Q3 2020 Hyatt Hotels Corp Earnings Call
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I would now like to turn the call over to Rattle, Brian Treasurer, and senior Vice President of Investor Relations. Please go ahead.
Thank you Denise good morning, everyone and thank you for joining us for Hyatt's third quarter 2020 earnings Conference call. Joining me on today's call are Mark complement diseases, Hyatt's, President and Chief Executive Officer, and Joe and Battery Hyatt's, Chief Financial Officer before.
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 comments on this call are made only as of today and will not be updated as actual events unfold in.
In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at Hyatt Dotcom 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, and welcome to Hyatt's third quarter 2020 earnings call I.
Im going to begin today by recognizing every member of Hyatt family around the world.
As we all know this is an incredibly challenging period, we are living through and one that is expected to last for longer than any of us could have imagined.
I continue to be inspired by my colleagues everyday there.
Their embodiment of our purpose.
And the excellence and ingenuity with which they are engaging to maximize our opportunities are remarkable.
Our purpose of caring for people. So they can be their best defines why we exist and has long been fundamental to who we are.
As an organization and it is vital during interactions with guests customers hotel owners travel advisors and with each other.
In addition, the powerful way in which our teams around the world have put their skills into practice with excellence creativity and agility in re imagining our business has been stunning to see and highly effective.
Our teams have successfully created safe and fulfilling guest experiences and as a result have maximized our operating results in this low demand environment.
It is clearly evident that we have the right team of people around the world to lead us through these challenging times and we intend to build upon and leverage the strength of our brands as we recover and drive industry, leading growth and expanded profitability in the future.
I'd like to now provide some color on what we are seeing in our business and how we're thinking about further recovery over time.
Leisure travel has been the primary source of demand and continues to drive the recovery to date. So let me start there.
During our second quarter call, we discuss the leisure driven occupancy levels, we were seeing through the first half of the summer as the strict lockdowns experienced during the second quarter bigger.
He began to be relaxed.
We continued to see increasing demand through the remainder of the summer and into September.
The strongest demand we've seen in the us since the pandemic began was during the labor day holiday.
We experienced continued strength through September and October with modest increases in average occupancy levels over the period driven heavily by weekend business, where occupancy percentages were running in the low fortys.
While midweek occupancy percentages were running in the high Twentys.
We've seen booking activity continue to show small improvements since labor day, and it's noteworthy that TSC data for October 18th showed over 1 million travelers in a single day for the first time since March 16th of this year.
That said.
We are mindful of the recent increases in COVID-19 cases in the us and Europe, and the resulting increase in restrictions being put into place in many jurisdictions.
We expect these enhanced restrictions to have a negative impact on travel in the near term and this could result in flat for perhaps reduced fourth quarter demand compared to the third quarter.
Leisure demand continues to be concentrated in drive to leisure destinations.
We have also seen significant outperformance by our select service brands as compared with our full service brands.
On average our opened Hyatt place and Hyatt House hotels ran occupancy levels of approximately 46%, which was well ahead of the roughly 30% occupancy levels at our open full service hotels.
We're pleased with the relative performance of our select service hotels as they are gaining share with an increase of over 1000 basis points compared to our already strong Revpar index levels in the us during 2019.
We're seeing similar or even greater increases in international select service hotels.
These brands have consistently proven to be preferred by guests in the upscale segment and this has continued to hold true through the early stages of recovery this year.
Shifting to greater China occupancy is in most areas of greater China, Excluding Hong Kong, Macau, and Taiwan have reached pre cobot levels as the rebound in domestic travel has fully replaced inbound travelers.
We also continue to drive very strong Revpar index results in China, a continuation of our second quarter performance.
The strength of our brands combined with the operating excellence of our teams has led to continued outperformance versus the competition with an over 900 basis point increase in Revpar index across greater China.
Travel demand in China also continued to show strength beyond the end of the third quarter during.
During the Golden week holiday from October Onest through October Eightth.
Over 45% of the population traveled.
And we realized a 17% increase in revpar and a more than 35% increase in spend on food and beverage as compared to the same period in 2019.
Leisure transient demand continues to lead the recovery in greater China, but we're also seeing some meaningful recovery in both transient business travel and group business.
