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 speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Brad O’Bryan, Senior Vice President. Please go ahead. Brad O’Bryan: 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 Bottarini, 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 8-K 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 Hyatt 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 Hyatt 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 6 colleagues lose their lives and many more who’ve lost family members or loved ones to the virus. Our deepest sympathies go out to all of those, who’ve 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…

Thank you, Mark, and good morning, everyone. I’d like to start by acknowledging our colleagues and owners, who are demonstrating their commitment to Hyatt despite a very challenging time for our business. While we have experienced a material impact to our financial results, we have taken significant action to mitigate the impact and secure liquidity. As Mark mentioned, we are also positioning ourselves to effectively meet the needs of our guests and as travel restrictions are lifted. Late yesterday, we reported a first quarter net loss attributable to Hyatt of $103 million and a diluted loss per share of $1.02. Adjusted EBITDA for the quarter was $86 million with a system-wide RevPAR decline of approximately 28% in constant dollars. I want to start by breaking down our first quarter results to better demonstrate the impact of the COVID-19 virus on our business and then provide some insight into what we experienced in April. We began the year with solid performance coming off of a strong year in 2019. Excluding our Asia Pacific region, global system-wide RevPAR increased 1.6% through February and 2.6% in our owned and leased hotels. With base, incentive and franchise fee growth of over 10% in constant currency, excluding Asia Pacific and comparable owned and leased margins up 270 basis points through February, we had exceeded our own expectations on a year-to-date basis. As the month of March progressed, the impact of COVID-19 expanded in Europe, North America and other parts of the world, and we began to see significant reductions in occupancy. The rate of decline in occupancy accelerated over the course of the month of March, and by April demand had declined to the lowest levels the industry has seen. The one exception to this decline during April was Greater China, where we began to…

[Operator Instructions] Your first question comes from Michael Bellisario with Baird. Please go ahead.

Good morning, everyone.

Good morning.

Good morning.

The first question is for you on incentive fees. Can you maybe provide a little bit more info on the makeup of the fees? What’s the breakdown by region? And then, importantly, what percentage sits behind an owner’s priority?

Yes. So, first of all, the incentive fees are comprised of incentive fees that are driven from hotel profits. And in general, the structure of incentive fees is, they stand behind an own priority in the United States and not -- and in general, outside the U.S., they are from dollar 1 of operating profits. And in almost all cases, they’re defined. It’s defined in the contract as to how to measure the operating profits. A majority of our incentive fees are from non-U.S. hotels. And it’s about 25% of incentive fees that are from U.S. properties. So, that’s the mix in terms of geography. We obviously had a significant decline in the incentive fee base in the quarter, as a result of declining profitability at hotels where we have incentive fees.

That’s helpful. And then, just one follow-up maybe on the RFP season in the fall. If you can look out a few months, thinking about it, what would need to happen? What might travel planners ask for? And then, how are you guys thinking about or at least working with your management -- third-party management companies thinking about pricing and volume strategies for the upcoming year?

Yes. It’s quite early for us to know what the profile of business is going to look like at that time. We’ve been extremely engaged, very highly actively engaged with our key corporate customers, group customers in particular to understand -- and association customers to understand what their outlook is with respect to their own activity, that is when they’re going to be traveling again? What their outlooks are for meetings, and how they will hold meetings in the future? I think, it’s still early for many corporations to make definitive plans at this point, certainly for 2020. I think, once we get into the fall, the outlook for 2021 will have a little bit -- will have some more visibility. It could be much higher visibility, if there have been great advances in a path towards a vaccine or other therapeutics. But if not, then, I think people will be more cautious and probably look to plan into the back half of 2021. We’ve been working very closely with some association customers and some key corporate customers to start design work for how we could help them hold a hybrid meeting in which you would have both, in-person and virtual participants. We think this is particularly important for association customers who rely on those meetings for key part of their -- in some cases the vast majority of their revenue base for the year. So, there’s going to be a disinclination to fully cancel gatherings by associations, even later this year, which is why we are rolling up our sleeves with them and trying to co-create an approach to being able to hold those meetings in a safe and secure way.

That’s helpful. Thank you.

Your next question comes from Patrick Scholes with SunTrust. Please go ahead.

Hi. Good afternoon. I wonder if you could just touch on your ability to cut costs for your own hotels, the ones that are unionized versus non-unionized. Thank you.

