Hyatt Hotels Corp (H) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2015 Hyatt Hotels Corporation earnings conference call. My name is Melissa, 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, Melissa. Good morning, everyone, and thank you for joining us for Hyatt's third quarter 2015 earnings call. Here with me in Chicago is Mark Hoplamazian, Hyatt's President and Chief Executive Officer. Mark is going to start by discussing the progress we are making toward our long-term strategic goals, and then I'll come back to provide detail on our financial performance during the quarter, then we will take your questions. We also have with us today, [Amanda Brian], who joined the Company last month as our new Director of IR. Many of you know Amanda, given her experience covering lodging and leisure equities. We're delighted to welcome her to team Hyatt and know that she will be a great resource to the investment community.

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, November 3, 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, everyone, and welcome to Hyatt's third quarter 2015 earnings call. This morning, I'd first like to talk about our third-quarter results and how those results reflect continued execution of our long-term strategy. Following that, I will discuss one of the key strengths of our strategy, our management and franchise business. After that, I'll turn it back over to Atish to discuss the quarter's results in greater detail.

As you can see from the results we announced this morning, our underlying business continues to perform very well and we have strong momentum as we look ahead. Overall, we are executing well and remain on track with our long-term strategy. Adjusted EBITDA increased nearly 10% after adjusting for foreign currency translation and the impact of transactions. There are three reasons for this strong performance: first, RevPAR growth; second, strong transient and group demand; and third, a healthy pace of openings which is leading to strong fee growth.

Our underlying business remains very strong, particularly in the Americas. We reported comparable constant dollar system-wide RevPAR growth of 5.4% with full-service hotels in the Americas up 5.3%. RevPAR for our select service hotels in the Americas was up 7.2% with a significant majority of that increase coming from rate growth. Transient demand was very strong in the quarter with transient room revenue at comparable US full-service hotels up a very strong 9.2% in spite of weaker results in New York City. Strong transient markets included San Francisco, Hawaii, and Orlando.

We saw weakness in New York City as new supply and lower international inbound travel negatively impacted results. Group rooms revenue at comparable US full-service hotels was up a little over 1% in the quarter inclusive of an estimated 290 basis-point impact from the timing of holidays in the United States. Group rates were up 4.7% in the quarter, the fifth straight quarter of increases in group rate.

Group performance was impacted by lower association demand. However, corporate demand was extremely strong and we realized a 38% increase in the quarter for the quarter bookings in the third quarter. This reflects continued strength in demand from corporations in the US for meetings and events as corporate profits remain strong, up 8% in the first half of 2015 compared to the same period in 2014.

Our confidence in the continuation of strong demand for group business remains very high and our outlook for the balance of 2015 and 2016 and, for that matter, 2017 is very positive. Pace is up in the high single digits for the remainder of 2015, the low single digits for 2016 with approximately two-thirds of our business booked at this time and our group pattern in 2017 is very positive with group revenue pace up mid-single digits and with approximately 40% of the business booked at this time.

Now, I'd like to turn to results outside the Americas. Our hotels in EAME/Southwest Asia grew RevPAR by 6.2% on a constant dollar basis in the quarter. The economies in the region remain mixed. We saw a relative strength across Europe with mid-single digit RevPAR increases, South Asia was positive although at a lower rate of growth than our hotels in Europe while the Middle East was modestly net negative in terms of RevPAR growth.

Dubai, in particular, experienced a RevPAR decline, owing to lower rated group business and the shift of two holidays. The shift of the Eid holiday from October in 2014 to September 2015 had a negative impact which was partially offset by the timing of Ramadan. Combined, these two holiday shifts negatively impacted Dubai RevPAR by approximately 160 basis points. ASPAC RevPAR was up 3.1% on a constant dollar basis in the quarter. Northeast and Southeast Asia saw strong growth in the mid to high single-digit percentage range with strength in Japan, Shanghai, and resort locations. However, market conditions remained weak in Hong Kong.

The Hong Kong market was down over 6% in the third quarter in terms of arrivals and down just under 12% in terms of RevPAR. This was driven primarily by the growing number of mainland tourists traveling to destinations other than Hong Kong and the fact that mainland tourists are now restricted in the frequency of their travel to Hong Kong. Additionally, the mainland stock market declined and the devaluation of the (inaudible) caused weaker tourist spending. Against this backdrop, I am thrilled to report that all of our hotels gained share in Hong Kong during the period.

Turning to results in mainland China. Our RevPAR results in China varied by subregion. North and South China were up in the low single-digit range while East and West China were up in the mid single-digit range. Overall, China, excluding Hong Kong and Macau, was up nearly 4% in RevPAR. Our results in Macau continue to be positive with RevPAR growth of over 2% despite the Macau markets RevPAR decline of over 15%. Seoul saw continued issues resulting from the MERS outbreak, although we think that after this third quarter impact, the impact ahead of us should be modest.

