Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 Hyatt Hotels Corporation Earnings Conference Call. My name is Christine, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the conference over to your host for today, Brad O'Bryan, Treasurer and Senior Vice President, Investor Relations and Corporate Finance. Please proceed. Bradley O’Bryan: Thank you, Christine. Good morning, everyone, and thank you for joining us for Hyatt's fourth quarter 2018 earnings conference call. I'm here in Chicago with Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer. Mark will begin our call today with an overview of our fourth quarter and full-year results and then highlight some recent developments. Following Mark's comments, Joan will provide additional details on our performance and close out our prepared remarks with a summary of our guidance for 2019. We will then take your questions. As a reminder, we will be hosting an Investor Day on March 5, in New York, during which we will cover additional topics, including a full update on our capital strategy. Before we get started, I would like to remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued late yesterday along with the comments on this call are made only as of today, February 14, 2019. And we undertake no obligation to publically 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 hyatt.com, under the financial reporting section of our Investor Relations link and in last night's earnings release. An archive of this call will be available on our website for 90 days or the information included in last night's release. With that, I will turn the call over to Mark.

Thanks, Brad. Good morning, everyone and welcome to Hyatt's fourth quarter 2018 earnings call. Thanks for joining us this morning. We had a great finish to a great year. We reported adjusted EBITDA of $182 million for the quarter, bringing our full-year result to $777 million. Adjusting for the year-over-year impact of real estate transactions, our fourth quarter-adjusted EBITDA increased approximately 19% and our full-year adjusted EBITDA increased 13%, both on a constant currency basis. These very strong rates of growth were primarily driven by performance in our owned hotels, strong increases in management and franchise fees across all regions, and effective SG&A management. System-wide RevPAR increased 1.5% during the fourth quarter, weighed down by lower-than-expected growth in our Asia Pacific region and RevPAR contraction in our U.S select service hotels, as Joan will discuss shortly. This weaker than expected fourth quarter RevPAR growth resulted in full-year system-wide RevPAR growth of 3.1%, which is slightly lower than our expectations that we shared with you at the end of October. During the fourth quarter, excluding the addition of hotels resulting from the Two Roads acquisition, we opened 25 hotels, driving full-year net rooms growth of 7.2% on a year-over-year basis. This brings us to a total of 63 new hotel openings in 2018. In addition to this industry-leading organic net rooms growth, we added 75 properties through the acquisition of Two Roads, including 65 hotels with approximately 12,000 rooms and 10 condominium ownership properties comprising approximately 1,500 units. We have continued to focus on driving relevant growth of our brands in new markets where our guests are traveling. During 2018, we entered 38 new markets through organic hotel openings and an additional 20 new markets through the acquisition of Two Roads. For example, fourth quarter openings include the addition of the…

Thanks, Mark, and good morning, everyone. Late yesterday, we reported fourth quarter adjusted net income attributable to Hyatt of $69 million and diluted earnings per share of $0.62 adjusted for special items. Adjusted EBITDA for the quarter was $182 million with system-wide RevPAR growth of 1.5% in constant dollars. Our adjusted EBITDA for the quarter includes a negative $2 million impact from Two Roads, which is in line with our expectations to be flat for 2018. Excluding a $17 million impact from real estate transactions, our fourth quarter adjusted EBITDA grew at an impressive level of approximately 19% on a constant currency basis. While RevPAR results were slightly lower than we anticipated, we are very pleased with our strong finish to the year. I will now highlight our segment results, starting with our managed and franchise business. We ended 2018 with our managed and franchise business representing 53% of adjusted EBITDA before corporate and other for the year, up from 47% in 2017. We expect this trend to continue in the year ahead as we evolve to a more fee-based earnings profile. During the fourth quarter, we delivered 11% growth in base incentive and franchise fees on a constant currency basis compared to the fourth quarter of 2017. Total fees increased approximately 12% on a constant currency basis. We’ve now delivered 10 consecutive quarters of high single to low double-digit growth in our total fees, an excellent track record driven in part by industry-leading net rooms growth. Next, I will provide additional perspective on each of our three lodging segments beginning with the Americas. The Americas segment delivered full service RevPAR growth of 3.4%, while select-service RevPAR declined 3.7%. Total U.S RevPAR grew 0.9%, with U.S full service up 2.6% and U.S select service down 3% for the quarter. We…

Thank you. [Operator Instructions] And your first question comes from the line of Jared Shojaian from Wolfe Research. Your line is open.