Sure. Patrick, let me give you some perspective on what we’ve done, some of the numbers that I quoted in my prepared remarks. For the owned and leased portfolio, what we’ve done is we’ve reduced about 75% of the cost base from our stabilized cost base in the month of April. And as we noted, there’s a significant amount, over 80% of our hotels that are closed right now. And if you think about the 25% of costs that remain in the owned hotels, we’ve actually positioned those because we believe in the near-term those hotels will need to be in a position to recover in the next couple of months. So, the 25% of the existing costs that remain have about a portion of those that are truly, truly fixed, which I would say of the total stabilized expense base, that’s about 15% of the total stabilized expense basis that’s truly fixed. And we’ve included a layer there of variable costs that remain at the properties today in order to prepare for restart. Certainly, to your point about union hotels, it’s a factor that we think about in the requirements under those union contracts. But generally speaking, you can refer to the percentages that I just covered.

Okay. Thank you.

You’re welcome.

Your next question comes from Shaun Kelley with Bank of America. Please go ahead.

Hi. Good morning, everybody. Joan, I appreciate the extra color on the working capital component. And I think, this is really a follow-up to the last question. But just to be clear, we’re talking about the same thing. Can you just give us a little bit more color on, of the kind of system and services fund in particular, either what the -- the fixed cost run rate is in that or maybe just more directly kind of how much working capital across the managed operations is really going to get tied up over the next couple of months across the portfolio?

So, let me talk a little bit about burn rate and how we’re thinking about the burn rate and the levels of liquidity that we have. Because I think that’s helpful maybe to give a big picture of how we’re thinking about the cost that we’re incurring today and how we think about the burn rate. So, I mentioned in the prepared remarks that our total available liquidity today is just over $3.1 billion, and that includes $1.6 billion of cash and equivalents and $1.5 billion of available capacity on a revolver. And we estimate that in our current levels of demand and spending levels, we have at least 30 months of liquidity under that total amount of liquidity that we have available. And we break that down. It’s about $90 million in our estimate on a monthly basis in the current environment. And if you break the $90 million down, it’s about a little over a half relates to cash flows from operations, which includes our owned and leased hotels operating costs, corporate overhead operating costs and monthly interest costs. And then of the remainder of that $90 million, that’s split about 50-50 between investment spending. The investment spending includes a small amount of maintenance CapEx and working capital requirements is the second half of that number. And the working capital requirements reflect some of the concessions that we’ve provided to owners and our current working capital needs. So, again, all of this is based on our current run rate and current demand levels that we’re seeing today. So, hopefully that gives you kind of a perspective of order of magnitude and what we’re seeing and how we’re managing that cash flow.

No. It’s very helpful. Thank you for digging in a layer deeper. And then, the other question I have is just, as we think about Hyatt’s portfolio relative to some of the other operators out there, right? I think specifically because you probably skew a little bit more towards high-end and some of these larger scale group assets. We are seeing more closures or suspensions of operations in Hyatt’s portfolio than what we’re seeing maybe across some of the other systems. Can you just help us think about that a little bit more? Does that -- does this change the calculus as we move into a reopening phase at all? And is there anything we kind of need to know or be aware of as it relates to those closures? Clearly, the statistics you gave about China are encouraging. But just wondering, is it going to apply exactly the same way in the U.S. or is it going to be a little bit more dependent on maybe some of Mark’s earlier comments on group. That would be helpful.

Sure. So, yes, we have clearly a more significant representation in full service than some of our large public peers, and also a higher representation in urban and resort markets. If you look our urban and resorts within our U.S. full service portfolio, urban and resort account for about two-thirds of our total room count. So, we’ve got both, a chain scale -- some significant chain scale differences as well as some locational differences relative to some of our competitors, which is really driving a lot of the differences that you might see in our reporting. The closing rate for hotels in different chain scales is quite significantly different as well. The number of properties that are closed, for example, in our Americas select-service category is about 19%, and significantly different therefore than the full service hotel closures that you see elsewhere. So, I think the closure rate is different currently. And I think a lot of the -- when you really disaggregate kind of where the demand is at the moment -- and I’m really talking about like nano periods. We’re talking about the coming weeks, not even months. You’re really focused on and seeing airline, cruise and airport hotels running at the highest occupancies and lowest closure rates. In our case, the other categories of business that dominate, and this is mostly in our select-service portfolio, our government business, National Guard, Department of Defense, Army Corps of Engineers is a big customer and then healthcare workers. So, that’s kind of what you see as the immediate demand profile in the States at the moment. I think that over time, we’ll have to see how some of the change in the guidelines that are currently prohibiting or diminishing travel, once they start to come off, what the evolution is…

Thank you for the color.