In terms of openings, we opened nine hotels in the third quarter, bringing our openings to 37 in the first three quarters of 2015, reflecting a 28% increase over new hotel openings in the prior-year period. We expect to reach our goal of opening approximately 50 hotels in 2015. Our current executed contract base consists of approximately 260 hotels and 56,000 rooms and represents an increase over our prior base of approximately 250 hotels and 55,000 rooms. Our current contract base represents 44% of our existing hotels and 35% of our existing rooms at the end of the third quarter, supporting a strong opening pace in the years ahead.

Of the approximately 50 new hotels we plan to open this year, over half will be select service which is a testament to the strength in our Hyatt Place and Hyatt House brands. The balance is full-service hotels located in markets such as Houston and Cancun in North America and a number of markets internationally in the Middle East and in Asia. Management and franchise fees continue to be a key component of our long-term strategy. Third-quarter results highlight that our fee growth is very strong and continues to benefit from overall RevPAR increases, conversions, and new hotel openings. Total fees were up 9.6% in the third quarter with base management fees up 4.4% and franchise fees up 33%. Our incentive fees declined 8% in the quarter almost entirely due to currency translations. Excluding foreign exchange translation, incentive fees were essentially flat with the same period last year.

Similar to prior earnings calls, we would like to take this opportunity to give you a closer look at a key component of Hyatt's business. This quarter we would like to focus on our management and franchise fees and why that fee base is an important to our value creation. Management and franchise fees are key growth driver for the Company. In 2014 our management and franchise segment accounted for 39% of our overall adjusted EBITDA excluding corporate overhead and a growing mix of our business. At the end of the third quarter year-to-date, our management and franchise mix increased to 43%. This progression is the result of our asset recycling activities as well as strong growth of our fee business around the world.

Year-to-date, the Americas region accounted for roughly 80% of management and franchise adjusted EBITDA. As a result, our fees in the -- sorry, as a reminder, our fees in the ASPAC region consists mostly as management fees and our fees in EAME/Southwest Asia consist entirely of management fees. We expect hotels entering our system to be a significant component of fee growth in the coming years. Growth will be supported by our executed contract base which, as I said before, stands at 35% of our system-wide rooms at the end of the third quarter. We estimate that run rate fees embedded in our base of executed contracts for hotels is approximately $160 million per year upon stabilization of these hotels, representing 38% of our total existing third-party fee base of approximately $420 million for the trailing 12 months.

To understand why we're so confident in our fee growth, let me provide three points on the composition of our contracted room base. First, by region, ASPAC accounted for just over 40% of the contracted base in terms of number of rooms. Followed by the Americas and EAME/Southwest Asia which accounted for roughly 30% and 25% respectively. Second, the mix of full-service versus select service rooms in our contracted room space reflected an approximate 60%/40% split at the end of the quarter. Just over half of those full-service rooms are in the ASPAC region and the vast majority of those will be managed properties. Conversely, the Americas region accounts for over half of our contracted room base for our select service brands, the vast majority of which will be franchised. And, third, the mix of managed versus franchised rooms in our contracted room space at the end of the quarter reflected an approximate 75%/25% split system wide, which implies very strong growth in management fees consisting of a combination of base and incentive fees in the years ahead.

As a backdrop, note that we've experienced growth in total third-party fees of approximately 70% over the past five years, 38% over the past three years, and 11% over the trailing 12 months. Our segment EBITDA from management and franchise activities has grown at a compounded annual growth rate of nearly 12% over the past five years. So, we begin from a very strong base of growth in fees driven by great performance in our existing hotels, reflecting the power and strength of our brands. We've grown market share over the past five years and have seen a number of our brands expanded presence in key markets across that time period, benefiting our transient guests and our meeting planner customers around the world.

Taking a look at management fees we see three drivers of potential growth. RevPAR growth, a high mix of managed rooms in our contracted room base and third, the potential for improvement in GOP margins to increase incentive fees. For illustration, we've seen a roughly 200 basis point increase in worldwide growth operating profit margins over the past three years. Based on a mid-single-digit increase in ADR over the last year, and our outlook for 2016 based on corporate rate negotiations, and based on group business trends, we're confident that we will see in expansion of margins over the course of the next two years. Our flow-through to gross operating profit remains at high levels running at over 60% year-to-date this year on a constant currency basis.

