Hyatt Hotels Corp (H) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2013 Hyatt Hotels Corporation earnings conference call.

My name is Glenn and I'll be your operator for today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Atish Shah, Senior Vice President of Investor Relations.

Please proceed.

Thank you, Glenn.

Good day everyone and thank you for joining us for Hyatt's third quarter 2013 earnings call.

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

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 emailed to us this morning.

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

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 this morning, along with the comments on this call, are made only as of today October 30, 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.

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, per the information included in this morning's release.

Before we get started, I wanted to point out that our release this morning contains a new schedule at the very end.

The schedule provides a list of transactions impacting the year-over-year comparison of owned and leased adjusted EBITDA, excluding joint ventures, and we will be providing this schedule on a going forward basis.

Also, I'd like to let you know that we will be having an investor meeting in the first quarter of next year.

We are planning on holding the meeting on Friday, March 14 in New York City.

We will be sending out a save the date with more information next week.

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

Thanks, Atish.

Good morning and welcome to our third-quarter 2013 earnings call.

We made a lot of progress on a number of fronts in the third quarter and I'd like to discuss those first, and then turn to talking about our results.

One of our key strategies is to expand our presence in new markets, or in markets in which we are underpenetrated -- underrepresented.

We have made a lot of progress on the strategy since our IPO four years ago.

We've opened hotels in over 60 new markets since then.

This year, the pace of activity has accelerated.

We are on track to open over 45 hotels in 2013, representing almost 10% growth in our system size.

This is a record level of openings for us and reflects the great work of our development and operations teams around the world.

The strength of our brands and the investment of significant levels of capital from us and many third-party owners is reflected in this.

We continue to grow our executed contract base for new hotels, which increased in the quarter and stands at a record 215 hotels, or 50,000 rooms.

I would like to talk about two recent openings in particular, hotels in which we have invested significant capital.

First, we opened the Andaz Maui at Wailea in September.

This is the first Andaz resort in our system and it's opened to rave reviews.

It's a one-of-a-kind property, located in Wailea, which is a master-planned resort area along the island's south shore.

And it's the first new resort on Maui and well over a decade.

As you may recall, this resort was developed by a joint venture between Hyatt, Starwood Capital, and a local partner.

We own, at this time, approximately two-thirds of the venture.

The resort includes 297 guest rooms, including 35 suites and seven villas that are part of the resort inventory and an oceanfront restaurant leased to Morimoto.

In addition, there are 12 villas that were built for sale to individual buyers.

The projected development cost is approximately $340 million, of which about $120 million is funded by project level debt.

As to the 12 villas that I noted, we expect to sell them over time.

And two of the villas are under contract, and that resulted in a $12 million gain recognized by the venture in the quarter.

So, initial indications are that this resort, together with the residential component of the project will do quite well.

We expect the resort to ramp up over the next one to two years, as it becomes better known by key customers in the Western part of the US and in key Asian markets as well.

The second opening that I'd like to talk about is the Hyatt Regency in Orlando.

We acquired the 1641-room Peabody Orlando for $717 million on October 1 and we rebranded it as Hyatt Regency Orlando.

This is our largest single property acquisition in our history.

As you may recall, we've talked for some time about growing our group-oriented presence.

And given the significance of Orlando as a meetings destination, we'd always considered having 1000-plus room hotel in Orlando as being critically important to rounding out our strong network of large group-oriented hotels in a number of US markets, cities like Atlanta, Chicago, Dallas, Denver, New Orleans, San Antonio, San Diego, and Washington, D.C.

In particular, we've been focused on the Orlando submarket adjacent to the Orange County Convention Center, which is the second-largest convention facility in the US.

About 13 years ago, we acquired 45 acres of land near the convention center and adjacent to the Peabody Orlando.

We bought this land in order to build a large convention hotel.

For a variety of reasons over the years, including construction costs, we decided not to build a large convention hotel on the site.

So, when we were approached with the opportunity to divide the Peabody Orlando on an off-market basis, we took a serious look.

What we found was the perfect hotel to meet our needs.

The hotel had undergone a $440 million expansion and a refurbishment couple of years ago.

So it's in great condition.

It is connected to both sections of the Orange County Convention Center and sits on over 25 acres of land, and has over 300,000 square feet of meeting space of its own.

It has a great reputation in the market thanks to a terrific team at the hotel who delivered strong operating results at very high service levels.

As we underwrote the transaction, we recognized that one of the ways our brand and our system could create value is to add smaller in-house corporate groups through our global sales organization, and add incremental transient business to the strength of our brand, our proprietary distribution channels, and through Gold Passport.

And we have begun doing just that since we acquired and converted the hotel a few weeks ago.

