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Article by DailyStocks_admin    (09-20-11 04:34 AM)

Description

Hyatt Hotels. Director Byron D Trott bought 20000 shares on 5-14-2011 at $ 32.65

BUSINESS OVERVIEW

Overview

Hyatt Hotels Corporation is a global hospitality company with widely recognized, industry leading brands and a tradition of innovation developed over our more than fifty-year history. Our mission is to provide authentic hospitality by making a difference in the lives of the people we touch every day. We focus on this mission in pursuit of our goal of becoming the most preferred brand in each customer segment that we serve for our associates, guests and owners. We support our mission and goal by adhering to a set of core values that characterize our culture. We believe that our mission, goal and values, together with the strength of our brands, strong capital and asset base and opportunities for expansion, provide us with a platform for long-term value creation.


We manage, franchise, own and develop Hyatt-branded hotels, resorts and residential and vacation ownership properties around the world. As of December 31, 2010, our worldwide portfolio consisted of 453 Hyatt-branded properties (127,507 rooms and units), including:




177 managed properties (68,239 rooms), all of which we operate under management agreements with third-party property owners;




132 franchised properties (20,249 rooms), all of which are owned by third parties that have franchise agreements with us and are operated by third parties;




90 owned properties (including 3 consolidated hospitality ventures) (23,637 rooms) and 6 leased properties (2,851 rooms), all of which we manage;




24 managed properties owned or leased by unconsolidated hospitality ventures (10,330 rooms);




15 vacation ownership properties (962 units), all of which we manage; and




9 residential properties (1,239 units), all of which we manage and some of which we own.

Our full service hotels and resorts operate under five world-recognized brands, Park Hyatt, Andaz, Grand Hyatt, Hyatt Regency and Hyatt. Our two select service brands are Hyatt Place and Hyatt Summerfield Suites (an extended stay brand). We develop, sell or manage vacation ownership properties in select locations as part of the Hyatt Vacation Club, which is in the process of changing its name to Hyatt Residence Club. We also manage, provide services to or license our trademarks with respect to residential ownership units that are often adjacent to a Hyatt-branded full service hotel. We consult with third parties in the design and development of such mixed-use projects based on our expertise as a manager and owner of vacation ownership properties, residential properties and hotels.

Our associates, whom we also refer to as members of the Hyatt family, are more than 85,000 individuals working at our corporate and regional offices and our managed, franchised and owned properties in 45 countries around the world. Substantially all of our hotel general managers are trained professionals in the hospitality industry with extensive hospitality experience in their local markets and host countries. The general managers of our managed properties are empowered to manage their properties on an independent basis based on their market knowledge, management experience and understanding of our brands. Our associates and hotel general managers are supported by our divisional management teams located in cities around the world and our executive management team, headquartered in Chicago.

We primarily derive our revenues from hotel operations, management and franchise fees, other revenues from managed properties and sales of vacation ownership properties. For the years ended December 31, 2010 and 2009, revenues totaled $3.5 billion and $3.3 billion, respectively, net income (loss) attributable to Hyatt Hotels Corporation totaled $66 million and $(43) million, respectively, and Adjusted EBITDA totaled $476 million and $406 million, respectively. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Business Metrics Evaluated by Management – Adjusted EBITDA” for our definition of Adjusted EBITDA, why we present it and for a reconciliation of our consolidated Adjusted EBITDA to net income (loss) attributable to Hyatt Hotels Corporation for the periods presented. For the years ended December 31, 2010 and 2009, 79.4% and 80.4% of our revenues were derived from operations in the United States, respectively. As of December 31, 2010, 74.3% of our long-lived assets were located in the United States. As of December 31, 2010, we had total debt of $771 million, cash and cash equivalents of $1.1 billion and short-term investments of $524 million. As of December 31, 2010, we had available borrowing capacity of $1.1 billion under our revolving credit facility. These sources provide us with significant liquidity and resources for future growth.

Our Competitive Strengths

We have significant competitive strengths that support our goal of being the most preferred brand for our associates, guests and owners.




World Class Brands. We believe that our widely recognized, industry leading brands provide us with a competitive advantage in attracting and driving preference for our associates, guests and owners. We have consistently received top rankings, awards and accolades for service and guest experience from independent publications and surveys, including Condé Nast Traveler, Travel and Leisure, Mobil and AAA. As an example, 59 properties across our Park Hyatt, Grand Hyatt, Hyatt Regency and Hyatt Vacation Club brands received the AAA four diamond lodging award in 2010. Our brand recognition and strength is key to our ability to drive preference for our brands among our associates, guests and owners.




Global Platform with Compelling Growth Potential. Our existing global presence is widely distributed and we operate in 21 of the 25 most populous urban centers around the globe based on demographic research. We believe that our existing hotels around the world provide us with a strong platform from which to selectively pursue new growth opportunities in markets where we are under-represented. We have a long history of executing on growth opportunities. Our dedicated global development executives in offices around the world apply their experience, judgment and knowledge to ensure that new Hyatt branded hotels enhance preference for our brands. An important aspect of our

compelling growth potential is our strong brand presence in higher growth markets around the world such as India, China, Russia, the Middle East and Brazil. The combination of our existing presence and brands, experienced development team, established third-party relationships and significant access to capital provides us with a strong foundation for future growth and long-term value creation.




Deep Culture and Experienced Management Teams. Hyatt has a strong culture rooted in values that have supported our past and form the foundation for our future. The members of the Hyatt family are united by shared values, a common mission and a common goal. The associates at our properties are led by an experienced group of general managers. For example, the general managers at our full service owned and managed hotels have an average tenure of more than 22 years at Hyatt. Regional and divisional management teams located around the world support our hotel general managers by providing corporate resources, mentorship and coaching, owner support and other assistance necessary to help them achieve their goals. Senior operating management has an average of 29 years of experience in the industry. Our experienced executive management team sets overall policies for our company, supports our regional and divisional teams and our associates around the world, provides strategic direction and leads our growth initiatives worldwide.




Strong Capital Base and Disciplined Financial Approach. Our approach is to maintain appropriate levels of financial leverage and liquidity through industry cycles and economic downturns. As of December 31, 2010, we had cash and cash equivalents of $1.1 billion, short-term investments of $524 million and available borrowing capacity of $1.1 billion. We have no significant debt maturities through 2013. We believe that as a result of our balance sheet strength, we are uniquely positioned to take advantage of strategic opportunities to develop or acquire properties and brands. We adhere to a formal investment process in evaluating such opportunities with input from various groups within our global organization.




Diverse Exposure to Hotel Management, Franchising and Ownership. We believe that our experience as a multi-brand manager, franchisor and owner of hotels makes us one of the best positioned lodging companies in the world. Our mix of managed, franchised and owned hotels provides a broad and diverse base of revenues, profits and cash flows and gives us flexibility to evaluate growth opportunities across these three lines of business.




High Quality Owned Hotels Located in Desirable Markets. As of December 31, 2010, we own and operate a high quality portfolio of 90 owned properties and 24 managed properties owned or leased by unconsolidated hospitality ventures, consisting of luxury and upper-upscale full service and select service hotels in key markets. Our owned full service hotels are located primarily in key markets, including major business centers and leisure destinations, with strong growth potential, such as Chicago, London, New York, Paris, San Francisco, Seoul and Zurich. Our hospitality ventures include 50% ownership interests in properties in Mumbai and SĂŁo Paulo. A number of these hotels are unique assets with high recognition and a strong position in their local markets. All of our owned select service hotels were renovated in 2007 and 2006 and are typically located near business districts, airports or attractions. As a significant owner of hotel assets, we believe we are well-positioned for a recovery of demand as we expect earnings growth from owned properties to outpace growth in revenues due to the fixed cost structure of these assets. This benefit can be achieved either through increased earnings from our owned assets or through value realized from selected asset sales.




