Hyatt Hotels Corp (H) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First-Quarter 2015 Hyatt Hotels Corporation Earnings conference call. My name is Angel, 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, Interim Chief Financial Officer. Please proceed.

Thank you, Angel. Good morning, everyone, and thank you for joining us for Hyatt's first-quarter 2015 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'll 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 standards 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, May 5, 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.

With that, I'll turn it over to Mark to get us started.

Thanks, Atish. Good morning, everyone, and welcome to Hyatt's first quarter 2015 earnings call. I'd like to speak about three topics today.

First, I'll discuss our first-quarter results and share some thoughts on our outlook. Second, I will provide more color on our Group business, particularly as it relates to our food and beverage business. Third, I'll discuss our view on capital allocation and our plans for our balance sheet.

Now let me turn to results for the quarter. Let me start by stating that first-quarter earnings came in above our expectations. We reported adjusted EBITDA of $169 million in the first quarter of 2015, which is 1.7% below the first quarter of 2014.

Adjusted EBITDA in the first quarter of 2015 was negatively impacted by about $18 million due to transaction activity across our owned and leased portfolio, our JVs and our timeshare business, and by approximately $4 million due to the strengthening of the US dollar. So adjusting for these items, adjusted EBITDA would have been up approximately 13% quarter over quarter.

Our results benefited from strong revenue, particularly in the US. We reported comparable constant dollar system-wide RevPAR growth of 7.4% in the first quarter, and our global food and beverage revenues were up by 6% at managed properties. All compared to the first quarter of 2014. RevPAR at full-service hotels in the Americas was up more than 8%.

Our Hyatt Place and Hyatt House hotels continue to perform very well, as we benefited from our focused expansion in urban markets. As a consequence, RevPAR at select service hotels in the Americas was up more than 10%. The RevPAR increases we saw in the Americas were primarily driven by rate growth, which represented about three-quarters of the total RevPAR growth.

Occupancies are at record levels. We continue to grow average daily rates as demand from both group and transient guests continues to be strong. Most markets within the US have a favorable supply-and-demand dynamic, and we expect that to continue over the near-term.

Transient business was strong in the quarter, with transient room revenue at comparable US full-service hotels up 6.7%. Strong transient markets included Washington DC, San Diego, San Francisco and Atlanta. We also saw strong results in leisure markets, including Florida.

On the Group side, Group rooms revenue at comparable US full-service hotels was up a strong 10% in the quarter, with average daily rates up approximately 6%. This is the 18th quarter in a row that we've seen rate growth for our Group business. And this quarter's rate growth is the strongest since the second quarter of 2007.

Group revenue from corporate and association customers was healthy in the quarter. The revenue from associations benefited from strong growth in room nights, while revenue from corporate customers benefited from strong rate growth.

Group revenue that was booked in the quarter for the quarter increased over 15% versus last year. We saw strong association demand in New Orleans, San Francisco and Chicago, and strong corporate demand in San Diego, Phoenix and Maui.

Our Group revenue pace remains strong for 2015, up over 7%. And approximately 85% of our Group business is on the books for 2015, which is in line with our expectations.

Looking ahead in 2015, Group pace is relatively stronger in the second and fourth quarters, with the third quarter being impacted by the timing of holidays. We expect this momentum in Group business to continue through 2015 and beyond, and we are encouraged by the results we saw in the quarter.

Now, I'd like to turn to results outside the Americas. RevPAR at our hotels in EAME/Southwest Asia grew by 1.4% on a constant dollar basis in the quarter. The economies across the euro zone and the Middle East continue to under perform the US.

We are seeing relative strengths in the United Kingdom and Germany, while France continues to struggle. The Middle East was relatively weak, as new supply in certain markets and lower demand from European travelers to the Middle East impacted results.

South Asia remained steady, with RevPAR growth in the mid single-digit percentage range. We expect South Asia to continue to reflect stabilization this year.

I want to provide a short update on the earthquake in Nepal. We are happy to report that our colleagues and the guests who were staying with us in Kathmandu when the earthquake occurred are safe and sound.

We have been engaged in the relief efforts from the moment the first earthquake stopped, both through international relief organizations, as well as supporting local residents directly and indirectly. Hyatt Regency Kathmandu is open again, and we are helping to support international organizations that are using the hotel's facilities as they mobilize their efforts on the ground.

Next, I will turn to our Asia-Pacific region. ASPAC RevPAR was up 5.8% on a constant dollar basis in the quarter. RevPAR in greater China was up in the mid single-digit percentage range, with strong performance in Shanghai, in particular.

