Hyatt Hotels Corp (H) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Hyatt Hotels Second 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, Brad O'Bryan.

Thank you.

Please go ahead.

Thank you, Stephanie.

Good morning, everyone, and thank you for joining us for Hyatt's Second 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 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 for 90 days.

I'll now turn it over to Mark.

Thank you, Brad.

Good morning, everyone, and welcome to Hyatt's Second Quarter 2020 Earnings Call.

To begin with, I hope that everyone who is joining us this morning is healthy and safe, and I hope the same is true for your family and your loved ones.

Before we highlight some important information regarding our business results, I want to take a few minutes to reflect on the past several months and how we view the challenges across the world and those faced by our industry.

The Hyatt family has risen to the occasion, and we are using the unique opportunities presented by this environment to challenge traditional assumptions, engage deeply with stakeholders, and reimagine our business, all while continuing to focus on advancing our purpose to care for people so they can be their best.

During this time, we've seen record levels of unemployment, the permanent closure of many small businesses and intolerable examples of racial injustice in our communities.

It is precisely in these challenging times when our purpose matters the most and guides our action to support the rebuilding of our economy and our industry.

This begins with creating a safe and inclusive environment for our colleagues and our guests throughout the world.

We don't live out our purpose only when it's easy or convenient.

It is fundamental to who we are, especially during these highly disruptive times.

We continue to engage in our communities through direct support of organizations that focus on creating work opportunities for opportunity youth who are concentrated in underserved and underprivileged communities.

And in the U.S., many of these communities are predominantly black and Latinx communities.

In addition to these efforts, we are caring for our colleagues who are being affected financially by the pandemic.

We established the Hyatt Care Fund specifically to provide financial assistance for colleagues who are suffering financial hardship as a result of COVID-19.

I'm pleased to report that the care fund has taken in approximately $9 million in donations to date and already dispersed in excess of $5 million to over 12,000 colleagues around the world over the past several months, with many additional applications in process.

The care fund will continue to help members of the Hyatt family who most need our support at this time, and I couldn't be more proud of this great work.

The mutual support across the Hyatt family is palpable and inspiring.

It defines who we are.

While we are obviously managing through many challenges, we remain undeterred.

We are committed to reimagining our business and resolved to emerge from this pandemic as a stronger and leaner business with stronger personal ties to our colleagues, guests, customers and hotel owners.

Working together with our owners, our colleagues are reimagining both the guest experience and the manner in which we operate hotels to optimize results even at significantly reduced levels of occupancy.

We are also supporting our guests as they've returned to our hotels, by providing a safe and welcoming environment.

And we've taken extra steps to care for our World of Hyatt members through a variety of benefits, allowing them to maintain their status and enjoy additional benefits as they get back to traveling.

This morning, I will review the type of demand we are seeing around the world and discuss how we are responding by reimagining operations and engaging with key stakeholders.

In addition, I will provide our perspective on our future growth and our growth initiatives.

When we last spoke during our first quarter call, we noted that the second quarter would bring the lowest demand levels the industry has ever seen and that we expected that the second quarter would be the low point of demand associated with this pandemic.

We had closed over 1/3 of our hotels in April and taken a number of important steps to weather the storm, including securing additional liquidity and reducing costs by way of furloughs, pay reductions and elimination of nonessential spending.

In May, we took additional painful steps to reduce the size of our workforce.

During the month of April, we reached our peak of hotel closures at approximately 35% of our hotels globally.

We are taking a deep analytical approach to identify those factors that support reopening in each market and each hotel.

We have applied financial modeling, including TSA and airline data, search and mobility data and hotel booking data to determine when it becomes desirable to reopen a hotel.

Based on this approach, we've reopened many hotels over the past few months, with 80% of our hotels open at the end of June and approximately 87% at the end of July.

We plan to reopen most of the remaining hotels within the next couple of months.

We have seen encouraging signs of strengthening travel demand in China and South Korea in particular.

Joan will share some occupancy numbers for China shortly, but what I'm most encouraged by is the significant increase in RevPAR index we've seen through this recovery in China.