A Track Record of Innovation. Successful innovation has been a hallmark of Hyatt since its founding. More than forty years ago, we opened the Hyatt Regency Atlanta, which was the first ever large-scale atrium lobby hotel. This was both an architectural icon as well as a highly functional hotel property that provided us an entry into the large-scale convention market. We also have a long track record of creative approaches to food and beverage outlets at our hotels throughout the world, which have led to highly profitable venues that create demand for our hotel properties, particularly in Asian markets. In addition, we successfully introduced new service models to the industry. We launched our Hyatt Place brand in 2006 and our Andaz brand in 2007, each of which features a unique internally developed service model that eliminates a number of de-personalized aspects of the hotel experience.

Our Business Strategy

Our goal is to be the most preferred brand in each customer segment that we serve for our associates, guests and owners. In order to achieve this goal, we enhance brand preference by understanding who our customers are and by focusing on what they need and want and how we can deliver value to them. This understanding and focus informs our strategy for improving the performance of our existing hotels and expanding the presence of the Hyatt brand in markets worldwide.




Focus on Improvement in the Performance of Existing Hotels

A key component of our strategy is to maximize revenues and manage costs at existing hotel properties. We strive to enhance revenues by focusing on increasing our share of hotel stays by our existing guests and increasing the number of new guests we serve on a regular basis, with the ultimate goal of establishing and increasing guest loyalty to our brands. We manage costs by setting performance goals for our hotel management teams, basing a portion of hotel management team compensation on whether performance goals are met, and granting our general managers operational autonomy. Managing costs is one way to improve hotel performance, and we believe that providing incentives to general managers to improve hotel performance leads to improved efficiency in ways appropriate for their respective properties. We support these efforts by assisting them with tools and analytics provided by our regional and corporate offices and by compensating our hotel management teams based on property performance.




Increase Share of Hotel Stays. We intend to expand Hyatt’s share of hotel stays by continuously striving to provide genuine guest service and delivering value to our guests. Our existing customer base is diverse with different needs and preferences. We aim to provide differentiated service and product offerings targeted at each customer segment within each of our brands, such as meeting planners and convention guests, leisure guests and business travelers, in order to satisfy our customers’ specific needs. To provide our customers with the level of service and authentic hospitality that our customers have come to expect, we are committed to maintaining and renovating our properties over time, and have recently begun broad-scope renovation projects at five of our owned properties. Our Hyatt Gold Passport guest loyalty program is designed to attract new guests and to demonstrate our loyalty to our best guests. In the year ended December 31, 2010, new membership enrollment in our Hyatt Gold Passport program has increased by 13.6% compared to new members enrolled during the same period last year. Gold Passport members represented 25.1% of total room nights for 2010. Hyatt Gold Passport was recently honored with the Colloquy Award for Loyalty Innovation in Travel/Hospitality and with three awards from the Frequent Traveler Awards. In September 2010, we and Chase Card Services launched the Hyatt Card, a co-branded Visa ® credit card. The Hyatt Card offers additional benefits to our guests by rewarding them with, among other benefits, two free nights at any Hyatt hotel when they first use their card and Hyatt Gold Passport points for hotel stays and other card purchases, and is another way to deepen our relationships with our guests and welcome new travelers to Hyatt hotels.




Emphasize Associate Engagement. Our brands are defined, in large part, by the authentic hospitality that is delivered to our guests by our associates. We believe that while a great product is necessary for success, a service model that promotes genuine service for our guests and that is focused on our customers’ particular needs is the key to a sustainable long-term advantage. Therefore, we strive to involve our associates in deciding how we serve our guests and what we can do to improve guest satisfaction. We align our associates’ interests with our goal of becoming the most preferred brand in each segment that we serve. We rely on our hotel general managers to lead by example and foster associate engagement. We believe that associate engagement results in higher levels of customer satisfaction and improves the performance of our properties. To assist in this process, we aim to ensure that talented management teams are in place worldwide and also reward those teams that achieve higher levels of employee engagement, guest satisfaction and hotel financial performance.



Enhance Operational Efficiency. We strive to align our staffing levels and expenses with demand without compromising our commitment to authentic hospitality and high levels of guest satisfaction. During periods of declining demand for hospitality products and services we make significant changes in operations, including staff reductions at many of our hotels, outsourcing of certain services, renegotiation of contracts to improve pricing and modification of certain product standards to reduce costs without significantly impacting quality. As demand improves, we remain focused on actively managing expenses. We continue to incentivize and assist our hotel general managers as they proactively manage both the customer experience and the operating costs at each of their properties.

CEO BACKGROUND

Thomas J. Pritzker


Director since 2004

Age 60

Thomas J. Pritzker has been a member of our board of directors since August 2004 and our Executive Chairman since August 2004. Mr. Pritzker served as our Chief Executive Officer from August 2004 to December 2006. Mr. Pritzker was appointed President of Hyatt Corporation in 1980 and served as Chairman and Chief Executive Officer of Hyatt Corporation from 1999 to December 2006. Mr. Pritzker is Chairman and Chief Executive Officer of The Pritzker Organization, LLC ( “TPO” ), the principal financial and investment advisor to various Pritzker family business interests. Mr. Pritzker is Chairman of Marmon Holdings, Inc. and also serves as a Director of Royal Caribbean Cruises Ltd. He served as a Director of TransUnion Corp., a credit reporting service company, until June 2010. Mr. Pritzker is a Director and Vice President of The Pritzker Foundation, a charitable foundation; Director and President of the Pritzker Family Philanthropic Fund, a charitable organization; and Chairman and President of The Hyatt Foundation, a charitable foundation which established The Pritzker Architecture Prize. Mr. Pritzker is a first cousin of Ms. Penny Pritzker, who is also a member of our board of directors.

Mr. Pritzker brings to our board of directors a deep understanding of Hyatt’s operations and extensive knowledge of the hospitality industry as a result of his more than 30 year history with Hyatt, including as our former Chief Executive Officer. The Company also benefits from Mr. Pritzker’s extensive network of contacts and relationships with owners and developers of hotels around the world as we pursue new opportunities and seek to enter into new management and franchise agreements. Additionally, Mr. Pritzker has significant experience leading boards of directors of for-profit and not-for-profit organizations.



Byron D. Trott


Director since 2007

Age 52

Byron D. Trott has been a member of our board of directors since August 2007. He serves as Managing Partner and Chief Investment Officer of BDT Capital Partners, LLC, a merchant bank to closely held companies. Prior thereto, Mr. Trott was with Goldman, Sachs & Co. for over 25 years. Mr. Trott was the head of Goldman, Sachs & Co.’s Chicago office and Midwest Region from 1994 to April 2009 and was Vice Chairman of Investment Banking for Goldman, Sachs & Co. from 2005 to 2009. He was also a member of the Investment Committee of Goldman, Sachs & Co.’s Principal Investment Area, the Investment Banking Division’s Operating Committee, and the firmwide Partnership Committee. Mr. Trott currently is an Advisory Director of Enterprise Rent-A-Car Company.

