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Hyatt Hotels (NYSE:H)

Q3 2013 Earnings Call

October 30, 2013 11:30 am ET

Executives

Atish Shah

Mark S. Hoplamazian - Chief Executive Officer, President and Director

Gebhard F. Rainer - Chief Financial Officer and Executive Vice President

Analysts

Joseph Greff - JP Morgan Chase & Co, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Thomas Allen - Morgan Stanley, Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Smedes Rose - Evercore Partners Inc., Research Division

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Ian C. Weissman - ISI Group Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Hyatt Hotels Corporation Earnings Conference Call. My name is Glen, and I'll 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 of Investor Relations. Please proceed.

Atish Shah

Thank you, Glen. Good day, everyone, and thank you for joining us for Hyatt's Third Quarter 2013 Earnings Call. We want to thank everyone in the community for joining us this morning.

Here with me in Chicago is Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Gebhard Rainer, Hyatt's Chief Financial Officer. Mark is going to start by making some brief remarks, and then we're going to read and respond to questions emailed to us this morning. Finally, we will take live Q&A towards the end of the call.

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 this morning, along with the comments on this call, are made only as of today, October 30, 2013, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You can find the 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 and a telephone replay of this call will be available for 1 week per the information included in this morning's release.

Before we get started, I wanted to point out that our release this morning contains a new schedule at the very end. This schedule provides a list of transactions impacting the year-over-year comparison of owned and leased adjusted EBITDA, excluding joint ventures, and we will be providing the schedule on a going-forward basis.

Also, I'd like to let you know that we will be having an investor meeting in the first quarter of next year. We are planning on holding the meeting on Friday, March 14 in New York City. We'll be sending out a Save the Date with more information next week.

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

Mark S. Hoplamazian

Thanks, Atish. Good morning, and welcome to our third quarter 2013 earnings call.

We've made a lot of progress on a number of fronts in the third quarter, and I'd like to discuss those first, and then turn to talking about our results.

One of our key strategies is to expand our presence in new markets or in markets in which we're underpenetrated -- underrepresented. We've made a lot of progress on the strategy since our IPO 4 years ago. We've opened hotels in over 60 new markets since then.

This year, the pace of activity has accelerated. We're on track to open over 45 hotels in 2013, representing almost 10% growth in our system size. This is a record level of openings for us, and reflects the great work of our development and operations teams around world. The strength of our brands and the investment of significant levels of capital from us and many third-party owners is reflected in this.

We continue to grow our executed contract base for new hotels, which increased in the quarter and now stands at a record 215 hotels or 50,000 rooms.

I'd like to talk about 2 recent openings, in particular, hotels in which we've invested significant capital.

First, we opened the Andaz Maui at Wailea in September. This is the first Andaz resort in our system, and it's opened to rave reviews. It's a one of a kind property located in Wailea, which is a master-planned resort area along the islands south shore and it's the first new resort on Maui in well over a decade.

As you may recall, this resort was developed by joint venture between Hyatt, Starwood Capital and a local partner. We own, at this time, approximately 2/3 of the venture.

The resort includes 297 guest rooms, including 35 suites and 7 villas that are part of the resort inventory and an oceanfront restaurant leased to Morimoto.

In addition, there are 12 villas that were built for sale to individual buyers. The projected development cost is approximately $340 million, of which about $120 million is funded by project-level debt.

As to the 12 villas that I noted, we expect to sell them over time. And 2 of the villas were under contracts, and that resulted in a $12 million gain recognized by the venture in the quarter.

So initial indications are that this resort, together with the residential component of the project, will do quite well. We expect the resort to ramp up over the next 1 to 2 years, as it becomes better known by key customers in the Western part of the U.S. and in key Asian markets as well.

The second opening that I'd like to talk about is the Hyatt Regency Orlando. We acquired the 1,641 room Peabody Orlando for $717 million on October 1, and we re-branded it as Hyatt Regency Orlando.

This is our largest single property acquisition in our history.

As you may recall, we talked for some time about growing our group-oriented presence. And given the significance of Orlando as a meetings destination, we'd always considered having 1,000-plus room hotel in Orlando as being critically important to rounding out our strong network of large group-oriented hotels in a number of U.S. markets, cities like Atlanta, Chicago, Dallas, Denver, New Orleans, San Antonio, San Diego and Washington, D.C.

In particular, we've been focused on the Orlando submarket adjacent to the Orange County Convention Center, which is the second largest convention facility in the U.S..

About 13 years ago, we acquired 45 acres of land near the convention center and adjacent to the Peabody Orlando. We bought this land in order to build a large convention hotel. For a variety of reasons over the years, including construction costs, we decided not to build the large convention hotel on the site.

So when we were approached with the opportunity to buy the Peabody Orlando on an off-market basis, we took a serious look. What we found was the perfect hotel to meet our needs. The hotel had undergone a $440 million expansion and a refurbishment a couple of years ago. So it's in great condition.

It is connected to both sections of the Orange County Convention Center and sits on over 25 acres of land and has over 300,000 square feet of meeting space of its own. Has a great reputation in the market, thanks to a terrific team at the hotel who delivered strong operating results at very high service levels.

