Hyatt Hotels Corp (H) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Hyatt Fourth Quarter 2020 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. Brad O'Bryan. Thank you. Please go ahead, sir.

Thank you, Carol. Good morning, everyone, and thank you for joining us for Hyatt's Fourth Quarter 2020 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 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.

Thank you, Brad. Good morning, everyone, and thank you for joining us on our fourth quarter 2020 earnings call.

Before I begin this morning, I need to take a moment to express my heartfelt condolences to the Sorenson family and to all of our friends and fellow hoteliers at Marriott in recognition of Arne's passing this week. From the moment I joined the industry, Bill Marriott and Arne welcomed me with a deep generosity of spirit. They were quick to provide me their perspectives. And when it was appropriate to join forces on behalf of the entire industry, Arne was always a steadfast partner. Most important to me, he was a kind and good person. And I will miss him and his friendship dearly. He will live on in our hearts and through the work that we carry forward on behalf of the industry that he so loved.

As I reflect on all that we have endured over the past year, I recall that during our fourth quarter earnings call one year ago, I shared the unique challenges that our Asia Pacific team was navigating relating to the emergence of the COVID-19 virus in China. Little did we know at that time that what appeared to be a serious but somewhat localized medical crisis would quickly develop into a global pandemic that remains in our daily headlines and has changed so many aspects of our lives. None of us could have imagined the impact that the virus would have on our industry. But the Hyatt family responded swiftly and meaningfully to position Hyatt to not just navigate the crisis but to be in a position of strength as we head into recovery and beyond.

We took the difficult but necessary steps to reduce headcount and discretionary costs, resulting in an over $100 million reduction in SG&A expenses, excluding bad debt expenses as compared with our original 2020 guidance. In addition to this, we effectuated a more than $150 million reduction in costs incurred on behalf of our managed and franchised properties. We implemented these changes just 2.5 months after the very first lockdown in the U.S.

We work with our owners to close hotels where appropriate and quickly rightsized hotel operations and staffing levels to support significantly reduced levels of demand. We also supported our third-party owners providing both fee concessions and some deferrals of amounts owed for system services and certain other fees, while at the same time, negotiating new lower-cost arrangements with third-party vendors. We amended our revolving credit facility and issued bonds totaling $1.65 billion to secure significant liquidity to be able to support current needs and be positioned to invest in new opportunities once we have more visibility on the shape of the recovery.

And we promptly rolled out our global care and cleanliness commitment including important health and safety protocols for our guest and our colleagues. As we work through these challenges and learn to operate in a very different and challenging environment, we were consistently guided by our purpose of caring for people so they can be their best. Our purpose informed how we engaged with our guests, our customers, our owners and our colleagues, just as it had before COVID-19 and as it will continue to well beyond it.

We also emphasized our focus on well-being and how we care for ourselves and engage with others. It is in difficult times like these that the human spirit is most tested. Supporting our colleagues to commit to their personal well-being and encouraging the same for each member of their team is an effective recipe for being able to thrive in this environment.

As the challenges of this pandemic to our business unfolded, our teams responded by truly reimagining both the hotel experience for our colleagues and guests and how we efficiently manage hotel operations. I do want to emphasize that these efforts were transformational, and I have confidence that the approach we used to implement the changes, will endure and translate to lasting value creation for all of our stakeholders.

One of our group presidents recently said the pandemic "broke our muscle memory." I'm not sure there's a better characterization of what this challenge has afforded us by way of opportunity. I do believe that some of the ways in which we have restructured hotel operations may never have been imagined without such a severe disruption to our business.

We've taken many steps in areas such as discovery of demand through tapping data from many nontraditional sources and using enhanced analytics combined with rapid go-to-market digital strategies, creating cross-functional staffing approaches across multiple areas, clustering services and resources for multiple properties, expansion of high-margin food and beverage offerings, and importantly, the rapid development and rollout of additional digital technology.

These efforts have not only helped drive improved margins, reduced breakeven levels and enhanced guest experiences, but will, in many cases, inform how we manage hotel operations going forward. We've previously discussed that our historical breakeven levels on an occupancy basis were in the range of 40% to 45% for full-service hotels. Earlier in 2020, we indicated that we had brought breakeven levels down to the low end of that range. Through additional efforts to drive efficiency, we believe we reduced those breakeven levels below the low end of that range. And we have certain hotels, which have achieved positive earnings at much lower occupancy levels.

We believe the insights that our teams have discovered over the past 3 quarters allow us to drive a stronger and more profitable recovery as demand returns. We also continue to adapt to the evolving preferences of guests and customers in a hyperresponsive way, which has long been a competitive advantage of our scale. We've done some innovative work in the area of corporate meetings and group events, particularly around hybrid meeting solutions and believe that we will lead the industry in offerings that meet the unique needs in which we are immersed and that we expect will be with us well beyond this year.

As we serve meeting planners and customers today, we recognize that meetings, even virtual ones, are encouraging new ideas and opportunities to enhance the experience for our guests in the future and get closer to our customers. I'm excited to see this work evolve as we work in partnership with some of our largest customers who are engaged with us to co-design the meetings of the future.

