Hyatt Hotels Corporation (H) Q2 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 Hyatt Hotels Corporation Earnings Conference Call. My name Tony [ph], and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Mr. Atish Shah, Head of Investor Relations. Please proceed.

Thank you, Tony. Good day, everyone, and thank you for joining us for Hyatt's second quarter 2014 earnings call. We want to thank you everyone in the investment community in advance for talking to us today. 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 are 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. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, July 31, 2014, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at hyatt.com under the Press Release section of our Investor Relations link and in this morning's earnings release. An archive of this call will be available on our website for 90 days for the information included in this morning's release. And with that, I'll turn it over to Mark to get started.

Thanks, Atish. Good morning, and welcome to Hyatt Second Quarter 2014 Earnings Call. I'd like to speak about 3 topics today: first, I'll discuss our second quarter results and share some thoughts on our outlook; second, I will talk about growth and transactions that we've recently announced; and third, I'll talk about our approach to capital allocation. Our second quarter financial performance was strong, particularly when compared to a strong second quarter in 2013. We benefited from higher room rates and newly opened and ramping hotels. With occupancy at prior peak levels in a number of markets around the world, RevPAR growth was driven primarily by higher room rates. Adjusted EBITDA increased 9%, comparable systemwide RevPAR increased 6.1% on a constant dollar basis and in our most significant market, the U.S., RevPAR increased over 6% on a comparable basis. I will focus first on our owned and leased hotels. At owned and leased hotels, occupancy rates increased 100 basis points to over 80% and average room rates increased 2.7% in constant dollars. Our owned and leased hotel results were negatively impacted by a tough comparison in the second quarter of 2013 due to the timing of Easter and also the strong results at 5 particular hotels in the same period last year. Comparable owned and leased operating margins for the quarter declined 20 basis points. However, margins would have increased 30 basis points if we exclude the results of 2 hotels located outside the U.S., each of which faced some difficult market-specific challenges. Looking at margins from a geographical perspective, owned and leased margins at hotels in the Americas increased 100 basis points, while owned and leased margins for hotels located outside the Americas decreased 400 basis points, marginally due to the results of the 2 hotels that I mentioned. Further, note that the 20-basis point margin decline that we reported, includes 20 basis points of negative impact from higher rent expense and property taxes, which we had anticipated. As we have now lapsed the time when the upward adjustments in rent expense and property taxes were implemented, we do not expect a negative comparison impact going forward. For the 6 months ended June 30, during which there's no shift in timing of Easter versus last year, owned and leased RevPAR increased 5.1%, and comparable owned and leased margins increased 60 basis points. At U.S. full service hotels, transient revenue represented over 50% of rooms revenue in the second quarter. Transient rooms revenue increased almost 8%, with 80% of the increase due to higher room rates and 20% due to higher demand. Transient demand in the U.S. was derived from sectors in the economy that are performing well such as technology, consulting and manufacturing. Strong transient markets included Chicago, San Diego and San Antonio. Group revenue at U.S. full service hotels increased 1.5% in the second quarter. Group business was impacted by the timing of Easter and, as you may recall, our first quarter 2014 results benefited from this timing. Note that group revenue in the first half of 2014 increased 5% over the first half of 2013, which eliminates the quarter-to-quarter Easter impact. The second quarter of 2014 represented our fifth consecutive quarter of solid year-over-year growth in group production. Group production is the total amount of group revenue booked in a particular period. Total group production increased over 11% as compared to group production in the second quarter of 2013. Now moving on to our management and franchise fees in the quarter. Total fees increased 7% during the quarter. Incentive management fees declined 20%, primarily because no incentive fees were booked at the 4 French hotels that we began managing in the second quarter of last year. As we mentioned on our last call, because we started managing these hotels in May of last year, we recognized incentive fees over the guarantee threshold in the seasonally stronger second quarter of 2013. This year, given that we were managing the hotels in the seasonally weaker first quarter, incentive booking -- incentive management fees in the second quarter of 2014, our earnings above the guarantee threshold were recorded in other income to offset the guarantee shortfall from the first quarter of 2014. We expect that the quarter-over-quarter comparison variances and incentive fees booked for these 4 French hotels, relative to last year, will continue through year-end 2014. While we continue to believe that the addition of these 4 hotels will be great for our brand representation in Europe over the long-term, we currently expect to pay approximately EUR 15 million in guarantee payments in 2014. As to our outlook for the future, we ended the second quarter with approximately 60% of our group business for next year on the books. Group pace for 2015 is up 8% as of the end of the second quarter. In particular, the first half of 2015 looks very strong from a group booking standpoint, and we are hopeful that this sets the stage for a strong group year. The strength is a result of more corporate group production and is also reflected in our catering pace, which is up over 10%. Corporate profits and economic growth in the U.S. has set the stage for continued strong transient demand as well. Moving ahead to my second topic for today. I'd like to provide an update on our capital recycling activities. As you may recall, we took 9 full service hotels to market in the first quarter. We've decided not to pursue the sale of one of those hotels, so 8 of these 9 hotels