Q4 2020 Hyatt Hotels Corp Earnings Call
And.
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Ladies and gentlemen, thank you for standing by and welcome to the Hyatt fourth quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question dirty of session.
And we'll need to press star one on your telephone please be advised that today's conference is being recorded.
If you require any further assistance please press star zero and.
And now like to hand, the conference over to your speaker of today, Mr. Brad O'bryan. Thank you. Please go ahead Sir.
Thank you Carol good morning, everyone and thank you for joining us for Hyatt's fourth quarter 2020 earnings Conference call. Joining me on today's call are Mark <unk>, Hyatt's, President and Chief Executive Officer, Joe and bought Irene Hyatt 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 on our annual report on form 10-K quarterly reports on form 10-Q, and other SEC filings.
And it could cause our actual results to differ materially from those expressed in or implied by our comments forward looking.
Statements on 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 on today's remarks on our website at Hyatt Dot com under the financial reporting section of our Investor Relations link.
And in yesterday's earnings release and archive of this call will be available on our website for 90 days with that I'll turn the call over to Mark.
Okay.
Thank you Brad good morning, everyone and thank you for joining us on our fourth quarter 2020 earnings call.
Before I begin this morning, I need to take a moment to express my heartfelt condolences to the Sorensen family and to all of our friends and fellow Hoteliers and Marriott and recognition of earnings passing this week.
From the moment I joined the industry Bill Marriott and already welcomed many with a deep generosity of spirit.
They were quick to provide me their perspectives and when it was appropriate to join forces on behalf of the entire industry Arnie was always a steadfast partner.
Most important to me he was a kind and good person and I will miss him and his friendship dearly.
He will live on and our Hearts and through the work that we carry forward on behalf of the industry that he so loved.
Yeah.
And as I reflect on all of that we have endured over the past year I recall that during our fourth quarter earnings call one year ago.
I shared the unique challenges that our Asia Pacific team was navigating relating to the emergence of the COVID-19 virus and China.
Little did we know at that time.
That's what appeared to be of serious but somewhat localized medical crisis would quickly develop into a global pandemic that remains and our daily headlines and has changed so many aspects of our lives.
None of us could have imagined the impact that the virus would have on our industry.
But the Hyatt family responded swiftly and meaningfully to position Hyatt to not just navigate the crisis.
But to be in a position of strength as we head into recovery and beyond.
We took the difficult, but necessary steps to reduce reduce head count and discretionary costs, resulting in and over $100 million reduction and SG&A expenses, excluding bad debt expenses.
As compared with our original 'twenty and 'twenty guidance.
In addition to this we effect.
Effectuate it of more than $150 million reduction and costs incurred on behalf of our managed and franchised properties.
We implemented these changes just to and a half months after the very first lockdown in the U S.
We worked with our owners to close hotels, where appropriate and quickly right sized hotel operations and staffing levels to support significantly reduced levels of demand.
We also supported our third party owners, providing both fee concessions and some deferrals of amounts owed for system services and certain other fees.
While at the same time negotiating new lower cost of arrangements with third party vendors.
We amended our revolving credit facility and issued bonds totaling $1.65 billion to secure significant liquidity to be able to support current needs and be positioned to invest and new opportunities. Once we have more visibility on the shape of the recovery.
And we promptly rolled out our global care and cleanliness commitment, including important health and safety protocols for our guests and our colleagues.
As we work through these challenges and learn to operate and a very different and challenging environment.
We were consistently guided by our purpose of caring for people. So they can be their best.
Our purpose informed how we engaged with our guests our customers our owners and our colleagues.
Just as it had before COVID-19, and as it will continue to well beyond it.
We also emphasized our focus on wellbeing and how we care for ourselves and engage with others.
It is in difficult times like these that the human spirit is most tested.
Supporting our colleagues to commit to their personal wellbeing and encouraging the same for each member of their team is and effective recipe for being able to thrive in this environment.
As the challenges of this pandemic to our business unfolded. Our teams responded by truly re imagining both of hotel experience for our colleagues and guests and how we efficiently managed hotel operations.
I do want to emphasize that these efforts were transformational.
And I have confidence that the approach we used to implement the changes will endure and.
And translate to lasting value creation for all of our stakeholders.
One of our group Presidents recently said the pandemic quote broke our muscle memory unquote.
I'm not sure there's a better characterization of what this challenge has afforded us by way of opportunity.
I do believe that some of the ways in which we have restructured hotel operations may never have been imagined without such a severe disruption to our business.
We've taken many steps and areas such as discovery of demand through tapping data from many non traditional sources and using enhanced analytics.
Combined with rapid go to market digital strategies.
Creating cross functional staffing approaches across multiple areas of clustering services and resources from multiple properties.
Expansion of high margin and food and beverage offerings.
And importantly, the rapid development and rollout of additional digital technology.
These efforts of not only helped drive improve margins reduce breakeven levels and enhanced guest experiences, but will in many cases and for how we managed hotel operations going forward.
We've previously discussed that our historical breakeven levels on and occupancy basis were in the range of 40 to 45 per cent for full service hotels.
Earlier in 2020, we indicated that we had brought breakeven levels down to the low end of that range.
Through additional efforts to drive efficiency, we believe we reduced those breakeven levels below the low end of that range and we of certain hotels, which have achieved positive earnings at much lower occupancy levels.
We believe the insights that our teams of discovered over the past three quarters allow us to drive of stronger and more profitable recovery as demand returns.
We also continue to adapt to the evolving preferences of guests and customers and are hyper responsive way, which has long been a competitive advantage of our scale.
