Hyatt Hotels Corp (H) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q3 2012, Hyatt Hotels Corporation earnings conference call.

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

(Operator Instructions).

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

I would now like to hand the call over to Atish Shah, Senior Vice President of Investor Relations.

Please proceed, sir.

Thank you, Clinton.

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

We want to thank everyone in the investment community for tuning in, particularly given the aftermath of Hurricane Sandy and the disruption on the East Coast.

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

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

Finally, we will take live Q&A towards 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 only as of today, October 31, 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.

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

Thank you.

Good morning and welcome to Hyatt's third-quarter 2012 earnings call.

I would like to start first by recognizing the impact that Hurricane Sandy had on much of the East Coast.

While all of our guests and team members are safe, we know that many challenges are ahead as the recovery continues and I want to thank all of our associates at the hotels on the East Coast and really across the US for pulling together to go serve our guests and also help those in the communities in which we operate.

We all hope for a speedy and safe recovery in the days and weeks ahead.

I would also like to take a moment to welcome Gebhard Rainer to our call.

Gebhard began as CFO on August 15.

And I'm excited about the operational experience base that he brings to our finance function at Hyatt.

Before talking about the third quarter and our outlook, I would like to note the significant progress that we have made since our initial public offering as we are coming up on the third anniversary of our IPO.

Over the last three years our earnings, as measured by adjusted EBITDA, are up over 50%.

Our owned and leased operating margins have increased over 500 basis points.

We have added, net over 70 new properties to your system and approximately 15% expansion in the number of our hotels in our portfolio, and approximately 40% of those properties are new markets for Hyatt.

We have invested over $1 billion in new hotel properties and we have also sold approximately $500 million of hotel properties as we actively recycle our asset base, while retaining management in our franchise agreements on each sale.

We have grown the number of executed contracts for new hotels from approximately 120 hotels to 175 hotels, or in terms of rooms from approximately 25% of our system size in 2009 to about 30% of our much larger system size today.

And we continue to grow market share at our hotels across our brands.

Focusing on our people, our brands and our capital base remains mission-critical for us.

As we think about creating value in the long term we recognize the importance of building our brand preference and presence in key markets around the world.

The long-term focus is more relevant today than ever given the volatility of economies around the world and ongoing waves of uncertainty that characterize our operating environment today and that are expected to continue as we move into 2013.

As to the third quarter, some things worked well in the quarter and a few areas faced challenges.

Overall, adjusted EBITDA grew about 14% as we benefited from acquisitions and owned property renovations.

Our 2011 and 2012 acquisitions are all on track or ahead of pro forma.

The properties we acquired from LodgeWorks and converted to our brands have experienced large increases in RevPAR index, up approximately 700 basis points since joining our system.

Similarly the three extended stay hotels that we bought in California and converted in May of 2011 to Hyatt brands are also performing ahead of expectations.

The Hotel Nikko acquisition in Mexico City, which we acquired and rebranded as the Hyatt Regency Mexico City this past May is performing well.

The market there continues to be strong with RevPAR growth for our competitive set of hotels up 15% year-to-date through the third quarter.

And we are on track to begin renovations to this property next year.

Also, on the positive side, the five owned hotels in which we executed large-scale renovations last year are progressing well compared to our expectations outside of some market specific issues in Atlanta that I will discuss in a moment.

The public space renovations at the Grand Hyatt San Francisco are expected to be completed by the end of this year, bringing to close those five major renovations.

Another positive relates to the adjusted SG&A expense that was lower than we anticipated, and I will come back to that in a few moments.

Several things worked against us in the quarter, and I will detail each by business line, but the three factors are, first, comparisons to prior year.

Overall results were impacted by the timing of the Jewish holidays in September of 2012 versus October of 2011.

The impact to RevPAR growth for our owned and leased portfolio was about 75 basis points in the quarter.

In addition to operating statistics, the year-over-year comparison reflects an outside impact from some expense items.

For instance, last year we received property tax refunds that helped our comparable owned and leased margins by about 100 basis points in the third quarter of 2011.

Second, renovations.

Renovations of some large managed properties impacted our fees in particular during the quarter.

And, third, weaker international performance.

We had some weakness in international performance results due to market-specific factors, and coupled with the negative impact of foreign exchange, those had an impact on our owned and leased adjusted EBITDA, our joint venture adjusted EBITDA and our management fees in the quarter.

So let me provide some additional detail for each of these points by business line.

On the owned side let's first talk about the results in two important North American markets.

