Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2017 Hyatt Hotels Corporation Earnings Conference Call. My name is Stephanie, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Brad O’Bryan, Treasurer and Senior Vice President, Investor Relations and Corporate Finance. Please proceed. Brad O’Bryan: Thank you, Stephanie. Good morning, everyone, and thank you for joining us for Hyatt’s fourth quarter 2017 earnings conference call. I’m here in Chicago with Mark Hoplamazian, Hyatt’s President and Chief Executive Officer; and Pat Grismer, Hyatt’s Chief Financial Officer. As we noted in our third quarter 2017 call, we’ve allocated more time to today’s call for Q&A relating to our business and capital strategy. Mark will begin our call today with an overview of our fourth quarter and full-year results followed by Pat, who will provide additional details on our performance. Mark will then share perspective on our overall growth trajectory and our strategy to create long-term shareholder value. Pat will close out our prepared remarks with an update on our capital strategy including our asset disposition plans and then summarize our guidance for 2018. We will then take your questions. You’ll note that we’ve provided a slide presentation on our Investor Relations website and the Form 8-K that will supplement our discussion today. We won’t necessarily walk through each slide but will make reference to certain of the slides during our remarks. I also want to note that all references to RevPAR results included in our discussion today are calculated on a comparable and constant dollar basis. Before we get started, I’d like to 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 late yesterday, along with the presentation that supplements this call and comments on this call are made only as of today, February 15, 2018, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of our 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 last night’s release. With that, I’ll turn the call over to Mark.

Thanks, Brad. Good morning, and welcome to Hyatt’s fourth quarter 2017 earnings call. I’m happy to report that we finished 2017 with strong fourth quarter operating results and are expecting another solid year in 2018. We reported adjusted EBITDA of $179 million for the quarter, bringing our full-year results to $816 million. Adjusting for the year-over-year impact of transitions and the Jewish holiday impact, our adjusted EBITDA would have increased approximately 11% on a constant currency basis for Q4. Adjusting for the year-over-year impact of transactions, adjusted EBITDA would have increased by approximately 7% on a constant currency basis for the full year, driven primarily by strong increases in management and franchise fees across all regions. Systemwide RevPAR increased 3.8% during the fourth quarter helped by the Jewish holiday shift, as Pat will discuss shortly. The strong fourth quarter performance lifted our full year systemwide RevPAR growth to 3.3%. For now 12 consecutive quarters, more than half of our hotels globally have gained share as measured by RevPAR index, based on Smith Travel Research reports. Our track record of strong RevPAR results and consistent share gains demonstrates the strength of our brands around the world, which is further evidenced by growth in new hotel openings and the continued expansion of our development pipeline. During the fourth quarter, we opened 29 hotels, which is a new quarterly record for Hyatt, driving full-year net rooms growth of 7% on a year-over-year basis. Our exceptionally strong fourth quarter opening pace lifted us to a total of 71 new hotel openings in 2017, which includes 48 select service hotels opened around the world, reflecting 14% net rooms growth for our select service portfolio. Included in our fourth quarter openings were two fantastic additions to our portfolio of Caribbean resort hotels, the 1,800-room Grand Hyatt…

Thank you, Mark, and good morning, everyone. Late yesterday, we reported fourth quarter net income attributable to Hyatt of $76 million and earnings per share of $0.62 on a diluted basis. Adjusted EBITDA for the quarter was $179 million with systemwide RevPAR growth of 3.8% in constant dollars. The shift of the Jewish holidays into Q3 positively impacted Q4 systemwide RevPAR growth by approximately 60 basis points, equating to a $4 million increase in adjusted EBITDA compared to 2016. This was more than offset by a net decrease of $17 million as a result of transactions that took place during the year. Excluding these items, our fourth quarter adjusted EBITDA grew at a healthy rate of approximately 11% on a constant currency basis. We are very pleased with this strong finish to the year. I’ll now highlight our segment results, starting with our owned and leased business, which for the second consecutive quarter accounted for slightly less than half of our adjusted EBITDA before corporate and other. Owned and leased segment, fourth quarter adjusted EBITDA was down approximately 9% to prior year in constant currency. Sales of hotels during the year along with the redemption of our preferred interest in Playa Hotels & Resorts during Q1 of 2017, reduced adjusted EBITDA by approximately $15 million in the fourth quarter. Excluding the impact of these transactions and the positive impact of the holiday shift, owned and leased segment adjusted EBITDA would have increased approximately 1% in constant currency. Comparable owned and leased RevPAR increased a strong 4.1% for the quarter with the holiday shift delivering a positive impact of approximately 110 basis points. This is a larger impact than seen in our systemwide RevPAR results, due to the higher proportion of group business in our owned portfolio. I’ll now turn to…