We've done some innovative work and the area of corporate meetings and group events, particularly around hybrid meeting solutions and.
And believe that we will lead the industry and offerings that meet the unique needs and which we are immersed and.
And that we expect will be with us well beyond this year.
As we serve meeting planners and customers today, we recognize that meetings, even virtual ones are encouraging new ideas and opportunities to enhance the experience for our guests and the future.
And get closer to our customers.
I'm excited to see this work evolve as we work in partnership with some of our largest customers who are engaged with us to co designed to meetings of the future.
As we look ahead over 'twenty and 'twenty, one I just offer a few brief comments.
Visibility continues to be limited and this environment and it is therefore difficult to predict how the recovery will take shape over the remainder of the year and beyond.
I would say our general expectations shared with you during our third quarter call have not changed significantly we continue to believe the first half of 'twenty and 'twenty, one will remain challenging as rapid testing platforms grow and use on property and at key travel hubs and as vaccine doses of rolled out to a large enough portion of the.
Relation to allow for enhanced confidence and travel.
We believe the second half of 'twenty and 'twenty, one we will experience a more meaningful recovery of demand with leisure, leading the way, but increasing strength in group business and business transient travel beginning to take hold.
No matter the profile and pace of the recovery. This year. Our teams are prepared for the challenges given the resilience and agility they have demonstrated over the last year.
I'd like to now revisit the key elements of our long term growth strategy.
While the impact of COVID-19.
On our business has been severe.
It has not changed the fundamentals of our long term strategy.
The first key area of focus under our long term strategy is to maximize our core business I've already discussed the unique ways in which we are maximizing our operating results and this challenging environment and expect to be able to leverage many of the changes we've made to drive enhanced guest experiences and improved hotel.
Stability going forward.
We are also driving strong revpar index gains with fourth quarter expansion and market share across all regions globally.
Finally, the strong performance and exceptional reputation of our brands continue to attract owners and developers fueling strong net rooms growth and a robust pipeline both of which I will expand on and a moment.
The second area of focus within our long term growth strategy is to integrate new growth platforms. We have demonstrated our progress on a number of areas.
For example, our late 2018 acquisition and successful integration of two roads hospitality.
The acquisition added powerful lifestyle brands to our portfolio, including Thompson drug of Eve and Elisa. In addition to the destination hotel and residential brands and it expanded our global footprint of leisure oriented hotels and resorts.
These brands have also captured the interest of many owners and developers around the world and enhanced our growth profile and the strength of our pipeline with a 20% year over year increase and rooms, and the pipeline due to strong signings.
Our focus on integrating new growth platforms has also included enhancements to our wellbeing offerings, which remains a commitment of ours further demonstrated by the completion of our Miraval resorts, and Austin, Texas and Lenox, Massachusetts.
As we turn to the design work for the meetings of the future the customers with which we are now engaged prioritize wellbeing content for their sessions and we have a lot to leverage.
Additionally, we have both strengthened our relationship with world of Hyatt members and expanded membership.
Through strategic alliances with American Airlines small luxury hotels and headspace.
The third and final element of our long term growth strategy is to optimize capital deployment.
Our primary objective is to drive growth and enhance returns while maintaining investment capacity.
Our commitment to dispose of owned and leased real estate is an important driver of this objective we.
We've achieved considerable success executing asset sales demonstrating the value of our owned real estate portfolio and redeploying that capital to enhance our managed and franchise fee growth, while also providing strong shareholder returns.
As we reiterated over the past two quarters, we expect to execute the remaining roughly $500 million and asset sales necessary to reach our target of one $5 billion and gross proceeds by March of 2020 to.
Notwithstanding the disruption of the industry is experiencing we remain confident and our ability to complete these sales at strong valuations over that time period, given the value of our owned real estate and.
And the demand that we see in the market for our assets.
Yes.
Having covered the key elements of our strategy I want to circle back and go a bit deeper on our growth profile as.
As we reported yesterday, we delivered and industry, leading five 2% net rooms growth for 2020.
This exceeded our prior estimate largely due to two large hotel openings during the fourth quarter that were not finalized as 2020 openings until after our last earnings call.
The 1600 room Grand Hyatt <unk> in South Korea was pulled forward to December of 2020 from and otherwise anticipated first quarter 2021 opening.
Additionally, the 681 room Park Central San Francisco to be rebranded later this year as the Hyatt Regency San Francisco Soma.
With a successful conversion opportunity that we completed and transitioned late in the fourth quarter.
Our net rooms growth was also boosted by the opening of the first five year Cove hotels in China, which will be the first of many to be opened and the future as we expand this brand designed to meet demand from China's growing middle class.
Even after opening 72 hotels are almost 50 15000 rooms and 2020, we maintained our pipeline of signed hotels yields for future growth at the December 31 2019 level.
We accomplished this despite of challenging development environment, particularly in the select service segment and the U S where from financing of new deals has been a limiting factor.
We had a solid year of signings from new select service hotels, and our Asia Pacific and Amy Southwest Asia regions.
Our development teams around the world continue to have great success, and driving asset light growth opportunities based on the strength of our brands and our reputation for personalized owner relations.
As we look forward, we expect to deliver another strong year of net rooms growth and 2021.
While our significant December 2020 openings and a conservative estimate of potential terminations create headwinds against our prior 2021 net rooms growth expectations, we still expect to deliver net rooms growth of approximately 5% and 2021.
We see further strengthening of the development environment as visibility to the recovery and confidence and underwriting improves over the year over the year and expect to further expand our pipeline in 2021 and continue to drive robust levels of net rooms growth well into the future.