Hi, everybody. Thanks for taking my questions. So I want to go back to the 2019 guidance here for a second. You called out 6% growth, sort of core growth excluding all the one-timers. So that’s at the low end of your longer-term target and I appreciate the comments that the multiyear CAGR might be higher. But if I look at the components of your longer-term 6% to 11% target, there doesn't appear to be anything unusual in your guidance in terms of RevPAR or units. So, can you talk about that a little bit and maybe help me understand that gap?

Sure, Jared. As you mentioned, we have after removing the net impact of transactions in foreign exchange headwinds, our anticipated EBITDA growth is 6% at the midpoint of the range. So I want to remind you that there were other non-recurring items that helped us in 2018, as I mentioned earlier, in the owned and leased portfolio and also a one-time settlement we received in the first quarter of 2018. When you combine those two items, those two alone had a lift on our earnings growth rate of 2 points in 2018, which is a headwind we will face in 2019. So this is why it's important and instructive to look at the growth over the two years, given the non-recurring items. That 2-year growth rate, just as a reminder, from '17 to '19 midpoint is 10%. And it's on the high-end of our growth model reflecting strong growth in our fee business, our owned and leased hotels, and solid SG&A leverage over the 2-year period.

Okay. Thank you. And you mentioned the Grand Hyatt, I appreciate the details there. But I mean, how are you thinking about that in terms of your longer term disposition plan and allocation of capital? Would that be incremental to your $1.5 billion target? Would you consider recycling the proceeds into other hotels? And as you look at your entire portfolio of assets, are there any properties that you would consider not being available for sale, whether that’s for strategic reasons, tax reasons, or anything else that you might be considering?

Thanks, Jared. With respect to the Grand Hyatt New York and how we think about it, it is consistent with -- the steps that we are taking right now are consistent with the overall direction that we’ve taken which is to continue to move to an asset-lighter balance sheet. So we looked at that opportunity in the context of several different factors. One being that the last -- the CapEx profile for the property is driven in part by the fact that the last major renovation that we did was in 2011 at a cost of a bit over $120 million. And so we’ve got -- as we look forward, a CapEx profile that suggested this is an appropriate time for us to think about doing something different with the property. As to how we ultimately will treat the proceeds from the sale, we will make that determination as we get closer to the time of actually selling the hotel. So we've got a framing for our permit sell down commitment, which is at the $1.5 billion level that we described and talked extensively about last year. And we've also engaged in a number of recycling transactions. So I think exactly how we end up treating those proceeds will be determined when we get closer to disposition.

Great. Thank you.

Your next question comes from the line of David Katz from Jeffries. Your line is open.

Hi. Good morning, everyone. I wanted to just ask about the capital allocation framework and how your thoughts shift today. And obviously, the world has maybe changed and then changed back again, I don't know. Around the prospect of adding more brands to the portfolio through M&A and reallocating some sale proceeds that way as opposed to returning it and what your appetite might be for that?

Thanks. So we've been consistent to say that our number one focus for proceeds from dispositions would be to look for growth opportunities for Hyatt. Our further color to that has been that we are not focused on transactions that would bring with it any significant amount of real estate. And if we did look at opportunities that did include hotel real estate, we’d look to have a path to divest the real estate over time. So really the idea was, it has been and remains, finding appropriate opportunities for us to actually enhance our growth rate over time. In the case of Two Roads, it's focused on a customer base that is very similar to our customer base from a ADR-level perspective and also from a demographic perspective. They have certain key attributes in the lifestyle space that are strengths of theirs, that we will bring on and use to help enhance our own performance. But most importantly, it's really a growth platform and it's entirely management fee driven. So the idea behind being able to redeploy capital has to do with ensuring that we’re continuing to expand in key areas for our customer base and doing it in a way that's going to continue to help our earnings migration -- earnings mixed migration. One example of that is we've got a very strong base of World of Hyatt members in Asia and with the Alila acquisition, we have significantly expanded our resort offerings with a significant pipeline in that brand. So we are particularly excited about the opportunity to really use that new platform to help enhance the value of the World of Hyatt membership for all of our Asian customers.