We generally expect base management fee growth to be a combination of RevPAR growth plus net room additions and incentive fees growing at a faster pace. Recall that many international properties lack a hurdle for incentive fee purposes and therefore pay incentive fees from dollar one of gross operating profit. To give you a sense of the potential for growth and incentive management fees, we look at how that part of the business has performed relative to prior peak. We highlight the GOP margins at worldwide hotels ended 2014 nearly 300 basis points below prior year 2008 peak, and our incentive fees were 17%, or $23 million, below prior peak. Specifically, incentive fees could grow at a rapid pace as more properties stabilize and hit profitability thresholds. We have significant room for future upside.

For example, in the third quarter about 39% of hotels in the Americas paid incentive fees and 72% of the hotels outside the Americas paid incentive fees. These percentages are roughly 15 points below prior peak. Specific drivers and incentive fees in future years include continued improvements in US group business, increasing profit margins, and our growing mix of international properties. Now, let me talk a little bit about our franchise business.

Franchising is essential to our overall strategy as we seek to expand our brand footprint. If you look at our current run rate, based on the latest 12 months, franchise fees have more than quadrupled since our IPO, benefiting from organic growth and conversions and reflecting the strength of our select service brands. Our franchise fees provide relative stability over the duration of a full lodging cycle, given that they are driven by hotel revenues, not hotel earnings. We expect select service to be an increasingly important fee generator going forward. In fact, Hyatt Place and Hyatt House account for roughly 40% of the number of rooms in our contracted base for new hotels.

The last item I'd like to touch and regarding our fee business is a reminder of the relationship between RevPAR growth and segment adjusted EBITDA. For modeling purposes, a 1% change in system wide RevPAR has an estimated plus or minus $5 million to $7 million impact on annual, management, and franchise adjusted EBITDA. Before I turn things over to Atish, I'd like to take a moment to reflect on our asset recycling activity and our general approach to capital investments in relation to growing our business.

We've talked extensively over the last five years about asset recycling as a core part of our strategy in the context of expanding into key markets as we increase the productivity of the capital invested in our own hotels. This has worked extremely well for us as we bought or sold nearly $5 billion of assets over the past five years. Given the very significant amount of activity in 2014, at the end of 2014 we decided to reduce the pace of recycling as we digested the changes in our portfolio. And, since then, we've seen improved earnings at a number of hotels that were in our considerations for disposition. And at the same time we've seen somewhat more limited acquisition opportunities in asset categories relevant to our program and our areas of focus. So in relation to hotel assets, we are active in our evaluation of both acquisitions and dispositions on an ongoing basis and will remain so as we have in the past.

Meanwhile, there have been recent press reports speculating about our potential interest in a competitor. Consistent with our past practice, we do not comment on rumors or speculations and this will be no exception. On this topic we have no comment and we won't be making further comments on this today. Apart from our investing activity and M&A topics, I wanted to also provide a short update on our CFO search.

Since the process began, we've been working with a major global search firm. We've interviewed a number of candidates, some of whom look like a very good fit for us. We pursued those individuals, but for reasons relating to their existing positions and personal circumstances that evolved and changed during the time that we were in dialogue with them, they were ultimately unable to make a move. We're still in discussions with candidates at this time and we continue to be very encouraged by the quality of the candidates interested in Hyatt.

Meanwhile, we are very fortunate to have a very strong finance team here at Hyatt with tenure and experience that has afforded us the opportunity to be selective in our search process. We also have an extremely capable interim CFO in Atish who has been a great partner to me during the search process. That's really all I can share with you at this point and I thank you for your understanding.

I'll now turn the call over to Atish, who will go into more detail on our results for the quarter.

Okay, thank you, Mark. Let me start by touching an overall RevPAR results around the world. On a system-wide basis globally, comparable RevPAR group 5.4% in constant dollars. In the United States, we saw continued rate-driven growth as our comparable all service hotel RevPAR increased 5.2%. Comparable select service hotel RevPAR increased 7.1%. Our RevPAR growth exceeded US upper upscale and US upscale RevPAR growth respectively as reported by STR. In fact, year-to-date to September our US hotels out paced industry growth as reported by STR by approximately 190 basis points.

Outside of the United States the results were positive as well. In the EAME and Southwest Asia region, RevPAR increased 6.2% on a constant dollar basis. In Asia-Pacific region, RevPAR increased 3.1% on a constant dollar basis. At our owned and leased hotels, RevPAR grew 5.9% in constant dollars as we increased our market share. Owned and leased hotels in Orlando, Berlin, and Mexico City all posted RevPAR growth in excess of 10%. This growth was a result of both strong group and strong transient business.

Conversely, a handful of our hotels experienced RevPAR declines, including those in Aruba, Seoul, and Baku. The decline in the market in Aruba was due to new and recently repositioned hotels. In Baku, a combination of new hotel inventory and a decline in energy-related demand drove down results. And in Seoul the impact of MERS negatively impacted results, though business appears to be more stable heading into year end.

