Good day, ladies and gentlemen, and welcome to the third quarter 2014 Hyatt Hotels Corporation earnings conference call. My name is Daren, and I will be your operator today. (Operator Instructions) I'd now like to turn the conference over to your host for today, Mr. Atish Shah, Senior Vice President of Investor Relations. Please proceed, sir.

Thank you, Daren. Good day, everyone, and thank you for joining us for Hyatt's third quarter 2014 earnings call. Here with me in Chicago is Mark Hoplamazian, Hyatt's President and Chief Executive Officer. Mark is going to start by making some brief remarks, and then we will take live Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, October 29, 2014, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at hyatt.com under the Press Release section of our Investor Relations link and in this morning's earnings release. An archive of this call will be available on our website for 90 days for the information included in this morning's release. And with that, I'll turn it over to Mark to get started.

Thanks, Atish. Good morning, and welcome to Hyatt's third quarter 2014 earnings call. Today, I'd like to speak about four topics: first, I'll discuss our third quarter results and share some thoughts on our outlook; second, talk about the growth and outlook for our select service brands; third, I'll discuss the performance of significant acquisitions and investments that we've recently made; and last, I'll provide a recap of recently closed transactions and possible transaction activity in the near-term. Our third quarter financial performance was strong, with adjusted EBITDA increasing over 12.5%. Adjusting for changes in the composition of our owned and leased hotel portfolio and our joint venture hotel portfolio, based on newly opened hotels and also transactions since the third quarter of last year, adjusted EBITDA increased approximately 15%. U.S. RevPAR growth was 8.9% for comparable full service hotels and 9.7% for comparable select service hotels. Higher room rates, stronger F&B revenues and healthy margin growth at owned and leased hotels drove overall results. While U.S. performance was better than performance in other markets, we're happy to report a strong comparable systemwide RevPAR increase of 8% on a constant dollar basis. So our first focus on our owned and leased hotels. Our comparable owned and leased hotels RevPAR increased 7.3% on a constant dollar basis. Over two-thirds of the RevPAR increase was attributable to higher room rates. The Chicago and San Francisco markets performed well, while Seoul and Bishkek underperformed. Operating margins at comparable owned and leased hotels increased 190 basis points in the third quarter, as a result of strong rate performance, improving F&B results and solid expense controls. We've seen over the last few quarters that there has been a significant difference between operating margin progression at comparable owned and leased hotels in the Americas compared to…

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

(Operator Instructions) Your first question comes from the line of Joe Greff from JPMorgan.

One of your earlier comments, Mark, touched on the flow-through the margin performance in your owned and leased portfolio. Those comments more touched on that on a comparable same-store basis. If I'm looking at your Page 11 of the release, if I look at the non-comparable hotel performance, you had significant growth in expenses there, up 38%. Revenues were up 9%, roughly, on the non-comp hotel base. Can you talk about that a little bit and what drove that and if there are any kind of one-time items in there?

Atish, why don't you take that?

Sure. So I think if you refer to that Page 11, Joe, since you have it, the non-comp revenues, as you pointed out, they were up $5 million, non-comp expenses were up $14 million. So it's a $9 million variance. And why is that? One part of it, which is a small part is newly opened hotels, that's roughly $1 million to $2 million. The majority of it really relates to the mix of assets that we're buying and selling and the seasonality associated with those assets. So over the course of the last year, we've sold select service hotels and full service hotels that had margins in the high-30% range in the quarter, mid-to-high 30% range. And we bought primarily two assets, the property in Orlando and St. Antonio that are seasonally weaker in the third quarter. The margins for those hotels ran in the mid-20% range in the third quarter. And just to illustrate that as Mark mentioned those two hotels will do approximately $82 million of EBITDA this year and that's our expectation. In the third quarter, they did about $10 million of EBITDA. So less than 15% of the full-year EBITDA is earned in the third quarter, so that's an illustration of this seasonality. So that's really the dynamic the majority related to the assets we're buying and selling and the seasonality associated with those assets. And this will be a factor going forward given that we expect to close on the sale of 38 select service hotels in the next month. So you'll see this dynamic over the next couple of quarters.