In New York, which represents about 10% of our total Company adjusted EBITDA, the timing of the Jewish holidays had a significant impact on the quarter.

As I mentioned, the impact of the holiday timing was 75 basis points to our owned and leased RevPAR growth for the whole portfolio, but the impact in New York was higher.

At owned hotels in New York at RevPAR growth during the final two weeks of the quarter was about 70% lower than it was during the first 10 weeks of the quarter.

At the Hyatt Regency Atlanta, our 1,260 room convention hotel, group business was off during the quarter due to weak citywide demand.

RevPAR in our comp set there declined by more than 3% during the quarter.

[That review] was impacted as well.

Outside of North America our international owned and leased hotels were relatively weaker in a number of markets with the exception of London, which benefited from the Summer Olympics.

There were a variety of market-specific factors including, for example, tough comparisons, particularly in Seoul, where we had a very strong group demand in 2011, and Zurich, where transient demand in the third quarter of 2011 was very high.

Our results were also negatively impacted by supply additions in Baku, a market where we have seen a fourfold increase in competitive supply.

The negative impact in foreign exchange also affected results.

Moving ahead to our unconsolidated joint ventures, we sold our interest in two full-service hotels in Seattle during the quarter, which I will discuss further in a second.

That sale, together with the negative impact of foreign exchange, weak market dynamics in Mumbai, where we also have a rooms renovation underway, and a challenging market in Mendoza, Argentina, impacted our joint venture earnings significantly.

On the fee side, we had several large hotels under renovation in North America.

These included the Hyatt Regency in Washington DC; the Hyatt Regency in Dallas; and the Grand Hyatt San Diego.

In addition, some international markets are starting to soften as the market is weaker in India, partly due to new supply and partly due to economic conditions.

In China we are seeing uneven performance across markets.

The timing of the incentive fees and the mix of contracts contributed to lower then run rate fee growth during the quarter.

That concludes the discussion about the third quarter.

Before moving ahead into the -- to talk about the future I would like to talk about progress that we have made on four other fronts.

First, we successfully completed the realignment of the Company during the third quarter.

We made new appointments and consolidated a number of activities and started operating under the new organizational structure as of October 1.

The realignment involves some SG&A rationalization.

As I mentioned, SG&A expense was flat in the quarter compared to last year.

This is lower than our prior expectation.

Half the reduction compared to our prior estimate was due to lower payroll costs and half is due to other cost reductions, lower professional fees and a refinement of our estimate.

For the full year 2012 we expect to realize approximately $15 million of savings relative to our prior estimate, about half of which is a reduction of run rate expenses driven by savings from personnel and staffing changes and about half is due to other cost savings initiatives that are more one-time in nature.

Second, I would like to talk about capital recycling during the quarter.

As I mentioned earlier, we sold our joint venture interest in two full-service hotels in Seattle.

We sold these interests in September for slightly over $50 million in cash proceeds.

In addition, we also realized a reduction in unconsolidated debt associated with those properties of over $50 million.

This transaction resulted in a $28 million gain for Hyatt.

The gain will be deferred because we continue to manage the properties.

The monetization of joint venture interest is something we are focused on as part of our overall strategy to recycle our asset base.

We sold these interests at an implied multiple of about 13.7 times trailing EBITDA or about a 6.2% trailing 12-month cap rate.

We also completed the sale of eight select service properties to Summit Hotel Properties early in the fourth quarter.

We sold these hotels at an implied multiple of 11.7 times trailing EBITDA or about 7.2 times trailing 12-month cap rate.

Yesterday we announced that we are doing another deal with Summit.

We acquired an existing select service hotel in downtown Minneapolis that we intend to renovate for $20 million and convert to a Hyatt Place with over 200 rooms.

Upon completion of the renovation in mid-2013 we will sell the hotel to Summit.

This is an innovative transaction and one that expands our select service presence in a great urban market with a strong owner.

We intend to do more with Summit over time.

To recap the sales that I mentioned, we sold at attractive prices.

We will continue to manage all these hotels under long-term agreements, and these assets have strong owners who are committed to support renovations over time.

In the aggregate, these deals support our continued asset recycling efforts to release funds from assets that we don't need to continue to own over the long term at attractive pricing levels.

In terms of adjusted EBITDA impact from these asset sales for the full year of 2013 earnings will be reduced by about $11 million to $12 million relative to 2012 or about $15 million on a full-year run rate basis.

Third, earlier this week we announced our first multiproperty conversion deal in India.

