Ladies and gentlemen, thank you for standing by and welcome to the Hyatt Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Brad O’Bryan. Thank you. Please go ahead, sir. Brad O’Bryan: 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 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 will 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 Arne’s passing this week. From the moment I joined the industry, Bill Marriott and Arne 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, Arne 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…

Thank you, Mark and good morning everyone. I would also like to express my sympathy to the Sorenson family and the Marriott organization. Arne’s leadership and generosity will be missed deeply throughout our industry across the globe. Late yesterday, we reported a fourth quarter net loss attributable to Hyatt of $203 million and a diluted loss per share of $2. Adjusted EBITDA for the quarter was negative $98 million, with a reported system-wide RevPAR decline of approximately 69% in constant dollars. As has been the case for each of the previous two quarters, our reported system-wide RevPAR decline 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 top 25 markets in the U.S. As has been widely reported, the upper upscale and luxury segments and top 25 markets in the U.S. have been weaker since this pandemic began. As of December 31, 94% of our hotels or 93% of our rooms were open. The impact of closed hotels on our fourth quarter reported system-wide RevPAR results, was about 370 basis points. Our comparable system-wide RevPAR in the fourth quarter was down approximately 65% from last year, excluding closed hotels. Our fourth quarter adjusted EBITDA loss includes $45 million of costs incurred on behalf of our managed and franchised properties that we do not intend to recover from our hotel owners. As a reminder, our contractual arrangements allow us to collect amounts from managed and franchised properties to reimburse us for system-wide services and program costs. We do not profit from these arrangements as they are structured with the intent to manage these revenues and costs to breakeven over the long term. The reimbursement revenues for these system-wide services decreased…

Thank you. [Operator Instructions] Your first question comes from the line of Stephen Grambling with Goldman Sachs.

Thanks for taking the questions. You both alluded to some green shoots and expectations for improvement over the course of the year. And I realized this is a tough thing to really have a whole lot of line of sight on. But based on the various indicators you see, how are you thinking about the pace of potential magnitude of recovery across the various segments of demand as you think about business transient, leisure and group? And you also alluded to learning some of the pandemic, so how does this view of the recovery alter how you think about positioning the business to take share?

Thank you very much, Stephen. I will start. There is a China dimension to the learnings that I’ll ask Joan to comment on after I make a few comments on how we are looking at the business at the moment. So, let me just start off in the general vicinity of how we see group and transient dimensions evolving. And maybe I will start with the conclusion, which is I am really pleased, if not surprised, to report that we are seeing some interesting and very positive data in group activity. So, some context, looking back over 2020, we realized a bit over $27 million of total group rooms revenue in the U.S. in the fourth quarter for system-wide hotels in the Americas. That represented about 13% of our total rooms revenue for the period. By the way, group globally was about 15% of our total revenues. Over the course of 2020, we realized total group revenue of about $340 million in our managed hotels in the Americas – I am just using this as a proxy, but this is our largest market, of which 87% was in the first quarter. The last three quarters saw only $44 million in total realized group room revenue. It sequentially improved over the course of the year. And so in the fourth quarter, about half of the $44 million that was realized over the last three quarters was realized in that fourth quarter. Now from the beginning of the fourth quarter through January, we booked $170 million roughly in pure new group business for all future months, and that excluded any rebooking activity. And that represents a 20% acceleration over Q3 in pure new group bookings. We are, for the first time since COVID-19 began, seeing association in corporate activity pick up for…

Sure. I mentioned in my prepared remarks that China was a top area of strength for us throughout the year, but in Q4 as well. And that’s across all segments of the business. We had – led by leisure, but also strength in business transient and group as well in China in the fourth quarter of 2020. We have – as you all know, there has been some recent localized lockdowns there starting in January. And we went back to look at what we experienced in 2020. And after the localized lockdowns were put in place, we found that demand recovered in about 30 to 45 days. And as we think about the current lockdown and the Chinese New Year and some other measures that China has put in place, we think it will be just a little bit extended, maybe 60 days into mid-March. But after those lockdowns were released, there was a return to the demand profile that we saw pre-lockdown. So we’re confident that we’ll have that same experience as soon as the lockdown is released. And just to give you a little bit more color, the occupancy levels that we saw in Q4 for Greater China, were approaching 60%. If you exclude Hong Kong, Macau and Taiwan, the occupancy levels were closer to 70%. And in January, we saw levels of about 40% across the region. So while there has been some depression, it’s still healthy comparatively at 40% during a lockdown situation.