As we end the road to transaction, we recognize that one of the ways our brand and our system could create value is to add smaller in-house corporate groups to our global sales organization and to add incremental transient business through the strength of our brand, our proprietary channels, distribution channels and through Gold Passport. And we've begun doing just that since we acquired and converted the hotel a few weeks ago.

We're comfortable with our underwriting, not only because of the hotel's strong operating history, but because in recent years, we turned away enough group business in Orlando due to our lack of room inventory and meeting space to more than fill this hotel on an annual basis.

Our purchase price is below our estimate of replacement cost for this high-quality hotel. The investment rationale is strong, and the hotel is a good strategic fit that improves our group position over the long term and particularly, as we're just starting to see more signs of stable group recovery. We anticipate earning about $10 million of EBITDA in the fourth quarter of 2013 and about $55 million of EBITDA in 2014.

Over prior years, this hotel has generated about 2/3 of its annual earnings in the first half of the year, and we believe that this will be true going forward.

While we do not have any immediate plans for the land that we own, we think having this parcel of land in this high barrier-to-entry location provides various options in maximizing results at the hotel and in the context of any effort we undertake to sell the hotel in the future.

In addition to these 2 openings, we expect to launch 2 new brands later this year, Hyatt Ziva and Hyatt Zilara, will both offer an all-inclusive experience, with Hyatt Zilara being adults-only.

We expect to add our first Hyatt Ziva resort in Los Cabos, Mexico and our first Hyatt Zilara resort in Cancún, Mexico.

The resorts are owned by Playa Resorts, and their renovation and conversion is on track at this time.

We expect to add a total of 6 hotels out of the Playa portfolio under our 2 new brands over the next 2 years.

As a reminder, we made a significant common and preferred equity investment in Playa Resorts during the third quarter. Playa also raised $675 million of total debt as part of its recapitalization.

We expect to earn between $18 million to $20 million of joint venture adjusted EBITDA from Playa in 2014, and there will be fluctuations by quarter due to seasonality and timing of renovations.

In addition to current and future openings, I'd also like to talk about our asset recycling activities. As lodging transaction activity has increased due to more liquidity and capital looking for hotel investments, we significantly increased the pace of asset recycling.

Over the last 6 months, we completed the sale of 6 wholly-owned, full-service hotels that we had listed earlier this year for a total of $433 million. We sold these hotels at attractive pricing levels, a blended 5% trailing 12-month NOI cap rate or about 15x trailing 12-month EBITDA. Each property remains within our system as a managed or franchised hotel, which preserves our presence in each of these markets.

While we don't currently have any additional hotels listed with brokers, we continue to be in discussions with several parties and would expect to sell additional full-service and select-service hotels over the next 6 to 9 months.

Over the last 4 months, we've also realized cash proceeds of approximately $375 million related to our interest in the Hyatt Regency Waikiki and Hyatt Regency New Orleans.

Hyatt Regency Waikiki was sold in July, and we received the payoff of our first mortgage loan, as well as proceeds from the sale of our minority equity position. Our preferred equity investment in Hyatt Regency New Orleans was redeemed last week. We continue to manage both of these hotels under long-term agreements.

We continue to be focused on returning capital to shareholders as well, and we've repurchased over $250 million of stock this year. We did not purchase a significant amount of stock in the third quarter, partially due to transaction activities.

Our Board of Directors just authorized up to $200 million in additional share repurchases, so we now have $211 million available under our current authorization.

Now I'd like to turn to our third quarter results. As you read in this morning's release, we reported strong RevPAR and revenue growth in the third quarter.

RevPAR for full-service hotels in the Americas increased 7.7%, over 50% of which was due to the higher average daily rate. We benefited from strong RevPAR growth in markets such as San Francisco and Hawaii, as well as easier comparisons, due to renovations last year in markets, such as San Diego and Dallas. Those renovations benefited the Americas full-service RevPAR by approximately 80 basis points.

At U.S. full-service hotels, transient revenue, which represented approximately 60% of rooms revenue, was up almost 9%; and group revenue increased almost 7%. This increase in group revenue was due to strong performance in several important markets, such as Atlanta and Anaheim.

Our hotels outside the U.S. did not perform as well. Hotels in ASPAC and EAME/Southwest Asia regions increased RevPAR between 2% and 2.5%. In Mainland China, RevPAR decreased 3% with growth in South China, offset by declines in North China and East China.

In our EAME/Southwest Asia region, we had a tough comparison in London due to the Olympics last year, which led to an almost 15% RevPAR decline in the U.K.. If you were to exclude London, RevPAR for our EAME/Southwest Asia region would have been up over 5% in the quarter.

We realized strong RevPAR growth in the Middle East as well. RevPAR in South Asia continued to improve. It was up about 8%, the second consecutive quarter of RevPAR growth in that area.

Business conditions in India continue to be difficult. We did enjoy some positive results in the Goa market, which is a resort market, as one of our resort hotels ramped up this year. But overall conditions are challenging at this time.

While our RevPAR increases were strong, our overall adjusted EBITDA results were negatively impacted by 3 items: transaction activity in ramping hotels is the first, the second is some areas of owned and leased margins pressure and third was lower-than-expected incentive management fees.