We are comfortable with our underwriting, not only because of the hotel's strong operating history, but because in recent years, we turned away enough group business in Orlando due to our lack of room inventory and meeting space to more than fill this hotel on an annual basis.

Our purchase price is below our estimate of replacement cost for this high quality hotel.

The investment rationale is strong in the hotel is a good strategic fit that improves our group position over the long-term, and particularly as we are starting to see more signs of stable group recovery.

We anticipate earning about $10 million of EBITDA in the fourth quarter of 2013 and about $55 million EBITDA in 2014.

Over prior years, this hotel has generated about two-thirds of this annual earnings in the first half of the year, and we believe that this will be true going forward.

While we do not have any immediate plans for the land that we own, we think having this parcel of land in this high barrier to entry location provides various options in maximizing results of the hotel, and in the context of any effort we undertake to sell the hotel in future.

In addition to these two openings, we expect to launch two new brands later this year.

Hyatt Ziva and Hyatt Zilara will both offer an all-inclusive experience, with Hyatt Zilara being adult only.

We expect to add our first Hyatt Ziva resort in Los Cabos Mexico and our first Hyatt Zilara resort in Cancun, Mexico.

The resorts are owned by Playa Resorts and their renovation and conversion is on track at this time.

We expect to add a total of six hotels out of the Playa portfolio under our two new brands over the next two years.

As a reminder, we made a significant common and preferred equity investment in Playa Resorts during the third quarter.

Playa also raised $675 million of total debt as part of its recapitalization.

We expect to earn between $18 million to $20 million of joint venture adjusted EBITDA from Playa in 2014 and there will be fluctuations by quarter due to seasonality and timing of renovations.

In addition to current and future openings, I would also like to talk about our asset recycling activities.

As lodging transaction activity has increased due to more liquidity and capital looking for hotel investments, we significantly increased the pace of asset recycling.

Over the last six months, we completed the sale of six wholly-owned full-service hotels that we had listed earlier this year for a total of $433 million.

We sold these hotels at attractive pricing levels -- a blended 5% trailing 12-month NOI cap rate, or about 15 times trailing 12-month EBITDA.

Each property remains within our system as a managed or franchised hotel, which preserves our presence in each of these markets.

While we don't currently have any additional hotels listed with brokers, we continue to be in discussions with several parties and would expect to sell additional full-service and select service hotels over the next 6 to 9 months.

Over the last four months, we've also realized cash proceeds of approximately $375 million related to our interests in the Hyatt Regency Waikiki and Hyatt Regency New Orleans.

Hyatt Regency Waikiki was sold in July and we received the payoff of our first mortgage loan as well as proceeds from the sale of our minority equity position.

Our preferred equity investment in Hyatt Regency New Orleans was redeemed last week.

We continue to manage both of these hotels under long-term agreements.

We continue to be focused on returning capital to shareholders as well, and we have repurchased over $250 million of stock this year.

We did not purchase a significant amount of stock in the third quarter, partially due to transaction activities.

Our Board of Directors just authorized up to $200 million in additional share repurchases, so we now have $211 million available under our current authorization.

Now, I would like to turn to our third-quarter results.

As you read in this morning's release, we reported strong RevPAR and revenue growth in the third quarter.

RevPAR for full-service hotels in the Americas increased 7.7%, over 50% of which was due to higher average daily rates.

We benefited from strong rev par growth in markets such as San Francisco and Hawaii, as well as easier comparisons due to renovations last year in markets such as San Diego and Dallas.

Those renovations benefited the Americas full-service RevPAR by approximately 80 basis points.

At US full-service hotels, transient revenue, which represented approximately 60% of rooms revenue, was up almost 9% and group revenue increased almost 7%.

This increase in group revenue is due to strong performance in several important markets such as Atlanta and Anaheim.

Our hotels outside the US did not perform as well.

Hotels in As-Pac and the EME Southwest Asia regions increased RevPAR between 2% and 2.5%.

In mainland China, RevPAR decreased 3%, with growth in South China offset by declines in North China and in East China.

In our EME Southwest Asia region, we have a tough comparison in London due to the Olympics last year, which led to an almost 15% RevPAR decline in the UK.

If you were to exclude London, RevPAR for our EME Southwest Asia region would've been up over 5% in the quarter.

We realized strong RevPAR growth in the Middle East as well.

RevPAR in South Asia continued to improve.

It was up about 8%, the second consecutive quarter of RevPAR growth in that area.

Business conditions in India continue to be difficult.

We did enjoy some positive results in the Goa market, which is a resort market, as one of our resort hotels ramped up this year.

But overall conditions are challenging at this time.

