Hyatt Hotels Corporation (H) Q1 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by, and welcome to the Hyatt First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Noah Hoppe. Please go ahead, sir.

Thank you, Polly. Good morning, everyone, and thank you for joining us for Hyatt’s first quarter 2021 earnings conference call. Joining me on today’s call are Mark Hoplamazian, Hyatt’s President and Chief Executive Officer; and Joan Bottarini, Hyatt’s Chief Financial Officer. Before we get started, I’d like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday, along with comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today’s remarks on our website at hyatt.com under the financial reporting section of our Investor Relations link and in yesterday’s earnings release. An archive of this call will be available on our website for 90 days. With that, I’ll turn the call over to Mark.

Good morning, everyone, and thank you for joining us for our first quarter 2021 earnings call. And before I get started, I want to take a moment to congratulate Noah, who you just heard from, on his newly assumed expanded position to include all Investor Relations in addition to Financial Planning and Analysis. Noah has been an essential partner in our Investor Relations effort, and now he’s formally at the head of that. So, Noah, congratulations. Thank you. And you’ll all get to know him very well in the coming months. I want to begin today by acknowledging what a difficult period it’s been since the onset of COVID-19. This global pandemic has impacted all of us in profound ways, both personally and professionally. We still see an elevated level of travel restrictions in various parts of the world as a result of new COVID-19 cases, which remain uncomfortably high, especially in areas such as India and South America. Our heart goes out to those being impacted in these hard hit areas during this incredibly challenging period. Even in view of elevated cases, we are optimistic and believe that the road to recovery continues to become clearer and our role in that recovery is inspiring and energizing. The pent-up demand for travel is immense. And with the number of fully vaccinated potential travelers growing by the millions each day, we feel we’re at the beginning of a growing level of demand for our hotels. Personally, I can’t express how refreshing it is to see people who are now able to safely visit a loved one or travel to a location they’ve been putting off for far too long or to see business travelers who can once again connect in person with colleagues and customers, or to hear from a growing course of larger groups who are ready to convene again in our hotels. The environment remains dynamic, but the desire to travel and connect has not abated. We remain focused on evolving with the changing needs and expectations of travelers today. We’re listening to our guests and customers and learning how to support travel uniquely in individual markets in every geography around the globe. Our commitment is to make that first and long-awaited trip and experience that our guests can feel confident about. We spent considerable time since the onset of the pandemic, planning and positioning Hyatt for this moment and the path ahead. I will give you an update on our business and I plan to share updates on several key initiatives that are focused on the future for both, our transient and group guests. I also plan to share details around our continued growth trajectory. I can confidently say that this is the most optimistic I’ve been since the onset of this pandemic. Let’s first focus on the latest trends we’re seeing. While COVID-19 continues to materially impact our business and while results vary widely by country and by purpose of visit, I’m encouraged by the sequential uptick in demand that coincides with improved travel sentiment and widening vaccine availability. Our first quarter system-wide RevPAR declined 49% versus last year, but results varied significantly by month with RevPAR in March, finishing 54% higher than January, roughly double the rate of growth we typically experience over this time frame in a stabilized environment. Occupancy during the first part of the quarter largely mirrored trends in the fourth quarter of last year, but we started to see elevated levels of leisure demand in February, followed by a pronounced improvement in March, driven by spring break in the United States and the easing of travel restrictions in China. While several weeks do not make a trend, we feel the spring break period in the United States provides a preview of pent-up demand for travel, which we anticipate will drive performance through our traditionally heavier leisure period in late quarter two and into quarter three. During the latter half of March, leisure transient room nights for comparable hotels surpassed levels during the same period in 2019. This was primarily driven by our resort locations, but we also experienced improvement in urban and suburban locations as well. Occupancy at our resorts in the continental United States approached 70% over a seven-day stretch in late March with significant average rate growth of 15% over 2019 levels during the same time frame. In fact, for the full month of March, our resorts in the United States experienced an increase an average rate of approximately 4% versus 2019 levels for comparable hotels. The acceleration of transient bookings for future dates also reinforces our optimism. We experienced the jump in