Hyatt Hotels Corp

Ladies and gentlemen, thank you for standing by and welcome to the Hyatt third quarter 2020 earnings conference call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to turn the call over to Brad O'Brien, Treasurer and Senior Vice President of Investor Relations. Please go ahead.

Brad O' Thank you, Denise. Good morning, everyone, and thank you for joining us for Hyatt's third quarter 2020 earnings conference call. Joining me on today's call are Mark Poplamazian, Hyatt's President and Chief Executive Officer, and Joan Bottarini, Hyatt's Chief Financial Officer. Before we get started, I would 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, quarterly reports on Form 10-Q, and other SEC filings. 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 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 third quarter 2020 earnings call. I want to begin today by recognizing every member of Hyatt family around the world. As we all know, this is an incredibly challenging period we are living through and one that is expected to last far longer than any of us could have imagined. I continue to be inspired by my colleagues every day. Their embodiment of our purpose and the excellence and ingenuity with which they are engaging to maximize our opportunities are remarkable. Our purpose of caring for people so they can be their best defines why we exist and has long been fundamental to who we are as an organization, and it is vital during interactions with guests, customers, hotel owners, travel advisors, and with each other. In addition, the powerful way in which our teams around the world have put their skills into practice with excellence, creativity, and agility in reimagining our business has been stunning to see and highly effective. Our teams have successfully created safe and fulfilling guest experiences and, as a result, have maximized our operating results in this low-demand environment. It is clearly evident that we have the right team of people around the world to lead us through these challenging times, and we intend to build upon and leverage the strength of our brands as we recover and drive industry-leading growth and expanded profitability in the future. I'd like to now provide some color on what we are seeing in our business and how we're thinking about further recovery over time. Leisure travel has been the primary source of demand and continues to drive the recovery to date. So let me start there. During our second quarter call, we discussed the leisure-driven occupancy levels we were seeing through the first half of the summer as the strict lockdowns experienced during the second quarter began to be relaxed. We continued to see increasing demand through the remainder of the summer and into September. The strongest demand we've seen in the U.S. since the pandemic began was during the Labor Day holiday. We experienced continued strength through September and October, with modest increases in average occupancy levels over the period, driven heavily by weekend business, where occupancy percentages were running in the low 40s, while midweek occupancy percentages were running in the high 20s. We've seen booking activity continue to show small improvements since Labor Day. And it's noteworthy that TSA data for October 18th showed over 1 million travelers in a single day for the first time since March 16th of this year. That said, we are mindful of the recent increases in COVID-19 cases in the U.S. and Europe and the resulting increase in restrictions being put into place in many jurisdictions. We expect these enhanced restrictions to have a negative impact on travel in the near term, and this could result in flat or perhaps reduced fourth quarter demand compared to the third quarter. Leisure demand continues to be concentrated in drive-to leisure destinations. We have also seen significant outperformance by our select service brands as compared with our full service brands. On average, Our open Hyatt Place and Hyatt House hotels ran occupancy levels of approximately 46%, which was well ahead of the roughly 30% occupancy levels at our open full-service hotels. We're pleased with the relative performance of our select service hotels as they are gaining share with an increase of over 1,000 basis points compared to already strong REVPAR index levels in the U.S. during 2019. We're seeing similar or even greater increases in international select service hotels. These brands have consistently proven to be preferred by guests in the upscale segment, and this has continued to hold true through the early stages of recovery this year. Shifting to Greater China, occupancies in most areas of Greater China, excluding Hong Kong, Macau, and Taiwan, have reached pre-COVID levels as the rebound in domestic travel has fully replaced inbound travelers. We also continue to drive very strong REF PAR index results in China, a continuation of our second quarter performance. The strength of our brands combined with the operating excellence of our teams has led to continued outperformance versus the competition with an over 900 basis point increase in REF PAR index across greater China. Travel demand in China also continued to show strength beyond the end of the third quarter. During the Golden Week holiday from October 1st through October 8th, over 45% of the population traveled, and we realized a 17% increase in RevPar and a more than 35% increase in spend on food and beverage as compared to the same period in 2019. Leisure transient demand continues to lead the recovery in Greater China, but we are also seeing some meaningful recovery in both transient business travel and group business. As a percentage of realized demand in Greater China during