Your next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Hi. Thanks. My first is actually a follow-up to Shaun’s question on working capital, contribution to cash burn. How would you generally think about the trajectory of that level under various scenarios, and would you generally anticipate needing to provide any additional support to owners to get back open?

So, Stephen, it’s difficult to tell. At this point, we have not seen significant requests for deferrals or challenges at our properties and from our owners. So, in the current environment, we haven’t seen a lot of that dragging on our working capital. We have provided some concessions to our owners to help, and I’ve gone through some of the other actions that we’ve taken to help reduce the pressure on their liquidity. So, we’re definitely very focused on it. But, as we think about the recovery and what the shape of the recovery will be over the coming months, it’s very difficult to say what those needs will be. But, we have provided a reserve for it in our burn rate assumptions that I just described.

And maybe just a little extra color. We announced concessions to owners in China, dating back to February. We followed on that with a concessions to owners. This is really 60 concessions in March, in both Europe and in the United States. And the duration of those was through June. So, we have provided for relief for owners through June, at this point. We’ve been trying to stay very responsive and very close to our owners though. So, I would say, while it’s through June, I’m not saying that it will end in June. It might extend into the third quarter. But, at this point, that’s what we have provided. And we also are taking some measure of reserve in our own minds and in our own planning with respect to working capital needs to further accommodate timing of payments and the like, which is what Joan addressed earlier. So, that might give you a little bit more color on the time, evolution of our engagement with owners in different places.

That’s helpful. And then, changing gears, as a follow-up, and as you think about the development activity, how would you characterize your developer base relative to peers, and your properties and how they may or may not respond coming out of this environment, not only in the near term, but as we think over the next couple of years relative to some of the targets that you had originally set out?

Yes. Actually, right now, given that we’re in the midst of a crisis, it’s a little hard to wax optimistic about the future here. But, I would say that we have a very, very solid group of developers with whom we’ve developed relationships extensively over time. We started the year looking at new openings of over 80 hotels. And we know -- based on what we know now, which is all subject to change, of course, we think there could be slippage of maybe 10 hotels into next year, based on what we’re seeing currently. Where does that come from? It came from the fact that in certain cases, construction was not considered an essential service and therefore was shut down for some period of time. Therefore, it pushes project opening opportunities. Some of it -- about 60% of the rooms that were impacted are in ASPAC, another -- something like 25% are in Europe. So, we’re seeing places where there was early and significant disruption, and that’s really had effect of pushing, the remainder in U.S. obviously. So, we’ll have to see how this evolves in the near term. I think in the longer term, the fact is that a lot of the underlying -- underwriting for our hotels is based on macro travel trends. Given our position in the marketplace, we serve a relatively higher end traveler. And I think in this kind of a downturn, we might enjoy a benefit of those higher end travelers wanting to get back out and start traveling both for leisure purposes but also for business reasons. And they might be slightly less constrained as a result of their economic demographic level. But, I think that the owner community with whom we are engaged is quite healthy at this point. Of course, this is putting a lot of stress on existing owners. We are super mindful of that given that we’re owner ourselves. But, we have some confidence that with some help in some cases and in another cases, because they’ve got great balance sheets, they’ll be able to persevere and continue to do what they do.

That’s super helpful color. Thanks so much.

Your next question from Smedes Rose from Citibank. Please go ahead.

Hi. Thanks. I just wanted to ask on the hotels that are closed. Do you have any concerns that some of them may not be able to open? And it sounds like, if I’m reading what you said right, that you’re willing to work potentially with financing needs for some owners, if they’re not able to work it out locally with banks or through government programs. Is that correct?

Yes. I would say, in general, we’re looking to try to figure out what owners might need. And I think in some cases, the way that I think we have thought about this in the past and that it has presented itself in the past, it has to do with help with respect to deferring fees and the like. We haven’t had any discussions with respect to deferring management and franchise fees at this point. Of course, management and franchise fees are all dependent on top-line revenue. And when revenues decline so dramatically, so too does the fee base. So, there’s no significant issue there. But with respect to chain services or hotel services that we provide outside of our management fee base, there are some fixed elements to that. And so, we are paying attention to what we need to do in order to help provide some relief to owners during that period of time. So, the primary way you can think about it is through the provision of working capital, which is really extending credit, if you will to owners. In some cases, it might involve actual capital transactions. But, that’s really going to be the minority of the cases.