And if I can just follow that up, I appreciate the answer. Do you sort of feel more appetite among the higher end, which seems like where more of the growth has been or are there any sort of attractive elements that may be in the limited service or even lower than that?

Yes, we’ve looked at potential acquisitions across all of the chain scales that we currently compete in. So everything from the upscale area through the luxury area. And that’s really -- that would be our focus. We’ve also looked at some platforms that have brand representation adjacent to upscale, but below upscale if you just look at it on a rate basis, particularly in Europe. And also looking at how we might be able to significantly expand our reach. So one of the key goals of our acquisition focus and the lens through which we're looking to look at potential acquisitions is really geography as well as segment representation. So the ability to have additional representation in key markets and within that, I would say key types of representation within those markets, and I will go back to my Alila example, really resort focused, that actually helps to really sharpen our focus on the things that we think will make the biggest difference to our network.

Got it. Thank you so much.

I would just add to all of that, sorry to continue, but just one last thing. And that is we’ve been very disciplined and very driven to be deliberate about ensuring that we are maintaining a healthy return of capital to shareholders. And you can see from our behavior over the course of 2018 where we started off the year with a expectation or a guidance of returning about $300 million to shareholders and it ended up over a billion. That is the result of a mindset which is we will if we don't have clear paths to utilization of capital be returning capital to shareholders. So it is important to us. It is an area of focus for us. So, I don't want my answer to lead you to believe that we are exclusively focused on M&A and not committed to continuing our path of returning capital to shareholders.

Noted. Thank you very much.

Your next question comes from the line of Thomas Allen from Morgan Stanley. Your line is open.

Hey, good morning. You guys are obviously putting up really impressive unit growth. Just one thing I was -- that actually, I was very confused about was you went from 330 hotels in the pipeline and 73,000 rooms as of September to -- even if you take out Two Roads, its 410 hotels and 84,000. So were they lumpy additions or were they one-offs, or how -- it's impressive. So how are you growing so quickly? Thanks.

Yes, I’m thrilled to be able to address this one. We had just a remarkable year. We had been, I would say, over the past year, maybe 15 months, been really focused on looking at how we can enhance our development capabilities. And we’ve added developers and resources to help support development activity over the course of that period of time. By the way, we’ve extended that further because when we acquired Two Roads, we brought into Hyatt some really accomplished and experienced developers. So part of the "overhead", "run rate overhead" that we are bringing in with Two Roads is a fantastic development team that know the brands very, very well. So we really have been working against those -- with the new team -- new teams in place or enhanced teams in place over the course of the year. And we had a very significant measure of deals in process. Our discipline around disclosure is to only disclose deals that are fully executed and in our opinion, fully financed. So, if you look at the total activity base of our development activity, and you took into account things that were either in very advanced stages, post-LOI for sure or even signed, but in our opinion, still not included in the pipeline because we are not -- we haven't yet pushed the button on our confidence and they’re being financed. The actual pipeline is significantly larger than what report as our pipeline, but we’ve consistently reported fully signed and executed deals. And that’s partly why you see some lumpiness because as you can imagine, getting deals across the finish line and getting ink on paper can sometimes lag when the activity is done and when the deals are essentially finished. And we just had an incredibly robust fourth quarter.…

Congratulations. Just on a different topic, so on RevPAR, you called out the select service weakness in the fourth quarter because of the hurricane comps. But then, you also highlighted that 2019 U.S select service will be a little softer too. What’s driving that?

