Hyatt Hotels Corp (H) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2014 Hyatt Hotels Corporation earnings conference call. My name is Darren and I'm your -- be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I'd now like to turn the conference call over to your host for today, Mr. Atish Shah, Senior Vice President of Investor Relations. Please proceed, sir.

Thank you, Darren. Good day, everyone, and thank you for joining us for Hyatt's third-quarter 2014 earnings call. Here with me in Chicago is Mark Hoplamazian, Hyatt's President and Chief Executive Officer. Mark is going to start by making some brief remarks and then we will take live Q&A.

Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, October 29, 2014, 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 per the information included in this morning's release.

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

Thanks, Atish. Good morning and welcome to Hyatt's third-quarter 2014 earnings call. Today I'd like to speak about four topics. First, I'll discuss our third-quarter results and share some thoughts on our outlook.

Second, talk about the growth and outlook for our select service brands. Third, I'll discuss the performance of significant acquisitions and investments that we've recently made. And last, I'll provide a recap of recently closed transactions and possible transaction activity in the near term.

Our third-quarter financial performance was strong, with adjusted EBITDA increasing over 12.5%. Adjusting for changes in the composition of our owned and leased hotel portfolio and our joint venture hotel portfolio, based on newly opened hotels and also transactions since the third quarter of last year, adjusted EBITDA increased approximately 15%.

US RevPAR growth was 8.9% for comparable full service hotels and 9.7% for comparable select service hotels. Higher room rates, stronger F&B revenues, and healthy margin growth at owned and leased hotels drove overall results.

While US performance was better than performance in other markets, we're happy to report a strong comparable systemwide RevPAR increase of 8% on a constant dollar basis.

So I'll first focus on our owned and leased hotels. Our comparable owned and leased hotels' RevPAR increased 7.3% on a constant dollar basis. Over two-thirds of the RevPAR increase was attributable to higher room rates. The Chicago and San Francisco markets performed well, while Seoul and Bishkek underperformed.

Operating margins at comparable owned and leased hotels increased 190 basis points in the third quarter as a result of strong rate performance, improving F&B results, and solid expense controls.

We've seen over the last few quarters that there's been a significant difference between operating margin progression at comparable owned and leased hotels in the Americas compared to those outside of the Americas. Specifically, operating margins at comparable owned and leased hotels in the Americas increased 240 basis points, while operating margins at comparable owned and leased hotels outside of the Americas decreased by 10 basis points.

Operating margins at comparable owned and leased hotels outside of the Americas continue to be negatively impacted by specific market conditions in Seoul and Bishkek in particular.

At comparable US full service hotels, we saw a significant expansion in group rooms revenue, up over 9%, as a result of healthy rate and occupancy increases. Strong group markets in the quarter included Chicago, San Francisco, and San Antonio.

Group revenue benefited from higher room night demand from associations and higher rates from corporate groups. This increase in group activity also drove food and beverage revenue and we saw an approximate 6% increase in banquet revenue for the quarter and an increase in banquet spend per group room night.

Transient rooms revenue increased 7.1% at comparable US full service hotels. Transient rates increased 9.1%, as we shifted the mix to higher rated transient guests. Strong transient markets in the quarter included Dallas, Washington DC, and Los Angeles.

The third quarter of 2014 represented our seventh consecutive quarter of year-over-year growth in group production for managed full service hotels in the United States. While group production increased more modestly than in the prior few quarters -- at 2% growth in the aggregate -- I would note that we're lapping a third quarter of 2013 that was up 9% in total production.

Rates for business booked in the quarter for the quarter increased approximately 12% and this is an indication that we're seeing higher rates for near and group business. As to next year, group pace continues to be up approximately 8% as of the end of the third quarter.

We ended the third quarter with about two-thirds of our group business for 2015 on the books about where we would expect to be at this time.

Now I'll turn to the management franchise fees in the quarter. Total fees increased 22% during the quarter. This healthy increase is despite a $3 million decline in the incentive fees that we booked in relation to the four French hotels that we began managing in the second quarter of 2013, as we did not book any incentive fees for these hotels in the third quarter of this year.

As to the breakdown of total fees, base management fees increased 9.8%. This reflects improvement due to the higher systemwide RevPAR and the addition of 23 managed hotels to our system versus a year ago.

Incentive management fees increased 25%. About half the increase in incentive management fees was attributable to two hotels. At one hotel, the increase reflected timing of fee recognition relative to last year. And at the second hotel, we expect to exceed an incentive fee threshold that we did not exceed last year.

Franchise fees increased over 35%, with 80% of this growth attributable to higher RevPAR at newly opened hotels and the other 20% attributable to hotels that converted from managed to franchise.

