Ladies and gentlemen, thank you for standing by and welcome to the Hyatt Q2 2021 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Noah Hoppe. Thank you. Please go ahead.

Thank you, Blue. Good morning, everyone. Thank you for joining us for Hyatt's second 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 would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described 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 the comments on this call are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations page and in yesterday's earnings release. An archive of this call will be available on our website for 90 days. And with that, I'll turn the call over to Mark.

Thanks, Noah. Good morning and thank you to everyone for joining us on Hyatt's second quarter 2021 earnings call. During our last call, we shared our optimism about the second quarter. And while we anticipated to see marked improvement, our adjusted EBITDA for the quarter significantly exceeded our expectations. The swift pace of our recovery so far demonstrates the operating leverage within our business, as we translate an improving RevPAR environment into revenue growth and margin expansion. Operating cash flow was positive for the quarter and our owned and leased segment adjusted EBITDA improved over $40 million from the first quarter. We do find ourselves experiencing very different demand profiles throughout the world. The overall recovery thus far has been much quicker than we predicted and leisure demand is at a record high in certain markets, yet demand remains at historic lows in many parts of the world. COVID remains present in both narratives, but it's clear in our second quarter results that when restrictions are eased and people are able to travel safely, the desire to get back to travel and back to hotels is stronger than it's ever been. I want to express my deepest gratitude for the tireless efforts of every member of the Hyatt family working to welcome millions of travelers back into our hotels. The labor environment has been challenging, putting significant pressure on our teams to deliver the high level of service our guests expects from our brands. We're remaining agile in how we are addressing these labor challenges by examining all aspects at how we retain, attract and train new talent. We’re forming new recruiting relationships and sourcing more candidates from outside of our industry. We're also increasing pool of nontraditional candidates through initiatives focused on diversity, equity and inclusion, such as our…

Thanks, Mark and good morning, everyone. Late yesterday, we reported a second quarter net loss attributable to Hyatt up $9 million and a diluted loss per share of $0.08. Adjusted EBITDA was $55 million for the quarter, a sharp improvement from the adjusted EBITDA loss of $20 million in the first quarter of this year. As Mark mentioned, the operating leverage in our business has enabled us to translate improving demand into a strong increase in earnings. System-wide RevPAR was $72 in the second quarter, representing a 50% decline compared to the same period in 2019 on a reported basis and a 58% increase compared to the first quarter of 2021. Both occupancy and rate contributed meaningfully to the sequential RevPAR growth with roughly 60% of the improvement coming through occupancy and 40% strip rate. Leisure transient was a key driver of our improved results for the quarter, leading to a material increase in our base, incentive and franchise fees, which totaled $77 million in the second quarter, a notable acceleration of $49 million in the first quarter. In June, system-wide comparable occupancy eclipsed 50% and as of June 30, only 18 hotels or less than 2% of hotel inventory remained closed. Turning to our segment results. Our management and franchising business delivered a combined adjusted EBITDA of $63 million, improving over 90% to $33 million in the first quarter. The Americas segment accounted for the vast majority of the growth led by our resort and select service portfolio but also increasingly for our business and convention hotels as more cities eased restrictions as the quarter progressed. The Asia Pacific segment experienced improved performance, doubling its adjusted EBITDA in the first quarter, as hotels in Mainland China rebounded strongly after the easing of government restrictions. It's important to highlight that…

Thank you. [Operator Instructions] Your first question comes from the line of Stephen Grambling from Goldman Sachs. Your line is now open. Stephen?

Hi. Thanks for taking the question. I think you touched on this in the remarks a little bit Mark. But now that you've bumped room growth to 6% plus from, I think, it was 6% two months ago, which was up 5% plus a month before that. Can you just elaborate on what's driving the incremental confidence as we think about splitting it between accelerated construction schedules versus outright interest in development and/or changes in the financing environment? And then as we think longer-term, how might the pipeline at 40% of your existing room base translate to room growth longer-term? Thanks.

Thanks Stephen. A couple of things to note. First, conversions have been running at or above what we would have expected in the year and that continues to be a source of strength and confidence for us. Secondly, the terminations are at a lower level than we built into our own outlook. And as we get later in the year, our confidence interval around that is going to go up. Third, we've got more time passing and we've seen the openings continue to pace. Opening dates have moved later in the year over the course of this year, and the primary driver of that is in supply chain disruptions. So we're paying close attention to that, because that -- we're not -- the supply chain isn't moving fluidly yet. So we are wary of any other negative developments there, which might push some openings into the following year. But the way we look at it is we have a gross room opening expectation for the remainder of the year that's far in excess of this 6% level or thereabouts. And really what we're managing at this point is how much of the guesstimating is how much of those -- how many of those projects get pushed into January or February. So I guess, what I would say is, because of the dynamics that I mentioned a minute ago, our confidence level is higher and that's why we're confident to say, it's going to be over 6%. And the other thing that's true is that we have to report as of quarter end, so we will. But our confidence that what's in the opening schedule right now will open and when it opens a week later, or two weeks later than December 31 that size is not going to be that…

Thank you for that. I’ll let other jump in. Thanks so much.