Market conditions were relatively strong in Japan, but weaker in Hong Kong and Seoul in the quarter. We remain confident in the international markets over the long-term, and we believe they represent a significant opportunity for growth for us.

There's no question that the economies across Asia, in particular, have very strong long-term prospects. And we expect that the growth of the commercial class in China and in India, in particular, will support healthy growth over time. The prominence of our hotels in these markets and the positioning of these hotels in their respective markets continue to be the key competitive advantage for us, as the Hyatt name is associated with very high quality and unique food and beverage offerings.

Now I'd like to discuss results for our owned and leased hotels. Owned and leased RevPAR was up 6.5% on a constant dollar basis in the quarter. We continue to see varied performance across owned hotels, with RevPAR in the Americas stronger than in ASPAC and EAME/Southwest Asia.

Comparable owned and leased margins increased 50 basis points in the quarter, with strong results, once again, from hotels in the Americas. We saw margins increase 110 basis points in the Americas, while margins outside the Americas declined 200 basis points.

To provide a sense of relative scale, Americas owned and leased EBITDA represented more than 90% of total owned and leased EBITDA in the quarter. We are lapping a quarter in 2014 in which we saw margins increase 120 basis points. So the two-year increase of 170 basis points is solid.

We did experience difficult market conditions in Paris and New York City, in particular, which impacted results for Park Hyatt Paris Vendome, and our two comparable owned hotels in New York City, the Grand Hyatt New York and Andaz Fifth Avenue.

I'd like to now talk in a little bit more on detail about the performance of our comparable owned hotels in New York City in the quarter. RevPAR growth at these two hotels was negative 7.1% in the first quarter. Primarily due to the impact from new supply in the market, harsh weather and a tough comparison to the first quarter of 2014, in part due to the Super Bowl.

Comparable margins were also negatively impacted by the performance of our owned hotels in New York City. Excluding our two comparable owned hotels in New York, total comparable owned and leased margins would have increased 110 basis points.

We expect the performance in New York City overall to gradually improve over 2015. As we noted on our last call, supply growth in New York City continues to trend well above the US average. 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.

Now I'd like to introduce you to something new that we are planning for this year's earnings calls. We plan on doing a deeper dive on selected topics throughout the year to give you a better understanding of some of the drivers of our Business. While we will provide additional data on a particular topic during each call, we don't intend to continue to report on these same items every quarter.

The first topic that we plan to discuss is one that we touched on in our investor meeting last year, and one that continues to be a very important growth driver for our Company. That topic is our food and beverage business, which we believe is one of our key competitive advantages.

While there is a considerable amount of data and reporting surrounding RevPAR results, I'd like to remind you that room revenue is only one piece of our Business. F&B represents approximately $3.5 billion of our total chain revenues in 2014, and over $1 billion of profit for the chain. Note that these figures exclude our franchised hotels.

This means that food and beverage is approximately 35% of our total chain revenue on a global basis. This includes both banqueting and catering, as well as revenue from our restaurants and bars. Food and beverage revenue is a considerable driver of our Business, particularly as Group business continues to recover, which enhances operating leverage in our Business.

It's also important to understand how our food and beverage business is performing, relative to prior peak. To provide some context on where we think the business can go and to discuss why we believe strong F&B is essential to our overall strategy, as we seek to become the most preferred brand for colleagues, guests and owners.

F&B has always been a significant part of our Business. To give you a sense of scale, F&B revenue was directly responsible for approximately 35% of base management fees globally in 2014. In the US, F&B drives approximately one-third of the base management fees, while outside the US, F&B drives 40% of base management fees.

Banquet revenue per group room night in the US now exceeds the prior peak in both nominal and real dollars. Banquet revenues grew at a faster pace than group room nights over the past seven years, which means that groups are increasing their spending on F&B, even when adjusting for inflation. This can be seen in our US full-service managed catering pace for 2015, which is up in the high single digits. In fact, catering pace is actually up slightly more than group rooms revenue pace.

We are seeing strength in corporate banqueting revenue, particularly, corporate group business from technology companies, which is the corporate groups segment that has grown the fastest since 2007. We're also seeing greater contribution from agriculture companies, consulting firms and multinational businesses. Meanwhile, banqueting spending by financial services companies is down significantly from 2007.

As a result of the overall strength in corporate group demand, the terms on which business is being booked include higher F&B components. And our hotel teams have become more selective in the types of groups that they book. Making sure they are high quality and average room rate, paying attention to when they are scheduled during the week, the amount of meeting space required, and of course, being mindful of the services we are providing outside of the room, including F&B.