While our RevPAR increases were strong, our overall adjusted EBITDA results were negatively impacted by three items.

Transaction activity, and ramping hotels is the first.

The second is some areas of owned and leased margin pressure, and third was lower-than-expected incentive management fees.

So, first, on transaction activity, our total transaction activity negatively impacted owned and leased adjusted EBITDA by a net $5 million in the quarter.

Additionally, transaction activity negatively impacted unconsolidated hospitality venture adjusted EBITDA by $2 million.

The Andaz Maui at Wailea, which incurred preopening and ramp-up costs, had a $3 million negative impact [on consolidated] hospitality venture adjusted EBITDA.

So together, all the transaction activity, including the preopening expenses at the Andaz Wailea, negatively impacted our owned and leased segment, inclusive of joint ventures, by about $10 million.

So, adjusted for these transactions, total Company adjusted EBITDA growth would've been up over 10%.

Second, our comparable owned and leased margins grew only 20 basis points overall and varied significantly by region.

In the Americas, comparable owned and leased margins increased 110 basis points.

We achieved solid efficiencies in our operating departments, despite record occupancy levels and higher benefit cost increases in the quarter.

A lease termination fee benefited the Americas comparable owned and leased margins by about 50 basis points.

But offsetting these were higher rent expense and property taxes, which negatively impacted Americas comparable owned and leased margins by over 80 basis points.

Comparable owned and leased margins for hotels outside the Americas declined approximately 230 basis points.

One-third of this decline was due to a difficult comparison in London, and the remainder was due to concentrated weakness in a few cities such as Seoul and Baku.

The weak market conditions in these cities continue to persist in the current quarter.

Third, while overall fees grew over 13% in the quarter, incentive management fees were approximately $7 million lower than we expected.

As you may recall, we converted four hotels in France this past May.

Each are operated under long-term management agreements.

While these hotels are doing relatively well in terms of top line revenue performance, higher-than-expected wage and benefit costs negatively impacted our incentive fee earnings in the quarter.

Looking ahead, we are working with the owner of these hotels to accelerate hotel renovation plans, which we expect to yield incremental revenues over the long term that we expect will offset higher-than-expected costs.

As we look forward, some of the factors that negatively impacted our performance in the third quarter are expected to persist in the near term.

For instance, we believe that margin growth is likely to be modest due to the higher rent expense and property taxes, and those increases will lap in the second quarter of 2014.

We expect continued pressure on results of our hotels in some international markets such as our owned hotel in Seoul, and managed hotels in China and in France.

Having said this, our overall outlook remains positive.

And that's due to strong occupancy levels and continued healthy demand among transient guests in the US.

As such, we expect corporate rate negotiations to once again yield solid increases in average daily rates.

Also, we continue to see signs of stable recovery in group business.

Total group production increased 9% in the quarter.

While much of the business booked is for 2015 and beyond, our group pace for 2014 has increased and is now up in the low single digit percentage range.

So, to summarize, we've made significant progress on expanding our presence and concurrently growing our executed contract base at the same time.

And we are extremely happy with the pace, value realization, and deployment of capital associated with asset recycling.

This year, when considering all our buying and selling activities, we've realized and/or invested nearly $2 billion.

We will remain focused on improving performance of our existing hotels and expect to generate higher levels of system [planned] RevPAR, owned and leased margins, and fees over the long term.

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

Thanks, Mark.

That concludes our prepared remarks.

For the start of our question-and-answer session, we will answer questions that were submitted this morning and that haven't already been answered or covered in Mark's remarks.

The first question has to do with our overall results.

The question is where did the quarter come in relative to your internal expectations?

Where did you outperform?

And in particular, you stated incentive management fees were below the Company's expectations.

Perhaps you could discuss those.

Sure.

As I said, we're really quite pleased with the progress in the quarter, and RevPAR progression was quite strong really across most of our markets.

By way of reminder, the portfolio comparison was a $10 million adjustment for the quarter, which is obviously quite material, so our overall earnings growth for the Company was significant when taking that into account.

I would say in terms of positives, of course, RevPAR progression was strong.

Transient remained strong and signs of some recovery on the group side were sustained.

The Americas' performance and our owned and leased portfolio were positives in the quarter and SG&A is being well-managed.

In terms of areas below our expectations, the preopening impact of the Andaz Wailea was much higher than we expected due to the delay in the opening.

Secondly, the incentive management fee realization for the French hotels was lower than our expectation.

And third, we are working through margin pressure mostly from items below the GOP line.

Some benefits costs were higher above the GOP line, but a lot of impact related to rent expense and property taxes.

So I would say those are the areas that were either ahead of or below our internal expectations.