Mr. Trott has extensive historical knowledge of Hyatt’s business, deep knowledge of the capital markets and expertise in mergers and acquisitions and corporate finance. Through his role at BDT Capital Partners, his former leadership position in investment banking at Goldman, Sachs & Co. and role as a partner of Goldman, Sachs & Co., Mr. Trott has had significant exposure to a number of different companies and business models and has advised numerous companies through a variety of economic cycles, which the board of directors believes provides him with valuable insight regarding Hyatt’s capital structure and in developing strategy. Additionally, Mr. Trott has significant experience in advising closely held companies and brings to Hyatt his knowledge of the travel and tourism industry through his affiliation as an Advisory Director of Enterprise Rent-A-Car Company and the boards of directors of two other private companies, Pilot Flying J and Weber-Stephen Products LLC.

Richard C. Tuttle


Director since 2004

Age 55

Richard C. Tuttle has been a member of our board of directors since December 2004. Mr. Tuttle is a founding Principal at Prospect Partners, LLC, a lower-middle-market private equity firm, and has held this position since 1998. Prior to founding Prospect Partners, he was Executive Vice President of Corporate Development for Health Care & Retirement Corp, now Manor Care, Inc., a healthcare services company. He served as a Director of Manor Care until December 2007 and served as a Director of Cable Design Technologies, Inc., now Belden Inc., for 17 years. He also served as a Director for Utility Service Partners, Inc. from 2003 to 2007. Mr. Tuttle is Chairman of the boards of directors of Velvac Holdings, Inc., ESI Lighting, Inc., Office Resources, Inc., Tender Products Corporation, Polymer Holding Corporation and World Data Products, Inc.

Mr. Tuttle contributes to our board of directors’ expertise in financing transactions and experience in working with operating companies and management teams as a result of his 20 years of experience in private equity. Having served as a director of the Company for over five years, Mr. Tuttle’s long-standing knowledge of and familiarity with Hyatt and our operations benefits the board of directors. Additionally, he is sophisticated in financial and accounting matters.



James H. Wooten, Jr.


New Director Nominee

Age 62

James H. Wooten, Jr. is the Senior Vice President, General Counsel and Secretary of Illinois Tool Works Inc. ( “ITW” ), a worldwide manufacturer of engineered products and equipment, and has held this position since 2006. Mr. Wooten joined ITW in 1988 as Senior Attorney. He was named Associate General Counsel in 2000, and in 2005, he was promoted to Vice President, General Counsel and Secretary. Prior to joining ITW, Mr. Wooten practiced law at the firm of Gardner, Carton & Douglas, which is currently part of Drinker Biddle & Reath LLP. Mr. Wooten currently serves as a Director of Children’s Memorial Hospital, Window to the World Communications, Inc., Congo Square Theatre and National Merit Scholarship Corporation. He also serves on the Audit Committee of Children’s Memorial Hospital and Compensation Committee of Window to the World Communications, Inc.

Mr. Wooten brings to our board of directors extensive experience as an executive officer of a Fortune 200 company. Throughout his 22 years with ITW, Mr. Wooten has developed deep expertise and experience in the areas of risk assessment and management, SEC reporting issues and the general financial and operational aspects of managing a global enterprise. The board of directors also values Mr. Wooten’s experience on various private and not-for-profit company boards of directors and committees. As an African-American, Mr. Wooten contributes to the diversity of the board of directors.

Continuing Directors



Bernard W. Aronson


Director since December 2004

Age 64

Bernard W. Aronson has been a member of our board of directors since December 2004. Mr. Aronson is the founder and Managing Partner of ACON Investments, LLC, a private equity firm, and has served in this position since 1996. Prior to that, Mr. Aronson served as International Advisor to Goldman, Sachs & Co. and as Assistant Secretary of State for Inter-American Affairs. Mr. Aronson serves as a Director of Liz Claiborne, Inc., Royal Caribbean Cruises Ltd., Chroma Oil & Gas, LP, Northern Tier Energy Inc. and The Nature Conservancy (Maryland/District of Columbia Chapter). Mr. Aronson served as a Director of Mariner Energy, Inc. from 2004 until 2010. Mr. Aronson is a member of the Council on Foreign Relations and serves on a number of not-for-profit boards of directors, including the Center for Global Development, for which he is a member of the Executive Committee, and the National Democratic Institute for International Affairs.

Mr. Aronson’s experience in international affairs and foreign policy, particularly in Latin America, is valuable to our board of directors given Hyatt’s global presence and strategy of expanding the presence of its brands in attractive markets worldwide. Mr. Aronson’s background in private equity gives him extensive experience in mergers and acquisitions and financing transactions and working with management teams. Mr. Aronson also brings to the board of directors valuable experience in and knowledge of the travel and tourism industry as a result of his service as a member of the board of directors of Royal Caribbean Cruises Ltd. Mr. Aronson has significant corporate governance experience as a result of having served on a number of public company boards of directors and board committees.



Mark S. Hoplamazian


Director since 2006

Age 47

Mark S. Hoplamazian has been a member of our board of directors since November 2006. He has served as our President and Chief Executive Officer since December 2006, as interim President from July 2006 to December 2006 and Vice President from August 2004 to December 2004. Mr. Hoplamazian served as Vice President of TPO, the principal financial and investment advisor to various Pritzker family business interests from August 2009 to December 2010. From April 2004 to August 2009, Mr. Hoplamazian served as President and Director of TPO and has served in various capacities with TPO and its predecessors since its formation in 1997, including managing its merchant banking and investment activities. Mr. Hoplamazian serves as Chair of the National Advisory Council on Minority Business Enterprises. He also currently serves on the Board of Trustees and as the Secretary of The Latin School of Chicago. Mr. Hoplamazian is a member of the Discovery Class of the Henry Crown Fellowship at the Aspen Institute.

As Hyatt’s President and Chief Executive Officer, Mr. Hoplamazian provides our board of directors with valuable insight regarding Hyatt’s operations, management team, associates and culture, as a result of his day-to-day involvement in the operations of the business, and he performs a critical role in board discussions regarding strategic planning and development for the Company. The board of directors also benefits from Mr. Hoplamazian’s historical knowledge of Hyatt. Prior to becoming our President and Chief Executive Officer, Mr. Hoplamazian regularly advised Hyatt on business and financial matters in his various roles at TPO. Mr. Hoplamazian is financially sophisticated and also has significant mergers and acquisitions and corporate finance experience.



Richard A. Friedman


Director since 2009

Age 53

Richard A. Friedman has been a member of our board of directors since June 2009. Mr. Friedman joined Goldman, Sachs & Co., a full-service global investment banking and securities firm, in 1981, and has been a Partner there since 1990. He has been a Managing Director at Goldman Sachs & Co. since 1996 and is the Head of the Merchant Banking Division of Goldman, Sachs & Co. Mr. Friedman is also the Chairman of the Corporate Investment Committee of the Merchant Banking Division and a Member of the Management Committee of The Goldman Sachs Group, Inc. Mr. Friedman is the Chairman of Yankees Entertainment and Sports Network, LLC.

As the Head of the Merchant Banking Division of Goldman, Sachs & Co. and Chairman of the Corporate Investment Committee of the Merchant Banking Division, Mr. Friedman brings to our board of directors deep expertise and experience in a wide variety of areas, including mergers and acquisitions, strategic investments, corporate finance, real estate, corporate governance and human resources. Mr. Friedman has an extensive network of contacts and relationships with investors, financing sources and experienced managers who can be of help to Hyatt.

Susan D. Kronick


Director since 2009

Age 59

Susan D. Kronick has been a member of our board of directors since June 2009. From March 2003 until March 2010, Ms. Kronick served as Vice Chair of Macy’s, Inc., an operator of Macy’s and Bloomingdale’s department stores. Ms. Kronick served as Group President, Regional Department Stores of Macy’s, Inc. from April 2001 to February 2003; and prior thereto she served as Chairman and Chief Executive Officer of Macy’s Florida from June 1997 to March 2001. Ms. Kronick served as a Director of The Pepsi Bottling Group, Inc. from March 1999 to February 2010.