We employ approximately 50% of our total colleague base in our F&B operations around the world. We are thrilled to be able to provide great jobs on our hotel teams. And we derive great satisfaction in helping our colleagues develop their skills and move to positions of greater responsibility over time. We have a strong bridge of culinary professionals across the world, and strong leadership in our F&B operations. In fact, 40% of our total full-service general managers have F&B backgrounds.

The strength of our F&B platform drives owner and guest preference for our brands, and provides significant operating leverage, particularly as Group business continues to improve. While banqueting revenue per group room night has already exceeded prior peak, food and beverage margins during first quarter are still approximately 100 basis points below peak levels.

We believe we have a significant opportunity to increase overall margins by driving higher rated corporate group business. Which will translate into higher incentive fees, and improved owned and leased margins. So overall, our F&B be business is great for our colleagues, our guests, our meeting planners and for the owners of our hotels.

Now I'd like to turn to our balance sheet and capital allocation. We have significant liquidity available, including nearly $1 billion of cash and short-term investments, including restricted cash. We also have undrawn borrowing capacity of $1.5 billion under our revolving line of credit.

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.

In terms of identified uses of cash, we expect to spend approximately $350 million on capital expenditures in 2015. Of this, approximately $175 million relates to investments in new properties, including the Grand Hyatt Rio de Janeiro that we are building on Valenchia.

This 426-room hotel is located on the beach in Barra da Tijuca. We expect this hotel to open by the end of 2015, and the total cost of the project will be in the range of $280 million.

We are funding construction of the hotel with equity and project level debt. Our current project level debt balance is $60 million. We expect this to grow to $85 million upon completion, meaning project level debt will represent about 40% of the total cost. The remaining $195 million will represent our equity stake.

We believe Grand Hyatt Rio de Janeiro will be an excellent representation of the Grand Hyatt brand in a key gateway city in South America. And will build on and will enhance the excellent reputation of the Grand Hyatt in Sao Paulo.

In addition to capital expenditures, we expect to maintain a significant level of investment spending. Which includes equity contributions to joint ventures, and other forms of investments. We are also evaluating the feasibility of prepaying certain property level debt, that could represent a use of capital in excess of $100 million.

We intend to continue our balanced two-pronged approach to capital allocation: to invest in our business through the expansion of our presence in markets where we are not represented or where we are under represented, and also to return capital to shareholders via share repurchases. Year-to-date, we have repurchased $234 million of stock, and we expect to continue repurchasing stock in 2015.

We continue to be excited about the growth prospects for our brands. Our executed contract base for future hotels is strong, and has held steady even as the number of hotels we opened has increased. 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, half of which are expected to be select service openings around the world. The remaining expected to open hotels are full-service hotels, many of which are in China and in India.

We've already opened 16 hotels year-to-date, including our first Hyatt-centric branded hotel here in Chicago. As a reminder, our executed contract base is comprised of 250 hotels or approximately 55,000 rooms.

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

Thank you, Mark. That concludes our prepared remarks. For our question-and-answer session, we will move right into questions from call participants.

Angel, could we please have the first question?

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

Good morning, guys.

Good morning.

Mark, you have spent a lot of time on the F&B side of things. And you had talked about the catering revenues as pacing above the room revenue pace.

Can you talk about how much catering comprises of the total F&B? And would you say that all F&B revenues are pacing above room revenues, or can you give us some relative metrics there? Thank you.

First, to the latter question, that is catering versus all F&B revenues. The pace that we referenced does relate to catering, but there's really not a good way to capture pace for outlet. Mostly because the vast majority of that business is driven by transient demand.

The answer on what proportion of the total F&B revenue base is catering versus outlets, it varies dramatically by market. So if you look at Asia, for example, a majority of our F&B revenues are outlet based and a minority are catering. And that same relationship is true in most markets and EAME, the Middle East and South Asia.

In the US, it's much more skewed towards catering and banqueting versus outlets. So like I said, it really is going to vary tremendously depending on where you are.

That's all for me, thank you very much.

Thanks, Joe.

Your next question comes from the line of Jeff Donnelly from Wells Fargo. You're line is open.

Good morning, guys. And, Mark, thank you for the additional information on the F&B business.

Sure. Thanks, Jeff.

I just had a question maybe a little bit more broadly and as this relates to Hyatt. How do you think about the competitive landscape in lodging given that one of your larger competitors is exploring alternatives? Specifically, I guess wondering how you think the landscape for Hyatt looks one or two years from now?

Do you think this leads to more consolidation in the industry, and maybe stiffer competition? Or do you think it could bring evidentially new interns into the business that might just have a different focus? I'm wondering how you think about that.

