Hyatt Hotels Corp

Ladies and gentlemen, thank you for standing by, and welcome to the Hyatt fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will 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 hand the conference over to your speaker today, Mr. Brad O'Brien. Thank you. Please go ahead, sir.

Thank you, Carol. Good morning, everyone, and thank you for joining us for Hyatt's fourth quarter 2020 earnings conference call. Joining me on today's call are Mark Hoplamazian, 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 on 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, everyone, and thank you for joining us on our fourth quarter 2020 earnings call. Before I begin this morning, I need to take a moment to express my heartfelt condolences to the Sorenson family and to all of our friends and fellow hoteliers at Marriott in recognition of Arnie's passing this week. From the moment I joined the industry, Bill, Marriott, and Arnie welcomed me with a deep generosity of spirit They were quick to provide me their perspectives, and when it was appropriate to join forces on behalf of the entire industry, Arnie was always a steadfast partner. Most important to me, he was a kind and good person, and I will miss him and his friendship dearly. He will live on in our hearts and through the work that we carry forward on behalf of the industry that he so loved. As I reflect on all that we have endured over the past year, I recall that during our fourth quarter earnings call one year ago, I shared the unique challenges that our Asia Pacific team was navigating relating to the emergence of the COVID-19 virus in China. Little did we know at that time that what appeared to be a serious but somewhat localized medical crisis would quickly develop into a global pandemic that remains in our daily headlines and has changed so many aspects of our lives. None of us could have imagined the impact that the virus would have on our industry, but the Hyatt family responded swiftly and meaningfully to position Hyatt to not just navigate the crisis, but to be in a position of strength as we head into recovery and beyond. We took the difficult but necessary steps to reduce headcount and discretionary costs, resulting in an over $100 million reduction in SG&A expenses, excluding bad debt expenses, as compared with our original 2020 guidance. In addition to this, we effectuated a more than $150 million reduction in costs incurred on behalf of our managed and franchised properties. We implemented these changes just two and a half months after the very first lockdown in the U.S. We worked with our owners to close hotels where appropriate and quickly right-sized hotel operations and staffing levels to support significantly reduced levels of demand. We also supported our third-party owners, providing both fee concessions and some deferrals of amounts owed for system services and certain other fees while at the same time negotiating new, lower-cost arrangements with third-party vendors. We amended our revolving credit facility and issued bonds totaling $1.65 billion to secure significant liquidity to be able to support current needs and be positioned to invest in new opportunities once we have more visibility on the shape of the recovery. End. We promptly rolled out our global care and cleanliness commitment, including important health and safety protocols for our guests and our colleagues. As we worked through these challenges and learned to operate in a very different and challenging environment, we were consistently guided by our purpose of caring for people so they can be their best. Our purpose informed how we engaged with our guests, our customers, our owners, and our colleagues just as it had before COVID-19 and as it will continue to well beyond it. We also emphasized our focus on wellbeing in how we care for ourselves and engage with others. It is in difficult times like these that the human spirit is most tested. Supporting our colleagues to commit to their personal wellbeing and encouraging the same for each member of their team is an effective recipe for being able to thrive in this environment. As the challenges of this pandemic to our business unfolded, our teams responded by truly reimagining both the hotel experience for our colleagues and guests and how we efficiently manage hotel operations. I do want to emphasize that these efforts were transformational, and I have confidence that the approach we used to implement the changes will endure. and translate to lasting value creation for all of our stakeholders. One of our group presidents recently said the pandemic, quote, broke our muscle memory, unquote. I'm not sure there's a better characterization of what this challenge has afforded us by way of opportunity. I do believe that some of the ways in which we have restructured hotel operations may never have been imagined without such a severe disruption to our business. We've taken many steps in areas such as discovery of demand through tapping data from many nontraditional sources and using enhanced analytics combined with rapid go-to-market digital strategies, creating cross-functional staffing approaches across multiple areas, clustering services and resources for multiple properties, expansion of high-margin food and beverage offerings, and Importantly, the rapid development and rollout of additional digital technology. These efforts have not only helped drive improved margins, reduced break-even levels, and enhanced guest experiences, but will, in many cases, inform how we manage hotel operations going forward. We've previously discussed that our historical break-even levels on an occupancy basis were in the range of 40 to 45 percent for full-service hotels. Earlier in 2020, we indicated that we had brought break-even levels down to the low end of that range. Through additional efforts to drive efficiency, we believe we reduced those break-even levels below the low end of that range, and we have certain hotels which have achieved positive earnings at much lower occupancy levels. We believe the insights that our teams have discovered over the past three quarters allow us to drive a stronger and more profitable recovery as demand returns. We also continue to adapt to the evolving preferences of guests and customers in a hyper-responsive way, which has long been a competitive advantage of our scale. We've done some innovative work in the area of corporate meetings and group events, particularly around hybrid meeting solutions, and believe that we will lead the industry in offerings that meet the unique needs in which we are immersed, and that we expect will be with us well beyond this year. As we serve meeting planners and customers today, we recognize that meetings, even virtual ones, are encouraging new ideas and opportunities to enhance the experience for our guests in the future and get closer to our customers. I'm excited to see this work evolve as we work in partnership with some of our largest customers who are engaged with us to co-design the meetings of the future. As we look ahead over 2021, I just offer a few brief comments. Visibility continues to be limited in this environment, and it is therefore difficult to predict how the recovery will take shape over the remainder of the year and beyond. I would say our general