Good day, ladies and gentlemen, and welcome to the Third Quarter 2019 Hyatt Hotels Corporation Earnings Conference Call. My name is Chris, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Brad O'Bryan, Treasurer and Senior Vice President, Investor Relations and Corporate Finance. Please proceed.

Thank you, Chris. Good morning everyone and thank you for joining us for Hyatt's third quarter 2019 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 by sharing some insights on our third quarter performance and the execution of our strategy. After briefly covering a few additional topics Mark will then turn the call over to Joan who will provide more detail on our financial results for the quarter, as well as an update on our full-year outlook for 2019 and some preliminary guidance on 2020. We will then take your questions. 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 and the earnings release that we issued late yesterday, along with the comments on this call, are made only as of today October 31, 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 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, per the information included in last night's release. With that I'll turn the call over to Mark.

Thank you, Brad. Good morning, everyone and welcome to our third quarter 2019 earnings call. I'd like to begin my comments by saying that we're pleased to see the execution of our strategy continue to drive results and demonstrate the strength of our business model today and into the future. Our focus on integrating value creating strategy with disciplined and consistent execution has yielded strong results for us over time and through periods of volatility. The strength of our brands and our focus on operating excellence and efficiency have been foundational to those capabilities and have fueled our ability to drive high levels of both net rooms growth and fee growth . We continue to do this as we execute on our capital strategy and increase the percentage of our fee based earnings. Joan will provide details of our Q3 results and an update on our full-year guidance. But first I'd like to spend a little time covering a couple of areas in our business for the quarter. Flat year-over-year revPAR results we reported for the quarter and the reduction in our revPAR guidance for the full year are primarily driven by two factors. Performance of our select service hotels in the US, primarily our high place properties and the disruptions we've experienced in Hong Kong. RevPAR has contracted for our select service hotels in the US over the course of this year as we shift distribution channel mix towards a higher proportion through our internal channels. While our fees are driven substantially from full-service hotels, our select service revPAR performance has had a meaningfully negative impact on a reported system-wide revPAR results. Although the recovery is taking longer than anticipated, looking ahead we do expect improvement in results after we lap their programming changes we made in our Hyatt…

Thank you, Mark and good morning, everyone. Late yesterday we reported third quarter net income attributable to Hyatt of $296 million and earnings per share of $2.80 on a diluted basis, included in net income for the quarter our pretax gains on sales of real estate amounting to $373 million. Adjusted EBITDA for the quarter was $163 million on system-wide revPAR was flat. The shift in the timing of Jewish holidays had a positive impact of approximately 50 basis points on our system-wide revPAR growth for the quarter, whereas Hong Kong offset that benefit with 50 basis points of negative impact. Excluding Two Roads and the net impact of real estate transactions, our adjusted EBITDA grew 1.3% on a constant currency basis. Adjusted EBITDA growth was driven by solid management and franchise fee growth fueled by net rooms growth of approximately 8% excluding Two Roads, partially offset by some pressure coming from our owned and leased hotels. I'll now highlight our segment results starting with our managed and franchise business where we deliver growth and base incentive and franchise fees of approximately 12% on a constant currency basis compared to the third quarter of 2018. Incentive fees were down slightly compared to last year with strength in many markets being more than offset by approximately 50% declines and incentive fees from hotels affected by the lapping of the FIFA World Cup from last year and from our Hong Kong hotels. Base management fees and franchise fees were both up significantly, driven by strong net rooms growth which continues to drive fee growth well in excess of revPAR growth. In fact, both fees and adjusted EBITDA for our managed and franchise business are up double digits in the quarter. Our mix of earnings from our managed and franchise business it has…

[Operator Instructions] Your first question comes from a David Katz with Jefferies. Your is open.

HI. Good morning ,everyone. I apologize if I missed the one detail but within the management business and the incentive management fees that you break out, have you indicated what percentages of those hotels are earning IMF's today? Obviously asking the question and the interest of trying to sensitize that in and out of cycles over time.