As we look ahead over 2021, I'll just offer a few brief comments. Visibility continues to be limited in this environment, and it is, therefore, difficult to predict how the recovery will take shape over the remainder of the year and beyond. I would say our general expectations shared with you during our third quarter call have not changed significantly. We continue to believe the first half of 2021 will remain challenging as rapid testing platforms grow in use on property and at key travel hubs and as vaccine doses are rolled out to a large enough portion of the population to allow for enhanced confidence in travel.

We believe the second half of 2021 will experience a more meaningful recovery of demand with leisure leading the way, but increasing strength in group business and business transient travel beginning to take hold. No matter the profile and pace of the recovery this year, our teams are prepared for the challenges given the resilience and agility they've demonstrated over the last year.

I'd like to now revisit the key elements of our long-term growth strategy. While the impact of COVID-19 on our business has been severe, it has not changed the fundamentals of our long-term strategy. The first key area of focus under our long-term strategy is to maximize our core business. I've already discussed the unique ways in which we are maximizing our operating results in this challenging environment and expect to be able to leverage many of the changes we've made to drive enhanced guest experiences and improved hotel profitability going forward. We are also driving strong RevPAR index gains with fourth quarter expansion in market share across all regions globally.

Finally, the strong performance and exceptional reputation of our brands continue to attract owners and developers fueling strong net rooms growth and a robust pipeline, both of which I'll expand on in a moment.

The second area of focus within our long-term growth strategy is to integrate new growth platforms. We've demonstrated our progress in a number of areas. For example, our late 2018 acquisition and successful integration of Two Roads hospitality. The acquisition added powerful lifestyle brands to our portfolio, including Thompson, Joie de Vivre and Alila, in addition to the destination hotel and residential brands, and it expanded our global footprint of leisure-oriented hotels and resorts. These brands have also captured the interest of many owners and developers around the world and enhanced our growth profile and the strength of our pipeline with a 20% year-over-year increase in rooms in the pipeline due to strong signings.

Our focus on integrating new growth platforms has also included enhancements to our well-being offerings, which remains a commitment of ours, further demonstrated by the completion of our Miraval Resorts in Austin, Texas and Lenox, Massachusetts. As we turn to the design work for the meetings of the future, the customers with which we are now engaged, prioritize well-being content for their sessions and we have a lot to leverage.

Additionally, we have both strengthened our relationship with World of Hyatt members and expanded membership through strategic alliances with American Airlines' small luxury hotels and headspace.

The third and final element of our long-term growth strategy is to optimize capital deployment. Our primary objective is to drive growth and enhance returns while maintaining investment capacity. Our commitment to dispose of owned and leased real estate is an important driver of this objective. We've achieved considerable success executing asset sales, demonstrating the value of our owned real estate portfolio and redeploying that capital to enhance our managed and franchise fee growth, while also providing strong shareholder returns.

As we reiterated for the past 2 quarters, we expect to execute the remaining roughly $500 million in asset sales necessary to reach our target of $1.5 billion in gross proceeds by March of 2022.

Notwithstanding the disruption the industry is experiencing, we remain confident in our ability to complete these sales at strong valuations over that time period given the value of our owned real estate and the demand that we see in the market for our assets.

Having covered the key elements of our strategy, I want to circle back and go a bit deeper on our growth profile. As we reported yesterday, we delivered an industry-leading 5.2% net rooms growth for 2020. This exceeded our prior estimate, largely due to 2 large hotel openings during the fourth quarter that were not finalized as 2020 openings until after our last earnings call. The 1,600-room Grand Hyatt Jeju in South Korea was pulled forward to December of 2020 from an otherwise anticipated first quarter 2021 opening. Additionally, the 681-room Park Central San Francisco to be rebranded later this year as the Hyatt Regency San Francisco SoMa, was a successful conversion opportunity that we completed and transitioned late in the fourth quarter.

Our net rooms growth was also boosted by the opening of the first 5 YOKO hotels in China, which will be the first of many to be opened in the future as we expand this brand, designed to meet demand from China's growing middle class.

Even after opening 72 hotels or almost 15,000 rooms in 2020, we maintained our pipeline of signed hotel deals for future growth at the December 31, 2019 level. We accomplished this despite a challenging development environment, particularly in the select service segment in the U.S., where financing of new deals has been a limiting factor. We had a solid year of signings for new select service hotels in our Asia Pacific and EAME/Southwest Asia regions.

Our development teams around the world continue to have great success in driving asset-light growth opportunities based on the strength of our brands and our reputation for personalized owner relations.

As we look forward, we expect to deliver another strong year of net rooms growth in 2021. While our significant December 2020 openings and a conservative estimate of potential terminations create headwinds against our prior 2021 net rooms growth expectations, we still expect to deliver net rooms growth of approximately 5% in 2021. We see further finding of the development environment as visibility to the recovery and confidence and underwrite improves over the year and expect to further expand our pipeline in 2021 and continue to drive robust levels of net rooms growth well into the future.

I'll conclude my prepared remarks this morning by saying that we are pleased with the resilience and ingenuity that the Hyatt demonstrated in navigating the challenges of 2020. And we remain confident about our ability to leverage recovery opportunities and drive strong results going forward. That confidence is enhanced by the steps that we've taken to reimagine the colleague and guest experiences and our hotel operations as well as the ongoing commitment and leadership of our teams around the world.