I would just add that the seasonality of those two major assets in the non-comp category do represent the vast majority of this difference, Joe. I think the Park Hyatt New York opening also has a small impact as well, because we opened the hotel in sort of the mid-August timeframe, but like all openings, the ramp-up period is typically one in which you've got elevating and growing revenue base, but full expense base as you line up in hotel and get the operations going.

My follow-up question is this. Your 2015 group pace was up nicely, more than your competitors who've reported in recent days. Can you talk about what's driving that and what markets? And if you could remind us where was group pace this time a year ago for '14?

I'd say that we're seeing pretty consistent rooms demand on the association front and that's across many different markets. And part of the impact of that has been further out bookings, so if you look at pace evolution in '15, '16 and '17, part of that is being driven by higher level of advanced bookings on the association front. So booking curve in terms of the period, looking forward has actually expanded. Secondly, corporate rates have increased. We saw significant increase in rate in the quarter, for the quarter bookings, but we also see healthy rate growth as we look forward into '15, for example. So if you look at third quarter production for the remainder of this year and next year, it's up in the 7% to 8% range in terms of ADR progression. In terms of sub-sectors that are performing well, its really concentrated -- it continues to be concentrated among technology companies and technology consultancy companies, so that continues to grow as a proportion of the total and that's really been leading the growth, even though we're positive in most categories, including manufacturing and pharma. And in financial services sector, I would say, both technology; technology consultancy and healthcare are the areas that are leading the growth rate in terms of demand. And then as to pace, so pace for '14 and the third quarter of '13 was up about 3% and pace for '15 at that time was up about 5%, so that's the number that's now up 8%. Take the next question please.

The next question is from the line of Steven Kent from Goldman Sachs.

Couple questions. First, just on the CFO search. Could you just give us an update there and does the lack of a CFO hamper acquisition, disposition efforts? And what attributes are you looking for, just so we have a better sense for that? And then on the transient room nights, it sounds like transient room nights decreased, group room nights increased. Why did you weigh your mix more heavily towards group? Did locking in those bookings help you get stronger pricing on the transient side? And what sort of mix shift do you expect to execute over the next couple of quarters?

First of all on the CFO search, we have a search underway with a search firm that we have engaged. And as we have evolved over the last five years or so, the role of the finance function has grown at Hyatt. And we had the benefit of having leaders who are -- and continued expansion of the work within the finance team focused on applying insights and leanings that are derived within the finance group to the whole business. So I'd say, it's become more integrated across the company, especially over the last couple of years. And that's desirable from my perspective. It was really the design goal that I had when I brought Gebhard into the role. And that remains one of the key factors that will drive decision on who you actually put into the seat, once we identify and select a person. So that's a quick update on the CFO search. As to transient and group, a couple of things that I would note; first, when as we've seen the group, especially, the shorter term group bookings include some more significant F&B revenue; banqueting and event revenue, which grew beyond the growth in room nights for this past quarter, we are looking at in some cases the total revenue associated with taking on some group business relative to transient. And so from a total revenue perspective, there has been some trade off over the past quarter as between group and transient. I would say that as to the transient mix, we're operating at a very high-level of occupancy right now, in the range of 80%. And so it is true that there has been some shifts depending on what market you're looking at or what hotel and what time period. But I wouldn't say it sort of fundamental signal that we're going to see persist in sort of room night declines in transient. As rates continue to improve, and as total revenue continues to improve based on the composition of the groups, we'll continue to actively revenue manage and yield manage our hotels, and not just on the rate dimension, but on total revenue. So those are the some of the dynamics that applied this past quarter. We'll take the next question, please.

Your next question is from the line of Bill Crow from Raymond James & Associates.

The first question with regards to the limited service or select service portfolio. Given the receptivity of the two brands by your owners as well as the consumer, evidenced in your Hyatt Rewards success, are there any thoughts of adding a third or fourth brand in that sector? And given the sale proceeds you're expecting, could you go out and buy a brand that's already established and convert it to a Hyatt brand? & Associates: The first question with regards to the limited service or select service portfolio. Given the receptivity of the two brands by your owners as well as the consumer, evidenced in your Hyatt Rewards success, are there any thoughts of adding a third or fourth brand in that sector? And given the sale proceeds you're expecting, could you go out and buy a brand that's already established and convert it to a Hyatt brand?