Great. Thank you for that, David. I think the best way for you to think about the incentive management fee base that we've got is if I reflect back on just taking 2018 to give to provide the context and framing for this. Roughly 30% of our total base incentive and franchise fee base, fee revenue base roughly 30% of it is incentive fees. Of those, about a third of them are from US based hotels and two-thirds from non-US hotels. And in general the structure of the incentive management fee arrangements in the US involves a profit hurdle above which incentive fees are paid and below which incentive fees are not paid, whereas most of the deals, most of the structures outside the US have incentive management fees that are effectively fully variable from $1 of whatever profit measure is driving the incentive fee calculation. So and then if you break down the remainder of the fee based so 30% is incentive fees, 45% are base management fees and 25% of the total last year were franchise fees. We break out these data by the way every quarter, but I just wanted to contextualise it for you so you could understand how to think about either sensitizing or at least understanding what the movements are. Now with respect to this quarter in this year actually over the last two quarters, we have faced what I would describe are sort of dramatic headwinds with respect to last year because of the FIFA World Cup. So the hotels in Europe, it's not just Russia but it is inclusive of material fees that were earned last year, they were down significantly year-over-year because it was such an outsized event from a revenue perspective that it really elevated the incentive fee base in the second and third quarters of 2018. And then with respect to this year in addition to that lapping of the strong performance in Europe from FIFA, we also have the Hong Kong effect because our Hong Kong hotels have a significant measure of incentive fees embedded in them, which is why the earnings impact for us looking out into the remainder of the year is so significant.

Your next question is from Stephen Grambling with Goldman Sachs. Your line is open.

Good morning. Thanks for taking my questions, I guess afternoon at this point. Based on the recent experience in selling assets, I think you reiterated some of the targets on the permanent asset sell down that outlined at the Analyst Day, but maybe if you can talk to how the recent conversations have trended relative to the expectations set there?

Great. Thanks Steven. First of all, I feel really good about where we stand. We're already over 30% of the way in terms of our sell down commitment based on what we've already closed. And we're only seven months into this now. So first and foremost, I would say we're once again putting pace on the ball behind our commitment. Second, as I mentioned, we have a signed contract for a second asset that will be material to the total advancement against the $1.5 billion goal. I would say pricing to date has been at or above our expectations of what we thought that we would see in realization on disposition. We're not going to go into details on the asset that is pending sale at this point until we close. But I would say overall we're pleased with what we've seen. And as I said in the prepared remarks, we --it positions us in a way that leaves us extremely confident that we will not only deliver on the gross disposition sale proceeds, but also on the valuation metrics that we provided which were -- which was to say that we said that the valuation, implied valuation for the asset that we would sell would fall within the 13x to 15x range. And I would just say that that we have no concern whatsoever about meeting that goal. I would say in addition to the actual asset sales that we closed so far and the one that's pending down. I just want to add that we continue to have discussions by the way both on the buy side and the sell side. So we are continuing to look at potential acquisitions at this point, but on the sell side, we've also been active in looking at other assets. We…

That's helpful. Maybe a quick follow-up on David's first question. If the environment does remain weak or deteriorates further at what point you start saying we need to batten down the hatches and take more aggressive operational action or even change kind of strategic actions.

I'll start and I'll turn it over to Joan to provide more color and what we're what we would actually been doing, but I would say the way I would answer that question is we don't think about changing our strategy. What we do think about is tactically pivoting and shifting what we do and what we prioritize in order to be responsive to what we're seeing. We talk a lot of times in these generalities about how a point in revPAR is going to affect earnings or affect other aspects of our business, but the composition of that point where it comes from in which markets and how we got there matters a lot. The other thing I would just point out is that a big, big percentage of our revenue, total revenue is non rooms revenue. So we hyper focus on revPAR dynamics but outside the US nearly 50% of our total hotel revenues are driven by food and beverage and banqueting and events on which we are also earning fees. So we pay attention to the whole business, but we've taken steps both at the hotel operating level and at the corporate level and I think Joan can provide a little bit more color on that.

