Nov 2, 2017
Executives
[0CPPRG-E Brad O'Bryan] Mark Samuel Hoplamazian - Hyatt Hotels Corp. Patrick Grismer - Hyatt Hotels Corp.
Bradley O’Bryan - Hyatt Hotels Corp.
Analysts
Shaun C. Kelley - Bank of America Merrill Lynch Chad Beynon - Macquarie Capital (USA), Inc.
Michael J. Bellisario - Robert W.
Baird & Co., Inc. Joseph R.
Greff - JPMorgan Securities LLC Jared Shojaian - Wolfe Research LLC Stephen Grambling - Goldman Sachs & Co. LLC Thomas G.
Allen - Morgan Stanley & Co. LLC Carlo Santarelli - Deutsche Bank Securities, Inc.
Operator
Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 Hyatt Hotels Corporation Earnings Conference Call. My name is Krista, and I will be your operator today.
At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.
As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Brad O'Bryan, Treasurer and Senior Vice President, Investor Relations and Corporate Finance.
Please proceed, sir.
[0CPPRG-E Brad O'Bryan]
Thank you, Krista. Good morning, everyone, and thank you for joining us for Hyatt's third quarter 2017 earnings conference call.
I'm here in Chicago with Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Pat Grismer, Hyatt's Chief Financial Officer. Mark will begin our call today with a review of our third quarter, including highlights of our operating results and an update on our growth strategy and other business matters.
Mark will then turn the call over to Pat, who'll provide more detail on our financial results for the quarter, as well as an update on our full year outlook. We will then take your questions.
Before we get started, I would like to remind everyone that certain statements made on this call are not historical facts, and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties, as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.
Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call are made only as of today, November 2, 2017, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks on our website at hyatt.com under the Press Release section of our Investor Relations link and in this morning's earnings release.
An archive of this call will be available on our website for 90 days further information included in this morning's release. And with that, I'll turn the call over to Mark.
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Thank you, Brad. Good morning, and welcome to Hyatt's third quarter 2017 earnings call.
I'd like to start this morning by taking a moment to acknowledge all of those affected by the various natural disasters over the past few months. We have a presence in all of the impacted markets and many of our colleagues and guests have endured a wide range of challenges posed by these events.
I'm inspired by all of the examples of care that we've seen and I want to express my gratitude to all of the members of the Hyatt family who have demonstrated in such tangible and visible ways, our purpose which is to care for people so they can be their best. Moving to our results, we're pleased to report that despite facing some headwinds in the third quarter, we continue to produce solid operating results, building on a very strong first half of the year.
As we discussed during our second quarter call, we expected the third quarter to be our weakest of the year relative to last year. Due to the Jewish holiday shift this year and the Olympics uplift that we experienced at Grand Hyatt Rio de Janeiro last year.
In addition, the natural disasters that occurred during the quarter weighed on our overall results with a disproportionate impact to certain owned properties. We reported adjusted EBITDA for the quarter of $180 million, exceeding our previous estimates despite the unexpected external events.
Adjusting for the year-over-year impact of transactions, along with the impact of the holiday shift, the tough comparison in Rio de Janeiro and the natural disasters, our adjusted EBITDA would have increased 7% on a constant currency basis, driven once again by strong increases in management and franchise fees across all regions. Our system-wide comparable constant dollar RevPAR increased 1.6% led by increases in occupancy.
Removing the impact of the holiday shift and natural disasters, system-wide RevPAR would have increased 2.6%. For the eleventh quarter in a row, more than half of our hotels globally gained share during the quarter as measured by RevPAR index based on Smith Travel Research reports.
Our strong record of consistent share gains demonstrates the strength of our brands. During the third quarter, we opened nine new hotels or 1,934 rooms, driving net hotel growth of 9% and net rooms growth of 6.5% on a year-over-year basis.
This included the opening of our 700th hotel during the quarter. We are on pace to open at least 60 hotels for the year, which would be a record number of openings for Hyatt.
Included in our third quarter openings are the Hyatt Centric Guatemala City, which is our first hotel in the country of Guatemala, as well as Hyatt Regency Lake Washington at Seattle's Southport. Grand Hyatt Changsha in China, Hyatt Regency Lucknow in India and a number of select service properties in the United States.
The third quarter marks 10 consecutive quarters of net rooms growth of 6% or higher. This track record demonstrates the strength and continued momentum of our brands, which we expect will drive growth well into the future.
This is further reflected in the growth of our development pipeline in the face of the record pace of new openings this year. Our pipeline of signed deals now stands at 69,000 rooms which represents an increase of approximately 13% compared to the same period last year.
Before Pat provides you with more detail on our third quarter results and our outlook for the remainder of the year, I'd like to spend some time highlighting the ongoing evolution of our business and how that informs our expectations going forward. This includes an evolution of our capital strategy to unlock shareholder value, enable growth and highlight the value of our fast growing capital light management and franchise fee business.
We look forward to sharing specific guidance on our 2018 expectations during our year-end earnings call in February. But I'd like to provide a little perspective on how we are thinking about the industry and our confidence in the value and durability of our business model.
We entered 2017 with modest RevPAR growth expectations given the industry slowdown that became evident in 2016. As we've discussed, however, our performance for the year thus far has exceeded those expectations including better than expected results at our Miraval Tucson location.
Durability of demand, particularly with respect to transient travelers has been strong. While we benefited from that demand and have leveraged our unique brand positioning to outperform the industry in 2017, we continue to monitor trends closely, particularly with respect to group business which can often serve as an indicator of future demand.