Conversions in India are unusual and we are very excited to expand our presence in India with the rebranding of five high-quality hotels around the country.

We expect to begin management of the five hotels earlier next year.

This represents a 50% expansion of our current hotel presence in India.

The hotels are in Bangalore, Pune, Hyderabad, Aminabad, and Amritsar, and provide Hyatt with presence for the first time in each of Bangalore, Aminabad and Amritsar.

In addition to allowing us to expand our presence in important markets, they strengthen our overall market position across India amongst business and leisure travelers.

The owners of these hotels are a part of a large organization with deep hospitality experience, and we are very excited about working with them and expanding our relationship in the future.

And, fourth, I would like to update you on our share repurchase activity since the time our Board authorized the repurchase of up to $200 million of stock.

We have been active under this authorization, repurchasing approximately $69 million of our common stock to date, and we are happy with our execution.

We have approximately $131 million remaining under our authorization.

We remain committed to a balanced strategy of investing in growth and also returning cash to shareholders when appropriate.

Looking ahead, we do think that there are two main factors that you should consider when thinking about our earnings profile.

First, in the coming quarter and into early 2013 we are likely to see a carryover of the same type of issues that we saw in the third quarter.

Second, for the following few quarters we do think that there is some signs of a more modest overall growth trajectory.

Longer-term we continue to feel very confident about the strength of our brands and about the prospects for the industry.

So let me discuss each of these points and a little bit more detail.

In terms of the current quarter please remember that through the third quarter of this year we benefited from acquisitions that we made in the third quarter of last year.

In addition, we benefited from favorable comparisons driven by prior-year renovations which were largely completed in the third quarter of 2011.

These two main factors enhanced our year-over-year growth through the third quarter of 2012.

And we estimate that these two factors helped our adjusted EBITDA by approximately $15 million in the third quarter of 2012 as compared with the third quarter of 2011.

In addition, as I mentioned, the properties that we recently sold had an approximate run rate of $4 million of quarterly adjusted EBITDA.

So the total year-over-year impact of the five large renovations in our owned hotels, the acquisitions in 2011, and dispositions this year is approximately $19 million when looking at the year-over-year comparison of the third quarter versus the year-over-year comparison of the fourth quarter.

Second, in terms of the current quarter Hurricane Sandy is clearly causing disruptions.

While we are still quantifying the impact, more than 25 of our full service and select service hotels experienced business disruption, power loss or minor damage.

All of our hotels are open, except for one full-service hotel -- managed hotel in Manhattan and one partially closed hotel in New Jersey.

We don't expect there to be -- I'm sorry, we do expect there to be an impact to reported RevPAR and other quarterly operating metrics given the size and number of our hotels on the East Coast that were affected by the storm.

In addition, the election in the US next week, the Party Congress in China that begins next week, and the timing of other holidays are likely to negatively impact the fourth quarter relative to performance in the fourth quarter of the 2011.

Together the disruptions due to the storm and calendar comparisons may be more impactful to our results in the fourth quarter than was the impact of the timing of the Jewish holidays in the third quarter of this year.

Another factor impacting our view on the more modest growth trajectory is the market dynamics we have seen in several markets in which we own properties, such as the international properties that I mentioned earlier.

These market dynamics are leading to slower growth in the short term and the performance challenges we experienced in the third quarter are continuing into the fourth quarter.

Lastly, fee growth will be negatively affected in the short term by ongoing renovations at large managed hotels.

Notably in the fourth quarter we expect the Grand Hyatt San Diego, the Grand Hyatt and Hyatt Regency hotels in Washington DC and the Hyatt Regency Dallas to be under renovation.

As we look to next year, several of our large Grand Hyatt hotels in gateway cities in the Asia-Pacific region are planning renovations.

These renovations are great for our brand presence and for our guests, and for the owners over the long term, but do lead to short-term impact on RevPAR and fees.

As we have said consistently since our IPO, we are managing the Company for the long term.

We are very clear that our long-term success is driven by the quality of our people, our focus on innovation and delivering great guest experiences, strong owner relations and creating value through capital and asset recycling.

We are confident in our future, and we look forward to years of strong growth ahead.

This confidence is based on our solid market share progress and clear evidence that our brand strength is recognized and growing in key high-growth markets outside the US.

We know that there will be short-term adjustments in given quarters in India and in China due to evolving supply and demand factors, but the longer term secular growth of those economies and the good prospects for healthy expansion in the hospitality sector in those countries are clear.

