Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the fourth quarter 2019, Hyatt Hotels Corporation earnings Conference call. My name is Kenzie and I will be your conference operator today at this time all participants are in listen only mode. Later, we will conduct a question and answer session. If you would like to ask a question at that time.
Please press star one on your telephone keypad.
As a reminder, this conference call is being recorded for replay purposes, I would now like to turn the conference over to your host for today brought O'bryan Treasurer, and senior Vice President Investor Relations and corporate Finance. Please proceed.
Thank you Candice good morning, everyone and thank you for joining us for high its fourth quarter 2019 earnings conference call.
I'm here in Chicago with markup Amazing Hi, its president and Chief Executive Officer, enjoying thought or any hi, its 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 or annual report on form 10-K, and other FCC 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 <unk> Dot com under the financial reporting section of our Investor Relations Link and then 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 high its fourth quarter 2019 earnings call.
I'll begin this morning by recognizing the colleagues and our teams in our Asia Pacific region.
For a living through extraordinary circumstances, and demonstrating a profound commitment to care for their families.
Our guests and and our customers.
For our hotel owners and for the communities in which our hotels operate that had been hard hit.
By the reduction in travel associated with Cobot 19.
Hi, its purpose as a company is to care for people. So they can be their best.
It is especially in these types of circumstances when many of our colleagues are restricted in their movements and in many cases unable to go to work at our hotels that are purpose matters. The most.
Our teams in Hong Kong, and Shanghai have worked tirelessly over the past four weeks to support and care for our colleagues is travel plans were significantly impacted by cobot 19.
While also caring for our colleagues to ensure that they can be their best for their families.
In the meantime, our teams have undertaken a wide variety of actions to reduce the run rate expenses at very low occupancy hotels.
Our world of higher team demonstrated agility and quickly assessing the needs of our members in Asia Pacific and announced yesterday, a series of status and pure extensions for those members.
Very proud of what the fight height family is doing to fulfill our purpose and to ensure that we are aggressive in limiting the financial strain that our hotel owners are experiencing in greater China and in other markets in Asia Pacific were travel patterns have been disruptive.
Now I'd like to provide some highlights of our fourth quarter, which was a very active one, especially on the growth and capital strategy fronts.
We finished the year strong delivering revpar growth in line with our expectations and earnings ahead of our expectations.
On the growth front, we opened a record number of hotels and signed a record number of new management and franchise agreements that resulted in pipeline growth of approximately 13% on a year over year basis.
We completed the sale of Grand Hyatt sold for $481 million.
While ensuring our long term brand presence.
With a 75 year management agreement.
We continue to drive industry, leading net rooms growth while at the same time executing our capital strategy and demonstrating the value of our hotel real estate.
I'd like to provide an update on our two roads acquisition completed in the fourth quarter of 2018.
We're pleased with our first year of operations under our acquired brands Leila Thompson dry disease and destination hotels.
Our integration efforts were well executed and in line with budget and expected timing.
Over the past year, we integrated hotels by brand into our systems and processes and we're seeing exploration of the brands by our worldwide members.
With the room night penetration rate for these brands running in the mid Twentys about four months following inclusion in the program on average.
We also see strong interest from developers around the world with meaningful additions to our lifestyle and resort pipeline.
Moving to our focus on growing our presence around the world I'm excited about the progress we've made over the past several years.
We continue to drive industry, leading growth levels with the addition of 90 hotels and over 19000 rooms on a gross basis during 2019.
Most importantly, we continue to materially increase our presence around the world having added 35, new markets in 2019 alone.
We both new hotel openings and conversions.
And that excludes.
The over 140, new markets, we added through a significant expansion of our collaboration with small luxury hotels.
With respect to new signings and continue to see strong developer interest in our brands. Our development teams delivered another record year signings driving an increase of over 13% in our pipeline even after a record year of openings.
Our pipeline now amounts to approximately 45% of our existing system.
In similar fashion to the excellent execution and momentum we've established in our growth agenda.
We have material, we advanced our capital strategy, and our driving an asset light or mix of earnings.
As we've discussed many times and important outcome of our capital strategy is to accelerate the evolution of our earnings profile through outsized growth in our fee business.
At a concurrent reduction of our owned asset exposure.
We have demonstrated and we'll continue to demonstrate an ability to successfully accomplished both.
In addition to the sale of the Grand Hyatt sole as I mentioned earlier, we also completed two other transactions that demonstrate our commitment to our capital strategy.
First the high Regency Portland.
This was a strategically important opportunity to develop what is now a magnificent 600 room headquarter hotel at the Oregon Convention Center.
We recently sold our right to acquire this hotel.
To a longtime partner.
And we realized the gain on this transaction of approximately $16 million upon closing.
Second the Hyatt centric in Philadelphia.
This was an opportunity we identified over three years ago to grow. Our then recently introduced Hyatt centric brands by developing a hotel in an important us market in which we are under represented.
We closed on the sale of approximately 60% of our ownership interest in this hotel last week and received approximately $68 million in proceeds.
We expect this hotel to open in the summer of 2020.
In summary over the last two years, we have sold approximately $2.4 billion of owned real estate and an average multiple of more than 17.5 times estimated annualized adjusted EBITDA.
And retained a long term management contract for every hotel sold.
The valuations realized in our dispositions and those embedded in our remaining assets, including our joint venture hotels are materially in excess of the implied valuation in the market is place on our owned and leased business.
