Q2 2019 Earnings Call
My name is Jesse Adelphi your operator for today.
At this time all purchased since aren't in a listen only mode. Later, we'll conduct a question and answer session.
If youd like to ask a question. Please press star one as a reminder, this conference call is being recorded for replay purposes I would now let's turn the conference over to your host for today, right O'brien Treasurer, and senior Vice President Investor Relations and corporate Finance. Please proceed.
Thank you Jesse good morning, everyone and thank you for joining us for Hyatt's second quarter 2019 earnings Conference call.
I'm here in Chicago, with Mark Hoplamazian, Hyatt's, President and Chief Executive Officer, and Joe and bought a rainy Hyatt's Chief Financial Officer.
Mark will begin our call today by sharing some insight on what we're seeing in the business and some highlights.
Oh, the recent development activities.
Well then share a couple of highlights regarding our second quarter operating results and provide brief updates on a few additional topics.
Mark will then turn the call over to John who will provide more detail on our financial results for the quarter as well as an update on our full year outlook for 2019, we will then take your questions.
Forward looking statements in the earnings release that we issued late yesterday, along with the comments on this call are made only as of today August Onest 2019, and we undertake no obligation to publicly update any of these forward looking statements as actual events unfold.
You can find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at <unk> Dot com under the financial reporting section of our Investor Relations link.
And then last nights earnings release.
Thank you Brad good morning, everyone and welcome to Hyatt's second quarter 2019 earnings call.
I'd like to be begin my comments today with my perspective on what we are seeing within some important markets.
Ill first speak to the group and transient picture here in the U.S.
[laughter] rooms revenue realized in the quarter was a bit soft, but it was largely consistent with our expectations given the business that we had on the books coming into the quarter and the negative impact of Easter.
As we've mentioned previously we have significant exposure in Chicago.
Which is our largest group market and 2019 has been a very weak year.
Our group room revenues in the market are down 15% for the first half.
And overall revpar in the market for luxury and upper upscale hotels is down 3.6% through the second quarter and the central business District is down 5.5% for the same period.
The good news.
For Chicago is the 2020 looks to be a strong year based on significant business already on the books with our group pace up in the market almost 9% in 2020.
We have high visibility to the first two quarters of 2020 in particular look outstanding for Chicago.
Turning to corporate group demand, we've actually seen corporate group business continue to hold up quite well and cancellations have been minimal.
While our total group production in the second quarter is down in the high single digits, our corporate group production is up approximately 2%.
We expect group business in the second half most of which is on the books at this point to be approximately flat versus last year, and then strengthen into 2020.
While group rooms revenue was down for the quarter, we've seen impressive demand on the transient side of the business, where our hotel teams have done a remarkable job driving significant transient business to fill gaps created by softer group business.
This was especially true in our group based convention hotels in markets like Chicago, Orlando and San Antonio.
Transient room revenue was up about 4% in the U.S. and over 5.5% in constant currency across the broader Americas region, because a certain particularly strong markets outside of the U.S.
Both business and leisure transient demand improved and we gained significant market share in transient business and our full service hotels in the U.S. during the quarter.
Given that typically shorter booking window it is difficult to predict with certainty what transient demand will look like going forward, but we believe we will continue to have success in driving strong leisure and business transient revenue through the remainder of the year.
Part from the U.S. I want to spend a little time on greater China, which came in below our expectations in the quarter.
As you will hear from John when she shares our results for the quarter greater trying to is again, showing some revpar contraction down close to 3% for our full service hotels driven entirely by declines in Macau and Hong Kong.
Economic conditions in greater China, combined with ongoing trade tensions with the U.S. have weighed on demand affecting both Chinese travelers and inbound travel.
In addition, consistent with the first quarter of this year, we've continued headwinds relating to the conceit casino room block in Macau, which negatively impacted our greater China revpar growth by approximately 170 basis points.
Finally, the demonstrations in Hong Kong have negatively impacted our second quarter results and we expect the third quarter to reflect the impact of occupancy.
That have dropped by approximately 300 basis points, along with rate declines of almost 8% in constant currency in the June and July period, as compared to last year.
Based on recent indicators.
We expect a difficult third quarter in greater China with some revpar recovery in the fourth quarter.
Our positive Revpar forecast for the fourth quarter assumes that economic conditions improve in that part.
Improve in part as a result of economic stimulus that was initiated at the beginning of this year and that we see a reduction in the disruptions caused by the demonstrations in Hong Kong.
Our outlook would be further enhanced with the new trade deal were put into place between the U.S. in China during the second half of the year.
In the face of these challenging conditions, we gained market share during the second quarter in greater China, excluding Macau.
Another positive sign is that development activity remains very strong Chinese owners and developers are currently still bullish long term and want to put capital to work, while leveraging the strength of our brands.
Those are a couple of the most significant areas that are impacting our overall assessment of business conditions at this time.
Separately I want to briefly comment on our reduced guidance for adjusted EBITDA, which Joe will cover in more detail.
I want to emphasize that those reductions are primarily driven by discrete items that are not related to our core lodging business, most notably the operational impact associated with construction delays at our two new mere revolve resorts in Austin, Texas and Lenox, Massachusetts.
Core demand at the Miracle resort in Tucson remains strong as we posted a 5% increase in revenue per occupied guest.
