we saw roughly 10% growth in Austin.

In San Antonio, mid single-digit growth.

Seattle was quite strong, mid teens.

Tampa, mid single digit increases.

Phoenix was down slightly.

Houston was up low double digits.

Columbus was up slightly.

Indianapolis had a strong quarter, up in the teens; that's partly due to renovation on our side, coming out of renovation.

So you can tell that there's diversity across these markets and I guarantee you that every single market has its own dynamics based on what's going on in the marketplace, but also what presence we happen to have in that market.

Whether it's group oriented or transient oriented, whether there's been new supply or not, so it's very difficult to generalize.

Having said that, when you look across the top 10 and then the remaining markets, we don't see anything that's completely falling out of bed, so from that perspective it's actually a good sign.

Our next question was on the impact from renovations.

2011 results were negatively impacted from renovation disruptions.

If you adjusted second-quarter 2012 RevPAR growth for the year-over-year benefit from easy comps, what would second-quarter 2012 North America RevPAR growth have been?

And the question's accurate.

We did benefit from the easy comparison.

North America full-service RevPAR growth benefited by approximately 200-basis points, so we reported an 8.7% for North America full service and it would have been in the mid 6% range if you back out the renovations.

Next question was for the owned and leased segment in the second quarter, comparable revenues were up 4.5% while comparable RevPAR was up 7.6% and there was a question as to the reason for the variance.

The variance is really due to revenue growth.

Outside of rooms revenue was a bit lower due to F&B operations, which did not experience as substantial an impact during the renovations as the rooms component of business.

In short, it's really a comparison issue.

The comps for our non-room revenue were more difficult in the second quarter than they were for rooms revenue and that's the reason for the difference you see between RevPAR and revenue overall.

Next question is, how far is occupancy off of peak for comparable hotels in your owned and leased portfolio?

Mark, do you want to take that one?

So occupancy levels, as I mentioned in the prepared remarks, they are approaching 80%, which is really at peak levels.

The transient rate is outpacing transient room night increases at this point and so we're starting to see some impact of that turnover, so to speak, the evolution from having built a higher level of occupancy and also shift mix has continued -- shift in the mix has continued, so that's where we stand.

Next question is, are there any additional renovations causing further disruption this year?

There are some renovations that are underway in San Diego and Washington DC.

It happens to be a very logical time to pursue renovation in Washington given that it's an election year and the like, so will likely see some impact from those two markets.

These are for us large hotels in key markets and they tend to be more group oriented.

But as I said, the timing is logical to us and makes a lot of sense, but it will have an impact in the second half.

And just to add, those are managed properties primarily in those markets.

On the owned side we're finishing up the renovation in San Francisco, the Grand Hyatt San Francisco.

Primarily it's public space and food and beverage space but we're past the bulk of our owned renovations with regard to the big five projects we had talked about last year.

Next topic was the category of international business and what we're seeing in various parts of the world.

One question was, are you seeing a slowdown in China either at your existing properties or any slowdown in properties slated for development?

The overall answer is we haven't really seen a general slowdown.

On the contrary, I think when you look sequential RevPAR progression this year it's positive, something like 100-basis point increase in terms of first quarter to second quarter RevPAR increase.

As I mentioned briefly in my comments earlier, it's not -- it varies by market quite a lot so Beijing, in Beijing we saw double-digit RevPAR growth in the second quarter that was consistent with the market progression.

Shanghai performance was more muted, both because there was absorption of new supply in the market and also we had some renovation work going on at one of our hotels.

The hotels in southern China, there are many markets within China so I'd prefer not to generalize so if I give you a couple examples.

Shenzhen is actually up for us double digits, in the 13% to 14% range, while Guangzhou and Dongguan are down a bit, mid single-digit declines.

Again, there are market-specific reasons for that and I think the thing that you have to expect is that over time and even quarter these statistics -- these individual hotel statistics or individual market statistics will vary just depending on the timing of new supply or maybe some individual market dynamics.

