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Hyatt Hotels (NYSE:H)
Q2 2018 Earnings Conference Call
Aug. 1, 2018 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the second-quarter 2018 Hyatt Hotels Corporation's earnings conference call. My name is Kim, and I'll be your operator today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Brad O'Bryan, treasurer and senior vice president, investor relations and corporate finance. Please proceed.

Brad O'Bryan -- Senior Vice President, Investor Relations and Corporate Finance

Thank you, Kim. Good morning, everyone, and thank you for joining us for Hyatt's second-quarter 2018 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 highlights of our second-quarter operating results and an update on our growth strategy.

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. As a reminder, all references to RevPAR results included in our discussion today are calculated on a comparable and constant-dollar basis. Before we get started, I'd like to remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements.

These statements are subject to numerous risks and uncertainties, as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued late yesterday, along with comments on this call, are made only as of today, August 1, 2018, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in last night's earnings release. An archive of this call will be available on our website for 90 days per the information included in last night's release.

With that, I'll turn the call over to Mark.

Mark Hoplamazian -- President and Chief Executive Officer

Thank you, Brad. Good morning, and welcome to Hyatt's second-quarter 2018 earnings call. Before covering our quarterly results this morning, I'd like to briefly discuss our activities in relation to NH Hotel group based in Spain. Our interest in NH was born out of our efforts to significantly expand Hyatt's presence in Europe, where a bulk of NH's hotels are located.

We felt that the strength of our distribution channels, loyalty program, and the association with the Hyatt brand would enhance the operating results for NHS's hotels. We also saw an opportunity to unlock value through the separation of the NH's real estate from hotel operations. On Thursday of last week, we submitted a letter to the NH board of directors requesting access to information to allow us to develop an offer for the company. On Monday of this week, we submitted another letter to the board of NH, indicating that disclosures by NH's largest shareholder that came to light after the submission of our letter last Thursday led us to conclude that our path to a successful tender offer for NH was narrowed to the point of not being practical.

Absent the change in facts or circumstance, we will not be pursuing a tender offer at this time. Consistent with prior disclosures, we are continuing to evaluate and pursue asset-light investment opportunities as part of our long-term growth strategy, using some of the proceeds from our $1.5 billion real estate sell-down program. We expect that these investments will be individually in the hundreds of millions of dollars, not billions, and that the manner in which we execute these investments will preserve our investment-grade credit rating. Moving now to quarterly results.

I'm pleased to report that our strong first-quarter momentum carried into the second quarter, where we once again delivered impressive operating results across our global business. We reported adjusted EBITDA of $218 million for the quarter. Adjusting for the year-over-year impact of transactions, the timing of Easter and other nonrecurring items, adjusted EBITDA increased approximately 14% on a constant-currency basis, underpinned by another quarter of strong growth in management and franchise fees across all regions. Systemwide RevPAR increased 4%, led by solid increases in occupancy and average daily rate, aided by favorable Easter holiday timing, as Pat will explain later.

During the second quarter, we delivered net rooms growth of 7.4% on a year-over-year basis, marking 10 consecutive quarters of year-over-year net rooms growth of at least 6%. We continue to be an industry leader in development-driven growth and expect high levels of rooms growth to sustain, given the strength of our pipeline. Despite an exceptionally strong quarter of hotel openings, our pipeline of signed deals stands at approximately 73,000 rooms, an increase of over 10% compared to the same time last year and the equivalent of nearly 40% of our existing portfolio. Before moving on, I'm thrilled to share with you that today, we are announcing a strategic, an exclusive loyalty alliance, with small luxury hotels of the world or SLH.

SLH is a collection of more than 500 independently owned luxury hotels around the world with a stellar reputation for high-end, high-quality hotel experiences in key destinations, with a significant representation in the most coveted locations in Europe. To whet your appetite, you can reference the Lefay resort and spa Lago di Garda in Italy, with its deep dedication to well-being. Or the magnificent Villa Spalletti, a beautiful villa hotel just minutes from the Trevi Fountain in Europe. Or the Nobu Hotel in Marbella, that brings contemporary luxury to the Golden Mile in southern Spain.

All markets in which we have no high-branded hotels at this time. Our respective footprints are complementary with very little overlap, and this will greatly expand our collective offerings to loyal guests from both companies. In fact, more than 87% of locations where SLH is represented are ones in which there are no Hyatt hotels today. Additionally, SLH's collection is primarily oriented to leisure travel, which will enhance the options available to our World of Hyatt members.