The second topic that I'd like to talk about today is the growth and outlook for our two select service brands: Hyatt Place and Hyatt House, which is our extended stay brand. The Hyatt Place brand is designed around guests that we serve and it's designed to be uncomplicated and to provide a seamless experience for guests who want to maintain their flow and momentum in life.

The service model is most important element of the design, as we created a lobby experience that allows individuals to get what they need quickly and keep moving while feeling cared for. And this is all delivered in a very stylish room and hotel design, one that's contemporary, but approachable.

The Hyatt House brand is designed to be current and relevant to travelers who are looking for a homelike environment where they can enjoy familiar routines and spaces that feel like a home. We've designed experiences that promote casual interactions and allow strangers to feel like neighbors. The design is clean and contemporary, but not edgy.

So let me first start with Hyatt Place. The growth of this brand over the last few years has been very strong. RevPAR has increased by over 10%, compounded annually over the last two years. Our strong topline performance has been a result in part of increased awareness and recognition for the brand.

We crossed the 200th hotel milestone earlier this year and the momentum for growth is increasing. We opened 10 Hyatt Place hotels in 2012, 20 in 2013, and have already opened 17 new Hyatt Place hotels through the third quarter of 2014. The brand was present in just the US until quite recently and we now have Hyatt Place hotels in nine countries.

Our future growth outlook is strong, as we have hotels in our executed contract base that represent approximately 65% growth relative to existing system size as measured by rooms. This executed contract base represents new Hyatt Place hotels around the world in a total of 21 countries, of which 15 are new markets for the brand. We are focused on growing the brand in urban markets in particular and we expect this strategy will take the brand to a new level.

The 11 Hyatt Place hotels that we opened in the US this year have a year-to-date through September 30 average rate that's about 25% above that of the US Hyatt Place hotels opened in 2013 or earlier. That is a function of the growth of urban representation of the brand and we expect that momentum to continue.

Our loyalty program is also a big driver of brand value. Gold Passport members represent over 40% of the revenue across the brand, which is a testament to the strong levels of loyalty for this brand. This preference for Hyatt Place among guests was recognized last year with a JD Power Award for best customer satisfaction.

Hyatt House has also been growing well. Performance has been strong and we've increased RevPAR by almost 8% compounded annually over the last two years. The brand launch that followed our acquisition of a portfolio of hotels from LodgeWorks in 2011 served to redefine our extended-stay presence.

Over time, we've continued to update the suite design and space programming of Hyatt House hotels to meet the needs of today's guests. Our executed contract base for Hyatt House represents 50% growth relative to the existing system size as measured by rooms. And Gold Passport members represent nearly 60% of the revenue base across the brand.

So as I noted across both our select service brands, we have focused on service delivery and the service model as a key differentiator. We've also established continuous adaptation through engagement of our guests.

Our strategy in developing these brands has involved the targeted use of our own capital to achieve critical mass. Over time, we have generated strong returns and we now enjoy significant institutional ownership of hotels across both brands through our asset recycling activities.

We will continue to invest in urban locations and have projects underway, either on our own or with joint venture partners, in Denver, San Francisco, San Jose, Irvine, and outside the United States in Mexico and Brazil.

The third topic I'd like to talk about today is the progress on some larger investments that we've made over the last couple of years. In May 2012, we acquired a hotel in Mexico City for $190 million and rebranded it as the Hyatt Regency Mexico City. Since then, and consistent with our plans at the time of investment, we've invested approximately $20 million in renovation capital at the hotel.

In terms of our earnings performance, we've performed in line with our expectations since we acquired the hotel. By way of reminder, we expected that we would earn approximately $20 million in EBITDA in the first full year after acquisition and we achieved that.

The renovation work in the public areas has just been completed and the new F&B offerings have been extremely well received by our guests and members of the local community, as we've seen significant increase in the covers in a large multiuse outlet that we created in the lobby. We expect to complete the meeting space repositioning and renovation in the first quarter of 2015 and we are confident about the long-term prospects for this hotel.

Last year, we made several notable investments. We invested $325 million for our common and preferred equity stake in Playa Hotels and Resorts. Since that time, we've converted two resorts to our new all-inclusive brands Hyatt Ziva and Hyatt Zilara.

In addition, we expect four additional resorts to be converted by year end 2015. We expect to open Hyatt Ziva Rose Hall and Hyatt Zilara Rose Hall in Jamaica and Hyatt Ziva Puerto Vallarta in Mexico in the fourth quarter of this year.

We're very happy with these projects, as they will well represent our brands and they're coming in on time and on budget. As reminder, we earn franchise fees from the open and operating Hyatt Ziva and Hyatt Zilara hotels.

Our investment in Playa Hotels and Resorts is tracking well, with adjusted EBITDA associated with our equity stake expected to be at the low end of our first-year expectation, which we had estimated as $13 million to $15 million. This estimate reflects an adjustment for transaction and preopening expenses.