While we consistently delivered strong results in the past, our RevPAR index in the second quarter for full-service hotels in Greater China has reached levels about 15 points higher than 2019, indicating that we are significantly outperforming our competition through the early stages of this recovery.

This is a direct result of the proactive ingenuity of the teams in our hotels.

It is also a strong reflection of the strength of our brands in China and the high degree of trust travelers have in our brands during these uncertain times.

Outside of China and South Korea, we are seeing positive increases in demand for certain markets around the world but at a slower rate of growth.

Most of this business is being driven by leisure demand.

Leisure demand was the principal driver of now 13 weeks of increases in occupancy and net bookings across the globe.

However, the rate of growth in demand moderated in the middle of July following the July 4 holiday due to the impact of rising case counts in certain areas and many cross-border travel restrictions that remain in place across the world.

We have seen increased momentum in the latter half of July.

However, until meaningful and consistent progress is made towards slowing the spread of the virus, international travel in particular will continue to be negatively impacted.

In addition, the booking window has shortened substantially.

In the U.S., for example, over 65% of our full-service bookings and over 75% of our select-service bookings are being made only 4 days ahead of the date of stay.

This is the shortest transient booking window we have seen.

With respect to group business in North America, we continue to experience near-term group cancellations and expect this to continue over the remainder of this year.

All of this makes it challenging to forecast results or plan for demand levels, and we are up for this challenge.

Our response to this has been to compress our decision-making on promotional activity and to pivot our actions as appropriate in real time.

We've significantly increased the speed of response in local markets around the world.

And this increased agility is serving us very well as we discover new pockets of demand and new ways of going to market.

We are reimagining the guest experience in a number of ways that I will describe, and Joan will later explain how we are reimagining our hotel operating models to optimize financial results.

We've been proactive in connecting with and listening to our guests, including importantly our World of Hyatt members and our corporate and association customers to understand and respond to their needs in this new environment.

Again, because these connections were a natural extension of our purpose of care and because of the importance we have consistently placed on engagement, we move quickly and effectively in this direction.

The need that is first and foremost is safety and security.

We reviewed our global care and cleanliness commitment during our first quarter call.

And I'm happy to report that as of the end of June, we had trained hygiene and well-being leaders in each of our hotels around the world.

We've also recently announced mask requirements for all guests and visitors in our U.S. and Canadian hotels as a meaningful step to enhance the safety of our guests and colleagues.

Beyond our global care and cleanliness commitment, we are reimagining the hotel experience to help guests rediscover their love of travel with a focus on safety first and well-being always.

With an increased interest in private experiences, we're using spaces in new ways.

For example, with private rooftop yoga, en suite dining or picnic basket dinners on the lawn with live music.

We also have developed new in-room experiences such as spa kits and mixology kits for guests to create their own cocktails.

Importantly, we continue to be dedicated to holistic well-being, which is more important than ever these days.

And we just opened our third Miraval resort, the Miraval Berkshires in Lenox, Massachusetts.

Alongside these in-stay innovations, we're working hard to allow our guests to control their experience by completing the rollout of our enhanced digital engagement options including digital check-in, keyless entry and housekeeping preferences.

These capabilities are rolling out in the next few months for most properties and by the end of the year for all properties.

Mobile food and beverage ordering will also be available at all participating hotels in the coming months.

In addition -- an additional area of focus is the meetings and events experience.

While demand for large meetings is limited, we have smaller group events occurring and have been working with meeting planners on new designs for events.

In addition to standard safety protocols and unique food and beverage options, we are piloting and testing hybrid meeting formats, which sometimes involve the use of multiple hotel locations to accommodate distancing requirements and travel limitations and the use of technology to seamlessly combine virtual and live experiences.

All these efforts are designed to be responsive to consumer and meeting planner sentiment and ultimately drive business back into our hotels.

Many of these modifications in the guest experience will survive beyond this pandemic.

And our engagement with our guests will continue to serve as a compass to guide to how these experiences evolve over time.

Now let me turn to addressing future growth.

Even as we continuously adapt our business to current circumstances, we remain focused on long-term growth.

We delivered second quarter net rooms growth of 5.8% despite the toughest business conditions the industry has ever faced.

