Ladies and gentlemen, thank you for standing by and welcome to the Hyatt Hotel Second 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. Thank you. Please go ahead. Brad O’Bryan: Thank you, Stephanie. Good morning, everyone, and thank you for joining us for Hyatt’s second 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’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. 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 everyone and welcome to Hyatt's second quarter 2020 earnings call. To begin with I hope that everyone is joining us this morning is healthy and safe and I hope the same is true for your family and your loved ones. Before we highlight some important information regarding our business results, I want to take a few minutes to reflect on the past several months and how we review the challenges across the world and those faced by our industry. The Hyatt family has risen to the occasion and we are using the unique opportunities presented by this environment to challenge traditional assumptions, engage deeply with stakeholders and reimagine our business; all while continuing to focus on advancing our purpose to care for people so they can be their best. During this time we've seen record levels of unemployment, the permanent closure of many small businesses and intolerable examples of racial injustice in our communities. It is precisely in these challenging times when our purpose matters the most and guides our action to support the rebuilding of our economy and our industry. This begins with creating a safe and inclusive environment for our colleagues and our guests throughout the world. We don't live out our purpose only when it's easy or convenient. It is fundamental to who we are especially during these highly disrupted times. We continue to engage in our communities through direct support of organizations that focus on creating work opportunities for opportunity youth who are concentrated in underserved and underprivileged communities and in the U.S. many of these communities are predominantly black and Latin-X communities. In addition to these efforts we are caring for our colleagues who are being affected financially by the pandemic. We established the high CARE fund specifically to provide…

Thank you Mark and good morning everyone. As Mark just mentioned we entered the second quarter anticipating the low levels of demand we experienced. I want to thank our teams who met the varied challenges proactively with ingenuity and with resolve. Our demand levels gained positive momentum from May to July and our liquidity position is stronger than we previously anticipated. Late yesterday we reported a second quarter net loss attributable to Hyatt of $236 million and a diluted loss per share of $2.33. Adjusted EBITDA for the quarter was negative $117 million and a reported system-wide RevPAR decline of approximately 89% in constant dollars. Our reported system-wide RevPAR declines are impacted by both the inclusion of closed hotels in the calculation and by our chain scale composition which includes significant exposure to upper upscale and luxury properties and to the top 25 markets in the U.S. that have been weaker than other market tracks over the past several months. I will now provide a few additional details on our operating results for the quarter and into July. Our reported results by definition include all comparable hotels and therefore those hotels that suspended operation during the period skew the RevPAR results making comparability to statistics reported for the industry difficult and as a result the information I will share with you now will be based on only open hotels so that you can get a better picture of performance for those hotels actually in operation for the full month reported. We've also posted a supplement containing RevPAR information for open hotels on our investor relations website. I will just touch on a couple of highlights starting with the area we are seeing the greatest strengths. Greater China full-service open hotel occupancy levels had already begun to rise off their lows…

Thank you. [Operator Instructions]. And we'll pause for a moment to compile the Q&A roster. Your first question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Hi, good afternoon. Thanks for taking the questions. Perhaps I missed this. So can you quantify the amount of support provided to owners in the form of deferred fees or other working capital benefits and how would you generally think about this cash outflow unfolding over the remainder of this year and also longer term?

Hi, Stephen. We have not disclosed the actual amount of concessions that we've provided. But we've been working with our owners and have provided concessions since April. And we've been able to effectively cut the costs that are -- that would offset those concessions that we've provided to our owners. So as we think about that, going forward, we're going to stay very close to demand levels, and the needs of our owners and continue to evaluate what concessions we may provide in the future.

And those savings we've achieved even represent the majority of the improvement in the run rate, cash burn that we have previously projected, that we – as Joan mentioned that we picked up $20 million of lower cash burn, in effect, the majority of that difference has to do with the fact that we’ve reduced those expenses associated with the concessions that we provided to owners.

Got it. That's helpful clarification. As an unrelated follow up, how are your corporate conversations going as you think about the path of recovery in business transiting group and how might be experienced in China and foremost of that path within those segments?