transient bookings of over 50% for our system-wide hotels in March as compared to February, driven by significant demand for our leisure-oriented properties. Globally, transient revenue at our resorts is now pacing 20% ahead of 2019 levels over the back half of the year. Leisure transient rooms revenue accounted for approximately 45% of our total revenue base for the full year of 2019 and more recently at 67% in Q1 of 2021, and we’re confident that our brands are well-positioned to outperform in this segment as the recovery unfolds. While leisure transient trends are encouraging, we are fully aware that group and business transient demand needs to improve meaningfully to reach a full RevPAR recovery. Despite rooms revenue from these segments being just over 20% of 2019 levels in March, we remain optimistic. Business transient has shown steady week-over-week improvement since January and continues to grow through April. While visibility remains low, we’re encouraged to see future bookings for business transient guests improve to approximately 35% of 2019 levels in recent weeks. Conversations with several of our top corporate clients suggest that we will continue to see moderate progress in the near-term with a more pronounced uptick expected in the fall. On the group side, bookings are also headed in the right direction. New group business booked in Q1 for all future periods, finished up 55% as compared to Q4 of 2020. Further, we crossed a notable inflection point in April when net group production in the month for the year was approximately $8 million, meaning gross group revenue booked was in excess of all cancellations and reduced projections for attendees over the remainder of the year. We’re also encouraged by the number of group leads we’re receiving, which are up materially since January and gaining momentum. We’re seeing increased interest from the pharma, information technology, and banking and finance segments. It’s also notable that larger in-person corporate and association events are occurring as early as June, and we’re seeing a growing number of citywide events confirming for the fall. All of this positive activity provides optimism that these segments will continue to strengthen as more of the population is fully vaccinated and travel restrictions are lifted. As we think about the pace of recovery, China continues to serve as an interesting case study for what may occur in other areas as COVID-19 disruption subsides. We noted in our last earnings call that we anticipated the recovery in China to be swift once travel restrictions were eased. This is precisely what we experienced. With occupancy in mainland China falling to the mid-30% range during the middle of February, followed by a sharp rebound throughout March and reaching a fully recovered level of over 70% in April. Importantly, RevPAR has more than 90% recovered as rates are within 10% of 2019 levels, despite virtually no higher-rated international inbound travel into China. In summary, all these data points fuel our optimism, and it is also true that this recovery will not be linear or evenly distributed. Case counts remain high in certain parts of the world and the pace of vaccine distribution is uneven. What we do know is the desire to travel and connect is fundamental, and there is clear positive change in the mindset of travelers after vaccination. And we remain agile and ready to adapt as our guests return to our hotels. Speaking of agility, I’d like to provide a brief update on three key initiatives that are responsive to shifting needs for our transient and group customers, putting us in a position to meet the needs of travelers returning to our hotels. First, with heightened guest awareness around cleanliness and survey data that shows strong cleaning and sanitization practices improve a guest’s likelihood to travel. I’m pleased with all we’ve accomplished through our global care and cleanliness commitment. As part of this commitment, nearly all of our operating hotels globally have received an independent accreditation through the Global Biorisk Advisory Council, focused on comprehensive processes for cleaning, disinfection and infectious disease prevention. Additionally, each hotel has a trained hygiene and well-being leader responsible for the team’s adherence to protocols and training. All this provides assurance and inspires confidence in Hyatt’s unwavering commitment to providing a clean and safe environment for our colleagues and our guests. Second, on our fourth quarter conference call, I mentioned our work on a hybrid meetings solution. I’m excited to update you on our new meetings and events platform called Together by Hyatt. This is not just a hybrid solution, but a holistic approach to delivering on the essential benefits of an in-person meeting, while allowing meetings to be more inclusive than ever before by expanding participation to those who could only attend remotely. We know our customers are at different points on their journey to return to events. And Together by Hyatt is designed to provide support at every step of the way. After extensive research, we’re proud to announce, we’re teaming up with Swapcard to develop a robust and innovative integration of their platform with our proprietary meeting tools, one that will simplify event planning and execution, and unify in-person and virtual attendee experiences. To further support hybrid formats, we’ve introduced a dedicated team of hybrid event experts who bring deep-rooted