Under the leadership of our Chief Commercial Officer Mark Vondrasek, we have been exploring opportunities to enhance the value proposition underlying our World of Hyatt loyalty program. And we believe our relationship with SLH advances our progress in a meaningful way. The alliance will allow World of Hyatt members to both earn and redeem benefits across a dramatically wider selection of hotels. We believe this exclusive alliance will not only enhance the value to existing World of Hyatt members, but will also attract new members over time.

We are targeting a launch of the alliance by the end of this year. And although, Hyatt is not making a financial investment in SLH, we are investing in the integration of our loyalty programs and believe this arrangement will yield significant benefits for both companies and for all Hyatt and SLH hotels overtime. We're excited to partner with such a great enterprise and with so many beautiful hotels, and we look forward to sharing more details on the alliance as we work toward the launch, later this year. You will recall that during our first-quarter call, I indicated that I would be discussing three areas of focus within our strategic lever of maximizing our core business during each of three quarterly calls this year.

I focused on our growth in the Greater China region during that call. Today, I'd like to discuss the importance of our select-service business and some enhancements to Hyatt Place in particular that we recently announced. Since the inception of our select-service business in 2004, with the acquisition of the 143 units AmeriSuites hotel chain and its subsequent conversion to the newly launched Hyatt Place brand. We've been consistently capturing a disproportionate share of the market and setting the bar for the upscale select-service segment with a high-quality product and guest experience.

While initially focused on suburban and smaller markets, we've expanded into key urban locations overtime with a great deal of success, more than tripling our presence in urban markets over the past five years. This development of select-service properties in urban markets had not only driven enhanced rate realization for the brands, yielding a rate premium of about 30% to nonurban select-service hotels, but has also allowed us to serve more business travelers in those markets and strengthen the network power of our brands for our corporate customers. Encouragingly, the Hyatt Place and Hyatt House brands have resonated with customers and have attracted third-party capital that has enabled us to aggressively expand in this fast-growing segment in a capital-light manner. As of June 30, we had 401 select-service hotels in our system, globally, spanning the Hyatt Place and Hyatt House brands.

In the last five years alone, we grew our select -- our global select-service presence by 71% and doubled our fee base. This includes the expansion of our Hyatt Place and a Hyatt House breadth into international markets where we have 49 hotels today and nearly twice that number in our international pipeline. This significantly enhances Hyatt's ability to extend the reach of the Hyatt brand in markets like China and India where the fast-growing commercial class is traveling at an accelerating rate. While the growth and performance of our select-service hotels has certainly been impressive, we are not resting on our laurels, and we believe the opportunity exists to further accelerate our growth with these brands, globally.

As it says today, select-service hotels account for almost 40% of our total pipeline of signed hotel rooms, and our pipeline represents growth of approximately 55% from our existing base of select-service rooms, the vast majority of these hotel rooms expected to open by 2020. We believe that, based on the strength of our pipeline, growing demand for our brands and increased development focus, we can more than double the number of select-service hotels we have around the world within the next five years. To enable this growth, we are investing in select-service focused resources, globally. In addition, we recently announced significant enhancements to the Hyatt Place brand, defining a new generation of Hyatt Place hotels that we believe will deliver best-in-class guest experiences that, in turn, will further enhance the attractiveness of the brand for developers.

Importantly, these enhancements were derived from direct engagement with our owner community and extensive customer testing. The change is focused on three key areas: The first is design. The design initiatives are focused on enriching the in-hotel guest experience. Changes include an evolution of the guest room to enhance comfort and functionality, a reimagined lobby experience and elevated culinary options, including a new significantly improved breakfast offering.

The second is World of Hyatt member benefits. The focus is on enhancing the value proposition for World of Hyatt members staying at Hyatt Place locations. This will include seamless early check-in options and new mobile functionality to enhance the stay experience for our most valued guests. It will also include complimentary breakfast for our World of Hyatt members.

The third is well-being. The new initiatives bring well-being focused offerings to the Hyatt Place brand in a more meaningful way. We will leverage our Exhale spa and fitness brand to deliver unique well-being experiences and offerings at Hyatt Place hotels, including in-room video fitness content, preferred rates and privileges at Exhale locations, and app-based fitness offerings. We will also be enhancing our on-property fitness facilities to provide an enhanced guest experience.

We are confident that these changes will be appreciated by our guests, and we've received overwhelming positive feedback from owners and developers who appreciate the enhanced development economics these changes are driving. In fact, many of them have indicated an intent to expand their development of properties carrying the Hyatt Place brand. To summarize, our Hyatt Place and Hyatt House brands have redefined the upscale select-service segment over the last decade and have consistently led the industry with strong performance through a unique offering that resonates with guests. Additionally, our robust pipeline of select-service hotels is an important part of our global growth.