Moving ahead to the margin front, comparable owned and leased margins decreased 60 basis points in the quarter. This reflects varied performance by region based on dynamics I will detail now. In the Americas, margins decreased 50 basis points. Margins were negatively impacted by property tax increases at four hotels. Excluding this impact, America's owned and leased margins would of increased about 30 basis points. Recall that owned and leased margins in the Americas increased 240 basis points in the third quarter last year so on a two-year basis, excluding the impact of property taxes, margins whatever is in about 270 basis points.

Since the property tax increase is primarily due to a catch-up, we expect the drag to overall owned and leased margins to be very moderate, meaning in the range of 10 to 20 basis points for each of the next three quarters. For our other two regions, margins declined 160 basis points and 340 basis points respectively. In EAME/Southwest Asia the 160 basis points decline was primarily due to weakness in Paris. This was a result of a tough comparison due to a citywide event last year, and in Asia-Pacific region at the Grand Hyatt Seoul in particular, again the impact of MERS caused the margin erosion.

So while we're not pleased with the margin performance in the quarter, we do not believe it to be a reflection of a change in trends. For owned and leased hotels, particularly for hotels in the Americas, we expect continued strong margin gains in the quarters ahead. For owned and leased hotels, adjusted EBITDA was up about 2% after adjusting for the impact of transactions and foreign exchange. The three hotels which I mentioned, as well as the higher property taxes at four hotels, impacted results by about $6 million.

Moving on to pro rata share of adjusted EBITDA associated with our unconsolidated hospitality ventures. This increased approximately $2 million, representing a roughly 10% increase. This growth is reflective of new JVs and continued ramp from our high-end investment. We sold a handful of our joint venture interests over the last year. Excluding these dispositions, growth would have been over [15]%. Total fee revenue was up about 10% as compared to the same quarter in 2014. Excluding an estimated $4 million foreign exchange impact, fee revenue increased about 14%. Other the revenue reported a $4 million benefit from a termination fee and increase deferred gains due from asset sales. As Mark mentioned previously, we have significant room for growth in fees, particularly incented management fees.

Turning now to adjusted selling, general, and administrative expenses. These expenses were favorable by approximately 17% versus last year. Our adjusted SG&A expenses this quarter were lower due to two reasons. The first is the sale of our vacation ownership business last year, and the second was the result of $5 million in lower stock-based compensation expense due to a reversal of a prior period expense. Excluding these two items, adjusted SG&A would have been flat to last year. We are benefiting from expense management, particularly with regard to payroll and benefits.

Let me talk briefly about two items of note below adjusted EBITDA, items that impacted our net income. In the third quarter we had $17 million in equity losses related to our unconsolidated hospitality ventures. This compares to a $6 million gain in the third quarter of 2014. This $23 million delta was driven primarily by the sale of an entity that had an ownership interest in a hotel. This resulted in an accumulated foreign currency translation loss of $21 million. As we noted on our last earnings call, this non-cash item was reported in the third quarter in connection with the sale of our JV interests.

As we look forward, we expect continued volatility in the results of our unconsolidated ventures, including potential currency-related impacts. As to income taxes, our effective rate in the quarter was higher than it was in the past due to the non-cash loss that I just mentioned. On a full-year basis we expect our effective tax rate to be in the mid 40% range.

Turning to our balance sheet, it continues to be healthy. We have significant liquidity available with over $700 million of cash and short-term investments, including approximately $100 million of restricted cash. We also retain undrawn borrowing availability of approximately $1.5 billion under our revolving credit facility. As to return of capital to shareholders, we repurchased approximately $195 million of common stock in the third quarter and approximately $48 million of common stock through October, bringing the year-to-date repurchased total to $587 million as of October 30. We currently have just over $250 million remaining under our existing Board authorization. As a reminder, since the beginning of last year we have returns more than $1 billion to shareholders. This represents an 11% decrease in our shares outstanding in less than two years.

Now, I want to take a moment to talk about what we're currently seeing in the business and our thoughts on 2016. As to our current results, October has come in at our expectations. RevPAR growth was in the 8% range in the US. Group demand and rate growth was particularly strong. In the month, for the month group bookings were up nearly 25%. In fact, October grew production that is booking for all future periods was up over 20%. So, the group trajectory remains very strong.

As you think about the fourth quarter, two other items to note. We expect the headwind due to FX to be about the same as it was this past quarter, about $6 million to $7 million, and we expect the year-over-year impact of transactions to be far less than it has been running so far this year. It should be in the $3 million to $4 million range.

Looking ahead to 2016, we are positive about the momentum in our core business. We've discussed positive group trends, we're seeing strengthen our transiently progression, driven by higher [RAC] rates. Our corporate rate negotiations give us confidence as well. While still early in the process, negotiated corporate rates are likely to be up in the mid single-digit percentage range or higher next year, and we expect another strong year of new openings.