Yes, it's a good question. And I think it's a relevant comparison because we have a lot more longitudinal data out of China to look at. The discussions with most of our key corporate customers has to do with how they are evolving their own return to office experience and also how they're meeting the demands that they've got with respect to their business. And I would say the approaches are quite varied. But one thing that is true in many cases is that they're still in discovery mode to understand how many people are going to be coming back into offices in different places. I would say that many people entered the summer expecting that by the middle of the summer, they would they would be in a cadence of people returning to office and I think many people would have deferred the decisions until after Labor Day. With respect to China, the progression has been really great to see very encouraging. We've seen a steady progression of occupancies in the market over the course of the last several months. And to the point where if you look at the different regions within China and the performance there, we've seen very strong performance in East China, South China and West China to the point where by the end of July, they were at occupancy levels equivalent to where we were in 2019, which is quite remarkable. Rates are beginning to catch up as occupancies have continued to expand. North China is lower and the reason is that Beijing had a -- an outbreak about five or six weeks ago. And there was a subsequent shutdown in Beijing for several weeks while the caseload came down. But the thing that we're seeing now is you can't -- I think we…

Thanks so much. Apologies for the background noise.

No worries.

Your next question comes from Jared Shojaian with Wolfe Research. Please go ahead.

Hi, good morning, everyone. Thanks for taking my question. Can you talk about what you're hearing from the development community for projects that are in the pipeline, but where construction has not yet begun? Because there's a widely held view that in the next year or so we could see a lot of hotels become available? Can you just help us understand from an owner’s perspective, the benefits of new build construction, given there may be some opportunities to acquire distressed real estate?

Sure. First and foremost, this already, but it's very clear that the answer to your question is highly dependent on where and what type of hotel you're talking about. So there are many markets in which there's either new city center or new development underway where existing supply doesn't exist. So I would say it's going to depend a lot on the type of market. And the economics right now, I think that what we're seeing in -- on the -- in the development pipeline evolution on the select server side, especially is really a financing phenomenon. And I think the banks are at this point waiting to have better visibility to what the profile of recovery is going to look like before they make commitments to new construction. So, I think that that is a hindrance at the moment. And I think that that'll have a short-term effect on new starts. And we're tracking this carefully across the globe. And I would say the dynamics in the U.S. are probably the most pronounced when it comes to finance related construction start impact. In terms of our own outlook on our own growth, we were still quite positive, we have an outlook, which suggests that our, that net room's growth could be more in the range of 4% to 4.5% this year, as opposed to the original guidance that we provided of 6.5% to 7%. That does not include a number of conversions on which we're working right now. We have signed term sheets on a number of conversions that will impact that number, but we're not including those at this time. And at the same time that we do that we do expect to expand our pipeline over the course of this year. So we're seeing continued activity it’s at a lower level than we had previously thought. A lot of that impact in the net room’s growth this year has to do with rooms that are moved into 2021. So we would -- I would say it's probably in excess of 100 basis points of impact with respect to our growth rate and net room’s growth this year due to rooms moving into ‘21. So that's kind of a profile that we're looking at the moment.

Thank you. That's very helpful. And Mark, you also talked about a slowing of demand in the middle of July, that going to pick up in the latter part of the month. And then you also said your booking window has shortened pretty significantly. So with that caveat, can you just talk about the trends toward the latter half of July into August? Have you seen based on my guess what you have on the books right now in the early days of August? Have you seen continued improvement here in the early days of August? And are you assuming August looks kind of similar to the recent month-over-month sequential improvement that you'd been seeing throughout the second quarter?

So, Jared, I'll respond to that. And Mark can add any commentary. The moderating that Mark referred to was in the growth rate. So we saw an increase in the beginning of July, and a lot of that was related to the holiday in the U.S. And then the growth rate started to moderate. But now we've seen some improving week-on-week demand into the latter half of July. And in fact, we of course, look at daily information, and we saw that over the weekend. We saw a nice uptick in July -- excuse me in August and the first weekend in August as well. So it's been uneven, and we're tracking it very closely, but we do see continued progression. That comment was related to the growth rate moderating because we did see it actually rising pretty nicely to the end of end of June and into the July 4 holiday.

I would just also say that the impacts with respect to growth rate was pronounced in the markets in which you had surges of COVID-19 cases. That's pretty obvious, right? That's something that you would otherwise have expected. I would say other than Arizona, those rates of progression have largely returned. And so we're tracking that carefully, because I do think that -- we should expect and I think it's logical to expect that that surges in caseloads will have an impact. And given the booking windows that we discussed earlier, the impact is instantaneous. So the bad news is it’s a short-term. The good news is, right away, it's -- there's no speculation.

Okay, thanks. Thank you very much.

Your next question comes from Smedes Rose with Citi. Please go ahead.

Hi, thank you. I wanted to ask you just a little bit more about the operating model for own hotels, you talked about doing more with less on the staffing side, and some clustering. As demand continues to come back, would you anticipate being able to maintain a more efficient operating model? And do you have a sense of maybe on -- if you applied these cost savings to 2019 kind of what the difference would be on the owned margin?