Our outlook for RevPAR growth over the next year is tempered as we expect that growth rates will be modest in the U.S. with stronger results in Europe and Asia.
On balance, we expect that 2018 could be a bit softer than our actual results in 2017 from a global RevPAR perspective. With respect to our development activities, we expect continued positive momentum in growing our base of executed contracts for new hotels.
With these expectations in mind, we believe we are well-positioned to deliver solid results and grow the business in 2018 and beyond. We continue to enhance guest engagement through branded experiences that resonate with the high-end traveler.
Additionally, World of Hyatt continues to attract new members and deliver a value proposition that is appreciated by our guests. These dynamics contribute to our share gains and further translate into owner preference as demonstrated by the industry leading pace of development.
We are also developing new engines of growth by making targeted investments in new lines of business, that appeal to our high-end customer base including wellness and alternative accommodations. This brings me to the evolution of our capital strategy.
As we plan for and execute on our growth strategies, we've consistently indicated that we look to our asset base, as a source of capital to fund new growth investments. And on our last two earnings calls, we affirmed our commitment to be a net seller of assets in 2017 as an offset to investments made in 2015 and 2016.
In addition to the liquidation of our preferred investment in Playa Hotels & Resorts, you'll recall that we sold two hotels in the second quarter and indicated that we have had four additional hotels on the market which we hope to sell by the end of the year. While we still expect to sell at least one of those hotels during the fourth quarter, we've experienced some delays in the other transactions and they may not close until sometime in 2018.
In a separate transaction, early in the fourth quarter, we sold the Hyatt Regency Scottsdale and Royal Palms Resort and Spa. These hotels were sold for $305 million, which when combined with the prior hotel sales and the liquidation of our preferred stock in Playa amounts to over $850 billion in proceeds to date in 2017.
Our level of dispositions this year is well in excess of the aggregate investments we made in Miraval, Oasis and exhale during the year. We remain focused on closing the pending asset sales within the coming months, in line with our previously noted commitments.
In our second quarter call, we also discussed the evolution of our core business, which is increasingly focused on our growing base of management and franchised hotels. This is an important strategic focus for us as it is a key vehicle through which we can expand to new locations where our guests are traveling.
We have seen powerful growth in our management and franchising business, with year-to-date fee growth of approximately 13%. Fueled by consistently strong net rooms growth in the 6% to 7% range, and particularly strong operating results from our managed and franchised business around the world, the growth in our fee business is continuing to drive a shift in the composition of our earnings which is yielding a more compelling financial profile for our company, one with less earnings volatility, less capital intensity, and higher total returns on assets over time.
To accelerate this shift toward fee-based earnings, we've recently aligned on a plan to supplement our asset recycling program with a targeted reduction in our owned real estate portfolio that is expected to generate approximately $1.5 billion in gross cash proceeds over the next three years. The targeted amount and the timeframe assume that the economy and capital market conditions are stable and that industry conditions are healthy.
We believe this asset disposition program will unlock shareholder value, first by monetizing lower yield higher multiple assets, whose cash flows are not fairly valued by investors. Second, by providing substantial funds for future growth investments and return of capital to shareholders.
And third by accelerating the evolution of Hyatt's earnings profile towards more fee-based earnings. The size of the asset disposition program will achieve a meaningful reduction in our owned real estate portfolio, while preserving balance sheet capacity to fuel ongoing growth through disciplined asset recycling efforts.
While the asset disposition program is incremental to our ongoing asset recycling, we will be managing our tax exposures across all of our transaction activity. Our recent sale of the Hyatt Regency Scottsdale and Royal Palms Hotels is our first step toward our staged disposition effort and we expect to be very active on this front in 2018.
We intend to discuss all of this in further detail in an expanded fourth quarter earnings call in February of 2018. To wrap up, we're pleased with our 2017 results thus far and have confidence that we'll close out the year ahead of the guidance we provided in August.
We continue to outperform the competition around the globe, and the strength of our brands combined with steps that we've taken this year to invest in new areas of growth, will all serve to enhance engagement with our guests and solidify our relationship with high-end travelers. We are executing against our asset recycling strategy and are now focused on a meaningful reduction to our owned real estate portfolio over the next few years, which should enhance the value we are delivering to shareholders, fuel additional growth in the business and highlight the powerful growth of our management and franchising business.
With that, I'll now turn the call over to Pat.
Patrick Grismer - Hyatt Hotels Corp.
Thank you, Mark, and good morning, everyone. I will begin by providing more detail on our third quarter results and will then share an update on our expectations for the balance of 2017.
Earlier today, we reported third quarter net income attributable to Hyatt of $16 million and earnings per share of $0.13 on a diluted basis. Adjusted EBITDA for the quarter was $180 million with comparable system-wide RevPAR growth of 1.6% in constant dollars.
Collectively, the holiday shift and natural disasters adversely impacted our system-wide RevPAR growth by approximately 100 basis points in the quarter. This impact combined with the overlap of last year's Olympics benefit cost us about $20 million of adjusted EBITDA.
Additionally, the impact of transactions over the past 12 months resulted in a net decrease in third quarter adjusted EBITDA of $7 million compared to 2016. Excluding all of these non-recurring items, our third quarter adjusted EBITDA grew at a healthy rate of approximately 7% on a constant currency basis.