Thanks, Pat. I want to begin by providing some historical context for Hyatt’s growth and then discuss how we intend to sustain it over the long term and continue to unlock shareholder value. As shown on slides six and seven of our supplemental presentation, we’ve significantly grown our global portfolio of hotels and achieved an even greater expansion in our new hotel pipeline, which will drive our future growth. As highlighted on slide six, our rate of new openings accelerated starting in 2013. When you combine this with the 12.6% compounded growth in our pipeline since our IPO in 2009, as shown on slide seven, you can see that we have had tremendous momentum in signing new contracts for hotels which demonstrates the enduring strength of our brands. Our opportunity to continue to broaden our portfolio to better meet the needs of the high-end traveler, remains robust as there are a large number of markets in which we have a relatively modest existing presence. Our development momentum has been and continues to be a source of significant strength. When you combine the expansion of our hotel portfolio with the strength of our ongoing operating performance, fueled by RevPAR growth and hotel margin improvement, we delivered double-digit compound annual fee increases since 2009, as shown on slide eight, including as mentioned earlier, fee growth of just under 13% in 2017. As you can see on slide nine, this fee growth has driven an evolution of our earnings profile over time with the fee business accounting for an increasing share of our earnings. For the full year of 2017, you see that our fee business drove almost half of our earnings. And during the last two quarters, fee-based income surpassed 50% of the earnings contribution before corporate and other. We expect this…

Thank you, Mark. As we indicated during our third quarter call, we’ll be spending a bit more time on today’s call, to provide additional details regarding our plan to sell $1.5 billion of our owned real estate assets within a three-year period. You’ll recall that we initiated this plan in October, with the portfolio sale of Hyatt Regency Scottsdale and Royal Palms Resort and Spa for a total sales price of $305 million. Before outlining our plans to sell another $1.2 billion of assets to achieve our $1.5 billion target, I want to remind everyone of the rationale for taking these actions, as outlined on slides 14 and 15. As we indicated when we first announced these plans, we believe this initiative will unlock shareholder value, first, by monetizing higher EBITDA multiple assets whose cash flows are not fairly valued by investors; second, by providing substantial funds for future growth investments and return of capital to shareholders; and third, by accelerating the evolution of Hyatt’s earnings profile toward more fee-based earnings. With respect to our asset disposition commitment, we believe a target of $1.5 billion will achieve a meaningful reduction in our owned real estate portfolio while preserving balance sheet capacity to fuel ongoing growth through disciplined asset recycling efforts. In addition, we are confident that we can execute this program within a three-year period. It’s also important to remind everyone that this program is separate from and incremental to our ongoing recycling efforts. I’ll now provide an update on the progress we’re making. We’ve been working closely with two brokers to evaluate our portfolio of assets, identify the likely pool of buyers, and assess the overall market for various asset types. Through this process, we concluded that there would be a high level of demand for our high quality…

[Operator Instructions] Your first question comes from Bill Crow with Raymond James. Please go ahead.

Good morning. I really appreciate the lengthy discussion and the additional report items that you provided. I wanted to touch on the asset sales. And our sources are indicating -- I think, your comments seem to support the fact that maybe the $1 billion sales was coming quickly here. So, that brings up a couple of questions. First of all, you talked about the cadence of returning capital to shareholders. How would that change, if you’re able to get that done, in the next quarter or so? And number two, is there another tranche of assets waiting to be sold behind that and how should we think about that?

Thank you, Bill, for your question. First, as to the cadence of asset sales and implications for the timing of our shareholder capital returns. It’s really premature to give specific guidance on that given that we’re in the throes of finalizing the transaction. It has always been our policy that we defer providing details on timing of proceeds and use of proceeds, once we’ve completed those transactions. But as I indicated in the prepared remarks, there is a relationship between the timing and the magnitude of our shareholder capital returns and the timing of our asset dispositions as well as the timing of any new growth investments. So, we would anticipate that with the successful completion of these very significant asset sales that we’d be in a strong position to deliver above the $300 million guidance we’ve given for share repurchases in 2018. As to whether or not this could lead to bringing another tranche of assets forward to sale. We’re not planning to do that at this stage. And I think it’s premature to give any guidance to that effect. When we committed to this $1.5 billion sell down in our owned and leased portfolio, we did that on the basis of our belief that that would be meaningful and yet preserve for us significant balance sheet capacity to continue to recycle assets and ways to drive the growth of our business as we’ve successfully done for many years. We also felt that in an environment that can be uncertain that it was prudent to commit to something that we had absolute confidence we could do. So, we’re really very much focused on completing this asset disposition program, and we’re not committing to anything beyond that at this stage.