And, we believe the new generation of Hyatt Place hotels along with our commitment to continuously evolve our offerings will allow us to lead the evolution of the segment over the next decade. With that, I'd like to close by saying that we are very pleased with our second-quarter 2018 results, and the trends we're seeing, which we will -- which we believe will support solid results for the back half of the year. With that, I'll now turn the call over to Pat.

Patrick Grismer -- Chief Financial Officer

Thank you, Mark, and good morning, everyone. I'll begin by providing more detail on our second-quarter results and will then share an update on our full-year expectations. Late yesterday, we reported second-quarter net income attributable to Hyatt of $77 million and earnings per share of $0.66 on a diluted basis. Adjusted EBITDA for the quarter was $218 million, with systemwide RevPAR growth of 4%.

The timing of the Easter holiday positively impacted our systemwide RevPAR growth by approximately 30 basis points, reversing the negative impact that we saw in the first quarter. Year to date through June, systemwide RevPAR growth was 4.2%. The impact of transactions over the past 12 months resulted in a net decrease in adjusted EBITDA for the quarter of approximately $32 million compared to 2017. Excluding this unfavorable transaction impact, the favorable holiday impact, and other nonrecurring items, our adjusted EBITDA grew approximately 14% on a constant-currency basis.

This strong earnings growth was driven by net rooms growth of more than 7%; healthy, transient, and group business with solid in-the-quarter, for-the-quarter bookings; and outstanding performance at our owned and leased hotels, which delivered strong RevPAR growth and margin expansion in the quarter. I'll now highlight our segment results, starting with our management franchise business, where we delivered impressive fee growth with base, incentive and franchise fees collectively increasing approximately 13% on a constant-currency basis compared to the second quarter of 2017. Included in that increase is another strong quarter of incentive fees driven by solid profitability improvements at our managed hotels. Total fees increased approximately 9% on a constant-currency basis, including a $5 million year-over-year decrease in nonrecurring fees.

We've now delivered 10 consecutive quarters of high-single to low-double-digit growth in our total fees, demonstrating the sustained strength of our management and franchise business, which we expect will continue to drive the evolution of our earnings profile supported by strong RevPAR performance and industry-leading rooms growth. I will now share additional perspective on each of our three lodging segments, starting with the Americas, which accounted for approximately 77% of our management and franchising adjusted EBITDA in Q2. The Americas segment delivered full-service RevPAR growth of 4% and select-service RevPAR growth of 2.6%. Excluding the impact of Easter, full-service RevPAR would've increased 3.5%.

Total U.S. RevPAR grew 3.4% or 3% excluding the holiday impact. Net rooms growth for the region was 6.3%. These results combined to deliver base incentive and franchise fee growth of approximately 8%, contributing to adjusted EBITDA growth of about 4% for the quarter, both on a constant-currency basis.

Excluding the impact of the conversion fee received in the second quarter of 2017, adjusted EBITDA for the segment would've grown approximately 10% on a constant-currency basis, a very strong result for our largest lodging segment. Group rooms revenue in the U.S. increased approximately 5% in the quarter, with solid in-the-quarter, for-the-quarter bookings and a favorable Easter timing impact on both group room nights and group rate. The growth of our group business in the second quarter was led by the strength of our corporate business with significant banqueting revenues contributing to the top line.

On the back of a solid Q2, our group revenue expectations have improved slightly from last quarter and remain at a low-single-digit increase for the year. U.S. group production for all years was up approximately 2%. In the year for the year business was up approximately 8% for the quarter, which marks three quarters in a row of increased in the year for the year bookings, something we haven't seen since 2015.

Looking ahead, group booking pace for all years is up with over 60% of our targeted 2019 U.S. group business already on the books at the end of the quarter. U.S. transient revenue increased 1.6% for the quarter, driven by strength in Atlanta, New York, and Hawaii, partially offset by the adverse effect of Easter holiday timing, which favored our group business.

I'd also like to highlight that our Hyatt Place and Hyatt House hotels in the U.S. have now achieved 12 consecutive quarters of share increases as measured by Smith Travel Research, demonstrating the competitive strength of those brands, as Mark discussed earlier. I'll now move on to our management and franchise business in Asia-Pacific, which accounted for about 14% of our management and franchising adjusted EBITDA in Q2. Full-service RevPAR for this segment increased 4.2% in the quarter, driven by occupancy gains and a modest increase in rate.

RevPAR in Greater China increased by approximately 7% and more than offset continued weakness in South Korea. Net rooms growth for the region was approximately 9%, supported by 12% net rooms growth in Greater China. Together, solid RevPAR and strong rooms growth drove an increase in base incentive and franchise fees of approximately 9% in constant dollars. Adjusted EBITDA grew approximately 2% on a constant-currency basis, reflecting the impact of organizational investments we're making to support a dramatic ramp-up in new hotel openings and pipeline growth in the region over the next several years.