Also, I'd like to mention one change that we are making effective January 2016. As it relates to our calculation of adjusted EBITDA, we intend to add back stock-based compensation expense. We are making this change to more closely align with our industry peers. We wanted to give everyone plenty of advance notice on this change. For 2015, we expect stock based compensation expense to be roughly $25 million. When we make the change in the first quarter of 2016, we will provide a quarter-by-quarter look back to help you in your modeling.

Again, we are very pleased with the results in the third quarter. Our growth is reflective a strong RevPAR [gains], continued positive transient and group demand and our openings pace which is leading to strong fee growth. Our October results give us confidence in the fourth quarter and the view for 2016 and beyond is bright.

With that, I'll turn it back to Melissa for our Q& A session.

(Operator Instructions)

We'll pause for a moment to compile the Q& A roster. Joe Greff with JPMorgan.

Good morning, everybody. Just with respect to your buyback activity in 3Q and the fourth quarter to date here, are you buying in the open market discretionary or is it part of a more preset programmatic approach where you blacked out at all this quarter or this month? How much buyback activity occurred the between the A and the B shares?

Thanks, Joe. The repurchases in the fourth quarter have been A shares. And we said in the past that we have availed our sales of various different methods for repurchase, but we haven't really gone into detail at that and we won't at this point earlier.

Only add that the purchases in the third quarter were also A shares.

Yes, both third and fourth quarter to-date.

Okay. And, Mark, from where you sit and what you're seeing given that you were on the Park Hyatt in New York in the past are considering selling additional limited service hotels, what's your view on the property transaction market in the US both in terms of capital out there and pricing, maybe in relation to where capital out there and pricing were at the beginning of the year?

Thanks, Joe. I would say overall the big change sort of last year to this year has been the volume up and maybe just velocity of large portfolio deals in select service assets. So we saw a lot more of that a year ago than we have this year.

But overall I would say that activity remains really high. Interest remains really high. There's capital flows from many different sources. A lot of different foreign capital-seeking investments and of course rates have remained very low.

So I would say both our perception and our experience looking at different things suggests to us that asset values have held up well and we're also constantly looking around the market for new opportunities. And I would say expectations remain strong as well. So, I would say both in terms of practice and reality and perception both strong.

New York has been an interesting market for us because while the overall market has had some challenges, our ramp with our Park Hyatt New York property, which you mentioned just now, has been extremely strong. We ran a very strong third quarter, over 70% occupancy and over $900 rate, so I think our rate exceeded $1200 in September. So we've really seen some significant demand at that level and in that customer category in New York.

Okay, great. And my last question here.

The adjusted SG&A came lower than what we had modeled in the 3Q. You referenced there were two reasons there. How do you look at the growth rate and adjusted SG&A at the median term here, assuming the current business model excluding any potential M&A on a like-for-like basis relative to how you reported that line item in 2015?

Generally, we think of SG&A growing in the 3% to 4% range. I think we benefited this year both from a timeshare coming out, so from a comparison perspective, but also some expense management particularly on the payroll side. So, we've done a good job on cost containment and expense management this year, but sort of medium to longer term 3% to 4% is the range we're targeting.

Great. That's all for me. Thank you.

Steven Kent of Goldman Sachs.

Hi, good morning. A couple questions.

First, do you or your shareholders need to have more float or liquidity in order to achieve diversification goals? Is that part of what the Board talks about? And then since maybe you could talk a little about Onefinestay your investment there and your thoughts on Airbnb?

Sure. So with respect to the first question, as we have been active in the repurchasing area we do pay attention to float and trading volume. It happens that trading volumes have remained very, very strong and we've seen continued ability for people to be able to trade in and out of our stock. So, it doesn't mean that we're not paying a lot of attention to it because we are and it's a factor we consider as we look at our repurchase activity, but so far it's really not been an issue that has constrained our thinking.

With respect to Onefinestay and maybe the sharing economy more broadly, it's interesting to be commenting on this with the group on this call because there has been so much written in the recent past of widely ranging I guess and widely varied perspectives on what's going on. And I think that partly reflects the fact that there aren't really good statistics. A lot of people are making a lot of sort of guesses as to what the impacts look like and how to think about this.

From our perspective, we've always for some time look at this whole sharing economy dynamic as a broad consumer issue and a consumer behavioral change. And we've always been drawn towards it, not sort of away from it because we feel like we need to learn from what we're seeing evolve in the market and how consumers think and how they behave.

So we've looked at it in a different way and we thought about how -- what does learning about it really mean and in the case of the Onefinestay investment and some of the activities we've had with them. It's really been experimenting with how we could potentially extend the brand experience for Hyatt customers and also understand how we may be able to interface with and help support different kinds of stay occasions outside of our hotels.