As a percentage of realized demand in greater China during the quarter.
New business was it similar low similar levels to 2019 and business transient.
Was only off approximately 200 basis points.
Notably on the group business front, we continue to hope post new product launches for car manufacturers as well as luxury goods companies with extraordinary new programming that leverages, our deep strength and banqueting and events.
We view the China experience as an example of the strong desire people have to travel and gather and the type of demand you might see to us.
As you might expect to see elsewhere once travel restrictions lift and fear around the virus ceases to be such a limiting factor to travel.
With respect to Aspac markets outside of greater China, We're seeing continued improvement in demand in South Korea, which increased Q3 revpar levels by over 25% compared to the second quarter and in Japan, which has started to show some improvement off of lower second quarter levels.
Revpar, increasing approximately 20% quarter over quarter.
The majority of markets in the aspect segment. However continue at low levels of activity given border closures and travel restrictions that remain in place.
I'd like to now cover some forward looking demand factors that we are paying close attention to.
As stated drive to leisure has been and will continue to be the primary source of demand that leads the recovery for the foreseeable future.
Business transient and group business. However, we will both be necessary ingredients in achieving full recovery and in supporting better rate realization.
We continue to see near in group business cancellations consistent with what we saw last quarter and have now seen meaningful cancellations in the first quarter of 2021 group business.
While the impact on second quarter 2021 business isn't nearly as significant yet we are starting to see cancellations and believe we may experience additional attrition over the coming months.
Large group business demand is heavily linked to confidence around widespread vaccine availability effective therapies and scalable rapid testing solutions.
We are cautiously optimistic about recovery in business travel in the second half of 2021, and we are encouraged by the advances in rapid low cost testing.
We've seen events and southeast Asia.
Facilitated by testing protocols and travel authorities in the us and Europe continue to advance the procedures that we'd be put into place for bilateral market travel without Florentine requirements.
Having said this we are prepared for the first half of 2021 to be challenging even as new solutions are launched because it will take time for confidence to build.
Group business on the books for the full year of 2021 at this point is down about 40% from where we were last year heading into 2020.
While large group business has essentially disappeared, we're having some success with targeted small group business, including bubble programs for customers in professional sports Entertainment emergency response workers and universities.
Our teams have re imagined our approach to group business with shifts towards.
Regional meetings and cross property cross market hybrid solutions.
And we've had some success with industries, such as restaurant franchise groups pharmaceutical companies construction and certain manufacturing businesses.
Our teams are working with customers to design, new hybrid solutions and exploring potential rapid testing protocols for 2021 events.
We are concurrently developing promotional offers and programs to attract business that is more social or leisure oriented to fill in weekday gaps left by corporate and association business.
With respect to business transient demand, we're hearing mixed messages from customers, depending on the nature of their business and the impact the pandemic is having on them.
A limited number of our customers are seeing increases in business activity and expecting business related travel to increase early in 2021, but many of our largest customers such as professional services and consulting companies are suggesting a slower return to normalized travel levels with continued limitations on travel.
Through the first half of 2021.
The one thing we have learned since the beginning of this COVID-19 experience.
Is that predictions made beyond the very near term are unreliable.
As the human experience continues to evolve in ways that require continuous learning and adaptation.
Touching on our owned and leased hotel outlook, we had just over 80% of our owned and leased and joint venture hotels open as of the end of the third quarter and we expect overall demand for the majority of these hotels to continue to face pressure well into next year.
Our teams have done an excellent job re imagining our operating model to drive impressive results. Despite overall third quarter revpar levels that were lower than 2019 levels by more than 80%.
Demand in some of our drive to resort and leisure destinations such as Lake Tahoe, Nevada.
Lost pines outside of Austin, Texas, and Huntington Beach, California was quite strong. However, the majority of our owned hotels are urban business in group oriented properties and they continue to face significant headwinds.
As we look forward, we expect we'll have about five of our owned and leased and joint venture hotels closed for the foreseeable future given conditions in particularly challenging markets such as New York City.
I'd like to now discuss our continued progress in driving long term growth.
Third quarter, we delivered net rooms growth of 6% on the heels of 5.8% net rooms growth for the second quarter.
