Hyatt Hotels Corp (H) 2012 Q4 法說會逐字稿

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

My name is Carolyn and I will be your Operator for today.

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

We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions).

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

And now I would like to turn the call over to Mr. Atish Shah, Senior Vice President, Investor Relations.

Please go ahead.

Thank you Carolyn.

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

We want to thank everyone in the investment community for joining us.

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

Mark is going to start by making some brief remarks, and then we're 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 that is described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, February 13, 2013, 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.

And 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 as a reminder, we completed our realignment on October 1, 2012, and that changed our operating and reportable segments.

We recast our historical segment information and posted it on our website, in our IR Fact Book.

The Fact Book posted today does contain historical segment revenue information that was requested earlier this week.

So please let us know if you have any questions on it.

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

Thanks, Atish.

Good morning, and welcome to our fourth-quarter 2012 earnings call.

Today I'd like to cover four key topics.

We'll begin with a quick reminder of the principles by which we operate Hyatt.

Next, I'll highlight fourth-quarter and full-year 2012 results.

Then I'll provide a status report on investments that we've made over the last few years.

And finally, I'll discuss our thoughts and 2013 and beyond.

I'd like to start by way of a reminder of how we are operating the Company.

First, we manage Hyatt for the long-term.

We are in a cyclical business.

And most attributes of the business our long-term in nature; like our relationships with owners that manage the franchise hotels, the development cycles for hotels, and the lifespan of hotel properties.

Second, we have two primary drivers of earnings growth, namely improving results from existing hotels that we own, manage and franchise; and secondly, expanding the number of hotels under our brands.

These two areas of focus inform our allocation of resources over time.

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

We do it to increase preference for Hyatt.

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

Our growth must be in harmony with the development of colleagues who can take management positions in new hotels, and the locations that our guests seek to travel to, and also in partnership with owners with whom we have shared goals.

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

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

These four points are key to understanding our framework for thinking about how we're running the Company.

And with that in mind, I'd like to now review 2012.

Last year was a good year of progress on initiatives that drive value over time in the short-term, the medium-term, and the long-term.

In the short-term, let me start by discussing the fourth-quarter results.

They really demonstrated strength in some areas, but also reflected challenges in other areas, as we noted on our last earnings call.

So adjusted EBITDA increased 2.8% in the fourth quarter over the prior year.

As we noted on our last call, the US elections, difficult comparisons, asset sales, and lower fees from large managed hotels undergoing renovations, negatively impacted results.

RevPAR levels for our owned and leased hotels for the US full-service hotels and for our US select service hotels increased between approximately 6% and 9% over the quarter.

This really reflects strong relative market performance, healthy transient demand, and some benefit from renovations in prior periods.

RevPAR growth outside the US was more muted and more varied across markets.

In particular, RevPAR growth in the EAME/Southwest Asia region and the ASPAC region was approximately 1% and 3%, respectively, excluding the impact of currency.

Market-specific factors, difficult comparisons, and nonrecurring events such as the political transition in China, negatively impacted RevPAR growth in the quarter.

Moving on to full-year 2012 -- for the year, we grew adjusted EBITDA by 12.6% over 2011.

Recently-renovated hotels performed well in most cases over the course of the year, showing good progress in RevPAR levels and market share.

We added 22 hotels to our portfolio, increasing our total base of hotels by about 3.5%.

That's net of hotels that left the portfolio.

Of the 22 new hotels reopened, 13 were in new markets.

We acquired two properties in the course of the year -- one in Mexico City, which we rebranded the Hyatt Regency Mexico City; and the Hyatt Regency Birmingham in the UK, which was an existing managed property.

Purchase price for both of those hotels was about $235 million in total.

We also sold approximately $140 million of assets, while retaining long-term management contracts over the course of the year.

We also returned about $136 million to shareholders via repurchases of our common stock.

We recently announced exciting conversion deals and in France and India that will pull forward our expansion in those markets, and will also accelerate management fee growth in the short- and medium-term.

Under these two transactions, we intend to convert a total of nine hotels to our management by the middle of 2013.

These transactions demonstrate the demand for our brands as well as our ability to apply innovative structures when doing deals.

Our arrangement in France brings to us four iconic hotels in high-barrier-to-entry markets of Paris, Nice, and Cannes.

Each will be managed under a long-term agreement.

Together, these hotels will substantially increase our presence in key markets in France.

We also announced a joint venture with Host Hotels & Resorts to develop a Hyatt-branded vacation ownership project Kaanapali, adjacent to the Hyatt Regency Maui.

This is a great project with a strong partner on a one-of-a-kind site.