In the first half of 2019.
Our outlook for our core hotel business remains positive in the context of our reduced Revpar guidance, driven importantly by our outstanding net rooms growth.
Speaking of growth, we realized net rooms growth of 6.9% during the second quarter on a year over year basis, excluding the two roads hotels that are now part of our portfolio.
If you were to include the two roads hotels, our net rooms growth was 12.6%.
On our first quarter earnings call. We noted the opening of two hide centric hotels in Italy, and two on doug's openings in Munich and Vienna.
I'm pleased to note that our momentum in Europe continues during the second quarter, we converted two hesperia properties in Spain that were signed in the first quarter.
The hotels located in Madrid, and Barcelona are open and under renovation with expected completion and final conversion to the Hyatt Regency brand in the second half of 2019.
We also added the hotel do Pele in beer, it's France to our unbound collection by Hyatt.
The hotel is recognized as one of only 25 palace hotels and all of France.
We are thrilled with all these openings and with the success. We continue to have an attracting developers and owners to invest in our brands.
In addition to the conversions I just mentioned I also want to highlight other recent conversions. We just last week rebranded the hotel to Lisa in Vail, Colorado as the Grand Hyatt Vale.
This 285 room luxury hotel reopened in November of 2017, after a $65 million renovation and represents a significant ridge resort addition for us and a top ski destination.
We also recently executed an agreement to convert a 665 room hotel in Hong Kong, which is expected to become the first Hyatt centric in greater China.
The conversion and rebranding of the Hyatt centric in Hong Kong is expected to be completed by the end of the third quarter of this year.
All of these conversions along with the majority of our existing pipeline, our full service hotels that drive high fees per key.
While John will go into the details of our second quarter results I want to highlight two areas of our performance that are particularly important.
The first is our market share performance.
You'll recall in the first quarter that we gained a little over two points of share across the globe.
During the second quarter, we gained almost two points of market share worldwide again, demonstrating the strong performance of our brands globally.
Similar to the first quarter, we drove market share gains across all regions of the world with the only exception being select service hotels in the Americas, where our index was about flat for the quarter.
The second item is our net rooms growth.
The conversions I just mentioned combined with our strong pipeline expected openings for the remainder of the year provide us with confidence to expand our net rooms growth expectations for 2019 on which John will provide an update shortly.
We are seeing sustained levels of developer interest in activity across our brand portfolio. We are expecting not only a record level openings. This year, but assuming our present pace of deal activity holds we also expect to realize a record level of signings as well.
We believe we are well positioned to continue to lead the industry in net rooms growth going forward.
Before turning things over to John I'd like to update you on a few additional items.
I'll start with asset sales under our incremental one and a half billion dollar selldown commitment.
We have previously indicated that we had a non hotel asset on the market.
Justice, we closed on the sale of that property and the assignment of a related lease of a retail store adjacent to the Grand Hyatt San Francisco.
The asset was sold for approximately $120 million.
Separately, we had indicated during our Q1 call that we intend to move forward with the marketing of two hotels.
With respect to one of those hotels, we are currently advancing the sale process. Following a third round of bids.
And on the other hotel, we expect second round bids within the coming week.
Interest and pricing has been strong for both assets.
It's still early and while no formal agreements have been signed we are working to secure final agreements with buyers, including long term management agreements in both cases and closed prior to the end of year.
With respect to our acquisition of two roads.
Integration efforts continue to progress smoothly and results are exceeding our expectations as you'll recall, we are integrating the hotels into our systems and the world of Hyatt loyalty program by brand.
We completed the transition of the Thompson brand in the first quarter and as you are disease brand during the second quarter and we just completed the integration of Leila during July .
Our integration of destination resorts, which is the final brand for migration is scheduled to take place during August and September .
Meanwhile, operating performance for the two roads hotels has been strong and we continue to see developer interest in the brands.
In fact during the second quarter, we signed a deal for what would be the first Leila hotel in Europe . Upon opening in a few years and we have signed three conversion hotels.
Through our two roads developer network so far this year.
One of the drivers of our performance is the delivery of revenue from the world of Hyatt loyalty program, which benefits all of our owners.
The momentum of World of Hyatt is very strong in part due to the compelling partnerships. We have initiated with small luxury hotels American Airlines and Lynn Lindblad expeditions.
Worldwide enrollments are up 37%.
Over last year in the second quarter.
Driven by large membership gains coming from on property enrollments as well as digital enrollments through the Hyatt through high Dot com and our world of Hyatt Mobile App.
Elite customer scores are up significantly and our global room night penetration has increased approximately 460 basis points to over 41% during the first half of 2019 compared to the same period in 2018.
We believe engagement of world of Hyatt members fueled our transient demand.
And contributed to our market share gains during the second quarter.
As a recap we're pleased with our ability to deliver strong results in a slow growth environment and I'm proud of our efforts to drive strong transient business through enhanced world of Hyatt engagement, resulting in higher room night penetration and increased market share around the world.
Importantly, we are reminded daily about of our exceptionally strong brands that are not only driving results.
But driving significant growth overtime as we continue to deliver industry, leading net rooms growth.
With that I will now turn the call over to Jeff.