Please note that this does not take into account any negative effects from the hurricane that damaged the Hyatt Ziva Los Cabos.

We also acquired a 1,641 room hotel in Orlando, Florida, last year for approximately $717 million, which we converted to the Hyatt Regency Orlando. We expect it to earn $55 million in adjusted EBITDA this year and we are on track to do so.

The group outlook for Orlando next year is quite strong, with group business expected to increase over 10% at our hotel. And we expect continued strong performance from this hotel over the long term.

Late in the fourth quarter of 2013, we acquired our partner's 70% interest in the Grand Hyatt San Antonio for $16 million. In connection with the acquisition, we paid off a $44 million property-level mezzanine loan and assumed approximately $200 million of property level debt.

The San Antonio market has been strong this year, and the hotel is expected to generate approximately $27 million of EBITDA in 2014, which is over 10% above our underwriting expectations.

With an expansion of the Henry B Gonzalez Convention Center, which is adjacent to the hotel, expected to open next year, we're confident that the outlook for our hotel -- for the hotel over the next -- we're confident in the outlook for the hotel over the next few years.

Last year, we began managing a portfolio of four hotels in France. The performance of these hotels has been below our expectations to date. While we're focusing on improving results of these four hotels through a variety of initiatives, we expect these efforts will take time.

As you may recall, we are earning base management fees in the range of EUR5 million per year and we expect it to earn incentive management fees during our first year of operation. We realized approximately EUR1 million of incentive fees in 2013.

However, we're not currently earning incentive fees, but instead paying under an operating performance guarantee. We currently expect to pay approximately EUR15 million to EUR20 million in guarantee payments in 2014.

We expect that the near term will continue to be challenging for these hotels. The hotels continue to underperform versus our original expectations, due in part to market conditions in France.

Additionally, we are working with the hotels' ownership group to finalize renovation plans, which we anticipate will create some short-term negative performance impact due to rooms being out of operation. Further, the guarantee structure provides for increases in the annual hurtles over the first four years of the seven-year guarantee period that began in May 2013.

As a result, we expect our guarantee payment to be higher in 2015, possibly in the range of EUR30 million to EUR35 million, depending on the time of the renovations. Once the hotels are renovated, we expect operating performance to improve and our level of annual guarantee funding to decline.

We're working hard to improve these results in the short term and over the long term, we continue to believe that these four hotels will be great for our brand representation in Europe.

During the third quarter, we acquired the Park Hyatt New York for approximately $390 million and opened this flagship hotel. While it is very early, the hotel is performing in line with our expectations as it ramps up.

We expect it to realize average rates in the range of $1,000 per night and thus far, we are achieving those rates. We expect the hotel to have a strong fourth quarter based on advanced bookings, the full room inventory coming online over the course of the quarter, and continued favorable accolades and guest feedback.

In summary, we feel good about the investments that we've made to date and we are currently on track to meet or exceed the returns that we underwrote in all cases, other than in relation to the French hotels.

Moving to my fourth topic for today, I'd like to provide an update on our capital recycling activities. On the full service front, we recently sold the Park Hyatt Washington DC for approximately $100 million, representing attractive pricing as an approximate 15 times trailing EBITDA multiple. We have 7 additional full service hotels on the market, which earned $35 million to $40 million of adjusted EBITDA after fees on a trailing 12-month basis.

On the select service front, we recently announced the pending sale of 38 hotels to a private equity fund for $590 million. We expect this transaction to close next month.

These hotels earned approximately $45 million of adjusted EBITDA after fees on a trailing 12-month basis as of September 2014. We have an additional 6 select service hotels on the market, which earned approximately $5 million of adjusted EBITDA on a trailing 12-month basis as of September 2014. As with all dispositions we've made, we expect to maintain brand presence at each hotel.

We also recently closed on the sale of Hyatt Residential Group for $220 million, inclusive of the disposition of our stake in a project in Maui that is currently being developed.

In addition, there are three joint ventures in which we hold interests that sold three hotels -- two Hyatt Place hotels and one Hyatt Regency Hotel -- over the course of the third quarter. In total, we received approximately $36 million of equity proceeds from the sale of these three joint venture hotels and our unconsolidated joint venture debt declined by approximately $34 million as a result of the sale of these hotels.

The blended multiple implied by these joint venture hotel sales was approximately 11 times trailing 12-month adjusted EBITDA.

The last point I'd like to make on our transaction activity is that with changes in the composition of our hotel portfolio, both owned hotels and joint venture hotels, we will experience volatility in reported quarterly earnings. During the third quarter of 2014, the net impact of the transactions on owned and leased adjusted EBITDA was negative $7 million, which was partially offset by higher joint venture earnings from JV hotels that have opened over the past year.