remain on the market. We will provide an update if and when any transactions close. As a reminder, this group of 8 hotels earned approximately $40 million of EBITDA after management fees in 2013. In addition, we recently listed for sale 42 of our 44 owned select service hotels. As you will recall, we had indicated in our investor meeting in March that we would sell these hotels over time. Given the current market environment for these types of hotels, we think now is a good time to explore options. We are early in the marketing process and would anticipate this process to take at least 6 months. This group of 42 select service hotels earned approximately $45 million of EBITDA after management fees on a trailing 12-month basis. As with all dispositions, we expect to maintain brand presence with each hotel. We are also on track to close on the sale of Hyatt Residential Group to our longstanding partner, Interval Leisure Group, by year end. We're selling this business which generated about 2% of total company adjusted EBITDA on a trailing 12-month basis for $190 million. In addition, we are selling our stake in a project in Maui that is under development at cost or about $35 million. Interval is excited to be our exclusive licensee in vacation ownership and will pay us recurring annual license fees under a master license agreement. Interval intends to invest and grow the business over time, and we look forward to Interval creating new opportunities under the Hyatt Residence Club brand. On the buy side, we continue to actively seek opportunities to grow our platform consistent with the comments we meet at our March investor meeting. By way of reminder, we're focused on 4 main areas. Key gateway city hotels, resorts, urban select service hotels and convention hotels. In terms of gateway city hotels, you may recall that we were slated to acquire a 2/3 interest in the Park Hyatt New York based on the original total contract value of $375 million plus preopening expenses for the hotel. The hotel's construction is nearing completion, and we expect to open the hotel in August. The profile of the development is a strong due to its location, the cachet and reputation of the building and the pace of residential sales on the floors above the hotel. We are excited about the opening of this flagship hotel, particularly as it comes just after 2 other notable openings, the Park Hyatt Vienna and the Andaz Tokyo Toranomon Hills. As we approach the opening of the hotel, please note that we are currently in discussions to revise our acquisition deal. Instead of buying a 2/3 interest, we may acquire 100% of the hotel. If we do so, the total purchase price would be at the original contract value, plus preopening expenses and closing unrelated costs that would add $10 million to $15 million to the total value. Therefore, total purchase price of $385 million to $390 million. We're considering buying 100% of the hotel for several reasons as follows: first, whole ownership provides us more flexibility and control to recycle the asset at the right time; second, whole ownership allows us the ability to purchase the hotel on an all-cash basis, which makes sense given our balance sheet and liquidity position; third, whole ownership, as opposed to joint venture ownership, allows for the deferral of gains on certain hotels that we expect to sell. Again, the deal to acquire 100% of the hotel is still under negotiation, so there's no assurance that it will be completed. We will let everyone know our ownership position when the transaction is completed. My final topic this morning is capital allocation. I'd like to take a few moments to walk through our strategy. We've been consistent on this topic since our IPO, and we have outlined our perspective from time to time, including at the Investor Meeting in March. While nothing has changed, given the number of owned hotels that we currently have listed for sale and the level of questions on this topic from investors, it's worthwhile to reiterate our approach. Our main belief is that we can generate superior long-term returns by growing the business. So our focus is and will continue to be on finding opportunities to redeploy capital in our business. We want to be a recycler of our asset base through the cycle, and think that now is still a good time to be buying certain kinds intensive hotels and investing an opportunity that meet our criteria. Second, we expected acquisitions can often be funded from proceeds to generate through dispositions. This is a tax-efficient way to improve the quality of our owned hotel portfolio, maintain the earnings and growth profile of the company, achieve our goal to be the most preferred brand and earn superior returns. Third, even as we grow the business, as I just described, we expect to continue to return capital to shareholders. We will do so because we recognize that return of capital is one way to drive shareholder value. To date, we have returned capital to shareholders through share repurchases, which has allowed us flexibility and can create significant value based on share price relative to intrinsic value per share. We purchased over $100 million of our stocks since the start of the second quarter. This is at a higher level than we had repurchased -- we've purchased in the prior few quarters. While in part due to the increase in share price, increased volume of share purchases was determined in the context of our other activities, liquidity and view on value that we can create. We intend to remain active buying back our shares into the future and have over $300 million of remaining buyback capacity under our share repurchase authorization. Finally, we are focused on maintaining our investment grade credit rating so that we may have access to capital and flexibility through the cycle. Overtime, we expect to keep our leverage ratio, meaning gross debt to adjusted EBITDA below 3x. While there is inherent uncertainty until transactions actually closed, we do believe that given the quality of our own portfolio, we will generate ample disposition proceeds to fund acquisitions and investments. This gives us a high level of confidence that we can continue to return capital to shareholders. We've been successful in balancing our asset recycling activities with a return of capital, and we have created the significant amount of shareholder values since our IPO. We believe that our model and portfolio will allow us to create healthy levels of long-term shareholder value in the years ahead. And with that, I'll turn it back to Atish for some Q&A.