All things considered, we are very pleased with these third quarter results. I'll now highlight our segment results starting with our owned and leased business, which accounted for just under half of our adjusted EBITDA before corporate and other expenses in Q3.
Owned and leased segment adjusted EBITDA was down approximately 14% to prior year in constant currency, reflecting the impact of transactions and other non-recurring items as previously mentioned. Comparable owned and leased RevPAR declined 1.1% for the same period.
Compared to our system-wide RevPAR average, both the holiday timing and natural disasters had a more pronounced effect on our owned and leased hotels due to our company owned presence in Florida, as well as the disproportionate significance of group business to our owned portfolio. Excluding these items, our owned and leased hotels grew RevPAR by 0.5% in the third quarter.
Turning now to our managed and franchised business where consistent with last quarter, we grew total fee revenue in Q3 by approximately 12% on a reported and constant currency basis compared to the same quarter in 2016. The continued efforts of our hotel teams to drive revenue and manage costs have helped to fuel particularly strong growth in incentive fees with a Q3 increase of over 21% and year-to-date growth of over 16%.
The third quarter marks five consecutive quarters of high single to low double-digit growth in our fees demonstrating the momentum in our fee business, which we expect to continue driven by strong performance and a robust development pipeline of managed and franchised hotels. I will now share additional perspective on each of our three regions starting with the Americas, which accounted for approximately 75% of our management and franchising adjusted EBITDA in Q3.
The Americas region drove increases of approximately 6% in constant dollars in both management franchise and other fee revenue and adjusted EBITDA. Comparable full service RevPAR increased 0.3% in constant dollars driven by lower occupancy.
Excluding the impact of the holiday shift and natural disasters, RevPAR growth would have been 1.5%. In the U.S.
specifically, comparable full service hotel RevPAR declined 0.7%, but adjusted for holiday and storm impact, that number would've been an increase of 1.2%. With the natural disasters adding to the anticipated holiday impact, our group room's revenue declined approximately 6% in the quarter.
Group room nights were down just over 7%, partially offset by a small increase in rate. Despite this quarterly dip, we still expect group revenue to be up in the low single-digits for the year.
Group production was soft in the third quarter with production for all years down approximately 5%, but about flat on a year-to-date basis. In the year, for the year business was down almost 9% for the quarter inclusive of the holiday impact.
As we look ahead, we see 2018 pace up in the low single-digits, a deceleration from last quarter's estimate with almost 70% of the business on the books. 2019 pace down in the low single-digits with just over 40% of the business on the books.
And 2020 pace up almost 10% with close to 30% of business on the books. Transient revenue increased 1.6% for the quarter driven by increases in occupancy offset by a small decline in rate.
Leisure and business transient grew at similar levels for the quarter. Our select service hotels in the Americas continue to perform well, delivering an increase in comparable RevPAR of 1.7% in Q3 driven by increases in both occupancy and rate.
In the U.S. specifically, our select service hotels grew RevPAR by 1.4%.
Strong consumer preference for our Hyatt Place and Hyatt House brands have now resulted in 23 consecutive months of share increases at our select service hotels as measured by Smith Travel Research. We opened another four select service hotels in the Americas in the third quarter with our rooms base growing by more than 10% over the past year, and remain on pace to have a record year of select service hotel openings and development in 2017.
I'll now move onto our managed and franchised business in Asia-Pacific which accounted for about 15% of our management and franchising adjusted EBITDA in Q3. Revenue from management, franchise and other fees increased approximately 19% and adjusted EBITDA increased approximately 21%, both when adjusted for currency.
Our impressive unit growth in the region continues to be a catalyst for outstanding earnings expansion with approximately one-third of the increase in adjusted EBITDA driven by fees from new hotels. Comparable full service RevPAR increased 6.3% in Q3, driven by continued strength in Greater China and Southeast Asia, both experiencing RevPAR growth of 8% or more, driven mainly by occupancy gains.
These strong results more than offset continued softness in South Korea, given the political instability there which has negatively affected inbound travel to the country. Now moving to our Europe, Africa, Middle East and Southwest Asia region which accounted for approximately 10% of our management franchising adjusted EBITDA during the third quarter.
Revenue from management, franchise and other fees increased almost 16% and adjusted EBITDA increased approximately 36%, both when adjusted for currency. Comparable full service RevPAR increased 3.5% driven by increased occupancy and to a lesser extent increased rate.
Markets across Europe showed strength for the quarter, rebounding from the effects of last year's security incidents; while India and the Middle East were soft, largely due to reduced transient demand. Now that I've reviewed our operating performance, I'd like to turn to capital deployment.
As Mark said earlier, we sold two properties very early in the fourth quarter and plan to sell at least one more before the end of the year, clearly delivering on our commitment to be a net seller of assets this year. Given this commitment combined with solid operating results, we have been well-positioned to return additional capital to shareholders through share repurchases.
Recall that we previously announced a new $500 million share repurchase authorization and an intent to be back in the market immediately following the conclusion of the accelerated share repurchase that we initiated in March. I'm pleased to say that we delivered on that commitment by purchasing $247 million worth of both class A and class B shares during the third quarter.
As of the end of Q3, we had $302 million remaining on our existing share repurchase authorization and intend to again be active on the share repurchase front during Q4 as part of our ongoing commitment to return capital to shareholders. Additionally, as Mark indicated earlier, we intend to sustain meaningful shareholder capital returns over the long run including using a meaningful portion of the after tax proceeds from our targeted sell down in real estate holdings.