I'll conclude my prepared remarks. This morning by saying that we are pleased with the resilience and ingenuity that the Hyatt family demonstrated and navigating the challenges of 2020, and we remain confident about our ability to leverage recovery opportunities and drive strong results going forward.
And that confidence is enhanced by the steps that we've taken to re imagine the colleague and guest experiences and our hotel operations as well as the ongoing commitment of of a leader and leadership of our teams around the world.
We remain committed to our long term growth strategy and.
And even in this challenging environment, we expect to drive industry, leading net rooms growth and believe we have the right brands the right leaders and the right colleagues around the world to continue to meaningfully expand our global distribution.
We look forward to welcoming all of our members and other travelers in the coming months as we fulfill our purpose and care for people. So they can be their best.
I'll now turn it over to Joan to provide additional detail on our operating results Joan over to you.
Thank you Mark and good morning, everyone. I would also like to express my sympathy to the Sorensen family and the Marriott organization.
<unk> leadership, and generosity will be miss deeply throughout our industry across the globe.
Late yesterday, we reported a fourth quarter net loss attributable to Hyatt of $203 million and of diluted loss per share of $2.
Adjusted EBITDA for the quarter was negative $98 million with of reported system wide revpar decline of approximately 69% and constant dollars.
As has been the case from each of the previous two quarters. Our reported system wide Revpar decline are impacted by both inclusion of closed hotels and the calculation and by our chain scale composition, which includes significant exposure to upper upscale and luxury properties and.
And to top 25 markets and the U S.
As has been widely reported the upper upscale and luxury segments and top 25 markets and the U S and weaker since this pandemic began.
Yeah.
As of December 31, 94% of our hotels or 93% of our rooms were open the.
And the impact of closed hotels on our fourth quarter reported system wide Revpar results was it.
370 basis points.
Our comparable system wide revpar and the fourth quarter was down approximately 65% from last year, excluding closed hotels.
Our fourth quarter adjusted EBITDA loss includes $45 million of costs incurred on behalf of our managed and franchised properties that we do not intend to recover from our hotel owners.
As a reminder, our contractual arrangements allow us to collect amounts from managed and franchised properties to inverse us for system wide services and program cost.
We do net profit from these arrangements and they are structured with the intent to manage these revenues and cost to breakeven over the long term.
The reimbursement revenues for these system wide services decreased significantly in 2020 due to the lower contractual amounts collected based on lower hotel revenues in.
In addition to certain concessions, we provided to our owners to help with their cash flow.
In total we collected almost $200 million less and reimbursement revenue in 2020 than originally expected.
We took action to reduce costs incurred representing about three quarters of that lower reimbursed revenue to aggressive cost management efforts undertaken during the year.
The remaining costs in excess of reimbursement revenue amounted to $45 million and their inclusion and adjusted EBITDA was the result of our decision to continue to provide these critical system wide services and programs on behalf of our owners, while not intending to recover these costs from owners.
Importantly, I want to remind you of what I covered and our Q3 earnings call that the cash impact of these amounts is included in our monthly cash utilization previously and we've referred to as our cash burn.
I'd like to now provide a few additional details on our operating results for the planner or.
And our management and franchising business continued to drive profitable results with a slight increase and adjusted EBITDA sequentially over Q3, when excluding bad debt expenses, we recognized.
Bad debt expenses were $14 million and the fourth quarter and $33 million for the year, which is far and excess at the levels and recognized in the past.
Our base incentive and franchise fee revenue decreased by 67% compared to 2019 on of 69% reduction and system wide revpar.
Fee revenues were helped by contribution from new hotels opened over the past year.
China, and select service and the Americas, where again, our primary areas of strength during the quarter to.
Collectively making up about 50% of our total fourth quarter and management and franchise fee revenue and both delivering extremely strong market share gains as we continue to significantly outpace the competition in these areas.
About 60% of our global managed hotels delivered positive gross operating profit.
During Q4 with almost 100% of our greater China hotels, delivering positive G O P.
Our continued focus on efficient hotel operations, and maximizing GOP flow through which reached which reached levels greater than 50% and the fourth quarter and yielded strong results on the bottom line during this challenging demand environment.
Our owned and leased segment Revpar decreased 82% compared to 2019.
The impact of closed owned and leased hotels on our reported Revpar decrease was 660 basis points.
While the fourth quarter Revpar results were slightly positive compared to Q3, we drove enhanced efficiency, resulting in strong flow through and improved adjusted EBITDA results for the quarter at a loss of $48 million.
<unk> to a third quarter loss of $56 million.
This is particularly notable as we reported an $11 million increase and owned and lease revenue and no expense growth from Q3 to Q4, resulting in 100% revenue flow through quarter over quarter.
While this flow through of performance was partially helped by certain core and non operating expenses.
It is a solid proof point of our strong operating expense control.
Approximately $42 million Dom.
Of the $48 million fourth quarter losses are coming from owned and leased hotels, excluding the impact of joint ventures.
Further about one third of our owned and leased rooms concentrated in urban markets like New York and San Francisco are driving about two thirds of the losses.
Across our owned and leased portfolio. The vast majority of losses are driven by fixed on non controllable costs and both open and closed hotels as we have very effectively reduce controllable costs and our operating hotels laying a foundation for reduced breakeven levels into recovery.
Resort hotels continued to drive the strongest performance and the segment due to relatively higher demand for those types of state of experiences.
Before providing an update on our liquidity and cash utilization I did want to follow up on an item Mark covered earlier with respect to our capital strategy.
