Hyatt Hotels Corp

Ladies and gentlemen, thank you for standing by, and welcome to the Hyatt First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Brad O'Brien, Senior Vice President. Please go ahead.

Thank you, Josh. Good morning, everyone, and thank you for joining us for Hyatt's first quarter 2020 earnings conference call. On the call today are Mark Hoplamazian, Hyatt's President and Chief Executive Officer, and Joan Bottariti, Hyatt's Chief Financial Officer. Before we get started, I'd like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our annual report on Form 10-K, and other SEC filings, including the Form 8K filed on April 21, 2020. These risks 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 yesterday, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the financial reporting section of our investor relations link and in yesterday's earnings release. An archive of this call will be available on our website for 90 days. With that, I'll turn the call over to Mark.

Thank you, Brad. Good morning and welcome to Hyatt's first quarter 2020 earnings call. I hope that all participants on this call and your families are safe and healthy and keeping well. The COVID-19 pandemic has taken a devastating toll on people around the globe and has significantly disrupted the global economy and, in particular, the travel and tourism industry. The Hyatt family is grateful for those on the front line, including medical and other personnel and volunteers who are working tirelessly to protect the health and safety of so many around the world. This has affected everyone in meaningful and sometimes painful ways. Unfortunately, the Hyde family has been directly impacted. While I'm grateful that the percentage of colleagues who have contracted the virus has been quite low, every member of the Hyde family matters in a powerful way. We have had 103 confirmed cases and several hundred colleagues in active quarantine due to possible exposure. Tragically, to date, we've had six colleagues lose their lives and many more who have lost family members or loved ones to the virus. Our deepest sympathies go out to all of those who have experienced losses during this pandemic. I also want to express regret and sorrow for the large number of colleagues who are suffering financial hardship as a result of this crisis. With a bit over a third of our hotels having suspended operations and with low occupancies in those that remain in operation, Approximately 65% of our managed hotel employee base globally has been furloughed or placed on leave. It is for this reason that we established our already announced Hyatt Care Fund to support colleagues with the most pressing financial needs due to COVID-19. The Care Fund was financed with initial contributions from salary reductions of Hyatt's senior leadership team and board of directors, as well as through donations from the Hyatt Hotels Foundation and Pritzker Family Foundations, and certain Hyatt hotel owners, and it continues to grow thanks to ongoing contributions from individual donors. To date, the Hyatt Care Fund has received applications from thousands of colleagues around the world and is prioritizing those who are not working and ineligible for government assistance. Beginning this week, we've provided grants to nearly 500 colleagues and are processing thousands more in the coming weeks. In addition to our colleagues, we've been actively engaged with our hotel owners as we work to assist them in navigating this very challenging period. Our owner base is represented by a wide variety of entities ranging from large, well-capitalized private and public institutions, including a number of REITs, to individual properties owned by small businesses. The impact of suspended or substantially reduced operations has had a significant impact on hotel owners. We've been working closely with owners to help them access government assistance where appropriate and as requested, and through cost reductions or relief we are providing directly. We also understand the challenges that our corporate and association customers, our guests, and our World of Hyatt members face during this disruption. In the spirit of our purpose of care, we've implemented actions to provide guests with some measure of flexibility or relief, including an offer of points, for certain canceled prepaid reservations, and a waiver of fees associated with changed reservations. For World of Hyatt members, we also suspended the forfeiture of points through the end of this year, extended expiration dates for free night awards, suite upgrades, and club awards through the end of this year, and extended tier status to early 2022. We continue to evaluate opportunities to support our guests as they look forward to resuming their travel with us once the challenges of COVID-19 dissipate. In a few moments, Joan will provide more details regarding the impact of the severe decline in demand on our results during March and April and the proactive steps that we've taken to address the immediate operating environment with a focus on cost reductions and liquidity. Before turning it over to Joan, I'd like to cover two topics. the first of which is how we're thinking about the recovery of demand when shelter-in-place and travel restrictions begin to lift. It is very difficult to have any certainty around the timing or shape of the recovery, but we do know we'll get through this and travel will recover. We expect that the basic human desire to explore and travel will persist with a continued focus on seeking out experiences more than products. We understand that our corporate customers are evaluating how they will ramp up following the relaxing of the strict guidelines that remain in place in most commercial centers around the world at this time, and that their plans will likely include modified work-at-home and travel practices. When we think about what the profile of a recovery might look like in the second half of this year and into 2021, it's helpful to break down the primary sources of business into leisure transient, business transient, and group. We believe transient travel in general will lead to recovery, with leisure transient perhaps being the first to come back. You will likely see stronger demand in drive-to resorts and leisure destinations initially. We believe business transient travel will follow as businesses ramp up their