Okay, the next question was a little bit more specific in nature.

Could you provide us some general guidance for equity earnings and unconsolidated ventures as the big swings in the number make it tough to model?

Yes, of course it is hard to model this.

And there is some parts that, due to and related to our distributions from joint ventures, which don't necessarily coincide with where we recognize JV EBITDA.

We've had an $8 million gain in special items in connection with the sale of residences in Maui that Mark referred to in the prepared remarks.

We have also recognized an $8 million distribution receipt from joint ventures, so please remember this segment will continue to be lumpy as we go forward.

The next question relates to renovation activity, to what extent renovations will impact us going forward, in what cities, markets -- renovations year-over-year?

This is really in relation to our renovations in Asia Pacific, mainly the Grand Hyatt Hong Kong, where the largest impact is coming from, where we see impact to some degree going forward, and to our four French hotels that Mark mentioned, which we currently are negotiating a relation schedule for.

And that would be an impact on performance from those hotels as well.

Great, thank you.

We had some questions on some US markets, specific trends by segment and market.

We categorized them together.

A few questions, the first one being -- Atlanta is a major market for your owned hotels.

Earlier you cautioned on Atlanta performance, but we did not see weakness in the Smith Travel reported group data.

How did that market shakeout in the quarter and how do forward bookings look?

Sure, so Atlanta, we had cautioned about a challenging prospective results in Atlanta.

We really looked at this over the course of the coming year, and we continue to believe that 2014 will probably be a challenged -- that the market will be challenged in the coming year, partly due to the calendar.

It's also true that we had a very strong quarter this quarter in Atlanta -- very good realized business.

So there will be quarter to quarter variations, but overall I would say we remain of the view that Atlanta will probably have some tough sledding through the coming year.

In the quarter, we had some other markets that were particularly strong like Hawaii, Dallas, and San Francisco.

So those are particular areas of strength that we saw in the quarter.

The next question pertains to the government shutdown.

How has it impacted fourth quarter results thus far?

We don't see a major impact from the government shutdown in the fourth quarter.

It's in the low single digit million dollar revenue area, but really no major impact as far as we can tell right now.

But just for clarification, to segregate the government sequester, as we have mentioned in previous calls, continues to have an impact on government business and government groups, although this is a smaller portion of our business.

The next question was on activity with regard to group business.

Could you update us on group for 2014, specifically what percentage is on the books versus where you would expect it to be at this time?

Group pace is up in the low single digits, overall, and we feel a lot better about group than three months ago in the previous quarter.

Approximately 60% is on the books for 2014.

Total production was very solid overall, as well as production in the quarter, for the quarter that we have seen.

Moving ahead, we had some questions on performance around the world.

The question is what you are seeing in China and India?

Provide to us your outlook for China.

Do you see trends picking up?

Great, so on the China front, we had some variability across China.

Southern China was actually quite strong, but North and Eastern China were challenged.

That had to do with some of the economic activity in the country, but it was also the continuing effects of what we have historically referred to as the austerity program in China.

But increasingly, our view is that that state of austerity is likely the new normal for the foreseeable future.

So as we head into 2014, I would say that we believe that that level of activity that was negatively impacted by some of the government initiatives will likely remain in place.

And secondly, with respect to specific markets, there will be variability quarter over quarter due to new openings and absorption.

At any given point in time, individual markets will experience absorption of new supply, but over time, we still feel confident that overall economic growth -- underlying economic growth will absolutely adjust demand over time, and that the hotels that we are signing up and opening will be successful.

With respect to India, the market is quite disrupted.

We actually took our board to India for our third-quarter board meeting and spent the week meeting with owners and with others in the travel industry.

And I think there's an election coming up this coming year -- I think there will continue to be some disruptions.

But the overall economic picture remains challenged.

The rupee has been under a lot of pressure.

That actually was a bit of a benefit over the last quarter because more Indians stayed in India for their holidays instead of leaving India with a weaker currency.

So our -- the market conditions currently are under pressure.

We did have a strong quarter in Goa.

But overall I would say they are under pressure still, but seem to be starting to stabilize relative to year-over-year comparisons to what were weak quarters a year ago.

Great, thank you.

The next two questions relate to share repurchase activity and cash position.

The first question is, share repurchases were significantly lighter sequentially; some comment as to really -- what's being asked is cadence on share repurchase.

So, a couple of things.

First of all, we repurchased about $780 million, a little over that, in stocks since we have been public.

More than $250 million of that was this year.

There will certainly be fluctuations quarter to quarter, but recognize that we invested more than $1 billion since the beginning of the third quarter in new investments.

And so, both for capital planning purposes and otherwise, we -- that was some of why the share repurchase activity in the quarter was somewhat lighter.