In the aggregate, our adjusted EBITDA was negatively impacted by approximately $4 million on a net basis and led to a 250 basis point lower adjusted EBITDA growth rate, as I mentioned before.

Looking ahead to the fourth quarter, transactions and openings will have a larger net negative impact on reported earnings than in the third quarter, possibly as much as $8 million or about twice the level as in the third quarter. This $8 million figure includes the effect of both dispositions and acquisitions.

In terms of dispositions, it includes recently completed sales of the Hyatt Residential Group, the Park Hyatt Washington DC, and other sales over the last year, including Hyatt Key West, the 10 hotels sold to RLJ Lodging Trust, and 5 hotels sold by joint ventures.

In terms of acquisitions, it includes the benefit of the acquisition of the Park Hyatt New York this year and the acquisition of our partner's 70% interest in the Grand Hyatt San Antonio that we completed at the end of the fourth quarter of 2013.

We have a pending sale and several other potential sales, which are not included in the $8 million impact figure. Specifically, the 38 select service hotels that are pending sale earned approximately $10 million of adjusted EBITDA in the fourth quarter of 2013. The 7 full service hotels and remaining 6 select service hotels that we have on the market for sale earned approximately $7 million of adjusted EBITDA in the fourth quarter of 2013.

We're very pleased with our recycling activity to date and continue to execute on our strategy in a vibrant transaction market. And we hope that these details will help you understand the particular year-over-year impacts that naturally results from this activity.

As we look forward, we're actively seeking opportunities in selected markets. We are currently working on a couple of potential acquisitions, including one that may close this quarter. And consistent with past practice, we will provide an update if and when we close on any transactions.

As a reminder, we're focused on investing in four key areas -- key gateway city hotels, urban select service hotels, group-oriented hotels, and resorts.

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

Thanks, Mark. That concludes our prepared remarks. For our question-and-answer session, we'll move right into the questions from call participants. Darren, if we could please have the first question at this time?

(Operator Instructions) Joe Greff, JP Morgan.

One of your earlier comments, Mark, touched on the flow through the margin performance in your owned and leased portfolio. Those comments more touched on that on a comparable same-store basis.

If I'm looking at your page 11 of the release, if I look at the non-comparable hotel performance, you had significant growth in expenses there, up 38%. Revenues were up 9%, roughly, on the non-comp hotel base. Can you talk about that a little bit and what drove that and if there are any kind of one-time items in there?

Great. Atish, why don't you take that?

Sure. So I think if you refer to that page 11, Joe, since you have it. The non-comp revenues, as you pointed out, they were up $5 million. Non-comp expenses were up $14 million. So it's a $9 million variance.

And why is that? One part of it, which is a small part, is newly opened hotels. That's roughly $1 million to $2 million. The majority of it really relates to the mix of assets that we are buying and selling and the seasonality associated with those assets. So over the course of the last year, we've sold select service hotels and full service hotels that had margins in the high 30% range in the quarter -- mid to high 30% range.

And we bought primarily two assets -- the property in Orlando and San Antonio that are seasonally weaker in the third quarter. The margins for those hotels ran in the 20% range in the third quarter.

So -- and just illustrate that, as Mark mentioned, those 2 hotels will do approximately $82 million of EBITDA this year and that's our expectation. In the third quarter, they did about $10 million of EBITDA, so less than 15% of the full-year EBITDA is earned in the third quarter. So that's an illustration of the seasonality.

So that's really the dynamic. The majority related to the assets we are buying and selling and the seasonality associated with those assets. And this will be a factor going forward, given that we expect to close on the sale of 38 select service hotels in the next month. So you'll see this dynamic over the next couple of quarters.

I would just add that the seasonality of those two major assets in the non-comp category do represent the vast majority of this difference, Joe. I think the Park Hyatt New York opening also has a small impact as well, because we opened the hotel in the mid-August timeframe.

But like all openings, the ramp-up period is typically one in which you've got an elevating and growing revenue base, but a full expense base as you line out the hotel and get the operations going.

My follow-up question is this. Your 2015 group pace was up nicely, more than your competitors who've reported in recent days. Can you talk about what's driving that and what markets? And if you could remind us where was group paced this time a year ago for 2014?

I'd say that we're seeing pretty consistent rooms demand on the association front and that's in -- across many different markets. And part of the impact of that is -- has been further out bookings.

So if you look at pace evolution in 2015, 2016, 2017, part of that is being driven by higher level of advanced bookings on the association front. So booking curve in terms of the period looking forward has actually expanded.

Secondly, corporate rates have increased. We saw a significant increase in rate in the quarter for the quarter bookings, but we also see healthy rate growth in -- as we look forward into 2015, for example. So if you look at third-quarter production for the remainder of this year and next year, it's up in the 7% to 8% range in terms of ADR progression.

In terms of subsectors that are performing well, it's really concentrated -- continues to be concentrated among technology companies and technology consultancy companies. So there's -- that continues to grow as a proportion of the total.