So first, on transaction activity. Our total transaction activity negatively impacted owned and leased adjusted EBITDA by a net $5 million in the quarter. Additionally, transaction activity negatively impacted unconsolidated hospitality venture adjusted EBITDA by $2 million.

The Andaz Maui at Wailea, which incurred preopening and ramp-up costs, had a $3 million negative impact in unconsolidated hospitality venture adjusted EBITDA.

So together, all the transaction activity, including the preopening expenses at the Andaz Wailea, negatively impacted our owned and leased segment inclusive of joint ventures by about $10 million. So adjusted for these transactions, total company adjusted EBITDA growth would have been up over 10%.

Second, our comparable owned and leased margins grew only 20 basis points overall and varied significantly by region.

In the Americas, comparable owned and leased margins increased 110 basis points. We achieved solid efficiencies in our operating departments despite record occupancy levels and higher benefit cost increases in the quarter.

A lease termination fee benefited the Americas comparable owned and leased margins by about 50 basis points, but offsetting these were higher rent expense and property taxes, which negatively impacted Americas comparable owned and leased margins by over 80 basis points.

Comparable owned and leased margins for hotels outside the Americas declined approximately 230 basis points. 1/3 of this decline was due to a difficult comparison in London and the remainder was due to concentrated weakness in a few cities, such as Seoul and Baku. The weak market conditions in these cities continue to persist in the current quarter.

Third, while overall fees grew over 13% in the quarter, incentive management fees were approximately $7 million lower than we expected.

As you may recall, we converted 4 hotels in France this past May. Each are operated under long-term management agreements.

While these hotels are doing relatively well in terms of top line revenue performance, higher-than-expected wage and benefit costs negatively impacted our incentive fee earnings in the quarter.

Looking ahead, we're working with the owner of these hotels to accelerate hotel renovation plans, which we expect to yield incremental revenues over the long term that we expect will offset higher-than-expected costs.

As we look forward, some of the factors that negatively impacted our performance in the third quarter are expected to persist in the near term.

For instance, we believe that margin growth is likely to be modest due to the higher rent expense and property taxes, and those increases will lap in the second quarter of 2014.

We expect continued pressure on results of our hotels in some international markets, such as our owned hotel in Seoul and managed hotels in China and in France.

Having said this, our overall outlook remains positive, and that's due to strong occupancy levels and continued healthy demand among transient guests in the U.S.. As such, we expect corporate rate negotiations to once again yield solid increases in average daily rates.

Also, we continue to see signs of stable recovery in group business. Total group production increased 9% in the quarter. While much of the business booked is for 2015 and beyond, our group pace for 2014 has increased and is now up in the low single-digit percentage range.

So to summarize, we've made significant progress on expanding our presence and concurrently growing our executed contract base at the same time. And we're extremely happy with the pace, value realization and deployment of capital associated with asset recycling.

This year, when considering all our buying and selling activities, we've realized and/or invested nearly $2 billion. We remain focused on improving performance of our existing hotels and expect to generate higher levels of systemwide RevPAR, owned and leased margins and fees over the long term.

And with that, I'll turn it back to Atish for the Q&A.

Atish Shah

Thanks, Mark. That concludes our prepared remarks. For the start of our question-and-answer session, we'll answer questions that were submitted this morning and that haven't been already answered or covered in Mark's remarks.

Question-and-Answer Session

Atish Shah

The first question has to do with our overall results. The question is, "Where did the quarter come in relative to your internal expectations? Where did you outperform. And in particular, you stated incentive management fees were below the company's expectations? Perhaps, you could discuss those."

Mark S. Hoplamazian

Sure. As I said, we're really quite pleased with the progress in the quarter and RevPAR progression was quite strong, really, across most of our markets. the -- by way of a reminder, this -- the portfolio comparison was a $10 million adjustment for the quarter, which is obviously quite material. So our overall earnings growth for the company was significant when taking that into account. I would say in terms of positives, of course RevPAR progression was strong, transient remained strong and signs of some recovery on the group side were sustained. The Americas performance and our owned and leased portfolio were positives in the quarter and SG&A is being well managed. In terms of areas below our expectations: The preopening impact of the Andaz Wailea was much higher than we expected, due to the delay in the opening. Secondly, the incentive management fee realization for the French hotels was lower than our expectation. And third, we are working through margin pressure from -- mostly from items below the GOP line, some benefit costs were higher above the GOP line, but a lot of the impact related to rent expense and property taxes. So I would say, those are the areas that were either ahead of or below our internal expectations.

Atish Shah

Okay. The next question was a little bit more specific in nature. "Could you provide us some general guidance for equity earnings in unconsolidated ventures, as the big swings in the number make it tough to model?"

Gebhard F. Rainer

Yes. Of course, it is hard to model this. And there is some parts that due to -- and related to our distributions from joint ventures, which don't necessarily coincide with when we recognize JV EBITDA. We've had an $8 million gain in special items in connection with the sale of Residences Maui that Mark referred to in the prepared remarks. We've also recognized an $8 million distribution receipt from joint ventures. So please remember, this segment will continue to be lumpy as we go forward.

