Hyatt Hotels Corp (H) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2014 Hyatt Hotels Corporation earnings conference call. My name is Lori, and I will 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, Lori. Good day, everyone, and thank you for joining us for Hyatt's fourth-quarter 2014 earnings call. We want to thank everyone in the investment community for participating this morning.

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, February 18, 2015, 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'll turn it over to Mark to get us started.

Thanks, Atish. Good morning, and welcome to Hyatt's fourth-quarter 2014 earnings call.

Before discussing the quarter, I'd like to discuss the progress we've made over the past year in reference to a few selected topics that we discussed at our investor meeting in March of 2014. First, we continue to expand our system with high-quality hotels. We had a very strong opening pace in the fourth quarter, as well as during the full year. In the fourth quarter of 2014, we opened 14 hotels; and for the full year of 2014, we opened 43 hotels. This represents a net hotel growth of approximately 7%, and a net room growth of approximately 5% over last year.

As a result of hotel openings, as well as revenue increases at existing hotels, total fees increased over 7% in the quarter compared to the same period in the prior year. For the full-year 2014, total fees increased 13% over 2013.

Our current executed contract base consists of approximately 250 hotels and 55,000 rooms. This represents approximately 45% of existing hotels and 36% of existing rooms as of the end of 2014. You'll recall that during our investor meeting we described how our executed contract base equated to strong embedded fee growth. This concept continues to prove out for us, and we are excited about our future growth potential.

Second, we continued to execute on our asset recycling strategy. We disposed of $1.2 billion of assets in the fourth quarter. On the full-service hotel side, we sold the Park Hyatt Toronto. The new owner plans to completely renovate and redevelop the hotel and the site. We also sold the Hyatt Regency Vancouver and the Park Hyatt Washington, DC. In all cases, we entered into new management agreements for each hotel to maintain our presence in these markets.

On the select-service hotels side, we took advantage of a very strong market to accelerate our plan to sell almost all of our owned select-service hotels. We closed a large portfolio sale of 38 hotels during the quarter; and at a recent lodging investment conference, the deal was voted one of the best M&A transactions of the year. We also completed sales of some smaller portfolios in the quarter.

Third-party interest in our select-service brands remains very strong. Our base of executed contracts for Hyatt Place and Hyatt House hotels is approximately 145 properties. This represents significant potential growth from the base of 275 hotels that were open at the end of 2014.

This interest stems, in large measure, from the performance of our brands. For example, rate growth in 2014 at our comparable select-service hotels was approximately 7.2%. We've established strong brand presence in this high-growth segment, and we've grown market share over time as we have expanded our Hyatt Place and Hyatt House hotel presence by more than 50% since our IPO.

Apart from hotel transactions, we made the strategic decision to sell our vacation ownership business last year. We structured a sale to a long-time partner who is committed to investing in the business, and growing the presence of Hyatt-branded time-share and fractional ownership properties. We maintained long-term brand presence in this segment, and expect to earn license fees from existing Hyatt Residence Club properties over time. We successfully executed this transaction in the fourth quarter of 2014.

In summary, over the course of 2014, we sold approximately $1.6 billion of assets. This includes a total of 52 select-service hotels, four full-service hotels, our vacation ownership business, and four joint-venture hotels. The joint-venture sales are consistent with our capital recycling strategy, which aims to free up capital from joint ventures over time, just as we've been doing from our wholly owned hotels.

These sales were consistent with our strategy, as we outlined at our investor meeting. We are focused on shifting the profile of the assets in our portfolio to higher-barrier-to-entry markets with more durable value through cycles. We maintained a brand presence with all dispositions.

We saw robust interest in our brands from new and existing owners, and we were able to sell these assets at an attractive 13 times blended multiple of trailing EBITDA. And we realized gains of over $340 million on these sales.

Our owned portfolio continues to evolve into a stronger, even higher quality group of hotels. We invested $800 million in hotel acquisitions in 2014, buying the Park Hyatt New York, the Hyatt Regency Lost Pines outside of Austin, and the Hyatt Regency Grand Cypress in Orlando. We've continued our asset recycling strategy in 2015 with the sale of the Hyatt Regency Indianapolis for $71 million in January, at an attractive price of 12 times trailing 12-month EBITDA. We've decided not to move forward at this time with the sale of four other full-service hotels that we had on the market, as the criteria for an attractive sale were not met.

Looking ahead, we have significant liquidity available. This liquidity includes over $800 million of cash and short-term investments, excluding restricted cash, as well as borrowing capacity. We expect to invest in new hotels or other opportunities. We remain focused on our key priorities: investing in opportunities in key gateway cities, investing in resorts, investing in urban select-service hotels, and investing in group-oriented hotels.