experience in technology and events to Hyatt and will assist meeting planners with exploring hybrid options and execution. Alongside these experts, planners will also have a dedicated support squad during the event to assist virtual speakers and attendees. Further, we know wellbeing is top of mind for many right now, and we’ve incorporated the expertise of our wellness brand, Miraval as well as head space into Together by Hyatt offerings providing planners with a unique opportunity to care for attendees’ wellbeing, during events. Long term, we believe hybrid formats provide an opportunity for events to be more inclusive than ever before and we look forward to collaborating with our customers on the path forward to create the most meaningful experience as possible. And third, we’ve accelerated our development of and rapidly deployed a set of digital capabilities that provide guests the ability to manage contact to a customizable level of comfort. For example, our digital check-in experience is unique in our space as it not only supports guest of ours who are not members of World of Hyatt, but among the members we serve, it recognizes their tier status and notifies elite members when they’ve been upgraded. Digital check-in also gives these members options for other room types that are available if immediate check-in is important to them. Additionally, we’re providing flexibility around guest and member housekeeping preferences. If guests prefer not to have a housekeeping in their room, our digital platform makes this a simple request by way of our app. And for elite tier members, there is additional flexibility to choose between morning and afternoon housekeeping to fit their schedule and preference. It’s an example of leaning into our digital platforms to personalize the guest experience, and we will continue to build on it in the coming months to offer more purpose-suited solutions. These are just a few of the many initiatives that we have underway that respond to how the world is changing. We will remain agile and continue to put health, safety and care at the heart of our hospitality as we welcome more and more guests back to our hotel. Turning to growth. We achieved a noteworthy milestone in Q1. We opened our 1,000th hotel, the magnificent Alila in Napa Valley and Saint Helena in California. This is an impressive milestone in our growth, as we more than doubled the number of hotels and brands in a span of about eight years. We continue to grow at an industry-leading rate with net rooms growth of 6.5% in Q1. Conversions continue to serve as a meaningful catalyst with three properties converted from other brands in Q1. Two of these conversions were into brands that more recently joined our portfolio from our Two Roads acquisition, namely JdV by Hyatt and Alila. The pace of openings has been especially swift over the past three quarters with just over 15,000 rooms entering our system during that time and consequently leaving our pipeline. We’re pleased to have kept our pipeline relatively flat at around 100,000 rooms during this period, despite the pressure of significant openings, coupled with a difficult financing environment. We remain encouraged by the volume of leads and feel confident in our ability to keep our pipeline strong well into the future. One particular area that has propelled Hyatt’s industry-leading growth is the expansion of our franchise distribution. Over the past decade, our mix of franchise rooms has grown from 16% of our total rooms to over 36% today, reflecting a compound annual growth rate of 15%. As part of our long-term strategy to further maximize our growth potential, we recently launched a new global Franchise and Owner Relations organization dedicated to accelerated growth moving forward. This cross-functional team is focused on operating with excellence and revenue maximization for our franchise partners. While growth in our franchise business has been strong, we see an opportunity to accelerate this further. And as we think about resource allocation, we’re investing in our franchise business, while staying highly disciplined in our overall cost profile. Finally, I want to provide a brief update on transactions before I turn it over to Joan. We are advancing negotiations for the sale of one owned hotel and actively evaluating offers for a second owned hotel. We look forward to providing details on these two transactions in the future. We’re actively evaluating potential asset acquisitions for strategic purposes. It’s important to reiterate, however, that even with potential acquisition activity, we remain steadfast and absolute in reaching our sell down commitment of $1.5 billion by March of 2022. And for clarity, this commitment is based on net proceeds, meaning that any capital spend on acquisitions will be counted against our commitment. I’ll conclude my prepared remarks this morning by saying that we are optimistic and encouraged by strong leisure transient demand and improving sentiment around group and business travel. We continue to stay agile to be able to quickly adapt to the changing needs of our guests by staying deeply focused on cleanliness, enhancing our digital capabilities and expanding how we support our groups coming together to meet. We are optimistic about the future and are ready to welcome all the travelers who are eager to get back to experiencing and connecting with others. I’ll now turn it over to Joan to provide additional detail on our operating results. Joan, over to you.