Sure. Let me address first what -- how we are thinking about things in '20, what happened at the end of the year in 2018 in the fourth quarter. Firstly, 2018 saw supply growth in the U.S upscale segment begin to outpace demand. So that was the first issue that impacted us. The second is when you compare the industry performance to our performance, there's a notable different in our mix, in our geographic concentration. The Hyatt Place brand is much more heavily represented in Texas and the Southeastern United States, which benefited from post-hurricane demand, as I mentioned in my prepared remarks. And lastly, I will just make a comment that we communicated previously, we've had a number of initiates under way to upgrade the programming in the Hyatt Place brand to increase the value offering for our World of Hyatt members. And we are in the process of evaluating what disruption this could have caused, and what I would say is that we are encouraged by what we are hearing from member feedback on our offering and are pleased with the growth in the World of Hyatt penetration numbers and the brand in recent months. So, in summary, on 2018, the rate of growth is primarily supply driven and impacted by those weather-related items due to our market concentration. And we don't have any evidence of a core demand problem or a macro brand issue. As you think about 2019, that supply and demand equation, we expect to continue throughout the year. And because we did so -- we have such strong performance in the first half of 2018, we will have some tough comps in the first half of 2019 as well, on the select service side.

Makes sense. Thank you.

Your next question comes the line of Stephen Grambling from Goldman Sachs. Your line is open.

Hey, good morning. It's Stephen. I guess as a follow-up to a little bit on Jared and Thomas's question on '19 guidance and kind of the EBITDA trajectory, what are the building blocks on the core owned and leased side kind of ex acquisitions? And are there any key integration milestones to consider with Two Roads as you look to pivot to an accelerating growth?

I will start, Stephen, with the second question. I think the evolution of the integration plan is under way and we are on track, relative to where we expected to be with respect to Two Roads. And over the course of the year, we are going to be doing a number of things to migrate in a very thoughtful and deliberate way, with a lot of coordination with the owners of the hotels. I know that there is a lot of focus around how other integrations might have occurred previously. I think our -- we are aware of how we need to be doing this in a very deliberate way in order to be successful. And I’m thrilled to tell you that the extra effort and planning, and resources that we've put behind this are definitely yielding a great path to having, not just a really solid base of owners, but also really accelerating the growth of the brands around the globe. So we’ve already seen some great opportunities. We had one notable pickup in the first part of this year already, which is the conversation of the Parker Hotel in New York, which was neither in the property count nor in the pipeline. We were able to work very -- in a very coordinated way with our new colleagues from Two Roads with an ownership group that had a good experience with Two Roads in the past, and bring that across the finish line in a very rapid way. So some really great, early signs that the combination is going to yield some really good results. There is no question that we’ve a lot of work left to do. The amount of money that we are putting behind, the transition is significant and we are really focused on making sure that we have a really fantastic foundation for the future, which is why we are taking extra time, effort, and costs to make sure that that goes well. In terms of the O&L progression, I think we're in good shape in terms of the market representation that we’ve got as we look into this year and see how markets are performing at the top line. Maybe, Joan, you can cover the picture on the margin side because we are lapping a massive year of margin expansion.

Right. So for the first -- for the fourth quarter, we had an extraordinary headline on our margin expansion of 240 basis points. And I covered the fact that half of that was operational, and half of that was non-recurring items. For the full-year, we expanded margins at 140 basis points as well. So we had a very strong year and driven by the strong focus from our operations teams and a lot of good results coming out, both on the top line and in productivity to drive those margins. Our teams going into next year will be working hard to identify opportunities to continue to drive margins. But I would say that the continued expansion of margins at these expected revenue levels will be challenging. In the past, we stated that we are targeting about 3% RevPAR growth to yield flat margins and cover inflationary costs. So it will be -- continue to be challenging at these low single-digit RevPAR rates that we are expecting.

Thanks. And maybe one unrelated follow-up, as you see the momentum in spend and sign ups associated with the loyalty program, how much of the growth has been domestic versus overseas? Are you seeing any difference in the frequency or spend by region? Thanks.