And the kind of group business that we saw in China over the course of 2020 was what you would have seen pre-COVID: new product launches by car companies, a lot of new line introductions by luxury brands, and these were very, very extensively programmed. I mean, I am talking about food and beverage and entertainment and AV programming. So we are seeing that type of business come back with some significance. I did not – I spent a lot of time on group because it has caught my attention in the big way, you can tell from my tone, but it remains true that the vast majority of our business in Q4 and as we head into Q1 here is still transient. It was close to 85% of our total revenue base in Q4. And leisure is still leading the way. 70% of that transient business is leisure, 30% business. And the other reality of that business, transient travel is that it’s not quite a majority, but a plurality of that business is in China because business transient travel in China was very strong in the fourth quarter. So Stephen, I know that was a long answer, but I hope that gives you enough color to give you a sense for how we are looking at the unfolding of the year.

Very helpful. Look forward to seeing and learning more on the hybrid meetings, but also hope in-person meetings resume soon.

Yes. Let’s hope.

Your next question comes from the line of Smedes Rose with Citi.

Hi, thank you. I just wanted to ask you a little bit about the gap, you were talking about the two reimbursed expenses and expenses to run the system. Do you expect to see that kind of through the first half of ‘21 or is that gap starting to narrow or how should we think about that going forward? I know you said you – it’s included in your cash burn expectations, but maybe just a little more color on what we are seeing there?

Yes. Thanks, Smedes. We – it is included in our cash utilization. And as I said in my prepared remarks, we have managed these revenues and cost to breakeven over time. And the experience prior to this year has always been at a breakeven, and we expect them to break even in the future, beginning with 2021. And just some color of why we expect that is because we – in 2021, we expect the RevPAR improvement, as we’ve just described over the second half of the year. So that contributes to greater levels of revenue. We’re also adding new hotels, which also contributes to greater levels of revenue. And we do have – and it is our expectation that we’ll be able to offset these costs over time without recording another charge to EBITDA as we did in 2020. Just – I just want to mention too that our decision here to preserve these services in 2020 really positions us well into the future to invest in the recovery together with our owners and realize the value that we believe these systems services provide. So hopefully, that helps give you more color.

Okay, it does. And then I just wanted to ask you too, Mark. You mentioned it looks like promising recovery on the group side, and there has been some obstacle about that. Are you seeing any changes from a geographical perspective in terms of where groups are looking most? I mean anything that stands out to you or is it more in line with what you’ve seen traditionally in fact, the other within the U.S.?

Within the U.S., yes, I would say that there has been some elevated focus on destination resorts as venues, whereas some of the groups that we’re talking to about their gatherings might have maybe initially focused on urban destinations. I think part of that has to do with the desire that they have got to actually get their own participants into a beautiful setting and give them a break from the monotony of the COVID lockdown. But for the bigger meetings, I am seeing a significant increase in incidence of doing multi-market and multi-location within a market coordinated meetings. And that means that, for example, a piece of a meeting might be synchronous programming and other portions of the meeting may be asynchronous. That also assists in finding time periods over the course of the day where people on the West Coast and people on the East Coast can be experiencing the same programming. And then you cover other elements in the early morning in the East Coast, where people are not up on the West Coast. And the late afternoon on the West Coast where people have already gone to dinner on the East Coast. So I’m finding that there is a lot more flexibility in how we can stitch together meaningful in-person and also hybrid meetings. And I think for those, it’s going to be much more widespread and with no appreciable geographic bias.