Thanks, Mark. That concludes our prepared remarks. For question-and-answer session, we'll start with the questions that were submitted to us via email this morning, and we'll finish off with your questions. So for the first set of questions, they're on the topic of performance, particularly as it relates to Group. The first question was regarding Group business was the Easter shift, the main driver of the significant underperformance relative to transient RevPAR or were there other dynamics in play?

Yes, Easter was really the main driver with regards to the full service hotel's performance. To give you an indication as to the magnitude of that, the Americas full service RevPAR was impacted by 220 basis points because of the Easter shift, and by coincidence, our owned and leased portfolio in the U.S. full service was also impacted by 220 basis points.

Okay. Great. Second question. Could we provide some more color on group versus transient trends, both in the quarter and thoughts on seasonality for the year?

So, this is Mark. Easter, obviously, impacted realized group revenue in the quarter, as Gebhard just mentioned. Interestingly, if you look at the select service RevPAR progression in the second quarter, which was over 8%, I think the number is 8.4%. It sort of a proxy for transient demand in the quarter, and I think the base of transient demand has been quite strong. In terms of the seasonality, we typically see the third quarter being more transient-led and the fourth quarter being more Group-led, both in terms of vacation schedules and corporate calendars. And we would expect the same seasonality will apply this year. One other thing I would note, is we've been looking at the progression on a quarter-over-quarter basis, I mentioned in my remarks that we've got 5 straight quarters of very robust total group production in the quarter. Some very encouraging signs heading into 2015. And as we see both corporate and association business, we're looking at some lengthening of the booking curves for each of those groups of business. They operate on very different curves. Association business is typically booked much further into the future, but in both cases, relative to the troughs that we saw in corporate business in 2010 and association business in 2011, in expansion of the booking curve in terms of timing. So that's encouraging.

And next question was how much did Easter impact your second quarter group room revenue growth of about 2%? It looks like the comparison was more difficult in the second quarter versus first quarter. How do things look in terms of pace in the second half for group?

So I think the best way to look at this is by looking at the first half group revenue performance, which normalizes for the timing of Easter. So for the first half, group revenue was up 5%. When you look at group pace, it has accelerated and we're showing 8% pace for 2015 and low-single digits for the balance of 2014. So overall, there's a continuation of a healthy growth in group.