We remain committed to our long-term growth strategy. And even in this challenging environment, we expect to drive industry-leading net rooms growth and believe that we have the right brands, the right leaders and the right colleagues around the world to continue to meaningfully expand our global distribution. We look forward to welcoming all of our members and other travelers in the coming months as we fulfill our purpose and care for people so they can be their best.

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. I would also like to express my sympathy to the Sorenson family and the Marriott organization. Arne's leadership and generosity will be missed deeply throughout our industry across the globe.

Late yesterday, we reported a fourth quarter net loss attributable to Hyatt of $203 million and a diluted loss per share of $2. Adjusted EBITDA for the quarter was negative $98 million, with a reported system-wide RevPAR decline of approximately 69% in constant dollars.

As has been the case for each of the previous 2 quarters, our reported system-wide RevPAR decline are impacted by both the inclusion of closed hotels in the calculation and by our chain scale composition, which includes significant exposure to upper upscale and luxury properties and to top 25 markets in the U.S. As has been widely reported, the upper upscale and luxury segments and top 25 markets in the U.S. have been weaker since this pandemic began.

As of December 31, 94% of our hotels or 93% of our rooms were open. The impact of closed hotels on our fourth quarter reported system-wide RevPAR results, was about 370 basis points. Our comparable system-wide RevPAR in the fourth quarter was down approximately 65% from last year, excluding closed hotels.

Our fourth quarter adjusted EBITDA loss includes $45 million of costs incurred on behalf of our managed and franchised properties that we do not intend to recover from our hotel owners. As a reminder, our contractual arrangements allow us to collect amounts from managed and franchised properties to reimburse us for system-wide services and program costs. We do not profit from these arrangements as they are structured with the intent to manage these revenues and costs to breakeven over the long term. The reimbursement revenues for these systemwide services decreased significantly in 2020 due to the lower contractual amounts collected based on lower hotel revenues, in addition to certain concessions we provided to our owners to help with their cash flow.

In total, we collected almost $200 million in reimbursement revenue in 2020 than originally expected. We took action to reduce costs incurred, representing about 3/4 of that lower reimbursed revenue through aggressive cost management efforts undertaken during the year.

The remaining costs in excess of reimbursement revenue amounted to $45 million and their inclusion in adjusted EBITDA was the result of our decision to continue to provide these critical system-wide services and programs on behalf of our owners, while not intending to recover these costs from owners.

Importantly, I want to remind you of what I covered in our Q3 earnings call that the cash impact of these amounts is included in our monthly cash utilization, previously we referred to as our cash burn.

I'd like to now provide a few additional details on our operating results for the quarter. Our management and franchising business continued to drive profitable results with a slight increase in adjusted EBITDA sequentially over Q3 when excluding bad debt expenses we recognized. Bad debt expenses were $14 million in the fourth quarter and $33 million for the year, which is far in excess of the levels we've recognized in the past.

Our base incentive and franchise fee revenue decreased by 67% compared to 2019 on a 69% reduction in system-wide RevPAR. Fee revenues were helped by contribution from new hotels opened over the past year. China and select service in the Americas were again our primary areas of strength during the quarter, collectively making up about 50% of our total fourth quarter management and franchise fee revenue and both delivering extremely strong market share gains as we continue to significantly outpace the competition in these areas.

About 60% of our global managed hotels delivered positive gross operating profit during Q4, with almost 100% of our Greater China hotels delivering positive GOP. Our continued focus on efficient hotel operations and maximizing GOP flow-through, which reached levels greater than 50% in the fourth quarter, has yielded strong results on the bottom line during this challenging demand environment.

Our owned and leased segment RevPAR decreased 82% compared to 2019. The impact of closed, owned and leased hotels on our reported RevPAR decrease was 660 basis points. While the fourth quarter RevPAR results were slightly positive compared to Q3, we drove enhanced efficiency, resulting in strong flow-through and improved adjusted EBITDA results for the quarter at a loss of $48 million compared to a third quarter loss of $56 million. This is particularly notable as we reported an $11 million increase in owned and leased revenue and no expense growth from Q3 to Q4 resulting in a 100% revenue flow-through quarter-over-quarter. While this flow-through performance was partially helped by certain lower nonoperating expenses, it is a solid proof point of our strong operating expense control.

Approximately $42 million of the $48 million fourth quarter losses are coming from owned and leased hotels excluding the impact of joint ventures. Further, about 1/3 of our owned and leased rooms, concentrated in urban markets like New York and San Francisco are driving about 2/3 of the losses.

Across our owned and leased portfolio, the vast majority of losses are driven by fixed or noncontrollable costs in both open and closed hotels as we have very effectively reduced controllable costs in our operating hotels, laying a foundation for reduced breakeven levels into recovery. Resort hotels continue to drive the strongest performance in the segment due to relatively higher demand for those types of stay experiences.