Your next question comes from the line of Gregory Miller from Truist Securities. Your line is open.

Thanks very much. Good morning, Mark and Joan. I'd like to start off with the Ventana acquisition. Regarding the Ventana Big Sur, could you provide some more detail on the strategy behind the acquisition, including some context behind the headline pricing? And perhaps, more broadly, how you see luxury resorts valued today?

Sure. I don't know that Ventana Big Sur has a read-through for anything else, because it's in a market that has the benefit of being a drive-to market from -- to the most -- the biggest markets for the qualified guests for that hotel, San Francisco and Los Angeles around. Secondly, a Big Sur is highly constrained in terms of new development. There literally is no opportunity to build anything else in Big Sur. And frankly, up and down the Pacific Coast Highway for 20 or 30 miles in both directions. So it's just -- it's a completely unique asset in an amazing natural environment, which certainly has benefited from people who desire to get back to the wilderness and get back to nature and will continue to be driven by that. In terms of the economics of the place -- of the acquisition, we're having an extraordinary year this year. It is the highest rate and highest RevPAR hotel in our entire system. I think we're currently tracking at about $2,000 a night on a consistent basis at very high occupancy levels. And the translation of that into -- given the flow-through levels into earnings has yielded effectively a low double-digit kind of multiple on our acquisition for this year's earnings. It's -- the 2019 reference point would be higher in the high teens, but remember that 2019 was the year in which we were coming out of renovation and ramping the hotel. So we think that the economic picture is quite attractive. And while 2021 might be a peak year, because of the unique dimensions of COVID, we know that the cache and the guest response from being in that location has been fantastic. Finally, I know that the price per key caught some attention, but we are not so focused on the price per key for a few reasons. First, the hotel is located on a very large parcel of land and it brings with it other programming opportunities. So what the purchase price includes is not just a key count on a tight pad, it's actually an expansive resort location. And secondly, we identified a number of ways in which we can enhance the programming and also expand the property. Because right now we're operating with about 50 keys and it's entitled for 59 keys. And the way in which we add those room and keys will matter a lot, because we think that the demand level for high-end suites in that location is very high. So we see frankly a great growth opportunity in terms of revenue and earnings. And as I said before, it is the highest barrier of entry market, I know, in the entire world.

That's all very, very helpful. So I appreciate all that Mark. As a brief follow-up since you're speaking about the outdoors just a moment ago, I'd like to shift gears and ask about the Miraval Berkshires. If you could speak to your initial expectations for that property and maybe some detail if you can about how the other senior level properties are performing today?

Yes. Thank you. So not surprisingly, Miraval is booming in many ways and in a number of ways it's very constrained. So just as a reference point to start with the numbers. The second quarter – in the second quarter, the three properties that is Tucson, Austin and the Berkshires generated about $7 million EBITDA. And that is inclusive of significant capacity constraints where we limited occupancy to below 50% in all three resorts for April and May and in the Berkshires, continue to operate at something like a 30% or 40% occupancy level. And it's all driven by availability of therapists and trade personnel who can actually run the programs for us. Having said that, RevPAR has – in this business, the RevPAR is interesting but not actually the biggest issue. Biggest issue is total revenue per occupied growth because the vast majority of the revenues of these properties happens on property but outside of room rate. So while room rates are in and around $300 a night, the total revenue per occupied room was over $1700 and that's up more than 25% versus 2019. So the way we look at the investment that we've got in the real estate, which aggregates to a bit over $300 million excluding the brand value that we paid for the – as we look at just the second quarter of this year at those highly constrained occupancy levels, we're already running something approaching $30 million on a run rate basis. So we're really got over renovation in Tucson. That will be complete – or the rims part of the margin will be completed by September. The remaining will be largely completed by November. So we're going to continue to build. And as we are able to lease staff at a better level over the course of the remainder of this year we have very high expectations for the earnings potential for the Miraval going forward.

Terrific. That all sounds very promising. Thank you very much.

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

Thank you. Good morning. Can you just give us an update on your capital allocation thoughts both in terms of capital returns? Any thoughts around larger-scale M&A, if you had like single assets? Thanks.