Now moving to our Europe, Africa, Middle East, and Southwest Asia segment, which accounted for approximately 9% of our management and franchising adjusted EBITDA during the second quarter. Full-service RevPAR increased 6.5%, driven by a combination of occupancy and rate increases. Net rooms growth was approximately 12%. These strong results drove a 16% increase in base incentive and franchise fee revenue for the quarter and an increase in adjusted EBITDA of 48%, both on a constant-currency basis.

These exceptional results were helped by strong performance in Eastern Europe due, in part, to business from the FIFA World Cup. I'll now cover our owned and leased business, which accounted for approximately 49% of our adjusted EBITDA before corporate and other in Q2. Owned and leased RevPAR increased 4.1% or 3.7%, excluding the impact of the Easter holiday shift. Owned and leased segment-adjusted EBITDA was down approximately 12% in constant-currency due to the impact of several large hotel dispositions over the past year.

Excluding the impact of these transactions and the impact of the Easter holiday, segment adjusted EBITDA would've increased approximately 10%. I'm especially pleased with our second-quarter consolidated comparable owned and leased margins increased 160 basis points versus prior year, including a positive 40-basis-point impact from Easter. These improved margins were driven by increased revenue, including a strong quarter of food and beverage revenues, underpinned by heavy corporate group business during the quarter and by strong productivity gains due to our continued focus on operating efficiency. Before moving on to our full-year guidance, I'd like to briefly comment on capital deployment.

We've previously indicated that we intend to continue to execute on our asset recycling activities and that you should expect further activity on both the acquisition and the disposition front for the remainder of the year. I'm pleased to announce that on July 19, we completed the purchase of the Hyatt Regency Phoenix for approximately $140 million. This acquisition serves to preserve our presence in an important market by securing control of the property and related management agreement, which was nearing the end of its term. This acquisition is also enabling us to accelerate growth in the Phoenix area by removing development restrictions that were embedded in our management agreement for this hotel.

Additionally, through a 1031 exchange, we were able to defer a portion of the income taxes triggered by the gain that we realized on our $1 billion sale to Host Hotels in the first quarter of this year by funding a large portion of the Phoenix purchase with proceeds from the host transaction. I would also add that it's part of our ongoing asset recycling efforts, we're in the process of selling an owned hotel, which will generate proceeds well in excess of the purchase price of the Phoenix property. We expect to close on the sale of that asset within the third quarter. Moving on to share repurchases, I want to highlight that with the successful sale of three full-service hotels late in the first quarter, we increased our pace of share repurchases in Q2, returning $530 million of capital to shareholders inclusive of second-quarter dividends.

On a year-to-date basis, through July 27, we've returned $661 million to shareholders and $257 million remains on our existing share-repurchase authorization. Given our latest expectations for the remainder of the year, including our outlook for new investments, we now expect to return approximately $800 million to shareholders in 2018, including dividend payments. This revised guidance represents a $100 million increase from our first-quarter guidance for shareholder capital returns and is a new record for Hyatt. I will conclude my prepared remarks by providing an update on our outlook for the year.

After another quarter of strong operating results, solid momentum in group bookings and greater visibility to the remainder of the year, we are increasing our outlook for growth in both RevPAR and adjusted EBITDA. With respect to RevPAR, we are increasing our full-year growth expectation to a range of 3% to 4%, reflecting a 75-basis-point increase in the midpoint of the range. With respect to adjusted EBITDA, we are raising our full-year guidance to a range of $775 million to $785 million, effectively lifting the low end of the range by $10 million and the midpoint by $5 million. This reflects our increased RevPAR growth assumptions and a very modest contribution from the acquisition of Hyatt Regency Phoenix during a period of low seasonality, partially offset by reduced favorability from foreign exchange compared to our previous guidance.

Our revised full-year estimate would represent adjusted EBITDA growth of approximately 12%, excluding the impact of transactions and foreign currency, which is at the higher end of our earnings growth model range and demonstrates another healthy year of earnings growth for Hyatt. You can find additional detail on our updated guidance for the year in our Q2 earnings release. To conclude, we are very pleased with our second-quarter results, including strong RevPAR growth, net rooms growth and margin expansion. With the successful execution of our capital strategy, we expect a record level of shareholder capital returns this year and we continue to drive the evolution of our earnings base with heavier weighting toward a high growth fee business.

We're also confident in driving the successful execution of our China growth strategy and further growth of our select-service brands, particularly with enhancements we've recently announced for our Hyatt Place brand. With that, I'll turn it back to him for Q&A. Thank you.

Operator

[Operator instrcutions] Your first question comes from David Katz from Jefferies. Your line is open. David Katz, your line is open. Your first question comes from Patrick Scholes from SunTrust.