And that has -- that's really been leading the growth, even though we are positive in most categories, including manufacturing and pharma and in the financial services sector, I would say both technology, technology consultancy, and healthcare are the areas that are leading the growth rate in terms of demand.

Thank you.

And then as to pace, so pace for 2014 and the third quarter of 2013 was up about 3% and pace for 2015, at that time, was up about 5%. So that's the number that's now up 8%.

Thank you.

You're welcome. We'll take the next question, please.

Steven Kent, Goldman Sachs.

Couple questions. First, just on the CFO search. Could you just give us an update there and does this lack -- does the lack of a CFO hamper acquisition/disposition efforts and what attributes are you looking for, just so we have a better sense for that?

And then on the transient room nights, it sounds like transient room nights decreased, group room nights increased. Why did you weigh your mix more heavily towards group?

Did locking in those bookings help you get stronger pricing on the transient side? And what sort of mix shift do you expect to execute over the next couple of quarters?

Great, thanks, Steve. First of all, on the CFO search, we have a search under way with a search firm that we have engaged. And as we have evolved over the last five years or so, the role of the finance function has grown at Hyatt. And we had the benefit of having leaders who are -- and continued expansion of the work within the finance team focused on applying insights and learnings that are derived within the finance group to the whole business.

So I'd say it's become more integrated across the Company, especially over the last couple of years, and that's desirable from my perspective. It was really the design goal that I had when I had brought Gebhard into the role.

And that remains one of the key factors that will drive decision on who we actually put into the seat once we identify and select a person. So that's a quick update on the CFO search.

As to transient and group, a couple of things that I would note. First, when we see -- as we've seen the group, especially the shorter-term group bookings, include some more significant F&B revenue -- banqueting and event revenue -- which grew beyond the growth in [group] nights for this past quarter.

We are looking at, in some cases, the total revenue associated with taking on some group business relative to transient. So from a total revenue perspective, there's been some trade-off over the past quarter as between group and transient.

I would say that as to the transient mix, we are operating at a very high level of occupancy right now, in the range of 80%. And so, it is true that there's been some shifts, depending on what market you're looking at or what hotel and what time period, but I wouldn't say it's sort of a fundamental signal that we're going to see persistence, sort of room night declines in transient.

As group rates continue to improve and as total revenue continues to improve based on the composition of the groups, we'll continue to actively revenue manage and yield manage our hotels, and not just on the rate to mention, but on total revenue. So those are some of the dynamics that applied this past quarter.

Okay, thank you.

We'll take the next question, please.

Bill Crow, Raymond James and Associates.

The first question regards the limited service or select service portfolio. Given the receptivity of the two brands by your owners as well as the consumer, evidenced in your Hyatt Rewards success, are there any thoughts of adding a third or fourth brand in that sector?

And given the sale proceeds you're expecting, could you go out and buy a brand that's already established and convert it to a Hyatt brand?

Thanks -- it's Gold Passport, by the way.

No, I know.

So Hyatt Gold Passport is a significant contributor, as you said. The answer is that we have believed and do continue to believe that getting to some critical mass and coverage is really important.

This next leg in our development plan to really focus on urban is a huge driver of brand performance over time for really two reasons. One is it's expanding on our presence in a lot of markets in which we have almost no representation currently.

So if you look at the representation and presence of either Hyatt Place or Hyatt House relative to its key competitors, we have virtually none or very, very small urban representation this point, but it's growing rapidly. Being -- just being present and being an alternative for travelers into those markets is critical.

And it's driving an expansion of business that we're doing -- corporate volume account business that we're doing with major corporations, because their travel programs include travelers at different price points into many markets, especially urban markets. So the diversity of different travelers at different price points into urban markets is quite high and -- the diversity level is high, so having more lower-priced alternatives but still within the Hyatt family really makes it a significant difference.

And we've seen a continued growth in the volume accounts, our corporate manage corporate travel accounts. So that's what I would tell you.

As to acquisition of other brands, I would say it's not only something that we would consider, it's something that we've actually done. So we bought in LodgeWorks two brands: Hotel Avia and Hotel Sierra.

We bought AmeriSuites and converted all of them into Hyatt Places. We bought Summerfield Suites and converted them into initially Hyatt Summerfield Suites, now Hyatt House. So I would say it's not conceptual for us, it's actual. And we have done it in the past, we would definitely consider doing it in the future.

Okay. And maybe, Atish, for you. I appreciate the schedule that shows the impact on dispositions, acquisitions. As we think about the end of this year and whether you want to use consensus EBITDA -- $770 million or whatever the numbers falls at -- what is the adjusted kind of base year number, with all the inputs and outputs and everything that we can think about building off of for next year? Do you have that number?