Yes. Thanks Mark. Just do it just to expand, Steven, we have been operating in a low single-digit revPAR power environment the course of the year, and 0% revPAR growth in the third quarter. So we have been exercising some of those levers that we have. At the property level, we've continued to see gains in productivity, relentless focus from our operating teams on how to have the right people in the right place at the right time. And they continue to yield results which are offsetting as you know, wage increases throughout the US in particular. So those levers have been pulled and our teams have been effective. They've done a great job doing that. And also looking for opportunities as it relates to F&B because it is such a large proportion of our revenue base, of which where we can be more efficient and also have people there in the operating outlets and in banquets when those covers and when that activity base is higher or lower. So that's what we've been doing at the hotel level. And then at the corporate level, you've seen us revise our guidance downward. We've been actively being much disciplined about our corporate investments and still staying focused on our growth strategy just reallocating investments to growth strategy to stay focused there, and finding opportunities to save costs where we can.

Your next question is from Jared Shojaian with Wolfe Research. Your line is open.

Hi, everybody. Thanks for taking my question. Just going back to the unit growth commentary for 2020, does the 6.5% to 7.5% net unit growth guidance, does that assume you come in at the lower end of the guidance in 2019 from I guess not getting the pick up that you talked about from some of the construction delays in the fourth quarter. And would you expect to be, I guess at the higher end of the range toward the 7.5% 2020 if there is some slippage from 2019 into 2020?

Great. Thanks for the question. There a couple of dynamics here. So first we in general we have seen and continue to see both construction costs, evolution of construction costs are higher in almost all markets by the way and timing delays in completion of construction part of that has to do with resource availability and part of it just has to do with -- in some cases in gaining entitlements and approvals and the like. One of the JVs with which we had an issue and it has continued to be an issue is a delayed opening because of some approvals that have taken much, much longer to achieve. Now that Hotel happens to be in California and the process to get to closure, an opening through regulatory front tends to be a little bit more extreme. But so we've seen it impact openings for sure and so we are looking into the fourth quarter and assuming that in some cases we will have some slippage into next year to the extent that that happens it will bolster the total result for next year for sure. And the reason why we're at this point providing a range is because we can't really get more specific until we know how we finish the year and what rolls over. The second dynamic is that what's also true is that our production in our pipeline signings also tends to be backpack weighted. So it tends to be much heavier in the fourth quarter that's been the case pretty much every year that as far back as I can remember. And I think is likely going to be the case this year as well. And embedded in that are some potential conversions that we will need to factor in depending on when they happen to open. So those are the kinds of things that we will need to assess and put our hands around in order to narrow range of what we expect to see next year.

Okay. Thank you. And then just shifting gears here as we think about some of the non core growth drivers that you have in 2020 between Two Roads and Miraval specifically. I think you should get a nice bump from both of those just given 2019 was an unusual year with Miraval renovations obviously the one-timers with Two Roads. So my question is can you just help us think about the incremental EBITDA contribution of both of those items, Miraval and Two Roads in 2020 relative to what you got in 2019. And that's it for me. Thank you.

Sure, Jared. I'll expand on what we're thinking now about growth for next year, it's still --we're still of our planning process, but we do expect to deliver -- to continue to deliver core growth in our business, largely fueled by our net rooms growth and another strong year of fee growth. We do have as you mentioned is the significant non recurring item for the Two Roads integration. That's $25 million that is one-time in 2019 and we have some other tailwind as it relates to 2020. You mentioned, Miraval, Miraval will be ramping next year, the joint ventures that we mentioned in our prepared remarks will also be positive next year, that's our expectation and I would just add we have easier comparisons as we look at next year into the second half and we think there's some other positive events, global events like the Olympics in Tokyo, where we have some presence, significant presence in Japan. So there's some tailwind there and you know having said all that there's also the uncertainty. So as we're in the middle of the planning process. We've got looking closely at the considering what the impact will be of the length of the disruption in Hong Kong and resolution to the trade situation in China, as well as the US election that is ahead of us next year. So some of the uncertainties as you all know are things that we're keeping in mind as we think about planning for next year over the course of the quarters first half second half of next year. And we'll provide an update on our fourth quarter earnings call where we think things will --where our expectations will be.

Your next question is from Michael Bellisario with Baird. Your line is open.

Thanks. Good morning. Can you maybe quantify how much value you guys have tied up in land and these other development projects that you mentioned that could be monetized in the coming quarters?