Smedes, we went through a couple of examples in the prepared remarks, that -- of what we're seeing and how our teams at the property level are really shifting their mindset and reimagining the way in which they apply themselves to retaining or driving as much hotel revenue as they can and retaining the flow through it each property. So one of the examples was the loss times example where we've got breakeven occupancies well below, we had anticipated as a benchmark and had disclosed in our Q1 call. So I would say that we are extremely encouraged by the ways in which our hotel operations teams are thinking creatively and driving greater levels of flow through at these levels of demand. It's very early to tell what the -- what our expectation is going into the future, but I have every expectation that we will -- this mindset will continue and that will continue to be able to expand margins at lower levels of occupancy than we previously thought on a breakeven basis.

Okay, thanks. And then can you just remind us what sort of -- I guess percent of overall earnings is China contributing now to the company?

It's been running in and around a bit less than 10% in the aggregate if you look at Greater China.

Great. Okay, thank you.

You next question comes --

I'm sorry. So just excuse me for one second, just to correct that that's at a fee level not an earnings level. So you'd have to apply a margin to that, but at a management and franchisees level it's in the range of 10%. And we would estimate maybe somewhere in the range of 5% on an earnings basis.

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

Hi, good afternoon, everybody. I just wanted to go back to -- I guess two areas you guys have already discussed. So first was on the kind of the franchisees relief and deferrals. Joan I know, it's probably a little hard to quantify some of these numbers, but could you just give us any sense either anything directionally on what type of collection rate you're seeing from franchisees, or what percentage of owners are paying at them at this moment and -- or just what's the -- maybe what's the tenor of those discussions? Are you surprised positively or negatively? That would be the start. And then the second would be maybe just a broader question of kind of how -- what is your perception at the moment of the broader franchise and ownership community and their broader financial health?

Sure, Shaun. As -- with respect to what we've seen in the quarter is low it is -- has exceeded our expectations that it's been lower than what we might have otherwise thought. We haven't provided any relief on the fee front management and franchisees. We have provided some deferrals. And those deferrals have been for a handful of hotels that have requested the relief and so those have been negotiated at -- on a one-off basis. So that's kind of what we've seen in the quarter. And as we look going forward we're, we're prepared as we said for the even recovery and we're going to stay close to it and stay close to our owners to adapt to the changing environment.

Yes, and I would say, I mean, having recently taken a look at this together, I think my recollection is that receivables with respect to hotel services are in good shape. We're not seeing significant expansion of those receivables that we have from ownership groups. With respect to owners, I think in general, I would say our owners are holding up, we have a couple of examples of hotels that are under particular stress, financial stress at this point, but they were -- they really are concentrated in hotels where they may have had a capital structure that left them in a more stressed situation even be -- even pre-COVID to begin with. Those are the exceptions. But overall, I would say quite positive. In some -- in many of the markets outside the U.S., we have very large and well capitalized ownership groups without tremendous leverage in the system. So I feel quite good about that. I do think that as time goes on and as initial rounds or initial wave of concessions from banks and forbearance agreements either lapse or start to extend and lengthen. There's a chance that we will see more financial stress in the market. We – I’ve personally have been spending a lot of time with my friends at H&LA really helping to tell the story on Capitol Hill and at the Treasury Department to encourage them to take a hard look at how they can provide some relief for owners whose mortgages are part of CMBS structures. I think that's a particular risk because the direct relief there is more difficult to achieve. If you've got a bank that holds your debt -- the debt on your hotel, you could actually have someone to talk to whereas special servicers really engage in one-off discussions very often. So we've really pitched different ideas relating to the Mainstreet lending program, which has not really been productive to-date. And also how PPP loans might be able to be applied to help owners especially those with mortgages that are part of CMBS structures to get some relief. So we're working hard to do that because we have concerns that if you have a elongated period of time during which there's just a persistent volatility in demand some of the owners will likely have a real fiscal issues along the way.

Thank you for the detail. And then maybe just as a quick follow up. I was interested in encouraged by the RPI comment as it relates to China. And I'm just curious maybe too early to have this data, but do you have anything or any signs of how your RPI might be performing in the United States, whether it's by category or by something just to get a sense of I think the broad question, we get from our investors, how your brand is going to hold up is there still a market share beneficiary relative to independence, that sort of thing, any signpost there?