As we've demonstrated in the past we believe we will continue to drive earnings growth.
Reduced capital intensity.
And expand free cash flow generation into the future.
Before I turn it over to John I'd like to comment further on the coded 19 outbreak.
As you know this virus is having a significant impact on greater China and has also affected travel travel patterns globally.
Guest and colleagues safety is our number one priority and significant measures have been taken in cooperation with local authorities in many locations to manage the risks associated with the virus.
Jim will provide some color on this situation as it relates to how we are assessing the effects on 2020.
However.
It remains unclear how long the impact of the outbreak of the virus we will continue.
At this time, we are unable to estimate the magnitude of the full year impact on travel patterns and on our results.
As you know we've operated in Asia Pacific for over 50 years, and we're confident that our brand strength, which allowed us to expand our presence and pipeline in greater China over the past five decades positions Hyatt for a strong future in these important markets. Thanks to the experience of our leadership teams and our constructive.
Highly effective relationships with hotel owners.
I'll conclude my prepared remarks. This morning by saying the 2019 was a year in which we executed well to drive solid operating performance and gain market share in the face a challenging conditions in parts of our business.
The strength of our brands and the excellence of our operating teams around the world gives us confidence that we will continue to drive solid operating results, even if challenging conditions persist going forward.
2019 was also a year in which we continued to demonstrate the successful execution of our capital strategy with almost $1 billion and asset sales approximately 65% of our stated sell down target.
Finally, we opened a record number of hotels signed a record number of deals and ended the year with the largest pipeline in our history.
I'll now turn it over to June to provide additional detail on our 2019 results and our expectations for 2020, Joan over to you.
Thanks, Mark and good morning, everyone late yesterday, we reported fourth quarter adjusted net income attributable to Hyatt, a $49 million and diluted earnings per share of 47 cents adjusted for special items.
Adjusted EBITDA for the quarter with $191 million with the system wide revpar decline of 5.5% in constant dollars.
Shift in the timing of the Jewish holidays at a negative impact on system wide revpar of approximately 60 basis points and Hong Kong drove an additional negative impact of 110 basis points.
Excluding both the earnings and integration costs related to two roads and the net impact of transactions, our adjusted EBITDA for the quarter grew approximately 8% on a constant currency basis.
As Mark mentioned, our Revpar results were in line with our expectations and our adjusted EBITDA was higher than our expectation.
Our fourth quarter earnings benefited from earlier than expected receipt of branded residents license fees.
Reimbursement of hotel pre opening expenses as a result of the Hyatt Regency, Portland transaction and lower SGN Nay driven by strong cost management.
As to segment results our mix of earnings from our managed and franchised business was at 58% of adjusted EBITDA before corporate and other for the fourth quarter and 57% on a full year basis compared to 53% in 2018.
Asset sales during the second half of 29 team combined with the continued growth in our fee business.
We'll continue to shift this mixed further sort of more fee based earnings profile.
During the fourth quarter, we delivered growth in based incentive and franchise fees on a constant currency basis of over 9% compared to the fourth quarter of 2018.
Based management and franchise fees were the primary drivers of the fee growth with a lower contribution from incentive fees as low levels of revpar growth placed pressure during the quarter on hotel level operating earnings.
I will briefly cover our three lodging segments, starting with the Americas, which accounted for approximately 68% of our management and franchising adjusted EBITDA in the fourth quarter.
The Americas segment full service Revpar declined 2.6% for the quarter and was up 8.7%, excluding the impact of the shift in the Jewish holidays.
Select service Revpar declined 1.8%.
Total U.S. Revpar declined 1.3% with U.S. full service down 1.1% with a similar holiday shift impact with us select service down 1.8% for the quarter.
Based incentive and franchise fee growth of approximately 5% drove adjusted EBITDA growth of approximately 6% for the quarter, both on a constant currency basis.
Full service group rooms revenue in the U.S. decreased 2.6% in the quarter driven entirely by group room nights and was impacted by the shift in the Jewish holidays.
The decrease in fourth quarter group business was driven by lower Association business, partially offset by an increase in corporate business.
In the quarter for the quarter bookings were down mid single digits.
Fourth quarter production for all years was down approximately 9% primarily due to higher levels of association bookings for periods three to four years out during the fourth quarter of 2018 in anticipation of a decrease in third party sales commissions, we implemented in.
Early 2019.
Looking ahead group booking pace is up approximately 4% for 2020 and also up for each of the next three years, except for 2021, which is down slightly.
At December 30, Onest 2019, approximately 80% of our group business for 2020 with already on the books and we expected to be a strong year for group business compared to 29 team. As a reminder, we had some particularly weak markets in 2019, where we have a significant presence such as Chicago.
U.S. full service transient revenue was up slightly for the quarter driven by an increase in room nights, largely offset by a decrease rafe.
Moving on to our Asia Pacific segment. This segment accounted for 20% of our management and franchising adjusted EBITDA in the fourth quarter.
Full service Revpar decreased 3.5% in the quarter and was up 2.2% excluding Hong Kong.
South Korea was very strong and we also saw growth in Japan, and Southeast Asia, While full service Revpar in greater China was about flat excluding Hong Kong.
Based incentive and franchise fees increased 1% with new unit contribution overcoming the revpar pressure experienced during the quarter.