That’s helpful. If I could just ask a follow-on question. If I look at slide 13 where you have the maximize your core business and integrate the new growth platforms et cetera. The one I’m challenged by is the integrating the new growth platforms. And it’s not the integration, but really measuring the success of those acquisitions, those investments. So, what do you use to measure, is this an ROIC or how do you gauge the ultimate success of these investments in wellness and experience and your employee satisfaction, et cetera? How do you kind of gauge that from a financial perspective?

Bill, it’s Mark. So, what I would say is it will depend on the type and nature of the investment that you’re talking about. In relation to the acquisition of businesses, we will be looking for -- we will be looking at returns on that investment. And that will vary depending on the type of business that we’re talking about. So that’s the direct return. But, the broader value proposition here is to identify things that actually relate to and are relevant to our customer base and our core business. Because what we don’t intend to do is build a large portfolio of activities that are completely divorced from -- they may be good business for themselves, but might end up being divorced from our core business. On the contrary, what we’re doing is actually buying and investing in things that are relevant to our existing customer base and present opportunities to enhance the offerings that we make available to our members, World of Hyatt members as well as our in-hotel offerings, whether they be products and services. So that additional increment, that’s where the integration piece comes in, will result in stronger value proposition for our members, our World of Hyatt members which will lead to better membership growth, a greater share of wallet, and ultimately more significant relevance and frequency of contact with our best guests. So, those are all measurable activities that are in the dimension of the integration piece. With respect to Miraval specifically, we said that -- and Pat reiterated today that we believe that excluding any of the other ways in which we can and plan to pull programming into our hotel offerings and into World of Hyatt offerings that the investment by itself, we underwrote to be able to be generating a high single digit rate of return on our invested capital. And as Pat noted, we are on track to be able to do that. We’re currently in the middle of redeveloping two resorts to add to the brand. We opened a new Life in Balance Spa as part of a Park Hyatt in St. Kitts, and there are other opportunities that we’re evaluating right now from Miraval that would be additive to that rate of return that was only referential to the performance of the three destination resorts, Tucson, Austin, and Lenox Massachusetts. So that’s at least as to that investment. And the others right now are relatively modest investments in exhale and in Oasis. So, we will talk about those, once we have more proof points to demonstrate how we’re pulling those into the World of Hyatt program.

Your next question comes from Patrick Scholes with SunTrust. Please go ahead.

Hi. Good afternoon. Just a quick question. I noticed there was some executive turnover in the quarter, some long-time Hyatt employees. What was the rationale behind that?

Thanks for that. So, the organizational changes that we made were really focused on really providing more focus to how we go to market on revenue related functions and how we continue to support growth. So, those are the two principal areas of focus that we had in mind. We have under the commercial services area that we created that will be overseen by a new Chief Commercial Officer. We have pulled together various functions, revenue focused functions, sales, marketing, revenue management, digital as examples, and integrated them into one area that will increase our agility and our response rate with respect to cross-functional tradeoffs that we see. The integration of those functions has elevated over time. And we believe that having them led in one area is an important dimension of that. We’ve also simplified the structure to have all operations within one area, one functional area that’s led by our global head of operations. And so that means that we have put together in one place our select service activities with our full service activities and our franchise oversight with our management business to better leverage and be effective in how we provide what will be over time an increased level of franchise support for our franchisees. I would say that we are in a position to do that because we have a very strong development teams around the world that have generated and really been successful at creating all of the pipelines statistics that you’ve heard of us talk about this morning. And secondly, we’ve got a strong internal transactions team that we will continue to be able to leverage with respect to the capital strategy development that we’ve got underway. So, we believe what we up with is a more focused, a simpler and an enhanced capability at the end of that organizational shift.

Your next question comes from Joe Greff with JP Morgan. Please go ahead.

Good morning, guys. In describing the assets that you recently put up for sale, it sounded encouraging that buyer interest was relatively strong. Can you talk about, in this first round, this first phase the profile where you are seeing this buyer interest the strongest?