Thank you, Mark, and good morning, everyone. Late yesterday, we reported a first quarter net loss attributable to Hyatt of $304 million and a diluted loss per share of $2.99. Adjusted EBITDA for the quarter was negative $20 million, with a reported system-wide RevPAR decline of approximately 49% in constant dollars compared to the first quarter of 2020 and a decline of approximately 65% compared to the first quarter of 2019 on a reported basis. In a moment, I will review the nature of the tax valuation allowance we recorded in the quarter, which significantly impacted our net loss. But first, I would like to cover our operating performance. As of March 31st, 96% of our hotels or 94% of our rooms were open. While hotel closures continue to weigh on our results, the impact is diminishing with a 160 basis-point negative impact on system-wide RevPAR as compared to 2019 reported results. System-wide comparable RevPAR was approximately $46 for the quarter and accelerated over the course of the quarter with a RevPAR of $57 in March compared to only $37 in January. The improved demand led to positive consolidated adjusted EBITDA in March as we increased fee revenue from our managed and franchised business, while narrowing losses from our owned and leased hotels. Our management and franchising business continued to lead the way on our path back towards profitability with a combined adjusted EBITDA of $33 million for the quarter with over 50% of that amount attributable to the month of March. The United States, Greater China and the Middle East combined to generate approximately 80% of our base incentive and franchise fees for the quarter, with notable acceleration from leisure oriented destinations in the United States during the latter half of the quarter. We are seeing continued strength in the United States and Greater China through April. The momentum we experienced in March is continuing into Q2. Having said that, certain markets are still facing travel restrictions and the timing of the full opening of borders is uncertain in many countries around the world. As for hotel margins, approximately 60% of our global managed hotels achieved positive gross operating profit during the quarter, which is largely consistent with Q4 as more full-service hotels in the United States reached profitable levels, offset by fewer hotels in Greater China due to lockdowns in January and February. Gross operating profit margins were notably strong in our resorts due to the combination of business mix and the ability to yield strong rates in those hotels. We’ve also experienced a pronounced need for incremental staffing coinciding with an inability to quickly fill those staffing needs, especially in markets where demand for room nights is high. In certain circumstances, margins were higher due to the inability to reach needed staffing levels. And when the employment situation stabilizes, we expect to see solid and sustainable productivity results. Turning to our owned and leased hotels segment. RevPAR decreased 64% compared to 2020 in constant dollars and 73% compared to 2019 in reported dollars. When excluding the impact of closed hotels, owned and leased RevPAR decreased 70% compared to 2019, in reported dollars. As with the system-wide performance, owned and leased results strengthened considerably over the quarter with comparable RevPAR improving to $63 in March from $34 in January, driven by increased leisure transient demand. Importantly, similar to Q4, our operational efforts to maximize efficiency have contributed significantly to improved margins. And as a result, we significantly narrowed the owned and leased segment adjusted EBITDA loss to $29 million in Q1 of 2021 as compared to a loss of $48 million in Q4 of 2020. In addition to improved efficiency, certain owned and leased hotels were not immediately able to fill open positions, as I touched upon earlier. We expect the employment situation to stabilize, allowing for improved staffing levels in the future and healthy productivity results. Furthermore, as we look to future quarters, I would also note the impact of the remaining closed hotels. As of March 31st, there were 6 owned and leased hotels, representing 17% of our owned and leased room count that remain closed. We’ve since opened two hotels in April and anticipate nearly all owned and leased hotels to be opened in the coming weeks. Majority of hotels reopening during the second quarter require higher RevPAR levels to generate incrementally better results than remaining in suspended operations. Therefore, we can continue to expect improvement in our owned and leased segment adjusted EBITDA but the rate of flow through will be impacted as these hotels reopen and ramp up in the coming months. I want to be very clear that we expect positive lasting impacts from our operational initiatives, which we expect to improve productivity and drive expanded stabilized margins. However, results are not expected to be at the 100% or greater flow through we experienced the last two quarters. I’d now like to provide an update on our liquidity and cash utilization. During the first quarter, our average monthly cash utilization, excluding severance payments and other onetime costs, materially improved to $42 million per month versus an expectation of $55 million to $60 million per month, based on Q4 demand levels. The improvement is largely due to stronger owned and leased results during the quarter. As a reminder, our cash utilization is primarily driven by two areas, operating and investing. Our average operating cash utilization, including interest costs, amounted to less than $30 million per month and represents a decrease of over 30% versus Q4. We anticipate our operating cash utilization will steadily improve as RevPAR strengthens. Our investing cash utilization, which fuels the growth of our brands and includes capital expenditures, remained flat versus fourth quarter spend and was lower than anticipated due to the timing of certain investments. We expect monthly investment spend to trend higher, consistent with our expected strong year of openings and increased deal activity. We anticipate average spending in this area could be double first quarter levels of about $10 million to $15 million per month for the remainder of the year. As of March 31st, our total liquidity, inclusive of cash, cash equivalents and short-term investments combined with borrowing capacity was approximately $3.1 billion, with the only near-term debt maturity being $250 million of senior notes due in the third quarter of 2021. In March, we also successfully amended our revolving credit facility to provide a waiver extension and additional flexibility, including a one-year extension option. Next, I’d like to provide a couple of important tax updates. First, we filed our 2020 U.S. tax refund claim this quarter, and we expect to receive a tax refund of approximately $250 million later this year in connection with 2020 net operating losses carried back to prior years. And second, and entirely unrelated, we recorded a $193 million noncash valuation allowance on deferred tax assets in the first quarter. This valuation allowance was based on an accounting assessment as required by U.S. GAAP, which places significant weight on our recent pretax book losses, resulting from the impact of COVID-19 on our business and does not factor in our outlook or forward-looking projections. Furthermore, the valuation allowance we recorded has no impact on cash flows and does not limit our ability to utilize current year losses and deferred tax assets on future tax filings. In an environment of normalized pretax income levels, we anticipate these allowances will reverse, resulting in an increase to reported net income at that time. Finally, I’d like to just make a few additional comments regarding our 2021 outlook. We continue to expect adjusted SG&A to be approximately $240 million, excluding any bad debt expense. Our adjusted SG&A guidance is inclusive of the investments in our global Franchise and Owner Relations organization that Mark touched upon earlier. Additionally, we continue to expect capital expenditures to be approximately $110 million for 2021 and have updated our net rooms growth guidance to be greater than 5% for the year. I will conclude my prepared remarks by saying that we are pleased with the improved levels of demand that have enabled us to significantly narrow our adjusted EBITDA loss and improve our operating cash utilization. Our management and franchise business continues to power us closer to adjusted EBITDA breakeven levels, while highly disciplined operational execution has fueled excellent owned and leased hotel flow through. We remain in a strong cash position. We’re on pace for another solid year of net rooms growth and believe we are well positioned to maximize performance during recovery and beyond. Thank you. And with that, I’ll turn it back to Polly for Q&A.