the quarter, group business was at similar levels to 2019, and business transient was only off approximately 200 basis points. Notably, on the group business front, we continue to host new product launches for car manufacturers as well as luxury goods companies with extraordinary new programming that leverages our deep strength in banqueting and events. We view the China experience as an example of the strong desire people have to travel and gather, and the type of demand you might see that you might expect to see elsewhere once travel restrictions lift and fear around the virus ceases to be such a limiting factor to travel. With respect to ASPAC markets outside of Greater China, we're seeing continued improvement in demand in South Korea, which increased Q3 REF PAR levels by over 25% compared to the second quarter. And in Japan, which has started to show some improvement off of lower second quarter levels, with REF PAR increasing approximately 20% quarter over quarter. The majority of markets in the aspect segment, however, continue at low levels of activity given border closures and travel restrictions that remain in place. I'd like to now cover some forward-looking demand factors that we are paying close attention to. As stated, drive to leisure has been and will continue to be the primary source of demand that leads the recovery for the foreseeable future. Business transient and group business, however, will both be necessary ingredients in achieving full recovery and in supporting better rate realization. We continue to see near-end group business cancellations consistent with what we saw last quarter and have now seen meaningful cancellations in the first quarter of 2021 group business. While the impact on second quarter 2021 business isn't nearly as significant yet, we are starting to see cancellations and believe we may experience additional attrition over the coming months. Large group business demand is heavily linked to confidence around widespread vaccine availability, effective therapies, and scalable rapid testing solutions. We're cautiously optimistic about recovery and business travel in the second half of 2021, and we are encouraged by the advances in rapid low-cost testing. We've seen events in Southeast Asia facilitated by testing protocols, and travel authorities in the US and Europe continue to advance the procedures that would be put into place for bilateral market travel without quarantine requirements. Having said this, we're prepared for the first half of 2021 to be challenging, even as new solutions are launched, because it will take time for confidence to build. Group business on the books for the full year of 2021 at this point is down about 40% from where we were last year heading into 2020. While large group business has essentially disappeared, we're having some success with targeted small group business, including bubble programs for customers in professional sports, entertainment, emergency response workers, and universities. Our teams have reimagined our approach to group business with shifts towards regional meetings and cross-property, cross-market hybrid solutions. And we've had some success with industries such as restaurant franchise groups, pharmaceutical companies, construction, and certain manufacturing businesses. Our teams are working with customers to design new hybrid solutions and exploring potential rapid testing protocols for 2021 events. We are concurrently developing promotional offers and programs to attract business that is more social or leisure-oriented to fill in weekday gaps left by corporate and association business. With respect to business transient demand, we're hearing mixed messages from customers depending on the nature of their business and the impact the pandemic is having on them. A limited number of our customers are seeing increases in business activity and expecting business-related travel to increase early in 2021. But many of our largest customers, such as professional services and consulting companies, are suggesting a slower return to normalized travel levels with continued limitations on travel through the first half of 2021. The one thing we have learned since the beginning of this COVID-19 experience is that predictions made beyond the very near term are unreliable. as the human experience continues to evolve in ways that require continuous learning and adaptation. Touching on our owned and leased hotel outlook, we had just over 80% of our owned and leased and joint venture hotels open as of the end of the third quarter, and we expect overall demand for the majority of these hotels to continue to face pressure well into next year. Our teams have done an excellent job reimagining our operating model to drive impressive results despite overall third quarter REVPAR levels that were lower than 2019 levels by more than 80%. Demand in some of our drive-to resort and leisure destinations such as Lake Tahoe, Nevada, Lost Pines outside of Austin, Texas, and Huntington Beach, California was quite strong. However, the majority of our owned hotels are urban, business and group-oriented properties, and they continue to face significant headwinds. As we look forward, we expect we'll have about five of our owned and leased and joint venture hotels closed for the foreseeable future, given conditions in particularly challenging markets such as New York City. I'd like to now discuss our continued progress in driving long-term growth. Third quarter, we delivered net rooms growth of 6% on the heels of 5.8% net rooms growth for the second quarter. While there has been disruption in the development cycle with likely implications for future periods, I'm pleased to say that we've overcome a number