It's Gold Passport by the way.

I know. & Associates: I know.

So Hyatt Gold Passport is a significant contributor, as you said. The answer is that, we have believed and do continue to believe that getting to some critical mass and coverage is really important. This next leg in our development plan to really focus on urban is a huge driver of brand performance over time for really two reasons; one is, it's expanding our presence in a lot of markets in which we have almost no presentation currently. So if you look at the representation and presence of either Hyatt Place or Hyatt House relative to its key competitors, we have virtually none or very, very small urban representation at this point, but it's growing rapidly. Just being present and being an alternative for travelers into those markets is critical. And it's driving an expansion of business that we're doing, corporate volume account business that we're doing with major corporations, because their travel programs include travelers at different price points into many markets, especially urban markets. And so the diversity of different travelers at different price points into urban markets is quite high and the diversity level is high. So having more lower-priced alternatives, but still within the Hyatt family really makes a significant difference. And we've seen continued growth in the volume accounts, our managed corporate travel accounts. So that's what I would tell you. As to acquisition of other brands, I would say it's not only something that we would consider, it's something that we've actually done. So we bought in LodgeWorks' two brands, Hotel AVIA and Hotel Sierra. We bought AmeriSuites and converted all of them into Hyatt Places. We bought Summerfield Suites and converted them into initially Hyatt Summerfield Suites, now Hyatt House. So I would say it's not conceptual for us, it's actual. And we have done in the past, we would definitely consider doing in the future.

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

I think that probably, Bill, the best thing to do is just if you -- Mark in his last portion of the prepared remarks covered kind of the all of the ins and outs. And I think that really covered all of the major transaction activity and how we see that flowing. I mean the one area that he talked about, but that we're sort of uncertain about is the close of the pending for potential asset sales, so the timing with regard to the 38 select service hotels, and then the remaining select service and full service hotels. So we provided the number for last year. So you have a sense of what the full quarter was. And then obviously it's going to depend on exactly when we close on those. We'll take the next question please.

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

You had great margin expansion on your U.S.-owned hotels, but the international part came in a little light. Again, you talked about the issues in Seoul and Kyrgyzstan, but how long do you think that there is going to be this international margin pressure?

It is only two properties, but if you take the effect of those two properties out, the non-Americas owned hotel portfolio margins expanded by almost exact same amount as the Americas did. So meaning, around 240 basis points. So those two hotels really had obviously a very significant negative impact on the non-Americas hotels results. Those market conditions are in one case a change in which competitors happen to be open and new entrants into the market, that's Seoul. And in the other case, the adjustment period that we're living through right now, due to closing of a U.S. airbase in Kyrgyzstan. The impact of each of those will be lapping in the first quarter of next year. So we will likely see more normalized year-over-year comparisons beginning next year.

And then, just as my follow-up. I think part of your Orlando purchase decision was to round-out your portfolio of large convention hotels, and you have cited the key selling point to have a kind of U.S. diversification for larger conventions that want to kind of move around cities. Have you seen that? Is that one of the drivers of this 8% pace that you cited?

There is no question about that. We've seen actually even in the underwriting process and looking at including the hotel in the Hyatt network, we had previously identified a number of core high customers, both rotation customers that rotate through the market as well as other customers that have unique meetings that they hold in Orlando as a regular matter. And we felt confident that we could actually enhance an already strong guest base in that hotel. The hotel itself was already operating at a very strong level of demand and a strong position in the market place. And we have improved that and we expect to continue to be able to improve it through a variety of different means, one of which is the rotational element and some of it is some programming that we're working on within the hotel. Again, just paying attention to what our guest and groups are looking for and adapting to their needs. We're finding that that's able to be done. We have a very big footprint in that hotel with over 300,000 square feet of meeting space that's dedicated to the hotel, independent of the 2 million square feet in the convention center that's connected to the hotel. So our flexibility and the alternatives are really significant. So we're really very confident about how this is going to continue to progress for us.

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

The next question is from the line of Shaun Kelley from Bank of America Merrill Lynch.