[Operator Instructions] Your first question comes from the line of Stephen Grambling with Goldman Sachs.

I was hoping that perhaps you could frame the productivity impacts on owned and leased hotels, perhaps where demand might need to get back to recover to prior levels of EBITDA. And within that, can you just remind us of maybe some of the puts and takes and/or headwinds from Miraval that impacted your 2019 EBITDA, and what trends look like in some of those assets within the context of this strong leisure environment? Thanks.

Sure, Stephen. Let me start. Definitely exceptional owned and lease flow through over the past couple of quarters, led by some of the what I would call contingency measures that we put in place, but also actions that have long-lasting impacts into the future. So, we’ve gone through some of those, but efficiency measures that we’ve taken, enhanced digital capabilities, leaning into our F&B options that are the most profitable and importantly meeting customer needs at this time. Headwinds, you mentioned headwinds over the next several quarters, and as I mentioned in my prepared remarks, with respect to expectations for flow through. The labor situation, we expect will improve and we’ll get back to more sustainable productivity measures. Properties that require higher RevPAR levels to breakeven have recently opened or are opening up shortly. And that would be specifically properties in our European and urban markets. So, those will be ramping up, and those will be some of the headwinds that we’ll experience. And we also have continued to receive some subsidies in international markets as well. So, that’s helped us on current quarter and some of the headwinds that we’ll see into the future. But, we remain confident that we’ll achieve margin expansion as top line stabilizes over time. And a good portion of our efficiency measures will lead to sustainable improvements into the future. We would estimate that that could relate to about 100 to 300 basis points higher based on our modeling of those efficiencies into the future on a stabilized basis.

And so, Stephen, thanks for the questions. As to Miraval, the dynamics in Miraval were impacted last year by the conclusion of the renovation and construction of Miraval Berkshires, which opened in the second quarter of last year. It was overall, a challenging year last year for all of our hotels, including Miraval, primarily due to travel restrictions and also social distancing issues. In the first quarter, we likewise had a number of restrictions that were imposed by local law with respect to social distancing and travel restrictions as well out of certain feeder markets that did impact our overall results. By way of reminder, a majority of the revenues at our Miraval resorts come from programming revenue. That is treatments and other programs that people experience on property. So, the fact that that was the dimension of the business that was impacted, meant a significant impact in the first quarter. We’ve seen those restrictions start to be loosened up. The bookings that we’re seeing into the summer are extremely strong, and we think that we will see significant pickup over the summer months into the fall. And assuming that we continue to go down the path of elevated levels of vaccination and easing of those other travel restrictions or capacity constraints, we expect to finish the year very strong. We’re well-positioned through the three resorts that we’ve got, one in Tucson, as you know, in Austin and in the Berkshires in Lenox, Massachusetts. The only other point that I would add with respect to first quarter dynamics is that, as you’ll remember, the state of Texas essentially shut down for some period of time because of their electrical grid going down. And that, of course, affected our resort in Austin, primarily because people literally could not get there over the roads that were blocked or too icy to drive on, and of course, the electricity needed to be restored. So, those are some factors that I would point to that maybe help to contextualize what happened last year into this year.

That’s helpful, and perhaps an unrelated follow-up. You had referenced some strategic asset acquisitions that you might start to look into. I guess, help us frame where you’re looking -- where are there any holes in the portfolio, how are you thinking about deploying capital strategically?

