Good day, and thank you for standing by, and welcome to the Hyatt First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Noah Hoppe. Please go ahead, sir.

Thank you, Polly. Good morning, everyone, and thank you for joining us for Hyatt’s first quarter 2021 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, quarterly reports on Form 10-Q and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday, along with comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today’s remarks on our website at hyatt.com under the financial reporting section of our Investor Relations link and in yesterday’s earnings release. An archive of this call will be available on our website for 90 days. With that, I’ll turn the call over to Mark.

Good morning, everyone, and thank you for joining us for our first quarter 2021 earnings call. And before I get started, I want to take a moment to congratulate Noah, who you just heard from, on his newly assumed expanded position to include all Investor Relations in addition to Financial Planning and Analysis. Noah has been an essential partner in our Investor Relations effort, and now he’s formally at the head of that. So, Noah, congratulations. Thank you. And you’ll all get to know him very well in the coming months. I want to begin today by acknowledging what a difficult period it’s been since the onset of COVID-19. This global pandemic has impacted all of us in profound ways, both personally and professionally. We still see an elevated level of travel restrictions in various parts of the world as a result of new COVID-19 cases, which remain uncomfortably high, especially in areas such as India and South America. Our heart goes out to those being impacted in these hard hit areas during this incredibly challenging period. Even in view of elevated cases, we are optimistic and believe that the road to recovery continues to become clearer and our role in that recovery is inspiring and energizing. The pent-up demand for travel is immense. And with the number of fully vaccinated potential travelers growing by the millions each day, we feel we’re at the beginning of a growing level of demand for our hotels. Personally, I can’t express how refreshing it is to see people who are now able to safely visit a loved one or travel to a location they’ve been putting off for far too long or to see business travelers who can once again connect in person with colleagues and customers, or to hear from a growing…

Thank you, Mark, and good morning, everyone. Late yesterday, we reported a first quarter net loss attributable to Hyatt of $304 million and a diluted loss per share of $2.99. Adjusted EBITDA for the quarter was negative $20 million, with a reported system-wide RevPAR decline of approximately 49% in constant dollars compared to the first quarter of 2020 and a decline of approximately 65% compared to the first quarter of 2019 on a reported basis. In a moment, I will review the nature of the tax valuation allowance we recorded in the quarter, which significantly impacted our net loss. But first, I would like to cover our operating performance. As of March 31st, 96% of our hotels or 94% of our rooms were open. While hotel closures continue to weigh on our results, the impact is diminishing with a 160 basis-point negative impact on system-wide RevPAR as compared to 2019 reported results. System-wide comparable RevPAR was approximately $46 for the quarter and accelerated over the course of the quarter with a RevPAR of $57 in March compared to only $37 in January. The improved demand led to positive consolidated adjusted EBITDA in March as we increased fee revenue from our managed and franchised business, while narrowing losses from our owned and leased hotels. Our management and franchising business continued to lead the way on our path back towards profitability with a combined adjusted EBITDA of $33 million for the quarter with over 50% of that amount attributable to the month of March. The United States, Greater China and the Middle East combined to generate approximately 80% of our base incentive and franchise fees for the quarter, with notable acceleration from leisure oriented destinations in the United States during the latter half of the quarter. We are seeing continued strength in…

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

I was hoping that perhaps you could frame the productivity impacts on owned and leased hotels, perhaps where demand might need to get back to recover to prior levels of EBITDA. And within that, can you just remind us of maybe some of the puts and takes and/or headwinds from Miraval that impacted your 2019 EBITDA, and what trends look like in some of those assets within the context of this strong leisure environment? Thanks.