And so it's really been an experiment and a learning expedition which has been really valuable and very rich. Onefinestay has a very strong operating ethos and a very strong purpose-based culture, which is consistent with ours. And so it's been a great relationship to date and they continue to be very active in looking around the world at different opportunities.

I just think that as we evolve over time this is going to be a part of how people travel and how people experience the world, not just in lodging but in transportation and travel more broadly. And I think that means we have to go towards it and understand it better and better.

Okay, thank you.

Bill Crow with Raymond James.

Good morning. Mark, I want to dig in on that same subject, Airbnb, because it's in the news today, two fronts with prop F in San Francisco, and then the area I want to focus on which is the American Express announcement where they announced a partnership with Airbnb which, among other things, gives the card holders a chance to use AMEX points for Airbnb stays. It seems to me if nothing else it kind of legitimizes Airbnb among AMEX's core business customers.

My question is given the importance of the traditional hotel industry to AMEX and their business, what is your gut reaction to that? And is it possible the hotel industry could potentially promote other forms of payment to send a message to AMEX? Thanks.

I think the fact is that the dynamics with respect to both -- because you covered a lot of ground there, Bill, so with respect to both the regulatory aspects of what's going on, which are really heightened at this point, there's been a lot of activity and depositions taken and testimony given in New York and San Francisco. There's been a lot of activity in London, Amsterdam, Paris. So I would say in all the major jurisdictions where you see concentrations of sharing economy lodging there's a lot of regulatory activity.

And I think it's all generally headed in the direction of ensuring that there is a level playing field, having a tax regimen that makes sense. And also making sure that there aren't effectively illegal hotels operating which is really the focus of the tension in New York in particular. And so I think those are all healthy things that are evolving and should happen.

It's also true that if you look at sort of usage at this point, and this kind of relates to the AMEX question you were asking, a lot of what you imagine and also a lot of what's been reported in terms of usage, the purpose of visit and occasions of stay, through that lens you see is much more leisure focused. It doesn't mean that in fact Airbnb's focusing their attention on how they can be effective on the business travel front, but there are just some inherent differences in what they can offer and what hotels to offer. And I think those differences are really, really material and substantial in terms of stay experiences for business travelers.

So, do I think there will be incremental penetration over time for business travel? Sure, but it's not anywhere near the incidence of leisure travel and that purpose of stay.

And so with respect to -- I think it's not just AMEX. When you look, you see other players an industry where there online travel agencies or other networks that are starting to carry and represent different types of lodging alternatives. And you see the incidence of even in some selected cases branded inventory showing up on even Airbnb's platform, typically in the context of a timeshare or a branded residential property.

So, I would say the lines are blurring and there's a lot of cross channel distribution going on, and I think we're only seen the beginning of that. I think this will grow in incidence and complexity over time.

So no gut negative reaction to that AMEX I guess on your part is the bottom line?

Yes, right now our assessment is to evaluate and take a look at how this evolves because honestly I think there are a lot of people in different walks of life, whether they be convention bureaus or AMEX in the case that you mentioned, who are really they are exploring at this point. I don't think there's a strong expectation and knowledge of what the flow of business is going to be.

And I think some of the experiments that we will see on how convention bureaus and individual city sort of travel and tourism bureaus start to engage with sharing economy companies, it will be interesting to see what comes out of that. One of the things I hope comes out of it is better data because right now it's really a guessing game and a lot of people are making a lot of shots in the dark.

Great. I appreciate your time. Thanks.

Thank you.

Jeff Donnelly with Wells Fargo.

Good morning, guys. A few questions.

Mark, I just wanted to circle back on the kind of concerning asset prices. There had been some chatter obviously early in the year about you guys looking to monetize the Park Hyatt. I don't expect you'll be able to talk specifically to that property, but can you talk about whether or not your actively exploring the sale of any owned real estate at this time?

Thanks. When we closed that transaction to buy the Park Hyatt New York, I was asked at that time whether this would be an asset that would be available for recycling and my answer was emphatically yes. Because we always thought that the whole purpose of doing the deal was to secure that location and over time if it made sense to sell it we should sell it. So, that remains true.

But having said that, we're not actively marketing anything at this point. It doesn't mean that there aren't -- there isn't dialogue and discussion in different places around the world. We happen to own a number of key assets in key locations that always garner interest, and so there seems to be a steady flow of discussions that relates to those types of assets.

And that's really through the cycle. It's not the surly only when there's a lot of activity because it's very owner or buyer specific in that regard. Right now we're not actually out marketing properties.

Okay, and just maybe a separate question on your group pace. I think in your remarks you said that it was up in the low single digits for 2016 and that was two-thirds of your business on the books for next year.