In terms of cash position, we ended the quarter with about $800 million, a little over $800 million of cash.

That excluded over $430 million of restricted cash.

This is cash that's restricted by virtue the fact that we are doing 1031 exchanges on the sale of a number of hotels that we sold over the course of the year.

And that's why it's restricted for the most part.

There are some other small amounts that are also restricted.

And so that -- and since the end of the quarter, we purchased the Peabody hotel for $717 million and we also received the redemption of our preferred stock position in the Hyatt Regency New Orleans, which was just under $90 million.

And the final question here is would management to consider additional debt to fund future investments or share repurchases?

You know, we have, we think of our liquidity in our asset base holistically.

So our liquidity sources are cash on our balance sheet, operating cash flow, and sale proceeds from selling assets.

So, historically we have funded our share repurchases out of cash available, and that's our expectation going forward as well.

The next few questions relate to transaction activity, both in the quarter and prospectively.

First question being how should we think about the EBITDA impact of sold hotels?

Can you talk to us about how much owned EBITDA was sold and perhaps what the fourth quarter impact was?

Trailing data or expectations would be helpful.

So we sold six full-service hotels this year for $433 million.

This is at an approximately 15 times blended trailing EBITDA.

Given the timing of the transactions we've closed, our overall transaction activity should be close to neutral in the fourth quarter with the exception of the Hyatt Regency Orlando, which is expected to add about approximately $10 million to EBITDA, and of course any other transactions that might take place as we go forward.

Second question is regarding unconsolidated joint venture EBITDA.

Is the decrease that you experienced going to be recurring in the next several quarters, and/or can you give us some outlook for unconsolidated joint venture EBITDA?

A couple of factors in there.

One, the Seattle joint venture lapped with last year.

Waikiki, as mentioned by Mark, was a drag and will continue to be a drag for the next few quarters as we see it at the moment.

Andaz Wailea was a drag in the fourth quarter, or is a drag in the fourth quarter as we see it right now.

But Playa will potentially have a positive impact as we go forward.

So if you take those factors into account, that's the way we look at joint venture EBITDA.

Next question will be -- following a quarter with significant transaction activity, has your thinking evolved at all around the need and/or desire to add an additional brand to the portfolio?

Well, I guess we've had significant transaction activity.

By way of reminder, the areas that we focused on for our capital application were four areas.

One being resorts, one being gateway cities, another being select service hotels in particular urban locations, and finally convention group hotels.

We've made tremendous progress, obviously, on the group side, having applied significant capital to both New Orleans and now Orlando.

So I think we've really moved our strategic mandate forward significantly there.

With respect to how we think about other activities and whether we would add a brand or not, as we said before, we would be open to that.

But it would really need to -- we would need to be convinced that it would enhance our existing portfolio and otherwise provide a significant network effect or benefit to the overall Company.

So while we remain open to it, it would have to fit those criteria.

I would also add that we are introducing two new brands in the all-inclusive area, Ziva and Zilara, and we will have hotels open and operating under those two brands by the end of the year.

Great, thank you.

We had two additional questions on our investment in Playa Resorts.

Regarding the investment in Playa resorts, what type of EBITDA range are you expecting in 2014, 2015?

How many Playa rooms are in the pipeline?

And will these be appearing in your managed and franchised hotel room count?

So we are really excited about our partnership with Playa.

We believe it will be a great platform for future growth and a great new market for us in an area where we are underrepresented from a resort perspective.

We expect, as I said earlier, we expect to add six hotels from the Playa portfolio.

The Playa portfolio includes 13 hotels currently, and six of them are expected to be under our brands.

And they are included in our pipeline, which is -- and a represent a bit over 3000 rooms in total.

Once we get into the -- well, for the coming year, for 2014, we expect that we will recognize somewhere in the range of $18 million to $20 million of adjusted EBITDA from JVs, from our Playa investment.

And as we get into the coming year and start to refine renovation plans and conversion plans for other hotels, we will be able to develop an outlook for the subsequent year or two, but not at this point.

Second question on Playa resorts, how much if any EBITDA did Playa contribute in the third quarter?

So in the third quarter, we did not recognize any EBITDA contributions from Playa.

There are certain transition issues that we currently address.

There is an accounting lag that relates to reporting.

Reporting is being fine-tuned at the moment in conjunction with Playa.

And we expect to have all of that come through in the fourth quarter.

Please remember as well that it is seasonal, there is a seasonality factor in there.

It's seasonal business.

The third quarter is typically the weakest quarter from a seasonality point of view.

We will have renovations that are being scheduled for the properties which are yet to be converted.