Thanks, Thomas. In terms of capital allocation obviously, we deployed some capital to acquire Ventana. In my prior response, I forgot to mention the most important driver of our interest in buying Ventana and that is – that our management agreement was terminable upon sale. And so we wanted to secure our presence there for the long-term. It's become an integral part of our Alila network on the West Coast including Napa Valley and Encinitas Marea hotel. But it's also a key addition to a resort that serves a very high-end customer base including our World of Hyatt members. So I failed to mention that as a key driver, why we acquired it to begin with. So we obviously acquired that but that's actually not that material. We've benefited from this tax refund that we received of $254 million and we will turn around and use those proceeds from our tax refund to repay the $250 million of maturities in August. And we do have a very strong cash position, and it's also true that we've got – we raised $750 million in August of last year in floating rate bonds that are due over the next couple of years. So we're paying attention to those maturities as well. We feel that, we come through the pandemic and now into recovery mode at a very healthy clip with respect to earnings and cash flow – positive operating cash flow in the second quarter, which we expect to grow over time. So as we think about deployment of capital, we are starting to turn our attention to, I would say, back to the things that we were trying to do and identify before COVID hit, which is more and more opportunities to grow in Europe. And we are paying close attention to smaller brands and groupings of hotels there. While the deal volume there has been slow to date, we are tracking a number of different potential opportunities in the hopes that we'll see some things free up over the coming year. And also we talked a lot about – I talked a lot in my prepared remarks about the extension of our resort portfolio over the last several years. Again, that's been deliberate, because we've intentionally wanted to grow in lifestyle and in the leisure segment. So we're going to continue to focus on that. As always, growing the company in a very deliberate strategic way is our top priority. But it's also true that, we move back to – we are essentially back to a strong balance sheet already and moving back to internal operating cash flow. So we will take up the question about returning capital to shareholders in 2022.

All very helpful. Thank you.

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

Hi. Thanks. I just wanted to go back and ask you a question on the group statistics that you mentioned in your opening remarks. I just want to make sure, I understood right. Did you say that, you've got 90% rooms volume that you did in 2019 on the books for 2022 and those rooms are at a 5% higher rate, is that correct?

No. Right now, we – so yeah, let me clarify. The 90% here I cited was the bookings that we saw in June that they were in the month for the quarter – sorry, for the year, for the remainder of 2021. So the total amount that we booked in June four dates within 2021 is it a roughly 90% level – well 90% of the 2019 level in June for the remainder of the year. Just to give you a sense for sort of a current rate of booking activity. The pace into 2022 is down relative to 2019 levels at around – in the mid-teens level. So it means that, we're tracking along the booking pace that we saw in 2019 between the end of the first quarter to the end of the second quarter. We're tracking that booking level increase pretty closely to 2019 levels that would change the activity level over the last quarter was in growth terms the same as it was in 2019. That's very encouraging, because we maintained that down into the mid-teens territory pace number between the end of the first quarter and the end of the second quarter. As we look forward, we have something in excess of $760 million on the books for next year and that compares to something in the range is $900 million at the same point in 2019 on the books for the following year. Basically the way we look at this is if you think about the fact that we're trending and tracking to down 15% from 2019 levels, we have two dynamics that we think are things that we need to pay special attention to. The first is the candidates [ph] and leads are tracking dramatically higher than where we were in 2019. And…

Okay. I really appreciate that detail. I just wanted to ask you, do you mentioned that the acquisition of Big Sur was driven by the contract being terminable upon sale. Are there other properties, where you feel like you might have to put your balance sheet to work in order to lock-in and your management there? And do you see these as potentially long-term dispositions, or are you happy to own that asset longer term?

Two different questions. So on the first question, our core management franchise base, contract base, we have a deminimis number of contracts in which we have termination on sale provisions. The place where we acquired more contracts that had some of those provisions in them was in the Tuas portfolio and this property was in the Tribute portfolio. But even there that wouldn't down to a pretty low number. So we don't really have many. And I can't think of any -- at this point that we don't feel are more stable and where we're performing really well. So really nothing else on the horizon that I can speak to. And secondly, I believe for the reasons that I said that earlier that Ventana is a unique and highly attractive property. So, I believe that there would be tremendous interest by other buyers to ultimately be interested in buying it. We did not buy it to hold for the long term. In fact, I would consider everything that we've got as subject to being a part of our disposition strategy at some point in time anyway. So, we did not buy it to hold it.

Thank you very much.

Your next question comes from the line of Dori Kesten from Wells Fargo. Your line is now open.

Assuming the two hotels you mentioned do sell as expected and you complete the current net disposition program, will you expect to move forward with another program, or as you sit here today would you prefer to take a less programmatic approach?

No, I think we have -- we deliberately set some Gold Coast back in 2017. And we did it because we felt that clarity to the investment community was essential. And it was also true and remains the case that Wall Street somehow has chosen to value our owned estate at low multiple levels. And I think Joan laid out a very, very clear case for why that's long winded. When you look at the operating leverage that we have created through I think remarkable management and disciplined approach to revenue management because we gained revenue share -- significant revenue share like 500 points -- 500 basis points of revenue share in our owned and leased portfolio over the last quarter. These are remarkable results. And we are committed to demonstrate the value in our own portfolio by way of programs in place that we have now I think will exceed both in terms of our time of execution and our valuations of execution and we're going to continue to do that.