In the US the industry is expected to benefit over the coming years from relatively low levels of supply growth, and we expect to benefit from the impact of recent renovations of a large proportion of our entire chain, including a large proportion of our large gateway city hotels in the US.

Perhaps most importantly, I am confident in the spirit and commitment of our associates around the world, and I have never been more proud to be a part of the Hyatt family.

And with that I will turn it back to Atish for the Q&A.

Thank you, Mark.

That concludes our prepared remarks.

Before we start our Q&A session I would like to let everyone know that we will be updating our segment reporting to reflect the Company realignment that Mark just discussed.

You will see this update in our next quarterly release.

And we hope that this update will improve your understanding of our business drivers.

So for our Q&A session I will start with some questions that were submitted this morning.

The first few questions come with the topic of future expectations in 2013.

The first one is, can you be more specific as to the headwinds that you see weighing on near-term business, specifically which are unique to Hyatt as opposed to broad industry threats?

And can you quantify or apportion the magnitude and timing of these headwinds so we can understand when they may dissipate?

Sure.

I will take that.

It is Mark.

I guess there are a few issues that we touched on already.

Let me just go into them in a little bit more detail.

First of all, we have a different mix than looking at generalized industry statistics.

And I mean by that both property mix, that is where we have hotels, especially owned hotels around the world, and customer mix.

On the property side there were individual dynamics -- individual property or market dynamics that impacted the quarter, as I mentioned a few hotels by way of example.

Some of those, for example, the new absorption of new supply in Baku will be ongoing in the near term.

Others are certainly impacting the third and fourth quarter of this year, but are not likely to have ongoing comparative impacts.

Those examples in Zurich and Seoul, for example.

Secondly, our customer mix is -- we have a significant base of group business in North America, and we have seen a slowdown of the rate of growth and pace on the group side, and I will talk more about that in a second.

But we will be more impacted in our current results on a quarter-over-quarter basis by group than may be true for the industry at large.

The second major area is renovations.

We have certainly benefited from major renovations from five large owned hotels that we effectuated in 2011.

And in the current period in the near term we are seeing the negative impact on the fee side with respect to managed hotels that are -- large managed hotels that are under renovation.

Again, short-term impacts leading to a better brand representation and, frankly, better experience for our guests and better results for our owners over time.

Third, there are a number of calendar issues which we have covered and, of course, the impact of the hurricane, which I think is more general and would apply across the industry.

Second question, on a similar topic.

What is the basis for your confidence for longer-term growth?

Is it a perspective on the global economic climate, and what factors specific to Hyatt are the basis for this enthusiasm?

First and foremost, I think we got real momentum -- we got marketshare progression that reflects that we have got great brand strength that continues to punch above our weight.

Second, the pipeline growth had been really significant.

We absolutely -- we have accelerated the extension of our pipeline over the last few years, both in terms of absolute properties that we have signed up, but also relative to the proportion of our -- as a relative proportion of our total base of hotels.

So we have got significant positive momentum in that area.

And, finally, we have certainly received great feedback from the expansion of our corporate relationships and the network effect of expanding our select service properties in North America.

So our negotiated corporate volume business is actually increasing year-over-year, and I think that will continue to be the case as we continue to focus on the expansion of our select service presence around the country.

The only other point that I would make is we have got a portfolio of very high-quality owned and JV hotels in key gateway cities around the world.

And with the exception of maybe New York and Baku, these are largely markets that have relatively constrained new supply in the foreseeable future.

So I think that those dynamics will tend to be positives for us over to the medium term.

and the final question was on expectations with regard to New York in 2013 given the influx of new select service supply, and has our outlook for ADR growth at our full service properties in New York City changed as a result?

New York is a unique market.

First of all, let me remind everyone that we have got four hotels open and operating in New York today (technical difficulty) serve our customer base.

And frankly we continue to believe that there is significant room for future growth in New York.

The other thing I would say, apart from the fact that New York is made up of a number of individual markets is that New York also benefits from periods of compression -- a number of periods of compression over the course of the year by virtue of the overall demand -- business and leisure demand for the city.

So our long-term outlook for New York is quite positive.

It is absolutely clear that for given submarkets for given quarters there may be some absorption of new supply that we will contend with.

But, frankly, we are not making underwriting decisions or expansion decisions on the base of what a single quarter or two quarters will look like, but rather what does it mean for our customer base and for our brand presence over a number of years?

Great, we received a few questions on SG&A.