The third topic covered at our 2014 investor meeting that I'd like to discuss is return of capital to shareholders. Last March, we noted that returning capital to shareholders would continue to be a priority for us, along with investing to grow our Business. In the fourth quarter, we repurchased approximately $215 million of stock. The majority of these repurchases were Class A shares repurchased in the open market. About $68 million were class B shares that became available to us during the quarter.

During the full year, we repurchased approximately $445 million of stock. We reduced our net shares outstanding by 5%. Buybacks have continued in the first quarter of 2015, with $69 million of stock repurchased through last Friday.

In total, we've returned over $500 million of capital to shareholders since the beginning of last year. We intend to continue our balanced two-pronged approach to invest in the Business through the expansion of our presence in markets where we are not represented or where we are underrepresented, and also to return capital to shareholders via share repurchases.

Now let me turn to the results for the quarter. Let me start by stating that fourth-quarter earnings came in below our expectations. We reported adjusted EBITDA of $146 million in the fourth quarter of 2014. Four factors primarily impacted our results in the quarter.

First, we recognized $22 million of non-recurring stock-based compensation expense related to prior periods. This expense relates to an accounting adjustment to reflect the cumulative effect of stock-based compensation for certain participants in our long-term incentive plans. Upon review in the fourth quarter, we identified that, in certain cases, we needed to expense the full value of brands at the time of grant, not as amortized over the vesting period. Therefore, we recorded a catch-up expense at year end to reflect this in our financial statements. Going forward, our expenses associated with our long-term incentive plans will reflect this revised accounting treatment.

The incremental expense will be in the range of $2 million to $3 million per year, and is reflected in our adjusted SG&A outlook for 2015. Adding back this $22-million expense, adjusted EBITDA would have been $168 million, which represents a 6% decline from the fourth quarter of 2013.

The second factor that impacted results was the portfolio changes due to transactions. Because of dispositions, lower owned and leased joint-venture and time-share earnings had an approximate $8-million negative year-over-year impact on 2014 fourth-quarter adjusted EBITDA. This is in line with the $8-million impact we referenced on our third-quarter earnings call.

Third, adjusted EBITDA was negatively impacted by approximately $3 million due to the strengthening of the US dollar. Fourth, we continued to see weakness in some international owned hotels, which I will discuss in a minute. So, while our quarterly results reflected these items, our overall Business remains strong, particularly in the Americas.

We reported comparable constant-dollar system-wide RevPAR growth of 5.1% in the fourth quarter. RevPAR at full-service hotels in the Americas was up nearly 6%; and RevPAR at select service hotels in the Americas was up more than 7%, driven by rate growth. In the Americas, occupancies are at record levels, and we continue to grow average rates. Most US markets have a favorable supply-and-demand dynamic that we expect to continue over the near term.

Transient demand in the quarter was strong, with transient room revenue at comparable US full-service hotels up 7.3%. Strong transient markets included Washington, DC; San Diego; and Atlanta.

On the group side, group rooms revenue at comparable US full-service hotels was up a little over 1% in the quarter. Group revenue from corporate customers was healthy. Group demand from associations was weaker.

Association demand was negatively impacted by lower activity related to fewer events at two large group hotels, and a renovation at another large group hotel. Excluding these three hotels, group revenue would have increased over 3%, which is more in line with what we expected. We do not see the issues that impacted results in these three markets continuing to be a drag.

We remain optimistic about group performance, as our trends support a positive outlook for 2015 and beyond. Our group revenue pace remains strong for 2015, up slightly over 7%, with nearly 75% of our group business on the books for 2015, which is in line with our expectations. Total group production for all future periods was up approximately 8% as well. We expect group to continue to recover in 2015 and beyond, and are encouraged by both pace and production levels.

Now I would like to turn to results outside the Americas. RevPAR at our hotels in EAME/Southwest Asia grew 2.6% on a constant-dollar basis in the quarter. The economies across the euro zone continue to underperform the US. We are seeing relative strength in the United Kingdom, while continental Europe continues to struggle. Eastern Europe was negatively impacted by the continued conflict in Ukraine, and the weaker ruble. The Middle East saw a drop in inbound travel from Russia, as well as a tough comparison in Dubai, which hosted the air show in 2013.

South Asia was steady, with RevPAR growth in the mid-single-digit percentage range. ASPAC RevPAR was up 3.1% on a constant-dollar base in the quarter. RevPAR in greater China was up in the low single-digit range. This was due to a more difficult comparison than prior quarters, as China RevPAR increased in the fourth quarter of 2013. Market conditions were relatively weak in Hong Kong and Seoul in the quarter.

Despite these current headwinds, we remain confident in the international markets over the long term. The quality of our hotels in these markets, and the positioning of these hotels, continue to be a key competitive advantage for us. We continue to see significant opportunity for our existing hotels, and significant opportunities for expansion.