Atish Shah

The next question relates to renovation activity. "To what extent renovations will impact us going forward, what cities, markets renovations year-over-year?"

Gebhard F. Rainer

This is really in relation to our renovations in Asia Pacific, mainly the Grand Hyatt Hong Kong, where the large impact is coming from, where we'll see impact to some degree going forward, and to our 4 French hotels that Mark mentioned, which we currently are negotiating a relation schedule for. There would be an impact on performance from those hotels as well.

Atish Shah

Great, thank you. We had some questions on some U.S. market-specific trends by segment and market. We categorize them together, a few questions. The first one being, "Atlanta is a major market for your owned hotels. Earlier, you cautioned on Atlanta performance, but we did not see weakness in the Smith Travel reported group data. How did that market shake out in the quarter? And how do forward bookings look?"

Mark S. Hoplamazian

Sure. So Atlanta, we had cautioned about a challenging prospective results in Atlanta. We really looked at this over the course of the coming year, and we continue to believe that 2014 will probably be a challenged -- that the market will be challenged in the coming year, probably due to the calendar. It's also true that we had a very strong quarter this quarter in Atlanta, very good realized business. So there will be quarter-to-quarter variations. But overall, I would say, we remain of the view that Atlanta will probably have some tough sledding through the coming year. In the quarter, we had some other markets that were particularly strong like Hawaii, Dallas and San Francisco. So those are particular areas of strength that we saw in the quarter.

Atish Shah

The next question pertains to the government shutdown. "How has it impacted fourth quarter results thus far?"

Gebhard F. Rainer

We don't see a major impact from the government shutdown in the fourth quarter. It's in the low single-digit million dollars revenue area, but really no major impact as far as we can tell right now. But just for clarification, to segregate the government sequester, as we have mentioned in previous calls, continues to have an impact on government business and government groups, although this is a smaller portion of our business.

Atish Shah

The next question was on activity with regard to group business. "Could you update us on group for 2014, specifically what percentage is on the books versus where you would expect it to be at this time?"

Gebhard F. Rainer

Yes. Group base is up in the low single digits overall. And we feel a lot better about group than 3 months ago in the previous quarter. Approximately 60% is on the books for 2014. Total production was very solid overall, as well as production in the quarter for the quarter that we have seen.

Atish Shah

Moving ahead, we had some questions on performance around the world. Question is, "What are you seeing in China and India? And provide to us your outlook for China? Do you see trends picking up?"

Mark S. Hoplamazian

Great. So on the China front, we had some variability across China. Southern China was actually quite strong, but North and Eastern China were challenged. That had to do with some -- the economic activity in the country, but is also the continuing effects of what we've historically referred to as the austerity program in China. But increasingly, our view is that the -- that, that state of austerity is likely the new normal for our -- for the foreseeable future. So as we head into 2014, I would say that we believe that, that level of activity that was negatively impacted by some of the government initiatives will likely remain in place. And secondly, with respect to specific markets, there are -- there will be variability quarter-over-quarter, due to new openings and absorption. In -- at any given point in time, there will -- individual markets will experience absorption of new supply. But over time, we still feel confident that overall economic growth -- underlying economic growth will absolutely adjust and -- adjust demand over time, and that the hotels that we are signing up and opening will be successful. With respect to India, the market is quite disrupted. We actually took our board to India for our third quarter board meeting and spent a week meeting with owners and with others in the travel industry. And I think the -- there's an election coming up this coming year. I think there will continue to be some disruptions. But the overall economic picture remains challenged. The rupee has been under a lot of pressure. That actually was a bit of a benefit over the last quarter because more Indians stayed in India for their holidays instead of leaving India with a weaker currency. So our -- the market conditions currently are under pressure. We did have a strong quarter in Goa. But overall, I would say, they are under pressure still, but seemed to be starting to stabilize relative to year-over-year comparisons to what were weak quarters a year ago.

Atish Shah

Great. Thank you. The next 2 questions relates to share repurchase activity and cash position. The first question is, "Share repurchases were significantly lighter sequentially. Some comments as to really what's happening as to cadence on share repurchase."

Mark S. Hoplamazian

So a couple of things. First of all, we repurchased about $780 million, a little over that, in stock since we have been public. More than $250 million of that was this year. There will certainly be fluctuations quarter-to-quarter, but recognize that we invested more than $1 billion since the beginning of the third quarter in new investments. And so both for capital planning purposes and otherwise, we -- that was some of why the share repurchase activity in the quarter was somewhat lighter. In terms of cash position, we ended the quarter with about $800 million, a little over $800 million of cash. That excluded over $430 million of restricted cash. This is cash restricted by virtue of the fact that we're doing 10/31 exchanges on the sale of a number of hotels that we sold over the course of the year, and that's why it's restricted for the most part. There are some other small amounts that are also restricted. And so that -- and since the end of the quarter, we purchased the Peabody Hotel for $717 million and we also received the redemption of our preferred stock position in the Hyatt Regency New Orleans, which was just under $90 million.