Your line is open.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Hi. Good afternoon. Thank you. Just a quick question.

Certainly, a very large level of share repurchases in 2Q. How should we think about the trajectory for the rest of the year?

Patrick Grismer -- Chief Financial Officer

Thank you, Patrick, for the question. Given the extent to which we took up the pace of share repurchases in the second quarter and a revised guidance for total shareholder capital returns of approximately $100 million for the full year, that would imply a reduced pace of share repurchases for the balance of the year. No particular indication as to the pace across Q3 and Q4, but certainly more muted pace compared to the first half of the year and certainly in relation to Q2.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

OK, that's it for me. It makes sense. Thank you.

Operator

Your next question comes from Smedes Rose from Citi. Your line is open.

Smedes Rose -- Citi -- Analyst

Hi. Thank you. I wanted to ask you, so you said that the NH potential acquisition or bid is sort of off the table now. But could you maybe just talk about your interest in other brand opportunities, it's kind of either in Europe or I think you've talked about maybe focusing in on Asia and kind of where does that stand in terms of your – I guess your list of priorities?

Mark Hoplamazian -- President and Chief Executive Officer

Sure. Thanks so much. I think what we said is that we are focused on acquisitions and investments that, first and foremost, help expand our presence and distribution in places where we are underrepresented and secondly, meet some financial objectives that we outlined namely investments that are accretive to earnings but also asset-light in nature. So our -- the definition of the set of things that we said that we would be looking at really have to satisfy those two categories of objectives.

Europe is a key. It has been, it remains a key area of focus for us. I would say with respect to Asia, we have such a significant pace of development-driven growth in Asia that our focus there is really to identify areas that would be particularly and differentially enhancing the value of our network and of World of Hyatt. So specifically, I would think more about resort representation in Asia than I would, say, in urban markets where we've got a significant pace of growth as it is.

So that might be another area of focus. But generally speaking, I would say, we're looking at the various alternatives that we are continuing to evaluate through the lens of our focus on our high-end traveler base, how we can enhance the network effect for Hyatt and the value of the world of Hyatt platform. Subject to the two sets of objectives strategically and financially that I mentioned just a minute ago.

Smedes Rose -- Citi -- Analyst

OK, that's helpful. And then I just wanted to ask you the pipeline sequentially was flat at around 73,000 rooms, and it typically seemed the pipelines grow faster than kind of net additions. And if that's something that you would expect to accelerate through the balance of the year? Or is there some may be a seasonal component there?

Mark Hoplamazian -- President and Chief Executive Officer

You know the Evenflo of openings versus signings over the course of the year is both unpredictable and variable over time. So we actually are not so focused on whether we maintain sequential growth. Let's say, we had a very significant quarter of openings this quarter and maintained our pipeline, and it does a 10% growth year over year, so as I sit here today and I think about how we are gauging our future and I look at the backlog of transactions that are being negotiated right now and letters of intent that have been signed, we are in a higher demand for Hyatt brand position as we sit here this time this year than we were at last year by a wide margin. So I look at the opportunity to continue to expand our pipeline even as we maintain what we've noted is an industry-leading level of net rooms growth is what we're confident about being able to do both.

Smedes Rose -- Citi -- Analyst

OK. Thanks

Patrick Grismer -- Chief Financial Officer

Smedes, this is Pat. I just like to build on what Mark has said, and I'll take you back to our earnings call in February where we provided a deeper look at the construct of our earnings growth model. We're also, at that time, providing guidance for 2018. And in order to provide some context around the guidance we provided for net rooms growth for 2018, we provided some visibility to how we saw things shaping up for 2019.

And you may recall that we highlighted that we expected an acceleration of our net rooms growth rate in next year. And that is still the case. We indicated at the time that we expected 2019 would deliver more than 7.5% net rooms growth and that outlook remains solid.

Smedes Rose -- Citi -- Analyst

Great. Thank you. And Pat, in your updated guidance for EBITDA does it also anticipate the sale of the owned asset that you mentioned in the third quarter?

Patrick Grismer -- Chief Financial Officer

It does not at present.

Smedes Rose -- Citi -- Analyst

OK. All right. Thank you very much, guys.

Operator

Your next question comes from the line of David Katz from Jefferies. Your line is open. Your next question comes from Thomas Allen from Morgan Stanley. Your line is open.

Thomas Allen -- Morgan Stanley -- Analyst

Hey. How are you? Just in terms of the RevPAR growth in the quarter. Certainly, it stood out a little bit. Was it the select service and Hyatt Place, Hyatt House brands underperformed the higher end brands? Obviously, Easter had a bit of an impact, but you called that out.