We’ve seen growth across the globe, and we think that the addition of Alila in Asia will also enhance the value proposition there. One of the -- one growth driver for new membership and also increased penetration over the course of the year was some changes that we made in the model for Hyatt Place. We transitioned both the physical plant, the physical model on the area programming for our new hotels. That was really done in close coordination with our current owners and developers to make it a more efficient build. So we were able to take costs out and take space out of the new Hyatt Place model. And in order to also enhance -- excuse me, margin performance, we converted and transitioned to a new food and beverage program in which the breakfast offering is free to members, but paid for otherwise which is a change from what we used to do, which was -- it was a free breakfast included in room rate. And that has spurred a lot of sign ups and penetration and we’re tracking durability and share of wallet over time. But we significantly enhanced and changed the breakfast offering at the same time. So we’ve increased and elevated the experience and also really used the opportunity to drive membership. No question that in that transition, which occurred in the fourth quarter, we had some disruption in terms of how hotels were represented from a rate and offering perspective, something that we are continuing to evaluate as we move into January and February of this year. But, overall, the member feedback and the owner feedback has been very, very positive. So we are really excited about that. The only other thing I'd say is we also saw an inflection point on the full-service sign ups as well. And I think part of that has to do with focus and attention by our hotel teams, but also we've really taken some significant steps over the course of the year to enhance the value proposition for World of Hyatt. And as we add more and more SLH hotels to the offering, we are going to be tracking our membership base in Europe closely because it really is a material change in what’s available through the program to our guests.

Thanks for the color. I look forward to the Investor Day.

Thanks.

Your next question comes from the line of Smedes Rose from Citi. Your line is open.

Hi. Thanks. I was just wondering if you could talk a little bit more about, for the capital return that you’ve targeted this year, the decision to increase the dividend versus more share repurchases?

So our share -- our capital return guidance for the year is $300 million. And I just want to point out that we had also came out at the same time last year with the same guidance of $300 million and we ended up the year at a billion in shareholder returns to investors. And that was driven largely by asset sales. As we look at going into the year, the $300 million that we just guided is before taking into consideration any asset sales and includes, as you pointed out, the increase in our quarterly dividend. So, we will update you over the course of the year if any of our estimates change. And with respect to our dividend, we don’t have a firm policy, but we’ve stated that we will revisit it annually. This is a 27% increase, which makes sense giving our -- given our earnings growth. And we took that decision to increase it for this year and increase those shareholder return.

Yes, I'd say one factor, as we think about it, is payout ratio, which we pay attention to, but also we -- it's reflective of our cash flow strength. We’ve got significant operating cash flow, increasing levels of free cash flow over time. So part of this is in anticipation that you will see, as we go into a much more asset-lighter earnings mix over time, that free cash flow attributes will also increase not just because we are growing fees at such a significant pace, but also because our CapEx will decline over time. So it's in part a change that is in anticipation of what our profile evolution looks like.

I mean, I guess -- I understand that. I guess, it seems like for companies that are moving to more asset-light strategies, as you are, the investors value share repurchase more than dividend increases. So I’m just wondering what the sort of thought is maybe going forward. Would you expect to increase your dividend at this kind of rate or is there kind of a thought about the ratio between dividends versus share repurchase or -- it was just a little surprising to me given you trade below your peers and you chose to push up the dividend.

Yes, I mean, when you really go through the numbers, though, the total dollar change year-over-year is not material relative to the level of share repurchases that we're talking about. So, we don't see this as a significant trade-off. And we set -- when we set the initial dividend a year-ago, we indicated that we were setting it at a -- what we considered to be a sort of a conservative level, and that we anticipated that we would find opportunities to increase it over time. But I think most importantly, just in terms of a total dollar -- consumption of total dollars, it's not going to have a material impact on our share repurchases. When you just go through the numbers, it's not a material amount of incremental cash that’s being dedicated to dividends relative to the hundreds of millions that we are spending on share repurchase.

Okay. Fair enough. The other thing I just wanted to ask you about, you called out the expected losses for the guarantees in France this year, which narrow. I was just wondering are those losses greater than you would have expected, given the unrest in France? Is that impacting those hotels at all? And can you just remind us when that -- when those contracts burn off, or the guarantees burn off?

So, the guarantee burns off in May of 2020. And this -- we expect our expense to decelerate from last year, that obligation. And we don’t see any impact from -- a very minimal impact from the unrest in France recently.