And, at this point, as Mark mentioned, we are sticking to our outlook for 2014.

But we will fine-tune that picture as we go forward.

And we had one question on the Peabody acquisition, the Hyatt Regency Orlando.

Will this increase or decrease blended RevPAR and ADR going forward?

By how much?

And was the acquisition paid for with proceeds from the revolver or directly out of cash?

Well first of all, it will not impact RevPAR since it is not a comparable hotel until 2015 when we will have comparable base.

We expect RevPAR to be roughly in the range of the existing Americas portfolio.

So it will not have an impact in that sense.

And from and acquisitions perspective, we paid in cash for the acquisition.

We did not use the revolver.

We had a few other questions, more specific in nature, so we will go through those at this time.

First one being the tax rate we reported in the quarter; why were taxes higher than they had been in past quarters?

The taxes in the quarter were higher predominantly because US earnings were larger.

And we had some true-ups which typically happen around this time of the year, and it was more related to our North American business.

On a full-year basis, we still expect to end up in the mid-30s tax range.

We have, of course, quarter to quarter volatility due to our mix.

And in general, just by way of background, US taxes are higher than international tax.

Second question, how does the return of your investment in Hyatt Regency New Orleans affect annualized EBITDA on a go forward basis?

What do you expect the fourth quarter 2013 impact to be?

We did not historically recognize any EBITDA from the Hyatt Regency New Orleans, so there will be no impact from the redemption of our preferred interest in that property.

And all of the preferred return that we earned on the investment will be recognized in the fourth quarter of this year, and it will all be included in other income.

That's right; that relates to the investment, the fees we do pick up.

Of course.

That excludes management fees that we receive from managing the hotel.

Next question, you did a number of acquisitions this quarter as well as increased your pipeline.

How much did development costs impact third-quarter results?

Well, if I understand the question let me just disaggregate it.

If the question relates to transaction expense, transaction-related expenses, the answer is those are -- that those really don't have an impact on EBITDA.

They are included in the capitalized transaction values that we previously reported.

With respect to development costs, they're really included in our SG&A.

So this is oversight of new developments for new hotels, the activity that we've got underway for select service developments and the like is all included in our SG&A figures.

Next question regards -- relates to CapEx and investments in 2014.

Can you talk about this generally and provide a range as to 2014 CapEx and investment spending?

Yes.

At this point, we don't really see any unusual expenditures in maintenance CapEx for 2014.

We are in the process of pulling together 2014 information.

It's budget season as you know.

And we expect, from a new hotel development investment perspective, to spend over $150 million in 2014.

Great.

Well, that captures the questions we received in advance.

We would now like to take your questions.

Please limit yourselves to one question at a time.

We will take follow-up questions as time permits.

Glenn, may we please have the first question?

Joseph Greff, JP Morgan.

Mark, you mentioned that you ended the quarter and entered this fourth quarter with about $430 million of restricted cash.

Did you use that -- apply that, then, to the Peabody acquisition?

Is that we think about?

We had unrestricted cash in excess of $800 million as well.

So -- (multiple speakers) Gebhard is reminding me that the restricted cash relates to some 1031 exchange transactions we are involved in as well as a few other things, so it was principally available cash.

As I mentioned also, we received just under $90 million from the redemption of our Hyatt Regency New Orleans preferred interest this past week.

So that, plus operating cash flow, leaves us in a liquidity position which has not required us to tap our revolver for the investment.

Does that answer your question, Joe?

It does, yes.

Thank you.

And then, if I may, Atish, you led off by saying you're going to have an analyst event in March of next year.

Can you talk about what your views are in terms of maybe providing targets, or setting or implementing some sort of guidance as you look towards discussing some of your initiatives at this event next year?

Thank you.

You know, Joe, we are actually working through that right now.

I think -- Mark, if you want to add something with regard to just philosophy on guidance or approach.

I think what we've said and acknowledged is first of all, we have been, I think, clearly adding to clarity and detail on our disclosures and explaining what's going on with the business, and we will continue to do that.

And secondly, we have also talked about the importance of looking forward and trying to lay out how the Company is expected to evolve over time.

And that's exactly -- that's one of the key things that we will be talking about during the investor day.

Steven Kent, Goldman Sachs.

Could you talk a little bit -- you mentioned, Mark, in your opening comments about group business being strong even into 2015, or showing some strength.

How much -- I don't think you have answered told us how much typically would be on the book at this time.

And would you still say that it's in the quarter, for the quarter, as a theme broadly in the group business, or is that starting to dissipate?

Let me adjust the second question and I think Gebhard will give an answer to the first question about what's on the books and so forth.

The total production in the quarter was quite strong.

It was strong overall.