It is our first new investment into vacation ownership in several years.

And it's consistent with our strategy to invest in vacation ownership projects that are complementary to our lodging business.

This project provides great exchange opportunities for existing owners that are part of our Hyatt Residence Club, and also opens up an exciting new project to which we can welcome new owners.

We expect to earn attractive returns on our capital investment.

And we will also be receiving fees associated with our marketing activities and ongoing management of this property.

During 2012, we made significant progress towards longer-term growth and sustainable value creation over time.

Last year we expanded our executed contract base for new hotels by 30 hotels, or by more than 15%.

We are anticipating several more years of growth in the current lodging cycle, as well as increasing levels of interest for our properties and brands in a number of important markets around the world.

In 2012 we invested approximately $150 million in non-wholly-owned new hotel developments.

These investments took a variety of forms, such as joint venture equity and loans.

The investments relate to projects within our executed contract base that are under development and slated to open in the next several years.

Looking farther out, we have significant levels of capital committed to new projects concentrated in high-profile new hotels in Maui, New York, Rio de Janeiro, and other markets.

Our balance sheet remains very strong, one of the strongest in the industry.

And we're poised to take advantage of new opportunities to grow our presence.

So now I'd like to turn to provide you with an update on some significant investments made over the last few years.

In 2010, we invested approximately $60 million in the form of preferred equity as a part of the redevelopment of the Hyatt Regency New Orleans.

We anticipated earning a low-teens percentage return when we underwrote the deal.

But based on the strong performance of the hotel, our current expectation is that we'll earn a return higher than that, in the mid- to high-teens.

In addition, the management fee earnings of the hotel have been strong are expected to grow over time, as the hotel continues to ramp up and its group business returns to New Orleans.

In May 2011, we acquired three extended stay hotels in California, and projected reaching a 10% cash-on-cash return by stabilization.

We're well on our way towards that, with a 2012 adjusted EBITDA yield of over 10%, which we expect to increase after we renovate these three properties.

We acquired a group of hotels from LodgeWorks in the second half of 2011.

At that time, we expected to earn about $40 million of adjusted EBITDA in 2012 from those acquired operations, net of overhead that we assumed.

In fact, we earned nearly $45 million in 2012, net of overhead.

Our market share has expanded significantly as the RevPAR index for these hotels increased by over 6 points for 2012 versus 2011.

Last May, we acquired and rebranded a hotel in Mexico City and indicated that we expected to earn $8 million to $10 million of adjusted EBITDA from May to December of 2012.

We actually earned over $10 million dollars of adjusted EBITDA during the 2012 ownership period.

And we expect over twice that level of earnings in the full year of 2013.

We continue to plan for an expansion of meeting space and an increase in the number of suites in this hotel to further enhance its strong performance.

We acquired the Hyatt Regency Birmingham in England this past November, with an expectation that we would earn $5 million of adjusted EBITDA in 2013.

While it's still early days, based on progress with that hotel, we believe we could exceed our initial expectations.

In summary, we feel really good about these investments that we've made over the last 3.25 years since our IPO.

Each is on track, thus far.

And we're highly confident that we are creating significant brand value and enterprise value through this activity.

Let's wrap up with a discussion about the future.

Looking ahead, we expect 2013 to be a year of stable growth.

While we believe that the first half of the year has the potential be somewhat choppy, we're optimistic for the whole year, based really on four primary indicators.

First, 2013 group pace for full-serviced managed hotels in the US is up about 4%.

We're seeing significant levels of group production.

December was our busiest group production month since late 2007, and January was good as well.

While the booking window is lengthening in certain cases, we're still seeing high levels of activity for close-in dates.

For example, 40% of the group production in January was for the following 90 days.

Second, our corporate negotiated rate discussions have yielded mid- to high-single-digit percentage rate increases.

Third, transient demand continues to bolster results.

Overall occupancy levels are at or greater than prior peaks.

In fact, full-year 2012 occupancy rates at our full service comparable owned and leased hotels were approximately 400 basis points ahead of prior peak in 2007.

Average daily rates are still behind prior peak levels in nominal terms, which indicates to us that there is high potential to increase rates; and, as a result, improve margin flow-through.

Fourth, we've renovated several of our key owned hotels over the last few years.

We know that the post-renovation performance of those hotels provides a solid backdrop for continuing earnings momentum and increasing market share for Hyatt over time.

While we are characterizing our outlook for the year of stable growth, there will likely be quarter-to-quarter volatility in reported results.

The reasons are ones we discussed, including uncertainty over tax and economic policy in the US that can translate into challenging market conditions; the fiscal situation in Europe; and economic headwinds in the Eurozone, in parts of the Middle East and in India.