While there has been disruption in the development cycle with likely implications for future periods I'm pleased to say that we've overcome a number of challenges to drive two straight quarters of strong growth.
Consistent with my comments last quarter, we expect our full year net rooms growth to be above 4%.
Our third quarter openings included three conversions contributing 30 basis points to our net rooms growth.
The conversions include the Hana Maui resort, which joined our destination brand and becomes our third resort on the island and Maui.
The other conversions during the quarter were the 300 room tighter regency Leandro.
Located along Chinas yellow river, and the 400 room Hyatt Regency Doha.
We continue to see meaningful conversion opportunities and expect to complete additional conversions in the coming quarters.
The third quarter also marked the openings of 18, additional hyatt place or Hyatt House hotels, including the Hyatt place Boston Seaport. This.
This 297 room hotel is conveniently located in the heart of the Seaport District overlooking Bostons Harbor walk and is the result of a joint development effort with an important development partner and owner of ours.
Other notable openings during the third quarter include our reentry into New Zealand with the opening of the Park Hyatt Auckland.
As well as the introduction of our second under US Hotel in China with the opening of the Ondeck has shown them.
While not included in our third quarter openings I'd also highlight our recent openings of the Hyatt centric Center City Philadelphia.
Grand Hyatt Nashville.
And Hi, Regency West handily all opened during the month of October.
For 332 room Hyatt centric in Philadelphia is located in one of the city's most desirable neighborhoods a block off of Rittenhouse square and represents an important addition to this fast growing lifestyle brand.
The 591 room Grand Hyatt Nashville opens as the cornerstone of the 18 acre Nashville yards development in the heart of downtown Nashville, with 77000 square feet of event and function space, a world class Spa, and multiple food and beverage outlets, including one of the highest outdoor rooftop lounge.
As in Nashville, along with the Continental restaurant, eight and award winning.
By the award winning chef Shawn Brock.
Finally, the 519 room Hyatt Regency West Hanoi is a conversion of an existing branded hotel and represents our first representation in Vietnam's capital City.
We maintained our pipeline at 101000 rooms after opening more than 43 100 rooms in the third quarter, representing an increase of approximately 10% in our pipeline from the third quarter of 2019.
We continue to see full service growth opportunities globally, including both Newbuilds and conversions.
As I mentioned last quarter, we've seen very limited new development activity for select service hotels in the Americas, due largely to financing limitations and underwriting challenges.
We are however, starting to see an uptick in discussions in this space and believe significant demand for these development opportunities will return once capital availability improves for them for new development.
I also want to highlight that our third quarter pipeline additions include 13 year Cove signings with an expectation that as many as five of these hotels will open in China during the fourth quarter of this year.
In fact three of these hotels were opened during October.
You may recall, our announcement a bit over a year ago regarding our new joint venture with home ends to develop the year Cove brand designed to cater to the underserved upper mid scale segment in China.
Homans operates a larger a large number of hotels in China and the venture is expected to rapidly develop your cove offerings around the country targeted at China's growing middle class with many of the openings coming by way of conversions of existing properties.
We are excited to have officially launch this new brand and believe it will provide significant opportunities to engage with an expanded and growing customer base in China.
I'll conclude my prepared remarks. This morning by saying that we were encouraged by continued improvement in leisure demand during the third quarter and believe that our reimagination of operations has yielded optimized operating results in this low demand environment.
We're particularly pleased with our performance in greater China, and the share gains we have captured both in China, and our select service hotels here in the U.S.
We believe the remainder of the fourth quarter to be challenging due to the impact of the current surge in COVID-19 cases, we see in multiple markets and we expect that economic recovery will continue to be uneven and weigh on results into the first half of 2021.
Having said this we remain confident in the enduring desire for people to travel and in the ability of our teams and brands to drive preference. When we begin to begin to see and experience tailwinds from a return of confidence to travel globally.
As Jim will describe to you the strength of our balance sheet and effective management of our cash flow positions us well to navigate the uncertain timing and pace of recovery with confidence.
Meanwhile, we continue to execute on all along our long long term growth strategy. Another strong quarter of net rooms growth and continued new construction and conversion activity speaks to the strength of our brands and the effectiveness of our development teams in leveraging that strength to identify opportunities to build on those brands and expand our go.