Total Asia Pacific fee revenue increased approximately 8%.
Benefiting from branded resident fees recognized during the quarter, which along with the efficiency and SGN a led to an increase in adjusted EBITDA of approximately 20% on a constant currency basis.
Moving onto our Europe Africa, Middle East and Southwest Asia segment. This accounted this segment accounted for approximately 12% of our management and franchising adjusted EBITDA during the fourth quarter.
Full service Revpar increased 7.2% driven by a combination of occupancy and rate gains.
All regions in the segment showed revpar growth with Europe, delivering the strongest results for the quarter.
Solid revpar and new unit growth for the segment helped to drive at 20% increase in base incentive and franchise fee revenue for the quarter and an increase in adjusted EBITDA of approximately 28% both on a constant currency basis.
Turning to our owned and leased business. This segment accounted for approximately 42% of our adjusted EBITDA before corporate and other in the fourth quarter and 43% for the full year.
Owned and leased Revpar increased 1.4% in the fourth quarter or 2.6%, excluding the shift in the Jewish holiday timing.
Adjusted EBITDA for the segment decreased approximately 8% in constant currency driven by the impact of asset sale.
Excluding the net impact of these transactions segment adjusted EBITDA in constant currency would have decreased approximately 2%.
Our comparable owned and leased margins were flat during the quarter compared to the fourth quarter of 2018, an impressive result, given wage inflation combined with the low revpar growth environment in which we are operating.
Now that I reviewed our operating performance I'd like to cover shareholder capital return.
We returned over $500 million to shareholders in 2019, including $421 million of share repurchases and $80 million and dividends consistent with our prior guidance.
Additionally, during the fourth quarter, we announced a new $750 million share repurchase authorization.
Approximately $959 million remains under our existing share repurchase authorization as of February 14th.
Turning to 2020, we expect to return approximately 400 million and capital to shareholders. This year, which includes approximately $39 million in share repurchases completed through February 14.
Our return of capital to shareholders will come through a combination of share repurchases and our quarterly dividend, which we have increased from 19 cents per share in 2019 to 20 cents per share with our first quarterly dividend of 2020 to be paid on March nine.
By way of reminder, we prioritize revenge reinvesting in our business to drive additional growth and have also demonstrated significant capital returned to shareholders overtime.
Turning to other aspects of our expected performance in 2020, I want to first clarify that the guidance numbers I will be providing this morning do not include the potential impact covert 19.
After I cover our guidance, however, I will provide some color on the potential impact the virus could have on our business.
And as a reminder, you can find details of our 2020 guidance in our earnings release filed late yesterday.
We expect full year 2020 system wide revpar growth in the range of negative 0.5% to 1.5%. We continue to expect revpar growth in the U.S. to be a bit lower than revpar growth internationally and expect select service revpar growth in the U.S. to lag full service growth.
We expect our 2020 adjusted EBITDA to range from $760 million to $780 million that range reflects a $35 million net reduction in adjusted EBITDA from real estate sales completed during 2019.
And also reflects the elimination of onetime integration costs of approximately $20 million incurred during 2019 related to the two growth acquisition.
Excluding the impact of these items, we expect our adjusted EBITDA to grow by about 4% versus 2019, using the midpoint of the range.
Adjusted SGN a for 2020 is expected to be approximately $320 million. The decrease from adjusted SGN a of $329 million in 2019 reflects the reduction of two roads integration costs, partially offset by increases in compensation related costs.
Capital expenditures for 2020 are expected to be approximately $250 million more than $100 million less than 2019.
We have significantly reduced our capital expenditures through the continued execution of our capital strategy, including our recent sale of an approximate 60% interest in the Hyatt centric Philadelphia.
The only material construction related expenditure, we have relates to the completion of the mirror of all property in the Berkshares, which we expect to open during the second quarter of this year.
Net rooms growth for 2020 is expected to be in the range of 6.5% to 7% inclusive of the termination of the Ocean resort at the beginning of 2020.
The Ocean resort was a 1400 room franchise operation that was significant in room count had a very modest fee contribution due to the nature of the contract.
Excluding the Ocean resort termination, our 2020 net rooms growth would be in the 7% to 7.5% range.
As Mark noted earlier, we had a record year of signings and delivered double digit growth in our pipeline notwithstanding a record year of openings in 2019.
Our robust pipeline gives us confidence, we can deliver strong net rooms growth well into the future.
I'll now provide some additional information on the potential financial impact of covert 19.
Concerns related to the virus and specific actions taken to contain it have caused the complete closure of 26 of our hotels in greater China and many others that remain open are running at very low occupancy.
There's no question there will be an impact to our results, but it's simply too early to reasonably quantify what the full year impact to our business in 2020 might be.
I'd like to share three points to illustrate how we're assessing the impact as a situation that evolve.
First going forward, we have virtually no owned and leased exposure in the region. After the sale of the Grand Hyatt sole late last year.
Second the proportion of our consolidated based incentive and franchise fees coming from Asia Pacific is approximately 22% for the full year and 11% in greater China, where the most significant effects are being felt.
And third Theres, certainly an impact on other Asia Pacific market due to the pattern of outbound Chinese travel to those markets coupled with the current travel restrictions in the region.
However, the outbound Chinese travel to global markets outside of Asia Pacific makes up a very small percentage of our rooms revenue.