I was just wondering if we could talk for a second more about the impact of the French hotel contracts, because some of those numbers seemed a little bit more material. So my question is, first, how much of some of those, I guess guarantee payments or payouts are in the base of earnings this year? So how much is either paid out in this quarter or is expected to be paid out in 2014? And then, what will be the incremental cost that would then I guess be in 2015, if we thought about the higher-end of that €30 million to €35 million, because that seems like a pretty significant number for four hotels.

Let me just make a comment on the deal itself, and then I'll address the specifics. So as I said, look, the short-term has been significantly more difficult than we expected in terms of flow through, and the market conditions in France have been challenging. The hotels just, by a way of reminder, two hotels are in Paris and two hotels are in the south of France, with very different sort of market dynamics. The luxury market in Paris, that is to say, the very top of the market is holding up well. We have a representation there through the Park Hyatt in Paris. But the larger hotels serving broader business in leisure base at levels below that are much more variable due to the demand levels in France. In the south of France, we've seen variability, mostly pressure this year, because of the economy in France and also the demand level from both Russian and Middle Eastern travelers, which was down this past summer. On the group side, one of the two hotels in Paris is a very large group hotel that's adjacent to the Palais des congrès convention center and group business has been very challenging this year. So we are looking at how we can do more effective job in revenue managing as we go. And we're also looking at on the expense side and on the flow-through side making some additional changes in purchasing and more effective in management of the supply chain, and integrating it into how we're providing for purchasing for the rest of our hotels in France. F&B is probably the biggest single area, where we've had negative variances, relative to our original underwriting, mostly because of the costs of operation are largely fixed, and the variability and banqueting and an outlet traffic…

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

And just I guess then to clarify, Mark, so if the deal closed in May and its €15 million to €20 million. Is the €15 million to €20 million just what we're seeing from May until the end of the year and that's why it's going up next year or is this €15 million to €20 million should that be pro rata and the actual number that's in the base is less than that, it's €10 million or something?

It's a full year figure for 2014. It closed in May of 2013, just to be clear.

The reason it's going up for next year is that a step up in the guarantee and the renovation. Yes, those were the two biggest reasons.

Sorry to change topics then, but my other question would be just on overall margins. So for the owned and leased segments, so as you guys close on the sale of the select service portfolio, typically those types of hotels have meaningfully higher margins than what we would see in full service. So I know you don't give guidance, but can you help us think conceptually through, what would be the impact on segment margins going forward? Is it pretty natural to assume some margin dilution? And how big of a gap should investors expect between maybe full service or limited service, at least in theory, that'd be helpful?

Well, why don't I start with this one, Mark? You can add. So on the select service hotels, they're typically running margins in the mid-30% range, and if you looked at our aggregate owned and leased margins, they're more in the mid-20% range, so that gives you some sense of the drag. Now, it's hard to project this, because we're active on the recycling front and we've got buying and selling activity taking place. So we can't give you a more specific number than that, but directionally it will be dilutive to total margins. And you saw the impact of that or you can see that in the third quarter results that we reported, kind of the comparable change relative to the total margin change and it was about 150 bps.

So I think that will, what Atish just described, will tend to put pressure on or reflect a lower level of run rate margins for the remaining portfolio. And it's also true that at least if I look at, and say, the two large acquisitions that we made last year, the Hyatt Regency in Orlando and the Grand Hyatt San Antonio, the buyout of our partner, those hotels actually operate at relatively higher margins. So that will tend to higher than our average for the owned and leased segment, so that will tend to actually support the total margin level. And the net result of all that will unfold over the course of the coming years as we lap the sale of the select service hotels that we're planning to sell this coming month. Daren, we'll take the next question, please.

Your next question is from David Loeb from Baird.

Just one, Mark, to follow up on the CFO search. Clearly big shoes to fill; Gebhard will be missed. You had very good luck in finding an internal candidate the last time you did a CFO search. Can you give us a view on whether you think it's more likely that you find somebody internal or external? And in the external bucket, do you think that's likely to be somebody with industry experience or somebody from further afield? And what do you think the timing is likely to be on that?