Wow, what a broad question. I think we live in a competitive environment today. Day in and day out we compete with a number of different participants in different markets around the world. And so I would say it's a vibrant and competitive playing field.

And I would say that I'm really encouraged and actually thrilled with how our brands are performing. And the residents that we've got -- our brands have with developers around the world. And also how we're able to attract great people consistently.

So I would say, our focus has consistently been on having a great deal of opportunity provided for our colleagues. That being a great employer is a key element of how we compete. And I think we've not only maintained that, but we've got an increasing volume of recognition around that over the past year, in particular. That is essential to the long-term.

I would say that the competitive environment has grown. That is to say, there are more competitors today than there were five years ago. That is to say more brands, whether they are from larger multi brand companies or individual brands that have been launched.

It's hard to predict how much more proliferated the brand introductions will be. But from our perspective, our focus on brand introduction has been around making sure that there is an obvious customer base that we think we can serve and serve differentially.

Second, that it can be material to the Company. That is, we can grow it so that it is a significant operation.

Third, that it can be global. Having global footprint is critical for us. So all of the brand introductions that we have made have met those conditions, and that's the screen through which we will evaluate any future plans.

That's helpful. And if I could go from maybe the broad to the very narrow, is actually two questions. One was on the Hyatt Regency that you sold in Indianapolis. I'm curious what the depth of the buyer market was that you saw for that asset, maybe who's showing up and how you guys think about pricing.

And then, secondarily, is the Park Hyatt in New York. You've had probably about nine months now with that asset. I'm just curious how it's been performing versus your original expectations for things like RevPAR index and taking share?

Great, thanks. On the Hyatt Regency, Indianapolis, the buyer universe is pretty diverse. If you look back over the last couple of years, we've done transactions on both the buy side and the sell side. With private REITs, public REITs, with institutional investors and private equity firms.

We've done some joint ventures with a number of those types of players as well. And so the diversity of the buyer universe for that asset was high. We had a number of different types of potential buyers.

With regard to the Park Hyatt New York, we are really happy with how the hotel has entered the market. We, obviously, had a very clear positioning for that hotel from a rate and market position perspective. And that's how we've gone to market, and that's the position that we have established and now maintained.

So our average rate through the end of last year was in excess of $1,000. And it's varied month-to-month this year, but it continues to be very, very strong.

I think the one area that has taken us longer to ramp-up may be relative to our initial expectation or relative to completion of some of the other facilities in the building, not necessarily the hotel, was the F&B operations. And in particular, developing the base of meetings and group business within that hotel.

That's now beginning to take hold and gain some traction. So I would say we are lagging in respect of getting the Group business underway, but have great confidence that we are going to be able to continue to evolve that. Especially given that we are now seeing more traction in that area.

Thank you, guys. That's it for me.

Okay, thanks, Jeff.

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

Good morning. Somewhat approaching the first question in a different way. So you've built your business mostly around the Hyatt name. But would you consider acquiring other brands? Thanks.

Sure. Actually, we wouldn't only considerate but we have. So we bought the AmeriSuites brand. We retired that and converted the hotels to Hyatt Places.

We bought the Hotel Sierra and the Avia brands. We converted those hotels to relaunch at the Hyatt House brand.

So we have actually already purchased other brands. In those cases, they were purchased in the vein of building critical mass for existing brands or newly launched brands. Hyatt Place and Hyatt House are the two examples I just gave you.

And it's also true that we would consider purchasing a brand that is not branded Hyatt. I think the key from our perspective is to assess the brand equity in that brand, whatever it happens to be, and how we would integrate it with our existing brand portfolio. But the answer to your question is, yes, we would consider it.

Okay, helpful. Thank you. And then just on the food and beverage side, you gave a bunch of good detail around the top line.

Can you just help us think about the flow-through of F&B? Maybe helping us think about banquet versus catering, catering versus restaurant, versus bars would be helpful. Thank you.

Sure. There's no question that the margins and flow-through with regard to banqueting and catering are significantly higher than outlets. There are, of course, exceptions to every rule. So yes, we do have individual bars and restaurants around the world that have very, very high margins.

But generally speaking, if you look across the business lines, banqueting and catering tend to operate at significantly higher margins than outlets. In some markets, in the US in particular, outlets really end up being very low margin businesses, single-digit margin businesses. In key markets where the wage rates are very high and work rules and staffing models are dictated by organized agreements.

So I would say that that's probably the most challenging area of the business. And the biggest opportunity, and one of the more vibrant areas is on the banqueting and catering side.