Thank you Mark and good morning, everyone late yesterday, we reported second quarter net income attributable to Hyatt of $86 million and earnings per share of 80 cents on a diluted basis.
Adjusted EBITDA for the quarter with $213 million.
System wide revpar growth of 1.3%.
The shift in Easter timing had a negative impact of approximately 40 basis points on our system wide revpar growth for the quarter.
Excluding two roads, the unfavorable Easter timing and the net impact of real estate transactions. Our adjusted EBITDA grew approximately 3% on a constant currency basis.
This result was driven by solid management and franchise fee growth fueled by net rooms growth of 6.9% or 12.6%, including the addition of two rounds.
I will now highlight our segment results, starting with our managed and franchised business, where we delivered growth in base incentive and franchise fees of approximately 12% or 6%. Excluding the two roads hotels, both on a constant currency basis compared to the second quarter of 2018.
Our industry, leading net rooms growth continues to drive levels of fee growth well in excess of Revpar growth.
Even as we face some headwinds and tough comparisons to last year and incentive fees in certain international markets.
Our mix of earnings from our managed and franchised business is at 54% of adjusted EBITDA before corporate and other up from 51% in the second quarter of 2018.
I'd like to share additional perspective on each of our three lodging segments, starting with the Americas, which accounted for approximately 77% of our management and franchising adjusted EBITDA in the second quarter.
The Americas segment delivered full service revpar growth of 2.5%.
While select service Revpar declined 2.4% for the quarter.
As you as supply growth continued to outpace demand and the upscale category, especially in certain markets, where our upscale brands are more heavily represented.
Total U.S. Revpar declined 2.3% driven by select service hotels.
Net rooms growth for the segment was approximately 11%, including the two rows hotels, excluding two roads net rooms growth for the segment was approximately 4%.
Base incentive and franchise fee growth of approximately 10% drove adjusted EBITDA growth of about 6% for the quarter on a constant currency basis.
Full service group rooms revenue in the U.S. decreased approximately 3% driven by a decrease in group room nights, partially offset by a rate increase of approximately 1%.
We experienced a similar dynamic to what we saw in Q1 with some growth growth in corporate group business driven by rate increases offset by lower demand coming from association and leisure group business.
Our group revenue pace for the full year 2019 is now down approximately 1% a 140 basis point drop from our prior earnings call.
U.S. group production for all years was down approximately 8% in the second quarter, while in the year for the year bookings were down approximately 18%.
Looking ahead group booking pace for all years is up with the exception of 2021, which is now down just slightly.
While group business was down for the quarter U.S. full service transient demand filled the gap as Mark mentioned earlier with solid room revenue growth driven entirely by an increase in room nights driving record occupancy levels.
Moving onto our Asia Pacific segment, which accounted for approximately 15% of our management and franchising adjusted EBITDA in Q2.
Full service Revpar for the segment increased 1.2% in the quarter driven by increased occupancy.
Full service Revpar in greater China decreased by 2.8% entirely driven by certain hotels in Hong Kong and Macau.
Japan and southeast Asia delivered the strongest growth in the segment consistent with what we saw in the first quarter.
Net rooms growth for the segment was approximately 17% or 13% excluding the two roads hotels.
Net rooms growth in greater China was consistent with overall segment growth levels.
Revpar growth in comparable hotels, along with strong net rooms growth.
Drove an increase in base incentive and franchise fees of approximately 9% in constant dollars. Adjusted EBITDA grew approximately 24% on a constant currency basis.
Moving onto our Europe Africa, Middle East and Southwest Asia segment. This segment accounted for approximately 8% of our management and franchising adjusted EBITDA during the quarter.
Full service Revpar increased 3.7% driven by occupancy increases.
Net rooms growth was 14% or 13%, excluding two roads hotels.
Strength in much of Europe continues to drive results for the segment, while in the Middle East room rates remain under pressure due to increased supply growth outpacing demand.
Based incentive and franchise fee revenue for the quarter increased 4% on a constant currency basis.
Base management and franchise fees increased while incentive fees were down 3% in constant currency driven largely by lapping of the World Cup business from last year, along with some weakness in the middle East, where our fee base is more weighted to incentive fees.
Segment, adjusted EBITDA decreased approximately 1% on a constant currency basis, driven by increased SGN, a cost and a settlement fee received in the second quarter of 2008.
I'll now move on to our owned and leased business, which accounted for approximately 46% of our adjusted EBITDA before corporate and other in Q2.
Owned and leased Revpar increased 2.3% for the quarter owned and leased segment adjusted EBITDA decreased approximately 4% in constant currency driven by asset sales in 2018.
Excluding the net impact of transactions and Easter timing segment, adjusted EBITDA was essentially flat for the quarter in constant currency.
Our second quarter consolidated comparable owned and leased margins increased 10 basis points versus prior year.
Margins benefited from almost 2% of productivity gains, but were offset primarily by lower group business and banquet food and beverage revenues in our owned and leased hotels.
I will conclude my prepared remarks by providing an update on our outlook for 2019.
Given some of the pressure, we're seeing on revpar in certain areas such as our select business in the U.S. and overall demand in greater China, we are reducing the top end of our Revpar guidance range and now expect revpar growth in the range of 1% to 2% for the full year.
With respect to adjusted EBITDA, we are reducing our full year 2019 guidance to a range of $755 million to $775 million.