of challenges to drive two straight quarters of strong growth. Consistent with my comments last quarter, we expect our full year net rooms growth to be above 4%. Our third quarter openings included three conversions contributing 30 basis points to our net rooms growth. The conversions include the Hana Maui Resort, which joined our destination brand and becomes our third resort on the island of Maui. The other conversions during the quarter were the 300-room High Regency Lanjiao, located along China's Yellow River, and the 400-room High Regency Doha. We continue to see meaningful conversion opportunities and expect complete additional conversions in the coming quarters. The third quarter also marked the openings of 18 additional Hyde Place or Hyde House hotels, including the Hyde Place Boston Seaport. This 297-room hotel is conveniently located in the heart of the Seaport District, overlooking Boston's Harbor Walk, and is the result of a joint development effort with an important development partner and owner of ours. Other notable openings during the third quarter include our re-entry into New Zealand with the opening of the Park Hyde Auckland, as well as the introduction of our second Andaz Hotel in China with the opening of the Andaz Xiamen. While not included in our third quarter openings, I'd also highlight our recent openings of the Hyatt-centric Center City Philadelphia, Grand Hyatt Nashville, and Higher Regency West Hanoi, all opened during the month of October. The 332-room Hyatt Centric in Philadelphia is located in one of the city's most desirable neighborhoods, a block off of Rittenhouse Square, and represents an important addition to this fast-growing lifestyle brand. The 591-room Grand Hyatt Nashville opens as the cornerstone of the 18-acre Nashville Yards development in the heart of downtown Nashville, with 77,000 square feet of event and function space, a world-class spa, and multiple food and beverage outlets, including one of the highest outdoor rooftop lounges in Nashville, along with the continental restaurant by the award-winning chef, Sean Brock. Finally, the 519-room High Regency West Hanoi is a conversion of an existing branded hotel and represents our first representation in Vietnam's capital city. We maintained our pipeline at 101,000 rooms after opening more than 4,300 rooms in the third quarter, representing an increase of approximately 10% in our pipeline from the third quarter of 2019. We continue to see full service growth opportunities globally, including both new builds and conversions. As I mentioned last quarter, we've seen very limited new development activity for select service hotels in the Americas, due largely to financing limitations and underwriting challenges. We are, however, starting to see an uptick in discussions in this space and believe significant demand for these development opportunities will return once capital availability improves for new development. I also want to highlight that our third quarter pipeline additions include 13 Yurkov signings with an expectation that as many as five of these hotels will open in China during the fourth quarter of this year. In fact, three of these hotels were opened during October. You may recall our announcement a bit over a year ago regarding our new joint venture with Homeins to develop the Yurkov brand designed to cater to the underserved upper mid-scale segment in China. Homeins operates a large number of hotels in China, and the venture is expected to rapidly develop Yurkov offerings around the country targeted at China's growing middle class, with many of the openings coming by way of conversions of existing properties. We are excited to have officially launched this new brand and believe it will provide significant opportunities to engage with an expanded and growing customer base in China. I'll conclude my prepared remarks this morning by saying that we were encouraged by continued improvement in leisure demand during the third quarter and believe that our reimagination of operations has yielded optimized operating results in this low-demand environment. We're particularly pleased with our performance in Greater China and the share gains we've captured both in China and our select service hotels here in the U.S. We believe the remainder of the fourth quarter could be challenging due to the impact of the current surge in COVID-19 cases we see in multiple markets, and we expect that economic recovery will continue to be uneven and weigh on results into the first half of 2021. Having said this, we remain confident in the enduring desire of people to travel and in the ability of our teams and brands to drive preference when we begin to see and experience tailwinds from a return of confidence to travel globally. As Joan will describe to you, the strength of our balance sheet and effective management of our cash flow positions us well to navigate the uncertain timing and pace of recovery with confidence. Meanwhile, we continue to execute on our long-term growth strategy. Another strong quarter of NetRooms growth and continued new construction and conversion activity speaks to the strength of our brands and the effectiveness of our development teams in leveraging that strength to identify opportunities to build on those brands and expand our global distribution. Finally, and most important, is the fact that the Hyatt family continues to live our purpose and drive the kind of performance that is not only sustaining us through this challenging period, but positioning us for enhanced strength and profitability as we achieve full recovery over the coming years. I'll now turn it over to Joan to provide additional detail on our operating results. Joan, over to you.