I can't do that up my head. What I can tell you is that we got apart from the parcel of land that I just mentioned and also to just give you some context for that. I don't remember the exact number but it was in the range of $15 million to $20 million. So just to give you a sense for size of asset-based there that was involved in that sale. So apart from that we've got a development project underway that we are actually operating in Philadelphia. And that's an example of a project in which we are in discussions with some potential partners to joint venture that. So that will release some capital and shift responsibility for completion, but that's really the final on balance sheet development that we have. All the other investments that we've got at this point which number probably somewhere between 10 and 12 other projects are in the form of either structured investments like preferred equity or subordinated debt or in a few cases common equity JV interests in projects that are under development right now. A lot of them happen to be Hyatt Centric hotels under development and the number of markets around the country. But I wouldn't be able to give you a handle on what the total amount is. It's all embedded in our balance sheet of course but specifically with respect to those projects. The vast majority of those projects are going to open over the next 18-months. And our expectation is that sometime between opening and stabilization which could take a couple of years. We will probably seek liquidity in those areas. The final thing I would say is just reiterate what I said before is that we've made an act a firm and clear decision to not take on new, any new development projects. We still see the opportunity to accelerate and secure unique opportunities by deploying capital, but it's going to be typically in a structured investment where we've got clear liquidity provisions to monetize those investments. And in all cases then any new commitments we make will be the projects will be someone else's responsibility to actually complete.

Got it. That's helpful and then just one follow-up, you mentioned acquisitions, should we be thinking about hotel properties or brand like Two Roads as the reinvestment opportunity for you guys?

No. We look at both and I would say that our number one goal with respect to redeployment of capital would be to find additional Two Roads like opportunities so asset light platforms that allow us to have future growth. And so we do continue to look at and for and at those kinds of opportunities. When I mentioned earlier that we were actively engaged in the market in looking at some asset acquisitions I meant that literally. So we are also taking a look at in limited cases fee acquisition of hotels. They are unique opportunities but our intention in every one of those cases would be to identify assets and a structure that would allow us to effectively recycle that capital promptly. Let me just be super clear though. I want to reiterate that the commitment that we made is $1.5 billion of net proceeds, net gross proceeds of sales minus any investments that we make in acquisition. So it does not compromise or otherwise amend the commitment that we've got to have a net amount of $1.5 billion of gross proceeds over a three year period. So even if we were to pull the trigger and acquire something, it doesn't have any impact on that commitment.

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

Hi. Thanks. I was just wondering if you. I guess sort of performer for the asset sale you completed and the one that you expect to complete. If you could maybe quantify what one point of a change in revPAR would do for your remaining owned portfolio in terms of the flow through to EBITDA at this point?

I think what we'll do is take the opportunity to provide an update on this in our next call. First, we will need to provide and plan to provide an estimate with respect to run rate earnings that we expect to see. The variance in earnings that we expect to see based on whatever we end up closing, heading into the year. This coming year, so we will provide that update once we close this additional transaction. And we also do plan to talk to the sensitivity analysis and in our earnings growth model when we announce fourth quarter earnings.

Okay. I just wanted to ask to you, you talked a little bit about the revPAR declines at the select service hotels and you noted that some of that was moving to internal channels. I just wondering for the profitability for the owners despite the revenue going down, it sounds like maybe profitability is up or can you speak to maybe what they're seeing?

Sure. So World of Hyatt penetration in our select service properties is up about 850 basis points year-over-year, which is roughly twice what the system-wide rooms penetration is up and so you can see that there's an outsized movement in our especially Hyatt Place Hotels that's really the driver here because the operating model --the operating model wasn't really shifted in the Hyatt house model. So that's really the shift that we intended to make and the rough comparison it's going to depend a lot on what market you're in. And what aspect of third-party channels you take advantage of. So this is not a hard and fast rule, but I think a reasonable estimate for the difference between the cost of the internal channel through World of Hyatt bookings and external channels broadly defined includes OTA, wholesale and others would be roughly in the range of 900 to 1,000 basis points of cost base. So we're up 850 basis points in terms of mix shift towards internal channels, the World of Hyatt bookings and the cost differential there is in the range that I just mentioned. So there -- it's not immaterial and as you probably know the P&L scrutiny for select service and below hotels is high, so these changes in distribution costs are meaningful.