I think that probably that, Bill, the best thing to do is just if you -- Mark, when he -- his last portion of the prepared remarks covered all of the ins and outs. And I think that really covered all of the major transaction activity and how we see that flowing.

The one area that he talked about but we are sort of uncertain about is the close of the pending or potential asset sales. So the timing with regard to the 38 select service hotels and then the remaining select service and full service hotels.

So we provided the number for last year, so you have a sense of what the full quarter was. And then obviously, it's going to depend on exactly when we close on those.

Right. Okay. All right, I'll go back and look at that. Thanks.

We'll take the next question, please.

Thomas Allen, Morgan Stanley.

You had great margin expansion on your US-owned hotels, but the international part came in little light again. You talked about the issues in Seoul and Kyrgyzstan, but how long do you think that there's going to be this international margin pressure? Thanks.

Thanks for the question. It's really interesting if you -- it is only two properties, but if you take the effect those two properties out, the non-Americas owned hotel portfolio margins expanded by almost the exact same amount as the Americas did. So meaning around 240 basis points.

So those two hotels really had obviously a very significant negative impact on the non-Americas hotels results. Those market conditions are in one case a change in which competitors happen to be open and new entrants into the market -- that's Seoul.

And in the other case, the adjustment period that we're living through right now due to closing of a US air base in Kyrgyzstan. The impacts of each of those will be lapping in the first quarter of next year. So we will likely see more normalized year-over-year comparisons beginning next year.

Okay, helpful, thanks. And then just as my follow-up, I think part of your Orlando purchase decision was to round out your portfolio of large convention hotels. And you kind of cite it as the key selling point to have kind of US diversification for larger conventions that want to kind of move around cities. Have you seen that help -- is that one of the drivers of this 8% pace that you cited? Thanks.

Yes, there's no question about that. We've seen -- actually even in the underwriting process and looking at including the hotel in the Hyatt network, we had previously identified a number of core Hyatt customers, both rotation customers that rotate through the market as well as other customers that have unique meetings that they hold in Orlando as a regular matter.

And we felt confident that we could actually enhance an already strong customer base, guest base in that hotel. The hotel itself was already operating at a very strong level of demand and a strong position in the marketplace.

And we have improved that and we expect to continue to be able to improve it through a variety of different means, but one of which is the rotational element and some of it is some programming that we are working on within the hotel. Again, just paying attention to what our guests and groups are looking for and adapting to their needs.

We are finding that that's able to be done. We have a very big footprint in that hotel, with over 300,000 square feet of meeting space that's dedicated to the hotel independent of the 2 million square feet in the convention center that's connected to the hotel.

So our flexibility and the alternatives are really significant. So we're really very confident about how this is going to continue to progress for us.

Great, thank you.

Thank you. We'll take the next question, please, Darren.

Shaun Kelley, Bank of America Merrill Lynch.

I was just wondering if we could talk for a second more about the impact of the French hotel contracts, because some of those numbers seemed a bit more material. So my question is first, how much of some of those, I guess, payments -- guarantee payment or payouts -- are in the base of earnings this year? So how much is either paid out in this quarter or is expected to be paid out in 2014?

And then what would be the incremental cost that would then be in 2015 if we thought about the higher end of that EUR30 million to EUR35 million, because that seems like a pretty significant number for four hotels.

Sure. I guess let me just make a comment on the deal itself and then I'll address the specifics. So as I said, look, the short term has been significantly more difficult than we expected in terms of flow through and the market conditions in France have been challenging.

The hotels -- just by way of reminder, two hotels are in Paris and two hotels are in the South of France, with very different sort of market dynamics. The luxury market in Paris, that is to say the very top of the market, is holding up well.

We have a representation there through the Park Hyatt in Paris, but the larger hotels serving broader business leisure base at levels below that are much more variable due to the demand levels in France.

In the South of France, we've seen variability -- mostly pressure this year, because of the economy in France and also the demand level from both Russian and Middle Eastern travelers, which was down this past summer.

On the group side, one of the two hotels in Paris is a very large group hotel that's adjacent to the Palais des Congres convention center and group business has been very challenging this year.

So we are looking at how we can do a more effective job in revenue managing as we go. And we are also looking at on the expense side and on the flow through side making some additional changes in purchasing and more effective in management of the supply chain and integrating it into how we're providing for purchasing for the rest of our hotels in France.

F&B is probably the biggest single area where we've had negative variances relative to our original underwriting, mostly because the costs of operation are largely fixed and the variability in banqueting and in outlet traffic has been -- the variability has been high. There's also some flexibility issues in the organizational structure as well as some benefits programs that we are working through at the moment.

The key focus for us right now is the renovation program, which is part of the reason why the expected impact, negative impact this coming year is higher, because we expect to and hope to get into the renovation early in the coming year. And that's really one of the reasons why we're seeing a negative progression from 2014 to 2015.