Before providing an update on our liquidity and cash utilization, I did want to follow up on an item Mark covered earlier with respect to our capital strategy. As we've discussed previously, one of the important outcomes of our capital strategy is a meaningful shift and greater proportion of our earnings base derived from our management and franchising operations. Prior to the disruption caused by COVID-19, we have been reporting our progress by way of the increasing percentage of earnings coming from the fee business and at the end of 2019, had achieved almost 60% compared with 43% in 2016, just prior to accelerating our asset-light transition.

Given the outsized earnings impact of COVID-19 on our owned and leased operations, the actual mix we are recording is clearly distorted. Upon completion of our asset sale commitment of $1.5 billion by March of 2022, we expect to achieve an earnings mix of approximately 2/3 from management and franchising and 1/3 from owned and leased, as we shared with you at our Investor Day in March of 2019.

I would note that this projection assumes an otherwise normal demand profile, which may not have occurred by that time, depending on the nature of the recovery. I would also note that, thanks to significant organic growth over the 2022 to 2024 period, we would expect fee earnings to further shift to an approximate 70-30 mix by 2024, assuming an otherwise normal demand profile. I want to be clear that this mix is not a target but rather an outcome of our actions. This mix will continue to shift further due to organic growth and to the extent we may choose to sell additional assets over time, the resulting reduction in our earnings from our owned and leased hotels would further accelerate this shift.

I'd like to now provide an update on our liquidity and cash utilization. During the fourth quarter, our monthly cash utilization, excluding severance payments and other onetime costs, was slightly better than our previously provided second half 2020 expectations, ranging from $60 million to $65 million. The improvement came from a combination of slightly better cash flow from operations and slightly lower-than-anticipated outflows related to investments supporting new deal growth. We expect no more than $55 million to $60 million in average cash utilization per month based on the fourth quarter demand levels.

And I'll break this down just a little bit further. Operating cash utilization is about $40 million to $45 million of this total. The majority reflects operating cash needs for our owned hotels, largely concentrated in the hotels mentioned earlier and also interest in other overhead amounts. As mentioned last quarter, we sometimes experience significant variability in monthly cash outflows due to the timing of certain payments, for example, including the timing of property taxes, insurance premium payments, reimbursed income and expenses and certain SG&A costs.

While we expect first quarter demand to remain challenging, as the year progresses, vaccinations are widely administered and travel restrictions are lifted, we expect demand to increase and our rate of monthly operating utilization to improve.

I would also note that we are expecting a significant tax refund this year due to benefits related to taxable net operating losses recognized in 2020.

The remainder of the monthly cash utilization of about $15 million on average are amounts we are investing for the future growth of our brands. These amounts are generally timed with opening of new hotels, representing commitments we have made. Unlike operating cash utilization, we expect investment spend will likely trend higher as deal activity increases and in any case, it's important to keep in mind that investment spending can be inherently lumpy from a timing perspective.

As of December 31, we our total liquidity, inclusive of cash, cash equivalents and short-term investments combined with borrowing capacity was approximately $3.4 billion. We believe our existing liquidity, excluding approximately $1 billion in bond debt, which matures in the next 2 years, supports our ability to operate at fourth quarter 2020 demand levels for approximately 36 months.

Finally, I'd like to make just a few additional comments regarding our 2021 outlook. I want to first provide an update on the guidance I shared during our third quarter call regarding capital expenditures and adjusted SG&A. We now expect capital expenditures to be about $110 million for 2021. We expect adjusted SG&A to be approximately $240 million, a reduction of 25% from our original 2020 adjusted SG&A guidance, excluding any bad debt expense that may be recorded during 2021.

Finally, I'd like to remind you that the earnings sensitivity guidance we've shared previously indicates that a 1% change in RevPAR levels using 2019 RevPAR as a baseline, results in an impact of approximately $10 million to $15 million in adjusted EBITDA. This guideline held true with respect to our 2020 results near the higher end of that range at roughly $14 million per point of RevPAR change, excluding the $45 million charge in the fourth quarter I previously mentioned. While our 2021 results will be reported compared to 2020 results, the same rule of thumb should apply for 2021 expected RevPAR results versus that 2019 RevPAR baseline, again, expected to be the near -- to be near or at the high end of that range.

I will conclude my prepared remarks by saying that we're pleased with how our teams are managing results and cash flow during this continued lower demand environment. We've delivered continued efficiency gains and strong flow-through, helping to improve near-term performance and yield-enhanced long-term earnings growth during recovery.

We've also effectively managed our cash utilization, which continues to show improvement and has allowed us to maintain very strong liquidity. While we expect demand levels to continue to be uneven in the first half of 2021, we are optimistic about a meaningful recovery in the second half of the year and believe our operations are well positioned to maximize performance during recovery and beyond.

We are confident that our strong brands will continue to fuel expansion of our managed and franchise fee business into the long term.

Thank you. And with that, I'll turn it back to Carol for Q&A.

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

You both alluded to some green shoots and expectations for improvement over the course of the year. And I realized this is a tough thing to really have a whole lot of line of sight on. But based on the various indicators you see, how are you thinking about the pace of potential magnitude of recovery across the various segments of demand as you think about business transient, leisure, and group? And you also alluded to learning some of the pandemic, so how does this view of the recovery alter how you think about positioning the business to take share?