Atish Shah

And the final question here is, "Would management consider additional debt to fund future investments or share repurchases?"

Mark S. Hoplamazian

We have -- we think of our liquidity and our asset base holistically. So our liquidity sources are cash on our balance sheet, operating cash flow and sale proceeds from selling assets. So historically, we've funded our share repurchases out of cash available, and that's our expectation going forward as well.

Atish Shah

The next few questions relate to a transaction activity, both in the quarter and prospectively. First question being, "How should we think about the EBITDA impact of sold hotels? Can you talk to us about how much owned EBITDA was sold and, perhaps, what the fourth quarter impact was. Trailing data or expectations would be helpful."

Gebhard F. Rainer

So we sold 6 full service hotels this year for $433 million. This is an approximately 15x blended trailing EBITDA. Given the timing of the transactions disclosed, our overall transaction activity should be close to neutral in the fourth quarter with the exception of the Hyatt Regency Orlando, which is expected to add about approximately $10 million to EBITDA. And of course, any other transactions that might take place as we go forward.

Atish Shah

Second question is regarding unconsolidated joint venture EBITDA. "Is the decrease that you experienced going to be recurring in the next several quarters? And can you give us some outlook for unconsolidated joint venture EBITDA?"

Gebhard F. Rainer

A couple of factors in there. One, the Seattle joint venture lapped with last year. Waikiki, as mentioned by Mark, was a drag and will continue to be a drag for the next few quarters, as we see at the moment. Andaz Wailea was a drag in the fourth quarter, always a drag in the fourth quarter, as we see it right now. But Playa will potentially have a positive impact as we go forward. So if you take those factors into account, that's the way we look at joint venture EBITDA.

Atish Shah

Next question will be, "Following a quarter with significant transaction activity, has your thinking evolved at all around the need and/or desire to add an additional brand to the portfolio?"

Mark S. Hoplamazian

Well, I guess, we had significant transaction activity. By way of reminder, the areas that we focus on for capital application were 4 areas: One being resorts; one being gateway cities; another being select-service hotels, in particular urban locations; and finally, convention group hotels. We've made tremendous progress, obviously, on the group side, having applied significant capital to both New Orleans and now Orlando. So I think we've really moved our strategic mandate forward significantly there. With respect to how we think about other activities and whether we would add a brand or not, as we said before, we would be open to that, but it would -- really need to -- we would need to be convinced that it would enhance our existing portfolio and otherwise provide a significant network effect or benefit to the overall company. So while we remain open to it, it would have to fit those criteria. I would also add that we're introducing 2 new brands in the all-inclusive areas, Ziva and Zilara. And we will have hotels opened and operating under those 2 brands by the end of the year.

Atish Shah

Great. Thank you. We had 2 additional questions on our investment in Playa Resorts. "Regarding the investment in Playa Resorts, what type of EBITDA range are you expecting in 2014 and '15? How many Playa rooms are in the pipeline? And will these be appearing in your managed and franchised hotel room count?"

Mark S. Hoplamazian

Yes. So we're really excited about our partnership with Playa. We believe it will be a great platform for future growth and a great new market for us in an area where we are underrepresented from a resort perspective. We expect, as I said, earlier, we expect to add 6 hotels from the Playa portfolio. The Playa portfolio includes 13 hotels currently, and 6 of them are expected to be under our brands. And they are included in our pipeline, which is -- and they represent a bit over 3,000 rooms in total. Once we get into the -- well, for the coming year, for 2014, we expect that we'll recognize somewhere in the range of $18 million to $20 million of EBITDA, adjusted EBITDA from JVs from our Playa investment. And as we get into the coming year and start to refine renovation plans and conversion plans for other hotels, we'll be able to develop an outlook for the subsequent year or 2, but not at this point.

Atish Shah

Second question on Playa Resorts. "How much, if any, EBITDA did Playa contribute in the third quarter?"

Gebhard F. Rainer

So in the third quarter, we did not recognize any EBITDA contributions from Playa. There are certain transition issues that we currently address. There is an accounting lag that relates to reporting. Reporting is being fine-tuned at the moment in conjunction with Playa. And we expect to have all of that come through in the fourth quarter. Please remember as well that it is seasonal. There is a seasonality factor in there. It's seasonal business. The third quarter is typically the weakest quarter from a seasonality point of view. We will have renovations that are being scheduled for the properties, which are yet to be converted. And at this point, as Mark mentioned, we are sticking to our outlook for 2014, but we will fine-tune that picture as we go forward.

Atish Shah

And we have one question on the Peabody acquisition, the Hyatt Regency Orlando. "Will this increase or decrease blended RevPAR and ADR going forward? By how much? And was the acquisition paid for with proceeds from the revolver or directly out of cash?"

Gebhard F. Rainer

Well, first of all, it will not impact RevPAR since it's not a comparable hotel until 2015, when we will have comparable base. We expect RevPAR to be roughly in the range of the existing Americas portfolio. So it will not have an impact in that sense. And from an acquisition perspective, we paid in cash for the acquisition. We did not use the revolver.

Atish Shah

We had a few other questions, more specific in nature. So we'll go through those at this time. First one being the tax rate we reported in the quarter. "Why were taxes higher than they had been in past quarters?"