Global distribution.
Finally, and most important is the fact that the height family continues to live our purpose and drive the kind of performance that is not only sustaining us through this challenging period, but positioning us for enhanced strength and profitability as we achieve full recovery over the coming years.
I'll now turn it over to Joan to provide additional detail on our operating results John over to you.
Thank you Mark and good morning, everyone.
Late yesterday, we reported third quarter net loss attributable to Hyatt on $161 million and a diluted loss per share of $1.59 cents.
Adjusted EBITDA for the quarter was negative $48 million with a reported system wide revpar decline of approximately 72% in constant dollars.
As was the case in the second quarter our.
Reported system wide Revpar declines are impacted by both the inclusion of closed hotels in the calculation.
And by our chain scale composition, which includes significant exposure to upper upscale and luxury properties and to top 25 markets in the us and had been weaker than other markets. Since this pandemic began.
While we had 92% of our hotel or 88% of our rooms open as of September Thirtyth. The impact of closed hotels on our third quarter reported system wide Revpar results was about 800 basis points.
Our system wide revpar in the third quarter was down 64% from last year, excluding closed hotels.
I'd like to now provide a few additional details on our operating results for the quarter.
Our management and franchising adjusted EBITDA showed significant improvement over second quarter levels, driving profitable results, which more than offset corporate and other adjusted EBITDA losses.
Our management and franchise fee revenue decreased by 70% compared to 2019 levels. Despite a 72% reduction in system wide revpar.
Fee revenues were helped by contribution from new hotels opened over the past year and by incentive fees driven almost entirely from greater China.
Mark mentioned earlier that China, and select service, where our primary areas of strength during the quarter and they collectively made up about 55% of our total third quarter management and franchise fee revenue.
Our owned and leased segment Revpar decreased 83% compared to 2019.
With 13% of our owned and leased segment hotels, representing 22% of the rooms closed as of the end of the third quarter. The impact of closed hotels on our reported Revpar decrease was 1300 basis points and therefore, revpar decreased 70% relative to 2009.
Teen levels, excluding those clothes hotels.
Owned and leased adjusted EBITDA for the quarter with a loss of $56 million about half of which was driven by close hotels during the quarter.
The quarterly loss was better than our expectations due to strong performance from resort hotels in the segment.
We also realized and benefit from certain government subsidies and may not continue into the fourth quarter.
The impact on demand from the increasing spread of the virus combined with the reduction of certain benefits realized during the third quarter could weigh on fourth quarter results for the owned and leased segment.
Finally, I want to comment on our occupancy progression for alphatec globally and breakeven level.
Mark mentioned the improvements weve seen in transient demand over the quarter to the month of September 84% of our open select service hotels were running occupancy.
In excess of 30%.
And approximately 32% of our full service hotels were running occupancy levels in excess of 40%.
I'd say the threshold in reference to our previously disclosed historical hotel EBITDA breakeven levels of 40% to 45% for full service hotels and about 10 points lower for select service hotels.
Our cost savings measures and operational efficiencies have pushed the breakeven level down to the bottom of those ranges.
I'd now like to provide an update on our liquidity.
As a reminder, during our second quarter call I reviewed the steps we have taken during the quarter to secure additional liquidity and the positive results. We have seen in our cash burn versus our original expectation.
During the third quarter, we secured additional liquidity to the issuance of $750 million in short term Prepayable bond.
You see the bonds under favorable market condition that allows for efficient execution and pricing.
The bonds have a two year maturity and our pre payable at par anytime beginning with the first anniversary in issuing.
The proceeds from this bond offering fortify an already strong liquidity position as we navigate uncertainty in the profiles of recovery.
During the third quarter, our monthly cash burn, excluding severance payments and other onetime cost decreased from our second quarter cash burn.
Our operating cash burn improved meaningfully partially offset by some incremental working capital support for third party owners due in large part to the extension of certain systems services fee concessions to the end of 2020.
Over the second half of 2020, I'd note that timing of certain payments related to annual insurance premium and property taxes for our owned hotel portfolio as well as some incremental investments supporting new deal growth are expected to lead to uneven monthly cash burn result.