Sure. The answer is, it’s broad. So, I would say really the types of buyers and the location of the buyers is diverse. So, it’s U.S. and non-U.S., it’s institutional and hotel specific, public and private. So, the answer is it’s across many different dimensions. There is no -- it’s not particularly narrow at this point.

Okay, great. And then, Pat, a question for you, just to make sure I’m interrupting all those things, right. In 2017, the owned leasing joint venture portfolio generating EBITDA of $490 million, if we subtracted $52 million of EBITDA from these owned, leased and joint venture hotels that were disposed at the course of the year, that total $52 million, that gives us the base from which we should think about growing the owned hotel, right? I’m not missing anything else within that?

That is correct. And the guidance we’ve given, doesn’t take into any new transactions. It’s happening in 2018, correct.

And then, you guys gave a lot of information, which we appreciate. And, Pat, you mentioned earlier, I think a comment about the first quarter in terms of your expectation. Can you repeat that? I actually just missed that. Thank you.

Yes. We do expect first quarter of 2018 to be the weakest of the year, largely as a consequence of the overhang from transactions completed in 2017. So, what I’d indicated was that of the $67 million that is the full year impact of those transactions, a fairly healthy percentage, approximately $38 million, will fall on Q1. When you remove that impact, what we’re expecting is that adjusted EBITDA will be flat to slightly positive to prior year. And it does reflect the adverse impact of Easter holiday timing.

Your next question comes from Shaun Kelley with Bank of America. Please go ahead.

I just wanted to go back to sort of the capital return program after the asset sales here. So, Pat, if I recall correctly, I think you outlined that there is sort of a target, and I know this is over the whole program of maybe 70% or so of the assets sort of -- of the asset sales being returned as capital and then the remainder being reinvested. Is that sort of the right ballpark for what we’re going to see here out of, let’s call it, the incremental 700 million or so that we should receive out of what you’ve identified here for 2018?

Shaun, I don’t believe we’ve ever given specific guidance as to use of proceeds, allocating it according to certain percentage split. What we have said consistently is that the proceeds from this $1.5 billion sell down program will be used for two purposes. Our first preference or priority will be given to growth initiatives. Because don’t forget that Hyatt is a growth company first and foremost. And we have a strong track record of reinvesting capital to sustain the growth of our Company. And so that will be an important part. And then, we do expect to continue what has been a good track record of meaningful shareholder capital returns. It’s difficult if not impossible to establish how that might break out, because it is to a great extent a function of the opportunities that we identify to grow our business, when they’ll come along and how large they will be. So, we’re really focused on those two buckets and no specific allocation at this time.

And then, maybe could you just help us like philosophically then, to the extent you are returning capital? Obviously, you’ve now initiated a dividend, which is great and we would assume that you’re probably going to grow that over time. But, how do you think about, sort of the question in these types of recycling scenarios is always sort of the same, programmatic versus opportunistic repurchases. Just kind of what’s the Company or Board’s philosophy at the highest level right now as it relates to that?

Well, first, to clarify, we don’t think of the $1.5 billion program as recycling; that is separate and distinct. So, $1.5 billion represents the gross cash proceeds from the sale of specific owned real estate. And those proceeds after-tax won’t be used for the two purposes, as I mentioned before. In addition to that, we do expect ongoing recycling. And we highlighted that in this portfolio transactions, we’re looking at currently one of the three assets. Hyatt Regency Coconut Point will be characterized as a recycling asset. What that means is that the proceeds from that particular transaction might be used for recycling. I think, in the case of that specific asset though, given that it represents the completion or the conclusion of our net seller commitment in 2017, I would say, a large chunk of those proceeds would go toward shareholder capital returns in 2018, assuming that transaction is consummated.

Did you have a separate question about the type of a share repurchase engagement that we would have? Is that part of your question?

Yes. I guess that I used the wrong word. Sorry. I didn’t mean -- I mean, we’re just crossing the beans on that. I’m really trying to get at if you guys $500 million [ph] and you’ve identified it for repurchases, what are you going to do, like how are you going to return it?

Yes. What we’ve said in the past is we are not going to get into details with respect to how we go about our share repurchase activity. You can imagine why, which is we don’t think that it’s necessarily constructive from our perspective. So, the fact is that we have available to us many different ways in which we can repurchase shares. Some relate to put the potential to use programmatic activities and others relate to more opportunistic. But, we’re not going to get specific about how.

Your next question comes from Jeff Donnelly with Wells Fargo. Please go ahead.