Thank you very much, Stephen. I'll start. There is a China dimension to the learnings that I'll ask Joan to comment on after I make a few comments on how we're looking at the business at the moment.

So let me just start off in the general vicinity of how we see group and transient dimensions evolving. And maybe I'll start with the conclusion, which is I'm really pleased, if not surprised, to report that we're seeing some interesting and very positive data in group activity.

So some context. Looking back over 2020, we realized a bit over $27 million of total group rooms revenue in the U.S. in the fourth quarter for system-wide hotels in the Americas. That represented about 13% of our total rooms revenue for the period.

By the way, group globally was about 15% of our total revenues. Over the course of 2020, we realized total group revenue of about $340 million in our managed hotels in the Americas -- I'm just using this as a proxy, but this is our largest market, of which 87% was in the first quarter. The last 3 quarters saw only $44 million in total realized group room revenue. It sequentially improved over the course of the year. And so in the fourth quarter, about half of the $44 million that was realized over the last 3 quarters was realized in that fourth quarter.

Now from the beginning of the fourth quarter through January, we booked $170 million roughly in pure new group business for all future months, and that excluded any rebooking activity. And that represents a 20% acceleration over Q3 in pure new group bookings. We are, for the first time since COVID-19 began, seeing association in corporate activity pick up for 2022 and beyond. And we have early signs that we will actually host corporate meetings as early as the second quarter of 2021.

Now in addition to these new bookings, we've also rebooked approximately $300 million of business or about 28% of our canceled group revenue from March of 2020 through December of 2020. As we head into 2021, our expectation is that we will have sequential improvement in Q1 and Q2 from the realized group revenues in Q4 of 2020 with much more significant increases in Q3 and Q4, assuming that we stay on path with respect to vaccination and the increased use of rapid COVID tests over the course of the year.

In January, we saw cancellations down 25% from the December levels as Q1 group business is mostly comprised of sports events that are operating in a bubble and also some sizable U.S. government business, including some essential healthcare workers, Armed Services business and National Guard business concentrated in several hotel takeovers.

January through the first week of February saw lead generation rise to levels we have not seen since early 2020, with January's lead volumes at a 50% improvement over December. And of that increased activity, 60% relates to 2021 arrivals, with a majority of that hitting in the second half of 2021. Now this activity is concentrated in our resorts and also importantly, in our primary convention hotels.

In terms of pace, we reported on our last call that pace into 2021 was dropping, and we expected it to go lower as we expected additional cancellations of first half bookings, and that's exactly what's occurred as we've entered 2021. Pace is now off 60% as compared to last year, but it's very much a tale of 2 halves. Pace in the first half of 2021 is down over 80%, while pace for the second half of 2021 is down just over 30%. Pace into 2022, where we have a bit over 40% of our total revenue booked at this time, is down roughly 10%.

So as we look at that profile, I have to tell you that we have previously been saying that the sequence would be leisure transient, followed by business transient, followed by group and I think that the potential upside surprise in that progression is that we might see group come back in a more purposeful way, in a more significant way.

I would also just say, and I'll cover one dimension of the -- what have we learned in relation to what we're doing with respect to hybrid meetings. I'm not going to go into great detail about that. But I'd like Joan to comment on what we're seeing in China and what we've learned through our experience there.

So some of these early group bookings that I'm talking about that we're starting to see as potential as early as Q2 of this year business are -- I would describe them as materially different in form and format to anything that we have hosted in the past. And while many people in the industry have launched so-called hybrid-leaning solutions, we went back to the drawing board and started from scratch and recognized that cobbling together preexisting AV capabilities and having a digital leg to a meeting isn't really satisfying the core needs of our biggest customers.

So we started from scratch to design a very different approach to hybrid meetings. And I'll just summarize that by saying that there is an essential human connection component of how companies are thinking about getting back together and what the reason depth or what the reasoning is that they want to get back together. And we're figuring out ways to actually make that come to life, both on property and in relation to the digital participants.

We have a live design effort underway in partnership with one of our big pharma companies that will span 11 different hotels in 11 different markets in the United States with close to 1,000 total in-person participants spread out in a socially distanced manner across hotels, but then also a digital leg to that business. And it's really creating an engaging and meaningful experience for those who are joining digitally, that is the new chapter for us moving forward.

So that's about all I'll say about it because you can imagine that we're working hard on launching something that we think is going to be truly differentiated.

But let me turn it to Joan to comment on what we've learned out of China.

Sure. I mentioned in my prepared remarks that China was a top area of strength for us throughout the year, but in Q4 as well. And that's across all segments of the business. We had -- led by leisure, but also strength in business transient and group as well in China in the fourth quarter of 2020. We've -- as you all know, there's been some recent localized lockdowns there starting in January. And we went back to look at what we experienced in 2020. And after the localized lockdowns were put in place, we found that demand recovered in about 30 to 45 days. And as we think about the current lockdown and the Chinese New Year and some other measures that China has put in place, we think it will be just a little bit extended, maybe 60 days into mid-March. But after those lockdowns were released, there was a return to the demand profile that we saw pre-lockdown. So we're confident that we'll have that same experience as soon as the lockdown is released.