As we've discussed previously one of the important outcomes of our capital strategy is a meaningful shift and greater proportion of our earnings base derived from our management and franchising operations.
Prior to the disruption caused by COVID-19, we have been reporting our progress by way of the increasing percentage of earnings coming from the fee business and at the end of 2019 had achieved almost 60%.
Paired with 43% in 2016, just prior to accelerating our asset light transition.
Given the outsized earnings impact of COVID-19 on our owned and leased operations. The actual net mix. We are reporting is clearly distorted.
Upon completion of our asset sale commitment of 101 $5 billion by March of 'twenty 'twenty, two we expect to achieve and earnings mix of approximately two thirds from management and franchising and one third from owned and leased as we shared with you at our Investor Day in March of 2019.
I would note that this projection assumes and otherwise normal demand profile, which may not have occurred by that time, depending on the nature of that recovery.
I would also note that thanks to.
And to significant organic growth over the 'twenty 'twenty two to 'twenty 'twenty four period, we would expect fee, earning to further shift to an approximate 70 30 mix by 'twenty and 'twenty, four assuming and otherwise normal demand profile.
I wanted to be clear that this mix is not a target, but rather and outcome of our actions. This mix will continue to shift further and due to organic growth and to the extent, we may choose to sell additional assets over time, the resulting reduction and our earnings from our owned and leased hotels, but to further accelerate this shift.
I'd like to now provide and update on our liquidity and cash utilization.
During the fourth quarter, our monthly cash utilization, excluding severance payments and other onetime costs.
Slightly better than our previously provided second half 'twenty, and 'twenty expectations, ranging from $60 million to $65 million.
The improvement came from a combination of slightly better cash flow from operations and slightly lower than anticipated outflows related to investments supporting new deal growth.
We expect no more than $55 million to $60 million and average cash utilization per month based on the fourth.
And fourth quarter demand levels.
And I'll break this down just a little bit further.
Operating cash utilization is about $40 million to $45 million of this total and the majority of reflects operating cash needs for our owned hotels.
Largely concentrated in the hotels mentioned earlier and also interest and other overhead of Mt.
As mentioned last quarter, we sometimes experience significant variability and monthly cash outflow due to the timing of certain payments.
For example, including the timing of property taxes insurance premium payments and reimbursed income and expenses and certain SG&A costs.
While we expect first quarter demand to remain challenging as the year progresses vaccinations are widely administered and travel restrictions are lifted we expect demand to increase and our rate of monthly operating utilization to improve.
I would also note that we are expecting of significant tax refund. This year due to benefits related to taxable net operating losses recognized in 2020.
The remainder of the monthly cash utilization of about $15 million on average are amounts we are investing for the future growth of our brands.
These amounts are generally timed with opening of new hotels, representing commitments we have made.
Unlike operating cash utilization, we expect investment spend will likely trend higher as deal activity increases and in any case, it's important to keep in mind that investment spending can be inherently lumpy from a timing perspective.
As of December 31, our total liquidity inclusive of cash cash equivalents and short term investments combined with borrowing capacity was approximately $3 $4 billion.
We believe our existing liquidity, excluding approximately $1 billion and bond debt, which matures and the next two years.
Of course, our ability to operate at fourth quarter 2020 demand levels for approximately 36 months.
Okay.
Finally, I'd like to make just a few additional comments regarding our 2021 outlook.
Want to first provide an update on the guidance I share during our third quarter call regarding capital expenditures and adjusted SG&A. We now expect capital expenditures to be about $110 million for 'twenty and 'twenty one.
We expect adjusted SG&A to be approximately $240 million a reduction of 25% from our original 2020, adjusted SG&A guidance, excluding any bad debt expense that may be recorded during 2021.
Finally, I'd like to remind you that the earnings sensitivity guidance. We've shared previously indicates that a 1% change and revpar levels using 2019, revpar as a baseline results and and impact of approximately $10 million to $15 million and adjusted EBITDA.
This guideline held true with respect to our 'twenty and 'twenty results near the higher end of that range at roughly $14 million per point of Revpar change, excluding the $45 million charge in the fourth quarter I previously mentioned.
While our 2021 results will be reported compared to 2020 results.
The same rule of thumb should apply for 'twenty and 'twenty, one expected revpar results versus that 2019, Revpar baseline again expect it to be the near to be near or at the high end of that range.
And we'll conclude my prepared remarks by saying that we're pleased with how our teams are managing results and cash flow. During this continued lower demand environment.
We've delivered continued efficiency gains and strong flow through helping to improve near term performance and yield enhanced long term earnings growth during recovery.
We've also effectively managed our cash utilization, which continues to show improvement and has allowed us to maintain very strong liquidity.
While we expect demand levels to continue to be uneven and the first half of 'twenty 'twenty. One we are optimistic about of meaningful recovery and the second half of the year and believe our operations are well positioned to maximize performance during recovery and beyond.
We're confident that our strong brands will continue to fuel expansion of our managed and franchise fees business into the long term.
Thank you and with that I'll turn it back to Carol for Q&A.
Thank you and some of them.
Minder to ask a question you will need to press star one on your telephone to lift draw your question press the pound or hash.
And please standby, while we compile the Q&A roster.
Your first question comes from the line of Stephen Grambling with Goldman Sachs.
Thanks for taking the questions.
And you both alluded to some green shoots and expectations for improvement over the course of the year and I realize this is a tough thing to really have a whole lot of line of sight on but based on the various indicators you see how are you thinking about the pace of potential magnitude of recovery across the various segments of demand and do you think about business transient leisure and group and you all.