It was also strong on an in the quarter, for the quarter basis.

So, really, frankly very encouraged across the board.

In terms of the production for future years, it was stronger for 2015 and further out.

And that typically relates to association business.

The quarter itself, in terms of realized revenue in the quarter, was more driven by corporate business than association business.

So quarter in the quarter itself, the realized business in the quarter, stronger corporate, and with respect to future booking, I would say more association-orientated for the 2015 and beyond periods.

In terms of what's on the books going into the year, the percentage that we've got on the books, do you have that?

For 2014, it's roughly 60% and for -- (multiple speakers)

Which is sort of in line with what we would've otherwise expected at around this time.

Exactly, yes.

But we had a very nice evolution actually in the third quarter, where we've seen really positive trends in terms of our pace, not only for this year but also 2014, 2015, and 2016.

Yes.

So pace for 2014 increased over the course of the quarter by sort of in the low single digit range in terms of positive pace for the quarter.

I guess what I'm asking -- Mark, I guess what I'm asking is if it's 16% now for 2014, for 2015 it must be below 10% or so that you would be talking about.

No, sorry.

What Gebhard said was 60%, six-zero, for 2014, not 16%.

Thomas Allen, Morgan Stanley.

In your prepared remarks, you mentioned that you were expecting to see limited margin upside for some period of time in your owned and leased business.

Can you just elaborate on that a little more?

Thank you.

I mentioned that one of the things that of impacted us in the quarter was increased rent and property tax expenses.

Given the timing of those increases, which were in the middle of this past year, we would expect that those will continue to have a drag or create a drag for us until sometime in the second quarter of next year.

So that is one element of it.

There were some increased benefits costs.

Benefits costs continue to increase at a rate above inflation.

But it was really -- the timing issue that I'd just alluded to is really what I was referencing in terms of a continued drag.

And then just on your select service RevPAR growth decelerated this quarter.

Can you elaborate on what's driving that?

Thanks.

Our select service performance over the last several years has been really superb.

We couldn't be happier with it.

And there will be variability from time to time in a given quarter.

I think relative to the total segment in the US, we are still performing well.

And I look at it, more specifically, across the hotels and look at the progress made in relation to market share of our hotels.

And I'm very happy with the continued progress there.

The one difference that you'll start to see in our select service performance over time, over the coming years, is that we are now, really, for the first time since we launched these brands four or five years ago, entering into urban markets.

So this year alone we have opened hotels in Chicago, in New York City, in Austin.

We are opened or about to open in Omaha.

There'll be other urban locations that we will open over the course of the coming year.

This is a big change for us.

Up until now, we've had virtually no urban representation whatsoever.

These Hyatt Place properties -- they are all Hyatt Places that we've opened this year, have been doing really phenomenally well in these urban locations.

And it's exactly what we expected, because a lot of our volume accounts or corporate customers have been looking for a lower-priced alternative in some of these markets as part of the Hyatt network.

And so we are really excited about this.

That will also start to change how -- I think it will enhance how the brands perform, but it would also change the RevPAR dynamics because, historically, our total chain-wide RevPAR for Hyatt Place or Hyatt House have been at a level that doesn't reflect the relatively higher rates in urban markets.

So I think you will start see a shift in terms of total RevPAR reported over time.

Shaun Kelley, Bank of America Merrill Lynch.

Mark, in your prepared remarks, I think at the very beginning you mentioned that transaction activity for you guys is picking up and obviously, you've been very busy.

But overall, for the hotel sector, could you just give us your view on the transaction market, both in terms of asset dispositions which you guys have been busy on, as well as a possible acquisitions, just what you're seeing from brokers?

That would be helpful.

I think it's a very clear that activity is up significantly.

There is more capital that's come into the market for hotels.

And even though it's been kind of all over the place and volatile, the fixed income market has really persisted at low rates.

The 10-year is still in the 2.50% range for goodness sake, so down from almost 2.90% or something like that probably three or four months ago.

So I think both debt and equity capital remains attractive.

And there's real momentum in a number of markets in terms of operating performance.

So there's just been a lot of activity and there've been a lot of opportunities as well.

Obviously we have both realized a lot of proceeds from different investments and we've deployed a lot of capital.

So I would say on both sides of the equation the activity level is high and has remained high.

Now are you specifically seeing any pickup as it relates to the -- just private equity interest in some of your assets, just as, like you said, LTVs get a little bit better and the credit markets remain favorable?

Yes, I think it's an attractive time for private equity to be buying hotel assets.

I think it continues to be a good time.

I think, for us, we, as we have discussed a number of times before, especially on the select service side, we were very focused on making sure that as we look through how we actually realize value from our owned asset base, that we are also paying attention to who the buyers are, and whether they can be ongoing persistent buyers of Hyatt-branded assets.