For Hyatt, we expect certain specific items may negatively impact us the first part of this year, and the impact will lessen as the year progresses.

These items would include the ongoing renovations of several large managed hotels, both in the US and an the ASPAC region; market conditions in several international markets, with significant new supply growth such as Baku and some cities in India; lower levels of government demand in some markets; specific areas of expense pressure, such as insurance costs and real estate taxes for owned and leased hotels; and a continued lag in the recovery of F&B spending, as groups and banquet customers limit their spending.

We expect these items to negatively impact us by $3 million to $6 million per quarter, over the next several quarters, primarily due to lower fees as a result of renovations of managed properties.

We expect that this level of quarterly impact will start at the higher end of the range, exacerbated a bit by the timing of Easter this year, and will trend down as the year progresses.

We expect to make additional progress on asset recycling and investing in 2013.

We've engaged brokers to investigate the potential sale of six owned full-service hotels in the US.

These hotels, in the aggregate, earned about $25 million in adjusted EBITDA in 2012.

As the marketing process has just begun, we're unable to predict if we will ultimately sell these hotels.

If we do, we will maintain brand presence through long-term agreements.

Each sale will be dependent on pricing, owner profile, the level of capital committed to the hotels, and other market- and transaction-specific factors.

As we've discussed in the past, we remain active in looking at different ways in which we can expand institutional ownership of Hyatt-branded properties through dispositions or joint ventures of our owned assets, with special focus on our select service properties.

By the way, as a reminder, we will not announce sales until they're closed.

On the buy side, we're looking at a number of potential new investments, including acquisitions and investments in joint venture hotels, both existing JV properties and new properties in the US, Latin America, and in Europe.

Deal flow is higher than it's been over the last few years.

And we're actively looking at investments in excess of $100 million in these types of projects.

The ultimate investment amount could be significantly higher or lower, depending on how venture financing discussions with partners and acquisition opportunities evolve.

Separately, we are progressing with development of several projects that are already underway, including, for example, the Grand Hyatt in Rio de Janeiro; and a new-built Hyatt Place in Omaha.

We expect the capital expenditures in these new development projects to be approximately $120 million in 2013.

Generally speaking, our investments have been focused on areas in which capital is required to secure opportunities in particular markets.

We've been focused on gateway cities in which we are looking to enhance our brand presence.

While this continues to be the case, we will be flexible on opportunities that appear to be high-return deals in an attractive market that are also important for Hyatt in terms our presence.

The acquisition of the Hyatt Regency Birmingham in the UK in November of last year is a good example of this.

We acquired this property for less than 9 times our expectation of 4 to 12 months adjusted EBITDA, and secured our future in an attractive market.

Finally, our executed contract base continues to reflect growing interest in our brands.

Our executed contract base represents over 200 hotels and 45,000 rooms as of the end of 2012.

This represents over 40% of our existing portfolio of 475 hotels, which is higher than it's ever been.

More importantly, our pipeline properties are high-value for us.

Not only do they represent entry into many new markets for our brands, but almost half of the contracts are for full-service hotels in international markets.

As we've said several times over the last three years, we operate with a long-term perspective.

The outlook for our Company is very bright, notwithstanding the specific challenges we've discussed.

We continue to be very positive on the overall supply and demand dynamics in the industry.

We're very happy with our brand performance.

And we remain highly engaged with our colleagues, our owners, and our customers, as we continue to drive preference and expand our presence.

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

Thanks, Mark.

That concludes our prepared remarks.

For our question-and answer-session, we'll start with the topic of owned margin performance, as we received several questions with regard to owned margins this morning.

I'll summarize the questions and say -- can you clarify why comparable hotel margins declined in light of the positive ADR growth, especially considering how strong of RevPAR growth was?

Was it from weakness in group F&B and meeting rooms spend?

How much was from insurance costs and/or was it one-time in nature?

Good morning.

We had strong RevPAR growth of 7.5%, but our owned and leased margins were impacted by a number of nonoperating items.

These nonoperating items, which include higher insurance and taxes, impacted margins by approximately 200 basis points, of which about half is expected to be nonrecurring.

Excluding these items, margins would've been flat.

Our own margins were also impacted by weaker international markets and relatively lower group F&B spend, as groups continue to be cautious in their spend.

So here, a note on geography, international RevPAR was weak, as I mentioned, which resulted in a weaker GOP performance in the portfolio.

However, from a cost per occupied room management, this was flat, and was kept in line with revenue growth.

The underlying margin decrease is good property level management for that, which was offset by the non-management items.