Ms. Kronick brings to our board of directors a strong background in marketing and experience in building industry leading brands as a result of the various management positions she has held with Macy’s, Inc., most recently as Vice Chair. As a result of her positions with Macy’s, Inc., Ms. Kronick also has gained valuable financial and operations experience. Additionally, she contributes to the gender diversity of the board of directors.



Mackey J. McDonald


Director since 2009

Age 64

Mackey J. McDonald has been a member of our board of directors since June 2009. Mr. McDonald has served as a Senior Advisor to Crestview Partners, a private equity firm, since 2008. Mr. McDonald is the retired Chairman and Chief Executive Officer of VF Corporation, an apparel manufacturer. Mr. McDonald served as Chairman and Chief Executive Officer of VF Corporation from 1998 until his retirement in August 2008. From 1996 to 2006, he was the President of VF Corporation; and prior thereto he served as VF Group Vice President. Mr. McDonald also serves as a Director of Wells Fargo and Company, Kraft Foods, Inc. and Bernhardt Industries, Inc. Mr. McDonald served as a Director of VF Corporation from 1993 to 2008, as a Director of The Hershey Company from 1996 to 2007, and as a Director of Tyco International Ltd. from 2002 to 2007.

Mr. McDonald brings to our board of directors deep management and operations experience as well as experience building internationally recognized brands as a result of his leadership positions with VF Industries. The board of directors also values Mr. McDonald’s experience as a chief executive officer and significant public company board of directors and executive compensation experience, including his service on the Human Resources Committee of Wells Fargo and Company and former service as Chairman of the Compensation and Human Resources Committee of Tyco International Ltd. and on the Compensation and Executive Organization Committee of The Hershey Company.



Gregory B. Penner


Director since 2007

Age 41

Gregory B. Penner has been a member of our board of directors since August 2007. Mr. Penner has been a General Partner at Madrone Capital Partners, LLC, an investment management firm, since 2005. From 2002 to 2005, he was the Senior Vice President and Chief Financial Officer of Wal-Mart Japan, and he serves as a Director of Wal-Mart Stores, Inc., Baidu, Inc., and eHarmony.com, Inc. In addition, Mr. Penner serves as a Director of 99Bill Corporation based in Shanghai, China. He has previously served as Director of The Seiyu, Ltd., from 2003 to 2008. Prior to joining Wal-Mart, Mr. Penner was a Manager at Peninsula Capital, an early stage venture capital fund and a financial analyst for Goldman, Sachs & Co.

Mr. Penner brings to our board of directors international business experience, particularly in Asia, as a result of his former position with Wal-Mart Japan and from his service as a director of Baidu, Inc. He is sophisticated in financial and accounting matters and has meaningful operations experience. Additionally, Mr. Penner has experience with public company boards of directors.

Penny Pritzker


Director since 2004

Age 51

Penny Pritzker has been a member of our board of directors since August 2004 and served on the board of directors of Hyatt Corporation and Hyatt International Corporation from 1999 to 2004. Ms. Pritzker is the founder and Chairman of and consultant to CC-Development Group, Inc., which operates Vi (formerly known as Classic Residence by Hyatt), an owner and operator of senior living communities throughout the United States; is Chairman and Chief Executive Officer of Classic Residence Management Limited Partnership, the manager of Vi facilities; serves as President and Chief Executive Officer of Pritzker Realty Group (“ PRG ”), a real estate investment and advisory firm; is the President of Frankmon LLC; is co-founder and Chairman of The Parking Spot, a near-airport parking company; serves as Chairman of TransUnion Corp., a credit reporting service company; serves as co-founder and chair of Artemis Real Estate Partners, LLC, a real estate investment firm; is a Director and Vice President of The Pritzker Foundation, a charitable foundation; and served as National Finance Chair of Barack Obama’s 2008 presidential campaign. Ms. Pritzker served as a Director of the Marmon Group, Inc. until March 2008 and as a Director of LaSalle Bank Corporation, N.A. from 2004 to 2007. Ms. Pritzker is the first cousin of Mr. Thomas J. Pritzker, who is our executive chairman.

Ms. Pritzker has a long history with Hyatt and deep knowledge of the Company’s business having served as a director since the Company’s formation in 2004 and as a former director of Hyatt Corporation and Hyatt International Corporation from 1999 to 2004. Through her work with PRG, Vi and various other Pritzker business interests, Ms. Pritzker brings to our board of directors extensive experience in real estate and finance matters. Additionally, Ms. Pritzker has significant experience serving on boards of directors for profit and not-for-profit organizations. Ms. Pritzker also contributes to the gender diversity of the board of directors.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a global hospitality company engaged in the management, franchising, ownership and development of Hyatt-branded hotels, resorts and residential and vacation ownership properties around the world. As of December 31, 2010, our worldwide portfolio consisted of 453 Hyatt-branded properties (127,507 rooms and units), including:


• 177 managed properties (68,239 rooms), all of which we operate under management agreements with third-party property owners;


• 132 franchised properties (20,249 rooms), all of which are owned by third parties that have franchise agreements with us and are operated by third parties;


• 90 owned properties (including 3 consolidated hospitality ventures) (23,637 rooms) and 6 leased properties (2,851 rooms), all of which we manage;


• 24 managed properties owned or leased by unconsolidated hospitality ventures (10,330 rooms);


• 15 vacation ownership properties (962 units), all of which we manage; and


• 9 residential properties (1,239 units), all of which we manage and some of which we own.


Our full service hotels and resorts operate under five world-recognized brands, Park Hyatt, Andaz (our newest full service brand) Grand Hyatt, Hyatt Regency and Hyatt. In addition, we own, operate and franchise hotels under two select service brands, Hyatt Place and Hyatt Summerfield Suites. Our select service hotels provide guests with many of the amenities available at full service hotels but on a smaller scale. Compared to our full service hotels, our select service hotels have limited food and beverage outlets and do not offer comprehensive business or banquet facilities but rather are suited to serve smaller business meetings. We develop, sell or manage vacation ownership properties in select locations as part of the Hyatt Vacation Club, which is in the process of changing its name to Hyatt Residence Club. We also manage, provide services to or license our trademarks with respect to residential ownership units that are often adjacent to a Hyatt-branded full service hotel. We consult with third parties in the design and development of such mixed-use projects based on our expertise as a manager and owner of vacation ownership properties, residential properties and hotels.