Also alluded to learning from the pandemic. So how does this view of the recovery alter how you think about positioning the business to take share.
Thank you very much Steven I'll start there there is of China dimension to the learnings that I'll ask John to comment on after I make a few comments on how we're how we're looking at the business at the moment.
So let me just start off and the general vicinity of of how we see group and transient dimensions evolving.
And maybe I'll start with the conclusion, which is I'm I'm really pleased if not surprised to report that we are seeing some interesting and very positive data and group activity.
So some context looking back over 'twenty and 'twenty.
We realized a bit over two.
$27 million of of total group rooms revenue in the U S. In the fourth quarter for our system wide hotels and the Americas.
That represented about 13% of our total rooms revenue for the period.
By the way group globally was about 15% of our total revenues over the course of 'twenty and 'twenty, We realized total group revenue of about $340 million and our managed hotels.
In the Americas of weighted with so im just using this as a proxy but this is our largest market.
Of which 87%.
And the first quarter.
The last three quarters saw only $44 million and total realized group room revenue.
Sequentially improved over the course of the year and and.
In the fourth quarter and about half of the $44 million that was realized over the last three quarters was realized and that in that fourth quarter.
Now from the beginning of the fourth quarter through January we booked $170 million, roughly and pure new group business for all future months and that excluded any re booking activity.
And that represents a 20% acceleration over Q3 and pure new group bookings.
We are for the first time since COVID-19 began seeing association and corporate activity pick up for 2022 and beyond.
And we have early signs that we will actually host corporate meetings as early as the second quarter of 2021.
Now in addition to these new bookings, we've also re booked approximately $300 million of business or about 28% of our canceled group revenue from March of 2020 through December of 2020.
As we head into 2021 of our expectation is that we will have sequential improvement in Q1 and Q2 from the realized group revenues in Q4 of 2020 with much more significant increases in Q3 and Q4, assuming that we stay on path with respect to vaccination and the increased use of rap.
<unk> Covid tests over the course of the year.
In January we saw cancellations down 25% from the December levels. As Q1 group business is mostly comprised of sports events that are operating and a bubble and also some sizable U S government business, including some essential health care workers armed services businesses business and.
National Guard guards business concentrated in several hotels takeovers.
January through the first week of February so lead generation rise to levels, we've not seen since early 2020 with january's lead volumes at a 50% improvement over December.
And of that increased activity, 60% relates to to 'twenty 'twenty, one arrivals with the majority of that hitting and the second half of 2021.
Now this activity is concentrated and our resorts and and also importantly, and our primary convention hotels.
In terms of pace.
We reported on our last call that pace into 'twenty and 'twenty, one was dropping and we expected it to go lower as we expected additional cancellations of first half bookings and that's exactly what's occurred as we've entered 2021 patients now off 60% as compared to last year, but it's very much of a tale of to have.
Yes.
Pace of the first half of 2021 is down over 80%.
While pace for the second half of 2021 is down just over 30%.
Patient to 2020 to where we have a bit over 40% of our total revenue booked at this time is down roughly 10%.
So as we look at that profile.
I have to tell you that.
We had previously been saying that the sequence would be leisure transient followed by business transient and followed by group and <unk>.
And I and I think that the potential upside surprise.
That progression is that we might see group come back and of more purposeful way and a more significant way.
I would also just say and I'll cover of one dimension of the wood of we learned.
In relation to what we're doing with respect to hybrid meetings I'm not going to go into great detail about them, but I'd like Joan to comment on what we're seeing and China and what we've learned.
Through our experience there. So some of these early group bookings that I'm talking about that we're starting to see as potential as early as Q2 of this year.
Business on.
I would describe them as materially different in form and format to anything that we have hosted in the past and while many people and the industry of launched so called hybrid beating solutions. We went back to the drawing board and started from scratch and recognize that cobbling together.
Pre existing.
Avi capabilities, and having a digital leg to our meeting isn't really satisfying the core needs of our of our biggest customers. So we started from scratch to design a very different approach to hybrid meetings.
And I'll just.
Summarizing that by saying that there is an essential human connection component of how companies are thinking about getting back together and and what the resin debtor and what the reasoning is that they want to get back together and we're figuring out ways to actually make that come to life.
Both on property.
And in relation to the digital participants we are alive design effort underway in partnership with one of our big pharma companies that will span of 11 different hotels and 11 different markets of the United States.
And with.
Close to 1000 total in person participants spread out and of socially distance manner and.
Cross hotels, but then also of digital leg to that business.
And it's really creating an engaging and meaningful experience for those who are joining digitally that is the new chapter for us moving forward. So that's about all I'll say about it because.
You can imagine that we are working hard on launching something that we think is going to be truly differentiated, but let me turn it to Joan to comment on what we've learned out of China.
Sure I mentioned in my prepared remarks that China was a top area of strength for us throughout the year, but in Q4, as well and thats across all segments of the business. We had led by leisure, but also strength in business transient and group as well in China in the fourth quarter of 2020.
We've as you all know there's been some recent localized lockdowns there starting in January and we went back to look at what we experienced in 'twenty and 'twenty and after the localized lockdowns were put in place we found that demand recovered and about 30% to 45 days.
And as we think about the current lockdown and the Chinese new year and some other measures that.
China has put in place we think it'll be just a little bit extended maybe 60 days into mid March but after those lockdowns were.
Released there was a return to the demand profile that we saw pre lockdown. So we're confident that.
That will have that same experience as soon as.
The Lockdown has released and just to give you a little bit more color. The occupancy levels that we saw on Q4 for greater China were approaching <unk>.