This represents a reduction in the mid point of our guidance range of approximately $25 million.
About two thirds of the reduction relates to our Miraval operations.
Stemming primarily from construction related delays and challenges at both the Austin and Lenox properties.
Miraval often opened earlier this year.
However, construction challenges led to inventory displacement and resulted in operational difficulties.
Effective as of the end of July all rooms, and facilities are complete and the phone miserable experience is now available to guess.
Looking forward, we expect the property to ramp and pick up momentum into the latter part of 2019.
The Lenox project is behind schedule and facing operating losses, while a portion resort is required to remain open for contractual reasons.
We expect the full miraval experience will be open to guests in the second quarter of 2020.
The remaining third of the reduction in our guidance is driven by other factors.
First transaction activity, including the sale of a joint venture interest in our hotel in San Francisco and the sale of a non hotel asset, which mark referred to earlier.
With the combined impact to adjusted EBITDA for the remainder of the year amounting to about $5 million.
And the remainder of the reduction is attributable to incremental foreign currency headwinds along with an impact to earnings driven by a reduced revpar expectations for the year.
As we look at how this plays out over the remainder of the year I would first point out that after inclusion of the incremental $5 million in transaction headwinds I. Just mentioned, we now expect a total of about $14 million and transaction headwinds during the second half of the year almost entirely affecting the third quarter.
When you consider the impact of the $25 million reduction in our earnings guidance to the back half of the year.
We estimate that about two thirds of the reduction in guidance will impact the third quarter, resulting in an expected decline in reported adjusted EBITDA compared to 2018.
Moving to our net rooms growth increased visibility to scheduled openings combined with the conversions Mark mentioned earlier give us confidence that we will exceed the midpoint of our prior net rooms growth guidance range and we are therefore, increasing the range to 7.25% to 7.75%.
Adjusted SGN eight for the year remains unchanged at approximately $345 million inclusive of approximately $25 million in one time integration costs related to two rounds.
Our expected guarantee expense under the guarantee agreement relating to four French hotels has decreased to the low end of our prior range or approximately $40 million due to improved performance in the underlying hotels and the benefit of foreign currency.
We also expect a reduction in our effective tax rate for the year to 25% to 27% due to a favorable transfer pricing agreement by both us and Swiss tax authorities.
With respect to shareholder capital returns.
We returned approximately $199 million to shareholders inclusive of dividends through July 26, and approximately $509 million remains on our existing share repurchase authorization.
Our full year guidance for shareholder capital returns remains at approximately $300 million at this time.
The timing of expected hotel asset sales described earlier by Mark will be the primary driver of any updates to our guidance and share repurchases.
For a full update on our 2019 guidance. Please refer to our earnings release and supporting schedules.
In conclusion, we are pleased with our second quarter results and execution. We are on track from a schedule and cost perspective to complete the two roads integration by the end of the year and meet our underwriting expectations. We drove strong transient demand offsetting lower group business demand, we again delivered solid growth in fees, driven by new and ramping hotels and we grew market share in every region around the world.
We continue to demonstrate our strength and driving growth through the expansion of our bread brands globally enhanced by some key conversions we've secured recently.
Given visibility of approved deals and expected signings over the remainder of the year.
We believe we will continue to be the leader of growth in the industry well beyond 2019.
We also expect to have more to share with you in the coming months on progress towards our expanded asset sell down commitment as we continue to shift our earnings mix towards management and franchise fees.
And with that I'll turn it back to Jesse for QNX.
Thank you.
Tom I would like to remind everyone in order to ask a question. Please press Star then one on your telephone keypad.
Pause for just a moment to couple of acuity roster.
Your first question comes from Jerry associated with Wolfe Research. Your line is open.
Hi, Good morning, everyone. Thanks for taking my question.
Up can you tell us what the Miraval EBITDA contribution is in 2019, I guess, how much are they losing in 2018 and then how much do you expect mirror of all to generate at full run rate on an annualized basis and do you think you get to full run rate at the start of 2020 or is it going to take more time to ramp.
Thanks Jerry.
The answer to the first question relating to earnings with respect to mirror of all in the aggregate is about zero.
So down from.
What our prior expectations were coming into the year really driven by.
The.
Construction disruptions that we've had.
It's prevented us from having our inventory available to sell to guess so as a consequence.
We've had a lag and being able to ramp up Austin, we took some time to do some rectification work, which caused us to have to.
Close.
A portion of the.
Resort for some period of time and we are now out.
Past those rectification efforts and the resorts open and operating in full with full inventory at this point, but that just occurred.
Recently.
With respect to Linux, we similarly have had some delays mostly in the permitting process and insight condition issues.
And and as a consequence, that's been delayed as well so as we look at the ramp that we had expected to see we are somewhere between two and three quarters delayed in those two properties and.
And expect that Austin as per sort of the seasonality of that market will start to see.
More significant ramp in the in the fourth quarter, whereas the third quarter will probably be.
A period, where we're just building demand.
And then in.
In the Lenox property, we have a portion of the property that we will maintain open and operating.
Because we have some commitments to local homeowners to maintain a certain piece of the of the property in operation, but we really don't expect the ramp to begin until the second half of next year at Lenox.
Got it.