Before providing an update on our 2017 guidance, I'd like to briefly cover our involvement in the announced sale of Avendra to Aramark Corporation. The sale is expected to close later in Q4, and we expect to receive net proceeds of approximately $210 million for our 18% stake in the company.
The proceeds will be used over time for the benefit of Hyatt branded hotels and will not impact Hyatt's adjusted EBITDA. Our managed hotels, which have been participating in the program, will continue to contract for procurement services with Avendra and expect to realize ongoing benefit in net purchasing costs.
I will conclude my prepared remarks by providing an update on our outlook for the year. As Mark and I have mentioned throughout the call, we are very pleased with our results for the quarter following a strong first half of 2017.
And while we continue to monitor group trends, our strong operating results through the first nine months combined with increased visibility to Q4 gives us confidence to improve our full year outlook. With respect to our full year RevPAR growth outlook, we are adjusting the range up to 2.5% to 3%.
Despite the challenges of Q3, we delivered solid RevPAR results and are looking forward to a stronger Q4. Moving on to adjusted EBITDA.
Since we last provided adjusted EBITDA guidance, we've sold two hotel properties, which will reduce earnings by approximately $6 million in the fourth quarter. However, given our higher RevPAR outlook, we are increasing our full year adjusted EBITDA outlook to a range of $805 million to $815 million.
This adjusted EBITDA guidance range reflects the lost earnings of $6 million on Q4 hotel sales more than offset by improved operating performance in line with our increased RevPAR expectations and slightly less foreign currency pressure. And finally CapEx.
Last quarter, we reduced our capital expenditures guidance from $375 million to $350 million due to Q2 hotel sales. Our success in entering into joint venture agreements with some of our corporate development projects and delays in other projects.
Given our more recent hotel sales and additional delays in the timing of certain projects, notably our Miraval redevelopment efforts in Austin and Lenox, we are now further reducing our capital expenditures guidance for 2017 to $300 million. To conclude, while Q3 was our most challenging quarter on a number of fronts, our core business sustained solid performance with another quarter of at least 12% growth in our fee business, cementing our confidence in full year results.
In addition, our disciplined execution of capital strategy has enabled us to boost shareholder returns. And with our announced sell down in real estate holdings, we are now on a path to unlock even more value and fuel additional growth in the years ahead.
Overall, we expect 2017 to be a good year for Hyatt and look forward to providing guidance for 2018 on our fourth quarter earnings call in February. With that, I'll now turn it back to Krista for Q&A.
Thank you.
Operator
Your first question comes from the line of Shaun Kelley with Bank of America. Your line is open.
Shaun C. Kelley - Bank of America Merrill Lynch
Hi. Good afternoon.
So Mark, there's a lot here for I think everyone to digest, especially on kind of the new $1.5 billion sort of asset sale target. Could you give us a little sense – you mentioned this in your prepared remarks, but can you just give us a little bit more color there on two fronts: one would be you mentioned something about possibly targeting lower yield and higher multiple hotels, so just how to think about potential EBITDA loss from in the owned and leased segment or sort of what types of assets you're targeting there?
So a little bit more color on that. And then, the other thing would be just as you move into a more steady stage of asset sell down, is there any impact on the G&A line item for the company overall or should we expect that to be relatively stable?
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Yeah, so Shaun, I'll provide some further context later, but I'll let Pat address this question.
Patrick Grismer - Hyatt Hotels Corp.
Thank you, Shaun. So, first with respect to the lower yield or higher multiple assets, based on how we're valued today as a company it appears that our owned real estate is broadly being valued by investors at EBITDA multiples in the high-single to low double-digit range.
And in our view, this does not fairly reflect the market value of our portfolio evidenced by the multiples at which we've been able to sell many of our assets in the past. So we intend to focus our disposition activity on assets that we believe will command EBITDA multiples above the high-single to low double-digit range, and we believe these actions will be accretive to our overall value.
Now as to the kind of the net impact to EBITDA over time, it's really tough to say and we're not providing specifics on this at the present time bearing in mind that that impact will depend very heavily on the specific assets that we sell, as well as the offsets from any investments that we will make over that same period of time. And then secondly, as to the SG&A piece, based on how we're expediting to continue to grow our company, both organically and through new investments in line with our growth strategy, we're not anticipating a material change to our total level of SG&A.
Shaun C. Kelley - Bank of America Merrill Lynch
Great. Thank you very much.
Operator
Your next question comes from the line of Chad Beynon with Macquarie. Your line is now open.
Chad Beynon - Macquarie Capital (USA), Inc.
Hi. Great.
Thanks for taking my question. Wanted to talk about the owned margins.
Pat, in your prepared remarks, you talked about some cost containment or really just a nice effort within the team. Can you kind of talk about if these are new initiatives, if this has just kind of continued, and more importantly how should we think about cost containment in 2018 if RevPAR does decelerate maybe closer to the GDP range?
Thanks.
Patrick Grismer - Hyatt Hotels Corp.
Thank you, Chad. First, I will say that I am really pleased with and proud of the efforts of our hotel operations teams to continue to drive productivity improvements at our hotels in ways that do not impair the guest experience.
I think when you consider that for the quarter our comparable owned and leased margins were down only 40 basis points given – or in the context of a fairly significant comparable RevPAR decline driven by the shift in the holidays as well as the natural disasters, that highlights the extent to which we are seeing continued improvements in productivity. As you'd expect in any given quarter, there are a number of ins and outs, but it netted to only a 40 basis point degradation.