60%, if you exclude Hong Kong, Macau and Taiwan.
Occupancy levels were closer to 70% and and in January we saw we saw levels of about 40% across the region. So while there has been some compression its still.
Healthy comparatively it's at 40% during a lockdown situation and the kind of group business that we saw on China over the course of 2020 was what you would of what you would've seen pre COVID-19 new product launches by car companies a lot of.
New line.
Introductions by luxury brands.
And these were very very extensively program to I mean, I'm talking about food and food and beverage and entertainment and Avi programming.
So we are seeing that type of business come back with a with some significance I did not.
And I spent a lot of time on group because it's caught my attention and the big ways you can tell from my tone, but.
It is it remains true that the vast majority of our business in Q4 and as we head into Q1 here is still transient and it was it was close to 85% of our total revenue base and Q4 and leisure is still leading the way 70% of that transient business is leisure 30% business.
This and.
The other reality of that business transient travel is that it is.
Not quite a majority, but a plurality of that business is in China, because business transient travel and China had.
And was very strong and the fourth quarter, So I Steven.
Steve and I know that was a long answer but I hope that gives you enough color to give you a sense for how we're looking at the unfolding of the year.
Very helpful look forward to seeing and learning more on the hybrid meetings, but also opened in person meetings resume soon.
Yeah, let's hope to.
Your next question comes from the line of Matt its rose with Citi.
Okay.
Hi, Thank you.
I just wanted to ask you a little bit about the GAAP.
We're talking about between reimbursed expenses and expenses that to.
To run to system.
Do you expect to see that kind of through the first half of 'twenty, one or it's like that's starting to narrow or how should we think about that going forward and I know you said you. It's included in net cash burn expectations, but maybe just a little more.
What we're seeing.
Yeah. Thanks Smedes.
It is included in our cash utilization and as I said in my prepared remarks, we have managed to these revenues and cost to breakeven overtime and the experienced prior to this year has always been that they break even and we expect them to breakeven in the future beginning of 2021 and just some color of.
While we expect that is because we in 2021, we expect to see a rev.
Revpar improvement as we just described over the second half of the year, so that contributes to greater levels of revenue. We're also adding new hotels, which also contributes to greater levels of revenue and we do have and it is our expectation that we'll be able to offset these cost of.
Time without recording and other charged to EBITDA as we did in 2020.
Just it just want to pension to that our decision here to preserve these services and 2020.
Really positions us well into the future to invest and the recovery together with our owners and realize the value that we believe the system.
Services provide.
And hopefully that helps get them correctly.
And so I just wanted to ask you to Mark you mentioned.
You know it looks like and promising recovery on the group side and Theres been some upset about that are you are you seem to be changes from a geographical perspective in terms of where groups are looking to close.
I mean anything that stands out to you or is it more in line with what you've seen traditionally.
And in fact, I would say.
Within the U S. Yes, I would say that theres been some elevated of focus on destination resorts as venues.
Whereas some of the groups that we're talking to about there they're gatherings might of maybe initially focused on urban destinations.
Part of that has to do with the desire of that they've got to actually get their own participants.
In two of beautiful setting and give them a break from the monotony of the Covid Lockdown.
But.
The bigger meetings I am seeing a.
A significant increase and incidence of doing multi market and multi location within a market coordinated meet.
Meetings and that means that.
For example of piece of the meeting might be synchronous programming and other portions of the meeting and may be asynchronous and that also assists in in finding time periods over the course of the day, where people on the west coast and people on the east coast can be experiencing the same programming.
And then you cover other elements in the early morning, and the East Coast, where people are not up on the west coast and to late afternoon on the West Coast, where people have already gone to dinner on the east coast. So I'm finding that theres a lot more flexibility.
In how we can stitch together meaningful.
In person and also a hybrid.
Meetings, and I think for those it's going to be much more widespread and with no appreciable geographic bias.
Okay. Thank you I appreciate it.
Sure.
Your next question comes from the line of Dori Kesten with Wells Fargo Securities.
And thanks, and good morning and when.
And you think about your disposition program and the the $500 million remaining to sell over the next year.
All of them to hotels within this bucket kind of shifted over the last few quarters and.
As the pandemic changed your view on the importance of real estate acceleration of for Hyatt.
So can you just repeat the first part of that question again.
And so when you when you think of the the $500 million.
And in assets from price easy you expect to get over the next year for the the $1 5 billion program.
Has your has the type of hotels that you are looking to sell changed over the last few quarters.
Sure.
Or what you plan to sell has that kind of remains on track.
Okay. Thanks look.
I guess, what I would tell you is that.
Sure.
We have been very measured about our approach to.
Engaging with party third parties about selling hotels.
Over the past two quarters, because underlying our approach is a belief that asset prices are going to improve over the course of this year and I've already seen firming of the market.
I think the some of the trades that occurred in the second and third quarter of last year that were reported to be somewhere between 20 and 30%.
Say below pre COVID-19 levels, I think those kinds of discounts are quickly evaporating and I think youre going to see more trades that are approaching pre COVID-19 level now it's going to depend a lot on the type of hotel and so forth. So in terms of.
As I think about rank ordering the kinds of assets that are going to garner the most interest they would be destination resorts that have significant drive to.
Population base of which we own a number.
So I think that's one dimension of it.
We have some urban hotels that are clearly lagging in the and the total recovery having said that.
<unk>.
And those hotels are and the main very good assets and they're extremely well located so we still have confidence that we will see that.
We will see full value realized for them when we choose to sell them.
And we may lag are selling some of those hotels until.