I will read them all at first.

Why is adjusted SG&A expense for the full year $15 million lower than previously expected?

Is the choppiness in SG&A that you mentioned on the second-quarter call expected to continue into 2013?

And what was the driver for SG&A cost guidance to be scaled back to something deferred to 2013?

I will take that.

It is Gebhard.

Our adjusted SG&A of $70 million for the third quarter was below our initial expectations, as we benefited from realignment savings as well as other initiatives implemented throughout the Company.

As Mark mentioned in his comments, the $15 million split into half run rate and half is due to initiatives throughout the year.

We expect the realignment savings to continue into 2013, partially offset by wage and other cost inflation and the selective increase in resources as we allocate some resources towards growth initiatives.

Overall, we expect the net impact to result in a flattish SG&A growth in 2013.

We have noted in the past that we have committed additional resources to development, including support services over the past 12 to 18 months, and we have also expanded our activities in new capabilities, including our renovation efforts as well as customer data analytics.

We have concurrently consolidated activities as well as reallocated some funds towards these priorities, so we are able to minimize total SG&A growth as we reallocate.

So in summary it is a little too early to know exactly the quarterly progression, but at this time we feel good about flat SG&A for 2013,

The next couple of questions were on the topic of group business.

The near-term slowdown in group activity that we mentioned are there any industries or groups in particular that are being impacted, and does that mean visibility is lower?

And then on group booking negotiations are companies leveraging the weak RevPAR trends of late to push for more favorable terms than you would like to offer?

Let me just address the specific questions that were asked and then maybe spend a minute on group more broadly.

First of all in the third quarter and heading into the fourth definitely a slowdown in the rate of growth in group bookings for corporate customers.

And I think a lot of that has to do with uncertainty due to the fiscal cliff, the election and the like.

Government business was particularly weak -- it was down in the third quarter for us significantly, so if you look at our third-quarter results we had a slight decline in room nights for group bookings for the quarter.

More than 100% of that decline was derived from government business.

Part of that is demand and part of it was yield management decisions that we undertook to actually trade away from some of that business.

So some unusual short-term impacts on the government side.

In terms of industries, tech remains quite strong and the financial services sector is a bit weaker.

The other thing is I think about group business evolution overall that I would point out is that we have really seen a more pronounced bifurcation in the third quarter than we have seen in the past between corporate and association groups and between short-term and long-term bookings.

So the short-term booking pace in the quarter for the quarter and in the quarter for the year bookings is still dominated by corporations.

And when we see the production in the third quarter our total production in the third quarter was up significantly, up 12% year-over-year.

The vast majority of that was associations booking into 2014.

And we believe that the reason we are seeing that is because associations are looking out further in the future.

They are seeing higher levels of overall occupancy and are now beginning to secure dates for major meetings that they have got planned for 2014.

So we have a bit of a barbell going on in the sense of very different dynamics, short-term among corporate groups and longer-term among associations.

In terms of overall pace it is still positive for 2012, 2013 and 2014.

The pace of growth or the rate of growth has actually declined a bit and rate growth continues to be positive across all the booking periods.

So I would say that there is a bit of a mixed picture here, but the key drivers that we are looking at are the segregation of pre-booking into which periods, but also looking at rate progression that remain positive across all the period.

We received two questions on margin performance and comparisons related to portfolio changes.

First, what would you attribute the weak comparable owned margin growth of 20 basis points to?

Is this close to the run rate you would expect to generate over the next year?

Mark referred to in his comments to a tough comparison with the last year-over-year comparisons.

We had a property tax impact of about 100 basis points on owned margins.

But let me give you some additional factors impacting margins.

As mentioned, we continued to experience some challenges in some of our international markets, which contributed about 50 basis points.

We have overall liked the food and beverage expect coming in -- than expected, particularly in the high-margin banquet revenues.

We have had some large meetings and convention business with significant food and beverage business attached to it in 2011 that was not repeating in 2012.

And we have had fee with fee owned properties under renovation in the third quarter.

So when you look at the margin run rate for next year we need to keep in mind that there is a certain level of RevPAR growth that needs to be maintained in order to expect margins growth given cost inflations.

So the mid-single-digit RevPAR growth would indicate that there is margin growth considering that there is a variety of different factors from a cost inflation depending on the global distribution into markets that we are in.

It is also strongly dependent on the rate occupancy mix from a RevPAR perspective.

Okay, how did the five renovated properties in the LodgeWorks portfolio do in RevPAR and EBITDA growth in the third quarter?