Okay. And then, I just wanted to ask to you, you along with other brands have talked about the stepped up cleaning processes. Do you see any incremental labor costs to owners now, either with taking longer to clean a room or more downtime between rooms. How might that factor over the next several quarters with these sort of enhanced cleaning protocols?

Yes. So, first of all, I would say that -- we’re working on this right now to optimize the way in which we schedule the work and also how we’re working on the supply chain to ensure that we can deliver a very cost-efficient solution, because providing protective gear as well as hand sensitization -- hand sanitizer and other sensitization solutions is going to be different to how we have approached this in the past. So, different means somewhat more expensive, but not massively more expensive. We don’t think it’s material actually, if you look at the totality of the expense base. And most of the expenses have to do with materials and supplies than they do with labor. We have, as part of our global commitment, care and cleanliness commitment, have designated a hygiene manager for every single property around the world. That is not an added position necessarily. In fact, first of all, in the vast majority of our hotels in Asia and in Europe, we already have hygiene managers on staff. And secondly, with respect to our hotels in the U.S. where we don’t have one, we would be looking to go through -- put a colleague through very extensive training that we’ve obtained through our relationship with GBAC and get them accredited so that they can actually train others but also practice what we need them to. So, it’s really a expansion or extension of what an existing colleague might do as opposed to adding staffing. And then, with respect to the timeline, we’re working right now on timeline for how long it takes to actually go through an individual room. There will be some expansion of that, but it’s not going to be material. I think, it’s really a matter of new and different processes, and new and different supplies that will elevate the level of standardization that you end up with.

All right. Thank you.

Sure.

Your next question comes from David Katz with Jefferies. Please go ahead.

Good afternoon, everyone or morning, I guess, it’s still morning, where you are. I wanted to go back to the matter of conversions. Look, I wanted to try and go just a layer deeper. Are you thinking about the opportunities or strategies to assume franchise opportunities? Are you thinking in terms of management contracts that may transfer or you’re talking about independents that may want to join your system? How would you highlight those opportunities?

Yes. So, thank you. First, I would say, all of the above. Because as I think back on the deals that we’ve seen over the course of the year so far, I can put my finger on individual examples of each one of -- excuse me, examples that you provided to manage deal, converting from another brand, franchise deal and independents. So, I would say, we think it’s going to be across those dimensions. We had a very successful year last year, maybe one of our strongest in conversions. And we had a number of different opportunities that arose that came out of mostly independent hotels or hotels that where an owner-built, the property, decided that they would self manage or planned to self manage it and then decided -- thought better of it, and then we had an opportunity to step in. So, that’s really been a particularly rich area of opportunity. We think, it will continue to be a rich area of opportunity. Because especially in this kind of environment where I think it’s going to be a very tumultuous and uncertain demand environment for a period of time, someone who’ve developed an opened a hotel and thought they would do it themselves, might well reconsider. And that is actually what we’re starting to see and what we are going to stay focused on as we move forward.

And so, the natural follow-up might be, are you thinking about key money or allocating any capital in order to compete for any of those deals?

Sure. I mean, I think, in some cases, it will require key money and in other cases it won’t. But, I think, the marketplace does drive that decision, and how competitive a given process might be. I think, most -- our best opportunities fall in markets where we are either not represented or underrepresented. And frankly, for us, that’s a lot of markets. The vast majority of markets around the world are markets in which we’re not stepping on ourselves on every street corner.

Right. Perfect. Thank you very much. Be safe.

You too.

Thank you.

Your next question comes from Thomas Allen with Morgan Stanley. Please go ahead.

Hi. So, what kind of occupancy levels or RevPAR declines are you looking for to reopen more of your owned and leased hotels? And, I’m assuming you would reopen when it’s accretive to the current free cash flow declines. So, what level does it also get to break even EBITDA?

Okay. Thomas, I’ll give you some color on how we think about breakeven. And I would start by saying, it depends a lot on the location and type of hotel that you’re talking about. If you think about a full service hotel in the U.S., occupancy levels at breakeven are about 40% to 45%, and a select-service hotel would be about 10 points lower than that, 30% to 35%. And then, you can think about hotels with lower labor costs, maybe hotels -- some hotels in some international markets being in that 30% to 35% range as well, and then hotels in higher labor markets would be above that 40% to 45%, potentially. So, some of that will depend also on the F&B operations that are made available when hotel’s reopened. And obviously, we’re watching demand very closely and the reservations or activity levels that will be made available to us over time as we go through recovery period.