Yes. So look, I think, if we go back to late 2018 when we bought Two Roads, by way of reminder, Hyatt without Two Roads was about two-thirds, one-third mix of business and leisure travel. And with -- that’s really a U.S. number. If you look at the overall global number, it’s about -- was about 45% of our total revenue came from leisure transient travel in 2019 -- 2018 actually and 2019. So, by way of reminder, Two Roads was two-thirds, one-third in the opposite direction, two-thirds of their guest base were leisure guests. And that was a really important and significant step towards expanding our leisure-focused and vacation-focused segment and business. So, as we look into potential opportunities that would be meaningful to us, we’re looking to ensure that we’ve got very compelling resort alternatives for our guests, not just because of the benefits within the World of Hyatt, but because it’s been shown, especially in the customer base that we serve, which is a relatively higher customer base that they are continuously demanding and looking to travel at an elevated rate. Some of the booking data that I cited in my prepared remarks demonstrate that. And we feel like we are at a moment to be able to focus on that as a potential opportunity set for deployment of capital. But again, it does not take us off track with respect to the idea of generating our net proceeds as we committed to. And the other thing I would say is whatever we might end up doing would be focused on being able to recycle whatever we purchase with a long-term management arrangement or a franchise arrangement in place.

And your next question comes from the line of Thomas Allen with Morgan Stanley.

Hey. So, one of your peers suggested this morning that they saw a path to getting back to about 70% of 2019 RevPAR by year-end. Do you think that’s a fair assessment? Or any more color would be helpful.

Yes. I’d love to actually know where to get that crystal ball, because -- so if you find out, if you could let us know, that would be really great. What I can tell you is that we are seeing sequential improvement month-over-month-over-month, and it’s very pronounced in March and April, as we talked about. So, I guess, it’s theoretically possible, but I think it’s unlikely, primarily because the -- some of the international inbound travel that impacts gateway cities is still going to be with us. And I think, again, you need a crystal ball for this. But, it’s going to be highly dependent on when those international travels reopen. And secondly, we’re starting to see, as you probably have read in the papers recently that some companies are actually moving towards requiring their employees to be back in the office by a certain date. That’s actually not so not so distant from now, pretty soon. And that is important for business transient travel. So, anyway, those are the key considerations. I would say that just based on our current outlook, we will be significantly higher in terms of our expected RevPAR levels by the end of the year, assuming that we don’t have any significant case load issues that come to pass. I can’t tell you that it will be 70% or above, but it will be significantly higher than where we are today.

And your next question comes from the line of Shaun Kelley with Bank of America.

Mark, I think, in the prepared remarks, you mentioned a little bit about, obviously, you’re looking on the acquisition trail, but you’re also mentioned sort of going back to the capital recycling plan a little bit. Could you just talk about some of the criteria within the portfolio that you’re looking for? And just the broader environment right now on the disposition side, what might make it attractive, what do you think is going to work for potential buyers out there?

Yes. I mean, I guess, what I would say to you is that the two deals that -- the two hotels that we’re in the midst of evaluating disposition of that are advancing. They’re not mature enough for us to be more detailed with you at this point. What I would tell you is that they are unsurprisingly in compelling resort destinations and that the values that we see through indications of interest and through our negotiations are at or above our pre-pandemic estimates. So, we’re very encouraged by that. It happens that these are particular assets that have some compelling attributes. So, I think they are opportunities for us to realize proceeds from sale and also an opportunity for a new owner to deploy additional capital in those properties, which do include some developable land in both cases, to further expand those operations, by the way, which would enhance our fee base going forward as well. So, I’ve been encouraged though overall. I see a growing level of interest in asset deals, that is to say, the opportunity for us to consider selling other assets. And we’re actively evaluating what might be next. And the valuations are quite encouraging. I think interest rates have remained low. As we’ve talked about a number of times, the financing market for construction is quite challenging. But, rates remain low, even if advance rates are somewhat lower. So, I think that in some ways, the pattern of what kinds of assets we will look to will follow in some ways the path of the recovery. And so, it’s not too surprising that resorts would be at the front end.

And your next question comes from the line of Michael Bellisario with Baird.

Just a question for you -- a question on the development pipeline. Have you been or maybe are you willing to invest more key money into deals today? And are you seeing any of your development partners coming to you to be a joint venture partner to help them get a project across the finish line?