And as a point of reference inbound Chinese travel into the U.S. makes up less than 1% of total rooms U.S. rooms revenue.
And our analysis, we estimate that for every one point of decline in greater China Revpar.
Impact to our consolidated adjusted EBITDA will be in the range of $1 million to $2 million.
With respect to our net rooms growth guidance. It is too early to assess the full impact the outbreak may have a construction progress in greater China. This year.
What I can tell you is that the majority of our greatest greater China openings were originally planned for the first half of the year, which provide some cushion, but we do have a few hotels scheduled to open later in the year, which could have a negative impact of 30 to 40 basis points on our full year net rooms growth Guy.
And should construction delays of up to three months occur in those markets.
We continue to monitor the cobot 19 situation closely and our teams are aggressively working to minimize the negative financial impact on both our owners and on our financial results.
I will conclude in my prepared remarks by saying that I have great confidence in the resilience and capabilities of our team in Asia Pacific to proactively and thoughtfully managed through the current challenges in the region I'm proud to say, we have deep and strong relationships with our owners and excellent brand reputation and a strong long.
Term growth outlook in greater China, and Asia Pacific region.
Overall, we're pleased with our 2019 operating results and our continued ability to drive industry leading levels of growth.
We continue to successfully execute our capital strategy driving a shift in our business toward fee driven earnings while preserving our absolute levels of earnings over time.
And with that I'll turn it back to Kenzie Fourq Una.
Thank you at this time I'll remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad. Our first question comes from the line of Smedes Rose from Citi. Please go ahead. Your line is open.
Hi, good morning.
We could just you mentioned I think one to 2 million of China related fees for every one point in Revpar decline could you just what have you seen so far today in terms of Revpar decline for your China exposure.
I think Smedes I'll give you I'll give you a little bit more color I'll expand a little bit more on what we're seeing and how we think about.
The sensitivity that I just mentioned.
So it through month to date in Jan in February we've seen greater China down, 90% with 26% of the hotels close as I mentioned and the remaining hotels reporting single occupancy in Asia Pacific overall.
Excluding greater China month to date February is down 32%.
Given the outbound travel and the general restrictions that are currently in place in the region.
And January is not a good benchmark for us to use as we started the month out very strong in the first half with sharply declining conditions in the last two weeks leading into and through the lunar new year.
But I'll just backup a minute now to give you.
A way to think about the sensitivity.
So as I said in my prepared remarks, we expect 1% of greater China, Revpar declined to equal $1 million to $2 million in EBITDA on an annual basis.
And that includes the impact of outbound travel.
So for example.
Full year, China, Revpar was down 10% the full year impact would be about $10 million to $20 million or 15 million at the midpoint.
So as greater China, Revpar declined 20% the full year impact would be.
$30 million at the midpoint.
So where we are in the range depends on the nature and extended the stabilization period and recovery and we don't presently believes that the current conditions will persist for an extended period of time.
Okay. Thank you. So I just want to add a couple of things. So Thats me sorry first of all I think during my might have cited just now 26% of the hotels are closed its actually 26 hotels that are close not 26% just to be clear about that but the only other thing I would add is we excuse me.
Our operating in the C market that everyone else is I think the key issue that we're focused on right now is how our teams are responding and how we can proactively.
Engage and manage this situation and I can tell you that we've come into 2020 with great momentum we had.
Significant share gains in the fourth quarter in China, the top five markets.
Which for us and trying to include Shanghai Beijing Shenzhen.
Long, Joe and hung Joe.
We were up almost six points of market share in the fourth quarter.
If you look at.
China, excluding greater trying to excluding Hong Kong Macau on and.
Hi, one we were up almost four points in market share and even including.
Hong Kong, Macau, which had a structural headwind for us because of our casino room block, we were up over two points of market share over 200 basis points. So weve come into this year with tremendous momentum.
In our relative performance and and in fact, the first two weeks of January were quite strong.
Throughout China, So I guess, what I would tell you is.
Yes, we're going to focus on how we can mitigate the impact and so forth.
The fact is we live in the market along with everyone else and I think the key for us is.
Maintaining that the strength of our relationships and the strength of our performance on a relative basis and that's what I think you'll see from us this year.
Thanks I appreciate the.
Extra detail I just wanted to ask you mentioned that select service you can you ask you continue to see that.
[music].
Underperforming relative to the full service and I think we're probably getting to point, we're starting to lap negative comp fair and I'm just wondering is it.
I mean the sector in general has showed weakness, but I'm just wondering if there's any color you could provide for your properties in terms of.
But you're seeing on the supply front or just relative Revpar index.
Yes. Thanks speeds, we have we have seen some pressure last year as as we've talked about over the course of the year with respect to supply and demand and our concentration of hotels in.
Particular markets that habit have been under.
Maybe outsized pressure from that front, but we have seen our results over the course of the year improve and we are lapping the brand programming changes that you mentioned, so we've seen better results in Q4 relative to previous quarters, and we've started off the year to seeing some better results in.
In the segment.
Okay, Great I would just add that we we believe that.
We've got another maybe month or so or.
Of some dislocation from.
The actions that we took over a year ago in terms of lapping that to get to a better more.
Run rate kind of comparisons.
And at least as we entered this year. Our January results show that we are basically in line with where the sector with his segment is.
So we feel and by the way just by way of reminder, the reason for the actions that we took more than a year ago was to build.