In terms of the amounts, recognize that the year -- the anniversary of the deal, so to speak, is May. So we are sort of lapping, overlapping years of the transaction itself and that causes some variability in how we estimate what our expected guarantee payments may be.

But the figures that I cited, which is EUR15 million to EUR20 million this year and EUR30 million to EUR35 million potentially for next year, are for the actual calendar years. Those amounts end up showing up on our profit and loss statement as other income and expense, so it's not included in our adjusted EBITDA figure.

And Atish, I want to verify that that's correct, what I just said?

Correct.

Yes. So that's -- in terms of how it will end up showing up in the P&L statement, that's how it's been actually booked from the inception of the deal and that's the way it will show up this year and next year.

Okay, that's helpful. And just I guess then to clarify, Mark. So if the deal closed in May and it's EUR15 million to EUR20 million, is the EUR15 million to EUR20 million just what we're seeing from May until the end of the year or is that -- and that's why it's going up next year?

Or can you just -- or is the EUR15 million to EUR20 million, should that be pro rata and the actual number from -- that's in the base is less than that. It's EUR10 million or something?

No, it's a full-year figure for 2014.

Okay. Okay, that's clear.

It closed in May 2013, just to be clear.

Sorry. Okay, that's clear.

The reason it's going up for next year is the step up in the guarantee and the renovation. Those are the two biggest reasons.

That's helpful. And sorry to change topics then, but my other question would be just on overall margins. So as you -- for the owned and leased segment. So as you guys close on the sale of the select service portfolio, typically those types of hotels have meaningfully higher margins than what we'd see in full service.

So I know you don't give guidance, but can you help us think conceptually through what would be the impact on segment margins going forward? Is it kind of pretty natural to assume some margin dilution and how big of a gap should investors expect between maybe full service or limited service, at least in theory. That'd be helpful.

Well, why don't I start with this one, Mark? You can add. So on the select service hotels are typically running margins in the mid-30% range and if you looked at our aggregate owned and leased margins, there are more in the mid-20% range. So that gives you some sense of the drag.

It's hard to project this, because we're active on the recycling front and we've got buying and selling activity taking place. So I can't give you a more specific number than that, but directionally, it will be dilutive to total margins.

And you saw the impact of that or you can see that in the third-quarter results that we reported kind of a comparable change relative to the total margin change and it was about 150 bps.

So I think that that will -- what Atish just described will tend to put pressure on or reflect a lower level of run rate margins for the remaining portfolio. And it's also true that, at least if I look at, say, the two large acquisitions that we made last year -- the Hyatt Regency in Orlando and the Grand Hyatt San Antonio, the buyout of our partner -- those hotels actually operate at relatively higher margins.

So that will tend to higher than our average for the owned and leased segment. So that will tend to actually support the total margin level. And the net result of all that will unfold over the course of the coming year as we lap the sale of the select service hotels that we're planning to sell this coming month.

Great, thank you very much.

Darren, we'll take the next question, please.

David Loeb, Robert W Baird.

Just one, Mark, to follow up on the CFO search. Clearly big shoes to fill. Gebhard will be missed. You had very good luck in finding an internal candidate the last time you did a CFO search.

Can you give us a view on whether you think it's more likely that you find somebody internal or external. And in the external bucket, do you think that's likely to be somebody with industry experience or somebody from further afield? And what do you think the timing is likely to be on that?

Thanks, David. I'm not really going to go into details about specifics of this. I don't think it would be appropriate to do that. But I would say that we've got very strong talent in our finance team. I've been spending a lot of time with the team over the last couple of months, especially the last month, and I'm really encouraged that we've got great depth and great strength in our team.

I would say that the search parameters are quite broad, that is to say, we -- our view is that we really need to be looking for the very best candidate possible, whether it's with industry experience, without industry experience, and internal or external.

So I would say our mindset is one of focus on bringing in a great experienced person who can really add a lot of value, independent of whether they happen to have a lot of industry experience or not.

Our team is -- we have very strong and long-tenured experience in our industry within our team as it is. So I would say that having specific hotel experience is not mandatory in our search parameter.

And timing?

Timing is difficult to say at this point. You can imagine that given the time of the year, it is -- that as we head into year-end closings and so forth, depending on what kind of candidates we end up pursuing, we may end up getting pushed into next year by virtue of year-end close.

Great. Thank you.

Darren, we'll take the next question, please.

Harry Curtis, Nomura.

Just going back to the differential between EBITDA generated in your disposed assets versus the acquired assets. As far as the acquired assets, what is the expected return on those? Because presumably, they are in the ramping phase now and what is that return on invested capital now?

Well, I guess the best way to address that, Harry, is to take a look at -- if you just look at the few that I actually went through the details on during the call and I cited both the acquisition prices as well as the EBITDA levels that we expected in Orlando, in San Antonio, and in Mexico City.