I just want to clarify. Is that low single-digit growth rate you're referring to a same-store change in the gross dollar volume booked thus far? How is that calculated?

Yes, it is, and that's of course across the market. So the thing is, it's an America's number.

What I would say is two things. One is given convention calendars, there is an ebb and flow and a cycle to conventions in different markets. And given how we're set up, when we look at how 2016 unfolds, the convention calendar is not as strong as it was in 2015 in some key markets in which we happen to have bigger representation.

Having said that, our group pace for our owned and leased properties is up over 8% for 2016. And so our confidence level, I think you can probably hear it in our tone, our confidence level and what we're looking at and how group continues to revolve is really high.

We just see continued strength and momentum in corporate bookings. The current bookings from different corporate segments has really been extremely strong. So we look at corporate profitability and there were some commentary recently about how corporate profit growth may be underwhelming at this point across the board.

When I look at what we're looking at here, our top three corporate sectors, which is high-tech, pharma, and banking and finance, they were up in room nights in the third quarter over 5%, almost 6%, and revenue was up over 10%. So, we're not serving the broadest base of corporate America, we're serving some segments -- and, by the way, the reason I picked those three, they're the three largest corporate sectors that we serve in that order. So I would say as I look at the demand and the nature of the demand and where it's coming from and so forth it's really very, very positive.

And just one last small question. Marriott had made some comments about maybe looking to change their guest cancellation policies and potentially having some degree of impact and occupancy rates. Are you guys going to be changing or making that more restrictive as you move into 2016?

I think in the past some brands have talked about it being a benefit to their occupancy rates. Curious what your thought was.

Jeff, a little over a year ago we moved to 24-hour cancellation across the board. And I think if you look at different properties in different markets we do have kind of stricter cancellation policies. But there's no intention to sort of make an across-the-board change right now, but I do think we're looking at that depending on property and fees with a little bit closer an eye.

Thanks.

Thomas Allen with Morgan Stanley.

Good morning. I was wanting to clarify a couple things you said earlier, get more detail around them.

First, just around group RevPAR in the third quarter, you said it would impact about 290 basis points from the timing of holidays. Do you expect to get a benefit in the fourth quarter from the timing of the holidays comparable to that 290 basis points?

Second question was just on your incentive management fees. You noted that FX had a negative impact. Ex-FX it would have been flat. It looked like it was tracking up mid to high single digits through the second quarter, so just wondering why that deceleration there?

And then finally, third thing is you noted around Hong Kong, the weakness in Hong Kong, you said mainland tourists are traveling to other markets, not Hong Kong. Did you actually see that in your travel or databases or is that more of a high-level economic comment? Thank you.

Okay. So on the first question with regard to group, I think if you look at the change in group, if you think about September and October together group was up about 7%. So I think that really shows that it's pretty consistent if you take out kind of the impact of the holiday, so I don't want to give kind of the fourth quarter group number what we specifically expect, but across both it was roughly 7%.

Your second question with regard to incentive fees, and it's frankly just a comparison issue the last year. I think that we had a couple of properties that hit incentive fees in a different way, so that drove a tough comp and we'll look into a little bit more detail on that and we can get back to you or post the answer. And with regard to Hong Kong, Mark, do you want to take that?

Sure. It's a market dynamic and also validated by what we've seen. So, we've seen increased travel to other destinations in Southeast Asia for sure.

And there were some specific restrictions put into place with regard to travel to Hong Kong and a little bit sort of follow-on affect of decline in Macau -- travel to Macau. So, I would say it's both a market dynamic and something that we've being able to validate as we look at travel across Southeast Asia.

Helpful, thank you.

Thank you.

Shaun Kelley with Bank of America.

Good morning, guys. I just wanted to revisit the Airbnb stuff because there's so much going on about it today.

Mark, I was curious because you mentioned obviously a little bit more of a constructive approach to the kind of concept here from the consumer standpoint than I think we've heard from some other hotel [heirs]. And you guys also have a lot of owned hotels and look at it from both an ownership perspective and from a management and franchise perspective, so my question is this.

What would it take to become more interested or more open to you thinking about Airbnb or using something like Airbnb as an additional distribution platform perhaps as an opportunity to potentially push back or negotiate against the OTA landscape which continues to gain strength and is starting to actually consolidate as well?

Thanks for the question. It's a complicated topic because frankly Airbnb is not in the business of representing hotel rooms on this platform. So it's really a hypothetical.

I haven't really given that much thought to that particular opportunity or potential, I would say. So really hard to try to piece together what would need to be true in order for that to work well.

Well, maybe I can ask it differently. If they approached you with the opportunity to maybe sell hotel rooms on their platform, is it something Hyatt would ever consider or do you think it would be non-starter with the ownership community?