Gebhard F. Rainer

The taxes in the quarter were higher predominantly because U.S. earnings were larger and we had some true-ups, which typically happen around this time of the year, and it was more related to our North American business. On a full year basis, we still expect to end up in the mid-30s tax range. We have, of course, quarter-to-quarter volatility due to our mix. And in general, just as a way of background, U.S. taxes are higher than international tax.

Atish Shah

Second question, "How does the return of your investment in Hyatt Regency New Orleans affect annualized EBITDA on a go-forward basis? What do you expect the fourth quarter 2013 impact to be?"

Mark S. Hoplamazian

So we did not historically recognize any EBITDA from the Hyatt Regency New Orleans. So there will be no impact from the redemption of our preferred interest in that property. And all of the preferred return that we earned on the investment will be recognized in the fourth quarter this year, and it will all be included in other income.

Atish Shah

That's right. That relates to the investment, the fees we do pick up.

Mark S. Hoplamazian

Of course. That excludes management fees that we receive from managing the hotel.

Atish Shah

Next question, "Did a number of -- you did a number of acquisitions this quarter as well as increase your pipeline, how much did development costs impact third quarter results?"

Mark S. Hoplamazian

Well, if I understand the question, let me just disaggregate it. If the question relates to transaction expense, transaction-related expenses, the answer is that those are -- that those really don't have an impact on EBITDA. They're included in the capitalized transaction values that we previously reported. With respect to development costs, they are really included in our SG&A. So this is oversight of new developments for new hotels, the activity that we've got underway for select-service developments and the like is all included in our SG&A figures.

Atish Shah

Next question regards -- relates to CapEx and investments in 2014. "Can you talk about this generally and provide a range as to 2014 CapEx and investment spending?"

Gebhard F. Rainer

Yes. At this point, we don't really see any unusual expenditures in maintenance CapEx for 2014. We are in the process of pulling together 2014 information. It's budget season as you know. And we expect from a new hotel development investment perspective to spend over $150 million in 2014.

Atish Shah

Great. Well that captures the questions we've received in advance. We'd now like to take your questions. [Operator Instructions] Glen, may we please have the first question?

Operator

And your first question comes from the line of Joseph Greff with JPMorgan.

Joseph Greff - JP Morgan Chase & Co, Research Division

Mark, you mentioned that you ended the quarter and entered this fourth quarter with about $430 million of restricted cash. Did you use that, apply that then to the Peabody acquisition? Is that how we think about it?

Mark S. Hoplamazian

Well, we had unrestricted cash in excess of $800 million as well. Yes, so the -- Gebhard is reminding me that the restricted cash relates to some 10/31 exchange transactions that we're involved in as well as a few other things. So it was principally available cash. As I mentioned also, we received $90 million -- or just under $90 million from the redemption of our Hyatt Regency New Orleans preferred interest this past week. So that plus operating cash flow leads us in a liquidity position, which has not required us to tap our revolver for the investment. Did that answer your question, Joe?

Joseph Greff - JP Morgan Chase & Co, Research Division

It does, yes. And then if I may, Atish, you led off by saying you're going to have an analyst event in March of next year. Can you talk about what your views are in terms of maybe providing targets or setting or implementing some sort of guidance, as you look towards discussing some of your initiatives at this event next year?

Atish Shah

Yes. Joe, we're actually working through that right now. I think, Mark, if you want to add something with regard to just philosophy on guidance or approach?

Mark S. Hoplamazian

Yes. No, I think what we've said and acknowledged is, first of all, we've been, I think, clearly adding to clarity and detail on our disclosures and explaining what's going on with the business, and we will continue to do that. And secondly, we've also talked about the importance of looking forward and trying to lay out how the company is expected to evolve over time, and that's exactly -- that's one of the key things that we will be talking about during the Investor Day.

Operator

Your next question comes from the line of Steven Kent with Goldman Sachs.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Could you talk a little bit -- you mentioned, Mark, in your opening comments about group business being strong even into 2015 or showing some strength. How much -- I don't think you've answered or told us how much typically would be on the book at this time. And would you still say that it's in the quarter for the quarter as a theme broadly in the group business? Or is that starting to dissipate?

Mark S. Hoplamazian

Well, let me address the second question and then Gebhard will give you the answer to the first question about what's on the books and so forth. The in the quarter -- the total production in the quarter was quite strong. It was strong overall. It was also strong on an "in the quarter for the quarter" basis. So really, frankly, very encouraged across the board. In terms of the production for future years, it was stronger for 2015 and further out, and that typically relates to association business. The quarter itself in terms of realized revenue in the quarter was more driven by corporate business than association business. So quarter -- so in the quarter itself, the realized business in the quarter, stronger corporate. And with respect to future booking, I would say, more association oriented for the 2015 and beyond periods. In terms of what's on the books going into the year proportionate -- the percentage that we've got in the books, do you have that?

Gebhard F. Rainer

For 2014, it's 60%, roughly 60%. And for...

Mark S. Hoplamazian

Which is sort of in line with what we would have otherwise expected at around this time.