We face also tough comparisons as margins increased about 180 basis points in the fourth quarter of 2011.

If I could just add to that, I think the -- the couple things that we look out over time, which is we've forever said that we remain very focused on and disciplined around how we are actually managing costs at our properties.

And if you look at costs per occupied room, which is not the only measure that's relevant, but it is one metric; it's been flat basically since 2007.

So we've actually found enough productivity measures and different approaches to providing services to the hotels to maintain relatively flat cost per occupied room for full-service hotels in the US over that period of time.

For our select service hotels, partly by virtue of some shared services initiatives, we've actually seen a decline over that period time in cost per occupied room.

So that's the first point I would make is that the focus remains very high, and on the operating side saw a very strong performance at the GOP level.

It was really after you take into account insurance and taxes that we had the problem.

The second point I would make is that given our portfolio, the diversity of the regions in which we operate, we will have volatility from quarter to quarter.

I think if you just look at the year-over-year comparison, we were up 180 basis points in the fourth quarter of 2011; and down and/or flat, if you take out the one-timers in the fourth quarter of 2012.

That pretty much demonstrates that you will see volatility quarter to quarter.

The key for us is, over time, are we actually continuing to manage well?

And even with those things we don't have direct control over -- insurance and property taxes -- are we being proactive about seeing what we can do in those areas?

And the answer to those questions is yes.

The next topic is group.

We received a few questions on group business.

We'll ask each one individually.

First, we have heard from others that the weakest segment is large groups.

Is that the same for you?

How is this segment performing?

As Mark mentioned in the prepared remarks, group pace was up 4% for 2013, half coming from rate, and half from occupancy.

We are seeing strength in the technology, retail, and manufacturing sectors.

And we had the best December and grew production since 2007.

January is up 7% in bookings relative to January 2012.

The booking window is lengthening slightly, but we still see strong short-term bookings.

Our production in the fourth quarter saw increases in short-term business, and longer-term business and 2014 and 2015.

How big of a driver was Hurricane Sandy cancellations on group event revenue?

And which markets in particular were negatively impacted by Hurricane Sandy?

The net impact on earnings was negligible.

We had some hotels with cancellations, but others with displaced guests or emergency teams hosted in our hotels.

A question related to this is -- what led to low growth in non-room revenue in the US?

This is really related to groups; more cost-conscious group plans held with lower spend.

Our next couple of questions have to do with our report on EAME revenues.

You mentioned that EAME was impacted year-over-year by a bad debt recovery, the increase results in fiscal year 2011.

Can you clarify what growth would have been without the bad debt?

And what was the bad debt recovery related to?

Growth without bad debt would've been about half of the decline.

So the recovery was approximately $2 million was related to deferred fees.

Okay, that's great.

Moving ahead, we received a few questions with regard to uses of cash.

So we'll start with -- could you address your balance sheet significant capacity and under-levered position?

Is management and the Board of Directors averse to accelerating shareholder distributions, particularly in the form of dividends?

Why is the dividends not part of the Company's total return policy, given both the Company's significant capacity to pay one, and the Company's directionally bullish view on the long term of the business?

So we think of our cash resources, along with our debt capacity and our asset base, really in the context of our focus on utilizing our capital to grow our business.

So we really focus on making investments for the growth of the Company as our first objective.

We have made material commitments in the past.

We have commitments of over $550 million to investments in projects to be funded in the future.

So we evaluate our cash base in the context of those commitments, and the environment for new potential investments, because we want to maintain flexibility and be able to be opportunistic.

In the vein of return of capital, we're always discussing additional ways to return capital to shareholders.

We repurchased about $500 million of stock in 2011, and about $135 million of stock in 2012.

We will of course continue to evaluate our situation.

And all forums of capital return to shareholders will be considered.

Hyatt bought back more stock than most anticipated in the fourth quarter.

Is the $100 million a good quarterly run rate to use?

And what is managements' best IRR on use of cash/alternatives?

Well, in terms of repurchase activity, the answer to that is it's really circumstantial.

So I don't know that we can provide something that should be used as a rule, with regard to pace of repurchases.

It depends on a number of factors.

Secondly, with regard to IRRs on investments, I covered a number of -- progress on a number of investments that we've made over the last several years.

There are -- the IRRs, so to speak, will vary depending on what it is that we're investing.

That is, what is the form of the investment and in what?

What's the project?

What's the market?

What's the location?

The relative risk weighted returns for investments that we make across our portfolio vary quite a lot, depending on what the asset is and where it is.

So there is no single answer to this.

It's not one rate of return that applies.