Now I'd like to discuss results for our owned and leased hotels. Owned and leased RevPAR was up 3.4% on a constant-dollar basis in the quarter.

We continue to see a divergence in performance among owned hotels, with RevPAR in the Americas stronger than in ASPAC and EAME/Southwest Asia. Excluding our one owned hotel in ASPAC, the Grand Hyatt Seoul, RevPAR for our owned and leased hotels would have increased approximately 4% in the quarter. Seoul continues to be negatively impacted by new supply in the market. Comparable owned and leased margins decreased 50 basis points in the quarter, which was a disappointing result.

Our geographic mix of properties, as well as food and beverage margins, negatively impacted results for the quarter. As to our geographic mix of properties, consistent with our experience over the last several quarters, margins in the Americas were higher than those outside the Americas. Americas' margins increased 50 basis points, while margins outside the Americas decreased 240 basis points. Excluding Seoul, total owned margins would have been flat in the quarter. We expect the performance of Seoul to gradually improve over 2015.

Other international markets that negatively impacted margins were Paris and Bishkek. We believe that each market, Paris and Bishkek, will continue to negatively impact margins over the course of 2015, due to new supply and the significant decline in demand, respectively.

As to food and beverage, our revenues were flat for the quarter, despite occupancy and RevPAR increases. As such, F&B margins contracted by 100 basis points. This margin result was driven by a handful of hotels. We continue to believe that our food and beverage results will keep pace with RevPAR results over time.

I'd like to now talk about the performance of our owned hotels in New York City in the quarter. As a reminder, we own the Grand Hyatt New York and the Andaz 5th Avenue that are in our comparable results. We also own the Park Hyatt New York, which we acquired and opened in August of 2014. Our New York City hotels -- New York City owned hotels -- represent approximately 9% of our owned EBITDA in 2014.

RevPAR growth at our comparable owned hotels in New York City was slightly negative in the fourth quarter, due primarily to the impact from new supply in the market. Supply growth in New York City continues to trend above the US average. As a point of reference, there were roughly 76,000 rooms in New York City in 2008. By the end of 2015, there will likely be over 100,000 rooms, a 35% increase over this period.

We've clearly benefited from this new supply; and since 2009, we have opened several hotels in New York City, including the Park Hyatt New York and the Andaz 5th Avenue, and most recently the Hyatt Herald Square in New York, which we opened in the fourth quarter of 2014. We now have nine hotels open in New York City versus just one in 2009.

We're confident the room supply in New York will be absorbed over time; we continue to expect a negative short-term impact, however. Our market positioning, the quality of our hotels, and the strength of our brands gives us confidence in the long-term performance of our New York City hotels.

We continue to monitor changes in demand from international guests coming to New York, given the potential impact of the appreciation of the US dollar. Approximately 15% of our transient business, and 5% of our group business, in our comparable owned hotels in New York City originates from Europe.

Other than New York City, the financial performance of our US owned portfolio should be strong, as we're benefiting from limited new supply and healthy demand levels. In particular, our recent acquisitions in Orlando and San Antonio are doing well, and are performing at or above our expectations. Those are markets in which we generate over 20% of our owned and leased hotel EBITDA. At the Hyatt Regency Orlando, group pace for 2015 is up over 15%. At Grand Hyatt San Antonio, we expect healthy results this year, as we focus on in-house groups, while our renovation is under way at the convention center next to the hotel.

I'd like to now discuss a new brand that we are introducing to our portfolio; our newest brand is Hyatt Centric. This full-service lifestyle brand is designed to put our guests at the center of great destinations. The first locations will open in Chicago in a central location in the Loop, which, for the non-Chicagoans on the call, is the key central business district of the city; and on South Beach at the corner of 16th and Collins in Miami Beach. Both of these hotels will open in the second quarter of this year.

We expect that, as a result of conversions and hotels that are already in our executed contract base, we will have over 15 Hyatt Centric hotels by year end. And we believe the brand will be well received by owners and guests alike in the months and years ahead. The launch marks our sixth brand that we've introduced since 2006, and offers us the opportunity to, again, set the standard by using empathetic engagement with our colleagues, our guests, and owners and developers, to help us develop new brand concepts, and continually evolve and innovate.

Now, as we think about financial performance for the future, there are a few items to consider about 2015. First, approximately one-third of our EBITDA is generated outside the US, with our exposure primarily coming from the euro, British pound, Korean won, and Mexican peso. The US dollar recently appreciated against all of these currencies. We also have operations in Switzerland that are exposed to the Swiss franc.

Looking ahead to 2015, and assuming current exchange rates, 2015 EBITDA could be negatively impacted by approximately $20 million in comparison to 2014, due to foreign exchange. We expect the impact will be split between owned and leased hotels, and system-wide fees. Because the dollar began appreciating during the fourth quarter of 2014, we would expect the year-over-year impacts to be more sizable in the first three quarters of 2015, if exchange rates stay at current levels.