And they vary, depending on which hotel you're looking at and of course, in a couple of cases, I would say both in Mexico City and Orlando, for example, we are building a stronger base -- a stronger foundation for the future. So our expectations are that we'll see improvements in earnings levels as we go forward.

But in Mexico City, we came out of the blocks at an EBITDA level that was in excess of 10% of our purchase price. In the case of Orlando, first year expectation of $55 million against a $717 million purchase price, so something in the high single digits -- 7% to 8%.

And for San Antonio, the total affective acquisition value, if you taken into account debt that we assumed and debt that we paid off and so forth, is something in the range of $270 million, maybe $275 million. And as I mentioned on the call, our outlook for this year is $27 million.

So I think those are pretty strong yields for hotels that we recently acquired or bought in our JV interests and they -- those three represent the vast majority of our recent investments, if you look at the total magnitude.

On the Playa front, it's a more complicated sort of assessment, because it's a JV as opposed to a wholly owned asset. But we've provided those figures as well. So hopefully that gives you a sense for what kinds of yields or run rate returns we're looking at now.

I guess what I'm --

Yes, I think -- yes, it's more that we've done more in the way of existing assets and converting those hotels, which have in place cash flow, and less about newly opened hotels. But I think the dynamic that we really saw in the third quarter had more to do with seasonality than anything else.

Yes, that was the biggest impact.

Right, but I mean, if it's going to be incrementally worse in the fourth quarter, the question is when does it turn positive?

When you say it's going to be incrementally worse, what are you referring to?

You said that the net impact on your EBITDA was $4 million and change.

(multiple speakers)

Yes, that has more to do with the fact that so for instance, Orlando was -- we had it in our system in the fourth quarter last year, so we don't have a benefit from that, but we had a lot of selling activity over the last 12 months. So that's more about that than it is about seasonality.

But with regard to Orlando and specific first quarter, for instance, is very strong. So you typically see benefit; you'll see that on the total margin line versus third quarter, which is seasonally a weaker quarter.

Okay, I guess I'll follow up with you later on this. Thanks.

Okay. We'll take the next question, please.

Operator

Nikhil Bhalla, FBR.

So just on a portfolio-wide basis, is there a way to figure out, Mark, where your group room nights and rates stand today versus the peak of the prior cycle? I'm trying to kind of get a sense of how far behind we may be on room nights and rates in the group segment.

And also when we think about the industry in general, with occupancies being above now the prior peak levels, what opportunities there may be for mix management going forward? Thank you.

If you look at total group revenue base, we are still tracking below where we had as a peak. And that is evolving and changing and catching up, obviously. If you look at the aggregate of occupancy for the chain at large, it's actually above peak in almost every market. And we see continued strength in demand.

So I would say that the backdrop for how we expected this to unfold when we started really seeing some positive movement in group about 1.5 years ago has actually unfolded the way we expected, which was serial improvements. It's been relatively steady, if not extremely high, although pretty solid, I would say, and increasingly seeing both continued demand support, but also now rate realization, especially for the shorter-term corporate business that we're booking in the quarter for the quarter.

So I guess what I would say is that the backdrop of having relatively higher occupancy is a benefit for more proactive revenue management and rate management and that's really what we are engaged in at this point.

Okay. And just a follow-up question on guidance. So of course, in the past, you've resisted giving guidance overall. And then you clearly have a lot of moving parts in the portfolio. I just wanted to get your most recent view on thinking about giving guidance, given all of these moving parts where you stand today. Thank you.

Yes, I guess our perspective on it hasn't really changed. What we've really attempted to do is to be much more complete or exhaustive, I guess, in how we are identifying changes in the portfolio area.

Given the level of activity that we have going in the asset recycling area, which is extremely high, billions of dollars of transactions over the last several years, and given the impact, we feel that keeping people informed about those dynamics as promptly as possible and providing data when we know it to be reliable -- that is, upon closing -- is really the best way for us to keep people abreast of how our portfolio is changing and what the financial impact is.

I think, given our level of activity, which has been very high and will remain high, our approach, I think is a constructive one in terms of sharing the information that's relevant to seeing what those changes are without, say, putting a guidance level out and then having to course correct on pretty much a serial, regular basis upon every transaction closing.

So that's really been how we've elected to do it. And I think with the expansion of our information schedule -- both in our schedules and also in how we've engaged with the investor base, I think that expansion has been very well received.

Okay, thank you very much.

Great, thank you. Darren, we'll take our last question, please.

This is the end of the questions for today. So now I'd like to pass the call over to Atish Shah for closing remarks.

Okay. Well, thank you very much. We appreciate your time this morning and this afternoon. We look forward to speaking with you soon. Thank you and goodbye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a very good day.