Sure, Stephen. Let me start. Definitely exceptional owned and lease flow through over the past couple of quarters, led by some of the what I would call contingency measures that we put in place, but also actions that have long-lasting impacts into the future. So, we’ve gone through some of those, but efficiency measures that we’ve taken, enhanced digital capabilities, leaning into our F&B options that are the most profitable and importantly meeting customer needs at this time. Headwinds, you mentioned headwinds over the next several quarters, and as I mentioned in my prepared remarks, with respect to expectations for flow through. The labor situation, we expect will improve and we’ll get back to more sustainable productivity measures. Properties that require higher RevPAR levels to breakeven have recently opened or are opening up shortly. And that would be specifically properties in our European and urban markets. So, those will be ramping up, and those will be some of the headwinds that we’ll experience. And we also have continued to receive some subsidies in international markets as well. So, that’s helped us on current quarter and some of the headwinds that we’ll see into the future. But, we remain confident that we’ll achieve margin expansion as top line stabilizes over time. And a good portion of our efficiency measures will lead to sustainable improvements into the future. We would estimate that that could relate to about 100 to 300 basis points higher based on our modeling of those efficiencies into the future on a stabilized basis.

And so, Stephen, thanks for the questions. As to Miraval, the dynamics in Miraval were impacted last year by the conclusion of the renovation and construction of Miraval Berkshires, which opened in the second quarter of last year. It was overall, a challenging year last year for all of our hotels, including Miraval, primarily due to travel restrictions and also social distancing issues. In the first quarter, we likewise had a number of restrictions that were imposed by local law with respect to social distancing and travel restrictions as well out of certain feeder markets that did impact our overall results. By way of reminder, a majority of the revenues at our Miraval resorts come from programming revenue. That is treatments and other programs that people experience on property. So, the fact that that was the dimension of the business that was impacted, meant a significant impact in the first quarter. We’ve seen those restrictions start to be loosened up. The bookings that we’re seeing into the summer are extremely strong, and we think that we will see significant pickup over the summer months into the fall. And assuming that we continue to go down the path of elevated levels of vaccination and easing of those other travel restrictions or capacity constraints, we expect to finish the year very strong. We’re well-positioned through the three resorts that we’ve got, one in Tucson, as you know, in Austin and in the Berkshires in Lenox, Massachusetts. The only other point that I would add with respect to first quarter dynamics is that, as you’ll remember, the state of Texas essentially shut down for some period of time because of their electrical grid going down. And that, of course, affected our resort in Austin, primarily because people literally could not get there over the roads that were blocked or too icy to drive on, and of course, the electricity needed to be restored. So, those are some factors that I would point to that maybe help to contextualize what happened last year into this year.

That’s helpful, and perhaps an unrelated follow-up. You had referenced some strategic asset acquisitions that you might start to look into. I guess, help us frame where you’re looking -- where are there any holes in the portfolio, how are you thinking about deploying capital strategically?

Yes. So look, I think, if we go back to late 2018 when we bought Two Roads, by way of reminder, Hyatt without Two Roads was about two-thirds, one-third mix of business and leisure travel. And with -- that’s really a U.S. number. If you look at the overall global number, it’s about -- was about 45% of our total revenue came from leisure transient travel in 2019 -- 2018 actually and 2019. So, by way of reminder, Two Roads was two-thirds, one-third in the opposite direction, two-thirds of their guest base were leisure guests. And that was a really important and significant step towards expanding our leisure-focused and vacation-focused segment and business. So, as we look into potential opportunities that would be meaningful to us, we’re looking to ensure that we’ve got very compelling resort alternatives for our guests, not just because of the benefits within the World of Hyatt, but because it’s been shown, especially in the customer base that we serve, which is a relatively higher customer base that they are continuously demanding and looking to travel at an elevated rate. Some of the booking data that I cited in my prepared remarks demonstrate that. And we feel like we are at a moment to be able to focus on that as a potential opportunity set for deployment of capital. But again, it does not take us off track with respect to the idea of generating our net proceeds as we committed to. And the other thing I would say is whatever we might end up doing would be focused on being able to recycle whatever we purchase with a long-term management arrangement or a franchise arrangement in place.

And your next question comes from the line of Thomas Allen with Morgan Stanley.