I think the key for us is what does it look like over a longer period of time.

You can -- as you know, development -- developing a new hotel takes a long time to do so you can't really mark a time the development of a new hotel in a given market, you have to think about it over a number of quarters and a number of years.

In all of these cases I would say our view is that these markets are still under-supplied relative to the long term and I think there will -- the kinds of variations that I just described are to be expected from time to time.

The only other thing I would note is that about half of our hotels in our Chinese pipeline are under construction at this point so we've not seen any significant impact on development efforts underway.

We received a similar question on Europe, breaking out the performance of Europe.

Mark, can you add some color on what we're seeing in Europe?

Sure.

We don't have a huge presence in Europe, we continue to work on expanding that.

Right now our presence tends to be in key cities as opposed to smaller markets.

If you look at how we're distributed right now and how we're performing, if you look across our German hotels, which are all in key cities in Germany, we're up about 5% in this quarter.

The UK, which is -- again, we have relatively limited presence but more concentrated in London, is up about 10% this quarter.

And Paris, which includes one hotel at the airport and then a couple of hotels in the city, is up about 6% this quarter.

So it gives you at least gauge as to how these individual markets are performing for us.

On the other side -- on the other hand we do have some markets where we've got significant increases in supply.

One example of that would be Baku in Azerbaijan.

There's been a significant increase in supply and more coming later this year, so that will have a negative impact for sure.

But generally, I think it's very difficult to generalize the country so you really have to get not just down to the city level but also specific hotels within -- and our specific locations tend to be in excellent locations with very highly-rated properties.

So if you look at our presence in places like Zurich and Paris and Milan and London we are operating hotels at the higher end of the rate scale and customer base.

Just to close out the international topic we've got a question, have your yield expectations changed given the European recession and strength in the US dollar?

We think this question is asking about FX and it currently is a headwind this year and FX did impact us by about $4 million in the quarter so that's approximately $0.01 to $0.02 per share.

For the full year, we expect, assuming second-quarter like exchange rates, about a $10 million impact due to FX so we're monitoring the situation in Europe closely, but that's our estimate at the present time in terms of FX.

Next question was on another market closer to home regarding New York City.

Have we witnessed a slowdown in New York City as a result of the euro crisis and then the pace of tourism in New York City?

I would say from a European source market perspective, our business in New York when we look at the European source market, the UK is by far the biggest for us and we've not seen a slowdown there.

Spain is quite small for us but we have seen a slowdown out of Spain.

Again, probably difficult to generalize, but I would say to date given the bulk of where our guests are coming from we have not seen a slowdown from Europe at this point.

The next category is pipeline.

What are the equivalent room counts for the 20 hotels expected to open this year and the pipeline of 175 hotels?

It is a bit over 4,000 rooms in relation to the openings for this year

And with regard to the 175 hotels we provided in the press release, it's 39,000 rooms.

Second question on pipeline has to do with signings, have we seen an increase in signings as compared to last year, specifically in North America?

I would say the overall pace -- overall level of activity in the second quarter is very, very good.

The actual signing profile is quite variable over the course of the year so it's very difficult to generalize at this point.

But I would say based on just level of activity broadly defined -- that is across the globe -- it's quite good at this point.

I really don't have much more additional color to provide because, again, the quarter-over-quarter variations in signings will be high.

Okay, and the last question on this topic was, any pushout in our 2013 planned openings and if yes, in what geographies?

Nothing so far.

The next category was the topic of transactions, acquisitions and dispositions.

So with regard to acquisitions and dispositions, are we actively marketing any properties for sale?

And then are we pursuing -- actively pursuing any portfolio acquisitions to grow distribution?

I guess I've addressed this in the past but the fact is that we're regularly and almost always in dialogue, both on the buy side and the sell side and we will remain so.

We don't have anything being marketed by a third-party broker at this time.

Historically we have.

We've used many different processes to engage in disposition discussions, privately-negotiated deals, entered into joint ventures, we've used third-party brokers in the past.