expectations shared with you during our third quarter call have not changed significantly. We continue to believe the first half of 2021 will remain challenging as rapid testing platforms grow in use on property and at key travel hubs, and as vaccine doses are rolled out to a large enough portion of the population to allow for enhanced confidence in travel. We believe the second half of 2021 will experience a more meaningful recovery of demand with leisure leading the way, but increasing strength in group business and business transient travel beginning to take hold. No matter the profile and pace of the recovery this year, our teams are prepared for the challenges given the resilience and agility they've demonstrated over the last year. I'd like to now revisit the key elements of our long-term growth strategy. While the impact of COVID-19 on our business has been severe, it has not changed the fundamentals of our long-term strategy. The first key area of focus under our long-term strategy is to maximize our core business. I've already discussed the unique ways in which we are maximizing our operating results in this challenging environment and expect to be able to leverage many of the changes we've made to drive enhanced guest experiences and improved hotel profitability going forward. We are also driving strong REVPAR index gains, with fourth quarter expansion in market share across all regions globally. Finally, the strong performance and exceptional reputation of our brands continue to attract owners and developers, fueling strong net rooms growth and a robust pipeline, both of which I'll expand on in a moment. The second area of focus within our long-term growth strategy is to integrate new growth platforms. We've demonstrated our progress in a number of areas. For example, our late 2018 acquisition and successful integration of Two Roads Hospitality. The acquisition added powerful lifestyle brands to our portfolio, including Thompson, Joie de Vivre, and Alila, in addition to the destination hotel and residential brands. And it expanded our global footprint of leisure-oriented hotels and resorts. These brands have also captured the interest of many owners and developers around the world and enhanced our growth profile and the strength of our pipeline with a 20% year-over-year increase in rooms in the pipeline due to strong signings. Our focus on integrating new growth platforms has also included enhancements to our well-being offerings, which remains a commitment of ours. further demonstrated by the completion of our Mural of All resorts in Austin, Texas and Lenox, Massachusetts. As we turn to the design work for the meetings of the future, the customers with which we are now engaged prioritize well-being content for their sessions, and we have a lot to leverage. Additionally, we have both strengthened our relationship with World of Hyatt members and expanded membership through strategic alliances with American Airlines, small luxury hotels, and Headspace. The third and final element of our long-term growth strategy is to optimize capital deployment. Our primary objective is to drive growth and enhance returns while maintaining investment capacity. Our commitment to dispose of owned and leased real estate is an important driver of this objective. We've achieved considerable success executing asset sales, demonstrating the value of our own real estate portfolio, and redeploying that capital to enhance our managed and franchise fee growth, while also providing strong shareholder returns. As we've reiterated over the past two quarters, we expect to execute the remaining roughly $500 million in asset sales, necessary to reach our target of $1.5 billion in gross proceeds by March of 2022. Notwithstanding the disruption the industry is experiencing, we remain confident in our ability to complete these sales at strong valuations over that time period, given the value of our own real estate and the demand that we see in the market for our assets. Having covered the key elements of our strategy, I want to circle back and go a bit deeper on our growth profile. As we reported yesterday, we delivered an industry-leading 5.2% net rooms growth for 2020. This exceeded our prior estimate, largely due to two large hotel openings during the fourth quarter that were not finalized as 2020 openings until after our last earnings call. the 1600-room Grand Hyatt Jeju in South Korea was pulled forward to December of 2020 from an otherwise anticipated first quarter 2021 opening. Additionally, the 681-room Park Central San Francisco, to be rebranded later this year as the Hyatt Regency San Francisco Soma, was a successful conversion opportunity that we completed and transitioned late in the fourth quarter. Our net rooms growth was also boosted by the opening of the first five Yurkov hotels in China, which will be the first of many to be opened in the future as we expand this brand, designed to meet demand from China's growing middle class. Even after opening 72 hotels or almost 15,000 rooms in 2020, we maintained our pipeline of signed hotel deals for future growth at the December 31, 2019 level. We accomplished this despite a challenging development environment, particularly in the select service segment in the U.S., where financing of new deals has been a limiting factor. We had a solid year of signings for new select service hotels in our Asia Pacific and EME Southwest Asia regions. Our development teams around the world continue to have great success in driving asset-like growth opportunities based on the strength of our brands and our reputation for personalized owner relations. As we look forward, we expect to deliver another strong year of net rooms growth in 2021. While our significant December 2020 openings and a conservative estimate of potential terminations create headwinds against our prior 2021 net rooms growth expectations, we still expect to deliver net rooms growth of approximately 5% in 2021. We see further strengthening of the development environment as visibility to the recovery and confidence in underwriting improves over the year and expect to further expand our pipeline in 2021 and continue to drive robust levels of net room growth well into the future. I'll conclude my prepared remarks this morning by saying that we are pleased with the resilience and ingenuity that the Hyde family demonstrated in navigating the challenges of 2020. and we remain confident about our ability to leverage recovery opportunities and drive strong results going forward. That confidence is enhanced by the steps that we've taken to reimagine the colleague and guest experiences and our hotel operations, as well as the ongoing commitment and leadership of our teams around the world. We remain committed to our long-term growth strategy, and even in this challenging environment, We expect to drive industry-leading NetRooms growth and believe that we have the right brands, the right leaders, and the right colleagues around the world to continue to meaningfully expand our global distribution. We look forward to welcoming all of our members and other travelers in the coming months as we fulfill our purpose and care for people so they can be their best. I'll now turn it over to Joan to provide additional detail on our operating results. Joan, over to you.