Notwithstanding variability and monthly cash burn due to timing our overall trend on cash burn has improved and is expected to average no more than $60 million to $65 million per month based on third quarter demand levels.
As of September Thirtyth, our total liquidity inclusive of cash cash equivalents and short term investments combined with borrowing capacity with approximately $3.6 billion.
The only near term debt maturity in $250 million of senior notes due in the third quarter of 2021.
We believe our existing liquidity, excluding proceeds from the $750 million short term bond issuance, which has a maturity inside of our cash burn runway supports our ability to operate at third quarter 2020 demand levels for more than 36 months.
While we believe third quarter demand levels could persist over the near term we.
We continue to use these conditions conditions as temporary and expect improvement in travel restrictions are when travel restrictions are lifted and demand increases and therefore expect our monthly burn rate to continue to improve over the recovery period.
Looking forward I would reiterate that visibility remains extremely low in this environment.
I'd like to share some color on a couple of items as we look ahead to 2021.
As we communicated earlier this year, we've reduced capital expenditures significantly and expect a low level of outflows for the remainder of the year.
Looking forward to 2021, we presently expect total capital expenditures of approximately $100 million.
Shifting to SDMA, we've previously disclosed the significant steps taken to reduce our SGN a this year and those steps included headcount reductions and reductions in variable costs.
Looking forward to 2021, we expect to maintain reduced resource levels and cost containment discipline through the recovery.
As a result based on our current outlook. We believe 2021 adjusted EPS DNA, excluding bad debt expense will reflect and reduction of approximately 25% from our original 2020, adjusted SGN a guidance of $320 million.
Finally, I'd like to briefly comment on earnings sensitivity by reminding you of our previously communicated earnings sensitivity levels.
Earning sensitivity illustrated that a 1% change in revpar levels.
Using 2019 Revpar as a baseline.
Results in an impact of approximately $10 million to $15 million and adjusted EBITDA.
This guidelines should generally continue to hold true at today's demand levels with the earning sensitivity being at the high end of that range in the near term.
We'll look forward to sharing more color on 2021 during our fourth quarter earnings call.
I will conclude my prepared remarks by saying that we're pleased with our.
Third quarter performance led by the momentum of leisure demand and overall financial management discipline that resulted in strong operating results and better cash preservation despite difficult conditions.
While we expect economic recovery to remain hard fought over the coming quarters, we secured additional liquidity and believe we are very well positioned to leverage our strong brand and the capabilities and creativity of our talented teams around the world to navigate what will likely be a volatile period of recovery.
Thank you and with that I'll turn it back to Denise QNX.
Ladies and gentlemen to ask a question. Please press Star then the number one on your telephone hi, well pause for just a moment deposits many roster.
Your first question comes from Stephen Grambling with Goldman Sachs. Your line is now open.
Hey, good morning.
Mark you alluded to some of this in your opening remarks, but what does the experience I guess you put it all together in mainland China to tell you about the potential paths of business transient and group recovery in other parts of the world of coated kittens ultimately come under control and our vaccinations become more widespread.
Thanks Steven.
Well first of all it's it's it's extremely encouraging.
You see activity amongst our customer base, which is very consumer focused I mentioned.
New product launches, which really proven to be an important piece of group business that we realized in this business.
Past quarter, especially.
And.
What we're seeing is a remarkable evolution of of the constraints that people live under with respect to how they gather.
And part of that has to do with the fact that their whole approach has been.
Reduce the caseload to virtually zero or close to zero, and then leverage the opening and and accelerate that I think most of the rest of the world is now contending with a different approach, which is not actually reducing it to the caseload to zero at the inception.
But rather trying to isolate and manage through.
Our surges at this moment in time, those surges are pretty widespread.
So the way I look at it is.
Ultimately the vaccine a widely distributed vaccine will make a huge difference but in the meantime, we're seeing and we're spending a lot of time on on looking at how we can use rapid testing platform platforms to basically create.
Hi, we assured bubbles environments, where all the people that you interact with when you come into a venue have been tested have been tested by the way over a several day period and we have effectively can guarantee that nobody is infectious as you walk into that space and I think thats going to make a big difference with respect to leisure.
Sure.
Greg Trepp travel weddings, and other gatherings, but also very importantly business. So I guess, what I would tell you is the.