It really depends on the circumstances and we will continue to use different methods to act on deals when they come up.

It's probable that we will sell something before year end, but likely not a very large dollar amount.

We continue to look at ways to use our select service hotel assets to help us grow in select service.

In particular I mentioned our focus on urban markets, which is really our highest priority at this point in terms of new development for select service in North America.

I would also add the LodgeWorks -- former LodgeWorks colleagues now part of the Hyatt family are very active on new development opportunities, both for us as well as for our development partners.

That's pretty much across the country and I would say that they are much more focused on new development opportunities and how to prompt that than they are on acquisitions at this point.

Next question relates to outlining all the projects we have future commitments to either buy or fund and I can answer this one.

As of the end of the quarter we had a little more than $500 million committed to future projects.

Over half of that relates to a couple of projects, in particular, the acquisition of Park Hyatt New York, which is expected in 2014, and the build of Andaz Wailea, which we're doing in conjunction with Starwood Capital.

That's slightly more than half of that and the remaining consists of other investments that we've made in -- potential investments that we're making in properties in varied forms.

The next question is, how do you plan on financing the acquisition of the Park Hyatt in New York?

It's a little early to say but we will likely apply some leverage in the approximately 50% range of acquisition costs.

At the property level.

Correct.

And our equity would be funded really out of cash or off of our own balance sheet.

Next question relates to LodgeWorks, how are the results for the portfolio tracking?

So I mentioned we're really happy with the progression.

We continue to see strength in the performance of the portfolio and definitely tracking ahead of our expectations.

I think that most importantly we're paying close attention to market share gains -- relative market share gains, which are up nearly 10 points in individual markets.

We really track breadth of market share gains more than we do average market share gains because, again, averaging across a number of markets doesn't really tell you that much.

What I can say is that there's healthy growth in share across the portfolio, which I think is a testimony to the quality of the assets and also the markets in which we're operating, as well as the Hyatt branding because our system has really generated a lot of new opportunities and new corporate accounts for most of the hotels that we acquired.

Next question is have you had any groups cancel as a result of the union boycott?

And the answer is we've seen no financial impact thus far as a result of the boycott.

Next category was realignment.

Can you dive deeper into what comprises the realignment costs that we indicated and how much do you expect to incur in the coming quarters?

We've had consulting fees, professional fees, which would include both legal and accounting fees, as well as separation costs.

So far I would just note that the amount that we noted for the second quarter is about roughly 50/50 split between cash and accrual amounts and it's really too early to say exactly what the progression of the expenses will be for the remainder of the year.

Okay.

We were asked to provide an early read on corporate rate negotiations for 2013?

It's obviously too early to say for 2013.

Obviously, we've been in discussions with corporate travel managers as a regular matter and some accounts, very few, are on a cycle other than late fall, which is where the bulk of them are.

And I would say that based on those few data points initially and the ongoing dialogue, the tone of it is clearly recognition or an understanding among many in the corporate travel management community that rates are heading up and that as occupancies have increased that the pendulum is swinging in favor of hotels.

So that's very preliminary but that's how I would describe the sentiment at this point.

And finally, we received a few questions on group.

I think we covered much of this in the prepared remarks, but just to reiterate I think there were questions as to pace for 2012, what we're seeing currently and a preview on 2013, so I can just provide you some information.

In terms of short-term bookings they continue to be strong in the quarter.

For the quarter bookings we're up over 25% in the second quarter.

As Mark mentioned, in the quarter for the year bookings were up in the 15% range with half coming from rate.

As to pace in 2012, Mark mentioned that pace is up about 5%.

A little less than half of that is from the rate side, the rest from room night demand.

With regard to 2013, pace is positive.

We are right now have about 50% to 55% of 2013's group on the books and if you asked that question at the end of the first quarter we were at about 45% of 2013 group on the books so good progression.

We're seeing strength from high tech, manufacturing, electronics and a few other sectors.