Are you seeing any shift where kind of higher-end hotels are outperforming lower-end? And what do you think could be driving that? Thank you.

Mark Hoplamazian -- President and Chief Executive Officer

Look, I think overall, what's real with the performance of the select-brands, we gain share in the quarter, Thomas. And as we look back, we've gained shares, as Pat mentioned, in 12 consecutive quarters. So we feel like the strength and the performance of the brands is well in place. Generally speaking, the supply and demand in the upscale segment right now is relatively closely balanced.

And so as we think about how we're competing at this point, it's in part due to really differentially performing and gaining share. It's particularly why we're so excited about the new changes and the evolution of the high-priced brand that I talked about in the script. Because we feel like those will continue to put us in a position where we can differentiate what we're doing and really focused on the guest experience. But overall, we believe that we're in a period where the kind of performance in the level of growth that we've seen in the first half should be sustainable at this point.

So our outlook is not that -- we're seeing some kind of structural shift that will tend to be a trend of any kind in terms of a decline quarter over quarter.

Thomas Allen -- Morgan Stanley -- Analyst

That's helpful. Thank you. And then just kind of touch on that last point, for the guidance overall, you obviously don't give quarterly guidance. Is the implication you've raised your second half of the year expectations given the strong momentum or are you kind of baking in the same second half expectations, which could, some would argue, be conservative? Thank you.

Patrick Grismer -- Chief Financial Officer

Yeah. Thomas, thank you for the question. We have modestly increased our second half expectations, but we've also given the fact as you know to the lower favorability from 4x, which has mitigated the impact we would've otherwise expected, given the underlying momentum in our business.

Thomas Allen -- Morgan Stanley -- Analyst

Helpful. Thank you.

Operator

Your next question comes from Bill Crow from Raymond James. Your line is open.

Bill Crow -- Raymond James -- Analyst

Hey. Good morning. Thank you. I wanted to start with a follow-up to Thomas's question there on the limited service or select services versus full service.

I think the way you answered it was more pertinent to your own market share and performance. But I'm just wondering if there's a shift in the demand segments that are driving RevPAR growth or maybe supply shifts that are making the upper upscale and full service outperforms select service, looking beyond your portfolio?

Mark Hoplamazian -- President and Chief Executive Officer

Thanks, Bill. I think -- As I think about sort of -- thinking about the segments and segment performance, couple of things that I think are notable. I talked last quarter about the strength of leisure transient demand and that continued in this quarter. Hawaii was a real standout performer for us.

So high-end -- our high-end customer base is still active on the leisure front. That helps to and tends to help enhance full-service resort performance. The second dynamic that is really notable is that the corporate demand on the group side this quarter was really spectacular. It was a very, very strong quarter for corporate demand, both in terms of realized business, but also in terms of booking pace.

We had a very strong quarter with respect to in-the-quarter, for-the-quarter, and in-the-quarter, for-the-year bookings, a lot of which, most of which are corporate in nature. So if you look, we had sort of on a year-to-date basis, taking the Easter quarter -- the Easter impact out, corporate demand -- corporate group revenue is up almost 7%, year to date. And so as we look at that and we look at sustained levels of demand in volume accounts and business transient, a lot of that activity -- so significant quarter in group continue to sustain demand on the leisure side, which is really for the benefit of resorts more than it is for the select-service portfolio. That is part of a dynamic that we saw and partly helps to explain kind of the evolution or profile of the results.

Bill Crow -- Raymond James -- Analyst

Yeah. That's great. Thank you. I wanted to also ask about the NH deal and a two-parter here, how aggressively did you go after the stake in NH that HNA sold earlier this year, I think it was? And then the second part of that is how much work did you do to understand the value and the opportunity to unlock the value from selling the assets, I'm not as familiar with how that might be done in Europe and the tax efficiency, etc., in the U.S.

but just tell me kind of the work that you did, that you got comfortable?

Mark Hoplamazian -- President and Chief Executive Officer

OK. Thanks, Bill. On the first issue, I'm not going to comment on any specifics that we might have pursued or how we went about what we do, or what we did. On the second point, the fact is that we spent a lot of time considering different ways in which we could approach the opportunity.

The backdrop of that was to really focus on the separation of the real estate from the hotel operations. It's a complicated process and, ultimately, led us to realize that we couldn't advance our work without getting information from the company which is really what drove the letter that we sent to the board last week. Given the nature of the regulatory environment in Europe that became public, and so there was a lot of focus and attention on it. And as I mentioned in my comments, we didn't know about some disclosures that were made after we submitted that letter which led us to the conclusion that we did.

So I would say that we did a lot of work, in fact, I think we sort of did all the work that we could do with publicly available information and came to the conclusion that we could not advance what we wanted to do further without additional information.