The only other thing the only other thing I would probably point out just to give you. Some context for this is that Tucson continues to perform very well, it's basically on on our pro forma from when we acquired the company and the brand.
For reference point, if you look at the earnings level of.
Of Tucson by itself just as a property.
It will have revenues in excess of $50 million this year, and an EBITDA level approaching $15 million.
And thats up 40% to 50% from the time, we bought it so I would say that the brand we have no real concerns about the brand.
And our thesis remains intact, because we've seen continued elevated levels of interest, but also substantive dialogue with some of our key corporate customers with respect to their wellbeing programs and programming.
And it's factoring into a number of initiatives that we've got underway.
Designing new experiences for a number of our corporate customers. So the thesis remains intact. The brand is strong.
Lennox has been a challenge to complete and we will continue to be until we finish it.
But the market is proven Canyon ranch operates down the street from where we were we are.
The miracle destination that we're creating and has been there for 30 years with a vibrant business. So we have high confidence that were that were building into markets that are proven.
Where we can compete very very well.
Okay. Thank you and then just switching gears here on I apologize if I missed that.
Then on overlapping call, but I think you called out two hotels are in the process of selling can you just give us a sense.
How much annual EBITDA those properties generate and how do some of the multiples.
That are coming in how did those multiples compared to the transactions you did earlier last year.
Yes, we're not going to comment on the specifics with respect to the two hotels that are being marketed at this point, we'll we'll brief update everyone.
Upon closing of those two those two deals what I can say is that.
We maintain that the quality of the.
And the and the.
Locations of our owned real estate are excellent and I would say that thats being reflected in the interest level in the marketing effort that we've had underway for those two properties.
With respect to the asset that we sold the retail asset that we sold in San Francisco.
That asset was sold for $120 million.
And Joan mentioned.
The EBITDA impact from.
That sale plus the sale of a JV that we also sold earlier in the year in San Francisco.
That is a 5 million dollar impact.
For the remainder of this year and Thats.
A bit less than half of that relates to the retail side in a bit more than half of that relates to the hotel JV interest that we sold and so you could you could pretty much decipher.
What the earnings level was for the retail side and for the for the JV hotel from from those data.
So we're happy with the realization on the retail sale, we're happy with the realization on the on the.
The hotel in San Francisco.
And the valuation for the hotel in San Francisco sale is in the range of what we were selling assets for.
In the prior stage of our sell down effort.
Okay. Thank you.
Your next question comes from Smedes Rose with Citi. Your line is open.
Hi, Thanks, I just wanted to ask you.
One more question on mere valve just looking back to when you purchased fat.
I think back into early 17, you talked at the time about investing $375 million in total between the purchase price and construction.
And then I think ramping to kind of a mid thirtys EBITDA by 2021 do you do you feel that you can be on track for that and if that total investments still about.
The same.
Yes, so thank you for that.
The total investment will be slightly higher than that number.
My Best estimate for you is.
Somewhere in the range of 390 to 400.
Based on the.
Addition of some villas that we built in Tucson.
As well as the completion of the of the construction activity that we've got in Austin and in.
And in Lennox, our expectation with respect to overall returns upon stabilization remains the same as it was when we when we came into the deal, namely to be able to achieve high single digit rates of return.
And do you have any recourse to the constructors given.
On the construction delays with any kind of guarantees or.
For now.
We it's a complex set of issues that relate to some construction related matters, which we of course.
Undertake with with contractors, but we've also had site condition issues some weather issues.
Some labor issues, especially in Austin, where.
There seems to be a significant amount of construction underway everywhere.
And then approval processes, which have taken some time I think the the corollary to the approval processes in obtaining permits and some of these jurisdictions, especially in Massachusetts.
Is.
It's both.
Positive and negative it's obviously a negative now and we're not happy about some of the delays that we've had but it also speaks to the.
Barriers to entry and so upon opening.
The the ability for others to come into the market and compete directly or more limited because its quite challenging to get.
These projects completed.
Okay. Thanks, and then I guess I just wanted to switch gears and ask you one more question on the <unk>.
Upscale portfolio.
I mean, it's kind of seen relative underperformance versus SCR for several quarters now I think were in the fourth quarter.
And you did mentioned that some of it is new supply where the Hyatt properties happened to be but I mean is there anything else going on relative market share wise or from competitors that you see that.
It's maybe causing a sort of relative underperformance.
And Smedes outside this is John I'll take that question and yes, we have been talking about the supply demand dynamic as well as the concentration of our assets in particular markets that have been under pressure.
But we also have talked about the programming changes that we made to the Hyatt place brand and we started those changes in the fourth quarter of 2018 and the the objective was to increase the value offering for our world of Hyatt members and to increase our direct channel mix ultimately at our Hyatt place hotels and we're pleased to report that these strategies are we are achieving the outcomes that we set out and our direct channel mix is up meaningfully and it has been gaining momentum since we started the program and our world of Hyatt penetration in the brand is up 800 basis points in the quarter. So we expect the growth rate in the segment to improve.
Over time.
Over the last latter part of this year.
And with our revenue management and channel mix strategies will be fully optimized we think in the near term.
We're building a stronger brand, while increasing the value of our loyalty program and we are moving towards a more sustainable distribution strategy and providing better economics for our owners over the long term.