Good morning, guys. Mark, I apologize if I missed this in your earlier remarks. But, how did you guys think about the decision to initiate the common dividend as a means of returning capital versus the share repurchase?

We had -- this question has come up in the past about are we considering a dividend or would we consider a dividend, and the answer has always been, we would, and we have. And we -- I think, it’s a natural outgrowth of this evolution of our earnings profile towards more fee-based earnings where the volatility is inherently lower, the predictability of free cash flow is a bit higher. And also, recognizing that with respect to the cash flow generation of the Company, we continue to have significant ongoing recurring cash flow from which we can reliably pay a dividend through the cycle. And so, we feel like the evolution of the Company in terms of the earnings mix and our -- and given the sustained magnitude of our total return of capital to shareholders, we felt that this was an inappropriate time to move, to introduce the dividend. So, it’s really those factors that drove it.

And I apologize for jumping around, but just another question on you’d pick up a management assignment at Grand Hyatt Baha Mar; that’s a pretty big hotel. Those management assignments don’t come along often. So, can you maybe talk a little bit about what was entailed in securing those assignments? If there’s key money or an equity investment? I’m just curious if there’s any details you can share.

Yes. I’m not going to go into the details of the structure of what we did there. But, what I will say is that project has lived a few different lives over the course of our involvement and actually lived a few different lines prior to the course of our involvement. So, many of these large scale resort locations, especially in the Caribbean, they’re hard to execute. And I think the answer really is you have to have perseverance, but also I think the ability to practice empathy and truly understand what the needs of the developers are and in this case ownership transferred during the course of the construction of the project, and we ended up having to pivot what it was that we were going to do onsite with the new owner. It happens that we have some history with the new owner. And so, we’re known to them and they are known to us. And I think that definitely helps. So, I think a lot of it has to do with staying agile and being responsive to changing needs, and this one had many, many changes in the needs over time.

Thank you. And just back on asset sales, concerning the $1.5 billion of asset sales, is taking back management and/or franchise an imperative in those cases for you guys?

Absolutely. We don’t see any hotels in the portfolio that we would turn around to as part of this program and say we’re going to sell it without regard to ongoing involvement and maintaining the brand.

And maybe just a last question on operating profit. Thinking about the owned and leased hotel margin, I think it’s about 24%; that’s a little lower than what we see from some of the full service hotel REITs. I’m wondering what might be holding that back. Do you guys see opportunity to drive margin on your owned, leased hotels? And I guess maybe the follow-up to it, for the assets that you guys have flagged for sale, do they have a materially different margin behavior than your larger portfolio?

Hey, Jeff. Actually, we see continued margin improvement opportunity in our owned, leased portfolio and we’ve been very pleased with the productivity gains that we’ve realized in the last couple of years as we have implemented new process and discipline around opportunities to drive revenue and to reduce cost. With respect to the fourth quarter results in particular, I would say, given the strength of our RevPAR growth in the quarter which for owned and leased was 4.1%, what you saw by way of margin improvement was lower than we would normally expect and we would see with that level of topline growth. That’s because in the quarter, we identified some opportunities to make some targeted investments and a handful of hotels that deliver a payback within a two-year period specifically, some reorganizations of different groups. And so, that did weigh on Q4 results and therefore the margin progression versus prior year. But, it does set up those hotels for improved profitability going forward. And so, we continue to feel very good about the margin profile and the continued opportunities to drive margin. And with respect to the hotels that we are marketing, absolutely, those are ones that we anticipate will continue to show margin gains.

Your next question comes from Thomas Allen with Morgan Stanley. Please go ahead.

Great, thanks. I was actually -- just a follow-up to the last point because that was going to be my question. So, how much were those investments in the fourth quarter? Because I was surprised when you said that RevPAR was up 4% and EBITDA was only up 1% adjusted for transactions? Thanks.

Yes. Thomas, there are actually a couple of things happening with the owned and leased segment, one of which is the margin performance. The impact to the O&L margin for the quarter as a results of those specific investments was about 100 basis points. But in addition to that there were certain year-over-year SG&A costs that fall below restaurant margin in the owned and leased segment, P&L that did weigh on the year-over-year comparison. One was related to a credit we had in 2016 that we were lapping and the other was related to a one-time guarantee expense that we took in 2017. And so, a combination of one-timers, laps as well as the margin related investments tended to distort overall owned and leased margin, and EBITDA performance for Q4.

And then, just on your hotel openings in 2017. I think, you started off the year expecting 60, you opened up 71, impressive outperformance. Was some of that -- did construction kind of open more on time than you expected or were there higher conversions or any other things worth highlighting? Thanks.