Bill Crow -- Raymond James -- Analyst

OK. That's great. Thank you.

Mark Hoplamazian -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from Stephen Grambling from Goldman Sachs. Your line is open.

Patrick Grismer -- Chief Financial Officer

Hello, Stephen. this is Pat. Thank you for the question. We're certainly not turning away any development opportunities.

What I was making reference to in terms of the growth in adjusted EBITDA for ASPAC and the extent to which that earnings growth was not consistent with the top-line growth that we're seeing out of the region is that we're making investments in human resources, in human capital to provide the platform and the infrastructure necessary to support the ramp-up, the very dramatic ramp up we're expecting in new hotel openings over the next several years. So certainly not turning away from opportunities. In fact, I would say, running toward opportunities, building on an already strong pipeline and building partnerships as we did with Minyoun earlier this year to ensure that we are fully capitalizing on the enormous growth potential of that market.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. And then perhaps I missed at the opening, but how does the recent strength in the hotel transaction market alter your thinking, if at all, on the timing and magnitude of asset sales?

Mark Hoplamazian -- President and Chief Executive Office

Well, first and foremost we are active in the market, have been, are now and will continue to be. So, we've – you heard Pat described a couple of things that are going on. One is the announcement of our acquisition of the Hyatt Regency in Phoenix. The second is our plan to dispose of one of our hotels.

We're actively engaged in other acquisition opportunities, as we speak. And in relation to the sell-down commitment that we made, we have a 100% confidence that we will make our commitment to fulfill the $1.5 billion sell-down target. And what we expect is that, as the year unfolds further, we will turn to a more specific plan for the next step in that. And that will likely take us into 2019 for the next chapter of that sell-down process.

Stephen Grambling -- Goldman Sachs -- Analyst

Sounds good. Look forward to hearing it.

Mark Hoplamazian -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from Joe Greff from JPMorgan. Your line is open.

Joseph Greff -- J.P.Morgan -- Analyst

Good morning, guys. Most of my questions have been asked and answered. But I'm just curious, with respect to NH Hotels, and I know you sent the more recent letter on Monday, have you heard from them, have they responded to you?

Mark Hoplamazian -- President and Chief Executive Officer

Nothing to comment on at this point.

Joseph Greff -- J.P.Morgan -- Analyst

OK. Thanks, guys.

Mark Hoplamazian -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Vince Ciepiel from Cleveland Research. Your line is open.

Vince Ciepiel -- Cleveland Research -- Analyst

Thanks for taking my question. I had a question about rate growth. It looks like it's accelerated quite nicely both systemwide and in your owned hotel portfolio. Could you just remind us of the connection between rate growth and margin growth? And based on where you are in the cycle and from a cost perspective, what the trajectory of margins could be like within your owned portfolio?

Patrick Grismer -- Chief Financial Officer

Certainly. Thank you, Vince. As it relates to rate growth and the trends that we're seeing, we're obviously very pleased with overall RevPAR growth and the extent to which that has been supported by healthy rate growth. One of the key contributors to that, in addition to the premium positioning of our products, is that we are continuing to improve our revenue management efforts.

And we're certainly seeing that in our overall margin performance, which is the second part of your question. I'm very pleased with the margin progression that we saw in the second quarter for our owned and leased properties. In breaking down the 160-basis-point improvement versus the second quarter of last year, we noted 40 basis points came from Easter, so that left 120 basis point improvement net of that holiday shift. A lot of that is coming from sales leverage, as well as from significant profitability improvement initiatives which include revenue management.

So very strong momentum in our owned and leased portfolio, and we're following a similar playbook for our managed properties that we don't own. We're very pleased with the overall momentum. It's hard to say how that's going to progress balance of year or into next year, but this is something we've been focusing on quite a bit over the last couple of years and we're extremely pleased with the kind of results we're seeing with this level of margin expansion.

Vince Ciepiel -- Cleveland Research -- Analyst

Great. Thanks. And then maybe just a bigger picture question, the midpoint your guidance kind of implies a little bit more modest RevPAR growth in the second half relative to the first half. And I'm just curious, is that conservatism for international which has been growing quite nicely or do you think that both domestic and international could decelerate a bit in the second half?

Patrick Grismer -- Chief Financial Officer

It's more conservatism than anything else. We have half the year to go. We have improved visibility versus the last quarter, which is why we took up our guidance in addition to the fact that we had a strong second quarter, but we feel that it's prudent to guide conservatively and we have a high level of confidence around our ability to deliver against our numbers. One thing that, that we are facing in the second half of the year is that we are facing some tougher comps in Asia as was the case in the second quarter and there are some renovation impacts and other things that would contribute potentially to a slightly softer quarter or – excuse me – slightly softer half compared to the first half of the year.