Yes. So, first of all, we do utilize key money investments in relation to our -- in relation to development in general. We have in the past, we are now, and we will in the future. With respect to capital formation, it’s -- we’re at a point where we’re starting to see the very first signs of banks, mostly regional, not necessarily money center banks, starting to make proposals that are getting closer to a debt stack that could make sense for a developer. It really has significantly impacted the select service segment, and other segments in and around select service. But for us -- the primary impact for us is on select service development in the United States. And part of that has to do with an inability to get enough senior debt at a reasonable rate to make the capital stack work for developer. And we’re investigating ways in which we can help support that. We’ve historically been very successful in providing what I would describe as purpose-suited and innovative financing alternatives. Sometimes that’s been in the form of mezzanine debt or preferred capital. We have provided preferred capital over the last 2 years to some partners of ours developers who have developed Hyatt Place and Hyatt House hotels. We’re evaluating how we could do something that’s got more leverage in it. I don’t mean financial leverage, I mean, impact by maybe seeding an opportunity to put some capital together with some third parties to help provide some additional construction financing in the short-term because we have a significant number of deals that are either in LOI stage or signed that we don’t count in our pipeline by virtue of the fact that we don’t see the financing in place to actually start the construction. I think that will evolve and thaw over the course of the summer. But we’re still not quite there yet. So, it’s something that we’re paying a lot of attention to. It has a lot more to do with capital stack than it does -- debt capital stack than it does equity. The equity is actually available. It’s a matter of getting the debt stack in place that makes sense for a developer to put a shovel on the ground.

Your next question comes from the line of Chad Beynon with Macquarie.

Mark, last quarter, you talked a lot about this hybrid meeting solution that you are coming up with, which I think could differentiate you guys from some of your competitors in urban markets. And I’m just wondering how city planners and some of your partners have reacted to that, and if you still believe, based on everything your collecting from your conversations with corporates, if this is still going to be a meaningful part of your strategy in the next couple of years?

Yes. It’s going to be a very meaningful part of the strategy on the group side for sure. I’m thrilled to tell you that we’ve got two large meetings, on in June and one in July. They both happen to be two different clients, pharma companies. And the format of those meetings is really interesting. So, in both cases, they range from sort of 800 to 1,000, depending on which one of these two that you’re looking at, participants. But the way that they’re comprised is they’re spread, in one case, across 10 of our hotels across the country and another, as many as 27 of our hotels will be involved across the country. And they are effectively doing a multi-local -- a linked multi-local hybrid event where you’ve got somewhere in the range of 30 people per hotel across that, say, 25 to 27 hotels, and you also have remote participants who are coming in digitally. And I personally believe that this is going to be an effective way to allow people to still have an in-person meeting for those who can attend, those who are prepared to attend, and get the benefit out of the interpersonal connections. I was just talking to the lead partner of a professional services firm yesterday evening. And I described what we were doing. And I think it can apply to one of those firms -- and that firm, in particular, is looking at a partner meeting of 1,500 people at the end of this -- in the fourth quarter of this year. They never considered doing a format like I had described to them. And I think that that could very well turn into a lead. I have to talk to our sales team about what kind of commission I can get. But the -- I think, the point is that we’re opening up a very different type of thought process to enabling people to actually hold a portion of their meeting or have a significant portion of their attendees attend in person. The other thing I would just say is that the integration of some of these well-being practices has been met with tremendous positive feedback. The mental and emotional strain and stress of getting people back in the office is hard. A lot of companies, professional services firms have pushed those decisions, because they don’t provide -- they don’t want to impose further pressure, but they’re also desperate to get people together because they’re worried about maintaining culture and connectivity to the firm. And anything that allows them to provide for caring for their own associates and employees through some very-deliberate mental wellbeing practices that we’ve designed is a big deal for them. So, I think the integrated approach is going to yield tremendous benefits. Now, we’re literally at the very beginning of this. We only launched Together by Hyatt a week ago. So, stay tuned. But, the initial dialogue with a lot of our corporate customers has been very, very positive.

And your next question comes from the line of David Katz with Jefferies.

I wanted to go back to the notion of above hotel costs and fees. It was a point of discussion much earlier. Obviously, there’s been some flexibility and so forth. Where are you with respect to that? And should we expect you to come out of this changed in some way?

Yes. David, I -- last year, we made a decision to continue to incur some costs that we chose not to, while we had the option to, we chose not to bill back to our owners, given all of the disruption that was ahead of them last year. This year, as we’re looking at recovery, our goal and intention was always to monitor the costs we incurred and make sure that we were doing that in a way that we could recover fully from our owners. So, that is where we sit today. You may see that timing is maybe a little bit off from quarter-to-quarter with respect to the expenses we incur and the revenue that we’re reimbursed for. But, all of the costs that we’re incurring right now, we have every intention to recover from our owners into the future.

If I can just follow that up from a strategic perspective, in terms of structuring these differently or perhaps with greater flexibility or specificity going forward. Have there been any initiatives to that end?