The disruption that has resulted from this pandemic has caused some construction delays for projects underway, which is pushing certain opening dates back.

We do expect these delays and some isolated terminations to negatively impact what would otherwise have been another very strong year of net rooms growth.

Helping to offset some of that pressure, however, will be additional conversion opportunities that we're pursuing, some of which we expect to realize prior to the end of the year.

As demonstrated last year, conversions are becoming a larger contributor to our growth profile, and we expect that to continue.

As evidence of our strong track record of driving growth, I would note that over the past 5 years, our net rooms have grown by over 40% and our pipeline has almost doubled.

We believe our robust pipeline positions us well to support continued growth over time.

We continue to make solid progress on full-service development around the world with particular strength in our Asia Pacific segment.

Select-service production in the U.S. has slowed due primarily to constraints on financing, which we expect to impact our pipeline growth for these brands in the near term.

Longer term, however, we expect select-service production to recover as there are significant opportunities for global growth of our select-service brands, supported by the performance of these brands and given our relatively modest market penetration across the globe.

I would also add that we have seen some slowing within our pipeline of hotels that are advancing to the design and construction phase.

While we do not expect this impact to be material, we are undertaking an in-depth review of these projects and will provide updates as appropriate over the coming quarters.

Finally, I'd like to highlight some of our recent announcements under our Thompson and Alila brands, which demonstrate the enhancement to our growth that we expected as a result of our acquisition of Two Roads Hospitality less than 2 years ago.

You may recall me discussing the brand synergies with the Two Roads brands being more focused on lifestyle and resort hotels, important and strategic areas of growth for us.

Earlier in July, we announced 2 new Thompson properties, Thompson Savannah and Thompson Buckhead, both Georgia hotels that we expect to open in 2021.

These 2 properties join 9 existing Thompson properties and an additional 7 under development across the U.S. and Mexico.

Given the unique brand ethos coupled with a proven track record of performance, we've seen significant interest from third-party developers.

Also in early July, we announced plans for the first new build Alila resort in the Americas located in Encinitas, California and scheduled to open by early 2021.

This luxury hotel, situated along coastal bluffs and overlooking Grandview and South Ponto Beaches in Encinitas, will join another iconic resort, the Alila Ventana, up the coast in Big Sur, California.

The Thompson and Alila brands along with the Joie de Vivre brand, which has been a successful conversion brand for us, have proven in just a short period of time to be an enhancement to our strong suite of brands that we expect will continue to drive growth for us over the long term.

I'll conclude my prepared remarks this morning by saying that the second quarter was challenging but in line with what we expected.

We do believe the worst is behind us and we're seeing positive signs developing around the world with some clear pockets of strength.

The recovery, especially as it relates to business travel here in the U.S., will continue to be challenging.

But we are confident that pent-up demand for travel will lead to meaningful recovery as COVID-19 cases come under control and ultimately when effective treatments and/or vaccines are widely available.

China serves as a great example that travel recovery is possible even without pharmaceutical treatments or a vaccine as long as proper, well-coordinated actions are taken to significantly reduce the spread of the virus.

In the near term, however, the time frame over which demand recovers, especially in the U.S., is less important than the manner in which we've prepared to continuously adapt to whatever conditions we face.

Through strength of our hotel leadership teams and the agility of our business leaders, we've quickly adapted and capitalized on opportunities to reimagine the business.

We are proactively reimagining both the guest experience and the way in which we operate hotels efficiently and effectively.

And we are confident these actions, combined with the strength of our balance sheet, the enduring value of our brands and our continued focus on growth will not only allow us to navigate the recovery but emerge from this challenging period in a stronger position with enhanced profitability.

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.

As Mark just mentioned, we entered the second quarter anticipating the low levels of demand we experienced.

I want to thank our teams who met the varied challenges proactively with ingenuity and with resolve.

Our demand levels gained positive momentum from May to July, and our liquidity position is stronger than we previously anticipated.

Late yesterday, we reported a second quarter net loss attributable to Hyatt of $236 million and a diluted loss per share of $2.33.

Adjusted EBITDA for the quarter was negative $117 million and a reported system-wide RevPAR decline of approximately 89% in constant dollars.