And that reflects efforts that have really been ongoing for the past few years here as the teams remain focused on driving the top line as well as managing costs in a very responsible fashion. We see those efforts continuing to gain momentum and we anticipate in the years ahead that those efforts will sustain.
Chad Beynon - Macquarie Capital (USA), Inc.
Great. Thanks.
And then my follow-up, just a question on your comment about 2018 pace decelerating from kind of how you talked about it last quarter. Anything there to point out or were you just attempting to get through a certain percentage and that's how it played out in the quarter, anything that you can kind of help us think about the group pace there?
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
This is Mark speaking. Overall the – as you look at group and the profile of what we've seen, in general, you're seeing a bit of softening in the nearer term, that is the 2017 pace and the 2018 pace from a quarter ago, and a strengthening in the 2019 and 2020 pace.
And what we're seeing in effect is some bifurcation of demand. The longer dated bookings are largely association bookings and the shorter dated bookings are largely corporate bookings.
And what we're seeing in general is corporations who are behaving in a pretty cautious way they continue to be cautious and that has affected, and this has been the story over the last four to six quarters, in the quarter for the quarter bookings, which are largely corporate and nearer term bookings. This past quarter, obviously, we had a significant downdraft because of the holiday shift.
About 50% of our revenue impact for the quarter was associated with the holiday shift. So it's a significant proportion of the total story here.
But within that, we had a couple of outliers. I think pharma was by far the worst performing sector, for example; banking and manufacturing were next in line in terms of declines.
So that will give you a little bit of color in terms of where we're seeing some of that. As we head into 2018, no matter that we've seen a bit of softening relative to our pace from last quarter, the good news about 2018 from our perspective is that and this is different from how we came into 2017, our patterns of availability in our hotels, I think sets up better for execution in the year in 2018.
And in particular, if you look at availability – space availability in particular where we've had a lot of turned away interest this year because we simply couldn't accommodate people given the date ranges they were looking for. This coming year the open-to-buy or open-to-sell rather that we've got available is in better time periods with respect to days of weeks, and also in certain markets where we think demand will be relatively good.
So I would say that while the overarching phenomenon is what I described earlier about corporate versus association, a more nuance read is that 2018 could actually prove out to be a year in which we could maybe more proactively revenue manage our way into a reasonable year. And then, in terms of individual markets, there will always be markets that are doing better or worse depending on the rotations.
But I think across the board, we're holding still to a positive progression into 2018.
Chad Beynon - Macquarie Capital (USA), Inc.
Okay. Thank you very much, Mark.
Appreciate it.
Operator
And your next question comes from the line of Michael Bellisario with Baird. Your line is now open.
Michael J. Bellisario - Robert W. Baird & Co., Inc.
Good morning, guys.
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Good morning.
Michael J. Bellisario - Robert W. Baird & Co., Inc.
Wanted to focus on 2018, and really the kind of puts and the takes, not looking for guidance or a number or anything, but what signs are you seeing on the ground? I know you mentioned some group commentary there, that caused you to think it could be softer than 2017 and is some of it maybe Hyatt specific because you've outperformed this year or are you seeing something on the macro that makes you a little bit more cautious?
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
I don't think there's – I mean, there's the overall macro picture that we're living in. But I wouldn't say that there's been any kind of inflection point in the progression of macro circumstances.
I would say that there is a persistent cautiousness amongst our corporate customers, both impacting a bit on the transient and the group side. So, I guess that remains a factor as we look into the coming year.
On the group side, you know I just described our perspective there. We're heading into the fourth quarter now with tentatives looking a bit better.
And that's encouraging, because we still have, as I said attractive patterns that we can fill in 2018. So yeah, I think it's just a overall judgment about where we are at the moment, even though some of the pattern benefit should allow us to revenue manage better into next year, that we have seen a bit of a softening in terms of forward pace for 2018 from last quarter.
And that's really one of the things that's on our mind with respect to how we're thinking about the progression into 2018, in general.
Patrick Grismer - Hyatt Hotels Corp.
And Michael, this is Pat. Just to build on what Mark has said.
I thank you for highlighting the fact that you know, we've had a very good year this year. You'll recall that we had entered the year guiding to a range of zero to 2%.
Our most recent guidance update calls for 2.5% to 3%. And to repeat that performance in the next year, I think is a pretty tall order.
So we prefer in the current environment to take a more conservative approach as far as how we're thinking about the shape of next year's plan. We'll be providing explicit guidance on the February call.
But, we are thinking about it in the context of what has proven to be a much stronger year than we had anticipated. And we may be one of the few hotel companies out there set up to post a stronger global RevPAR result this year than we posted last year.
Michael J. Bellisario - Robert W. Baird & Co., Inc.
Got it. That makes sense.
And then just kind of one clarification on that $1.5 billion of asset sales. Is that incremental to the already $300 million that were completed in October?
Patrick Grismer - Hyatt Hotels Corp.
Yes, it is. And I would also like to clarify...
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Starting from the level of $300 million – are you asking if the $300 million is included against the $1.5 billion, Michael?
Michael J. Bellisario - Robert W. Baird & Co., Inc.
Yes.
Patrick Grismer - Hyatt Hotels Corp.
Oh, I'm sorry, excuse me. The $1.5 billion is not incremental to that.
I would think about the $300 million transaction earlier this quarter as a 20% down payment on that $1.5 billion goal. And also to clarify, the $1.5 billion represents pre-tax cash proceeds.