Overall, you can think about -- so I gave a statistic for the chain wide which was $1 billion of profit on $3.5 billion of revenue. That's chain wide across the world. And our margins in the US are probably slightly lower than that, and the margins outside the US are slightly higher than that. So that gives you a reference point for overall profitability.

And I would only add that as we go forward, our expectation is that additional Group business and better rated group, a better quality group will drive higher margins. And that's manifest both in the room rates, as well as banquet and catering spend.

And if you look at the first quarter, some of the strongest margin performers on the owned and leased hotel portfolio side were properties in Arizona, our hotel in Atlanta, some of our properties in Florida and Texas. And the big driver there was Group business, and increased banquets and catering. So that's really what we were trying to point towards in Mark's prepared remarks.

Okay, helpful. Thank you.

Your next question comes from the line of Shaun Kelley from Bank of America. You're line is open.

Hey, good morning, everyone. I hope everything is okay in the background there.

(Inaudible) the sirens this way. This is actually the Chicago -- every year, the first Tuesday of every month is the test of the emergency response system in Chicago, the city of Chicago. So we probably should not schedule are earnings call around this time. Sorry about that.

Well it's going to know that it's just a test.

It's just a test, and it's working. (Inaudible) secret pieces of news at the moment.

Just a couple of quick ones. And I think you actually alluded to this in your prepared remarks, Mark.

But as we look at our model, one of the big surprises was so last year you obviously sold a number of limited service hotels. Those typically come at higher contribution or EBITDA margins. This year, you've managed to post pretty close to either flat margins or margin growth in your owned and leased segment.

So my question is, what do you think is driving that margin out-performance? Because we would have thought you would have had probably more negative mix shift.

Is it this discussion around F&B? Or Is it more just that Group overall Is ramping? Maybe you could just give a little color on the margins and what you think is driving that.

And also, is this type of offset sustainable? Or is it something that's a little bit seasonal as well?

Thanks for that. I guess let me start with the composition and a couple of reflections on that.

First, rates, obviously, are higher and are the key driver of our RevPAR performance. And that's true for the chain overall, and it's true for our owned and leased properties.

Importantly, and one of the reasons why we thought that a deeper dive, so to speak, on the F&B side was particularly relevant at this point. Is we have been talking for more than one-year now, probably the last year and a half about our outlook on Group. And yes, everyone recognizes and acknowledges that it has taken a little longer to see some momentum on the Group side, but that's what we are seeing.

There's [a ton] ambiguous, and I think both in terms of sustained occupancy levels and demand, and in terms of rate growth, which is significant now. It's unfolding the way that we had suggested that we thought it might.

Of course, it's always impossible -- it's always difficult to say exactly what the timing is. But that's actually one of the key things that's underlying what is happening for us at this point. And the good news is that the outlook remains strong based on our pace.

Now, and I would say, that includes the F&B discussion that we just had. Because we've seen an increasing level of banqueting per group room night. And I would also just denote that we are -- when you look at that statistic in that business line, that is this disproportionately driven by corporate groups, not associations.

And that's really where we are also seeing more significant rate growth. So I would say that part of what we saw this quarter is what we had been talking about the evolution of. And as I said before, as we look forward, it all looks very healthy.

The second dynamic that I would just point out, you're right. To say that some of the hotels that we sold if you look at the overall mix were higher gross operating profit type of operations in select service. It's also true, though, that we have acquired new properties over the past couple of years that operate at full-service properties, and operate at very good margins like the Hyatt Regency in Orlando, which has a very vibrant and significant group base.

The Hyatt Regency Lost Pines, but the Lost Pines Hotel is not actually in our comparable figures at this point. So I would say that our overall portfolio profitability is maintained or sustained partly through the profitability of some of the operations that we have actually acquires.

Yes, I think that's right. Our total margins (inaudible) were up 30 basis points. And as Mark mentioned, we do have some properties like the Hyatt Regency Orlando which performed quite well. And there is some seasonality at some of the service owned properties that we have acquired as well.

So know that that line may bounce around a little bit based on the portfolio mix. But directionally, we're in a good spot given Mark's first comments on food and beverage and what we're seeing in banquets and catering.

So the only other point I would make about market specific or seasonal. We had, obviously, a very tough quarter for our comparable owned hotels in New York, and that's temporal. So I'm not suggesting that you just add that back and use that as a base point.

What I'm saying is that we are going to end up, given the diversity of our portfolio, we're going to end up with a market here and there at any given point in time that's challenged. But overall I would say, we are in good shape on the margin side for owned hotel properties.

I really appreciate all the detail. And just one follow-up was the Grand Hyatt in Rio. So I guess my question there is, what would be your medium or longer-term plans to recycle capital in a market like that?