Because one of the important things for us to do is expand institutional ownership, which we've done significantly over the last year or two.

So we will continue to focus on making sure that it's -- that we're dealing with buyers who not only can provide good value to us, but also will end up being good ongoing buyers for developers who are developing Hyatt assets.

And I think that's especially true for select service assets.

On the full service side, I think there's been increased level of private equity interests.

And I think, as we look at our portfolio and think about acquisitions like the Hyatt Regency Orlando, we believe that those kinds of assets are attractive to big institutions as well.

So I think the quality of our asset base and the performance of our brands leaves us well-positioned to continue to be able to recycle assets.

Smedes Rose, Evercore.

Based on your guidance around SG&A and interest expense, it looks like you are expecting a little bit of a pickup versus the run rate year to date into the fourth quarter.

Is that related to the development cost you mentioned in SG&A?

And maybe is there something going on, on the interest side?

It's really predominantly timing that's involved here on a quarter to quarter basis.

And by way of reminder, we did a realignment last year and we have some comparability factors in there as well, and hence, we see that SG&A increase.

I'm sorry, what was that last thing you said, that you had something in there?

I missed what you said.

We had a realignment in the Company.

We went through a realignment.

We changed SG&A structures and corporate structures so --

Which reduced our run rate (multiple speakers) of last year.

So the (multiple speakers) not yet fourth-quarter specifically looked different to the other quarters before when you do that comparison in 2012.

Okay.

Then could you just given any commentary around corporate negotiated rates from other companies that have reported today that have mentioned some ranges?

What sort of stage are you in on that?

It's still too early to really say.

We do expect that it will see pretty solid increases, but were still too early in the process to really draw any conclusions from what we've seen so far.

Harry Curtis, Nomura Securities.

Just trying to get a sense of what inning you're in with respect to recycling the legacy portfolio.

How many more moving pieces do you think there are?

We have a great portfolio, Harry, and a lot of interest in our assets.

So I guess I would say that as long as there's interest on the buy side and the sell side, we will continue to look for opportunities.

We made, I think, tremendous progress across all four of the areas that we've been focused on.

And I think we still have great opportunities to really expand our presence in some key markets.

In gateway cities in particular, we've taken, I think very affirmative an important steps forward on the resort side as well, both through Playa and also the Andaz Wailea.

So I would say we've demonstrated an ability to manage this well, both on the value realization front and the deployment front.

And our strategy continues to be to engage in this to continue to help our growth in a very targeted and deliberate way.

I would add that it's not just the legacy assets, but assets that we've recently acquired as well.

Once we reposition them, renovate them, rebrand them, those would be potential sale candidates as well.

Ian Weissman, ISI Group.

Just two questions.

First, can you give us an update on the Park Hyatt in New York City and how that progress is coming along?

Sure.

It's coming along very well.

The expectation is that we will open in the second quarter of next year.

And the progress on the property has been going quite smoothly, actually, subsequent to the crane replacement which took place over the course of the summer.

So on-time and on budget?

Certainly on budget, but the structure of the deal is that we have an agreed-upon price that's the purchase price upon completion.

So that is fixed.

And the timing is delayed, as we previously reported, largely due to the construction site issues that were occasioned by the crane problems that they had that were caused by Hurricane Sandy last year.

Right.

And finally, you were buying back stock last quarter at $41; stock's about 13%, 15% higher.

So how should we think about buybacks going forward and source of funds?

I think as we've looked at our share repurchases over time, we -- our balance has been between using capital to help us grow.

And by way of reminder, we've invested over $1 billion since the beginning of the third quarter in new investments.

So there will certainly be impacts from our investment activity, but I think we will manage our stock repurchase program consistent with how we've handled it in the past, looking at a number of different factors.

So you're comfortable buying back stock at these levels?

What we've said in the past is, as we look at the position for the Company and future prospects, we were comfortable.

I'm not really going to go into details and make any comments about at what price levels we are a buyer or not.

But I would say that we have managed the program as a tool that we have available to us, and we are committed to returning capital to shareholders.

But that is balanced relative to applying capital to help us grow.

And just finally, Starwood obviously put out guidance for next year, 5% to 7% range.

I would just say generally speaking, as you look across the United States, is that a range that you are comfortable with across your markets?

We are not providing guidance, so I guess that's the way I would answer the question.

At this time, we have no further questions and I will now turn the call over to Mr. Atish Shah for closing remarks.

Thanks Glenn.

Thank you very much for joining us this afternoon.

We look forward to talking to you soon.

Thank you and goodbye.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect and have a great day.