World of high penetration in the brands.
Placement House brands, which we've achieved were up over 600% in terms of room night penetration for our loyalty members within those brands. So we've accomplished that and we will we believed that we will be back in line with or better than the segments as we move forward.
Thank you appreciate it.
Our next question comes from the line of Stephen Grambling with Goldman Sachs. Please go ahead. Your line is open.
Hi, good hi, Thanks for taking the question I guess on the owned and leased commentary I think you mentioned that you still feel that the remaining assets that have not been part of the permit asset reduction are still not reflected in the value.
All of your stock can you help us generally assess the value of the remaining assets relative to what you've sold and maybe as a follow up do you have any properties currently being shopped for sale. This year in with buybacks will be the primary use of proceeds.
Sure. So look we have spent a lot of time with and in and around our own portfolio for all the reasons that you understand which is preparing for executing and then.
And then.
Managing the aftermath of asset sales.
And.
I believe that we've had very good visibility into our own portfolio for a long time, whether that includes our I think clearsight assessment about the actual underlying value of a number of very unique properties.
That have significant inherent value because of their market position and because of their location in their performance.
And frankly, we've just demonstrated that we've we've.
We've evolved from the point, where we started a value which really didnt catch any.
Impact with respect to how people view, our company value and what we've done over the last certainly two years, but even longer than that is just continually deal after deal quarter after quarter, demonstrating the value of our real estate and we will continue to do that.
We believe that the remaining.
The remaining portfolio, which includes a number of jvs that are.
That our JV hotels, rather that are only now opening in ramping at this point in time. So the the earnings were not reflected.
Fully in our in our results, but will be over time.
Our simply stated our worth more from a multiple perspective than where we're trading. So I just don't believe that it's probably reflected still and we are convinced that the only way that it will be is once we actually demonstrated which we have done and we'll continue to do with respect to current activity. We don't have anything be marketed.
At this point.
So to speak we do we're in discussions.
With.
Several parties on a couple of different hotels.
Both on the buy side in the sell side by the way.
Which is our to our typical practice, we're active in the market on a regular basis, given the nature and some some in some cases very unique nature of our assets. We do get approach on an unsolicited basis and so we are in discussions on a couple of assets right now.
Hard to say too early to say, whether and when we would execute something and finally with respect to use of proceeds.
Always looking for opportunities to expand what we're doing.
Our focus has been and remains.
Looking for fee based or non real estate intensive.
Acquisitions in our industry in many cases I would say in all cases brands don't get started or don't evolve and expand and scale without capital put into real estate. So in many cases, we look at opportunities that include real estate, but we would look to sell down real estate. If we were to make an acquisition that included real estate, but.
So that's it that's really what we're going to focus on first and foremost over the last couple of years, we started off with initial guidance and ended up significantly expanding the return of capital to shareholders.
Because we are being prudent about retaining some capital and flexibility to execute on deals, but always in the backdrop have in our minds.
Return of capital to shareholders. So that's how we will continue to balance what we do over the course of this year.
That's helpful and maybe as a quick follow up just on some of your comment are you seeing more opportunities to pursue fee type per asset light deals or are you still kind of in digestion mode within two roads and then on on the JV.
Hotels are those would you generally see those are valued higher or lower than the assets you've sold already thank you.
With respect to.
Where we stand and what we're seeing the answer is we there's been a number of things that we've had the opportunity to look at over the past year.
And continue to be the issue for us is really focusing on customer base and making sure that the acquisitions that we look to execute.
Have a customer base that fits into the strategy that we pursued and is an enhancement.
Not just an addition of a bunch of rooms, and some fees, but really.
Something that carries with it more strategic impact and more ultimately more financial impact and leverage for us. So that's that's a key screen that weve applied I think the other close second screen item is growth we've looked at a number of interesting potential acquisitions over the past year that had.
Wonderful embedded assets, but no growth and so thats, not particularly attractive to us which leads me to roads I think as I look at two roads.
We are complete with as far as we're concerned we have some some remaining items that we are that we are actively.
Finalizing with respect to the integration process, but we've made tremendous progress over the past year.
It's been a very tumultuous year from a from a portfolio perspective, we started off with about 12000 rooms, we ended.
With about 10000 rooms, except for about 500 rooms that had been moved from historically to roads hotel brands into historically Hyatt brands.
So maybe in total if you're trying to keep track its 10 10500 rooms, but ultimately the integration was was really.
Achieved something very important for us.
Setting up a lifestyle division that has great focus in terms of how we go to market that has yielded a tremendous increase in discussions that we have underway our formal pipeline, which is which is screen very rigorously is about 5000 rooms across the four brands that we acquired but the the deals under discussion our many fold that because.
We really focused and concentrated on going to market with an integrated lifestyle team.
Thats now in place and fully integrated into our Americas operation with.
Coverage for our Leila out of Asia Pacific and easy So I would say that were locked and loaded and ready to expand that platform and back to my underwriting criteria. What we're really looking forward to do now as accelerate the growth. So we want to convert those discussions into pipeline into open hotels, but we stand ready and have the capability.
Capacity to to take on an additional acquisition or new acquisition. If we were successful in finding something.
Okay.
Oh on the JV values I think the what were what we're seeing is.
We will provide you more of an update on this as we move forward but.
Weve opened.