And then, is this going to be something that's core to the owned portfolio or is it something you think you could sell our would plan to sell down the road? And is now a decent time in general, or in maybe in specific emerging markets where things aren't as healthy to look at development. Because doing such a major project on balance sheet from a ground-up development at this point in the cycle is sort of interesting.

Yes, so a couple of observations first. These kinds of developments take some time to actually plan and then execute. So we've been at this now for at least four years.

If you look back to when we first acquired land, planned the property, got the entitlements, did some local financing through the development bank in Brazil. So these things take a long time.

One factor that I think is maybe sometimes lost on what the development cycle looks like in many countries. And it's really extraordinarily high barrier to entry kind of market. We're on the beach in Barra da Tijuca, which is a fast-growing area within Rio, which also happens to be where the Olympic center is going to be.

So our long-term outlook for the property is that we will end up serving a lot of great corporate business during the weeks. And since we are on the beach, we will have a vibrant weekend business. So we are excited about the prospect for the hotel.

We are not looking at recycling this asset -- it is available for recycling. So let me just say that affirmatively. We are not looking to do that until we open and get through our ramp-up, and of course, heading into the Olympics next year is a big dynamic that we will pay a lot of attention too.

If an opportunity presented itself and someone needed to own this asset, we would absolutely consider selling it. It happens that we are currently also putting some capital into a joint venture that we established to build Hyatt Places -- Hyatt Place properties of Brazil. And we are now under construction with our fist one under that JV, but we expect that JV to pursue and execute on a number of others.

So in terms of use of capital upon any recycling, we would consider them. We are a long-term -- we have been a long-term holder of the Grand Hyatt in Sao Paulo, which has been a very, very good investment for us. We opened that hotel about 14 years ago, and it's a 50/50 joint venture with a long-time Partner of ours.

And the hotel from a reputational perspective and from a financial performance perspective has been very strong. And at some point, that asset also would be, from our perspective, available for a recycling transaction.

We do have a Partner in that case. So we are not unilaterally making that decision at this point. But for the time being, I would say we are making some new commitments and paying attention to the marketplace, and will be planful about when we go to sell either or both of those two properties.

Thank you for all the color.

Your next question comes from Smedes Rose with Citi. You're line is open.

Thanks. I just wanted to ask you, I think on your last call you had mentioned that 20% of your demand in New York is international, and I think the bulk of that was transient. And I was just wondering could you maybe provide some color on what you are seeing on that front from international visitation?

Sure. That number may be 20% of transient demand, right?

Right.

We'll go back and just verify that, but I think its 20% of transient. But the answer is that we haven't seen a significant change or decline in inbound traffic. In fact, in certain markets, we have actually seen some strength year-to-date inbound travel into certain US markets or South America.

For example, even in the face of the stronger US dollar, but a little hard to generalize that at this point. So I would say, nothing -- we don't see any conclusive evidence that there is a negative shift at this point. As best as we can tell, the outlook with respect to travel heading into the summer is reasonably stable.

We haven't seen -- neither have we seen a significant increase in outbound US travel into Europe at this point. The one market I would say where we actually saw something that you could say was maybe conclusive evidence that there was a change is in the Middle East. We saw a decline in European travel, outbound European travel into the Middle East, mostly Dubai.

So that's what we've seen to date. We do have -- there are certain markets which are also somewhat sensitive to outbound Russian travel. Dubai is a key market there, and South of France. We have a couple of hotels in the South of France which are frequented by Russian travelers.

And we do expect that to be weaker this year, both because of the currency and because of sanctions. So that's the color that we can give you at this point.

Yes, I think if you look across the US and this isn't just New York. But revenue pace from international markets, and this is transient, again, is up in the low single digits. So where we are seeing some softness, inbound from markets like Germany, France and Spain is being offset by markets such as the UK and Switzerland, and certainly markets such as Japan, Korea, Hong Kong.

So that business coming into the US. So overall, the profile of our international business looks pretty steady to positive. And we will go back and pull some New York data, in specific, and we can post that later today.

Thanks. The other thing I just wanted to ask you. You mentioned, I think you said $234 million of share repurchase thus far this year. So indicating you are buying back in the second quarter as well.

Are you buying the shares directly from the Pritzkers, or are these open market purchases? I'm trying to thinking about the float in Hyatt shares.

So if you look at the first quarter, the first quarter of share repurchases included the purchase of 750,000 shares of Class B stock. Those were owned by Pritzker shareholders, and the rest of the share repurchases year-to-date have been Class A shares. So that's been the mix to date, year-to-date.