So that covers and captures the questions we received in advance.

We'd now like to take your questions.

Frances, could we please have the first question?

Yes.

(Operator Instructions) Our first question is from the line of Joseph Greff from JPMorgan.

You may proceed.

Joe, if your line is open please check your mute feature.

You can go to the next question.

Our next question will come from the line of Steven Kent with Goldman Sachs.

You may proceed.

Hi.

Good morning.

Can you just give us a little bit more color on how you yield managed in Q2?

I think you mentioned earlier that you were a little bit more focused on transient travelers rather than group or corporate, or it sounded that way to me, and is that one of the reasons, Mark, you think that you had upside to RevPAR relative to some of the industry trends that we were seeing in some your competitors?

Good morning, Steve, thanks.

I don't know about the later part your question, I can't really compare that.

What I can say is that from time to time you'll see bias toward being more aggressive to group up -- do to speak -- to try to do more forward bookings and to be more aggressive in that regard.

I would say that our attitude towards it, or our positioning towards it hasn't really changed over past year so we are not leaning into trying to expand forward group bookings as a strategic matter.

I would say -- so that's a group versus transient sort of focus and attention.

It hasn't gone down, by the way, it's just not really changed really over the last year or so.

And by the way, the other comment that I would make is, there's a lot of focus and attention on so-called pace numbers and the pace numbers, just for clarity, they would reflect a change in policy as well as just progression because, if during the course of a given period compared during a comparative period if you lead into trying to group up for future periods then you would see an increase.

It doesn't necessarily mean that the base business line is actually healthier, it just means that you may have a change, so you have to pay special attention to rate progression and room night progression, so just FYI.

On the transient revenue management side, we've seen -- we continue to focus on mix so we're increasingly focused on driving more volume accounts, corporate travel managed accounts and corporate business and that's in evidence in the second quarter for us.

That is to say that our mix continued to shift in that direction away from other lower-rated channels.

If I go back to group for one second, I would say the composition of our group business, if you look at corporate versus association, a lot of -- in the same way that I just described the mix shift for transient we have also had a mix shift relative to group away from association and toward corporate.

So corporate has been relatively stronger and frankly, when you think about the fact that so much of group business is being booked nearer term that's also a reflection of the fact that corporate is more active because associations tend to have to book further into the future for planning purposes.

So that's how this all -- sort of the picture fits together from our perspective.

I hope that's helpful.

We'll take the next question please.

Your next question comes from the line of Joshua Attie from Citi.

You may proceed.

Thanks.

I have a question on G&A.

Can you give some sense as to when and where you think the G&A expense stabilizes?

And I know that the $320 million in 2012 includes some costs that have been added to grow the business, I guess I'm curious when and where do you think you reach the point where the G&A is right sized relative to what you think the growth opportunity is?

I guess the answer to that is what we've been trying to do is ensure that the mix of how we applied ourselves is biased toward and very focused on our growth strategy and also our overall goals, so we're doing two things concurrently.

One is ensuring that we remain responsive to those opportunities and those are, frankly, very difficult to predict at this point.

We have tended to build to demand as opposed to the build it and they will come strategy, so as development has unfolded for us in different markets we've gone after it with some additional resources, as we talked about last quarter, for example.

So I would say that therefore it's really challenging to set a specific number relative to how we would go and try to support those new initiatives.

What I would say is, concurrently with the realignment that we are engaged in because we're changing organizational structure around and whenever you do that it's mandatory to go back and also look at processes, and really what we're trying to do is streamline processes to make the core operation of the Company more efficient.

So that's really the work that we're engaged in at this point, so we'll be able to provide more information on that over the remainder of the year.

If I could just follow up.

If you look at what you've added this year and you think forward to 2013 -- and I know it's tough to give an exact number -- but based on what you've added and based on what you see the growth opportunity to be, do you think you'd see an equivalent size increase next year, or do you feel like most of what you need is in place and if you have incremental demand the increases would be more modest?