Absolutely, David. We had an incredible initiative that we undertook in a record amount of time to fundamentally and completely revamp our cost recovery structure last year. And we launched that -- we announced it to all of our owners for application on January 1st of this year. So, we refer to this as the funding model with respect to our above property hotel services. And the fundamental change that we made was that we moved a number of the dimensions that were covered out of fixed charges in history towards variable charges prospectively. And roughly speaking, that structural shift reflected the economics that we actually experienced last year anyway because we -- Joan just mentioned, we volitionally undertook spending at a certain level for the benefit of our owners, and we did end up taking a charge in the fourth quarter of $45 million in relation to that. But, we see the opportunity to, first of all, fully recover going forward on a more tightly aligned basis that is alignment to our owner’s interest. But secondly, we’ve also identified a few areas, especially in the digital sphere, where we have created effectively a pay-for-performance structure. And that’s actually started off very -- we’ve got encouraging results to date. It started at the beginning of this year. And I believe that that will, frankly, allow us to expand what we’re doing on the digital front through an incremental set of fees that we built into the new structure. And by the way, we spent an enormous amount of time with our owners to process this. In fact, we had several of our largest owners sitting at the table with us, designing it. And we were able to accomplish that in the space of about 12 weeks during the third quarter of last year. So, that’s really what we’ve done and undertaken. It was a huge lift, but we feel really good about where we stand at this point. And we have no expectation that we’re going to need to revisit anything in material form any time in the near future.

And your final question comes from the line of Vince Ciepiel with Cleveland Research.

It sounded like you mentioned some positive trends on group bookings earlier in the call. I’m curious if you could provide updated pace for the second half and for 2022 and how you think those are coming together?

Sure. So, maybe to begin with, I would say that group revenue in the first quarter -- realized group revenue that is, that we reported was almost 90% off of 2019 levels. Now, if you -- that’s for the Americas hotels that we manage. If you look at it globally, it would probably be off maybe close to 80%. The reason is because -- and really, the -- almost the exclusive difference there is group business in China, which did take a hit because of the lockdown in China but has been pretty vibrant and robust because corporations have definitely taken to holding meetings. The balance of year pace is off in the range of 60% in our Americas hotels that we manage. And as we look into next year, we are sort of tracking at this point down in the mid-teens. And about 50% of our revenue for next year has been booked so far at this time. So, we are just seeing this significant increase in lead generation. It’s accelerated enormously over the last five to six weeks. And so, we’re increasingly catching our breath to say, wow! Now, let’s pay attention to how much of this translates into realized revenue. I mentioned during my prepared remarks that we hit this inflection point in April, where the gross bookings exceeded any cancellations or reductions in attendee expectations for the remainder of this year. That’s a big deal because, frankly, all pace numbers that might have been cited over the last 12 months are either irrelevant or misleading, because you can’t really track pace properly unless you know what’s falling out the bottom with respect to future cancellations or reductions in attendance. And so, we’re just now getting to a point where I think we’ll start to have more reliable pace estimates going forward. And it happens to come at a time when lead generation is just extremely robust.

That’s helpful. And as a follow-up to that, I know food and beverage is a large chunk of the business and a focus for you guys over the years. Curious how that is developing for the second half and into next year, how much of that’s levered to recovery in group? And I think you alluded to some changes in F&B to help improve profitability. Curious kind of what specifically those were?

Yes. So, those changes that we referenced were primarily outlets that is restaurants that we either closed or modified significantly. And we moved more to a self-service model for our high-end markets, food markets and our hotels that do cover, in some cases, breakfast. So, we don’t -- we’re not actually standing up an a la carte breakfast menu in a number of hotels. In favor of that, we’re actually making it more of a grab and go operation with a ability to finish cooking, a breakfast burrito or a muffin on site. We have an excellent platform through an oven that provides for really a great way to be able to provide a high-quality breakfast item. So, that’s some of the savings that we talked about. I think what we’re seeing in China is a significant demand level for restaurants. This isn’t the opportunity for people to come back and entertain people and also banqueting. We’re really seeing some very strong corporate demand for meetings and high-end events. Our event pace into the remainder of this year is tracking consistent with room pace, if you will. But, I would say that the impact of being able to truly get back into serving large numbers of people on property is going to ramp between the end of this year into next year. So, we won’t really fully realize the F&B revenue opportunity until next year, primarily because we will have less on property attendees in some cases and also because they will remain, I believe, although we could get lucky and have all spacing requirements and concentration requirements, attendee requirements in indoor spaces be alleviated, but there may be some that persist through the end of the year. So, that’s how we think about it.

And there are no further audio questions. Are there any closing remarks?

Thanks, Polly. Thank you to everyone for joining us today. Take care. And we look forward to speaking with you again soon.

Thank you. This concludes today’s conference call. Thank you for your participation. You may now disconnect.