Second, the impact of transactions completed during 2014 is significant. Unlike in some prior years during which we were net buyers of hotels, or where we were the beneficiaries of alignment of timing of dispositions and acquisitions, we were a net seller in 2014. The year-over-year EBITDA impact of being a net seller is approximately $70 million. We expect this impact to be concentrated during the first three quarters of 2015.

Third, and last, we continue to be excited about the growth prospects for our brands. Our executed contract base is strong, and we expect a healthy level of openings relative to our system size in the years ahead. This year, we expect approximately 50 new hotel openings.

By year-end 2015, over 20% of all of our hotels around the world will have been opened less than three years. These new properties, together with a large number of renovated hotels in many markets in the US and Asia, are well suited to today's travelers; they're fresh, modern, and exciting. And of course, as these hotels ramp up and generate higher fees, they represent durable earnings growth for our Company in the years ahead.

Through all of our extensive asset recycling and growth, the thing that endures and keeps us aligned on our path is our culture. All of the members of the Hyatt family share a special bond. We're dedicated to enhancing and evolving our colleagues' experience to allow them to be at their best, so that they, in turn, can help our guests be at their best. By focusing on our people, our key asset, this approach has led to high colleague engagement and great performance, and this serves our owners well.

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

Thank you, Mark. That concludes our prepared remarks. For our Q&A session, we'll move right into the questions from participants. Lori, may we please have the first question?

Your first question comes from the line of Joseph Greff of JPMorgan. Your line is open.

Good morning, guys. I heard you at the end, Mark, talk about the impact of the owned hotels will have given that you're a net seller. So when I look at -- I'll refer to it by page number, Page 6 in one of the financial supplements, you did $522 million in total owned and leased EBITDA, including the joint venture contribution. That as a base for 2015 before any assumptions on our end for growth and any kind of assumptions on the drag from FX is $452 million, correct? Is that the way to think about the base going into 2015?

Yes, that's right. That's correct.

Okay, and then the adjusted SG&A, you had mentioned that the incremental go-forward expense related to stock comp is a few million dollars or $2 million to $3 million a year going forward. When you think about the rooms growth I know you tend to talk about hotel openings, would you expect the 50 hotels, the room count therein to be consistent with the average room count in your development pipeline?

Yes. I think if you look at the progression for this past year, we had talked about the fact that hotel growth, the number of hotels that grew were roughly a 7% growth in properties and at roughly a 5% growth in number of rooms. And the mix, if you will, of the--

Got it, yes.

-- coming through will likely be consistent with what we saw this past year.

Okay, and then the impact from selling vacation ownership business hits that other line on the P&L. When we look at the fourth quarter, is that sort of a run rate base to use as a base for 2014 on a full-year basis?

We closed the deal early in the fourth quarter, so yes. I think that's correct.

And the reason why I ask these questions, if you look at consensus 2015 estimates, you can drive a Mack truck through them, so I think these questions are helpful in terms of bringing consensus EBITDA into a realistic state relative to a ton of these transactions that you guys have highlighted. Those are all my questions. Thank you very much.

Thank you.

(Operator Instructions)

Your next question comes from the line of Steven Kent of Goldman Sachs. Your line is open.

Good afternoon. This is [Ando Savilaj] in for Steve Kent. Two quick questions. So, one is what are the lead times for the transient bookings coming in from Europe, especially with regard to the New York properties? When would you actually be able to see the impact of the stronger dollars, and if you can share some early trends, that would be helpful.

The second question is the roughly 55,000 rooms in the pipeline. What share of it would be realized in 2015? And your 5% system growth in 2014 drove about 11% increase in your base and incentive management fees. So if you could give broad contours there, that would be helpful. Thank you.

Okay. So, let me just address the second question first. If you look at the openings that we just discussed in 2014 and you hear the fact that we believe we'll open 50 new hotels in 2015, we would expect the room mix so to speak of the hotels that we're opening this year to be roughly in line with what they were this past year. So, that will give you a benchmark to compare to from 2014 to 2015.

With respect to the first question, the answer is that most transient bookings in the industry, and including those inbound from Europe, tend to be relatively short-term. So, they do tend to be concentrated in certain times of the year and there's a significant measure of -- has been a significant measure of European travel to the US during the summer months, a typical vacation time.

And with respect to sort of impact to date, it's really been limited if you look back over the first five or six weeks of this year. New York is probably the market that people will most focus on because that is the primary destination for inbound European travel.

New York started off the year quite weak. I think if you look at the market statistics, RevPAR opened up this year down 15% to 20% across the market, which is obviously a significant decline, but you've got several things going on.