The five renovation properties contributed about 250 basis points in owned and leased RevPAR.

And the EBITDA contribution of renovations in the LodgeWorks acquisition was over $50 million as Mark mentioned in his script -- in his comments.

I would just add to that.

I mentioned earlier the third-quarter impact of the change in the timing of the Jewish holidays in New York.

One point on this topic that I would further point out is we talked about that in the context of RevPAR.

The fact is that if you look at food and beverage progression year-over-year we actually had a very strong food and beverage quarter in New York in 2011.

So I would look at the banqueting, for example, at the Grand Hyatt New York, which is about 75% of our total F&B revenue in New York, is down 8% year-over-year, while [Outlets] restaurants, which represent about 25% of the total F&B revenue in that hotel, were up 10%.

So you have got both the dynamics of RevPAR impact from the change in the timing of the Jewish holidays, but also in addition to that the F&B evolution, partly because we had a very good third quarter of last year and largely because we had a significant decline in banqueting this year.

Great.

The next couple of questions are on the impact of Hurricane Sandy.

What has been the impact of Hurricane Sandy thus far chainwide, not just in the New York City and DC metro areas?

So it is really -- first and foremost, just to reiterate, all of our guests and our associates are safe, so that is by far the most important fact to note.

Honestly, it is too early for us to make a good estimate, a reasonable estimate for the impact.

We do have one hotel that is shut down at the moment, and another that is partially shut down.

Otherwise, we are open and operating and we have got high levels of occupancy.

So our transient business has actually improved, although we were already running relatively high occupancies in a number of these hotels.

The big impact is really group business and banqueting.

These are -- this results from cancellations of meetings really during the course of this week.

We are seeing the impact not just in New York, but also in Washington DC, for example, and in Boston.

And a lot of that has to do with -- had less to do with the damage in those cities or to our hotels or to power availability, but rather to air travel, because a lot of the air travel disruptions are causing a cascade effect across a number of different markets.

So still too early to say for sure what the impact is going to be.

What impact, if any, is there to Hyatt from the dangling crane at 157?

Okay, so first, the 157 building where the famous dangling crane that is shown on CNN pretty much 24/7 is the same building in which the Park Hyatt is going to be located.

By way of reminder, we are not actually building the building of the hotel, and so we are not actually involved in the construction activity.

We have a very, very strong partner who is developing that building and they have got a great team on the project.

So I am confident they are doing everything that they possibly can to rectify that.

There are clearly going to be possible delays in the timing of the completion of the building and of the hotel, but at this point it is really impossible for me to know.

And that is really the update as of the moment.

Okay, we received a question on international trends.

Can you provide some color on which international markets were weak, which ones do you view as suffering from short-term transitory difficulties that should reverse in the near-term, and which ones appear to be impaired the most over the next 12 to 24 months?

Well, we continue to experience some challenges in some of the international markets.

As Mark mentioned earlier, some is supply, some is difficult comparisons.

RevPAR performance is expected to be weaker in China given the political changes.

In addition, Beijing has seen a drop in corporate business, which has been postponed until after the elections.

We have seen a tightening of government spending, particularly in the south of China.

Once the election is over we anticipate corporate demand will return to more normalized levels.

India, RevPAR was also weak due to the traditional supply and the decrease in demand as a result of slowing economic growth.

Most markets are not expected to see a rate increase as a result of the increased supply near term, such as Mumbai and [Pele].

Okay, great.

The next one is on the pipeline and distribution.

Please provide an update on Hyatt's strategic efforts to grow its distribution.

Has the climate for portfolio deals improved?

Our pipeline remains quite strong.

I mentioned earlier the momentum that we got in the new properties that we have -- for which we have signed contracts.

The actual pipeline statistics we have not adjusted from the second quarter to this quarter.

Having said that, the pipeline statistics do not include real-time transactions.

So for example, the conversion in India that I mentioned earlier is not included in the numbers nor is the project in Minneapolis that I made reference to earlier.

So I would say that we feel very good about the progress that we made and the momentum that we've got and the continued demand for our brands.

Two questions on the realignment.

Can you please provide more color on the realignment costs and the potential impact on the fourth-quarter?

Are the realignment costs expected to continue into 2013?

Two-thirds of the realignment costs is related to severance and personal expense and one-third is -- will be going into professional fees.

The expectation is there minimal impact in the fourth quarter from a realignment cost perspective, and there are no realignment costs in 2013 as we perceive now.