Okay. Thank you.

Your next question comes from the line of Shaun Kelley from Bank of America. Your line is open.

Hi. Good morning, everyone. Just a couple clarifications. Most of my questions have been asked and answered, but just to go back to the whole capital recycling plan as we kind of before we get the full update on the Analyst Day, Mark, can you just remind us of exactly how much you’ve remaining on sort of the stated kind of $1.5 billion goal to sell for this program as you’ve outlined it so far?

Yes. Its -- I don't know what the precise number is, but it's in the range of $350 million.

Okay. And the only thing sold in the fourth quarter was the -- I think one Hyatt House asset, right?

No. We actually ended up -- there was another disposition, which was a JV interest that we had in the Hyatt Regency in Minneapolis, which is a sizable hotel. And we also have, at this time, we’ve an asset being marketed for sale, at which we -- in our practices that we will update when there is more to report like a signed deal, but that’s where we stand right now.

Excellent. Great. And then, just one other clarification was around the New York asset. And, again, appreciate the color that you did give us on that because I think we saw that in some of the New York real estate circles. So, the question I have on that is I think you mentioned -- it is a ground lease asset, but then I think you also said that you may have some interest in the ground lease. So could you just give us a little bit more color because, I mean, more on the dollar, you can be trying to think about value there? And it will depend a lot on whether or not it's ground leased or how much of the ground lease you own.

Okay. So, excuse me. Given the transportation on which that property sits, all the land is owned by government entities and we are the lessee of the land and owner of the improvements. So that's the status that we’ve in that property. And our intention would be to sell the property, therefore inclusive of the ground lease interests to the development group that’s been formed to pursue this new redevelopment on the site. The adjacency of our site with -- it's contiguous with the Grand Central Station parcel has allowed the development group to take advantage of certain opportunities to make that total redevelopment and opportunity more efficient and effective than it might otherwise be. So it's a bit of a special opportunity with this group that owns the air rights at Grand Central.

Right, because you can only use them if it's contiguous. I think it's one of the key rules around air rights.

Well, there are some transfer abilities. It's not as powerful though as might exist if you are contiguous.

Okay, great. Appreciate the color there and look forward to hearing more about that.

Okay. Bradley O’Bryan: Christine, this is Brad. We will take our last question now.

Your last question comes from the line of Patrick Scholes from SunTrust. Your line is open.

Hi. Good morning. Just a question on the Two Roads EBITDA impact for 2020 and how should we think about that as we work on our models? Thank you.

In terms of earnings profile going forward?

Yes, yes. You gave color on '19, but looking out to 2020 how do we take opportunity -- how should we think about that?

Yes, I will just remind you what we said when we closed the deal. And then, I will ask Joan to just go through the numbers, how they work in 2019. What we indicated is that we thought that it would take until 2021, effectively to get stabilized and also realize some of the embedded growth that was in the near-term opening profile for the pipeline that we acquired and that our 2021 earnings base would yield, effectively, something in the range of about a 12% multiple on our purchase price. And that underwriting remains correct in our view. And as we think about the opportunity between now and then, it comes in the form of some conversions and also -- excuse me, accelerating new development opportunities on which we are fully working at the moment. So that’s the near-term profile, but, Joan, you might want to just recover what the -- how the numbers actually work in 2019.

Sure. As a reminder on what we expect for 2019, we’ve stated 0 to $5 million net impact of adjusted EBITDA and a $40 million cost base, SG&A, inclusive of $25 million of one-time transition costs. We expect to be fully transitioned by the end of this year. So that $25 million -- the substance of that is technology conversions to bring the properties to our platform, so that they could fully derive the benefits associated with our systems and other transition services that we are engaging with from the seller side to ensure a smooth transition and to have this all completed before the end of the year of '19.

Okay. Thank you very much.

At this time, I return the call over to Mr. Brad O’Bryan. I now turn the call back over to you. Bradley O’Bryan: Thank you, Christine, and thank you everyone for joining us today. And we look forward to seeing you in New York on March 5.

This concludes the conference call. You may now disconnect.