What we're really focused on is making sure that we're deploying capital in projects that are good rates of return on a risk weighted basis; and also relevant and important to us from a strategic perspective, in terms of gaining new presence or expanding presence in key markets.

The last question on use of cash -- what capital commitments does Hyatt have beyond 2013 other than the Park Hyatt New York?

We've got projects underway.

If you look at the projects that we are funding at the moment, I mentioned we had $150 million of investments that we made in non-wholly-owned projects.

We will continue to make investments in those types of projects as we move forward.

Our expectation at this point is that that will be in the range of $100 million to $120 million over the course of this coming year.

Those are mostly JV projects that would include the Andaz Wailea, for example, which we expect to open later this year.

We also have commitments, the Park Hyatt New York is the biggest one.

We also have the construction projects in Rio de Janeiro, and other select service properties that are under development in the US and in Latin America through JVs.

Okay.

We received two questions on consolidated joint ventures.

One was -- why was the share of joint venture EBITDA down 21% in the fourth quarter?

And the second one was -- what was the share of joint venture debt, unconsolidated debt, at the end of the year?

On the first question, one-third of that relates to sales; two-thirds relate to market conditions, such as Mumbai and Latin America.

And with regards to the second question, there is about $550 million, or north of $550 million of debt at the end of the year.

We received two other questions that are a little bit bigger-picture in nature.

So the first question is -- probably the biggest pushback we get on Hyatt, both as a Company and a stock, is that it is run like a private company that happens to be public.

The perception seems to be that the Company is still controlled, though, through the [tricksters] who run it as they see fit.

Can you explain how the super voting shares work; what information they have and don't have access to, and when; and to what extent they have decision-making power at the Company?

Sure.

I'll try to be brief about this, and recognize that there is -- there are a number of documents and materials that are filed publicly that would better explain the specifics.

The first point that I would make is that with regard to Class B shareholders, the Class B shares are the ones with higher voting level.

They are owned both why Pritzker family interests that is in various trusts across a number of Pritzker family groups; and also by Goldman Sachs Capital Partners and Madrone Capital.

So the Class B shares are not only owned by Pritzker shareholders; and the Pritzker shareholders are a number of different shareholders, not a single one.

The second point I would make is that we do have two Pritzker family members on our Board of Directors.

Tom Pritzker is our Chairman.

And Penny Pritzker also serves on our Board.

We have a 12-person board with a majority of independent directors.

There are voting arrangements, voting agreements that are in place that relate to the Class B shareholders.

And those voting agreements are actually explained in detail in filings that you can find through the SEC.

And they essentially provide a voting arrangement under which those shareholders vote in line with the Board of Directors.

General principle of course in corporate governance is that Board members act in the best interests of all shareholders, not some shareholders.

So, in brief, there's a diversity of shareholders; there are two Pritzkers on our Board; they have the same access to information that other directors would have.

The other family groups don't have information access other than as shareholders, as any public shareholders would have.

And we have a very capable and excellent Board with a majority of independents on it.

Great.

With the new CFO in place, what are the key things that you would like to see changed at the Company, with respect to transparency reporting, investor outreach and guidance, communication?

What priorities have shifted, and why?

While as I've come into this position, I've seen an evolution of disclosure and reporting.

And we will continue to do so.

And you may have seen in the earnings release today that we've added some new schedules there.

We'll continue to focus on SG&A costs and margin improvements, and that's really the changes and the focus going forward.

We received a few questions on our executed contract base of pipeline and openings.

Of the 30 hotels you expect to open in 2013, what's the break-out between owned, managed, international, versus US?

That's the first question.

So with regards to openings this coming year, about half international and half within the US.

And two-thirds of all the hotels are managed properties.

Related question is -- the 30 hotels expect to open, a gross number; and if it is, what is the net number of openings expected?

It is a gross number.

There are properties that come out of our chain from time to time.

My guess is that there isn't a year that's gone by that we haven't had some movement out of the chain for individual properties that relates to different reasons.

It could be a dispute with an owner or a change in ownership of the property; a number of things that come to pass from time to time.

So it's a regular part of the business.

It's not been a huge number in any particular year.

It's -- there's no expectation that we've got for loss of properties over the course of this year.

So we're not, in effect, planning on individual properties leaving the chain over the course of the year.

And we received a question on specific openings, dates with regard two projects -- an update on the timing of the Andaz in Hawaii; when it does it open?

And the timing of the Park Hyatt in New York City opening.

So we announced -- at the time we announced the Andaz Wailea project, which was October of 2010 I believe, our original opening date was estimated to be in the fourth quarter of 2012.