Our reported system-wide RevPAR declines 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 the top 25 markets in the U.S. that have been weaker than other market tracks over the past several months.

I'll now a provide a few additional details on our operating results for the quarter and into July.

Our reported results by definition include all comparable hotels.

And therefore, those hotels that suspended operation during the period skewed the RevPAR results, making comparability to statistics reported for the industry difficult.

And as a result, the information I'll share with you now will be based on only open hotels so that you can get a better picture of performance for those hotels actually in operation for the full month reported.

We've also posted a supplement containing RevPAR information for open hotels on our Investor Relations website.

I'll just touch on a couple of highlights, starting with the area we are seeing the greatest strength.

Greater China full-service open hotel occupancy levels had already begun to rise off their lows during the first quarter to about 22% in April and have since climbed to approximately 55% in July based on preliminary estimates.

Excluding Hong Kong, Macau and Taiwan, where travel restrictions significantly depressed demand in those markets, Greater China full-service open hotel occupancy rose from 25% in April to a preliminary estimate of approximately 64% in July, demonstrating the strength of domestic travel demand led by transient leisure.

We have also seen strengthening business transient demand during the quarter, now amounting to more than 1/4 of total demand.

Occupancy levels for open full-service and select-service hotels in the Americas range from a low of approximately 6% and 15% respectively in April to approximately 21% and 43% for the month of July based on our preliminary estimates.

Our EAME Southwest Asia segment occupancy levels for open full-service hotels were 7% in April and grew to a preliminary estimate of approximately 25% in July.

While the numbers demonstrate that we are starting to see varying signs of recovery, occupancy levels are nonetheless still at historically low levels.

As a result, I'd like to spend a little time reviewing how we are successfully reimagining our hotel operating models to optimize financial results with lower demand levels.

Before I review the modifications we have made to hotel operations, I did want to briefly review the action we've taken with respect to overhead costs and services provided on behalf of our hotels.

During our first quarter call, we discussed the various ways in which we are both reducing overhead costs and managing cash flow and liquidity.

Subsequent to that call and as Mark briefly mentioned earlier, we announced reductions in our workforce of approximately 1,300 positions at corporate, regional and shared service center locations around the world.

This was an incredibly painful decision but one we believe was appropriate to adjust our cost structure given the significant reduction in revenues combined with expectations of an extended recovery period.

Cost savings associated with those reductions compared to our original plan translate into about 35% reduction in our monthly SG&A and approximately 40% reduction in our monthly costs for certain system-wide services that are reimbursed by our hotel owners.

Shifting to hotel operations and opportunities beyond the reduction of reimbursed costs.

This environment has inspired creativity combined with resolve to not just reimagine the colleague and guest experience but also reimagine the manner in which we operate our hotels.

The 2 most significant areas of opportunity includes staffing and food and beverage offerings.

On the staffing front, we found ways to accomplish more with less through carefully reduced staffing levels.

Experienced staff are positioned to provide multiple services with fewer guests in the hotels.

In certain cases where we have multiple hotels in a given market, we've increased the use of clustering where we provide oversight with colleagues that are responsible for multiple hotels.

On the food and beverage side, we've been thoughtful about how to service limited demand in cost-effective ways.

That typically includes expansion of our very high-quality grab-and-go concept that we call the Market, and where demand warrants it, limited 2- or 3-meal options in selected outlets with temporary suspension of other outlets.

I'll just share 2 examples of owned hotels and what we've been able to accomplish through these steps.

I'll start with our 422-room Hyatt Regency Lake Tahoe, an owned property.

This is a one-of-a-kind leisure-oriented property, which effectively serves as a drive-to location for many in California and Nevada.

In the month of June, this resort ran an occupancy of about 56%, which was strong for a larger full-service property in this environment but nonetheless down significantly from the 81% occupancy realized in June of last year.

Despite the lower occupancy, the extraordinary efforts of the team on property to manage costs resulted in strong margins that were only about 500 to 600 basis points lower than achieved in June of 2019 at both the gross operating profit and EBITDA level.

With rates slightly lower, increased productivity and a lower mix of F&B revenues helped achieve this excellent flow-through results.