Yes. I think, Pat actually mentioned this. We went into the year looking at the profile of openings, and there were a number of hotels that were due to open towards the end of the year, which we didn’t really expect would actually pull into 2017, but we expected to open early in 2018. So, we did get some benefit from completion, I guess, timely completion of some of the hotels. So, that was probably the principal issue between our going in expectation and the final result.

Your next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Would you guys mind commenting a little bit just on the differentiation of your group pace for ‘18, ‘19 and ‘20? And maybe if you can, talk a little bit about what the comparable group pace looks like? I’m assuming, the pace you’re providing right now is kind of an all-in number?

No. This is -- the numbers that we’re providing are comparable. So, just to reach on to that right off the bat. Let me give you some color on all this, because there are few moving pieces. First of all, in terms of composition, corporate was quite strong in the fourth quarter relative to association business. That was particularly welcomed in places like New York, San Francisco and Chicago, which I think had particularly strong corporate demand. The sectors within corporate that really showed well in the quarter were consulting, banking and finance, and technology, which were all up in the quarter. And the other area that we also saw some strength in, in certain markets was local association and special interest group demand, which was up over 3% in the quarter. The other thing I would say is that we saw a real change in the quarter for the quarter bookings or in the quarter for the year, I guess, fourth quarter. And which has seen some relative improvement over the course of the year. And so that level of short-term bookings, which -- a lot of which is corporate has actually been relatively healthy towards the end of last year and into the beginning of this year. So, that’s actually encouraging to us, as well as the statistic that Pat mentioned, which is total production for all periods was up over -- which was up almost 10% in the fourth quarter, very healthy level. As we head into 2018, our pace expanded a bit. It’s still low double -- low single digit rather, and expanded a bit sequentially. The key to us though is that as we look at the year and we look at the patterns that remain in the year and we look at the level…

Your next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Hey, thanks for the time. As you think about the value of the remaining owned assets not being marketed relative to what has been sold, is there anything preventing you from extracting similar value. And then, I recognize the industry conventions, to at the EBITDA multiples on these transactions, but what would be the stabilized free cash flow yield on the assets sold to date? And how do you think about the remaining owned assets, free cash flow contribution versus asset light? Thank you.

That’s a lot in that question. Maybe Pat and I will tag team this. So, I think with respect to the yields or the multiples and so forth, which is where the second set of questions that you asked. We’ve reported on the annualized earnings impact from dispositions, once we announced transactions. And we will continue to do that for transparency and just providing you the data. So, I think, you can go back and see what levels of multiples that we have realized from prior transactions. With respect to how you think about free cash flow yields. One of the key factors that we do take into account on all dispositions, whether it’s part of the permits held on asset base or the recycling asset base, has to do with what capital expenditure profiles look like for the subject hotels. So, one of the things that we are taking into account as we progress our planning with respect to the transactions or dispositions is what’s coming in and where that leads us with respect to commitment going forward. What I would say is that we have seen with respect to run rate existing portfolio spending, it’s been stable or declining as opposed to growing. Most of the growth that you’ve seen has to do with specific individual projects that we’re putting money into, which are new ROI projects like the redevelopment of the two Miraval assets, for example. The first question you asked, I’ll leave to Pat.

Yes. Stephen, with respect to the remaining assets in our owned and leased portfolio after we complete $1.5 billion sell down, what I would say is that as you know with this program we’re focusing on what is characterized as lower yield assets or conversely higher multiple. And today what we’ve said is that of the $1.2 billion remaining value to be realized through sale, we are targeting an average multiple of at least 15 times. And so, when you think about that and how that’s going to play out and what that will mean for the remaining owned and leased portfolio versus where we are today, we would expect that portfolio to be higher yield and lower multiple. And the reason we’re focusing on it this way is that as we’re thinking about how best to unlock shareholder value with this sell down program, we want to put ourselves in a position where these transactions are clearly accretive. That’s why we’re focusing on the lower yield, higher multiple properties. And what remains will be lower multiple, higher yield. We can’t give any more precise guidance than that conceptual thought at this stage.

No, that’s...

I would just add to that. Sorry. I think, we publish and you will see in our K. details on what properties we own and where. There remain a number of properties in very, very high barrier to entry markets. So, what I would say is that while I agree with everything Pat just described, it’s also true that there will likely be other pockets of asset ownership in our portfolio that would also attract higher relative valuations over time. What we are going to do, have done, and continue to do, is assess what make sense with respect to full realization of value. We’re not going to rush to judgment, and not plan for and be in a position to maximize value realization over time.