Did the prior guidance on SG&A include the $12 million of realignment costs booked in the third quarter, and does the updated guidance on SG&A include that $12 million?

Neither prior nor current numbers include the realignment costs.

These are costs recorded in other income and loss.

Last question.

Were any of the shares repurchased originally Class B shares?

All of the shares we repurchased during the quarter were Class A shares.

By way of reminder, upon conversion -- sorry, upon sale a Class B share automatically converts to an A share.

But with respect to our activity we purchased all A shares during the quarter.

That captures the questions we received in advance.

We would like to now take your questions.

Please limit yourselves to one question and a follow-up.

And, Clinton, may we please have the first question?

(Operator Instructions).

Steven Kent.

Could you just talk a little bit about franchising versus managing as you move forward?

We have heard from some of the other hotel companies who feel that the owners want to move more towards a franchising agreement rather than a management agreement, and I just wanted to hear your views on that and whether we should expect a change in those streams of earnings?

And as part of that would you encourage franchising or start to provide some form of key money or other incentive to get people do join your system?

It is Mark.

As I look back over time our relative proportion of franchise properties has been quite modest.

I think we have something in the range of 16% or thereabouts of our total room base around the world that are franchised, and the remainder are managed.

So we are relatively early in our franchising activity base.

A lot of that had to do with the expansion into select service.

Most of the activity on the select service side in the United States is through franchise arrangements.

And outside the US very limited franchising; only a few properties franchised outside the US.

In terms of our pipeline, about 75% of our total pipeline is outside the US, and virtually all of that is for managed properties.

And within the US it is a mix of management and franchise, but more franchise than managed.

And mostly -- and more select service then post service, in North America at least.

From a corporate perspective, we recognize that the key for us getting into the franchising business is really going into the franchising model with great partners.

We were relatively new to it as of six years ago, and we really took great effort to select great partners and really focus on the delivery of our guest experiences through the franchise partners.

In terms of an economic impact the fee basis is attractive in either case, so we don't really distinguish a relatively more or less attractive fee structure for franchise or managed because we actually engage in ownership management and franchising.

I would say that the -- as we look at particular sources of capital in particular markets, we have found it very helpful to work with some of the franchise management companies that we had been working with to secure transactions along the way.

And we have used either key money or other forms of capital support in order to secure some of those projects.

But it is -- I wouldn't describe it as relatively more than what we would engage in and try to do in the context of a managed property.

Okay, thank you.

Josh Attie.

Can you tell us more about the G&A savings -- $15 million of G&A savings is a lot to come up with in three months.

For the $7 million that is recurring is that -- can you give us more detail on where that is coming from or are you not pursuing growth avenues that you thought you would be pursuing three months ago?

And for what is one-time can you give us more detail on what exactly some of those items are?

Sure, first of all, in terms of our focus on supporting growth efforts on the development side as well as customer data initiatives and analytics initiatives that we had underway that we described and discussed in the first quarter and the second quarter those remain high priorities for us, and we continue to put resources behind those initiatives.

So we have not reduced our level of effort or our spending or our staffing against those key areas.

What I would say is that we -- through the realignment of the Company, which was really designed to increase our agility and adaptability over time, and to push decision-making down through the organization in a more affirmative way, we found a number of opportunities over the course of the year as we move toward implementing the realigned organization, which took effect on October 1.

We found a number of opportunities to consolidate and make more efficient a number of functional areas which are what I would describe as engaged and running -- having the Company operate -- that is running the trains on time, so to speak.

So what we have been able to do is realize some savings through consolidation and efficiency efforts around those areas.

And we have also reallocated resources towards the areas that I mentioned earlier, the key priority areas in innovation, customer data management and development.

With respect to -- and so, therefore, a lot of the run rate expense, which is about half of the $15 million that we described this year relates to personnel and staffing issues.

With respect to the remainder there are other third-party contractual -- we underwent a third-party contractual review around the world.

We looked at professional fees and expenses.

We also recognized that under the old organizational structure we had a number of open positions embedded in our SG&A estimate that would no longer apply by virtue of the changes that we made structurally.

So that is the nature of the evolution of what we have done.

The key area that -- the key thing that I am focused on is having more holistic regional teams who are really expected to be more responsive and faster to make changes and adapt to changing circumstances in each of the local markets in which we are operating.

Each of the three region heads now report to me directly.

And the second thing I would say is across the board embedding more agility and adaptability as we move forward.