Something like 22, new hotels out of in the context of Jvs over the last five years.
And in many many cases, we have either traded out of our positions before they've opened to bring capital partners into allow us to recycle that capital into other investments.
Sometimes we've actually dispose of our investments our share in Jvs or sold the hotel that underlies the jvs. We've we've done all of those.
In the returns have been very healthy along the way and really on a risk adjusted basis excellent a lot of these deals include us serving as preferred capital.
And what I would say to you is that the the big opportunity that we see going forward and in fact, you see it in our numbers.
As we head into 2020 is ramping of new hotels that have opened.
Of which we have a number that are relatively newly opened in ramping nicely. So I think you will see twofold.
First you will see.
Momentum in our earnings base out of the Jvs and secondly, you'll see more transactional volume with respect to JV hotels.
Thats great color. Thanks, so much.
Thank you.
Our next question comes from the line of Patrick Shoals with Suntrust. Please go ahead. Your line is open.
Hi, good afternoon.
Question for you about sort of the impact of.
The virus in other countries in Asia Pacific certainly everybody either.
Realizes it's not going to be great for greater China, but the concerned more is what is the.
Sort of the read through to other other locations and you do have some owned or JV hotels in Valley for example, I wonder what you're seeing as far as booking in revpar trends for those.
I think John and I will sort of tag team this but.
Ill just start by saying.
If you think about the impact in concentric circles radiating out of China, that's the easiest way and the most effective way to think about it because the biggest impact is in the immediate circle, which is going from what was previously known as sort of mainland China to greater trying to including Hong Kong Macau, Taiwan.
That's that ring has significant impact and then as you go further out to the countries that are that impacted you include Thailand.
You include South Korea.
And you include Vietnam, and then if you go further out you've got Singapore, Japan and Indonesia.
And ultimately Australia, Australia said other issues with their wildfires. So I think the impact is just.
Its greatest in the in the epicenter of the mainland, but then it radiates.
We've had a number of.
Of hotels reporting significant declines in bookings.
That are entirely driven by Chinese travel.
And including Bali, probably is seen as a market starting in February a pretty significant decline in.
Inbound travel overall.
Singapore has as well.
And.
And actually Japan has as well so I would say we've seen it radiate across the globe, but.
Anticipates or.
The degree of the impact starts to dissipate is a further you move out.
If I look at the rest of the World and exclude Asia Pacific for a second we've had a very very good beginning of the year, we're up in the Americas were up in Europe.
In line with what our expectations were businesses actually relatively solid across the board as we look forward.
We in February.
This is really recent data so I'm not prepared to just extrapolate from this but we have seen some increase in cancellations.
And that increase by the way we saw no increase in cancellations in January in fact, probably at or below where we were a year ago, but coming into February we've seen some in markets outside of Asia Pacific.
100% of which as far as we can tell at this point relate to the virus.
They are primarily small meetings.
They are primarily in technology and consulting companies.
And there we've seen a little bit of activity in cancellations in places like Dubai.
And.
There was one other market to buy and.
India.
But apart from that the other cancellations that we're picking up are in the U.S. So that's good business is we're paying special attention to that we don't think it's going to be significant in these markets outside of Asia Pacific but.
We continue to monitor closely.
Okay. Thank you for the third answer that's great.
Okay.
Your next question comes from the line of Jared Shogun with Wolfe Research. Please go ahead. Your line is open.
Hi, everybody and thanks for taking the question.
Can you just talk a little bit more about what happened with the ocean resort contract and I guess, excluding that property. It sounds like the unit growth for 2020 would have been slightly higher than the prior guide if I'm understanding that correctly. So can you just help me understand the the puts and takes to that as well. Thank you.
Sure.
Thanks, Jeremy so.
The.
Resort is a large casino on the boardwalk in Atlantic City 1400 rooms.
That singular hotel has an impact of about 60 basis points on our net rooms growth.
Calculation.
The hotel.
As as is true for many casino hotels, when a brand affiliates with the casino operator, oftentimes there, there's a very structured way in which we engage with the owner because they retain control over large measure of their inventory for purposes of serving their their gaming business, which is very typical its.
It's pervasive throughout the industry and this was no exception.
We signed an arrangement in which we were helping the the resort get on the map and we had a very.
Structured way in which the franchise agreement was.
Was implemented and and limited the actual amount of inventory that we were really selling through our system by virtue of these kinds of room blocks. So thats why the fee base was low.
We don't have a lot of these arrangements, but this is an example of of a market that we released penetration in the high quality assets and when the casino went through an ownership change the new owners decided to go a different direction in terms of distribution channels and and so that's that's what happened there.
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Did you have a second part of your question Im sorry was right I guess.
Excluding that it looks I mean, I think you said, 7% to 7.5% net rooms growth here, which is slightly higher Ed succeed.
You can I actually just add 60 basis points, that's about high mid point about 17% yes.
Right. Okay. So we're just other properties coming online faster because I guess that was slightly higher than the prior guide.
I think the fact is that the difference year over year is not really.
It's not really openings in fact, we've had.
Plenty of headwinds with respect to getting hotels opened on initial schedules.
So that continues to be something we've talked about that in the past that it remains true.
The good news is that the hopper is so full that we're able to continue to maintain that the pace of openings and drive.
This kind of net rooms growth.
I would say that the the other thing that was really a wonderful positive in 2019 was.