Right now, our opening date is in mid-summer 2013.

So we're a bit over two quarters behind.

The reason for that is primarily due to some changes in the area programming of the property.

We changed the residential program.

We just actually began as marketing residential units at that property.

We're excited to see a lot of great interest in it.

And, also, we changed the composition of the rooms and suites, as well as some other facilities.

So that's really what caused the delay in really getting started.

On the Park Hyatt New York project, our best estimate is that the opening will be in the second quarter of next year.

There are a number of slight logistical issues that are impacting our current estimate.

But that looks like a good estimate at this time.

The next question is on fees -- why were incentive management fees down year-over-year in the fourth quarter?

And how should we think about them trending in 2013?

The major impacts to our fee growth included weaker results in certain international markets, as well as our previously discussed renovations in our managed portfolio.

So for 2013, we will see a continuation of some choppiness, as Mark mentioned in his prepared remarks there.

Next question is on renovations -- in the first quarter of 2013, do you see renovation impacting a net positive or negative for both owned hotels and fee-based hotels, relative to first-quarter 2012?

So, the owned hotels -- every hotel has some major capital activity underway at every point in time.

But in terms of major renovations, really no significant major renovations in any owned properties as we sit here today.

So, yes, some maintenance and small projects, but nothing major.

We do have some repositioning work on the Hyatt Regency Mexico City that we will do.

But we're in planning stage at this time.

So that's not going to be a short-term initiative.

And then I would say that the most significant impact -- I mentioned in my prepared remarks that the most significant impact that we see from renovation activity has to do with major renovations at major hotels in key cities.

So we have some activity in the US, which some of which is still underway in Washington DC in San Diego; large hotels that were undergoing major renovations.

And in Asia -- in the ASPAC region, we've got a number of gateway city Grand Hyatt properties which are large properties with significant revenue basis, and also significant fee earners for us, that are going to be undergoing renovations -- are undergoing renovations at this time.

And that's really the primary impact of the renovations over the course of this year.

The next question is on capital expenditures -- capital expenditure guidance for 2013 implies either a significant slowdown in spending, or on enhancing existing properties, or maintenance CapEx.

Which one is it, and why?

And, secondly, in addition you spent about $40 million less than you expected in the fourth quarter.

What drove that?

The slowdown in CapEx is partially attributed to the fact that our large owned renovations are substantially complete, and we've commented on that before -- that there's less enhancements in existing properties.

Maintenance CapEx remains relatively steady at approximately 5% of owned revenues.

And timing and spend and accruals impacted CapEx in 2012.

Next question is on our acquisition of the Hyatt Regency in Birmingham.

Could you explain the rationale for the deal?

Sure so Birmingham is an interesting story.

The hotel ended up in a form of receivership.

And we had an opportunity to acquire the hotel, really, off-market.

The purchase price was very attractive.

We bought it at something like half of replacement costs.

And Birmingham -- it's an important market.

It's the second-most important market behind London in the UK.

We only have three properties in all of England, so maintaining presence there was important for us.

And there's a lot of group activity in that market.

The hotel is located near a large group facility -- large meeting facility.

And we really wanted to control our presence in that market.

So we bought the hotel at we thought was a very attractive price.

And we expect to earn a good risk weighted return on it.

But it was also really to control our presence in that market going forward.

And the last question we received in advance is with regard to managed room count -- why is managed room count declining in North America and Asia-Pacific?

Really, it's the properties leaving the chain.

So managed room count will change for one of two reasons; one is -- it will decline for one of two reasons -- one is a hotel leaving the chain; or, secondly, the hotel converting from a managed to franchise property.

So in this case, we have three properties that -- one to change in the Americas and one in ASPAC.

Well, that captures the questions we received in advance.

We'd now like to take your questions.

Please limit yourselves to one question at a time.

And we'll take follow-up questions as time permits.

Carolyn, could we please have the first question?

(Operator Instructions).

Steven Kent.

Hi.

Good morning.

I think the reason why you got so many questions on the capital allocation side is the float is already so modest.

So why not to do a dividend or a special dividend?

And then I don't know if you've actually mentioned yet which markets which you referenced in the press release you are really seeing are expecting headwinds.

Which were these specific ones that you were concerned about?

Thanks, Steve, it's Mark.

The answer on the form of capital return to shareholders is an active topic.

So the fact is that this past year, we found -- we evaluated the circumstances and felt that a share repurchases was most appropriate; in part, because of the what we call the attractive buying opportunity, given the long-term -- our view of the long-term value of the stock.

So that was a driver there.