And just to give you a little bit more color, the occupancy levels that we saw in Q4 for Greater China, were approaching 60%. If you exclude Hong Kong, Hong, Macau and Taiwan, the occupancy levels were closer to 70%. And in January, we saw levels of about 40% across the region. So while there's been some depression, it's still healthy comparatively at 40% during a lockdown situation.

And the kind of group business that we saw in China over the course of 2020 was what you would have seen pre-COVID: new product launches by car companies, a lot of new line introductions by luxury brands, and these were very, very extensively programmed. I mean, I'm talking about food and beverage and entertainment and AV programming. So we're seeing that type of business come back with some significance.

I did not -- I spent a lot of time on group because it's caught my attention in the big way, you can tell from my tone, but it is -- it remains true that the vast majority of our business in Q4 and as we head into Q1 here is still transient. It was close to 85% of our total revenue base in Q4. And leisure is still leading the way. 70% of that transient business is leisure, 30% business. And the other reality of that business, transient travel is that it's not quite a majority, but a plurality of that business is in China because business transient travel in China was very strong in the fourth quarter.

So I -- Stephen, I know that was a long answer, but I hope that gives you enough color to give you a sense for how we're looking at the unfolding of the year.

Very helpful. Look forward to seeing and learning more on the hybrid meetings, but also hope in-person meetings resume soon.

Yes. Let's hope.

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

I just wanted to ask you a little bit about the gap. You were talking about the 2 reimbursed expenses and expenses to run the system. Do you expect to see that kind of through the first half of '21? Or is that gap starting to narrow? Or how should we think about that going forward? I know you said you -- it's included in your cash burn expectations, but maybe just a little more color on what we're seeing there?

Yes. Thanks, Smedes. We -- it is included in our cash utilization. And as I said in my prepared remarks, we have managed these revenues and cost to breakeven over time. And the experience prior to this year has always been at a breakeven, and we expect them to break even in the future, beginning with 2021. And just some color of why we expect that is because we -- in 2021, we expect the RevPAR improvement, as we've just described over the second half of the year. So that contributes to greater levels of revenue.

We're also adding new hotels, which also contributes to greater levels of revenue. And we do have -- and it is our expectation that we'll be able to offset these costs over time without recording another charge to EBITDA as we did in 2020.

Just -- I just want to mention too that our decision here to preserve these services in 2020 really positions us well into the future to invest in the recovery together with our owners and realize the value that we believe these systems services provide. So hopefully, that helps give you more color.

Okay. It does. And then I just wanted to ask you too, Mark. You mentioned it looks like promising recovery on the group side, and there's been some obstacle about that. Are you seeing any changes from a geographical perspective in terms of where groups are looking most? I mean, anything that stands out to you? Or is it more in line with what you've seen traditionally? In fact, the other within the U.S.

Within the U.S., yes. I would say that there's been some elevated focus on destination resorts as venues, whereas some of the groups that we're talking to about their gatherings might have maybe initially focused on urban destinations. I think part of that has to do with the desire that they've got to actually get their own participants into a beautiful setting and give them a break from the monotony of the COVID lockdown.

But for the bigger meetings, I am seeing a significant increase in incidence of doing multi-market and multi-location within a market coordinated meetings. And that means that, for example, a piece of a meeting might be synchronous programming and other portions of the meeting may be asynchronous. That also assists in finding time periods over the course of the day where people on the West Coast and people on the East Coast can be experiencing the same programming. And then you cover other elements in the early morning in the East Coast, where people are not up on the West Coast. And the late afternoon on the West Coast where people have already gone to dinner on the East Coast.

So I'm finding that there's a lot more flexibility in how we can stitch together meaningful in-person and also hybrid meetings. And I think for those, it's going to be much more widespread and with no appreciable geographic bias.

Your next question comes from the line of Dori Kesten with Wells Fargo Securities.

When you think about your disposition program and the $500 million remaining to sell over the next year, how have the hotels within this bucket kind of shifted over the last few quarters? And has the pandemic changed your view on the importance of real estate exposure for Hyatt?

So Dori, can you just repeat the first part of that question again?

So when you think of the $500 million in assets and proceeds that you expect to get over the next year for the $1.5 billion program, has your -- has the type of hotel that you're looking to sell changed over the last few quarters? Or what you plan to sell, has that kind of remained on track?

Okay. Thanks. Look, I guess what I would tell you is that we have been very measured about our approach to engaging with party -- third parties about selling hotels over the past 2 quarters because underlying our approach is a belief that asset prices are going to improve over the course of this year. And I have already seen firming of the market.

I think the -- some of the trades that occurred in the second and third quarter of last year that were reported to be somewhere between 20% and 30%, say, below pre-COVID levels, I think those kinds of discounts are quickly evaporating. And I think you're going to see more trades that are approaching pre-COVID level. Now it's going to depend a lot on the type of hotel and so forth.

So in terms of -- as I think about rank ordering the kinds of assets that are going to garner the most interest, they would be destination resorts that have significant drive to population base, of which we own a number. So I think that's one dimension of it.

We have some urban hotels that are clearly lagging in the total recovery. Having said that, those hotels are in the main very good assets and they're extremely well located. So we still have confidence that we will see that. We will see full value realized for them when we choose to sell them. We may lag selling some of those hotels until the buyer community has a better ability to assess the profile and pace of recovery. And frankly, if some of the early signs of life in the group side actually pan out over the course of this year, that might be sooner than we otherwise might have thought.