We have adopted a business model that entails both ownership of properties and management and franchising of third-party owned properties in order to pursue more diversified revenue and income streams that balance both the advantages and risks associated with these lines of business. Our expertise and experience in each of these areas gives us the flexibility to evaluate growth opportunities across these lines of business. Growth in the number of management and franchise agreements and earnings there from typically results in higher overall returns on invested capital because the capital investment under a typical management or franchise agreement is not significant. The capital required to build and maintain hotels that we manage for third-party owners, or franchise, is typically provided by the owner of the respective property with minimal capital required by us as the manager or franchisor. During periods of increasing demand we do not share fully in the incremental profits of hotel operations for hotels that we manage for third-party owners as our fee arrangements generally include a base amount calculated using the revenue from the subject hotel and an incentive fee that is, typically, a percentage of hotel profits that is usually less than 20%, with the actual level depending on the structure and terms of the management agreement. We do not share in the benefits of increases in profits from franchised properties because franchisees pay us an initial application fee and ongoing royalty fees that are calculated as a percentage of gross room revenues with no fees based on profits. Disputes or disruptions may arise with third-party owners of hotels we manage or franchise and these disputes can result in termination of the relevant agreement. With respect to property ownership, we believe that ownership of selected hotels in key markets enhances our ability to control our brand presence in these markets. Ownership of hotels allows us to capture the full benefit of increases in operating profits during periods of increasing demand and room rates. The cost structure of a typical hotel is more fixed than variable, so as demand and room rates increase over time, the pace of increase in operating profits typically is higher than the pace of increase of revenues. Hotel ownership is, however, more capital intensive than managing hotels for third-party owners, as we are responsible for the costs and all capital expenditures for our owned hotels. The profits realized in our owned and leased hotel segment are generally more significantly affected by economic downturns and declines in revenues than the results of our management and franchising segments. This is because we absorb the full impact of declining profits in our owned and leased hotels whereas our management and franchise fees do not have the same level of downside exposure to declining hotel profitability. See also “—Principal Factors Affecting Our Results of Operations—Factors Affecting Our Costs and Expenses—Fixed nature of expenses” and Part I, Item 1A, “Risk Factors—Risks Related to Our Business—We are exposed to the risks resulting from significant investments in owned and leased real estate, which could increase our costs, reduce our profits, limit our ability to respond to market conditions or restrict our growth strategy.”

For the years ended December 31, 2010, 2009 and 2008, 79.4%, 80.4%, and 79.9% of our revenues were derived from operations in the United States, respectively. As of December 31, 2010 and 2009, 74.3% and 76.6% of our long-lived assets were located in the United States, respectively.

Revenue per Available Room (RevPAR)

RevPAR is the product of the average daily rate and the average daily occupancy percentage. RevPAR does not include non-room revenues, which consist of ancillary revenues generated by a hotel property, such as food and beverage, parking, telephone and other guest service revenues. Our management uses RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional and segment basis. RevPAR is a commonly used performance measure in the industry.

RevPAR changes that are driven predominately by changes in occupancy have different implications for overall revenue levels and incremental profitability than do changes that are driven predominately by changes in average room rates. For example, increases in occupancy at a hotel would lead to increases in room revenues and additional variable operating costs (including housekeeping services, utilities and room amenity costs), and could also result in increased ancillary revenues (including food and beverage). In contrast, changes in average room rates typically have a greater impact on margins and profitability as there is no substantial effect on variable costs.

Average Daily Rate (ADR)

ADR represents hotel room revenues, divided by total number of rooms sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and we use ADR to assess the pricing levels that we are able to generate by customer group, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.

Occupancy

Occupancy represents the total number of rooms sold divided by the total number of rooms available at a hotel or group of hotels. Occupancy measures the utilization of our hotels’ available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for hotel rooms increases or decreases.

Comparable Hotels

“Comparable systemwide hotels” represents all properties we manage or franchise (including owned and leased properties) and that are operated for the entirety of the periods being compared and that have not sustained substantial damage, business interruption or undergone large scale renovations during the periods being compared or for which comparable results are not available. We may use variations of comparable systemwide hotels to specifically refer to comparable systemwide North American full service or select service hotels or comparable systemwide international full service hotels for those properties that we manage or franchise within the North American and international management and franchising segments, respectively. “Comparable operated hotels” is defined the same as “Comparable systemwide hotels” with the exception that it is limited to only those hotels we manage or operate and excludes hotels we franchise. “Comparable owned and leased hotels” represents all properties we own or lease and that are operated and consolidated for the entirety of the periods being compared and have not sustained substantial damage, business interruption or undergone large scale renovations during the periods being compared or for which comparable results are not available. Comparable systemwide hotels and comparable owned and leased hotels are commonly used as a basis of measurement in the industry. “Non-comparable systemwide hotels” or “Non-comparable owned and leased hotels” represent all hotels that do not meet the respective definition of “comparable” as defined above.

Principal Factors Affecting Our Results of Operations

Revenues

Principal Components

We primarily derive our revenues from the following sources:

Revenues from hotel operations. Represents revenues derived from hotel operations, including room rentals and food and beverage sales and other ancillary revenues at our owned and leased properties. Revenues from the majority of our hotel operations depend heavily on demand from group and transient travelers, as discussed below. Revenues from our owned and leased hotels segment are primarily derived from hotel operations.

Revenues from room rentals and ancillary revenues are primarily derived from three categories of customers: transient, group and contract. Transient guests are individual travelers who are traveling for business or leisure. Our group guests are traveling for group events that reserve a minimum of 10 rooms for meetings or social functions sponsored by associations, corporate, social, military, educational, religious or other organizations. Group business usually includes a block of room accommodations as well as other ancillary services, such as catering and banquet services. Our contract guests are traveling under a contract negotiated for a block of rooms for more than 30 days in duration at agreed-upon rates. Airline crews are typical generators of contract demand for our hotels.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Our operating results for the second quarter of 2011 reflect improved revenue per available room (“RevPAR”) levels driven by a combination of occupancy and average daily rate improvement which translated into higher fees for our management and franchising segments. Our owned and leased segment showed improvement in Adjusted EBITDA based on a slight increase in revenues despite the combined impact of large-scale renovations occurring at a number of our owned properties and the sale or transfer of 16 hotels during 2010 and the first half of 2011. Average daily rates in North America for both group and transient business continued to improve. During the second quarter of 2011, group occupancy was relatively flat compared to the same quarter last year, while transient occupancy increased. Despite the lack of group occupancy growth at our North American full service properties we had improvement in banquet and outlet revenues. Our international operations experienced improvement in RevPAR on a constant currency basis in all regions, with Southwest Asia and Latin America showing the most significant growth. Europe, Africa and the Middle East and Asia Pacific grew slightly in the second quarter of 2011 over the same quarter last year, but were limited by political unrest in the Middle East and the impact of the natural disaster in Japan combined with strong results last year in part due to the World Expo in China and the World Cup in South Africa.

Our consolidated revenues increased by $47 million, or 5.3% (3.7% excluding the effects of currency), for the quarter ended June 30, 2011 compared to the quarter ended June 30, 2010. In addition to a $30 million increase in other revenues from managed properties, our management and franchise fees increased $11 million driven by improved base, incentive and franchise fees. We also experienced a $5 million increase in our other revenues compared to the quarter ended June 30, 2010 related to the operating results of our vacation ownership business, as well as the results from the launch of our co-branded credit card. We experienced a small overall increase in owned and leased hotels revenue of $1 million despite a $37 million reduction due to the sale or transfer of the 16 aforementioned hotels and an estimated $14 million decrease relating to the hotels undergoing large scale renovations. The positive results were driven by increases at other comparable owned and leased hotels not under renovation, the operations of a newly opened hotel in 2010 and three new hotels purchased in the second quarter of 2011.

Our consolidated Adjusted EBITDA for the second quarter of 2011, compared to the second quarter of 2010, increased by $16 million despite the impact of the asset sales and transfer as well as the significant renovations which we estimate negatively impacted Adjusted EBITDA by approximately $7 million and $4 million, respectively. These reductions in Adjusted EBITDA were more than offset by increased performance at our comparable owned and leased hotels, as well as at the owned properties that became part of the owned and leased segment in 2010 and in the second quarter of 2011. Additionally, Adjusted EBITDA increased in our management and franchising segments $7 million in the second quarter of 2011 as compared to the second quarter of 2010 due to management and franchise fees. See “—Non-GAAP Measure Reconciliation,” below, for an explanation of how we use Adjusted EBITDA, why we present it and material limitations on its usefulness.