Our next question is on owned and leased RevPAR. Comp owned and leased RevPAR of 4% in constant dollar seems a little light compared to what we've seen out of peers and Smith Travel Research data. Could you elaborate? And how much did the 2 hotels outside the Americas impact on the base RevPAR?

Yes, I think, first of all, it was a tough comparison. When you look at the owned and leased in 2013, it was up by 7.1%. So it is a tough comparison. In addition, we had 5 owned and leased hotels that performed exceptionally well in 2013. If you take the 2 hotels outside the Americas, the impact that they had from our RevPAR perspective was 80 basis points. In the aggregate, if you look at it, in the aggregate of these 2 hotels, RevPAR decline was north of 10% from coming from these 2 hotels.

Next question on owned and leased margins. So a little bit of explanation on owned and leased margins is sought. Implies -- the question is, implies labor inflation was greater than 4%. Was about a bunch of different things? Or was that the 2 hotels outside the Americas? And which were the 2 hotels? What was the -- what happened at them? And what results would have been without them?

So again, just by way of reminder, we had a very, very good second quarter last year in 2013. Margins were up 230 basis points in 2013. So it is a tough comparison. The margin issue was really primarily market-specific for those 2 hotels outside the Americas. The 2 hotels were Seoul and Bishkek, Bishkek in Kyrgyzstan, Central Asia, which, combined, impacted our total owned or leased margins by 50 basis points in the quarter. The market-specific issues, very quickly in summary, where in Seoul, new supply, as well as a major competitor coming back after being closed from renovation. And in Bishkek, it is really all demand issues driven specifically by the fact that the U.S. military airbase has been closed down, which was a major contributor to supply of the hotel, customer supply of the hotel.

Okay, great. The next topic was that of Playa Resorts. How much EBITDA, if any did Playa contribute in the quarter? And secondly, can you give us an update on future plans for Playa?

Sure. The contribution from Playa for the quarter was approximately $4 million of JV EBITDA. For the year, we had said that we thought we would earn somewhere between $13 million and $15 million from our JV interest, and we're likely going to be at lower end of this range. And in terms of future plans, we're very focused on getting all of the slated hotels opened and ramped up under the 2 owned inclusive brands that we've got. Progress in Jamaica has been very strong, and we're very much looking forward to opening that property at the end of this year.

Okay, great. The next topic was on asset recycling and sales transactions. First question. How is the marketing process for the full service and select service hotels progressing? Are you hoping to sell the select service hotels as a portfolio? And what is the average age in RevPAR for the select service hotels?

So, first of all, on the RevPAR question, it's actually disclosed in our -- the schedules of the earnings release. So you can see the breakout of our full service owned hotels and our select service owned hotels. In terms of overall process, on the full service front, the deals typically take 6 to 9 months from listing through completion. And so, just to gauge timing, we -- by way of reminder, we took these to market initially in the first quarter of this year. So -- therefore, we would expect to see the same timing apply for these properties. In terms of the just recently listed select hotels, it's really too early in the process to comment on how things are going. As I mentioned in my remarks, I think it's probably, likely a 6-month process. We're thinking about and have organized the sale process for those select properties in 3 different sub-portfolios, so to speak: One relatively larger one, 32 hotels; and then 2 other smaller ones of 6 and 4 hotels, respectively. And so we're thinking about these as portfolio sales. And have broken down the overall portfolio accordingly. The average age of the properties is across all of the properties is something in the range of 15 years. Remember that this would have been -- the hotels would have reflected high branding for the last 6 years, which is the time at which we converted to Hyatt Place, and at that time, Hyatt Summerfield Suites, now it's Hyatt House.

Okay, great. Next question, how do you expect to use the proceeds from the asset sales? Would you consider pursuing another portfolio deal similar to LodgeWorks and placing the hotels under one of your growing brands?

Look, I think our goals remain exactly as we stated in the past, which is we're focused on 4 categories: The gateway city hotels, resorts; urban select service; and convention hotels. We've been really active really across each of those different areas, and we remain focused on those 4 categories. And whether we would consider another portfolio deal, the answer is yes, recognizing, however, that they are few and far between. So I think that we are always looking for very good real estate and good brand representation opportunities, especially in markets in which we are either under represented or don't have representation. So we're active in the market looking at new opportunities.