I would say it's the latter.

I would say that -- recognize that we reviewed this during the last call that we added a number of resources, different people in different places, and the LodgeWorks acquisition added resources as well during the course of the year last year.

It takes some time for all those people to integrate and get to their stride; that's happening.

So what we would expect is to see more leverage ability out of the additions that we've made -- structural additions that we've made over the last 12 months as we go into the future.

So, my answer to your question is that it's the latter.

It's more incremental opportunities will yield incremental additions.

Okay.

Thank you very much.

Sure.

We'll take the next question please.

The next question is from the line of Shaun Kelley from Bank of America.

You may proceed.

Hey, good morning.

I just wanted to go back to -- and I think you mentioned these in a couple different places so I just wanted to make sure we had it right but about CapEx needs for next year and just making sure that between the Park Hyatt and I think your property in Hawaii what were going to be the buckets of the significant outflows and the amount of equity that was going to be required for those?

You can think about CapEx as maintenance CapEx, which is approximately 5% of owned revenues and then ROI and other CapEx at hotels, which gets you to a base level of CapEx in the $250 million range.

And then depending on the type of investment they can either run through CapEx, or as an investment.

So depending on which ones, whether they're joint venture investments or acquisitions they may or may not be part of the CapEx line item.

Hopefully that gives you a little bit more visibility as to CapEx.

I think investments are sort of a different category than CapEx itself.

Sorry.

Maybe just following up then, what is the investment bucket that's committed to right now in terms of projects that you guys have to spend over the next 12-or-18 months?

Well, a couple of quick comments on that.

First of all, we know definitively what the commitment on the Park Hyatt New York is, which our portion of it would be $250 million in total, which is included in the $500 million figure that Atish mentioned.

Of course if we're able to leverage that property at the property level we intend to pursue then it would reduce that outlay from Hyatt Hotels Corporation and by virtue of the fact that we would debt finance a part of that project.

So imagine for a moment that we were able to get 50% leverage for that project that would reduce our capital outlay for the Park Hyatt New York to $125 million.

That's an end of 2013, likely 2014 timeframe for funding.

The remainder of the commitment that is underway at this point for Wailea is in the range of -- something in the range of $75 million to $100 million, in that range.

I don't have a precise number for you at this point.

The only other thing I would mention is we have had interesting opportunities present themselves for development and we announced Omaha earlier this year.

That's a Hyatt Place construction, which we're doing on balance sheet.

And so I would say that as we have spooled up our activity based on finding new urban locations for our select service hotels -- primarily that's been our primary focus --we will likely find other development opportunities from time to time.

So these numbers are useful as a gauge but they're not positive of what we're actually going to commit to over the next 24 months.

Perfect, that's what I was looking for.

Thank you very much.

We'll take the next question please.

The next question will come from the line of [Ben Wenger] from BB&T Capital Markets.

You may proceed.

Hi, thanks, guys.

Just want to get a sense for what the EBITDA generation opportunity is for the assets that you currently have, and you referenced about $900 million of acquisitions that have taken place since the IPO.

So is it fair for us to look back at your EBITDA around 2008 of about $700 million and then say okay, this is peak EBITDA and then we've got another $1 billion of assets that you're generate some level of EBITDA, and I'm not exactly sure what that is but you would have basically $1 billion of assets on top of that?

So -- excuse me, while I don't choke trying to answer your question -- the answer is that if you look at the composition of what we've acquired, a big chunk of that figure that you're citing is the LodgeWorks acquisition, which we described as really in ramp-up mode, which is precisely what we're seeing at this point.

So we had previously said we would expect in 2012 something in the range of $40 million of EBITDA on a net basis, meaning after you take out expenses associated with what we brought on board.

So, what we see there is an estimate for near-term profitability.

The fact is that in that -- in an example of that portfolio we expect that the properties, which were on average a little over two years old when we purchased them last year, are continuing to ramp and will benefit further from the Hyatt system, so we would expect that to trend up to a 10% cash-on-cash yield on the original investment.