There has been movements in the total float over time, in part because there've been some Class B shares that have converted into Class A shares, as has been reported through public filings.

So we are mindful of the float.

and we are also mindful of the trading levels -- that is, trading activity in the stock.

And as I said earlier, we're going to continue to evaluate what we do going forward, and we'll consider all forums of returning capital.

With regards the question on markets and expected headwinds, it's really predominantly related to the international markets.

From an owned perspective, we will continue to see supply issues in Baku, we have an oversupply of hotel rooms.

We also expect continuing issues in India with regards to the economic challenges they are there and some government policies.

There are some markets in China where we see some short-term supply impacts.

But those will, in the medium- to long-term, regulate itself because there's still an undersupply and our belief in the major markets there.

And some headwinds are going to be created by the renovations in key gateway cities in Asia, as Mark alluded to earlier.

Okay, thanks.

Thank you.

We'll take the next question, please.

Harry Curtis, please proceed.

Hi, guys.

Quickly, a follow-up question on group ADR.

You mentioned about half of your expected 4% increase in group revenue was rate.

That still seems a little bit -- it seems to be lagging the ability to price up on the transient side.

And I'm just trying to get a better sense of what's holding that back.

And going back to the -- I think you mentioned -- there was a question about, is it the large groups that are the weakest segment?

I'm not sure we got an answer on that.

It would be useful to get an answer on that.

I'll take an initial shot at it.

I think the fact is that as you start to see more availability issues come to pass -- that is to say, corporations in particular looking for meeting space and room blocks for meetings, where they can't fulfill in the time frames that they become accustomed to -- that's what we'll end up starting to drive, first of all, a move out in terms of forward-lookings; but also, a base that will allow better or more proactive yield management over time.

We do have -- I described on the last call that we're seeing a bit more of a sort of a barbell bimodal distribution, if you will.

There's a lot of activity on the short end.

And that's largely corporate customers.

And there's now increasing activity further out, a year or two out.

And that's largely associations.

And they are different dynamics.

So associations are looking for specific dates in specific places with specific capacity, because it's critical to their economics.

They run annual meetings, and that tends to be the vast majority of their revenue for the year.

So we're seeing that dynamic.

And I think that our expectation -- this has been lagging.

There's no question; you are correct.

The transient side that, as we see more and more capacity being taken up, that will end up driving rate and some lengthening of the booking curve.

With respect to the second question, we sort of addressed it; but the fact is that when we look at group room revenue, the strength tends to be in the smaller room block and smaller meeting size meetings.

So I would say that the largest meetings are lagging.

They are still positive in progression, but they are lagging the progress and the rate of increase in the smaller meeting segment.

There were many potential reasons for this, and it's a myriad of different types of groups that we're talking about.

So it's very dangerous to generalize.

But that's been our experience, at least through the fourth quarter of last year.

Thanks, Harry.

We'll take our next question, please.

Thank you.

The next question we have comes from the line of Joe Greff.

Good morning, everybody.

New York City obviously is a big market for you; 11% of owned and leased adjusted EBITDA, looking at last year's results.

How do you see the New York City market performing in 2013 relative to your US performance overall?

You know, New York is actually -- no matter the Sandy impact, New York has held up relatively well as a market.

And I believe that while there will be some new supply coming into the market -- some of which will be ours, by the way -- but demand seems to be holding up quite well.

Again, more dominated by transient business than not.

I'm sure that there will be periods where RevPAR growth, if you want to take that metric, will lag the broader measures across the US or even super regional measures.

But I would say, overall for the year, I think demand level seems to be holding up.

I think the one thing that we did see that was quite pronounced in the fourth quarter is non-room revenue, I mean F&B lagging.

A lot of that has to do with our group business, cancellations of group activity around Sandy.

We're paying attention to that.

I think that we are making sure that to the extent that there are gaps in banquet opportunities for more local business, that we're taking advantage of those.

But I would say that we're still preceding what the outlook for 2013 is going to look like.

If I can take you away from New York for a second go to China, one comment I would make about that is that we -- yes, January started off very well in China.

Of course, a lot of that has to do with the fact that Chinese New Year fell in February this year, not in January.

But leaving that aside, there is effectively an austerity program underway where the government is really looking to limit the amount of entertainment that's going on -- both that they pay for, and also done on their behalf.

So that, we expect, will have a similar impact as we just described on the F&B side in the US.

So we're paying a lot of attention to those dynamics.

Thanks, Joe.

We'll take our next question, please.

Joshua Attie.

Thank you.

Can you describe in more detail what the nonrecurring insurance and tax items were that impacted the hotel margins in the fourth quarter?