Hey. So, one of your peers suggested this morning that they saw a path to getting back to about 70% of 2019 RevPAR by year-end. Do you think that’s a fair assessment? Or any more color would be helpful.

Yes. I’d love to actually know where to get that crystal ball, because -- so if you find out, if you could let us know, that would be really great. What I can tell you is that we are seeing sequential improvement month-over-month-over-month, and it’s very pronounced in March and April, as we talked about. So, I guess, it’s theoretically possible, but I think it’s unlikely, primarily because the -- some of the international inbound travel that impacts gateway cities is still going to be with us. And I think, again, you need a crystal ball for this. But, it’s going to be highly dependent on when those international travels reopen. And secondly, we’re starting to see, as you probably have read in the papers recently that some companies are actually moving towards requiring their employees to be back in the office by a certain date. That’s actually not so not so distant from now, pretty soon. And that is important for business transient travel. So, anyway, those are the key considerations. I would say that just based on our current outlook, we will be significantly higher in terms of our expected RevPAR levels by the end of the year, assuming that we don’t have any significant case load issues that come to pass. I can’t tell you that it will be 70% or above, but it will be significantly higher than where we are today.

And your next question comes from the line of Shaun Kelley with Bank of America.

Mark, I think, in the prepared remarks, you mentioned a little bit about, obviously, you’re looking on the acquisition trail, but you’re also mentioned sort of going back to the capital recycling plan a little bit. Could you just talk about some of the criteria within the portfolio that you’re looking for? And just the broader environment right now on the disposition side, what might make it attractive, what do you think is going to work for potential buyers out there?

Yes. I mean, I guess, what I would say to you is that the two deals that -- the two hotels that we’re in the midst of evaluating disposition of that are advancing. They’re not mature enough for us to be more detailed with you at this point. What I would tell you is that they are unsurprisingly in compelling resort destinations and that the values that we see through indications of interest and through our negotiations are at or above our pre-pandemic estimates. So, we’re very encouraged by that. It happens that these are particular assets that have some compelling attributes. So, I think they are opportunities for us to realize proceeds from sale and also an opportunity for a new owner to deploy additional capital in those properties, which do include some developable land in both cases, to further expand those operations, by the way, which would enhance our fee base going forward as well. So, I’ve been encouraged though overall. I see a growing level of interest in asset deals, that is to say, the opportunity for us to consider selling other assets. And we’re actively evaluating what might be next. And the valuations are quite encouraging. I think interest rates have remained low. As we’ve talked about a number of times, the financing market for construction is quite challenging. But, rates remain low, even if advance rates are somewhat lower. So, I think that in some ways, the pattern of what kinds of assets we will look to will follow in some ways the path of the recovery. And so, it’s not too surprising that resorts would be at the front end.

And your next question comes from the line of Michael Bellisario with Baird.

Just a question for you -- a question on the development pipeline. Have you been or maybe are you willing to invest more key money into deals today? And are you seeing any of your development partners coming to you to be a joint venture partner to help them get a project across the finish line?

Yes. So, first of all, we do utilize key money investments in relation to our -- in relation to development in general. We have in the past, we are now, and we will in the future. With respect to capital formation, it’s -- we’re at a point where we’re starting to see the very first signs of banks, mostly regional, not necessarily money center banks, starting to make proposals that are getting closer to a debt stack that could make sense for a developer. It really has significantly impacted the select service segment, and other segments in and around select service. But for us -- the primary impact for us is on select service development in the United States. And part of that has to do with an inability to get enough senior debt at a reasonable rate to make the capital stack work for developer. And we’re investigating ways in which we can help support that. We’ve historically been very successful in providing what I would describe as purpose-suited and innovative financing alternatives. Sometimes that’s been in the form of mezzanine debt or preferred capital. We have provided preferred capital over the last 2 years to some partners of ours developers who have developed Hyatt Place and Hyatt House hotels. We’re evaluating how we could do something that’s got more leverage in it. I don’t mean financial leverage, I mean, impact by maybe seeding an opportunity to put some capital together with some third parties to help provide some additional construction financing in the short-term because we have a significant number of deals that are either in LOI stage or signed that we don’t count in our pipeline by virtue of the fact that we don’t see the financing in place to actually start the construction. I think that will evolve and thaw over the course of the summer. But we’re still not quite there yet. So, it’s something that we’re paying a lot of attention to. It has a lot more to do with capital stack than it does -- debt capital stack than it does equity. The equity is actually available. It’s a matter of getting the debt stack in place that makes sense for a developer to put a shovel on the ground.