Okay. Thanks Mark.

Your next question comes from the line of David Katz from Jefferies. Your line is now open. David, your line is now open. Moving now to the next questioner. The next question comes from the line of Chad Beynon from Macquarie. Your line is now open.

Hi, good morning. Thanks for taking my question. Mark you briefly just touched on this and Joan in your sensitivity work I think it kind of is flowing through this. But I wanted to revisit the owned business particularly the long-term margins. You mentioned that you've been able to push through some of the labor inflation to the consumer with higher prices. And I believe previously you've talked about getting back to those prior revenues, margins could be 100 to 300 basis points higher. I was wondering how you're thinking about long-term margins for this business and if that still stands true? Thanks.

Yes. Thank you for the question. Yes, we still expect long-term margins to be in the range of 100 basis points to 300 basis points greater than, on a stabilized basis kind of pre-COVID levels. So let me respond and expand on your question with respect to the owned to lease portfolio, because it actually follows up with what Mark was just alluding to, that the acceleration of the recovery has led to really strong results in the quarter, in our owned and leased portfolio. And that's continued into July. And we've talked in the past about, our continued focus on profitability initiatives and they need to -- they've been leading and continue to lead to strong flow-through at our hotels, including the work that we're doing with our SMB initiatives and making sure that we're tailoring offerings to be both, the most profitable offerings and also meeting current consumer demand. We also have a number of digital initiatives that are also leading to productivity improvement. But importantly, what we've seen our managers demonstrating is really inventive approaches to revenue management and marketing strategies, where they're driving market share, and repositioning what would be the traditional demand profile, and our hotels to meet current demand that they're seeing in their markets. RevPAR, our owned and leased, RevPAR index are only leased hotels it was up 9% in the quarter. And I'll give you an example of a property that's really demonstrated what I'm talking about it's the Hyatt Regency Orlando, which is a 1,600 room convention hotel and in a stabilized year, so in 2019, this hotel will typically fill its room with 70% to 80% group room nights. And in the second quarter, RevPAR for the hotel was down about 50%. In June, they were down about 30%. And in July, they were down about 7%. And based on these market strategies that they've employed and as the demand and that the acceleration has happens in their market, they've captured leisure demand. So those numbers that I just provided for June and July, they're filling their hotels with about 50% of their room nights sold being from leisure demand, during the month of June July. So just in summary, we're successfully evolving the ways in which we manage each hotel. And again, going to where the demand is and reposition the hotels really smartly. So it's an execution successful execution by our managers both on the top line, and through those profitability initiatives as well.

Thank you very much. I appreciate that.

You bet.

We'll take our last question please.

Thank you. Your last question comes from the line of Michael Bellisario from Baird.

Thanks. Good morning everyone.

Hi.

Just want to go back to the development pipeline maybe. How did the quality compare to a few years ago? Just trying to think about the mix of higher-earning managed hotels is the contract lengths longer? And then, how you think about the stabilized earnings of each room in the pipeline versus simply just the room count which is what we see reported every quarter. Any thoughts there would be helpful.

Thank you, Michael. I would say that, the quality I guess of the pipeline itself is higher, than where it was a couple of years ago the -- and what I mean by that is, we have had over this period of time last year a effectively replacing the pace that we had enjoyed on select service signings with more full-service and lifestyle hotels globally. The contract terms internationally are quite stable at this point and require less capital through by way of either key money or other financial support. Some of the capital intensity is lower for these signings. We've more than replaced the lull in select service signings over the last year with these higher rated and full-service properties. So if you think about the embedded fee generative power protein effectively has gone up over this past year. I'm happy to say that we continue to find opportunities with existing owners, but it's also true that we've expanded our relationships with a number of new ownership groups. You might remember that we announced last quarter that we have expanded our franchise team, franchising and the relations team to really lean on accelerating the franchise growth. That's come to light in the most significant way in Europe so far. We do expect that to translate into a higher pace of franchise growth here in the US and in Europe. So in summary, we have a substitution in our pipeline. It's with very robustly underwritten deals that we have valued one by each. These are deals that are fully signed and in our opinion financed or able to be financed. And they were very stable contract times. We're not seeing any degradation in our contract terms over time. And finally, I do expect that our franchise fee base will grow at a faster pace going forward and represent a bigger proportion of our total fee base as time unfolds here in the next three to five years. So for all those reasons, I think, we're actually sort of have a higher from a fee generative perspective a higher quality and more stable more predictable level of fees into the future.

Helpful. Thanks for that.

Thank you everyone for taking the time to join us today. Take care and we look forward to speaking with you soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.