That’s very helpful. And maybe one quick follow-up, asking a longwinded question more distinctly. How should we think about the long-term CapEx requirement of the management franchise business versus owned business when you hit your target mix?

Well, we would expect ongoing CapEx to come down. I mean, our CapEx today is dominated by CapEx against our owned and leased portfolio, whether substantial redevelopments as are underway for the Miraval properties or ongoing renovations, which can by lumpy, but can be quite significant. And so, as we sell down our owned and leased asset based, we would expect our ongoing CapEx to decline, specifically in relation to managed and franchised. We do expect over time, as has been the case in recent years that there will be situations where it makes sense for us to provide some measure of capital support, not that it necessarily flows through our capital expenditures, but rather key money or other forms of support in order to secure projects that are high value that will persist. We don’t necessarily see that increasing. But, if -- when you look at the shape of our portfolio today versus where we see it headed, what we would describe as ongoing CapEx, will come down over time.

Yes. I would just only add to what Patrick said that we also do spend capital dollars on initiatives and tools and resources for World of Hyatt engagement with our guests and so forth. And some of that is the subject of the application of some of the Avendra funds that we have available to us. We are looking at new projects at this time to finalize plans to make new investments, mostly focused on mobile and digital resources. And that spending is not currently included in any of the CapEx guidance that we’ve provided.

And to build on what Mark has said here. It’s true that deployments of the vendor CapEx aren’t included in our guidance, we’re in the process of developing specific plans around how we’re going to spend that money. And we do expect that a very significant portion will be applied to digital and mobile. Those amounts that we spend on capital assets will reside in our balance sheet and therefore, will be reported as capital expenditures. The associated depreciation expense and any ongoing operating expense associated with those investments will be characterized as special items and therefore, will sit outside of adjusted EBITDA. So, just as the proceeds and the associated gain, characterized as special, the outflows, whether depreciation, capital expenditures or ongoing operating expenses will likewise be characterized as special.

Your next question comes from Chad Beynon with Macquarie. Please go ahead.

Within the fourth quarter and 2017, you had pretty strong dollar growth and percentage growth within the incentive management fee line item. Historically, this has not been as important of a contributor, but as you move towards the asset light, I think, everyone’s focusing more on this. Can you give any more color just in terms of maybe the percentage of assets, kind of what’s going on? Why you’re seeing the growth that you’re seeing right now this year, above your peers? And then, more importantly for your 2018 growth algorithm, if you’re factoring in discontinuation? Thank you.

We’re certainly very pleased with the level of incentive fee growth we’ve seen this year. And that is a function not only of what you would normally expect by way of RevPAR growth and unit growth, but importantly profitability improvement at our managed hotels. I mentioned earlier the significant focus that we’ve brought to profitability improvement, whether top-line driven or middle of the P&L driven. And that is not exclusive to our owned and leased portfolio, we’re equally focused across all of our managed hotels to leverage the best practices, the specific opportunities that have been identified applying consistent tools across the portfolio to deliver that level of profitability improvement. And we do see that materialize in the form of much higher incentive fees. We have not included that in our ongoing growth model. So, we’re -- what we’re assuming for purposes of an ongoing model is that we are holding margins more or less constant. And so, we’re not necessarily expecting that in the ongoing model. That’s not to say that we aren’t anticipating incentive fees will continue to increase; it just may not be to the same extent as we saw in 2017. But, our 2018 guidance for fee growth specifically does assume continued improvement in incentive fees, but we’re not guiding as to a specific growth amount.

Okay, great, thanks. My follow-up is just a housekeeping item. You noted in your 2018 outlook you’re looking for an effective tax rate of 27 to 31. Any reason why you’re a little bit higher than your peers, and if this could end up being conservative?

Yes. I mean I can’t speak to what’s happening with our peers, but I know well our situation. And when you think about the global portfolio of earnings, we do have a certain percentage that is taxed here in the U.S., but we do have international income taxed at various rates, depending on the jurisdictions where that fee income is earned. And so, it really is a blend of U.S. and international but also incorporates state tax, and that’s all working in this range that we’ve given of 27% to 31% . I would point out however that as we disclosed in our K, we are taking a provisional approach in establishing those estimates, both for 2017 and for 2018, because as weeks go by, we continue to learn a lot more about various aspects of the new tax legislation that do have some effect to how we account for and quantify various effects. So, we do expect over the course of the year to tighten that range, but we felt that it was prudent given where we’re at in the process to go out with a range of 27% to 31%. The other thing, I would highlight is that it’s not just the headline corporate rate that has changed, but there are also certain other provisions that are unfavorable, and those are incorporated into the guidance that we’ve given.