I would say the same metric applies to the three select service hotels that we acquired in California.

Our renovation timing on those hotels, which are all slated for complete renovations, has been delayed.

That is we're starting them later than we initially expected, but the ramp up in performance has actually been quite good and certainly ahead of what our original assessment was.

So hopefully that gives you some color.

I've just covered about $750 million of the total.

The remain -- a bulk of the remainder is Mexico City, which is really -- it would be too early to really make any specific comments about.

We did mention that we thought that EBITDA for this year would be in the $8 million to $10 million range and I would say that the market has strengthened since the time that we committed to buy this hotel and so far the transition to Hyatt management's gone smoothly.

Likewise in that case, like the three select service hotels we bought in California, the Woodfin assets, we do expect to renovate the Hyatt Regency Mexico City, including adding some meeting space, so we're also looking to shift business mix towards -- more towards group.

It is a 750-room hotel roughly so we do have capacity to actually do more group business, but we're also changing facilities in order to actually accommodate that.

Next question --

That's very helpful.

I'm sorry, go ahead.

Well, I just -- maybe you were going to get to it, Atish, but there was -- I was just wondering, have you all disclosed on the California hotels what level of EBITDA you expected those to generate at the time of the deals?

We have not disclosed that.

I think, as Mark mentioned, we're in the process of rebrand and ramp-up mode on those so we'll provide some more information as we get farther along.

I think just going back to your question you asked about EBITDA potential -- earnings potential versus prior peak and Mark walked you through several of the acquisitions but I think you should also keep in mind the portfolio is different.

In a couple of regards we've add fee-generating hotels, some of which are ramping up still and then we have sold some assets over the last few years so that's just something to keep in mind.

I think it's probably doing the math and putting -- adding and subtracting is probably longer -- the answer's longer than what we could do on an earnings call so we look forward to having future discussions about that.

Also, on the three Woodfin assets, we do plan -- the renovations for those assets, which are complete renovations of those properties, will begin this year and so there'll be certainly disruption.

But the markets are doing quite well and the hotels are doing well in those markets, even prior to the renovation, so we have a positive very optimistic outlook.

But I would say short term, just to be clear, there's going to be disruption there just because we're going be taking inventory out for the renovations.

Thanks for that, I understand.

It seemed like something you said on the call earlier was that there's been net $1 billion approximately of acquisitions since the IPO, meaning you bought some stuff, you sold some stuff, but you bought a whole lot more than you sold.

So these are just simple numbers but I'm just trying to get simplistically some sense.

If I didn't hear that right please let me know but I think that is what you said, though, that was about $1 billion.

Yes, the $1 billion referred to both acquisitions and renovation-related CapEx.

Right, so it's fair then to just say okay, you did about $700 million pre-IPO in EBITDA and then you're going to do $65 million from LodgeWorks, which you just said on 10%, and then we have an estimate of what the Mexico property will do and you know that's probably going to do a lot better than what you're doing in the back half of this year and then you've got the California hotels.

Simplistically that all makes sense, right?

Yes I think, Ben, you're on the right track.

It's just that there is a ramp up and these things do take some time, both on the renovation side with regard to rebranding and acquiring hotels.

So to your question as to the peak level of earnings and when do you get back to peak and where do you go, a lot of it is a function of how the business performs over the next several years, as well as the continued ramp up on these recent acquisitions and renovations.

So hard to give you a more specific answer than that right now.

No, I appreciate it, that's all I needed.

It was just -- really more of a conceptual issue and I think I have the answer now.

Thank you.

Great.

We'll take our last question at this time, please.

That question will come from the line of Jim Young from West Family Investments.

You may proceed.

Sir, there are no other questions at this time.

Okay, great.

With that I'd like to thank everyone for joining us this afternoon.

We look forward to speaking with you again soon.

Thank you very much and goodbye.

Ladies and gentlemen, this concludes your presentation.

You may now disconnect and have a good day.