We would expect that there would be some measure of tax leakage depending on the ultimate profile of the assets that we sell. But yes, to be very clear, the $300 million of assets we sold earlier this quarter would form part of that program, and those $300 million of assets are not included in what we had previously announced and committed to by way of an approximate $500 million proceeds from the asset sale program that we initiated earlier this year.
Michael J. Bellisario - Robert W. Baird & Co., Inc.
That's helpful. Thank you very much.
Operator
Your next question comes from the line of Joe Greff with JPMorgan. Your line is now open.
Joseph R. Greff - JPMorgan Securities LLC
Good morning, everybody.
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Morning.
Joseph R. Greff - JPMorgan Securities LLC
Mark, you in your earlier prepared comments, you mentioned in some fashion 2018 could be softer than 2017. I'm presuming you're talking about the rate of RevPAR growth, not the absolute RevPAR dollar result.
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Yeah. Correct.
That's correct.
Joseph R. Greff - JPMorgan Securities LLC
Okay. And then, Pat, you talked a little bit about something I want to ask about in terms of tax consequence of these asset sales.
I mean, how should we at this point, if you obviously know what the tax, what the cost basis is and you have the $1.5 billion number there. I mean how are you thinking about trying to quantify the tax consequence or the tax consequence ranges there?
And then for the $300 million and change that you did in this fourth quarter here, what's the tax leakage on those assets? That's all from me.
Thanks.
Patrick Grismer - Hyatt Hotels Corp.
Certainly. Thank you, Joe.
So, first with respect to what might be the tax lease leakage associated with the $1.5 billion of gross cash proceeds. It's tough to say at this stage as we're still in the process of finalizing our program of asset sell down informed by updated market valuations, which we'll be obtaining in the coming weeks.
But I think a reasonable estimate at this stage would be in the range of 20% to 25% of gross proceeds. But you would expect, as has been our pattern in the past that we'll be seeking to minimize the tax impact whenever possible.
And I would also highlight that we may occasionally take advantage of tax planning opportunities, uncertain of those sales in the context of our larger capital recycling efforts. And then, as to the tax impact of the most recent asset sale, the package if you will of HR Scottsdale with the Royal Palms, focusing on the Hyatt Regency Scottsdale, when you account for the tax basis in that asset and apply an effective tax rate on the implied gain of around 40%, you're looking at an effective rate on gross proceeds of 32%.
That would tend to be on the higher-end of the spectrum of our assets, again considering that each asset has a very different tax profile given the extent to which we've taken advantage of 10/31 rollover opportunities. And so, what I would highlight as a point of comparison just to balance things out here is that when you look at the Hyatt Regency Grand Cypress that we sold at the end of the second quarter, gross proceeds were $206 million and the tax basis on that asset was just over $150 million.
Applying the same marginal tax rate of 40% on the implied gain, the effective tax rate on the gross proceeds was about 10%. So you know there is a couple of examples at opposite ends of the spectrum one north of 30%, the other around 10%.
And that's why at this very preliminary stage of the planning process around our $1.5 billion gross proceeds sell down, we think a reasonable estimate is in the range of 20% to 25%. But certainly, as we finalize our plans and you know looking forward to our fourth quarter earnings call, we'll be providing more information.
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
And I would just add to that Joe, I mentioned that we're going to be looking at tax management across all of our transactions activity. Past examples, just now give you an interesting example of that where we had the opportunity to release proceeds from this Grand Cypress sale.
But look to a 10/31 on the Regency Scottsdale sale as a means of actually trying to optimize the tax profile but still remain true to the contribution towards the $1.5 billion of gross proceeds that we're looking to deliver.
Joseph R. Greff - JPMorgan Securities LLC
Thank you.
Operator
Your next question comes from the line of Jared Shojaian with Wolfe Research. Your line is now open.
Jared Shojaian - Wolfe Research LLC
Hey, everybody. Thanks for taking my question.
So you've talked about your valuation and what the market is implying. So my question is, why not do more than the $1.5 billion?
And can you just help me understand how you came up with that number?
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Sure. So thanks for that.
We undertook a rigorous evaluation, looking at multiple alternatives and we had outside advisors helping us look through what our different alternatives might look like and helping us arrive at our path forward. And as we look through the various alternatives, we concluded that the approach that we've set out is the one that will provide superior shareholder value over time.
We've assessed these kinds of options in the past. I think the issues that we've looked at in the recent past with respect to the durability of the increases that we're seeing in the managed and franchised business and also the fact that we believe that we are seeing an inherent undervaluation or under appreciation for the value of our asset base.
We feel like this approach allows us to unlock value by monetizing higher multiple assets by accelerating the evolution of our earnings mix towards the capital light and even the franchise fee business, but also leaving us with sufficient funds with respect to a sufficient capital base to allow us to continue to have flexibility and be able to invest in our business. So, from our perspective the $1.5 billion figure is meaningful.
It's a meaningful reduction to the owned real estate portfolio. We feel confident, we can execute against it in the period of time given current or expected stable market conditions.
And finally, it preserves a level of assets that allows us to maintain the asset recycling activity and preserve long-term optionality with respect to how we deploy those assets. So that's all the considerations that went into the sizing.
Jared Shojaian - Wolfe Research LLC
Okay. Thank you.
And just to follow-up on that. Have you already identified the specific assets or did you just pick $1.5 billion as your targeted number?
And then how should we think about returning that $1.5 billion, is that primarily buybacks or do you think about other projects along the way?