You've got a tough comparison to last year when we had the Super Bowl in New York and you also had some very unfortunate weather threats that really impacted business in January. So, relative to those big comparative issues, the inbound traffic issue has not been a material year-over-year change yet.

Got it. Thank you. And very quickly, anything that you can comment on US to Europe-bound travel?

Nothing really significant to speak to at this point.

Thank you.

We'll take the next question please, Lori.

Your next question comes from the line of Shaun Kelley of Bank of America Merrill Lynch. Your line is open.

Hi, good morning, everyone. I have two questions. The first one would be on the inverse side of obviously the loss in all of the owned EBITDA that you guys are now sitting on a significant amount of proceeds from all those asset sales. So, I know you've given your four criteria before of what you're sort of looking for in terms of acquisition candidates. But could you elaborate a little bit just in terms of which of those four is probably the most attractive to you right now, because I know you've made some progress in several of those categories as well, and how you think about just in general redeploying that over $1 billion that should be sitting on your balance sheet?

Sure. So I guess the key gateway city point or area of focus has been and will remain first among equals because those markets tend to be significant from a brand awareness and brand presence perspective, and so we will continue to be focused on that. We've talked in the past about markets in which we are particularly focused, they would include places like Miami and Los Angeles, in particular in the United States, and London is probably the primary key focus outside the US.

I would add that we've launched a new brand, Hyatt Centric, and we are going to begin the life of that brand with all three types of ownership that we engage in, that is owned hotels, managed hotels, and franchised hotels. We have in the past very effectively used our balance sheet to help propel the growth, establishing and growing a brand. We've done it in relation to Hyatt Place, we've done it in relation to Hyatt House, and we did it in relation to Andaz.

So, if you look back and you look at the fact that we have used our balance sheet to help grow those brands and you look at the progress, our progress relative to other competitive brands that were launched in the same time frames as those brands, you'll see where we are relative to those other brands, which is I think evidence that we've been able to clearly define and create a lot of momentum. And so we would plan to do the same with respect to Hyatt Centric. So, that's maybe a little bit more color on where we may be looking to apply capital as we move forward.

That's helpful. And then I guess as a follow-up to that before I go to a different topic was just the -- is there urgency around, given the nature of these types of proceeds, is there urgency from a tax perspective around doing some sort of 10-31 exchange since that seems to be the buzz word for publicly traded hotel companies these days?

Well, we've been active in buying and selling on both sides of the equation for years now. I think if you look back, we've got multiple billions of dollars of transactions under our belt over the last three years. So, we've been very, very active and we've been able to manage it effectively and efficiently from a tax perspective and that's been the case through 2014.

We do always have this in mind as we think about deploying capital, and so we are focused on identifying new opportunities. There's some measure of the proceeds that would have some tax attributes associated with them, but in the main we've already -- we've done a good job managing through the disposition proceeds from last year.

Meaning that you really -- you don't necessarily have to do something right away?

There were a lot of -- what we were able to do and the timing of what we were able to do allowed us to already accommodate from a 10-31 perspective proceeds from dispositions.

Got it. Okay. That's really helpful. Just to switch gears on you a little bit. I believe back at the analyst day if we were sort of back into some of the math, and I don't know -- I can't remember exactly how you gave the target, but we sort of were able to calculate sort of a net rooms target on the managed and franchised side of probably a number that should have looked like on your current system size close to 7% to 9% over I think it was a three-year period on an average basis. You came in for this year at around 5%. So I guess putting it simply, do you think -- can the 5% accelerate? Is it sort of continued based on your plan for the 5% to accelerate as we move through 2015, 2016 and 2017?

Yes, I think if you look at the progression just from 2014 to 2015, that is 43 hotels opened last year, 50 this year. We do see the progression of the construction of the hotels that are in the pipeline. So, I think that the -- it will depend on completion rates in different places around the world, and we think about this over the life span of these construction projects. But, yes, we do already see that in 2015 we're looking at a higher rate.

Just as a reminder, we did say 25% over three years, and about 45% of the rooms in our executed contract base are under construction right now.

Great. Thank you, everyone.

Your next question comes from the line of Thomas Allen of Morgan Stanley. Your line is open.

Hi, good morning. Can you update us on the CFO search? Thank you.

Sure. We are actively engaged in interviews. We've got a number of high quality candidates and we're encouraged with their interest in Hyatt. The fact that we are in sort of the closing and reporting season for companies has had an impact on scheduling some interviews and we'll of course provide further updates when it is appropriate.

Okay. And I got on a little late, but just following up on the earlier questions on capital, returns on capital deployment, can you just give us your views on just the transaction market in general, your ability to continue to do deals? You've obviously been doing it -- you did a lot of deals in the fourth quarter and continue in the first quarter, but where are you in terms of being a buyer or a seller or a net buyer and a net seller?