The buyer community has a better ability to assess the profile and pace of recovery and frankly of some of the early signs of life and the group side.
And actually Pan out over the course of this year that might be sooner than we otherwise might have thought.
There's also been a recent increase in activity and interest in <unk>.
Urban and I would say uniquely unique market kind of select service hotels most.
Most of our exposure to that asset classes and is through J vs that we have.
We don't wholly own any select service hotels of the number.
Maybe a little bit more than a handful of hotels that we do own in the select service category or with partners.
But I've been discussing this with with our partners. Even just this past week and the level of inbound inquiry has gone up a lot. So that's I think how I would see.
The market evolving.
And we're paying attention also to the portfolio because of course, we have a number of.
Either trophy or very high value assets, which are relatively easy to sell at any point in time, but we want to maximize what we get out of it and we're paying very close attention to the parties with whom we.
Transact so that we can maybe grow.
With them and the future as well as realize of great price in terms of our fourth quarter activity, we did sell of the hydrogen and see in Baku.
It was a small sale of $11 million about 10 times 2020 earnings.
It was really important in our minds to release capital from a market that's been through extreme volatility since the precipitous decline and the oil and gas sector there.
And we will actually record a loss on sale of about $30 million, but 80% of that number is the cumulative negative currency translation over time, we've had that hotel and our portfolio for probably over 20 years.
We also sold exhaled.
Which is not a hotel property and Wouldnt count against our commitment to sell down real estate.
It's going to remain affiliated with the world of Hyatt and now part of a larger group.
It doesn't have any impact whatsoever on our commitment to well being it does reflect our concern I would say that.
That we had and and we felt compelled to make a decision.
Given the pace and shape of recovery for studio based businesses and fitness and in Spa.
Has been even harder hit than hotels.
So overall, it's an immaterial deal I think we will recognize a 10 or $11 million loss on sale.
But we thought that it was important to remain focused on the things that are going to have a bigger impact force going forward. So that's my most of my update on sort of of transactions side.
Okay, and just a quick follow up if you can on the hybrid meeting version of standard group meeting is.
And based on how you're thinking about it at Hyatt is it.
It sounds and that the hybrid meeting could be more profitable.
And of standard is that.
I guess initially how it seems to be working out.
I think we're focused on right now is comprehensively understanding of the needs of our customers and being there to expansively serve those needs and I.
I would think of the profitability that we expect to realize from this as the result of that focus.
As opposed to trying to design something that where the object of the design process is really how do we maximize the money.
We feel that because so many customers have come towards us to co create so we're co designing this with several of our of our largest customers and given the wellbeing of components that we are able to bring to bear out of our own portfolio, mostly from Miraval.
We think that we do have a lot of unique value to add and that's really where we think they will they will find lots of value. So that's the way we're thinking about it.
I would just point out one other thing and that is as we more deeply immersed ourselves in speaking to these these large corporate customers. We've also learned one other interesting thing and that is they do not view <unk>.
Virtual meetings or even hybrid meetings as necessarily less expensive to hold.
And then.
The in person meetings and there are some tradeoffs there.
Yes, you avoid travel that's probably air travel, which is one of the key considerations, but between the <unk> the extra Avi staffs that they've had to put on plus.
What I would describe as to help desk issues, which by the way I'm sure everyone on this phone call and <unk> already experienced and their own lives.
It's actually it's actually of a and additional increment of cost for them to hold these hybrid meetings and keep it or digital meetings and have them be seamless. So we've been we've been admonished for thinking for approaching this with a presumption that of course, there's going to be of negative bias towards in person meetings because they've reminded.
US that they're staffing up has been significant and actually holding those kinds of meetings over the course of 'twenty and 'twenty.
Okay understood. Thank you.
Your next question comes from the line of Chad opinion with Macquarie.
Hi, good afternoon, and thanks for taking my question.
Mark you provided some great details in terms of just rethinking the group business with with these digital initiatives and obviously of pandemic provides an opportunity to to have a good clean sheet of paper on the entire business are there other aspects within your operations.
I'm thinking about food and beverage maybe margin opportunities or anything else. That's worth mentioning in terms of you know what could come out of this and a better place than than pre pandemic, either you know margin wise or just directionally.
Yeah first.
I would say that there are other areas they are in areas like food and beverage.
The clustering activities that I mentioned earlier I think apply across many different hotels.
On the the other point that I want to make to you is this.
We have fundamentally shifted our mindset in terms of how we operate the company and.
And what I mean by that is that historically, we have had at the hotel level and at the corporate level.
And much more.
Function driven organization structure as we went into 2020 and we realized that we had to throw all of our preconceived notions out the window, including all of our pricing models.
We were coming together in and hyper cross functional way and operating more like you would see and agile software development activity occur and we've applied that now so we've applied it and some really important areas, we revamped and restructured our how we actually.
Engage provide and receive Ria.
Reimbursement and compensation from our owners with respect to system services. That's a that's a mega if you talk to any of hotel brand company and you start talking about revamping how chain services operates.
It's like the third rail and yet we were able to accomplish a very significant revamp and the space of about 11 or 12 weeks and implemented all within the course of the year last year. We've done the same with respect to and owner platform that we're standing up this year to provide much more flexibility and customization and ability for.
Our owners in terms of gleaning information out of us.
That will help them understand and assess their value.
And that we're providing to them and.
And we've got a number of other initiatives underway, including how we're going to enhance our approach to franchising and the future all of these and all of these initiatives, they're not projects because they are where they will live on forever. All of those initiatives are being done and a fundamentally different way, we're able to act faster and and a more agile way and that's both.