I think the issue always relates to how -- and this relates to any distribution channel, but how first of all what's the interface with our guests and what's their interaction with our brand and who we are versus someone else's brand and who they are. So that's one key consideration. How our inventory would be represented is another key consideration.

Frankly, the big divide that we are very focused on because, as you said, we own all a lot of our own hotels. We also manage a lot of hotels for others and we are hypervigilant on paying attention to how people are traveling and what their purpose of visit is and how that segregates or sub segments in what kinds of choices they make when they're traveling.

And so that would be another dimension that I would be thinking about which is what's really the purpose of visit for people and people are showing up on say that platform versus someone else's. And what does that imply about what it is that we would be thinking about offering through such a vehicle. So those are the key considerations I would be thinking about.

That's really thoughtful and helpful so appreciate that.

My last question would just be on a bigger picture sort of thinking about the landscape more broadly. We have seen a number of your competitors launch collection brands relatively recently. You guys sitting here with seven brands do have some pretty compelling offerings in most of the key chain scales at this point, but don't have a collection brand per se.

So I'm curious on your thoughts on that. Is it something you can look at? How do you view those types of opportunities directionally?

Thanks. Well, we have nine brands actually, not seven, but I would say that there's again back to the framing, the mindset of thinking about purpose of visit and staycations. I think one benefit that comes from having -- from broadening the diversity of the types of staycations you can offer guests is that you're able to have them stay with you in your system so to speak for more of their travel needs -- but in a very, very significant expansion in diversity.

We've actually sort of approached this by affiliating with some hotels. We have a few hotels that are in the portfolio currently that are part of the Hyatt system but not branded, and that has led us to be thinking about whether and how we would approach a collection brand. So it's under active discussion at this point.

Thank you very much.

Harry Curtis with Nomura.

Yes, hi. I've got a couple of questions here.

In the third quarter you mentioned transient demand was up 9% and then in the fourth quarter you cited the strength of the group side. Can you give us a sense of has there been any sequential change on the transient side in the fourth quarter?

Yes, sure, Harry. I think first of all as transit demand so far in October has been up in the mid single-digit percentage range. Group demand has been stronger and I think one of the dynamics is that you had so much strong group that has displayed some transient business. But overall I'd say, look, I gave the numbers that we've experienced so far in the quarter for the month of October and we're pleased with the results and certainly add expectations.

Harry, I would just correct one thing that you said. Transient revenue was up 9.2%. Transient demand, if you break it down, rate was up about 5% and rooms, that is demand, was up a little over 4%, just to be clear.

Okay, very good.

That's for the third quarter.

In terms of displacing transient, is there much opportunity? Do you still have lower rated transit business that -- do airline crews even qualify as transient? Is there some transient business that you're trying to kind of squeeze out?

So crew business and similar business is not considered transient in the way we track it. It's more contracted business, and the fact is that mix shift and across different sub segments of transient travelers has continued. So there are always opportunities to mix shift and the key is when you've got demand at the levels it's at and occupancies where they are, it becomes really a key part of ongoing revenue management.

And last question for me. When we think about Hilton and Marriott they have the benefit of scale and with the benefit of scale you get brand diversification, you get more interest on the part of some developers. So if you guys could talk about the importance of scale and the advantages it could benefit or could bring to Hyatt?

Look, I think one of the things that we have consistently focused on is purposeful growth, very focused growth. And we have really focused on the fact that we have -- we are underpenetrated in a lot of markets and maybe not present in a lot of markets. And that's really led to I think very, very strong net growth in both hotels and rooms.

So, I was looking at this to see how we can start to track this longitudinally. And if you look at 2014 we were up in hotels net growth of 6.5% and rooms of just under 5%, 4.6%, and if you look at the trailing 12 months our net growth in hotels is over 8% and in rooms is at 5%. So I guess it's just demonstrating that how we've gone to market and really focused on increasing the reach of our brands in key markets.

This isn't just adding a bunch of hotels that are deep into our representation in a given market. In a lot of cases these are first or second representation in a given market.

I would say it's not -- a lot of people talk about scale or size in this aggregate abstract. We're think about it through the lens of our customers and our guests and where they're traveling and where we need to be. And that very deliberate approach has led to I think -- and the strength of our brands actually and how we in operating I think yields these kinds of net increases in rooms and in hotels.

So I think it's clear that are strategies working really well. The benefit of size is awareness. I think you have more voice and the marketplace and so forth. And what we're trying to do is make sure we leverage those very deliberate and very plan full openings to expand the brand awareness as much as possible.

Very good, thank you.

Thanks very much, Harry.

We have no further time for questions. I will now turn the call back over to Mr. Atish Shah for any closing comments.

Thank you very much, Melissa. Thank you, everyone, for joining us today. We look forward to talking to you soon.

Have a great day. Good bye.

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