The demand is been stunning to see.
We said earlier that the the total demand is actually back to 2019 levels actually overcoming the the absolute absence effectively no no inbound traffic from international destinations.
So I look at it and I think that it is a it's a wonderful indicator that once we get to a point where people can actually have real confidence in stepping into.
An office, if you're going back to the office, which I think is important business transient travel or into a meeting space.
I think it will make a big difference and we'll see a significant inflection point.
That's great and as an unrelated follow up what are you seeing any asset disposition and acquisition market that might inform your strategy that you'd outlined at the analyst day.
Yes. So we first of all just to be very clear because I want to reiterate this we said that we would fulfill our billion five sell down by March of 2022.
And we remain steadfast in absolute on that commitment so thats.
Thats just by way of reminder, but as I look at the market right now it's.
There is no market, there's not a lot of price discovery going on there are individual transactions that have occurred.
The discounts that I've seen at least range sort of from maybe 10% to 30% off of where values might have been back in 2019.
You know I, just I've said this before and I'll just reiterate that we are our portfolio includes.
Assets that have.
Unique value attributes either because of the type of asset of visible location, that's in that and those assets retained value and are and and and attractive.
Interest.
No matter, what the economic environment happens to be so it's a more durable kind of marketplace and this is no different. So we have had inquiries with respect to some of our assets. We're not in a position where we feel like we need to rush to.
Dispositions, we got a very strong capital base and lots of options with respect to how we manage this so we continue continue to be disciplined about value realization, but very encouraged that we the same premise that gave us confidence about the value of our asset base before remains true today.
Super helpful. Thanks, So much best of luck in year over year.
Thanks, so much.
Your next question comes from Shaun Kelley with Bank of America. Your line is open.
Hi, good morning, everyone Sue.
Mark in June I actually some of the commentary we heard about what we're expecting to see for the balance of Q4 was maybe a little bit more cautious or conservative than than what we've heard from other hoteliers out there. Thus far during earnings season. So I just kind of wanted to see if you could dig into that a little bit specifically are you seeing.
Any actual evidence of sort of second wave impacts thus far as it relates to an 80 travel cancellations or near term policy changes do you think it could just be given.
Certain urban exposures that highest specifically has or is this just broader caution on your part given what you expect to occur.
Sean It's Mark I'll start and turn it over to Joan.
About sort of how we're seeing demand and so forth, but you put your finger on it I mean, if if all I did was look at the data that we have realized to date, we would have no caution in our in our tone with respect to.
What we're seeing but that's really not very helpful because unless you're a sleep.
You'd see the case loads are increasing daily and two new records in a in a large number of states in the United States and in Europe.
So we're just anticipating that that progression, which is upon us we know the virology and the epidemiology of this virus. It's this is taking hold and we will continue to be.
On an issue for the near term.
And they're now they're now some reports about where when the inflection point might occur which could be like I've seen some reports that predicts that by Thanksgiving will peak out and start to see a decline again, it's really hard to say all I can tell you is that based on what we are seeing in terms of the virus progression we.
Looking forward have to anticipate that thats going to impact demand in some way shape or form have we seen evidence of it so far no.
Are we anticipating that we should actually be clear about the fact that what we see is likely going to have impact, yes. So thats really how I would characterize it John do you want to add.
Yes, I guess, what I would add to that John is at I.
Continuing whenever I get this question I continue to reiterate how low visibility is we're measuring it will measuring booking the booking window and in days and while that's increased by a day or two.
Lately, it's not really meaningful and one thing I would comment is that there are some areas that are opening and we're seeing some growing bookings for Hawaii and the Caribbean for the festive period. So that is encouraging but you know it's also remains to be seen how they manage the on the travel.
And the any any disruptions that May result, as a result of testing or any cases opened.
Over that over the next couple of months.
As we made some comments about demand sort of.
Sustaining through the quarter in July was probably the lowest period of occupancy in the quarter and on then grew in August and September and most parts around the world.
And and in October we saw a similar continuation so.
The quarter had a 72% decline on a reported basis, including all hotels and October was at 70%. So we're we're seeing continuation of demand and we're watching closely that short booking curve and looking ahead to these period these fees.