Okay. Thank you for sharing.

Sure.

Your next question comes from the line of Dori Kesten with Wells Fargo Securities.

Thanks and good morning. When you think about your disposition program and the $500 million remaining to sell over the next year, how have the hotels within this bucket kind of shifted over the last few quarters? And has the pandemic changed your view on the importance of real estate exposure for Hyatt?

So Dori, can you just repeat the first part of that question again?

So when you think of the $500 million in assets and proceeds that you expect to get over the next year for the $1.5 billion program, has your – has the type of hotel that you’re looking to sell changed over the last few quarters or what you plan to sell, has that kind of remained on track?

Okay. Thanks. Look, I guess what I would tell you is that we have been very measured about our approach to engaging with party – third parties about selling hotels over the past two quarters because underlying our approach is a belief that asset prices are going to improve over the course of this year. And I have already seen firming of the market. I think the – some of the trades that occurred in the second and third quarter of last year that were reported to be somewhere between 20% and 30%, say, below pre-COVID levels, I think those kinds of discounts are quickly evaporating. And I think you’re going to see more trades that are approaching pre-COVID level. Now it’s going to depend a lot on the type of hotel and so forth. So in terms of – as I think about rank ordering the kinds of assets that are going to garner the most interest, they would be destination resorts that have significant drive to population base, of which we own a number. So I think that’s one dimension of it. We have some urban hotels that are clearly lagging in the total recovery. Having said that, those hotels are in the main very good assets and they are extremely well located. So we still have confidence that we will see that. We will see full value realized for them when we choose to sell them. We may lag selling some of those hotels until the buyer community has a better ability to assess the profile and pace of recovery. And frankly, if some of the early signs of life in the group side actually pan out over the course of this year, that might be sooner than we otherwise might have thought. There has also been…

Okay. And just a quick follow-up, if you can, on the hybrid meeting versus the standard group meeting. Is it – based on how you are thinking about it at Hyatt, is it sounds as if the hybrid meeting could be more profitable than the standard. Is that, I guess, initially how it seems to be working out?

I think what we’re focused on right now is comprehensively understanding the needs of our customers and being there to extensively serve those needs. And I would think of the profitability that we expect to realize from this as the result of that focus as opposed to trying to design something that – where the object of the design process is really how do we maximize the money. We feel that because so many customers have come toward us to co-create. So we are co-designing this with several of our largest customers. And given the well-being components that we are able to bring to bear out of our own portfolio, mostly from Miraval, we think that we do have a lot of unique value to add. And that’s really where we think they will find lots of value. So that’s the way we’re thinking about it. I would just point out one other thing and that is, as we more deeply immersed ourselves in speaking to these large corporate customers. We’ve also learned one other interesting thing. And that is they do not view virtual meetings or even hybrid meetings as necessarily less expensive to hold than the in-person meetings, and there are some trade-offs there. Yes, you avoid travel, that’s probably air travel, which is one of the key considerations. But between the extra AV staffs that they have had to put on, plus the – what I would describe as the help desk issues, which, by the way, I’m sure everyone on this phone call has already experienced in their own lives, it’s actually an additional increment of cost for them to hold these hybrid meetings and keep it – or digital meetings and have them be seamless. So we’ve been admonished for thinking – for approaching this with a presumption that, of course, there is going to be a negative bias toward in-person meetings because they have reminded us that their staffing up has been significant in actually holding those kinds of meetings over the course of 2020.

Okay, understood. Thank you.

Your next question comes from the line of Chad Beynon with Macquarie.

Hi, good afternoon. Thanks for taking my questions. Mark, you have provided some great details in terms of just rethinking the group business with these digital initiatives. And obviously, a pandemic provides an opportunity to have a good clean sheet of paper on the entire business. Are there other aspects within your operations – I’m thinking about food and beverage, maybe margin opportunities or anything else that’s worth mentioning in terms of what could come out of this in a better place than pre-pandemic, either margin-wise or just directionally? Thanks.