And I'm happy to say that is early days, it has only been a month, but it feels very good in terms of how things are working and how we as a senior executive team have come together and are now taking the Company forward.

Thanks, that is helpful.

And on the 57th Street development project, do you have any -- I know you have a fixed price to buy the asset at when it is completed, but do you have any financial exposure if it costs them more to build it or if there is any damage along the way because of the hurricane?

Under our contract, our participation in this is with our partner to acquire the hotel upon completion, and it is at a fixed cost.

So the answer is no, we don't have any financial exposure.

Okay, thank you very much.

David Loeb,.

Mark, you gave a technical answer about buybacks, but can you give us a substantive answer.

Were the shares you bought back previously Class B?

shares?

In other words, did you buybacks from family members or other insiders or was this -- where these unrelated sellers?

Well, all of the buybacks that we did were effected in the market.

So the answer is whether an individual share -- so if you imagine a certificated share, if it happened to have previously been a B share that got converted to an A share or not, is really impossible for me to say.

Shares are fungible once they are A shares.

So I (multiple speakers).

Yes, but I guess, what you do know is -- and this is my follow-up, I guess -- but what you do know is whether you bought those in individually negotiated transactions or you bought them on the open market.

That would certainly (multiple speakers).

Yes, we just said open market.

We bought them on the open market.

Okay, thank you.

Nikhil Bhalla.

Just a follow-up question, Mark, on the group segment demand issues that you alluded to before.

Are you able to collect any attrition and cancellation fees because of these group cancellations or just given what has happened with Hurricane Sandy there are clauses in place which restrict Hyatt or most of the lodging companies to basically collect attrition and cancellation revenues?

Thank you.

I guess if you are asking specifically with respect to the hurricane, my answer is that we engage with each customer really one by each.

The primary activity that you engage in when you have got something like this that occurs is to look for how to accommodate that customer's needs in a different timeslot or in a different property.

So the number one thing that you immediately turn to is can we actually serve you in a different property or at a different -- in a different time frame.

And so the answer is that we are actively working with a lot of customers at this time who have canceled quite a few events at our hotels up and down the Eastern Seaboard.

And so we will certainly be working with them in a very proactive way, which may include the waiver of some cancellation fees or the restructuring of the arrangement that we have got with that corporate customer or the other -- the group customer for a future meeting.

Got it.

Thank you very much.

Smedes Rose.

I just wanted to get a little more color on your strategy for your own select service hotels.

You sold eight of them.

Would you expect to continue selling?

I guess you still own a lot relative to other brands.

And then, also, do you -- could you just say what about those eight were picked for sale to Summit versus say other ones in your portfolio?

Thanks for the question.

We talked previously about really looking to utilize our asset base, our owned select service asset base, to accomplish a few goals.

One key goal was to expand ownership of our select service brands by solid institutional owners, and I think that the transaction with Summit absolutely serves that initiative and that goal that we had.

They were also committed to investing in the properties over time, and it was a very good way for us to expand ownership.

Different outlets for developers who are currently developing or currently own Hyatt Place properties is one of our key areas of focus.

Since we do have a large portfolio of select service properties we will continue to look at different ways in which we can utilize that asset base through sales or in some cases JVs.

So we contribute, I think it was eight hotels to a JV with Noble last year, or possibly the year before, I'm losing track of the timing.

And the purpose of that was to really serve as a capital base for new developments of new properties over time.

So we really looked to utilizing our assets in both of those cases to serve purposes other than just realizing good value for the asset themselves.

In terms of the discussion with Summit we engaged in a dialogue with them about their interest in expanding their ownership in select service properties and in particular Hyatt brands.

And through the discussion we identified markets that they were interested in that we were also interested in pursuing a sale of properties in, and some of those were -- actually I think virtually all of them were part of the original AmeriSuites acquisition that we made in 2005.

And it was really a dialogue directly with Summit on a really focused basis because of goals they wanted to achieve and satisfy and goals that we wanted to achieve and satisfy.

So we will continue to pursue transactions for both full-service and select service properties, but on the select service side we have been highly focused on trying to find new and different ways to expand our ownership and end up with good owners long-term for our properties.

Great, thanks.

We currently have no questions left in the queue.

I would like to now turn the call back over to Atish for closing remarks.

okay, thank you very much.

We would like to thank everyone for joining us this afternoon.

We look forward to speaking with you soon.

Thank you very much and goodbye.

Thank you, ladies and gentlemen, that concludes your conference call for today.

You may now disconnect.

Good day.