We've been -- we continue to be active. Obviously, we're looking at this in the context of our liquidity position, the fact that our business is very healthy and we are generating a lot of cash flow. So in that vein, we've been, obviously, very active in our share repurchases.

Okay, thank you.

Your next question comes from the line of Harry Curtis from Nomura. Your line is open.

Good morning. Just a couple quick questions.

Which hotels are currently undergoing renovations that are having what you might describe as a more material drag on your EBITDA, or the newer ones that have yet to ramp? I'm just trying to get a sense of how meaningful that piece may be.

We don't have any very material renovation work underway in our owned portfolio. Nothing I would say is worthy of denoting a separate impact.

We do have some managed hotels which are under renovation Washington DC, the Grand Hyatt there, and Hyatt Regency came out of renovation. But in terms of owned hotels, really nothing significant at this point.

In terms of ramping up properties, obviously, the Park Hyatt New York is ramping. We've got, as we mentioned, we've got the Grad Hyatt Rio that we will open late this year, so that will end up ramping up over the course of next year. We also have a joint venture property in Hawaii, the Andaz Wailea.

And that opened -- we've been building that business and it's really taken hold, and we've gotten good traction in the marketplace. It took us a while to actually establish the identity and reputation of that property, but that's going quite well on a ramping basis and we are encouraged by what we are seeing there. So those are the ones that I would probably just denote as maybe notable in the vein of your question.

Very good. And as a follow-up to the recycling of assets question, I'm wondering where you are in the process of selling assets? How happy are you?

How satisfied are you with your current portfolio? Are there still some hotels you would -- you're likely to sell over the coming 12 to 18 months?

Yes, so thanks for the question. I think we have an unusually robust year last year, a record year by every measure. And we affirmatively pause to take stock and plan for future recycling.

We do remain committed to the recycling strategy and we are evaluating a number of transactions, both potential dispositions and acquisitions. We don't have anything listed for sale at this point. So we are not in the market, formally, on any assets but we do expect that we will have assets that we will look to sell-in the future.

And as I said, we are working on a number of potential acquisitions and other investments globally. The timing is really not predictable at this point, but we do expect to continue to be active on both sides of the equation.

Thanks, Mark.

Thank you.

Your next question comes from Nikhil Bhalla from FBR. Your line is open.

Hello. Good morning, Mark. Question on incentive management fees. Could you just give us some sense of how many -- what is the [postage] of hotels that were paying incentive management fees as of one Q1? How that stood compared to same time last year?

And is if there's a way for us to understand the sensitivity of IMF sort of going forward. Based on the level of [ADR] growth we are seeing at the moment?

Yes, Mikhail, let me get that answer for you. So on the incentive piece side, about 45% of the hotels in the Americas are paying incentive fees as of the first quarter. And outside the Americas, it's about 75% that are paying incentive management fees just as a refresh.

So that's up very slightly from a year ago. But as a refresh, the peak was 60% in the Americas and about high 80%, almost 90% outside the Americas. So we still have a ways to go on the incentive management fee side, and we are focused on that.

As to how that increases over time, it's really a difficult one to model. There's a lot of leverage there, obviously, associated with both higher rates and with stronger food and beverage business. And I think you've seen us post pretty good of incentive fee relative to RevPAR growth.

So you can see some of that come through. And as we move through this part of the cycle, you should see an acceleration in that incentive management fee growth.

And I think that's what we were referring to when we spoke about this topic at our investor meeting last year. The thesis remains intact on that, it's just really difficult for us to give you a forecast or a projection on how that might play out over time. But know that there is a lot a potential on the incentive fee side.

Okay, great. And just a follow-up question on the pace. So clearly, coming into 2015, your pace was up pretty good, I think it was 8% and now you are saying it's up about 7%.

Any early indications on 2016? Is that tracking pretty strong compared to 2015 at this point in time? How do you see that?

A couple of observations on that front. I think, first, I would just note that if you look at our progression and you try to contextualize this if you look as how two things have been evolving. Our Group revenue base in the first quarter of 2014, for example, was up over 9% and we're lapping that and it's up of over 10%. So it gives you a sense for a two-year look.

Now in fairness, 14% as compared to 13% in the first quarter included and Easter shift. So it's not exactly apples-to-apples from a 2013 to 2014 perspective, but from 2014 to 2015 certainly is more comparable.

And I would say that our outlook for pace into 2016 and 2017 and 2018 is consistently positive. We're seeing consistent positive pace figures for each of the three years.

Yes, I think that's right. It's a little bit early to get into the 2016 pace numbers, but I would say that we are focused on improving rate progression.