activities. We believe group business will be the slowest to recover, given lingering concerns around larger group gatherings and ongoing social distancing mandates. While our group cancellations to date have been concentrated in the first half of 2020, we believe that corporate group bookings for the second half of the year are at risk, especially for meetings involving a significant number of people. We believe that association group business will be somewhat better than corporate group business through the third and fourth quarters of this year based on our discussions with our association customers. Overall, we expect group business to be down significantly this year, with higher confidence about recovery in group in 2021, where cancellations to date have been very limited. Looking to the future, our recovery task force is focused on all aspects of recovery, with special emphasis on safety and cleaning standards in preparation for reopening hotels that have suspended operations or ramping up for those that remain open. Providing safe and clean environments for colleagues and guests has always been a top priority for Hyatt Hotels. But going back to January of this year, we began consulting with infectious disease and occupational health experts to get ahead of the situation and quickly put in place enhanced cleaning and disinfecting procedures. We've also taken steps along the way to ensure that procedures and protocols are aligned with guidance provided by various health organizations, including the World Health Organization, the Centers for Disease Control and Prevention, as well as various local authorities and markets that we serve. Just last week, we announced our global care and cleanliness commitment as an enhancement to our operational guidelines and resources around colleague and guest safety. Included as part of that commitment is an announcement that we have initiated an accreditation process through the Global BioRisk Advisory Council, or GBAC, at our hotels around the world. GBAC is a division of ISSA, the Worldwide Cleaning Industry Association, and is composed of leaders in the area of microbial pathogenic threat analysis and mitigation, designed specifically to deal with biological threats and real-time crises like the COVID-19 pandemic. We believe that Hyatt is the first hospitality company to announce plans to commit to independent accreditation at our hotels globally. As part of these efforts, we are also developing group meeting standards and protocols to to ensure that groups can continue to meet in a safe and effective manner while health concerns related to COVID-19 persists. In addition, we have established a working group that includes American Airlines and Enterprise Holdings to provide guidance in this area and across the travel journey. Meanwhile, we are also working closely with the American Hospitality and Lodging Association on industry-wide standards in this area. In summary, We are actively engaged in taking all of the steps necessary to ensure a safe and enjoyable experience for both our colleagues and our guests as travel begins to recover over the coming months and beyond. The second area I'd like to briefly discuss is our commitment to our long-term strategy. We remain committed to driving asset-like growth through the growth of our management and franchising business while continuing our asset disposition program. During our Investor Day event in March of 2019, we announced as part of our capital strategy a commitment to sell an additional $1.5 billion in owned real estate. By way of reminder, we completed more than $950 million in asset sales against that $1.5 billion commitment as of the end of 2019 and have until March of 2022 to complete the remainder. We intend to fulfill that commitment. We've always been clear that we wouldn't sell assets in a distressed market simply to sell assets. And to the extent there is near-term pressure on demand and pricing, we may see less activity for a short period of time. Our remaining portfolio of assets is comprised of many well-located assets with sustainable value. With respect to the growth of our management and franchising fee business, For several years running, we've been delivering industry-leading net rooms growth, and our initial expectations for 2020 indicated that would continue. We delivered net rooms growth of 6.3% in the first quarter, and our pipeline, which has increased by approximately 11% year over year, benefited from new signings that kept pace with the solid pace of first quarter openings. If you exclude the impact of the previously disclosed removal, of the Ocean Resort in Atlantic City, which had a large room base but a small fee base, our net rooms growth would have been approximately 7% in the first quarter. While we had a healthy first quarter, we do expect delays in certain planned openings for the year and some disruption in New Deal activity as we work through the worst of this crisis. We nonetheless retain an exceptionally strong pipeline of new hotels scheduled to open over the next four or five years and remain committed to expanding our presence over time. In addition to aggressively pursuing the new development opportunities, we are also very focused on conversion opportunities, which may well be available in higher than normal volumes given business conditions. Our brand reputation, strong owner relations, and underpenetrated distribution should all serve as an advantage in capitalizing on these opportunities. I'll conclude my prepared remarks this morning by saying that while we are clearly facing an unprecedented challenge as an industry and as a company, we have a highly experienced management team that is well prepared to overcome these challenges. We've been proactive in taking the steps necessary to reduce costs, manage cash flow, and secure the necessary liquidity to weather this storm, as Joan will discuss in a minute. We are also actively focused on positioning Hyatt to emerge in a position of strength as the brand of choice for travelers as they resume activity over the coming months and beyond. Finally, we remain committed to the execution of our growth strategy and our asset disposition strategy. I'll now turn it over to Joan to provide additional details on our opening results, and some of the steps that we've taken to manage through this challenging environment. Joan, over to you.