Yes, that's helpful. You just had mentioned in your revised guidance what we've obviously saw the declines in Orlando revPAR but I was just wondering if you could provide a little more detail on what you sort of actually have seen or hearing? I mean on other calls people are talking about you the new Disney attractions maybe not being as popular any sort of detail of what's taking place for your property there?

Yes. I'll start and I think Joan can also weigh in here. The one thing that we haven't talked about in more detail yet is what the profile transient demand over the course of the quarter was and the one thing that I would say specifically in relation to Florida and the Carolinas for example is that we did see pretty significant impacts in September that is negative variances in leisure transient business, which we really attribute primarily to the Dorian aftermath. That is concerned about bookings and things like that. Some of the hotels were down 30% and 40% in the transient leisure business for the month. Now the quarter was really all over the map because July and August were actually really strong leisure months. And Hawaii and ironically the Bahamas, our hotel in the Bahamas is very large Grand Hyatt Baha Mar was not actually very significantly impacted by Dorian. So either that luckily they were not affected physically because the storm hit a couple hundred miles north of them. But also we were concerned that people would just associate Bahamas with Baha Mar and just not go, but they actually held up their business very well, so we saw tremendous leisure demand in Hawaii and the Bahamas that was really two big drivers. I'd say overall leisure and business transient were about equal in over the course of the quarter, different dynamics in July and August versus September but so that's really the kind of a dynamic that we saw on the transient side, but some of the impact that we saw in the O&L side in Orlando in particular related to some F&B negative variances that we experienced. So I don't know Joan if you want to provide some color on that.

That's right. And that's why I called it out in my prepared remarks that Orlando outside of our revPAR sensitivity had relative to expectations again. They had produced actually better non room revenue results and transient demand over the first half of the year and so in the third quarter they saw those amounts being less and than they had originally anticipated. Some of this is just lower participation or a random cancellation nothing that we're seeing that is persistent, but definitely had an impact to non room revenue. And it's a big hotel in Orlando; our Hyatt Regency Orlando is a big hotel.

Our last question is from Vince Ciepiel with Cleveland Research Co. Your line is open.

Great. Thanks for taking my question. Question on looking into 2020 and the owned EBITDA line. I know that you probably had a headwind from dispositions, maybe a little bit of carryover from the lease sale and more meaningful from the Atlanta sale. As you look at it today, what EBITDA headwind are you expecting to 2020 owned from dispositioned?

So as it relates to the dispositions that we've announced through today's call, it's about a $30 million transaction impact going into 2020. And we'll update you on our fourth-quarter earnings call as well as to any changes to that expectation.

Great. Thanks. And then maybe separately just curious in your conversations with developers, lenders your unit growth still sounds quite strong with the expectation for stability generally in the next year. The pipeline was stable over quarter-to-quarter. I am just curious if the lower revPAR environment has translated into a little bit more uncertainty with developers or lenders or is their appetite still quite strong going into next year?

I think conceptually one would imagine that there's got to be some impact, but honestly we have not seen it. We just continue to see really strong deal activity. We had a record year of signings last year and a record year of openings. We will exceed the openings this year and we're having another really strong year of signings. So I -- we are of course paying a lot of attention to the fact and we know this intimately because as I mentioned earlier we are still actively engaged in the building at least one hotel, but we'll be out of that business entirely soon. So we see what the cost escalation issues are and how that can have an impact. And we have seen the impact really being mostly in the timing of openings and so forth. But we have not seen that impact or diminish demand. I think part of it also is that we have got brands that continue to perform well and on a look through basis you have to look through the disruption we've experienced in Hyatt Place this year given a shift, the model shift that we've really effectuated. But our brands are still very under penetrated. So I think one of the reasons why we feel confident that we're going to be able to continue to find great development opportunities is because we're not running into ourselves. We have lots and lots of open space for development for a really strong brand portfolio. So that's partly why I feel confident that we're going to be able to continue to maintain our signings momentum. End of Q&A

Ladies and gentlemen, this does conclude the Q&A period. I'll now turn it back to Brad O'Bryan for any closing remarks.

Thanks Chris. And thank you to everyone for taking time to join us on the call today.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. And you may now disconnect.