Conversions, we realized a great deal conversions over the course of the year, which was additive to our.
Our total growth rate.
And.
I believe that we will continue to see some of that momentum as we head into this year.
And so I think that that's that's a positive.
We do have some risk as John mentioned in her prepared remarks with respect to openings in China with respect to the pipeline openings generally we believe that the concentration of the impact if any from the virus will be in greater China.
Weve evaluated the impact of supply chain on openings outside of greater China.
We have relatively diverse supply chain.
In terms of furniture fixtures and equipment for new openings. So we don't think we are we have significant risk in that area. We have spent some time actually diversifying if I look backwards in time and we are actively looking for alternative suppliers today just to make sure that.
If we do hit some roadblocks with respect to.
Furniture fixture or equipment coming out of trying to that we have some alternatives developed but right now we don't we don't believe that that's going to have a material impact on our openings this year.
Okay. Thank you and it just on capital deployment is there any desire to increase leverage now that the business models become more fee based with more predictable cash flows and then I guess just on that thought as well as a little surprised only see 400 million of planned capital return for 2020 is that just because there's still some uncertainty as to what you may purchase.
In the year, you said youre looking at some things on on the on the buy side as well.
And if you don't buy anything should we expect that that capital return is meaningfully higher than 400 million and in 2020 is that fair way to think about it.
I'll start with the capital return question we.
Came out with 400 million as as our preliminary guidance. This year and we believe that this is a level that is responsible and provides us some flexibility in the environment with.
Now with lower Red Revpar growth going into the year and also provides us optionality as you noted as we consider other opportunities for reinvestment, which is our number one priority.
And I'll, just say with respect to the first question.
We will.
Our attitude with respect to Leverages first rule is remember that we're in a cyclical business second rules don't forget the first rule.
So we're going to maintain our current outlook with respect to leverage we will evaluate relative leverage.
Over time, but I think at this point.
We will maintain our current.
This which is to make sure that we retain an investment grade level and flexibility, we really want to maintain our capital base. So that we can act on opportunities when we when we.
Find them.
Okay. Thank you very much.
Thanks.
Your next question comes from the line of Shaun Kelley with Bank of America. Please go ahead. Your line is open.
Hi, Good morning, everyone. Thank you for taking my question.
I just have I have two one probably is more of a clarification Mark I think we were looking at the guidance and.
In the joint venture line and it looks like there is pretty strong growth that you're expecting looking out to 2020.
I think you alluded earlier in response about joint ventures, and how some of the some maybe prior investments were starting to to add up there could you just.
Either validate that that's what that is or any specific call outs on what can be driving the strong growth in 2020, and then other follow up would be just a little bit more color on your outlook for.
The owned and leased margins as we look out for 2020, I think Joe you said that owned and leased margins were flattish in Fourq, which is which is a great performance just kind of how are you seeing that lineup as you look out to 2020.
I mean, you wouldn't the margins yes.
So on the on the margin front Sean.
Very proud of the results that our teams have generated in the fourth quarter, we had revpar growth of 1.4% for the owned hotels and it was partially impacted by lower group results. There in those hotels, but I'd attribute it this the flat margins in that environment to the continued strong focus from.
Our operations teams and application of best practices at release as it relates to improve profitability. We're realizing strong rates in that portfolio. The 1.4% of Revpar growth is primarily driven by rates and we continue to find ways to improve our food and beverage.
Profitability and we've seen lastly, and importantly increased productivity measures across all.
Ill areas of the hotels in the face of rising rate wages. So we've continued to see this and this year as we think about continued to be pressures with respect to rising rages and will.
Respond accordingly.
On your joint venture question.
I would say that a majority maybe 60% of the total year over year or progression and JV earnings is coming from ramping properties.
So things that opened.
Over the last year that are now ramping up.
We've got some very high quality assets in that portfolio. A couple of hotels that have just opened five centric Portland comes to mind.
We've got several select service hotels.
Largely in the West coast, but we are opening a new hotel in Boston large Hyatt place.
Which will be a JV I think for its initial life, but actually are our arrangement with our partner in that deal is that they will take us out within a certain amount of time relatively short amount of time after opening.
So, but if you look across the portfolio. We've got we've got some really good ramp underway, which does represent about 60% of that.
Progression year over year.
And work the other foreign out.
Okay.
It's.
Its performance of the joint ventures themselves.
And John we took a great called that out last year as as a as a headwind in 2019 some of the ramp ramping hotels, where we're coming through a little bit slower than we had expected. So now we're seeing the strength of the ramp going into 2020, yes and that progression. The other 40%. That's that's run rate, if you will or core or.
Same store might seem high view, but some of the joint ventures that are in our portfolio or in markets that really had a tough 2019 and our outlook for those markets has improved so that's part of what you what you're seeing here. So we've we've already suffered the.
The the pain of challenging market conditions in 2019 in the number of those markets I think our outlook is more more constructive for 2020.
Thank you for all the detail.
Our next question comes from the line of Michael Bellisario from Baird. Please go ahead. Your line is open.
Good morning, everyone.
Good morning, one more.
One more on guidance can you provide an update on mirror of on the construction delays that you experienced there and then what amount of ramp up are you, including in 2020 numbers.
Yes happy to do it.
This is going to be a transformative year for MYR evolve for sure. We will finally have all three hotels open and operating by the Middle This year.