Okay, great. Thanks, Mark. We have one question on capital allocation. How does the Board evaluate the tradeoff between share repurchases and additional acquisitions? Do you expect to repurchase additional shares as you sell assets, if you can't find acquisitions?

Yes, so, as I mentioned, we take all these factors into account on a constant basis. And it's a dynamic process, obviously, because our -- the profile of liquidity and opportunity will change quarter-over-quarter depending on what's going on in the marketplace and how things are progressing either on the disposition front or the acquisition front. So it needs to remain a dynamic process, and we continue to look at current opportunities and future commitments that we already have in the context of our overall capital allocation decisions. And, as I mentioned, the -- as we see the evolution of our asset recycling program, we are -- we believe that the will continue to generate healthy disposition proceeds, which should fund our new investments over time. And that's actually the backdrop on which we feel confident that we will remain active on the return of capital to shareholders.

By shifting gears a bit and into development, have you seen a change in the development landscape in the last few months? That is, are more or less incentives required to get deals across the finish line?

The short answer is not -- no significant changes in the last few months. Activity remains very high. Our overall base of executed contracts has not expanded at net, but we've opened, I think it's 18 hotels year-to-date. So we're on a pretty healthy opening pace. This is after having opened over 50 hotels last year. So we've got a lot of activity in terms of hotels cycling out of our executed contract base through openings and maintaining the overall contract base. The other thing I would note is that the contract base is seasonal, that is that there are more signings and contracts coming to fruition towards the end of the year. Things have evolved quite differently in different markets. So I would say that the overall level of activity in India has abated somewhat pending the elections that just got completed. I think it's fair to say that there is maybe a move from a -- concerns about various macroeconomic trends and maybe policy issues to optimism about the future. And so that should have a positive impact on the market dynamics as well as development opportunities there. And in China, it has remained relatively consistent over the past several quarters. I think the evolution that we expect to see going forward is more activity for our select service brands. We just opened our first select service hotel in China, and we have a lot of activity and a lot of interest in our select service brands there. So I think that will evolve in that way and, of course, the select service opportunities in the U.S. continue to be the primary deal drivers. And we're looking at select and other full service opportunities, but most of the activities in select.

Okay, great. We had a question on income statement item. The swing in equity earnings from unconsolidated hospitality ventures was a point of differentiation versus my forecast. Could you talk about expectations for this line item going forward?

Sure. The -- first of all, the primary driver this quarter was approximately $20 million from the sale of our share in the Hyatt Place in Austin, Texas. Looking forward, it's very difficult to forecast going forward as we reflect both equity and cost methods of accounting there. So earnings versus cash dispositions. And there is a certain amount of volatility that will continue to be there but we will continue to provide more details as we go through each.

Okay. Next question was on Hyatt Residential Group. How much revenue and EBITDA is generated by the timeshare division this year and into the future? Any updates on the time of sale and expected level of proceeds?

Sure. So timeshare activity, timeshare business generated in the range of 2% of total company adjusted EBITDA in 2013. It's been relatively consistent at that level, that proportion of total adjusted EBITDA. But, of course, earnings is, as you think about the profile of earnings, would be positively impacted by the Maui project, which is under development right now. In terms of the arrangement going forward under the master license agreement, we would likely see earnings license fees in a range of a couple of million dollars per annum. In terms of timing, as I mentioned, we expect to close before the end of this year, and we expect the proceeds, I mentioned earlier, at $190 million plus at cost $35 million for our interest in the Maui JV, that's under development.

Great. The last question that we received by email was on the performance of some of our recent acquisitions. The question is how did Hyatt Regency Orlando and Grand Hyatt San Antonio performed in the quarter?

Both acquisitions are actually tracking very well. Orlando is on track, $255 million, as we put out as a goal beginning of the year, $55 million of EBITDA this year. And San Antonio is slightly above our initial expectations. So both are doing well.