While group occupancy growth in North America may be moderate in the short-term, average daily rates for our group business have grown. Transient demand across the world has strengthened on a year-to-date basis in 2011 and future strength is dependent on a stable-to-strengthening economic environment. Thus far, we have realized average daily rate increases and anticipate that we will see continued improvement in this area if the economic environment is stable or stronger. We believe that our previously discussed renovation activity will have a minimal negative impact on the third quarter of 2011, but expect that results in the fourth quarter and beyond will benefit from the completion of a large portion of these renovations in the third and fourth quarter of 2011.

As of June 30, 2011, we had approximately $1.4 billion in cash and cash equivalents, investments in highly-rated money market funds and short-term investments. At June 30, 2011, we had available credit facilities with banks for various corporate purposes. The amount of unused credit facilities as of June 30, 2011 was approximately $1.1 billion.

During the second quarter of 2011, we entered into the following transactions:


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repurchased and retired 8,987,695 shares of our Class B common stock for a total of $396 million;


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acquired three Woodfin Suites properties in California for a total purchase price of approximately $77 million. We began managing these properties during the second quarter and have rebranded them as Hyatt Summerfield Suites; and


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sold six Hyatt Place and two Hyatt Summerfield Suites properties to a new joint venture that an affiliate of the Company formed with a third party. The properties were sold for a combined sale price of $110 million. In conjunction with the sale, we entered into a long-term franchise agreement for each property with the joint venture.

Additionally, on July 13, 2011, we entered into an asset purchase agreement with LodgeWorks, L.P. and its private equity partners to acquire 24 hotels and certain additional assets for approximately $802 million in cash (see Note 18).

We report our consolidated operations in U.S. dollars and manage our business within three reportable segments as described below:


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Owned and leased hotels, which consists of our owned and leased full service and select service hotels and, for purposes of segment Adjusted EBITDA, our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture.


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North American management and franchising, which consists of our management and franchising of properties located in the United States, Canada and the Caribbean.


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International management and franchising, which consists of our management and franchising of properties located outside of the United States, Canada and the Caribbean.

In addition to our three reportable segments, Corporate and other includes the results of our vacation ownership business, the results of our co-branded credit card launched in 2010 and unallocated corporate expenses.

Depreciation and amortization expense . Depreciation and amortization expense increased by $6 million and $7 million in the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010. This increase was primarily driven by increased depreciation at comparable owned and leased hotels, as new assets are being placed in service at hotels under renovation. Depreciation expense for noncomparable hotels was flat in both periods as decreases for assets sold or transferred were largely offset by an increase in depreciation for a hotel opened in 2010 and three properties purchased in 2011.

Other direct costs . Other direct costs primarily represent costs associated with our vacation ownership operations. These costs increased by $1 million and $9 million in the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010, respectively. During the first three months of 2010, we were awarded a favorable settlement of approximately $8 million related to a construction dispute at one of our vacation ownership properties. This settlement more than offset our costs of goods sold in the six months ended June 30, 2010, resulting in negative direct costs for the 2010 period.

Also included in other direct costs, are costs associated with our co-branded credit card, which increased $3 million and $4 million in the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010, respectively, as the program began in the third quarter of 2010.

Selling, general and administrative expenses . Selling, general and administrative costs increased by $13 million and $14 million, or 22% and 11%, in the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010, respectively. Included in selling, general and administrative expenses is the financial performance of the securities held in rabbi trusts to fund certain benefit programs. The financial performance of these securities resulted in increases in costs of $7 million for both the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010, respectively. These expenses are offset in net gains (losses) and interest income from marketable securities held to fund operating programs, thus having no net impact to our earnings.

Excluding the rabbi trust amounts, selling, general and administrative costs increased $6 million, or 9%, and $7 million, or 5%, in the three and six months ended June 30, 2011, compared to the three and six months ended June 30, 2010, respectively. The increases were primarily driven by increased compensation and related expenses of $6 million and $12 million for the three and six months ended June 30, 2011, compared to the same periods in 2010, respectively. Additionally, during the six months ended June 30, 2011 compared to the six months ended June 30, 2010, we experienced increased sales and marketing expenses of $2 million. These increases were partially offset by reduced bad debt expense of $2 million and $7 million for the three and six months ended June 30, 2011 compared to the same periods in 2010. The reduction in bad debt expense was driven by a recovery of $3 million combined with overall lower provisions in the current year.

Net gains (losses) and interest income from marketable securities held to fund operating programs . Marketable securities held to fund our benefit programs funded through rabbi trusts resulted in a net gain of $1 million and $7 million in the three and six months ended June 30, 2011, compared to the net loss of $9 million and $4 million in the three and six months ended June 30, 2010, respectively, due to improved performance of the underlying securities. The gains on securities held in the rabbi trusts are offset by expenses in our owned and leased hotels expense and in selling, general and administrative expenses for our corporate staff and personnel supporting our business segments, having no net impact on our earnings. Of the $10 million change in the underlying securities in the three months ended June 30, 2011 over the three months ended June 30, 2010, $7 million was offset in selling, general and administrative expenses and $3 million was offset in owned and leased hotel expenses. Of the $11 million change in the underlying securities in the six months ended June 30, 2011 over the six months ended June 30, 2010, $7 million was offset in selling, general and administrative expenses and $4 million was offset in owned and leased hotel expenses. Marketable securities held to fund our Gold Passport program and related to our owned and leased hotels generated a net gain of $1 million in the three and six months ended June 30, 2011, compared to a $1 million and $3 million net gain for the three and six months ended June 30, 2010. The gains and losses on securities held to fund our Gold Passport program and related to our owned and leased hotels are offset by corresponding changes to our owned and leased hotel revenues, thus having no net impact on our earnings.

Equity earnings (losses) from unconsolidated hospitality ventures . Equity earnings from unconsolidated hospitality ventures were $2 million and $5 million in the three and six months ended June 30, 2011 compared to equity losses of $11 million and $19 million for the three and six months ended June 30, 2010, respectively. During the second quarter of 2010, we recorded an impairment charge of $9 million related to an interest in a vacation ownership property. The remaining increase was primarily due to $2 million and $12 million of higher earnings generated by the underlying hotels and vacation ownership properties and distributions for the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010, respectively.

Interest expense . Interest expense increased $2 million and $3 million in the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010, respectively. In the three and six months ended June 30, 2011, interest expense increased by $3 million and $6 million due to reduced interest capitalization on construction projects compared to the three and six months ended June 30, 2010, respectively. In 2010, we repaid one hotel loan and extinguished debt related to the Hyatt Regency Princeton in a deed in lieu of foreclosure transaction, which resulted in a decrease of $2 million and $3 million in interest expense during the three and six months ended June 30, 2011 compared to the same periods in 2010, respectively.

Asset impairments. Asset impairments for the three and six months ended June 30, 2011 and 2010 were $1 million and $3 million, respectively. In conjunction with our regular assessment of impairment indicators we recognized a 2011 and 2010 charge for the impairment of property and equipment in our owned and leased hotel segment.

Revolving Credit Facility

Under the terms of our $1.5 billion unsecured revolving credit facility, $370 million of credit availability matured on June 29, 2010, with the remaining availability of $1,130 million maturing on June 29, 2012. The revolving credit facility is intended to provide financing for working capital and general corporate purposes, including commercial paper back-up and permitted investments and acquisitions. We have the option to increase our facility by an aggregate amount not to exceed $370 million, subject to certain conditions, including, without limitation, our ability to secure commitments from one or more new lenders to provide such increase. The average daily borrowings under the revolving credit facility were $0 for the six months ended June 30, 2011 and 2010. As of June 30, 2011 and December 31, 2010, we had no borrowings outstanding under our revolving credit facility. We did, however, have $65 million and $71 million in outstanding undrawn letters of credit that are issued under our revolving credit facility (which reduces the availability thereunder by the corresponding amount) as of June 30, 2011 and December 31, 2010, respectively.