Okay, Thanks for that detail.
You bet.
Your next question comes from Gregory Miller with Suntrust Robinson Your line is open.
Thanks, Good morning, I am on for Patrick Scholes.
Wondering if you could comment a little more detail on the Myhrvold guidance change and bigger breakout often when next in terms of how much EBITDA.
Declines are attributable each property.
Yes, I think.
Not a level of detail that we're going to go through I think in the aggregate the.
Does the shift for the year is what we described in the.
Prepared remarks.
I would say.
A balance.
4 million of that change in terms of the total impact over the course of the year was actually realized in the second quarter.
And the remainder would therefore be.
In the second half of this year.
With not a lot of season that seasonality shifts between those two quarters. So.
Just in terms of the profile of the outlined over the course of the year or the B measure over the course of the year. That's that's about how it plays out.
Okay. Thanks, and then a follow up on your whole as well.
How should we interpret the ramp up of these hotels compared to non bonus awards as we ramp up to occupancy stabilization roughly comparable.
Or is there a longer period to gain acceptance from customers.
Today's hotels.
I would say that.
The.
The ramp up is.
Likely very comparable to a full service hotel, we when we look at new developments for example.
We depending on the market and the nature of the hotel and location a number of other things in terms of key demand drivers.
We typically look at a two to three year ramp up period.
Which is what we would expect here.
So when we talked about what we what our outlook was for.
Good getting ramped to the.
High single digit rate of return figures that we had previously provided we assume that it would be.
A two to three year ramp up period once we are opened.
And that's as I said earlier about a two or three quarter lag from where we initially came into these projects to begin with.
For reference.
The occupancy for example at Tucson.
Mirror of all is running over 70% year to date.
As over $530.
And the answer, but maybe even more importantly than those statistics recognize that the economic model that the actual commercial model for mirrorball yields a business in which rooms revenue represents only about a third of the total revenue base for.
Each resort and the remainder is food and beverage revenue, but very importantly, it's experiences treatments and services on on property.
Okay. Thank you very much.
Your next question comes from Joe Greff with JP Morgan Your line is open.
Hello, everyone.
Hi, Joe Bob I was hoping you could add on to your comments about the second quarter group production being down in the high single digits.
Yes, the corporate group was up but I think you said, 2% in the second quarter, implying that the non corporate group stuff.
Yes, <unk> is down significantly.
I kind of find those trends to be kind of.
Inverse of what I would expect can you talk about what's driving that difference in the non corporate group and the other group.
Yes, so let's start with Chicago I hate to come back to Chicago again, because we talk about it already but Chicago represents about half of this total negative variance that we saw and decline. So it's it is material. So we cannot talk about it.
And I would say about half of that progression is citywide related.
A lot of association business in the second quarter at least had pickup that was or levels of wash.
That is actual attendee versus predicted or projected attendee levels lower than we expected.
And so that's that's what we have seen.
If you look at sort of on a year to date basis.
You know US group is down a couple of percent again with Chicago, representing a big portion of that.
Meanwhile, year to date corporate group. This is realized revenue not necessarily bookings is up in the mid single digits and.
And actually higher than just.
Probably in the range of about 6%.
With the vast majority of that being rate. So we're seeing.
Maintain and and demand rooms demand is actually positive. So we're seeing corporate pulled up both in terms of realized revenue attendee.
Actual attendance coming in line with what we would have expected.
And and rate realization and we're seeing the same in in the context of of the production for future periods. So when I look forward to.
Looking at.
The production coming through.
In the places where it matters the most to us So hi Tech and electronics.
Consulting.
And in terms of bookings at least as opposed to realize revenue looking backwards pharma is holding up as well so.
Corporate Bankings about flat.
Retails up but really the significant negative variances that you will see.
Our in association and SMERF and so that's really what we're what we're seeing at this point when I look at the profile going forward.
2020 is up pace is up mid single digits.
Rate as the majority of that.
2021 is down a small amount, but given the patterns that are open.
In terms of where we are lagging we feel confident we will sell that so I'm not really worried about 21 in terms of holding its own or or showing some progression and 2022, which is too far out to matter much at this point is up mid single digits as well so.
That's that's the that's the sort of profile and the evolution of this thing.
Great. Thank you.
Sure.
Your next question comes from Bill Crow with Raymond James Your line is open.
Hey, good morning, guys.
Two or three real quick topics hopefully.
Variable.
Just so were building the bridge critically the next year or is it is it fair to assume that we go from zero EBITDA to 15 million or is that on our way to 30 to 40, even when it stabilizes is that a fair step.
I think we will be able to do is provide a little bit more color on this once we start talking about 2020 in the aggregate.
But theres no question that we.
You now know relative to what our outlook was for this year, where we're ending up and you now have a better handle on what the timing is for both Austin at Lennox. So.
That's at least a bit of a.
A guide for how you can think about modeling it but we'll get into more detail about our outlook for 2020, once we get closer to the end of the year.
Okay, I know you'd add to that one thing I would add to that bill is that we are sustaining some losses in Lennox at which I mentioned in my in my prepared remarks, So we'll keep that in mind as we give.
Guidance for next year.
And John on the Fringe guarantee could you just remind us how much in total.
Through this year, you will have paid out on that and when do we when can we anticipate that ended.