Okay, great. That wraps up the questions that we received in advance. Operator, if we can have any live question at this time, that will be great.

Your first question comes from the line of Mr. Joe Greff. Joseph Greff - JP Morgan Chase & Co, Research Division: Mark, just on your comments about buying 100% of the Park Hyatt New York City. Has your underwriting or return expectations for that asset has that changed? I know you talked about a flexibility at recycle and tax consequence as motivations for upping it to 100%. But you can you talk about that a little bit, that will be helpful?

Sure. First of all, as you know, the market in New York has been pretty healthy, especially for the top-end of the market, which is where we will be playing. So that's encouraging. I think the outlook with respect to return expectations is consistent with what we said when we first struck the deal, which is we thought that we would have a return in the high-single digits, and that's likely -- that remains our current expectations as we look forward. Of course, we'll go through a ramp up, and we've, obviously got a lot of plan with respect to how we're going to market. We've got some encouraging partnerships that we struck with some cultural institutions in New York and have also done a lot of groundwork with a significant and key corporate and entertainment clients as well. So actually, it's really exciting. I think the Park brand, the cachet and the performance continues to track very well. The Park Hyatt Vienna opened very strong with lots of great coverage and also guest response. And I just returned from Tokyo. We celebrated the 20th anniversary of the Park Hyatt Tokyo, which is still going strong 20 years later. So I think the brand overall is -- the brand performance is very encouraging, and New York is extremely highly anticipated by a lot of key high end and luxury accounts that we serve in places like Paris and Beijing and Tokyo in our Park Hyatt hotels. So that's our current outlook. Joseph Greff - JP Morgan Chase & Co, Research Division: And then with regard to the 2 hotels outside of the Americas that were drags on results in the 2Q, Seoul and the other one in Cental Asia, I won't try to pronounce that name. When -- so I believe, you called out last quarter at least, when the comparisons in Seoul started get easy or anniversary the challenges there? And then with respect to Central Asia, how much EBITDA did that contribute in 2013?

Right. Joe, this is Gebhard. Seoul, the comparison will get easier in the fourth quarter. So as of the fourth quarter, we should get back to a more normal comparable base. There are ongoing market challenges when you look at it from a more macroeconomic perspective as to where Korea or Seoul is and what the influx of business there is, inflow of business there is, we -- there are issues with Chinese travelers into Korea, there are issues with Japanese travelers into Korea, and obviously, there were supply and demand issues there as well. So the comparison will get easy, I think the market conditions is something that probably will not ease off that quickly. But we're very focused on that property. Obviously, it's an important part of our own portfolio. With regards to Bishkek, that's the one that's difficult to pronounce in Central Asia. It's an interesting one. It's less than $5 million from an EBITDA contribution 2013, but it's an interesting one because it is still dependent on a single market, basically. And that market for us has been the U.S. Embassy, the U.S. business and through the closure of the airbase there. That business really has fallen off the edge. It's a very limited market, and these are the challenges there. So again, from a recovery perspective, we don't look at this from a short-term. This is going to take a little while to rebuild, and it's highly dependent on the sociopolitical aspect of that whole Central Asian area. Joseph Greff - JP Morgan Chase & Co, Research Division: My final question. The 2015 group pace commentary, obviously, was very positive. The low-single digit pace number you talked about for the balance of '14, does appear to be below your peers. Is there any reason for that? Are you more association and less group in the back half of the year? And is that the reason for the maybe a below peer pace number?

I think -- with the way we look at it is, it's been progressing and growing. So actually, it's an improvement. I would say that the -- given the dynamics in the end of the quarter for the hotel business, and the relatively shorter-term corporate -- booking profile for corporate business, which has been very healthy, we're not concerned about the balance of the year in terms of overall revenue. I really -- in order to really try to do a comparison to others, you'd have to go and look at market mix, and relative mix of association and corporate. So I can't -- it's really impossible for me to do that comparison without knowing a lot of details on the competitors that you're referring to.

Your next question comes from the line of Mr. Shaun Kelley.