Yes. First, I would say that there are other areas. They are in areas like food and beverage. The clustering activities that I mentioned earlier, I think, apply across many different hotels. The other point that I want to make to you is this, we have fundamentally shifted our mindset in terms of how we operate the company. And what I mean by that is that, historically, we have had at the hotel level and at the corporate level, a much more function-driven organization structure. As we went into 2020, and we realized that we had to throw all of our preconceived notions out the window, including all of our pricing models, we were coming together in a hyper cross-functional way and operating more like you would see an agile software development activity occur. And we’ve applied that now. So we’ve applied it in some really important areas. We revamped and restructured our – how we actually engage, provide and receive reimbursement and compensation from our owners with respect to system services. That’s a mega – if you talk to any hotel brand company and you start talking about revamping how chain services operate, it’s like a third rail. And yet we were able to accomplish a very significant revamp in the space of about 11 or 12 weeks and implement it all within the course of the year last year. We’ve done the same with respect to an owner platform that we’re standing up this year to provide much more flexibility and customization ability for our owners in terms of gleaning information out of us that will help them understand and assess their – the value that we’re providing to them. And we’ve got a number of other initiatives under way, including how we’re going to enhance our approach to franchising in the future. All of these initiatives, they are not projects because they will live on forever all of those initiatives are being done in a fundamentally different way. We are able to act faster and in a more agile way, and that’s both at the hotel level and at the corporate level. So if there is one message I’d like you to take away from this is, yes, we have plenty of points on the board with respect to actual results that we’ve driven over the course of the year, but we’ve discovered necessity is the mother of invention. We’ve discovered a way to end up with better outcomes on a faster clock speed and be able to deploy quickly. And I think that’s the gift that we’ll keep on giving as we go through this recovery.

That’s great. Thank you. And then my unrelated follow-up, just with respect to deletions, given the age and the condition of your properties, they have always been below your industry peer group. Could you talk about how that fits into your net unit growth outlook for 2021 and beyond? Thank you.

Yes. I think it’s an important topic. So thanks for asking. And I think it’s critical that I provide – I unpack this for you because the anatomy of our growth is important to understand. So let me start with 2020 so you can understand what the baseline is. So in 2020, we had gross rooms growth of 6.8%. We had terminations and attrition that represented a drag of about 1.4%, and that yielded a net rooms growth of 5.2%, which we already reported. But recall, that about half of the 140 basis points relating to terminations came from a single hotel called the Ocean Resort in Atlantic City, which came out of the system early in 2020. It was a very large 1,400-room property that represented a very, very small fee base for Hyatt because of the nature of the casino room block arrangement at the hotel. When you look at attrition and terminations in general, I will come back to 2021 in a second. We have, for many years, had attrition or terminations that were somewhere between 0.4% and 1% of total rooms. Now the year following our acquisition of Two Roads Hospitality was a bit higher than this, which we expected given the attrition that we forecasted after our acquisition. So over time, we would estimate that our termination rate – excuse me is something in the range of maybe 60 or 65 basis points per annum on average. For 2020, that was 1.4%, but again, half of that related to one hotel. And so we’re back down to maybe something in the 70 basis point range in 2020. So now let me make a quick comment about development pace as we head into ‘21 and then talk about ‘21. So we had an extremely strong fourth…

That’s great. Really appreciate the detail. Thank you. Brad O’Bryan: Carol, this is Brad. We can take one more question.

Okay. Thank you so much. And that question comes from the line of David Katz with Jefferies.

Thank you for squeezing me in. I hate to disappoint you with the last question, but what I wanted to ask about, Mark, was what you really just went through in detail in terms of pipelines and unit growth. So I’ll wish you well. Thank you for the detail, but I think asked and answered. If you want to take one more, I apologize to my colleagues.

No. Well, thanks for that, David. I probably was too longwinded and we probably went ahead of time. Brad O’Bryan: Yes, we are a bit over time, so...

But thanks for the participation and we appreciate everyone joining us this morning.

Thank you so much.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.