I'm not really going to go into details about the specifics of this. I don't think it will be appropriate to do that. But I would say that we've got a very strong talent on our finance team. I have been spending a lot of time with the team over the last couple of months, especially the last month. And I'm really encouraged that we've got great depth and great strength in our team. I would say that the search parameters are quite broad. That is to say, our view is that we really need to be looking for the very best candidate possible, whether it's with industry experience, without industry experience and internal or external. So I would say, our mindset is one of focus on bringing in a great experienced person who can really add a lot of value, independent of whether they happen to have a lot of industry experience or not. Our team is -- we have very strong and long-tenured experience in our industry within our team as it is. So I would say that having specific hotel experience is not mandatory in our search parameter.

And timing?

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

Your next question is from Harry Curtis from Nomura.

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

Well, I guess the best way to address that, Harry, is to take a look at, if you just look at the few that I actually went through the details on during the call, and I cited both the acquisition prices as well as the EBITDA levels that we expected in Orlando, in San Antonio and in Mexico City, and they vary depending on which hotel you're looking at. And of course, in couple of cases, I would say both in Mexico City and Orlando, for example, we are building a stronger base, a stronger foundation for the future. So our expectations are that we'll see improvements in earnings levels as we go forward. But in Mexico City, we came out of the blocks at an EBITDA level that was in excess of 10% of our purchase price. In the case of Orlando, first year expectation of $55 million against the $717 million purchase price, so something in the high-single digits, 7% to 8%. And for San Antonio, the total effective acquisition value, if you take into account debt that we assumed and debt that we paid off and so forth is something in the range of $270 million, maybe $275 million. And as I mentioned on the call, our outlook for this year is $27 million. So I think those are pretty strong yields for hotels that we recently acquired or bought in our JV interests. And those three represent the vast majority of our recent investments if you look at the total magnitude. On the Playa front, it's a more complicated sort of assessment, because it's a JV as opposed to wholly-owned asset. But we've provided those figures as well. So hopefully that gives you a sense for what kinds of yields or run rate returns we're looking at now.

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

That was the biggest impact.

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

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

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

That has more to do with the fact that, so for instance Orlando, we had it in our system in the fourth quarter last year, so we don't have a benefit from that, but we had a lot of selling activity over the last 12 months. So that's more about that, than it is about seasonality. But with regard to Orlando and specific first quarter, for instance is very strong. So you typically see a benefit, you'll see that on total margin line versus third quarter, which is seasonally, a weaker quarter.

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

We'll take the next question, please.

Next question is from Nikhil Bhalla from FBR.

So just on a portfolio-wide basis, is there a way to figure out, Mark, where your group room nights and rates stand today versus the peak of the prior cycle? I'm trying to kind of get a sense of how far behind we maybe on room nights and rates in the group segment. And also when we think about the industry in general, with occupancies being above now the prior peak levels, what opportunities there maybe for mix management going forward?

If you look at total group revenue base, we're still tracking below where we had as a peak. And that's evolving and changing and catching up obviously. If you look at the aggregate of occupancy for the chain at large, it's actually above peak in almost every market and we see continued strength in demand. So I would say that the backdrop for how we expected this to unfold, when we started really seeing some positive movements in group about a-year-and-a-half ago, has actually unfolded the way we expected, which was serial improvements. It's been relatively steady, if not extremely high. Although, pretty solid, I would say. And increasingly seeing both continued demand support, but also now rate realization, especially for the shorter-term corporate business that we are booking in the quarter for the quarter. So I guess, what I would say is that the backdrop of having relatively higher occupancy is a benefit for more proactive revenue management and rate management. And that's really what we're engaged in at this point.

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

I guess our perspective on that hasn't really changed. What we've really attempted to do is to be much more complete or exhaustive I guess in how we are identifying changes in the portfolio, given the level of activity that we have going in the asset recycling area, which is extremely high, billions of dollars of transactions over the last several years. And given the impact, we feel that keeping people informed about those dynamics as promptly as possible and providing data when we know it to be reliable that is upon closing is really the best way for us to keep people impressed of how our portfolio is changing and what the financial impact is. I think given our level of activity, which has been very high and will remain high, our approach I think is constructive one, in terms of sharing the information that's relevant to seeing what those changes are without say putting a guidance level out, and then having to course correct on pretty much a serial regular basis upon every transaction closing. So that's really been how we've elected to do it. And I think with the expansion of our information schedule, in both in our schedules and also in how we've engaged with the investor base, I think that expansion have been very well received.

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

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