Gebhard F. Rainer

Exactly. But we had a very nice evolution actually in the third quarter, where we've seen really positive trends in terms of our pace, not only for this year but also '14, '15 and '16.

Mark S. Hoplamazian

Yes. So pace for '14 increased over the quarter of the by -- or should have been low single-digit rates in terms of positive pace for the quarter.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

But I guess, what I'm asking -- Mark, I guess, what I'm asking is this -- if it's 16% now for 2014. For 2015, it must be below 10% or so that you would be talking about?

Mark S. Hoplamazian

What Gebhard said was...

Gebhard F. Rainer

60%.

Mark S. Hoplamazian

60%, 6-0, for 2014 ,not 16%.

Operator

And your next question comes from the line of Thomas Allen with Morgan Stanley.

Thomas Allen - Morgan Stanley, Research Division

In your prepared remarks, you mentioned executive fees limited margin upside for some period of time in your owned and leased business. Can you just elaborate on that a little more?

Mark S. Hoplamazian

Yes. I mentioned that we -- one of the things that have impacted us in the quarter was increased rent and property tax expenses. Given the timing of those increases, which were in the middle of this past year, we would expect that those will continue to have a drag or create a drag for us until sometime in the second quarter of next year. So that's one element of it. There were some increased benefit costs. Benefit costs continue to increase at a rate above inflation, but it was really the timing issue that I just alluded to is really what I was referencing in terms of continued drag.

Thomas Allen - Morgan Stanley, Research Division

Okay. And then just on your select-service RevPAR growth decelerate this quarter, can you elaborate on what's driving that?

Mark S. Hoplamazian

Our select-service performance over the last several years has been really superb. We couldn't be happier with it, and there will be variability from time to time in a given quarter. I think relative to the total segment in the U.S., we're still performing well. And I look at it more specifically across the hotels and look at the progress made in relation to market share of our hotels, and I'm very happy with the continued progress there. The one difference that you'll start to see in our select-service performance over time, over the coming years, is that we are now, really for the first time since we launched these brands 4, 5 years ago, entering into urban markets. So this year alone, we've opened hotels in Chicago, in New York City, in Austin. We are, I think, opened or about to open in Omaha. There will be other urban locations that we will open over the course of the coming year. This is a big change for us. Up until now, we've had virtually no urban representation whatsoever. These Hyatt Place property, they're all Hyatt Places that we've opened this year, have been doing really phenomenally well in these urban locations. And it's exactly what we expected, because a lot of our volume accounts or corporate customers have been looking for a lower price alternative in some of these markets as part of the Hyatt network. And so we're really excited about this. That will also start to change how I think -- we enhance how the brands perform, but have also changed the RevPAR dynamics. Because historically, our total chain-wide RevPAR for Hyatt Place, for Hyatt House have been at a level that doesn't reflect the relatively higher rates in urban markets. So I think you'll start to see a shift in terms of total RevPAR reported over time.

Operator

And your next question comes from the line of Shaun Kelley with Bank of America Merrill Lynch.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Mark, in your prepared remarks, I think at the very beginning, you mentioned that transaction activity for you guys are picking up. And obviously, you've been very busy. But overall, for the hotel sector, could you just give us your view on the transaction market, both in terms of asset disposition that you guys have been busy on, as well as possible acquisitions? Just what you're seeing from brokers, that would be helpful.

Mark S. Hoplamazian

Yes. I mean, I think it's very clear that activity is up significantly. There's more capital that come into the market for hotels. And given -- even though it's been kind of all over the place and volatile, the fixed income market has really persisted at low rates. I mean, the 10-year is still -- it's in the 2.505 range, for goodness' sake. I mean, down from almost 2.90% or something like that, probably 3 or 4 months ago. So I think both debt and equity capital remains attractive, and there's real momentum in a number of markets in terms of operating performance. So there's just been a lot of activity. And there have been a lot of opportunities as well. Obviously, we've both realized a lot of proceeds from different investments and we've deployed a lot of capital. So I would say on both sides of the equation, the activity level is high and has remained high.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Great. Now are you specifically seeing any pick up as it relates to the just private equity interest in some of your assets? Just like you said, LTV is getting a little bit better and the credit markets remain favorable?

Mark S. Hoplamazian

Yes. I think it's an attractive time for private equity to be buying hotel assets. I think it continues to be a good time. I think the -- for us, we, as we've discussed a number of times before especially in the select-service side, we're very focused on making sure that as we look through how we actually realize value from our owned asset base, that we are also paying attention to who the buyers are and whether they can be ongoing, persistent buyers of Hyatt-branded assets. Because one of the important things for us to do is expand institutional ownership, which we've done significantly over the last year or 2. But -- so we will continue to focus on making sure that it's -- that we're dealing with buyers, who not only can provide good value to us, but also will end up being good ongoing buyers for developers who are developing Hyatt assets. And I think that's especially true for select service assets. On the full-service side, I think there's been increased level of private equity interest. And I think as we look at our portfolio and think about acquisitions like the Hyatt Regency Orlando, we believe that those kinds of assets are attractive to big institutions as well. So I think the quality of our asset base and the performance of our brands leaves us well positioned to continue to be able to recycle assets.