We are on track from the last update we provided you with respect to Lennox, Berkshire, the mere valeant brochures.
So you will see that property open fully open and operating as a mere Raleigh.
By the end of May.
We have opened the year.
Very strong.
We are running.
Well ahead of last year.
Sort of double digit.
Luke.
Sort of the in the range of 12 or 13% increase in revenue in our Tucson property year over year. This is one month, but still indicator of how we're how we're getting kicked off and were well ahead of our of our expectation for January and Austin, which is really just ramping.
Primarily driven by.
Significant increases in both occupancy but also rate.
The thing that I'm encouraged to see though is in both of these hotels a significant.
Amount in fact, the plurality not a majority of we'll put a plurality of the revenue base comes from what I would describe as non rooms revenue.
Actually if you include food and beverage. It is a majority of the of the revenue and in those cases the increases.
The variances are quite positive, which means that the resorts and the positioning is our fulfilling the intended purpose and we're getting the right customer base, who is not just prepared to pay for those services.
The hotel environment, but.
But happy to and we've got a lot of return.
Customer base by the way the other thing that I would say about mural as we've been very very surprised at the world of Hyatt penetration at Mirabal, we expected to be maybe.
The mid Twentys and we're actually.
Between 35 and 40 at the moment, which is really the testament to the very high end customer base that we currently have in the world of high base.
So thats how were starting on operations in terms of ramp.
We have pre opening expenses and a significant measure of marketing expenses for the Berkshire is because the primary markets or New York in Boston other not cheap to market and so we're doing that aggressively.
But the total ramp that we expect year over year premiere of all will probably be in the range of about $9 million.
But might be a little bit less than we initially would have modeled except for the fact that durable the open and operating properties Tucson, and Austin finished the year last year much stronger than we had initially expected that's part of the positive variance that we saw in the fourth quarter.
So we actually did better than our forecast last year, we're starting from higher base and therefore, the progression the may seem a little less pronounced.
So thats really where we are with miserable.
Very helpful. Thank you.
Sure Kenzie, we'll take our last question, though.
Our last question comes from the line of Carlo Santarelli from Deutsche Bank. Please go ahead. Your line is open.
Hey, everybody good morning, and thanks, I'll be relatively quick I was just curious.
John when you were going through kind of the group pace. This year I was hoping you could kind of clarify the fourq you 18 tough comp that was created and made for the challenging for Q 19 in the quarter for the quarter and then as it pertains to the 2021 2022 in 2023 group business on the books what percentage.
Of that business is on the books in each of those years, if you could share that.
Actually if you don't mind general to ill take this you know I have spent a lot of time on the subject because we've been this aggregating the numbers and.
A couple of couple of things I, just wanted to point out first.
Group in the fourth quarter was down 2.6%, but actually up 0.6%. After you take out the Jewish holiday. So relatively good the thing that I would say thematically was true over the course of 29 team.
In terms of our actual performance book rooms revenue is that corporate was very very strong.
Very strong means up in the low teens in terms of total revenue, which by implication because we had we actually published a decline in total group room revenue means that association was.
Negative so what's happening what's happening is that over the course of 2019, we had significant wash meeting.
The number of attendees to large meetings that associations held a number of hills was lower than our expectations and even as our large convention hotels did a great job of Backfilling.
A lot of that capacity with transient business, especially leisure transient we still took as a group matter hit on the association side.
So as we look at production.
Group production in the quarter was down on was 9% all of that was December.
What's happening is that we saw in December of 2018 in January of 2019 in February of 2019 significant increases in production during that period of time. The reason was because we had announced the commission shift and older meeting planners and other intermediaries rushed to book Association business.
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During that period of time, so the production levels during December be team and the January and February of 19 were just at an elevated level and we're lapping that now.
But if you look at the core production in corporate.
It's very encouraging I look at the pace as we look forward in time as Joe mentioned 2020 is up a bit over 4% that's evenly balanced between demand and rate about 80% of that a little over 80% of that business is booked now already if you look at 2021, it's down modestly.
All of that is currently room nights, driven not 80, RDR is up a bit and about 50% of that business is booked currently and if you look at 2022, where were up in the mid single digits.
Mostly in volume demand and a bit in rate as well over over about point appointed a half of rate improvement were about 35% booked into 2022.
Last thing I'll say is some.
In terms of group the.
Top four areas high Tech banking and finance pharma and manufacturing are all off.
Mid mid to high single digits across the board for the year looking forward in terms of bookings, which I find very encouraging means that are the real positive large customer relationships that we have are very productive.
The last comment I'll make is on leisure front I'm sorry on the transient front is that in the same way that the year last year was all about corporate and as we head into for group that is as we head into 2020, we think it'll be more balanced group and and and associate a corporate in association.
The story of transient last year was leisure leisure really was the producer of our transient results with business transient flattish maybe down a little bit over the course of the year. So.
That's really.
How we've come into this year, our our core.
Leisure base in our at least the leisure customers that we serve which are relatively higher end.
They are solid and and the attitude and orientation towards bookings and vacations remains very good so thats, where we are.
Thanks, Mark Thats very helpful.
This concludes the Q and a session for today's call I will now turn the call back to Brad O'bryan for closing remarks.
Thanks, Kenzie and thank you everyone for taking the time to join us today.
The.
Today's conference call. Thank you for your participation you may now disconnect.
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