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

Mark, last quarter, you talked a lot about this hybrid meeting solution that you are coming up with, which I think could differentiate you guys from some of your competitors in urban markets. And I’m just wondering how city planners and some of your partners have reacted to that, and if you still believe, based on everything your collecting from your conversations with corporates, if this is still going to be a meaningful part of your strategy in the next couple of years?

Yes. It’s going to be a very meaningful part of the strategy on the group side for sure. I’m thrilled to tell you that we’ve got two large meetings, on in June and one in July. They both happen to be two different clients, pharma companies. And the format of those meetings is really interesting. So, in both cases, they range from sort of 800 to 1,000, depending on which one of these two that you’re looking at, participants. But the way that they’re comprised is they’re spread, in one case, across 10 of our hotels across the country and another, as many as 27 of our hotels will be involved across the country. And they are effectively doing a multi-local -- a linked multi-local hybrid event where you’ve got somewhere in the range of 30 people per hotel across that, say, 25 to 27 hotels, and you also have remote participants who are coming in digitally. And I personally believe that this is going to be an effective way to allow people to still have an in-person meeting for those who can attend, those who are prepared to attend, and get the benefit out of the interpersonal connections. I was just talking to the lead partner of a professional services firm yesterday evening. And I described what we were doing. And I think it can apply to one of those firms -- and that firm, in particular, is looking at a partner meeting of 1,500 people at the end of this -- in the fourth quarter of this year. They never considered doing a format like I had described to them. And I think that that could very well turn into a lead. I have to talk to our sales team about what kind of commission I can get.…

And your next question comes from the line of David Katz with Jefferies.

I wanted to go back to the notion of above hotel costs and fees. It was a point of discussion much earlier. Obviously, there’s been some flexibility and so forth. Where are you with respect to that? And should we expect you to come out of this changed in some way?

Yes. David, I -- last year, we made a decision to continue to incur some costs that we chose not to, while we had the option to, we chose not to bill back to our owners, given all of the disruption that was ahead of them last year. This year, as we’re looking at recovery, our goal and intention was always to monitor the costs we incurred and make sure that we were doing that in a way that we could recover fully from our owners. So, that is where we sit today. You may see that timing is maybe a little bit off from quarter-to-quarter with respect to the expenses we incur and the revenue that we’re reimbursed for. But, all of the costs that we’re incurring right now, we have every intention to recover from our owners into the future.

If I can just follow that up from a strategic perspective, in terms of structuring these differently or perhaps with greater flexibility or specificity going forward. Have there been any initiatives to that end?

Absolutely, David. We had an incredible initiative that we undertook in a record amount of time to fundamentally and completely revamp our cost recovery structure last year. And we launched that -- we announced it to all of our owners for application on January 1st of this year. So, we refer to this as the funding model with respect to our above property hotel services. And the fundamental change that we made was that we moved a number of the dimensions that were covered out of fixed charges in history towards variable charges prospectively. And roughly speaking, that structural shift reflected the economics that we actually experienced last year anyway because we -- Joan just mentioned, we volitionally undertook spending at a certain level for the benefit of our owners, and we did end up taking a charge in the fourth quarter of $45 million in relation to that. But, we see the opportunity to, first of all, fully recover going forward on a more tightly aligned basis that is alignment to our owner’s interest. But secondly, we’ve also identified a few areas, especially in the digital sphere, where we have created effectively a pay-for-performance structure. And that’s actually started off very -- we’ve got encouraging results to date. It started at the beginning of this year. And I believe that that will, frankly, allow us to expand what we’re doing on the digital front through an incremental set of fees that we built into the new structure. And by the way, we spent an enormous amount of time with our owners to process this. In fact, we had several of our largest owners sitting at the table with us, designing it. And we were able to accomplish that in the space of about 12 weeks during the third quarter of last year. So, that’s really what we’ve done and undertaken. It was a huge lift, but we feel really good about where we stand at this point. And we have no expectation that we’re going to need to revisit anything in material form any time in the near future.