One thing actually on the subject of balance of year, one thing I would like to highlight while we don't provide quarterly guidance as it relates to either RevPAR or adjusted EBITDA, we are expecting, on balance, the third quarter to be a bit softer and the fourth quarter to be a bit stronger. Part of that is due to how the transaction effects play out across the quarter's balance of year. We're expecting about a $20 million transaction impact in the third quarter and about $15 million in the fourth quarter. There's also some holiday timing that is adversely impacting the third quarter relative to fourth quarter.

And then finally, as a reminder, we took some fairly significant severance and other charges in the fourth quarter of last year, we'll be lapping that this year. So that also contributes to what we expect will be a stronger fourth quarter slightly softer third quarter, as it relates to how we're thinking about balance of year.

Vince Ciepiel -- Cleveland Research -- Analyst

Thanks for that color.

Operator

Your next question comes from Michael Bellisario from Baird. Your line is open.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Good morning, everyone.

Mark Hoplamazian -- President and Chief Executive Officer

Hi, Michael.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Just want to go back to your kind of net unit growth and the focus on the select service side. You mentioned doubling that footprint, I think, to 80 hotels a year, you guys have been running out of kind of 60 hotel run rate for the entire company. How should we think about that step-up in development and are you guys going to have to invest any of your own money to hit that five-year target?

Mark Hoplamazian -- President and Chief Executive Officer

Thank you for that, Michael. Our activity based on the development side for select-service hotels has been extremely weighted toward working with third-party developers. We have, historically, entered into development partnerships. We've built some hotels ourselves, although not so many that we have built to hold. We've identified sites to develop and then either took on a partner or ended up selling the hotels on completion. 

The reason we've done that is because we really wanted to control site selection in key markets and the whole initiative starting about four or five years ago that I talked about at that time was the next chapter of growth for us for select services was key urban markets, and that's really why we weighed into that. But our deployment of capital against construction or on balance sheet development for select service will be a very small going forward. We will continue to identify key locations in markets and work with developers to work through those opportunities, but you will not see us deploying a lot of capital against construction. In terms of the pace of growth, what I said is I think we can double what we're doing from here over the next five years.

I think that will – we expect that that will ramp over that period of time. And part of that has to do with changes that we're implementing that I talked about but also adding resources – development resources globally. We see continued positive momentum in demand for our Hyatt Place and Hyatt House brands globally. So we believe that we will see a further acceleration of that, over time, as we get more presence and develop more awareness of the brands, but also can demonstrate more of the network effect that I – as I had mentioned that we already see in the United States.

Once we get to a greater scale in some other countries.

Patrick Grismer -- Chief Financial Officer

Michael, this is Pat. Just to build on what Mark has said, earlier I referenced that we had provided a preliminary outlook for net rooms growth for 2019 more than 7.5%. This year's guidance, as you know, is 6.5% to 7%. So that's a very significant increase in the pace of new unit openings and a very significant contributor to that is the pace of our select service development.

So we are, in fact, expecting an acceleration of that growth.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

That's helpful. And then just one housekeeping item, if you could maybe provide any more info on the impairment you guys took during the quarter?

Mark Hoplamazian -- President and Chief Executive Officer

Yeah. Thank you, Michael. That impairment relates to Oasis which is the alternative accommodation investment that we made last year. Oasis has underperformed our expectations as it relates to the scalability of that business and the synergies to be realized through the alliance with Hyatt.

The business has consistently experienced shortfalls in operating cash flow, and so, as a consequence, we felt that it was prudent to impair our investment to-date. We treated it as a special item, as you know, it's outside of adjusted EBITDA.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

OK. Thank you.

Operator

Your next question comes from the line of David Katz from Jefferies. Your line is open. You may be on mute, please un-mute. There are no further questions in the queue.

I now turn the call back over to Mr. Brad O'Bryan.

Brad O'Bryan -- Senior Vice President, Investor Relations and Corporate Finance

Thank you, Kim, and thanks to everybody for joining us for the call today. We look forward to talking to you soon.

Operator

[Operator signoff]

Duration: 55 minutes

Call Participants:

Brad O'Bryan -- Senior Vice President, Investor Relations and Corporate Finance

Mark Hoplamazian -- President and Chief Executive Officer

Patrick Grismer -- Chief Financial Officer

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Smedes Rose -- Citi -- Analyst

Thomas Allen -- Morgan Stanley -- Analyst

Bill Crow -- Raymond James -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Joseph Greff -- J.P.Morgan -- Analyst

Vince Ciepiel -- Cleveland Research -- Analyst

Michael Bellisario -- Robert W. Baird & Company -- Analyst

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