Hyatt Hotels Corporation (H)

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Hyatt Hotels (H)

Q2 2011 Earnings Call

August 02, 2011 11:00 am ET

Executives

Harmit Singh - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Atish Shah -

Mark Hoplamazian - Chief Executive Officer, President and Director

Analysts

Smedes Rose - Keefe, Bruyette, & Woods, Inc.

Janet Brashear - Sanford C. Bernstein & Co., Inc.

Jeffrey Donnelly - Wells Fargo Securities, LLC

Joseph Greff - JP Morgan Chase & Co

Harry Curtis - Nomura Securities Co. Ltd.

Joshua Attie - Citigroup Inc

Steven Kent - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Hyatt Hotels Earnings Conference Call. My name is Tanya, and I will be your conference moderator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to hand the presentation over to your host for today, Atish Shah, Senior Vice President of Investor Relations.

Atish Shah

Thank you, Tanya. Good morning, everyone, and thank you for joining us for Hyatt's Second Quarter 2011 Earnings Call. Here with me in Chicago today are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Harmit Singh, Hyatt's Chief Financial Officer. As to the format for this call, Mark and Harmit are each going to make remarks about our results for the second quarter and progress made towards creating long-term value. After the comments, we will take questions from the call participants.

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, our quarterly report on Form 10-Q 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, August 2, 2011, 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. Additionally, a telephone replay of this call will be available for one week.

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

Mark Hoplamazian

Thanks, Atish. Good morning, and thanks to all of you for joining our second quarter 2011 earnings call. During the second quarter, we saw continued increase in business levels, as compared to last year. Despite disruptions to business due to renovations at several owned hotels, as well as lower demand levels in Japan and North Africa, RevPAR increased in the majority of our hotels. At many of our hotels, average daily rate growth drove the increases in RevPAR. Rate growth was a result of continued shift in mix of business, as well as increased pricing power due to higher levels of occupancy.

For the company overall, adjusted EBITDA grew almost 12%. Our business results improved over last year as a result of RevPAR growth, stronger operating margins and higher management and franchise fees. During the quarter, we made progress towards expanding our presence by increasing the number of hotels around the world under our brands as we opened 5 hotels. We also saw higher interest in our brands from third-party owners, evidenced by the increase in our signed contract base for future hotels, which stood at approximately 150 hotels, representing more than 35,000 rooms at the end of the second quarter.

During our last earnings call, I spent some time talking about what's happening in our select service business. I'm happy to report that we continue to make significant progress on this front during the second quarter. In terms of performance, select-service RevPAR grew almost 10% after growing almost 8% during the same period last year, resulting in a cumulative RevPAR progression that reflects continued expansion of demand for Hyatt Place and Hyatt Summerfield Suites. In addition to the continued improvements in operating performance, we also announced 3 transactions over the last few months, namely, the acquisition of 3 extended-stay hotels in California, the formation of a joint venture with Noble Investments and the acquisition of assets from LodgeWorks. I'd like to explain our thought process behind each of these transactions, including how we expect all 3 to work in conjunction to significantly boost our select-service platform. Let me briefly review our select-service business.

Our 2 select-service brands, Hyatt Place and Hyatt Summerfield Suites are doing well. The unique service model that we created for these brands has been embraced by our customers. We see strong customer service performance at our hotels with steady improvement over time. We're clearly building a solid base of guests devoted to these brands. We have had solid cumulative financial performance over the last number of quarters. In terms of market share, many of these hotels operated significant and increasing RevPAR premiums in their respective competitive sets. In terms of RevPAR progression, our brands continue to lead the sector. As we talked to current third-party owners about our select-service brands, some of the feedback we've received relates to their desire for greater representation across the U.S. Further expansion of these brands is a primary focus for us as we strive to have a presence in and serve relevant markets for our corporate customers and individual travelers.

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