Your next question comes from Michael Bellisario with Baird. Please go ahead.

Just want to close the loop on CapEx and get a little deeper. Can you maybe break out the various buckets of spending for 2018 that are in that $350 million guidance range you gave?

Certainly, Michael I think, it’s important to recognize that the key driver of the year-over-year increase in CapEx is the timing of our Miraval resort redevelopments that will be over $100 million in 2018. And when you take that out, when you take out the year-over-year increase, we’re really looking at total CapEx that is, that is roughly flat. So, that’s really what I would highlight. We’ve not taken into account any reductions in CapEx related to the expected sales of owned and leased hotels. So, as we progress throughout the year as has been our practice, as transactions happen, we will be updating various dimensions of our guidance, CapEx would be one.

Got it. That’s helpful. And then just kind of bigger picture, as you think about long-term strategy for Hyatt, where does select service sit within the platform today and over the next however many years, especially as your focus is kind of shifting a little bit more toward the higher end and higher end customer today?

Thanks, Michael. The select service business has been a key driver of success in a few different dimensions. The first is, it’s really accelerated our ability to develop presence in a bunch of markets where we didn’t have any presence previously. Part of that has to do with the fact that the overall development activity associated with the select service hotel is, it’s more modest in scale and complexity than building a large full service hotel. And so, as a consequence, there is more capital, diversity of capital available and more locations where you can actually establish a location. So, it’s been absolutely critical for us. We see it as one of the key growth drivers of our plans in some of the fast growth countries in which we have a strong presence, thanks to our full service business, like China I would say is principal among those, and India as well where we see quite a few new openings of Hyatt Place and Hyatt House hotels. So, I would say it’s been critical for us with respect to our presence and distribution. The second dimension that’s been critical in the United States is that it has allowed us to expand our market share and our activity base with large corporate accounts because they are looking for diversity of product type and price point with respect to the various types of travelers that they’ve got traveling. So, I would say select service integrates beautifully into the rest of our portfolio. And Hyatt Place and Hyatt House are positioned at the high end of their respective segments. So, as far as we’re concerned, it definitely supports our focus on the high-end traveler because the brand positioning for each of them is targeted at the higher end of the segments in which they compete.

Got it. That’s helpful. So, definitely more relative and absolute answers to my questions. Thanks guys.

Okay. Thank you. Stephanie, I think we’ll take our last question at this point.

Your last question comes from Smedes Rose with Citi. Please go ahead.

Thank you. I was just wondering if you could give us a reminder, what do you see as the total investment in Miraval including the build out that you’ve talked about this year? I know, you said, it’s a high single digit return but on what investment?

Yes. We expect that by the time the resort redevelopments are completed, Lenox and Austin, on top of what we initially invested and the subsequent build out in Tucson, it will be in the range of $375 million.

Okay. Thanks. And then, just also a little bit of a reminder here. What is the timing on the contracts in France? I think, you gave some guidance as to what the losses there will be this year. Is this the last year for those or do you have more guarantees?

Unfortunately the guarantee extends through May 01, 2020. However, we do expect that after 2018 when the renovations are substantially completed that we will see meaningful reductions in the annual guarantee expense. So, we had guided for 2017, $80 million. The number came in a bit below at $76 million. We’ve guided 2018 to be in the range of $65 million to $75 million; that includes not only what slipped from 2017 to 2018 by way of renovation delays but also the adverse impact of the strengthening euro. So, we do expect that 2018 will be another year of pretty significant guarantee expense, but that we will see a meaningful reduction beginning in 2019 and then that guarantee will end May of 2020.

Stephanie, before we close the call, I’d just like to make one further comment, which is just to say, in summary, that we’re really pleased with our performance and our momentum heading into 2018. It’s clear to us that our success is really driven by all of the members of the Hyatt family who continue to fulfill our purpose to care for people so they can be their best. And we’re really pleased to have received the great recognition announced this morning that Hyatt is in the Top 10 Best Places to Work in the Fortune Magazine ranking. So, thanks to all the members of the Hyatt family and also thanks to all of you for joining us for this extended session this morning. Stephanie, back to you.

Thank you. This concludes today’s conference call. You may now disconnect.