And then just -- you said in your press release that you accelerated share repurchases and 2014 accelerated pace of share repurchases in 2014 into the first quarter of 2015. Can you talk about your view there? Are you picking up -- should we expect share repurchases in 2015 to be higher than previous years? And how -- what's your ability to do that given the ownership structure? Thank you.

So, our activity on the transaction front has been and remains both on the buy side and the sell side. The level of activity has been very high for full service and select service assets, and we see that continuing.

I think part of that has to do with capital formation that is different types of buyers either raising capital or having capital available to them. And, secondly, favorable lending environment, both availability and cost.

And on the cost side that continues to remain, I think, a propelling force in terms of deal activity. So we would expect 2015 to be as active as 2014 was. I think it will evolve and take different shapes over the course of the year as it morphed even over the course of 2014, but I think you're going to see continued significant activity.

We were a significant net seller in 2014 and our -- where we end up on being a net buyer, net seller this year ends up being very dependent on what the opportunity set looks like and what we're able to execute against. So, it's impossible to predict that as we sit here at this moment where that will come out. What I would say is we remain committed to using capital to continue to grow, and especially in particular markets and with specific asset types.

The thing about our business that I think is a powerful model for us is that we've got -- we have historically and are currently utilizing our asset base to generate the proceeds for investments not using operating cash flow to do that. So as a consequence, we're able to do both, that is stay active in the market and invest and at the same time have cash flow to be able to return to shareholders. And as we said in our investor meeting last year, we're committed to do both over time and the way we set up our activity base, we're able to do both over time.

So with respect to share repurchases, we are -- we've obviously been very active. That activity base has continued into this year and it's been a very effective tool for us because as we look at deal opportunities and investment opportunities, share repurchase allows us to remain very flexible in terms of how we utilize available cash for investments that may arise from time to time. And we have flexed our -- both down and up, our pace of share repurchases depending on particular deal opportunities that came up from time to time. And that's really what I would expect to see in this year as well. So, that's hopefully a little bit more context for where we're starting the year and where our outlook is.

All right. Thank you.

Your next question comes from the line of Smedes Rose of Citi. Your line is open.

Just big picture, as you look at reinvesting your proceeds. Are you more inclined to focus on buying and owning real estate or do you feel are you more interested in management contracts at this juncture? And then, also, can you give us what the appropriate tax rate is to use for 2015?

On the acquisition front, the answer is we have and would do both property acquisition as well as looking at acquisitions of either management agreements or brands, collections at hotels.

So you don't favor either at this point. It would be very deal-specific?

I'm sorry. Say that again.

You don't favor either at this point in the cycle. It would just be deal-specific to you, owning versus managing?

That's correct.

Okay. And then on the tax rate?

On the tax rate, so mid to high 30% range is a good blended rate to use for us for 2015. The 2014 tax rate was 34%, so a slightly higher tax rate. And it's just frankly based on mix of earnings and geography of earnings. So, mid to high 30s is the right rate to use.

Okay, thanks.

We'll take the next question, please.

Your next question is from David Loeb of Baird. Your line is open.

Mark, just to come back to your comments on the Hyatt Centric. A lot of the markets that you mentioned in the launch website appeared to be locations where they are existing Hyatt branded, just plain Hyatt Hotels. What level of investment do you think you will need on a corporate level to make -- in order to induce those managed and franchise owners to convert to the Hyatt Centric brand?

Thanks for that, David. So, it's true that a number, as we said, a number of the hotels that we expect to be Hyatt Centric hotels will be conversions for existing properties that we already have branded and a number of those will be from the Hyatt sub brand. The level of investment's going to be different per hotel. A lot of it has to do with signage and some capital requirements within the hotels.

We will definitely be supporting signage and we will certainly be putting money behind the launch of the brand this year, but the capital that's required for other repositioning costs within the hotel, whether it's F&B spaces, a lot of it will be public space, evolution -- we will look to organize that with third party owners and have them make those investments. And that's really the process that we're going through right now, but it's going to vary a lot by hotel. So, most of the capital that we will end up putting behind the launch will end up looking like signage and some other promotional costs along the way.

So it sounds like pretty minimal from Hyatt corporate perspective, but is that enough to induce owners to actually make this change as opposed to staying in the Hyatt sub brand?

Yes. We've got great traction in a number of discussions that we have under way currently and I would also say that we have a number of hotels in the executed contract base globally that we're seeing as great opportunities to actually make Hyatt Centrics. So we -- our premise for this was that we would see opportunities to convert existing hotels and clarify our presence in that boutique space, that we would -- that this would absolutely be a global brand.