Regions that are opening up.
And.
We are hopeful that we continue to see that continuing momentum.
Thank you for all the transparency and just as a quick follow up John I think in your prepared remarks, you mentioned.
As it relates to the cash burn some potential owner concessions they need.
Maybe now extending to the end of the year could you just explain a little bit more what those might be inhaling or what some of the owners are asking for I imagine. This is somewhat on the full service side and these might be lumpy or unique circumstances, but just just any color on sort of what what's going on with you on our level would be helpful.
Sure ill take you back to some comments that we made earlier this year on the on the onset of.
The demand levels decreasing materially we took action at that time to reduce the system services that we provide to our hotels because of the demand levels that we were seeing.
And we also reduced the fees that we charge to owners. This is something that we did to support them through this period, and obviously with the lower levels of demand it was appropriate on both sides.
We've chosen in the third quarter to extend some of those concessions.
And we did that.
Purposely to help support our owners to the remainder of the year, but we also made an intentional decision to continue to incur some costs in excess of the fees that we would earned and those are primarily related to revenue generating activities, such as sales and marketing to help support the hotels through the recovery period. So these.
Announcing these costs in excess of the revenue is about five to 10 million a month and it all included in the cash burn estimates that I provided of 60 to 65 million a month.
So that's that's what I was referencing with respect to our cash burn and while those numbers are a little higher than we had previously anticipated that being offset by operating improvement relative to our cash burn results.
Got it thank you very much.
Youre welcome.
Your next question comes from Michael Montani with Baird. Your line is open.
Good morning.
Just first quick housekeeping question can you maybe help us understand the big step up sequentially quarter over quarter initial two investments on your balance sheet.
I think it's really a cash management issue, but do you have any further I think it's I think it's more a classification issue of some shifting between cash and cash equivalents and.
And short term investments so there is no.
Meaningful change there to highlight just think of it as part and parcel of cash management, though right.
Understood and then just back to your comment on the five hotels, you mentioned that might be permanently close what's the relative size of those properties and how should we think about it on a relative earnings contribution on a pre cobot basis.
Yes. So first of all we did not say because we don't anticipate that these are permanent closures, but but I would say for the foreseeable future.
And they are concentrated so new York, we have to the Grand Hyatt in the Park Hyatt New York.
And we've got a couple of smaller properties in.
And for your reference the Grand Hyatt is.
About 1300 rooms in the park its about 200 rooms.
And the other largest hotel that is.
Currently closed and will likely stay close for the for at least the foreseeable future as the high Regency in long Beach, which is about 500 rooms. We've got other hotels that are currently closed another four properties.
Hi, Regency in Jersey City.
Which is.
We don't have a date that we've established for reopening but that might be again, it's in New York area phenomenon and that might be a bit longer before we make plans to reopen there a couple of high places in.
In Latin America.
Relatively small and then we have a JV in.
In Europe as part time, Milan, which is close currently probably not for very extended period of time, but we don't have opening date at this point. So hope I hope that gives you. Some perspective, just recognize one thing and that is Europe right now is very fluid.
The you saw I'm sure you've you've tracked and followed.
The restrictions that the French government has put into place that Germany is put into place on the UK and so we're paying really close attention to that because in some measure some of those restraints constraints and restrictions rather are going to have an impact on hotel operations not just restaurants.
And so we could see.
Properties that are currently open actually being closed again, I think thats a temporary phenomenon.
But.
It really is going to be dependent on local market.
Restrictions, so just think of Europe as basically in flux at the moment that we have to continue to be responsive to.
Thank you.
Your next question comes from Vincent people with Cleveland Research. Your line is open.
Hi, how are you.
Good so listen a little bit on how your distribution strategy has been evolving through the cobot era.
Had made some progress in terms of driving more direct business pretty coded and seeing increased occupancy from loyalty members. Just curious if your strategy has changed at all and.
Where do you think you'll be 612 months down the road.
Thanks for the question.
Strategy has not changed but circumstances certainly have so when as we look at the type of business.
Now represents over two thirds of our of our room nights realized some third quarter that is leisure transient business up from less than 50% a year ago that increment is a lot of I would describe it as demand discovery were out in search of of where we can actually attract.
Customers.