We have launched a renewal process for our revolving credit facility as it currently matures in June 2012. We expect to complete the renewal process during 2011 at a borrowing capacity no less than our current facility.

We are in compliance with all applicable covenants as of June 30, 2011.

Letters of Credit

We issue letters of credit either under the revolving credit facility or directly with financial institutions. We had $79 million in letters of credit outstanding at June 30, 2011 and December 31, 2010, respectively. We had letters of credit issued directly with financial institutions of $14 million and $8 million at June 30, 2011 and December 31, 2010, respectively. These letters of credit had weighted average fees of 246 basis points at June 30, 2011. The range of maturity on these letters of credit was 3 months to 12 months as of June 30, 2011.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our 2010 Form 10-K. Since the date of our 2010 Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

CONF CALL

Atish Shah

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

Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, our quarterly report on Form 10-Q and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, August 2, 2011, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You can find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at hyatt.com, under the Press Release section of our Investor Relations link and in this morning's earnings release. An archive of this call will be available on our website for 90 days. Additionally, a telephone replay of this call will be available for one week.

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

Mark Hoplamazian

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

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

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

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

More recently, there's been limited availability of construction financing for new hotel development. The limited financing that is available is generally focused only on very strong projects and only the most desirable markets. Even then, only the best sponsors, those with strong and lengthy track records, are having success at financing new development. Using our own capital to grow these brands has been successful to date. Not only were we able to launch the brands relatively quickly, but we continue to simulate third-party investment into these brands, both domestically and internationally.

With that as the context, let me now describe the transactions in aggregate and then individually. In short, the 3 transactions all serve to support the pursuit of our goal to be the most preferred brand in each segment that we serve. Three key things to know about these deals are: first, we're adding high-quality assets and good locations to our portfolio of properties principally in the extended-stay and core select-service segments, but there are also 5 full-service properties. Performance will ramp up over the coming years because many are newly opened, 2 are under construction and more than 20 are being rebranded under Hyatt brands.

Second, the expansion of our presence into a number of new markets will allow us to better serve our corporate customers and transient guests. This will support better property level earnings, better performance for each brand and better service to our guests, especially corporate customers, across all of our brands.

Third, we expect to enhance future development with these transactions. With Noble, we're expanding our relationship and applying capital with a long-time partner. With LodgeWorks, we're expanding our capabilities with the addition of a number of LodgeWorks executives to the Hyatt family. These moves position us well to participate in new developments over the coming several years, both directly and in partnership with third-party developers and capital sources.

I'll now walk through each transaction. During the second quarter, we acquired through a foreclosure process, 3 select-service, extended-stay hotels in California for $77 million. These 3 hotels are in strong desirable markets. We have rebranded the hotels and plan to complete a major renovation of each in short order. Over the medium to longer term, we will look to recycle the invested capital into other opportunities, while maintaining management and franchise contracts to preserve our presence in these markets.

Second, during the quarter, we formed a joint venture with Noble Investment Group to develop newly-built select-service hotels. Noble is a well-known leading developer of select-service hotels, one of the few select-service developers that has been active through multiple cycles, has a strong track record and can bring forward projects that have the necessary attributes necessary to obtain financing. We own 40% of the joint venture and have committed to invest over $30 million of equity, which, together with Noble's investment and with moderate levels of leverage, should allow the JV to build 6 to 8 new select-service hotels over the next few years.

The first of these hotels is already in development in the Atlanta area. We also sold 8 select-service hotels to an affiliated joint venture in which Hyatt has a 40% stake and Noble a 60% stake for approximately $110 million. This was part of the overall effort to expand our activities with Noble and utilize a limited base of hotel assets as a means to support future development.

Third, last month, we announced the significant acquisition that we're very excited about. We plan to acquire a portfolio of 24 hotels and related assets from LodgeWorks, a private company based in Wichita, Kansas, for approximately $800 million. LodgeWorks is a well-known developer, owner and operator with a strong track record in extended-stay lodging, whom we've known for many years. The opportunity to make this acquisition is unique and one that stems from our ongoing discussions with LodgeWorks' leadership over a number of months. The acquisition has several elements that will create long-term value for Hyatt.

First, let me describe in more detail what it is that we're buying. The 24 hotels that we intend to acquire represent approximately 3,500 rooms. We would also acquire the branded management rights from these hotels. The breakdown of the hotels is as follows: 16 select-service extended-stay hotels, which we plan to rebrand and manage. Three select-service hotels already Hyatt branded and we -- that we expect to manage; and 4 full-service hotels and 1 additional property that we plan to rebrand and manage as Hyatt or Hyatt Regency properties. The principal components of this transaction support our efforts to achieve our goal to be the most preferred brand in each segment that we serve. The key components are: first, the hotel assets; second, the segment; third, enhancement of future developments; fourth, enhancement of future asset recycling prospects; and finally, earnings upside and financial returns.

As to the hotel assets, this group of assets fits well into our existing portfolio. They are excellent hotels, with the majority located in high-barrier-to-entry coastal markets, including locations in California, Washington State and several Northeastern states. The hotels are in very good condition, with almost 1/3 less than 2 years old. They fit into our brands with minimal expected conversion costs. Our extended-stay presence will grow by 42% as we add these 16 hotels. Several end markets today currently do not have a Hyatt extended-stay presence.

Also within the asset base are 4 full-service hotels. These hotels have already established strong presence in the markets in which they are operating. We expect to take their success to the next level with the application of our reservation system and exposure to our corporate customer base. Next is the segment. We're big believers in the extended-stay segment. This segment of the business performed well through the last 2 lodging cycles. Hotels in this segment generally perform well from a margin perspective. As we look at our brand presence, our extended-stay business is one area in which our under-representation stood out notably.

As to future developments, we are bringing on 15 key LodgeWorks associates and welcoming them into the Hyatt family. These individuals are primarily specialists in site collection, development and construction. The development team has built over 100 select-service hotels over more than 20 years. Expanding our capability in this way will boost our development efforts and help us be more successful in attracting third-party capital to grow our brands.

The timing of this transaction is important as we plan to integrate this team and the new capabilities to fully participate in the next wave of development, which we think will accelerate over the next year or so. At the asset recycling, we believe that our ability to recycle our asset base will be enhanced by this transaction. We will look to recycle the investment in these hotels, while keeping management or franchise agreements in place. We see the marketplace for high-quality select-service assets increasing as acceptance of the strong RevPAR and margin potential of this asset class grows. New relationships with potential buyers of these types of assets, broader scale of the portfolio of assets available-for-sale and enhanced geographic diversity are all drivers of better recycling prospects for Hyatt going forward.

Earnings upside. Another key rationale for the transaction is that we expect significant upside in the portfolio. Our initial estimate is that 2012 adjusted EBITDA from this acquisition, net of the additional corporate expenses, will be approximately $50 million. However, we expect earnings to grow over the subsequent few years for several reasons. First, 21 of the 24 hotels will benefit from rebranding to one of our brands. We expect a gradual improvement in performance due to this rebranding, as our marketing and sales platform, including Gold Passport, kicks in. We believe the expansion of occupancy, especially in well-rated segments, represents a big source of potential improved performance.

Second, as I mentioned earlier, almost 1/3 of the portfolio is less than 2 years old. Two hotels are still under construction. As such, we expect to see improvement as these hotels ramp up.

Third, our analysis of a number of markets in which these hotels are located shows strong growth potential due to fundamentals, namely, strong projected levels of demand and limited levels of new supply.