I guess the bulk of it was property tax increases and insurance.

I should say those two things represented the majority of the impact.

I would guess it's roughly a 50-50 split between those two items on an impact matter.

We had some -- the nature of some of the insurance programs and workers comp programs that are operated are such that you end up with true-ups at different points in time, which leads to some lumpiness.

And, frankly, that was a significant driver of the lumpiness that we saw in the quarter.

The underlying dynamics there are not surprising.

You've got property values that are being recessed upwards, and you've got municipalities who are highly focused on revenue.

So I think that we will have our work cut out for us on the property tax fronts going forward.

On the insurance front, no particular issues that relate to the Hyatt in particular.

I think the only point that I would make is that given the way the property casualty insurance markets work, given that Sandy claims that will be coming through, my guess is that the premiums will rise.

Now it's more capital is flowing into the insurers by how much I don't know.

We -- it's a bit difficult to see how that's going to play out.

I don't think we are in any different posture than anyone else.

I'm sorry -- on the taxes, what portion was one time?

It was a true-up related to higher property values?

No, sorry, the insurance amounts -- there was a true-up there.

And the year-over-year comparison issue on the insurance front -- that's the principal driver of the one-timers.

Okay.

From the disclosure perspective, I guess I'm curious why [warranties] talked it all last November's conference call the extent that you knew that they were coming.

I would've thought with the issues around how G&A was communicated in early 2012 and the frustration that caused among a lot of investors that you would've made more of an effort to the extent -- you knew about these to reduce volatility around some of these items relative to estimates.

Thanks for the feedback.

We'll take care of those to make sure that we do do that.

I think we took extraordinary measures in the fourth quarter -- in the third-quarter call, rather -- to make sure that we were identifying all the major things that we saw.

The fact is that when you look at operating margin performance, we were quite pleased with what we saw at that time.

And, frankly, we ended the quarter -- I think our US properties, for example, the GOP were up almost 200 basis points.

So we were quite happy with the operating margin performance.

I think these items is some measure are not able to be predicted with great precision until you complete actuarial analyses, and also have final acquisitions of property tax amounts, some of which is out of our control.

But, point taken.

I think what we're trying to do is make sure that to the extent that we can identify things that we have reasonable visibility to, and is somewhat predictable, that we're communicating that more and more.

Of course, we can always do better, so we appreciate the feedback.

We'll take our next question, please.

Nikhil Bhalla.

Hi.

Good morning.

You know when you talk about your group base being up 4% for 2013, how does that compare to what you saw maybe a quarter ago?

It's a good question.

So when we had our call in early November what we were seeing at the time -- and we described it as a deceleration of growth in the group side, and it was.

November turned out to be a truly terrible month.

And so we were at the front end of that.

We didn't know how it would end.

But we didn't see any good signs at that time, which is why we communicated what we did.

It turns out that December was, as we described it earlier, one of the best Decembers we've had since 2007, I think.

So I would say our sentiment about group was glass half-empty as we were sitting here in November of last year.

And right now, while it's not evenly dispersed over the course of the year, and second half looks a little bit better than the first half from a pace perspective and things like that, I would say feels more like a glass half-full.

Got it.

And just in terms of absolute terms, it is the pace overall the same as what you saw in third quarter with some near-term bookings improving?

Or was the pace actually much lower at that particular point in time?

The pace was lower -- the pace improvement was lower than where we are today.

In terms of the profile, I would say the booking curve has moved out a bit.

So if you do it by averages, which I think may be dangerous, I would say it has lengthened out a bit.

There is no question, though, that we still see significant activity, booking activity, for the near-term.

So the coming 90-day period, for example, is still a significant amount of what we end up booking in the most recent month, let's say.

This was up in a very low-single-digits in the third quarter.

And as we said, it's up 4 now.

Got it.

And just a follow-up question on the government segment that you talked about earlier.

If you could just give us a little more color on what you're observing in terms of government demand.

Is it more on the transient side because of per diems?

Or is it more on the growth side?

Thank you.

The comments that we made earlier related to group activities, not the transient.

So of course there are austerity measures that have been put into place.

And there are some per diem issues.

So I would say we've had a similar evolution of decline in government business, both on the transient and the group side.

It's been more pronounced on the group side.

Great.

Thank you.

Carolyn, we'll take our last question, please.

There are no further questions in the queue, Atish.

Great.

And thank you very much, Carolyn.

With that, I'd like to thank everyone for joining us today.

We look forward to talking to you soon.

Thank you, and goodbye.

Thank you, Atish.

Thank you for joining the call today.

That concludes the presentation.

You may now disconnect.

Have a good day.