It's really difficult. I'm looking at the progression of the number of hotels that we've had closed in the Americas over this period of time. And we were in the 60s, in terms of the percentage of hotels, full service hotels closed in April in May, that just -- that only started to come down in June. So really difficult for us to say it's just too early to make any valid comparisons and look at concepts that makes sense in an SGR world. With respect to select service, though, select service has -- our select service brands have been performing well on an index basis. I don't have the data handy at the moment. But I would say that it's -- we've seen a progression of improving index over the course of time from the time that we had 20% of our select service hotels close to the time in the Americas where we now have less than 5%. So I'd say we'll have a much better handle on all of this by the end of next quarter.

Thank you.

Sure.

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

Thank you. Thank you. So just in terms of instead of management fees are obviously the hardest to predict. So on the core, you reverse some of the fees you're taking earlier in the year. But if current June through August trends continue to give us any sense of where those would check out the year?

Sure, Thomas, it's -- as a reminder, our fees in the U.S. are largely after hurdles that I had -- we have to achieve after GOP flow through positive to GOP flow through is an outcome. So when we think internationally where we structure of those contracts, our incentive fees are earned on GOP dollars. One thing that's encouraging is that in China, we're seeing in June, that over half of our hotels have a year-to-date positive result at the GOP line. So we're going to be in a position here now to start to earn incentive fees in China, which is -- where we're seeing the greatest momentum in recovery. So as the recovery progresses, that's that incentive fee growth will follow particularly internationally. And, in the U.S., it'll be a little bit lag because of the structural reasons that I described.

Okay, so, it kind of --if we take the first half of this year, it can improve from here as those international markets start to show some positive momentum?

That's right.

Perfect.

But I think we commented that the -- there was an adjustment made in the second quarter to some reversals that we could tick in from the first quarter incentive fees that we'd previously recorded. A small amount.

Yes. And then Mark in your prepared remarks, others encouraging that you said you expect your pipeline will grow this year. It was stable quarter-over-quarter, which I don't think anyone will be surprised to see in this environment. But what do you think is going to drive it to reaccelerate? Thank you.

Well, I -- we have -- we just have a base of projects under discussion that are continuing, we're not getting developers who are withdrawing or suspending discussions. And a lot of the momentum that we've seen as we enter the second half of the year is coming in -- are EMEA and Southwest Asia region. I think Asia Pacific will remain actually strong in the second half of the year, I think that's making up for what I think will be a lag in select service production in the U.S. But again, I think the other factor that we are tracking and pursuing vigorously is in conversions. And I do think that that will be at least as if not more productive for us this year as it was last year. The time -- exact timing of when those deals either make it into the pipeline or show up as own hotels -- I'm sorry, open hotels, is unknowable, because every one of these has got its own sort of profile. But yes, it's -- I mean -- and we've done a – you could imagine we're going back to the drawing board and we looking at everything afresh constantly. So our current perspective is based on our most recent assessments.

Thank you.

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

,:

Thank you. And your last question comes from Kevin Kopelman with Cowen & Company. Please go ahead.

Thanks a lot. Thank you. Just kind of a follow up, could you expand on just given the business travel environment is dried up currently, what leverage you're able to pull and things you're working on to drive more leisure travel demand to the extent that you can?

Yes, the answer in a nutshell is go local, go as local as possible. And our teams have demonstrated that understanding where pockets of demand exists is that that's been the key to seeing great revenue generation. A lot of -- this has been talked about widely across the industry. But it's true for us that a lot of our demand is from people who are driving to our destinations as opposed to flying. So understanding how to source demand in different places and working that at a local level has been really the key to our performance. That was I think, really evident in how we went to market in China and produced tremendous results. It's been true for us in our resorts. And our resorts overall have really performed well. If you look at our resorts as a category, the numbers don't look particularly robust. But that has to do with the fact that Hawaii has been largely shut down. So I think over the course of the second quarter, for example, 45% of the inventory in Hawaii was out of the market. So it's really been maybe the most significantly hit market from a total supply perspective. But for other resorts that do enjoy the drive to demand, and Joan cited a couple of them in her prepared remarks doing really, really well. S I would say it's really very much a local focus. And I think having really strong teams on the ground in these hotels is critical, meaning on relationships that we've got with Travel Advisors especially for luxury resorts and luxury properties has also been very productive. A lot of this is based on trust. And a lot of this is based on relationships. So this is very much a exercise in sort of old school, hotel practices. And it's working. And I think that that's really what we've been relying on. And I think we'll continue to until we see a little bit bigger of a base against which we can actually see some compression in certain periods.

Thanks so much.

Sure. Okay. Thank you to everyone for taking the time to join us today. Take care and be safe. We'll look forward to speaking with you again soon.

Thank you. This concludes today's conference call. You may now disconnect.