There's also been a recent increase in activity and interest in urban and, I would say, uniquely -- unique market kind of select service hotels. Most of our exposure to that asset class is through JVs that we have. We don't wholly own any select service hotels. So the number may be a little bit more than a handful of hotels that we do own in the select service category or with partners. But I've been discussing this with our partners, even just this past week. And the level of inbound inquiry has gone up a lot. So that's I think how I would see the market evolving.

We're paying attention also to the portfolio because, of course, we have a number of either trophy or very high-value assets, which are relatively easy to sell at any point in time, but we want to maximize what we get out of it. And we're paying a lot -- very close attention to the parties with whom we transact so that we can maybe grow with them in the future as well as realize a great price.

In terms of our fourth quarter activity, we did sell the Hyatt Regency in Baku. It was a small sale of $11 million, about 10x 2020 earnings. It was really important in our minds to release capital from a market that's been through extreme volatility since the precipitous decline in the oil and gas sector there. And we will actually record a loss on sale of about $30 million, but 80% of that number is the cumulative negative currency translation over time. We've had that hotel in our portfolio for probably over 20 years. We also sold Exhale which is not a hotel priority and wouldn't count against our commitment to sell down real estate. It's going to remain affiliated with the World of Hyatt and now part of a larger group. It doesn't have any impact whatsoever on our commitment to well-being. It does reflect a concern, I would say, that we had and we felt compelled to make a decision given the pace and shape of recovery for studio-based businesses in fitness and in spa, has been even harder hit than hotels.

So overall, it's an immaterial deal. I think we will recognize a $10 million or $11 million loss on sale, but we thought that it was important to remain focused on the things that are going to have a bigger impact for us going forward.

So that's my update on sort of the transactions side.

Okay. And just a quick follow-up, if you can, on the hybrid meeting versus the standard group meeting. Is it -- based on how you're thinking about it at Hyatt, is it -- it sounds as if the hybrid meeting could be more profitable than the standard. Is that, I guess, initially how it seems to be working out?

I think what we're focused on right now is comprehensively understanding the needs of our customers and being there to extensively serve those needs. And I would think of the profitability that we expect to realize from this as the result of that focus as opposed to trying to design something that -- where the object of the design process is really how do we maximize the money.

We feel that because so many customers have come towards us to co-create. So we're co-designing this with several of our largest customers. And given the willing components that we are able to bring to bear out of our own portfolio, mostly from Miraval, we think that we do have a lot of unique value to add. And that's really where we think they will find lots of value. So that's the way we're thinking about it.

I would just point out one other thing and that is, as we more deeply immersed ourselves in speaking to these large corporate customers. We've also learned one other interesting thing. And that is they do not view virtual meetings or even hybrid meetings as necessarily less expensive to hold than the in-person meetings, and there are some trade-offs there.

Yes, you avoid travel, that's probably air travel, which is one of the key considerations. But between the extra AV staffs that they've had to put on, plus the -- what I would describe as the help desk issues, which, by the way, I'm sure everyone on this phone call has already experienced in their own lives, it's actually an additional increment of cost for them to hold these hybrid meetings and keep it -- or digital meetings and have them be seamless. So we've been admonished for thinking -- for approaching this with a presumption that, of course, there's going to be a negative bias towards in-person meetings because they've reminded us that their staffing up has been significant in actually holding those kinds of meetings over the course of 2020.

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

Mark, you've provided some great details in terms of just rethinking the group business with these digital initiatives. And obviously, a pandemic provides an opportunity to have a good clean sheet of paper on the entire business. Are there other aspects within your operations -- I'm thinking about food and beverage, maybe margin opportunities or anything else that's worth mentioning in terms of what could come out of this in a better place than pre-pandemic, either margin-wise or just directionally?

Yes. First, I would say that there are other areas. They are in areas like food and beverage. The clustering activities that I mentioned earlier, I think, apply across many different hotels.

The other point that I want to make to you is this, we have fundamentally shifted our mindset in terms of how we operate the company. And what I mean by that is that, historically, we have had at the hotel level and at the corporate level, a much more function-driven organization structure. As we went into 2020, and we realized that we had to throw all of our preconceived notions out the window, including all of our pricing models, we were coming together in a hyper cross-functional way and operating more like you would see an agile software development activity occur. And we've applied that now. So we've applied it in some really important areas. We revamped and restructured our -- how we actually engage, provide and receive reimbursement and compensation from our owners with respect to system services.

That's a mega -- if you talk to any hotel brand company and you start talking about revamping how chain services operates, it's like a third rail. And yet we were able to accomplish a very significant revamp in the space of about 11 or 12 weeks and implement it all within the course of the year last year. We've done the same with respect to an owner platform that we're standing up this year to provide much more flexibility and customization ability for our owners in terms of gleaning information out of us that will help them understand and assess their -- the value that we're providing to them.

And we've got a number of other initiatives underway, including how we're going to enhance our approach to franchising in the future. All of these initiatives, they're not projects because they will live on forever, all of those initiatives are being done in a fundamentally different way. We're able to act faster and in a more agile way, and that's both at the hotel level and at the corporate level.