Our production numbers, actually for 2016 and beyond in the first quarter were down a little bit. And frankly, we're being more selective and focused on higher rated business, given the profile of what we see taking place and demand evolution, both in transient and in group.

Thank you very much. Appreciate it.

Your next question comes from the line of Rich Hightower with Evercore ISI. You're line is open.

Good morning, everyone.

Good morning.

So just looking at the results among the different brands. I noticed Park Hyatt under performed a lot of the select service brands for instance. And at least among the US aggregate numbers, a lot of the luxury segments under performed, as it's been driven by New York.

But in your numbers, that's probably not the case since the Park Hyatt opened in August of last year, so it's not a comparable hotel. So what in your portfolio is driving the Park Hyatt's results, specifically in that sense? And then do you expect it to improve on a relative basis anytime soon?

Thanks. The answer in short is Europe. We had a very tough quarter in Paris, both because of the reintroduction of hotels that were out of the market for major renovations and repositionings, as well as new openings. There has been a significant increase in supply of the top end hotels in Paris.

The Park Hyatt Paris is considered to be a hotel palace designation, which is the very top of all luxury hotels. And we saw some very significant increases there.

If you look at the quarter's results, RevPAR progression was still positive 4% on a constant dollar basis for the brand. So it is not a significant -- it's not a decline or a contraction, but we did see the impact from Europe.

Okay, that's helpful, Mark. And then one quick follow-up related to the balance sheet.

So you guys have carried a pretty significant restricted cash balance for several quarters, and you did highlight it earlier in the call as a source of liquidity, I think. So how much of that is FF&E growth that really is restricted? And then how much of it could potentially become available for some of the capital investment plans and share repurchases that you guys have been doing for the past several quarters?

Rich, that's a good question. Virtually all of it can become unrestricted or will become unrestricted over time. This doesn't have to do with FF&E balances.

It has more has to do with transaction activity, and so some restrictions on cash for a certain period of time post transaction activity. But I would say in the short term, greater than 50% will become unrestricted. It is a source of liquidity for us, and that's why we do include it and talk about it.

Okay, great. Thanks, Atish.

We'll take our last question please?

I'm sorry, your final question comes from the line of Vince Ciepiel with Cleveland Research. You're line is open.

Great, thanks. So I wanted to circle back on the margins and maybe we could first start with international. I think you guys mentioned a 200 basis point decline. As you look into Q2 through 4Q, are there any hotel specific which you lap which could lead to those flattening out throughout the remainder of the year?

As I sit here off of the top of my head, I cannot think of any particular -- any specific issues that we hit last year that had a unusual impact. We've discussed over a number of calls the fact that business in Seoul has been very challenging. So we had a persistent downward pressure on the results out of that hotel last year.

But there was no event that occurred. There was not any dislocations that I can think of that would be particularly outsized that we would lap in the next three quarters that will cause unusual comparisons to occur. Can you think of anything?

No, I think really it's some of the international properties that we have talked about in the past that have had margin pressure, but it's not a lap issue. I think it's just a focus on improving margins going forward at those hotels as opposed to a big change due to some market specific factors in a single quarter.

I think we did break out what the margin impact from New York was, and also talked about the international margins relative to the Americas margins. In that the international margins it's really Seoul as a market in Paris that [really] impacted us. So it's not a lapping issue, Vince, but we are focused on margin growth at all hotels, including the international ones.

Great, thanks. And then maybe big picture on the margins. If you look over the last four or five years, 1Q has been the lowest of the year and lower than the full-year figure.

I think that might be somewhat related to seasonality. The portfolio has undergone some changes. Is there any reason you guys wouldn't think that would be the case this year?

No, that's accurate. Typically, our strongest margin quarter is our second quarter and fourth quarter, followed by first quarter and third quarter. So from a margin perspective, I think that's typically how it has worked and that is related to the seasonality of the business and the seasonality of the asset-base and the type of business that comes in at different periods of time.

So we tend to see more of the true business over the summer, and see more higher end Group business and corporate business in second quarter and fourth quarter. So it's really a function of rate profile and food and beverage mix associated with customer segment.

So that gives you a general sense of the margin profile from quarter-to-quarter. And I think that's consistent with how margins have performed over the past couple of years and going forward as well.

Great, thanks very much.

Great, thank you.

There are no further questions at this time. I turn the call back to the presenters.

Okay, thank you very much. I would like to thank everyone for joining us this afternoon, and for your interest in Hyatt. We look forward to talking to you over the months ahead. Take care.

This concludes today's conference call. You may now disconnect.