The contract ends in May of 2020. So we are very close to the end of the contract see the expense guidance that we're providing is 40 million for this year for 2019.
And what was the total that because that does go back a few years right.
I don't have it in front of me Bill.
We can get better we can get back to you at that number and if it is been filed its been filed so its public and right now it's in the Q mix in our 10-Q and all the case that we filed yet so its out there. We can we can go and research that but we don't have a figure here.
Okay and then finally from me on the select service assets, you said that the Revpar Index was flat can you tell us what it was flat at.
And the other thing is I'm just curious whether it's.
Are the brands and I'll put Hyatt Hilton and Marriott on the same bucket are you all doing enough to.
Ensure the performance of older properties.
Against these newer properties I mean, do you unforeseen and driving reinvestment enough.
Or is that part of the problem.
So.
The.
First question you asked is what are we flat at when you asked that question just maybe a clarification as to what you're really asking are you asking what are your index was flat in the quarter.
Right, Yes, your Revpar index.
So 200 to 195.
Oh, you're right, you're asking at what level of premium over over 100 are we.
Is that what you're saying.
Okay. Yes, so we are somewhere in the range of 107 as I recall.
Thereabouts.
A little a little above that.
And that's.
That's that's as it as a consequence of us being flat that is where we were prior prior period.
With respect to the investment Weve.
Our brands are our young brands.
We acquired.
The Lodgeworks business about five years ago, maybe six years ago, now and that really led us to the launch of Hyatt House and we've evolved the model of Hyatt House since then weve defined it.
And really had.
Great success in evolving the return on invested capital for our owners, but also.
It's it's been a very strong brand and operates at an even higher index than than the than the total in select I think.
When we when I look at what we're doing with high place a lot of the work that we did last year was a significant revamp of the brand itself and the programming that Joe referenced earlier was purposely designed to both enhance the food and beverage offering but also drive is really a distribution strategy to drive dramatically higher.
World of Hyatt penetration and internal channel mix and that's precisely what we've done.
She mentioned that you've got.
Excuse me.
Worldwide penetration Thats up 800 basis points, a year over year or so.
Very significant move in terms of what the what the profile of our business looks like but it wasn't it wasn't it was driven largely by the changes that we made in the product in the offering so we when we launch this brand.
I remember when we started taking share and really establish the platform for the brand. This is even before we were in urban locations and really really accelerated the growth of the brand.
Our board asked so how are you gaining share and what are you going to do to ensure that you are not the victim of some other then trend down the road and we made a commitment at that time and we practice the constant reevaluation of what we're doing so we rolled through a number of changes we've reduced footprint, we've reduced the built space for executing either a high place or Hyatt house.
All that was responsive to making sure that from an investment perspective, it was attractive to developers and we continue to evolve the SMB offerings in particular.
And in the most recent instance of that which was.
In the fourth quarter of last year. It was it was really not just to enhance the offering but also to drive.
Distribution channel mix shift, which we've achieved.
Okay.
Thank you I appreciate the time.
Your question comes from David tasks with Jefferies. Your line is open.
So.
Okay.
Hi, My question has been asked and answered thanks very much.
Your next question comes from Rich Hightower with Evercore ISI. Your line is open.
Hi, good morning out there guys.
Good morning, I've got a I've got a two parter here on the pipeline first one quickly can you remind us what what portion of the the total pipeline in place comes from conversions versus new builds a and then the second part just given the composition of what hi, It has in the pipeline relative to some of your your peers you know predominantly concentrated in a luxury and upper upscale and the the higher and.
Can you talk about how sensitive developers are in those segments too.
Construction financing and fluctuations in the economy, you know maybe that's not a it's not a question for the next couple of years out, but maybe in years three four and five just just how that would impact you guys relative to some of your peers.
I'm sure.
On the first question.
The answer is we actually don't predict.
Conversions and build that into our pipeline.
Or into our expectations with respect to net rooms growth for the year.
The very nature of it is that it's you have limited visibility.
I think the major thing that we've seen evolve this year is that our.
The activity base activity level around conversions is just ramped up significantly.
So we're thrilled about that especially given the quality of what were bringing on I mean.
The the hotels that we recently committed to some of which are now open and operating under our brands and others are under renovation or conversion each and every one of them is an amazing location and phenomenal assets. So we're really happy with what we're seeing.
And I think the the network effect of having such an intense focus on the high end customer and bringing together.
The value proposition around the world of Hyatt through small luxury hotels and the other partnerships that we've got that yields.
And ability to actually impacts the results of these kinds of hotels and that's why I think we're seeing some of the conversions that we've now signed and I also want to point out that.
Three three conversions this year have come from our two roads are new relationships through our two roads developer and owner base and that's actually very exciting as well, we we always expected that we would be able to impact.
Growth going forward of those brands, but we didnt.
We didnt count on it Didnt leave that Didnt model. The idea that we would actually have conversions coming out of that where as meaningful as the ones that we've gotten our so thats.
That's a there is a definite change and what we're seeing this year on the conversion front.
With respect to.
The types of owners and developers that are building the kinds of hotels that we've gotten our pipeline.
First just by way of reminder, I think 70% of our pipeline is full service hotels.
Around the world So that'll that'll frame this comment.