I just wanted to ask about the asset sales. Obviously, you were putting another portfolio on the block as it relates to limited service. Hotels and -- I guess, my question is, first of all, could you give us a little bit of color on the buyer universe you're thinking, you're seeing? What types of buyers? Any kind of thoughts around valuation from the select served portfolio side? And then secondly on, are there any tax implications to, I guess, keeping those proceeds and/or distributing them versus having something lined up like a -- another purchase to kind of roll those into -- is it more tax efficient to redeploy those proceeds into another piece of real estate? Or are you guys kind of agnostic between that and possibly returning it to shareholders?

So a couple of points. First, in terms of the buyer universe, we have already done a number of deals selling selected groups of select service properties to public REITs. So that's one buyer universe. Second, buyer universe is non-listed REITs, which have been quite active in these tranche of assets this past year. And we also see private equity interests at pretty high levels for these types of assets as well. So I would say there are diverse types of buyers out there with significant capital base behind them. And of course, overall, borrowing profile given interest rates are pretty attractive rates. So it's too early for us to say on our deal, but there's certainly been other deals done, this year that have been done at very strong values. In terms of the tax profile, as I mentioned, one of the considerations that we've got, as we think about the Park Hyatt New York transaction, is, in fact, as a whole ownership property, it does offer us the opportunity to defer gains from the sale of other real estate assets. We have certainly taken advantage of those kinds deferrals through 10, 31 exchanges. And we've done that actually extremely well, I think, over the last 18 months. We've transacted a large number of sales and acquisitions, and we've done, I think, a very good job of achieving good deferral. In this case, this year, we've acquired the Grand Cypress property, which was under capital lease previously, and we closed on that this past quarter. And as a whole ownership property, that qualifies as a repository for deferral of gains. And so, too, would the Park Hyatt New York, if we choose to do that as a whole ownership property. So I'm not -- we're not sort of out trying to tee up deals solely for the purpose of doing some kind of deferral. But we've been able to manage it in the normal cadence of our acquisition and disposition activity.

Your next question will come from Mr. Harry Curtis.

In your experience, what are -- inning are we in for group demand, which seems to be just beginning to lift? And how long kind of going back to the last couple of cycles, once you see group demand lifting might you expect the ramp to last?

I would say that things look to me to be on the ascension at this point. So if you just look at the data that we cited for next year and the progression that we've cited really quarter-by-quarter over the last 5 or 6 quarters, all of that is really positive, and it's building on its own. Because given the nature of this business, it does cumulate. Of course, as you have healthier and healthier forward-booking patterns into future period, compression ends up increasing as well. So if you look back, we've really not seen material rate recovery from on -- in real terms from prior peak. And so there's a lot long way to go in that dimension. If you also look -- if you think about the downturn, really taking hold end of '08 into 2009, and you did not see -- you saw a -- some mitigation of the impact of the overall cycle decline by virtue of some group business that was previously on the books. That persisted for a couple of years following the initial significant downturn that we saw in '09 -- at '08 and '09. So I would say that there is probably a couple of year window. And, of course, that varies by market depending on whether you're relatively heavier in association or corporate that you can think about in the context of overall cycle. So I would say we're encouraged and certainly the pace that we see in the total booking volumes that we see are very encouraging.

And as a follow-up. Talking about the mix of group customers, how much discounted rate do you -- business -- still have to burn off that was put on the books a number of years ago? Or has that already essentially burned off?

It's really hard to say with precision. There's certainly some overhang in the few markets where there were more association business that was booked in during the lower [ph] period of time. But the nature of the corporate business is that so much of it was compressed into -- in the quarter for the quarter, and in the quarter for the year bookings. That there's not that much in terms of forward corporate business that is specific to that. That may start to change a little bit, because we -- as I said, we're seeing a lengthening of the booking curve. But it's still relatively shorter for a corporate than it is for association.

I mean, the only thing I would that is that half year group business is either booking in the year that is consumed or the year prior. So the amount is actually on the books from several years prior is small.

[Operator Instructions] .

Okay, great. Well, there's no other questions. I'd like to thank everyone for joining us this morning. And we look forward to speaking with you soon. Thank you very much, and goodbye.