When we looked at the market opportunity -- so when we were at the investor meeting last year, we talked a little bit about the new brands that we had launched and what we saw as the potential over time. And by way of reminder, our outlook for Andaz was over 75 properties in different places around the world and we believe that Hyatt Centric has got broader appeal than that. So, we have big plans for this and it's on a global basis. I'm excited about the key cities that we will start off in and the fact that we are opening really our first two representations of the brand are going to be newly opened hotels in the second quarter and, as I said, we're continuing to focus on new deals that are under discussion at this point, again, globally.

Perfect. Thank you.

Your next question comes from the line of Rich Hightower of Evercore ISI. Your line is open.

Hi, guys. Good afternoon. Two questions. So the first one is on the owned and lease margins. I think the total owned and lease margin decline was 50 basis points, and I know you gave some details on some asset-specific and market-specific issues that maybe impacted that number, but was there anything related to the mix of assets sold, especially on the select service side during the year, during the quarter that impacted those figures?

Well, the figures that we're citing are comparable and so the answer to the question is really no. We did have significant impact from Seoul. I know we've been talking about Seoul for a few quarters now. Seoul alone was somewhere in the range of a $3 million impact in the fourth quarter, and so that one hotel really had outsized impact on our margins and our overall results for our own portfolio.

The outlook for that property is now positive. I guess we feel like we've turned the corner and we've gotten to a point where relative declines will slow and eventually stop this year, but we're mindful that this continues to come up and we're highly focused on it. We've got a positive outlook for the year where we think that RevPAR will be positive and earnings will be positive, even if it's going to take us some time to really make that material turnaround.

Okay. Thanks, Mark. And my second question, you mentioned in the prepared remarks that Hyatt is not going to move forward with I think four additional asset sales. Can you just go into kind of generally what maybe torpedoed those deals and reiterate your sale criteria?

Sure. So we did -- I mentioned that we're not going to proceed at this time with those four deals. It doesn't mean we won't eventually, but at the moment that's the case. The criteria that we talked about in the past, and I'll remind everyone our price, obviously, the form of the contract that we establish, management agreement or franchise agreement, capital commitments into the hotels, and the other things that we can do with owners, the potential buyers of the properties. Those are the four key criteria. So every single -- every hotel's got its own story associated with it, but those are the four key criteria that we look at.

Okay. Thanks, Mark.

Your next question comes from the line of Chad Beynon of Macquarie. Your line is open.

Hi. Thanks for taking my questions. With respect to the pipeline progression mainly beyond the 50 hotels that you mentioned in 2015, I'm assuming a good part of the tail of this are the franchised properties in India and China, and I was wondering if you could comment on the general construction trends there? I know, Atish, you said 45% of total rooms are executed at this point, but if you could talk specifically about those two markets.

And then, secondly, with respect to that if you could touch on general occupancy demand levels within these areas as well given lower GDP estimates? Thanks.

I'll just give you the stat. For India and China it's about a third that are under construction. Mark, maybe you can talk a little about the dynamics in those markets.

Sure. On -- two very different tails here. India's been under a lot of pressure over the last 2-1/2 years. Results quarter over quarter have been under pressure, more severely in the 2013 and 2014 timeframe.

What we saw starting to slow down was that negative progression. Part of this also had to do with the fact that the Rupee went through a significant devaluation in that period of time from somewhere between INR45 to INR50 to $1 to INR65 to $1, now trending closer to the low INR60s. That had impact on inbound and outbound travel. It also had an impact on economic activity in the country.

And so the dynamics are such that with the new government coming into place in India and the impact of the reduction in oil prices, which has actually led to a current account -- I think there's actually a current account surplus now in India which is a bit shocking and wonderful, welcome news, we're starting to see stabilization and that's really critical.

During this period of time, the lending environment did not get materially better. Rates remained very high, so most developers are looking at borrowing interest rates in the teens and advance rates are still relatively modest at something like 50% of construction costs. So, it has absolutely had an impact on new supply growth in India. So a lot of projects slowed down or stopped.

The development activity base also was negatively impacted. So I would say India, we've already suffered through a bad period of time and it feels like it's stabilizing, and the indicators at this point are all sort of pointing in a positive direction. There's still some evidence of progress that needs to be seen in the economy with the new government, but the -- I think the indicators are positive.

In China, we've not seen as significant a decline in either deal activity or construction activity, no matter that we went through a very difficult period in 2013, which was really the result of the austerity program that (inaudible) government put into place. So, what happened was a lot of the corporate business and banquet and social business that we accommodated at our hotels for state-owned enterprises for other businesses significantly declined during the course of 2013, and 2014 was really lapping a pretty challenging time.

So it feels to me and to -- if you look across the industry, other than certain pockets, things are stabilized and growing. We had positive results in most of the regions around China and for China as a whole, and development activity continues to be high.

So those -- hopefully that gives you more color. So, therefore, the pace of openings in India is slower than we expected. The pace of openings in China is roughly as expected. And in terms of the future, I guess we'll see how things play out in India.