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Well, let me address the second point, and then I'll turn the first point back to Pat. In terms of the proportion of proceeds that are going to be used to either invest in businesses or return capital to shareholders, we don't really have a defined allocation at this point and we will make those decisions as we go.
But we have consistently prioritized in the past and we will continue to prioritize the growth of our business in a way that creates value. But we are also – as I think, proof will show that we've been very committed to returning meaningful shareholder capital when available, and as a means of delivering value to shareholders.
So that will continue to be our practice. With respect to the process.
Patrick Grismer - Hyatt Hotels Corp.
Yeah. Jared, just with respect to how we're thinking about the timing or the progression of the sell down, as I mentioned earlier, the recent sales of the Hyatt Regency Scottsdale and Royal Palms for gross cash proceeds of $305 million was our first step in this sell down, again about a 20% down payment, if you will.
And also just to clarify, we sold those assets at a blended multiple EBITDA multiple of 12.6. So that transaction compared to how investors are valuing our total owned and leased EBITDA stream today, was solidly accretive, and I think is a good example of the types of transactions we have in mind as we march down this path.
We will be taking additional assets to market in 2018, and we intend to be fairly aggressive early on. But as to the exact timing, we expect to see cash proceeds from sale.
There's no real way to be sure, given that there's some circumstances beyond our control, but there's a high degree of intentionality, and we're I think making good progress in developing a specific asset playbook, if you will. And we expect that you'll see meaningful evidence of our commitment to this effort during 2018.
In terms of how we're thinking about how we prioritize assets beyond what we already talked about in terms of the EBITDA multiple threshold above which we're looking to monetize some of our real estate, we'll be looking at a number of factors. Market demand is critical, asset pricing critical, tax attributes, in the interest of preserving value for our shareholders and near-term renovation capital requirements, all of those things go into the decision process.
And also to be very clear, we intend to enter into long-term management or franchise agreements for all of the assets that we're looking to sell. And we are working with couple of brokers now to finalize our asset sale strategies supporting these efforts and we look forward to providing more information about this on our next call in February.
Jared Shojaian - Wolfe Research LLC
Okay. Thank you very much.
Operator
Your next question comes from the line of Stephen Grambling with Goldman Sachs. Your line is now open.
Stephen Grambling - Goldman Sachs & Co. LLC
Hey. Thanks.
Maybe following up on the questions on capital allocation. Does this shift to more fee-based EBITDA make you reconsider the right leverage ratio?
And then maybe on a somewhat related note, how does your allocation of the proceeds from the sale of Avendra differ from other forms of cash flow or other reimbursed funds? Thanks.
Patrick Grismer - Hyatt Hotels Corp.
Thank you, Stephen. First with respect to our leverage ratio, at the present time, we don't see any significant change in our overall leverage and expect that we will maintain our investment grade rating over that period of time.
But you know, it's something that we evaluate on an ongoing basis. But no current plans to make any change there.
And then, as it relates to Avendra, what I would say is that we're expecting that the proceeds will be used broadly for the benefit of our system of Hyatt branded hotels. The cash is not necessarily restricted from a balance sheet perspective.
But we do see the opportunity to use those funds in a very targeted fashion for the benefit of our brands, likely to include investments in technology for the benefit of our customers. And we're in the process of consolidating consumer research around how various digital functions and features are benefited or are perceived by customers as it relates to the experience they have at our hotels and how we engage with them.
So, we're quite excited about the opportunity here to monetize this very valuable asset and to use the proceeds in ways that will benefit our brands and benefit our customers. And also to be very clear, based on how we have accounted for previous distributions, how we're expecting to account for any gain on this sale and the result of the distribution and our use of those funds going forward, we expect no material impact to Hyatt's adjusted EBITDA, because we will be characterizing these impacts as special items.
Stephen Grambling - Goldman Sachs & Co. LLC
Understood. And maybe one quick follow-up on that since you mentioned that you would be allocating some of that to technology and given you just relaunched the World of Hyatt, can you just help us understand maybe what you've historically spent on technology, both at the parent company and then at some of the properties, so maybe at the managed property level?
And how that could compare in 2018 and beyond? Thanks.
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Thanks. So, we're not going to really get into specific numbers with respect to individual line items or spend or types of spend.
We've got – our recent activities have focused with respect to projects and new build technology assets, we've really focused on functionality in the hotel that is enabling colleagues to actually better engage with guests and simplify their interaction with hotel systems which are historically wonderfully groovy (52:56) systems. And secondly, we've looked at and expanded what's available through the app and the resources that are required behind that at the property level to support making app-based services actionable by us.
We're evaluating a number of these things. We've got pilots for a mobile key that have been running for some time.
And I think we have clarity about that even though the penetration across the whole industry is very, very low right now and usage is very low. We are looking forward in time to see how we will roll that out.
And also looking at enhancements to our existing customer-facing technology mostly through the app, but also through the World of Hyatt. I would just take a moment to say that we've hired Mark Vondrasek onto the executive team to focus on our loyalty platform and on our new growth platforms.
And we also just announced this week a new leader of the World of Hyatt program. In particular, they both bring tremendous depth of experience, especially in taking consumer information and data and translating that into initiatives that really add value to the program.
So, you can expect that you'll see some changes over the next year as they spool up their efforts. And so, I think that'll hopefully give you a little bit more color on how we're thinking about the application of funds.
Stephen Grambling - Goldman Sachs & Co. LLC
Great. Thanks so much.