At the hotel level and at the corporate level. So if there's one message I'd like you to take away from this is yes, we have plenty of points on the board with respect to actual results that we've driven over the course of the year, but we've discovered.
Necessity is the mother of invention, we've discovered a way to end up with better outcomes on a faster clock speed and be able to deploy quickly and I think that's the gift that will keep on giving as we go through this recovery.
That's great. Thank you and then my unrelated follow up just.
With respect to deletions, given the age and the condition of your properties they've always been below.
And your industry peer group.
Could you talk about how that fits into your net unit growth outlook for 2021 and and beyond Thank you.
Yeah, I think it's important topic. So thanks for asking and I think it's critical that I provide I unpack this for you because.
On the anatomy of of our growth is important to understand so let me start with 2020, so you're going to understand what the baseline is so in 2020, we had gross gross rooms growth of six 8%.
We of terminations and attrition that represented the drag of about one 4% and.
And that yielded a net rooms growth of five 2%, which we already reported.
But recall that about half of the 140 basis points relating to terminations came from a single hotel called the Ocean resort in Atlantic City, which came out of the system early in 2020. It was a very large fortune 500 room property that represented a very very small fee base for Hyatt.
Because of the nature of the casino room block arrangement at the hotels.
When you look at attrition and terminations and general and I'll come back to 2021, and the second we have for many years had attrition of terminations that were somewhere between 0.4% and 1% of total rooms now the year. Following our acquisition of two roads hospitality was a bit higher than this which we.
<unk> given the attrition that we forecasted after our acquisition so over time, we would estimate that our termination rate.
Excuse me of something in the range of maybe <unk> <unk>.
60, or 65 basis points per annum on average.
For 2020 that was one 4%, but again.
Half of that related to one hotel.
And so we're back down to maybe something in the 70 basis point range in 2020.
So now let me.
And make a quick comment about development pace as we head into 'twenty, one and then talk about 'twenty. One so we had an extremely strong fourth quarter.
Approximately 600, sorry, 6000 rooms opened and we signed 9900 rooms and the quarter.
Now I want to quickly note that not all of those rooms of reported and our pipeline data.
Not all of the assigned to hotels and and signed rooms are because we only move signed deals into our pipeline when we deem them financed.
So in total for 2020, we of about 2000 rooms that are signed but not included in the pipeline because we're continuing to qualify the financing for those deals.
So in terms of the total math for 2020, we opened 15000 rooms, we realized the decline of about 3000 rooms again half of that being the ocean resort and we signed 23000 rooms and the aggregate again, not all of which are reported and our pipeline as I. Just described now let me talk about 'twenty and 'twenty one.
We estimate gross room's growth of close to 8%.
In 2021 with over 100 hotels estimated to open and the year and we expect to see.
New openings records in every region around the world we.
We are very conservatively estimated terminations and attrition at over 280 basis points.
And if you subtract that from the close to 8% gross room's growth that gets you to a round of 5% net rooms growth level.
Now.
With respect to the terminations.
We think it's a very conservative estimate for what we are likely to see this year. However.
However, it's too early and the year to start to narrow that down and really refine that further.
With respect to current activity.
I would just make two points.
A significant portion of the signings headwinds that we've had this past year are in select service hotels and the United States.
So over 75% of our signings had headwinds in the last year were in the select service segment, and the Americas and 50% of year over year decline and signings and total were attributed to to select service hotels and the Americas and.
As to the rest of the World, We see continued momentum and new development activity and as an example asked pack our Asia Pacific region expanded their pipeline after opening 5600 rooms over the course of 2020 so.
We see significant activity there and the final point I'll make is conversions, we had a very successful year and conversions.
I want to say.
20%, 20% of our net rooms growth was from conversions and 2020.
And we would expect something of that same range in 2021 so.
I think.
That.
We've got a very good handle on how this is evolving the to things that I would mention one potential risk that I think has widely been discussed which is the portfolio of 20 to hotels, we have with SPC, which is about 2700 rooms or thereabouts.
We remain in discussions with them and are hopeful that we will find a path forward with them.
And that's a risk with respect to attrition.
Would be fully covered and included in our estimate for attrition over the course of the year and the second thing I would say is that based on our conversations with developers, we're really clear about the financing gaps that people are seeing given where the banks are in funding new development.
And the United States and so.
We are actively working on ways in which we can actually support.
Our.
Our developers to get back and moving now we think Thats a good bet because.
New starts have declined so dramatically.
We will have a lag and total supply growth and the industry.
Which is precisely the time that you want to be opening new hotels as that starts to take hold and and our industry. If you've studied it and history.
And we overbuild when things are great and we under build when things are bad and it should be exactly the opposite so I feel like with some creativity and with the proximity that we have with our development community. We can make a big difference and of differentiate of difference and getting back to.
Accelerating our select service pipeline and the U S.
That's great really appreciate the detail. Thank you.
Carol This is Brad we can take one more question.
Okay. Thank you so much and that question comes from the line of David Katz with Jefferies.
Thank you for squeezing me and I.
<unk>.
I hate to disappoint you with the last question, but what I wanted to ask about Mark was what you really just went through.
And detail in terms of pipelines and unit growth.
So I will wish you well. Thank you for the detail, but I think asked and answered.
If you want to take one more I apologize to my colleagues.
Yes.
Thanks for that David I, probably was.
So long winded and Republic.
We are a bit over time, but thanks for thanks for the participation and we appreciate everyone joining us this morning.
Thank you so much.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
And.
Yes.
[music].
Yes.
Okay.