Operator

And your next question comes from the line of Smedes Rose with Evercore.

Smedes Rose - Evercore Partners Inc., Research Division

Based on your guidance around SG&A and interest expense, it looks like you are expecting a little bit of a pickup in the -- versus the run rate year-to-date into the fourth quarter. Is that related to the development costs you mentioned in SG&A? And maybe is there something going on in the interest side?

Gebhard F. Rainer

It's really predominantly timing that's involved here on a quarter-to-quarter basis. And by way of reminder, we did a realignment last year and we have some comparability factored in there as well. And hence, we see that SG&A increase.

Smedes Rose - Evercore Partners Inc., Research Division

I'm sorry, what was the last thing you said? That you had something in there? I missed what you said.

Gebhard F. Rainer

We had a realignment in the company. We went through a realignment. We changed SG&A structures and corporate structure, so...

Mark S. Hoplamazian

Which reduced our run rate...

Gebhard F. Rainer

Which reduced our run rate...

Mark S. Hoplamazian

Of last year.

Gebhard F. Rainer

Yes. So that gets fourth quarter specifically look different to the other quarters before when you do that comparison in 2012.

Smedes Rose - Evercore Partners Inc., Research Division

Okay. And then could you just give any commentary around corporate-negotiated rates with -- from other companies that have reported today that kind of mentioned some ranges? What sort of stage are you in on that?

Mark S. Hoplamazian

It's still too early to really say. We do expect we'll see pretty solid increases, and -- but we're still too early in the process to really draw any conclusions from what we've seen so far.

Operator

And your next question comes from the line of Harry Curtis with Nomura Securities.

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Just trying to get a sense of what inning you're in with respect to recycling the legacy portfolio. How many more moving pieces do you think there are?

Mark S. Hoplamazian

Well, we have a great portfolio, Harry, and a lot of interest in our assets. So I guess, I would say that as long as there's interest on the buy-side and the sell-side, we will continue to look for opportunities. We've made, I think, tremendous progress across all 4 of the areas that we've been focused on, and I think we still have great opportunities to really expand our presence in some key markets in gateway cities, in particular. We've taken, I think, very affirmative and important steps forward on the resort side as well, both through Playa and also the Andaz Wailea. So I would say, we've demonstrated an ability to manage this well, both on the value realization front and the deployment front. And our strategy continues to be to engage in this to continue to help our growth in a very targeted and deliberate way.

Gebhard F. Rainer

I would add that it's not just the legacy assets, but assets that we've recently acquired as well. Once we reposition them, renovate them, re-brand them, those would be potential sale candidates as well.

Operator

And your next question comes from the line of Ian Weissman with ISI Group.

Ian C. Weissman - ISI Group Inc., Research Division

Just 2 questions. First, can you give us an update on the Park Hyatt in New York City and how that progress is coming along?

Mark S. Hoplamazian

Sure. It's coming along very well. The expectation is that we will open in the second quarter of next year, and the progress on the property has been going quite smoothly, actually, subsequent to the crane replacement, which took place over the course of the summer.

Ian C. Weissman - ISI Group Inc., Research Division

So on time and on budget?

Mark S. Hoplamazian

Yes. Well, certainly on budget. The structure of the deal is that we have agreed upon price that is the purchase price upon completion. So that's fixed. And the timing is delayed, as we previously reported, largely due to the construction site issues that were occasioned by the crane problems that they had that were caused by Hurricane Sandy last year.

Ian C. Weissman - ISI Group Inc., Research Division

Right. And finally, you were buying back stock last quarter at 41, stock's about 13%, 15% higher. So how should we think about buybacks going forward and source of funds?

Mark S. Hoplamazian

Well, we've -- I think, as we've looked at our share repurchases over time, we are -- balance has been between using capital to help us grow. And by way of a reminder, we've invested over $1 billion this -- since the beginning of the third quarter in new investments. So there will certainly be impacts from our investment activity. But I think we will manage our stock repurchase program consistent with how we've handled it in the past, looking at a number of different factors.

Ian C. Weissman - ISI Group Inc., Research Division

So you're comfortable buying back stock at these levels?

Mark S. Hoplamazian

Well, I think what we said in the past is that as we look at the position for the company and future prospects, we were comfortable. I'm not really going to go into details and make any comments about at what price levels we're a buyer or not. But I would say that we've managed the program as a tool that we have available to us and we are committed to returning capital to shareholders, but that's balanced relative to applying capital to help us grow.

Ian C. Weissman - ISI Group Inc., Research Division

And just finally, Starwood obviously put out guidance for next year, 5% to 7% range. I would just say, generally speaking, as you look across United States, is that a range that you're comfortable with across your markets?

Mark S. Hoplamazian

Yes. We're not providing guidance. So I guess, that's the way I would answer the question.

Operator

At this time, I will we have no further questions. And I will now turn the call over to Mr. Atish Shah for closing remarks.

Atish Shah

Thanks, Glen. Thank you very much for joining us this afternoon. We look forward to talking to you soon. Thank you, and goodbye.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.

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