Operator
Your next question comes from the line of Thomas Allen with Morgan Stanley. Your line is now open.
Thomas G. Allen - Morgan Stanley & Co. LLC
Hey. Good morning.
So going back to the asset disposition strategy. So, your owned segment in the first nine months of the year was 53% of EBITDA.
Where do you hope that'll be in three years from now?
Patrick Grismer - Hyatt Hotels Corp.
Hi, Thomas. Thanks for the questions.
You're right, we have seen that trend build over the last several years. I think it was back in 2015 that owned and leased accounted for as much as 58%.
Last year was 56%; this year we expect to land at around 52%. Of course the inverse of that is our managed and franchised business, which continues to grow at an outsized rate.
What we would anticipate is that with the steps we're taking to reduce our asset base, we'll see an acceleration of that trend such that our fee business could account for as much as 60% of our earnings by 2020 before our corporate and other segment. But of course that would depend on the level of share repurchases versus reinvestment and the yield on that reinvestment over that period of time.
But we're quite excited about how this move is going to help to accelerate a trend which has been building in recent years and will further highlight the strength of our brands and the outsized growth of our managed and franchised business and all of the positive qualities and characteristics of that earnings stream, less asset intensity, less volatility and higher total asset returns.
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
If I can just add to that, in terms of things that we might be looking to invest in, we're going to continue to be disciplined and selective in what we invest in and we expect any of the investments that we make to be accretive to the total asset returns over time. So first, investments would be focused on expanding engagement with our customers and increasing share of wallet with them.
We've already taken some steps down that path with our wellness-related investments, and more recently in alternative accommodations. The opportunities are going to be focused on capital-light businesses.
They may in some cases include assets – hard assets including hotel real estate, but our expectation is that if they do, we would look to sell down or sell off those assets, and really focus on growing fee-based businesses or capital-light earning stream. So that's really going to be the focus of any reinvestment that we make out of those proceeds.
Thomas G. Allen - Morgan Stanley & Co. LLC
Helpful. Thank you.
And then just when you do guide for 2018 EBITDA, are you going to include the potential impacts of asset sales or are you just going to guide underlying, and then we'll make our own assumptions?
Patrick Grismer - Hyatt Hotels Corp.
Too soon to say. I think it depends on how our plans come together and we look forward to briefing you in February.
Thomas G. Allen - Morgan Stanley & Co. LLC
Helpful. Thank you.
Bradley O’Bryan - Hyatt Hotels Corp.
Krista, we'll take our last question at this point.
Operator
And your final question comes from the line of Carlo Santarelli with Deutsche Bank. Your line is now open.
Carlo Santarelli - Deutsche Bank Securities, Inc.
Hey, thanks, guys. I have just two quick ones.
One is somewhat clerical and I think could be answered pretty quickly, so I'll ask it first. But on your to 2Q call, you guys talked about the 3Q being your smallest EBITDA, absolute dollar generating number of the year implying that 4Q would be higher.
If you kind of keep that math and acknowledging you sold $6 million of assets at the beginning of the fourth quarter or EBITDA worth of assets, do you still kind of have that view or are we going to be a little bit more balanced with 3Q, 4Q at this point?
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
We'll check on that and see if we can give you some direction on that. What's your second question?
Carlo Santarelli - Deutsche Bank Securities, Inc.
Great. Second question is when you think about the direction your business will move from a multiple profile perspective as you do kind of make the transition and sell off this $1.5 billion of assets over the next several years, does it motivate you maybe more so in the near term or ahead of that to be a little bit more aggressive with share buybacks and not to insinuate you haven't been to-date, but does it change your thinking at all around how you think about buyback activity?
Mark Samuel Hoplamazian - Hyatt Hotels Corp.
Well, I guess in general, it's been – I think it's clear that we've continued to find our own stock an attractive investment. We've been persistent and consistent about being in the market, and so – and we've done that with the backdrop of looking at our overall liquidity profile making sure that we have availability of capital for opportunities as they arise, but really staying committed to being in the market.
So I guess what I would say is those same principles will apply as we as we go forward, and as Pat said, our expectation is that we are going to stay active in the remainder of this year.
Patrick Grismer - Hyatt Hotels Corp.
And then, Carlo as to your first question around Q4 versus Q3 and having characterized Q3 at the time is expected to be our weakest quarter of the year, for exactly the reason you mentioned which is the unplanned sale of those two hotel properties at the beginning of Q4. We expect that Q4 may be a touch lower than Q3 in absolute EBITDA terms, but I would say that the overall expectations for Q4 from a RevPAR growth perspective continue to be stronger for Q4 than we saw in Q3, helped in part by the reverse of the holiday timing shift, which weighed on Q3 results.
Carlo Santarelli - Deutsche Bank Securities, Inc.
Right. And my point was more, if you think about back to when you made those comments.
Your view overall of 4Q, I imagine is fairly linear with what it was at that point in time, barring some FX movements here and there and the asset sales, but the operational fundamentals of the business, you look at it very similarly is my assumption?
Patrick Grismer - Hyatt Hotels Corp.
That is correct.
Carlo Santarelli - Deutsche Bank Securities, Inc.
Great. Thank you.
Patrick Grismer - Hyatt Hotels Corp.
Thank you, Carlo.
[0CPPRG-E Brad O'Bryan]
Okay. Thank you, Krista.
And thank you to everyone for joining us today. We look forward to talking to you soon.
Good bye.
Operator
And this concludes today's conference call. You may now disconnect.