My quick answer is it depends a lot on the markets that we're in.
Historically the.
Developments that we've.
That we've had in China have been with developers who are extremely well capitalized and are not really riding a financing wave one way or the other.
There may be other ways that they are writing, but its not financing.
With respect to the to the other regions a lot of it has to do with the type of hotel and and how the capital stack has been created.
I think in in some cases, where you've got.
Projects like the one that is being built right now in Portland.
It's a headquarters hotel and its contiguous with the with the Convention Center. That's a project that is not really going to.
Right rise and fall in the back of financing as much as maybe.
Our resort location.
And maybe an emerging market or something like that so I would say that.
The the developers that are developing upscale and maybe.
Other other segments, although upskill is really the segment we have experienced in.
I think they do have a model that they run with respect to.
Financing that does impact their decision to put a shovel in the ground and I think that thats probably more.
Significant than it is for the core of our.
Of our developer base.
Okay, that's great color Marc Thank you.
Your next question comes from Michael Bellisario with Baird. Your line is open.
Good morning, everyone.
And just wanted go back to your comments on the group side.
Maybe can you frame up.
The booking window, what you're seeing there and then.
Any noticeable changes in many people's willingness either booked further out or is it still short term at this point.
Yes, so the profile of what we're seeing in terms of the of production.
Is.
I would just describe is sort of uneven so the significant changes in the in the quarter for in the quarter production overall.
The impacts were in the quarter itself that is.
Groups that didn't that had significant wash didnt have the same level pick up as we expected and also in 2021, we just saw a decline in bookings for 2021, which has led to our 21 pace coming down a bit.
Again, I think that that 21 numbers a temporal issue, we'll track that over time.
And the bookings in 20 and in 22 and three have remained pretty healthy.
So.
I would say just in terms of profile.
It's been it's been a bit uneven I cant I don't know that I have a theme to provide to you at this point.
And.
In terms of in terms of segments as we mentioned many times.
This has really been mostly an association SMERF issue.
We are so much more so than a corporate issue.
That's helpful. Thank you.
Okay Fair enough, yes, they will take our last question now your last question will come from Vincent IPO with Cleveland Research. Your line is open.
Great. Thanks at the Investor Day, you talked about loyalty contribution and I think it was about 38% of room nights, which was.
Up a few points from 2017 curious if you could update us if you are continuing to grow that as you've looked through the first half of this year.
Any update there would be helpful.
Sure.
Yes thrilled to report that the penetration is up 460 basis points over the first half of the year.
A part of that is driven by very significant new enrollments a lot of that is on property enrollments. So as much as we talk about and we're thrilled with the partnerships that Weve developed and created launched under World of Hyatt with American Airlines and small luxury hotels now lindblad expeditions.
The majority of the activity on on the enrollment side has been on property and then digitally through high dot com and through our App. So we are seeing additions come through.
Sort of our core outposts not simply.
Just having people who are becoming members by virtue of.
Our affiliations in our partnerships I think that is additive, but it's not the primary driver and I think that I think of that as a great sign of health that is it's we're on good solid ground in terms of the additions to our membership base and I think that these partnerships once they start to yield the value that we.
But we know that they will deliver to our members will simply enhance the enrollment levels overtime. So we're really excited about this word frankly tracking ahead of what we thought was possible in terms of moving the needle on on penetration.
And it remains.
A really important focus area of focus for us as we as we go forward.
Great and then maybe just thinking big picture about EBITDA growth trajectory. There is a lot of moving pieces in this year with the lapping a one time or is the dispositions on the most recent mirror of all construction delays.
Some FX, but when you when you adjust for those things do you think you are in the kind of the targeted 5% to 10% core growth model that you've laid out.
And then as you move into next year and then some of these issues abate.
And roll off is that a fair way to think about growth going forward.
So you want to take that yes, then three so for the quarter, we reported 3% core growth excluding all of those.
Items that you mentioned and we.
I expect for the full year still be on track to be at the lower end of our if our growth model range that we that we presented at Investor day and going forward.
Into into 2020 and beyond we are still in.
Have confidence with our growth model and.
The projection it suggests relative to you that the growth of Revpar and net rooms growth et cetera, Yes, I would just add that you know.
By way of reminder, that that growth model construct is our long term growth model. It's not it's not meant to predict a month or a quarter or even maybe a year, but what I can tell you is that one of the key drivers of that is the expansion net rooms growth in the expansion of our of our network of hotels and the fees that come from that and the way I feel is that we put a number of pieces in place.
To sustain that overtime.
And maintained the momentum that we've got in the net rooms growth area and with the acquisition of two roads. We have now extend extended and sort of enhanced the number of places in which we can actually sustain fee growth. So which is the key driver that we're focusing on as we as we look at our model going forward as we move to be more fee based overtime, we will continue to get more and more fee based overtime as we sold on more assets. So that ends up being the key focus and my confidence level is high when you look at our pipeline our net rooms growth and then the conversion of that activity into fees. So I think the the model isn't is intact and it is designed to be sort of a long term framework for how you can think about what we're doing.
Great. Thanks.
This concludes our Q and a session I turn the call back to the presenters for any closing remarks.
All right. Thanks, Jesse and just thank you to everyone for taking the time to join our call today.
This concludes today's conference call you may now disconnect.