And your final question comes from the line of Vince Ciepiel with Cleveland Research.

It sounded like you mentioned some positive trends on group bookings earlier in the call. I’m curious if you could provide updated pace for the second half and for 2022 and how you think those are coming together?

Sure. So, maybe to begin with, I would say that group revenue in the first quarter -- realized group revenue that is, that we reported was almost 90% off of 2019 levels. Now, if you -- that’s for the Americas hotels that we manage. If you look at it globally, it would probably be off maybe close to 80%. The reason is because -- and really, the -- almost the exclusive difference there is group business in China, which did take a hit because of the lockdown in China but has been pretty vibrant and robust because corporations have definitely taken to holding meetings. The balance of year pace is off in the range of 60% in our Americas hotels that we manage. And as we look into next year, we are sort of tracking at this point down in the mid-teens. And about 50% of our revenue for next year has been booked so far at this time. So, we are just seeing this significant increase in lead generation. It’s accelerated enormously over the last five to six weeks. And so, we’re increasingly catching our breath to say, wow! Now, let’s pay attention to how much of this translates into realized revenue. I mentioned during my prepared remarks that we hit this inflection point in April, where the gross bookings exceeded any cancellations or reductions in attendee expectations for the remainder of this year. That’s a big deal because, frankly, all pace numbers that might have been cited over the last 12 months are either irrelevant or misleading, because you can’t really track pace properly unless you know what’s falling out the bottom with respect to future cancellations or reductions in attendance. And so, we’re just now getting to a point where I think we’ll start to have more reliable pace estimates going forward. And it happens to come at a time when lead generation is just extremely robust.

That’s helpful. And as a follow-up to that, I know food and beverage is a large chunk of the business and a focus for you guys over the years. Curious how that is developing for the second half and into next year, how much of that’s levered to recovery in group? And I think you alluded to some changes in F&B to help improve profitability. Curious kind of what specifically those were?

Yes. So, those changes that we referenced were primarily outlets that is restaurants that we either closed or modified significantly. And we moved more to a self-service model for our high-end markets, food markets and our hotels that do cover, in some cases, breakfast. So, we don’t -- we’re not actually standing up an a la carte breakfast menu in a number of hotels. In favor of that, we’re actually making it more of a grab and go operation with a ability to finish cooking, a breakfast burrito or a muffin on site. We have an excellent platform through an oven that provides for really a great way to be able to provide a high-quality breakfast item. So, that’s some of the savings that we talked about. I think what we’re seeing in China is a significant demand level for restaurants. This isn’t the opportunity for people to come back and entertain people and also banqueting. We’re really seeing some very strong corporate demand for meetings and high-end events. Our event pace into the remainder of this year is tracking consistent with room pace, if you will. But, I would say that the impact of being able to truly get back into serving large numbers of people on property is going to ramp between the end of this year into next year. So, we won’t really fully realize the F&B revenue opportunity until next year, primarily because we will have less on property attendees in some cases and also because they will remain, I believe, although we could get lucky and have all spacing requirements and concentration requirements, attendee requirements in indoor spaces be alleviated, but there may be some that persist through the end of the year. So, that’s how we think about it.

And there are no further audio questions. Are there any closing remarks?

Thanks, Polly. Thank you to everyone for joining us today. Take care. And we look forward to speaking with you again soon.

Thank you. This concludes today’s conference call. Thank you for your participation. You may now disconnect.