Okay. That's great color. And then on New York City, given your reliance there and you mentioned several anecdotes and results in your prepared remarks. Could you kind of talk about if you think this is a negative perfect storm that could hurt the market for multi years given how strong the green back is and the additional supply, or if this is something that the supply could be satiated as long as international travel is at historic levels? Thanks.

So, we do not view this as a perfect storm in negative sense. There's no question that starting the year down close to 20% as a market in RevPAR is not an auspicious beginning, but the weather was a killer and the Super Bowl comparison is very difficult.

The outlook for RevPAR for the year remains positive. It may be low, sort of in the low single-digit range, let's say, but it's positive.

And so New York is an unusual market. It has the ability to absorb new supply pretty much unlike any other market maybe in the world, but certainly in the US. And I do think that we will need to pay close attention to the, the US dollar rate, but so far we really don't have significant evidence that it's having a now impact. It's something that we'll definitely keep a close eye on over the course of the year.

We opened -- it's not the same also by segment within our industry. So, we opened Park Hyatt New York in August of last year. We ran over a $1000 rate for the period during which we were open last year and so we've been able to position the hotel with the right customer base and establish an appropriate position from a rate perspective within the market.

Now what we're doing is building occupancy over time and also turning right now to really focus on banqueting and social business which is an important component piece of the overall hotel. So, we're ramping up well, although even though conditions in New York have been tough we're confident that given the customer base that we're serving and how we're positioning the hotel, that that will be a good story over time. So it's not going to be the same story for every segment within the city.

Okay. Thanks for the color.

Great. Lori, we'll take our last question.

Your last question is from Vince Ciepiel of Cleveland Research. Your line is open.

Hi, guys. Thanks for taking my question. I wanted to dig a little bit more into the $70 million year-over-year headwind. Does that account -- number one, does that account for the Park Hyatt and Lost Pine which should be a tail wind getting into next year?

And then, number two, what type of margin headwind or tail wind is associated with the disposition of that $70 million? And then, finally, as you walk through those dispositions could you help us understand any ensuing impact on the management and franchise fee string?

Sure. So, first of all, the number is a net figure that nets out dispositions and acquisitions. So, everything that's embedded in our activity base in 2014 is within that number.

With respect to margin progression, all of the data that we've been discussing has -- it relates to comparable margins. If you look at the operating margins for select service properties, they tend to run 5 to 10 points higher than full-service hotels, depending on the market.

So, if you looked at -- if you were looking at the total blended rate of margin rate for the owned portfolio historically, we will see a decline based on the disposition of the select service hotels. The exact amount will really depend on what happens with the owned portfolio over time. Not all -- some of the newer acquisitions that we've made are actually in the full-service space, are actually at a relatively higher GOP margin level.

So I think on a blended basis for sure it will end up being lower as a static matter, but we really are going to focus on this comparable progression. That's really the key topic for us.

In terms of management and franchise progression -- management and franchise fee progression, you've seen already an impact. If you look at the fee progression this past year, our franchise fees are up 35% year over year. That has to do with really three things.

One is we've converted some hotels that we owned and operated ourselves into franchises, so that's one dimension of it. Second dimension is just increases in revenues from existing franchised hotels, and the third is openings of new franchised hotels owned by third parties. So all three of those things contribute to that growth rate, and that's a progression that you'll likely see into this coming year, progression meaning that you'll see the conversion of the select service hotels that we sold in the fourth quarter to franchise properties.

That had a positive impact on the mix of franchise and management fees over the course of the year. Most of what we focus on is the progression based on revenue increases at existing hotels and new openings, and the conversion so to speak between managed and franchised is more of a transition as opposed to a net increase or decrease at a given point in time.

So, again, our focus is going to continue to be on opening new hotels out of the contract base and driving revenue and earnings for the existing hotels. Those are the two primary drivers of our earnings bases as a Company.

The only thing I would add to that is the $70 million by quarter. It's about $25 million in the first quarter, $25 million in the second quarter, and $20 million in the third quarter. And the fourth quarter we're lapping, so that's how the $70 million breaks out by quarter.

Got it, thanks. Then on group real quickly here, impressive number on the pace. I know that 2014 was a bit lumpy. How do you see group panning out from a quarterly perspective? Is there lumpiness embedded in 2015 as well as the comp on that?

Well, not quite sure I know what you mean by lumpiness. I think the fact is that group business is not equal -- it's not a steady pace over the course of the year.

The third quarter tends to be relatively weaker because of the summer months that are not key months for corporate groups, which is a big chunk of our group business. So, there is a natural cadence to it, but if you meant some other kind of lumpiness, I'm not sure I know what you mean.

All right. Thanks, guys.

Okay.

Thank you very much for joining us this morning. I would like to thank everyone and look forward -- we look forward to speaking with you in the near future.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.