So if there's one message I'd like you to take away from this is, yes, we have plenty of points on the board with respect to actual results that we've driven over the course of the year, but we've discovered necessity is the mother of invention. We've discovered a way to end up with better outcomes on a faster clock speed and be able to deploy quickly. And I think that's the gift that we'll keep on giving as we go through this recovery.

That's great. And then my unrelated follow-up, just with respect to deletions, given the age and the condition of your properties, they've always been below your industry peer group. Could you talk about how that fits into your net unit growth outlook for 2021 and beyond?

Yes. I think it's an important topic. So thanks for asking. And I think it's critical that I provide -- I unpack this for you because the anatomy of our growth is important to understand.

So let me start with 2020 so you can understand what the baseline is. So in 2020, we had gross rooms growth of 6.8%. We had terminations and attrition that represented a drag of about 1.4%, and that yielded a net rooms growth of 5.2%, which we already reported. But recall, that about half of the 140 basis points relating to terminations came from a single hotel called the Ocean Resort in Atlantic City, which came out of the system early in 2020. It was a very large 1,400-room property that represented a very, very small fee base for Hyatt because of the nature of the casino room block arrangement at the hotel.

When you look at attrition and terminations in general, I'll come back to 2021 in a second, we have, for many years, had attrition or terminations that were somewhere between 0.4% and 1% of total rooms. Now the year following our acquisition of Two Roads Hospitality was a bit higher than this, which we expected given the attrition that we forecasted after our acquisition.

So over time, we would estimate that our termination rate is something in the range of maybe 60 or 65 basis points per annum on average. For 2020, that was 1.4%, but again, half of that related to one hotel. And so we're back down to maybe something in the 70 basis point range in 2020.

So now let me make a quick comment about development pace as we head into '21 and then talk about '21. So we had an extremely strong fourth quarter, approximately 600 -- sorry, 6,000 rooms opened, and we signed 9,900 rooms in the quarter.

Now I want to quickly note that not all of those rooms are reported in our pipeline data. Not all of the signed rooms are because we only move signed deals into our pipeline when we deem them financed. So in total, for 2020, we have about 2,000 rooms that are signed, but not included in the pipeline because we're continuing to qualify the financing for those deals.

So in terms of the total math for 2020, we opened 15,000 rooms. We realized the decline of about 3,000 rooms, again half of that being the Ocean Resort. And we signed 23,000 rooms in the aggregate, again not all of which are reported in our pipeline, as I just described.

Now let me talk about 2021. We estimate gross rooms growth of close to 8% in 2021 with over 100 hotels estimated to open in the year, and we expect to see new openings records in every region around the world. We have very conservatively estimated terminations and attrition at over 280 basis points. And if you subtract that from the close to 8% gross rooms growth, that gets you to around a 5% net rooms growth level.

Now with respect to the terminations, we think it's a very conservative estimate for what we are likely to see this year. However, it's too early in the year to start to narrow that down and really refine that further.

With respect to current activity, I would just make 2 points. A significant portion of the signings headwinds that we've had this past year are in select service hotels in the United States. So over 75% of our signings headwinds in the last year were in the select service segment in the Americas, and 50% of the year-over-year decline in signings in total were attributed to select service hotels in the Americas.

As for the rest of the world, we see continued momentum in new development activity. And as an example, ASPAC, our Asia Pacific region expanded their pipeline after opening 5,600 rooms over the course of 2020. So we see significant activity there.

And the final point I'll make is conversions. We had a very successful year in conversions. I want to say, 20% of our net rooms growth was from conversions in 2020, and we would expect something in that same range in 2021.

So I think that we've got a very good handle on how this is evolving. The 2 things that I would mention, one potential risk that I think has widely been discussed, which is the portfolio of 22 hotels we have with SVC, which is about 2,700 rooms or thereabouts. We remain in discussions with them and are hopeful that we will find a path forward with them. That's a risk with respect to attrition, would be fully covered and included in our estimate for attrition over the course of the year.

And the second thing I would say is that based on our conversations with developers, we're really clear about the financing gaps that people are seeing, given where the banks are in funding new development in the United States. And so we are actively working on ways in which we can actually support our developers to get back and moving.

Now we think that's a good bet because new starts have declined so dramatically that we will have a lag in total supply growth in the industry, which is precisely the time that you want to be opening new hotels as that starts to take hold. And in our industry, if you studied it in history, we overbuild when things are great and we underbuild when things are bad. And it should be exactly the opposite.

So I feel like with some creativity and with the proximity that we have with our development community, we can make a big difference and a differentiated difference in getting back to accelerating our select service pipeline in the U.S.

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

I hate to disappoint you with the last question, but what I wanted to ask about, Mark, was what you really just went through in detail in terms of pipelines and unit growth. So I'll wish you well. Thank you for the detail, but I think asked and answered. If you want to take one more, I apologize to my colleagues.

No. Well, thanks for that, David. I probably was too long-winded, and probably over time.

Yes, we are a bit over time. So...

But thanks for the participation, and we appreciate everyone joining us this morning.

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