Couple of points I would add to that. I think, the occupancies that Joan just referenced are at the operating income line. If you looked at gross operating profit, GOP level, if you’re familiar with the hotel P&Ls, it would probably be about 10 points lower than each of those numbers that Joan just cited. So, she was talking about breaking even at the operating income line as opposed to the GOP line. In terms of the question you asked about what level of occupancy we might be looking to as we think about targeting reopening our hotels, we think that something like 15% occupancies are about a crossover point between how much you lose by staying closed versus how much you might lose by reopening. And if you thought you were going to run 15% occupancy for a few days and go back to 5%, then you wouldn’t reopen of course. So, part of it also has to do with our outlook for a given market and how we imagine the profile of demand might look over time.

That’s all really helpful. And then, just as a quick follow-up. Do you have any updated thinking around your sensitivity to like 1% RevPAR change?

What we’ve disclosed previously is that a point of RevPAR is approximately $10 million to $15 million of EBITDA -- has a $10 million to $15 million impact on EBITDA. And so, in this environment, I would assume -- you should assume that it is higher than that -- a little bit higher than that.

Very helpful. Thanks, Joan. Thanks, Mark. Stay safe.

You too. Brad O’Bryan: Josh, we’ll take our last question now, please.

Certainly. Your last question comes from Jared Shojaian from Wolfe Research. Please go ahead.

Hi, everybody. Thanks for taking my question. So, 30 months of liquidity is obviously a pretty substantial amount of capital. Your balance sheet is in pretty good order. Can you just remind us, I guess, in this environment how you’re thinking about M&A? And given, we’re likely to see some pretty distressed asset prices, would you be more willing to acquire something that came with a larger portfolio of real estate with intentions of disposing of that over time, or should we think about any M&A looking more like Two Road with more of a pure asset light exposure?

Yes. Thank you. I have to admit to you that, I think most of our time and attention has been spent on managing through the initial phase of this crisis and making sure that we are positioning ourselves to take care of our various constituents, not so much time spent on imagining what the environment might bring in terms of the M&A opportunities. I think, one of the realities is that when you go through a disruption of this magnitude and this severity, a lot of people, I think, will end up taking a step back from making any major decisions with respect to buying and selling, unless there is distress. And so far, maybe still a little early, but we haven’t seen too many things that have been put out into the marketplace because of a distress situation. And overall, the deal market for either hotels or in general has actually been quite quiet. You’ve seen more publicly announced deals that have come apart, then you have any new deals that are either launching or getting closed in our industry, and I think that will probably persist for a little period of time. There’s some really important reasons why that’s true. The first is that for any potential buyers of assets, hotel assets in particular, the timing and severity of the decline in demand is kind of an important underwriting factor, and it’s really hard to put your hands around that yet. The second major issue is financing. I think, the stress of this whole pandemic across the banking sector has been pretty significant. And I think, banks in general will either be reluctant to or unable to actually underwrite deals with respect to assets. So, I think that for those reasons, I think the total deal environment is…

Okay. Thank you, Mark. And then, just for my follow-up. As it takes time to get back to prior demand levels, I think in the interim, there could be more supply if you’re still compounding units at high single digits while others probably are too, just given the industry construction pipeline. How are you thinking about that supply and demand balance going forward over the next couple of years?

I think, it’s going to be a truncated. I think between now and the time that there’s a widely distributed and deployed vaccine, it’s going to be very choppy, and it will be market specific and positioning specific and customer specific. I think, once we’re past that point, the pent-up demand is going to be significant. And I think, we’re going to see a resurgence of travel at a very, very high level. And so, I think that the whole dynamic of supply and demand is going to shift -- it’s going to hit a very, very significant inflection point at that point and shift in a very significant way. It’s hard to know exactly how much time will have elapsed between now and the time that that happens. So, part of my answer to what does the future beyond that point look like, depends on whether that inflection point in a widely distributed vaccine happens 6 months from now, 12 months from now or 18 months from now. Those are three different versions of the world, and it’s too hard to say.

Okay. Thank you very much.

That’s all the time we had for questions. I’ll turn the call back to presenters for closing remarks.

All right. Thank you, Josh. And thank you to everyone for taking the time to join us today. Please stay safe out there. We look forward to speaking with you more in the coming days and weeks, and certainly hope to see everyone in-person before long. Take care.

This concludes today’s conference call. Thank you very much for joining. You may now disconnect.