Fourth, bringing the management of these hotels in-house will introduce an opportunity for us to focus a dedicated operating team on our managed extended-stay hotels across a larger system.

Finally, we expect management franchise fees from existing and new hotels to increase over time.

As noted, we believe that Noble and LodgeWorks transactions will help us better execute on new developments given the track record, development expertise, project center evaluation and relationships with third parties that each organization brings to the table. Higher level of activity under our select-service brands will also support our efforts to develop with other great partners, and we are confident in our ability to capture more than our fair share of new developments in this segment in the U.S.

I'm very excited about these transactions, as well as our prospects for the future. And I'm confident that the hard work and commitment by each member of the Hyatt family, including the new members of the Hyatt family that welcome come from LodgeWorks, will continue to yield excellent long-term value growth.

And with that, I'll turn it over to Harmit.

Harmit Singh

Thank you, Mark, and a warm welcome to those who have joined our second quarter 2011 earnings call. I will be discussing our performance in the second quarter, as well as recent business trends and we'll conclude with information on full year 2011. In the second quarter, adjusted EBITDA was $151 million, an increase of almost 12% as compared to last year. This strong increase demonstrates the operating leverage in our business as we have solid growth despite the impact of ongoing renovations at several of our owned hotels, the timing of the Easter holiday, the sale of several hotels as compared to the second quarter of 2010. Earnings per share adjusted for special items also grew 50% as a result of the increase to adjusted EBITDA and a lower effective tax rate.

I will now discuss our results in more detail for each of our 3 business segments. Let me begin with our owned and leased hotels segment. Excluding the impact of currency, RevPAR for our comparable owned and leased hotels increased by 3.3% in the second quarter. Results were negatively impacted by the displacement of revenue due to renovations, which amounted to approximately 500 basis points of RevPAR. As you may recall, our second quarter 2010 RevPAR increased by over 9%, so we are comparing to strong growth in the prior year quarter.

RevPAR was driven by rate gains, which represented approximately 2/3 of the increase in RevPAR. Operating margins at comparable owned and leased hotels also increased by 80 basis points in the second quarter. Margins were negatively impacted by approximately 100 basis points due to renovation activity at our own hotels. As a result, we estimate that margins would actually have grown about 180 basis points, adjusting for the impact of the renovations.

Increases in average daily rates and our continued focus on expense control and flow-through both helped to drive our margins despite increases in cost due to rate inflation and occupancy increases.

Owned and leased adjusted EBITDA increased by nearly 11% during the quarter. The displacement due to renovations adversely impacted owned and leased adjusted EBITDA by an estimated $10 million in the quarter. In addition, we had a smaller asset base in the second quarter 2011 versus 2010 due to asset sales over the last 12 months. Specifically, we ended the second quarter 2011 with 12 fewer owned hotels, representing approximately 3,000 rooms as compared to the second quarter 2010.

Next, I'll talk about the North American managed and franchise segment. Second quarter comparable RevPAR for our full-service hotels increased approximately 5%. On a segment basis, the timing of the Easter holiday as compared to last year negatively impacted RevPAR results by an estimated 100 basis points. Disruptions due to renovations also negatively impacted segment results.

Our full-service hotels experienced a 3% increase in group revenues with growth coming entirely from higher rates. Group business was negatively impacted due to the timing of Easter. Group revenue booked in the quarter -- for the quarter was up over 7% as compared with the second quarter of last year, with all the increase coming from higher rates. Group revenue pace for the year is still positive, with short-term booking still limiting longer-term visibilty.

As for our transient business in the quarter, revenues increased 6% compared to the second quarter of last year. This increase was split evenly between demand and rate gains. Shift in the mix of business to more rank and corporate-negotiated business continue to drive rate increases. This quarter, for the first time in a number of quarters, we saw both an increase in food and beverage revenues and ancillary revenues on a per occupied room basis at North America full-service hotels.

Other revenue for transient room night [ph], [indiscernible] revenue per group room night [ph] and other operating revenue per occupied room all increased. This increase in other revenues is important for us as we generate a significant portion of our revenues from these businesses.

Now let me turn to our select-service hotels under the Hyatt Place and Hyatt Summerfield Suites brand. Comparable RevPAR at our select-service hotels increased 9.6% in the second quarter of 2011 compared with the second quarter of 2010. Overall, fee income for North American management and franchising operations increased 8%, primarily as a result of increased base, management and franchise fees.

Let's now turn to our International business. In this segment, RevPAR increased 2.5% in the quarter, excluding the impact of currency. RevPAR growth was negatively impacted by declines in Japan and North Africa. Also as expected, RevPAR results from China were muted by the difficult comparison in Shanghai as a result of the 2010 World Expo. International RevPAR growth, if you were to exclude Japan, North Africa and Shanghai, would have been approximately 11%, excluding the impact of currency.

Overall, international fees increased almost 7% in the second quarter of 2010, excluding the impact of currency. Higher incentive management fees as a result of higher revenues and the continued ramp up of hotels added in prior periods were large contributors to the increase.

Now that I've talked about our 3 segments, I would like to talk about 6 other topics: our share repurchase during the second quarter, SG&A expenses, tax expenses, 2011 information, the impact of the transactions announced during the quarter and renovations.

During the second quarter, we repurchased and retired approximately 9 million shares of Class B common stock for approximately $396 million in a privately negotiated transaction. This was a unique transaction and was accretive to earnings per share. We do not have any plans of future share repurchase at this time. Our adjusted SG&A expenses increased 9.4% in the second quarter, primarily due to higher compensation costs. This is similar to the approximate 9% increase in adjusted SG&A that we showed in the first quarter after adjusting for a onetime item in 2010. Our effective tax rate in the quarter benefited from the onetime reversal of a $12 million valuation allowance in one of our international businesses.

As for 2011 information, first, I would note that this does not include the impact of the pending acquisition of assets from LodgeWorks. Our information related to capital expenditures is the same as the last quarter. Our expectation on depreciation and amortization expense has increased slightly due to a fine-tuning of estimates and the transactions that closed during the quarter. In terms of impact to earnings of the 2 transactions that we closed during the quarter, we do not expect a significant impact in 2011. In the case of Noble transaction, the venture were approximately $65 million. Our net proceeds from this transaction were approximately $90 million.

In terms of 2010 adjusted EBITDA, these 2 transactions offset each other and therefore, we do not expect a significant change. The debt rate in our joint venture with Noble contributes to an increase in our pro rata share of unconsolidated hospitality venture debt as of June 2011.

With regard to the pending acquisition of LodgeWorks assets, we expect to fund approximately $770 million in cash assuming we close on the majority of the asset purchases in the third quarter, with the remaining amount to be funded at a later date.

I would like to conclude by providing a status update on the renovations that will be underway at 5 of our owned hotels. The renovations are proceeding on budget and on track. In the third quarter, we expect the renovations to have a less than 100 basis point impact to RevPAR and a less than $5 million impact to adjusted EBITDA. Starting in the fourth quarter and into 2012, we expect to see the positive impact of the renovations in our reported owned and leased segment results.

In summary, during the second quarter, we saw improved demand and higher rate at full-service hotels, continued strong growth across our select-service businesses, improved results from our owned portfolio despite the significant renovations underway and a significant commitment of capital towards expanding our select-service presence in North America.

And with that, I'll turn it back to Atish for questions and answers.

Atish Shah

Thanks very much, Harmit. That concludes our prepared remarks. For our question-and-answer session, please limit yourselves to 1 to 2 questions at a time, and we'll take follow-up questions as time permits. We're happy to take your questions at this time. Tanya, may we please have the first question?

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