Another example I'd like to share with you is our 491-room Hyatt Regency Lost Pines Resort just outside of Austin, Texas, another owned hotel.

This is another drive-to leisure resort that experienced increased demand in June with just over 26% occupancy for the month compared to about 85% in June of last year.

Despite the far lower occupancy, the team on property was again able to manage costs and still drive positive EBITDA for the month.

With higher rates and improved productivity, this resort had an implied breakeven occupancy for the month of less than 25%.

These types of efforts are being applied across all of our hotels.

And this approach has supported the reopening of hotels in a limited occupancy environment to mitigate some of the negative financial effects of hotel closures.

We have effectively reduced the breakeven occupancy level of our full-service hotels by at least 5 percentage points around the world, and in some cases, more.

Our teams continue to be innovative and fiscally responsible in managing hotel operations in order to maximize financial results for both third-party owners and for our owned hotels.

I'd now like to provide a brief update on liquidity.

During our first quarter call, I discussed the steps we have taken to secure additional liquidity and indicated that based on our level of liquidity at the time, we could continue to operate at those significantly reduced revenue levels for greater than 30 months.

During the second quarter, we utilized approximately $20 million less cash per month than the $90 million monthly burn rate we originally assumed excluding severance payments and other onetime costs.

We achieved this result due in large part to the reduction of expenses, which offset the impact of owner concessions, fewer working capital needs for third-party owners and improved cash management at owned hotels.

We've worked with third-party owners on financial concerns and have both reduced and deferred amounts owed for system services, and we will continue to monitor the circumstances closely as we move forward.

As of June 30, our total liquidity inclusive of cash and equivalents combined with borrowing capacity was almost $3 billion, with the only near-term maturity of long-term debt being $250 million of senior notes due in the third quarter of 2021.

We believe our existing liquidity combined with lower actual cash usage demonstrated during the second quarter support our ability to operate a second quarter 2020 demand level for an additional 36 months.

We expect second quarter occupancy levels to be temporary and improve as travel restrictions are lifted and demand continues to increase.

And we therefore expect our monthly burn rate to continue to improve over the recovery period.

I will conclude my prepared remarks by saying that while the second quarter was, as expected, the most challenging quarter we've ever experienced as a business, we are beginning to see some early signs of improvement and remain optimistic about continued progression of demand in the months and quarters to come.

We nonetheless have prepared for an uneven recovery and intend to continue to proactively reimagine our operating model to maximize results under varied demand levels.

We believe these actions and the strength of our liquidity position will allow us to effectively navigate the recovery, optimize earnings and support our growth strategy as demand improves over time.

Thank you.

And with that, I'll turn it back to Stephanie.

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

Perhaps I missed this, but can you quantify the amount of support provided to owners in the form of deferred fees or other working capital benefits?

And how do you generally think about this cash outflow unfolding over the remainder of this year and also longer term?

Stephen, we have not disclosed the actual amount of concessions that we've provided, but we've been working with our owners and have provided concessions since April.

And we've been able to effectively cut the costs that would offset those concessions that we've provided to our owners.

So as we think about that going forward, we're going to stay very close to demand levels and the needs of our owners and continue to evaluate what concessions we may provide in the future.

And those savings that we've achieved, Stephen, represent the majority of the improvement in the run rate cash burn that we had previously projected that we -- Joan mentioned that we picked up $20 million of lower cash burn.

And in fact, the majority of that difference has to do with the fact that we reduced those expenses associated with the concessions that we provided to owners.

Got it.

That's helpful clarification.

As an unrelated follow-up, how are your corporate conversations going as you think about the path of recovery in business transient group?

And how might the experience in China inform us of that path within those segments?

Yes, it's a good question.

And I think it's a relevant comparison because we have a lot more longitudinal data out of China to look at.

The discussions with most of our key corporate customers has to do with how they are evolving their own return-to-office experience and also how they're meeting the demands that they've got with respect to their business.

And I would say the approaches are quite varied, but one thing that is true in many cases is that they're still in discovery mode to understand how many people are going to be coming back into offices in different places.

I would say that many people entered the summer expecting that by the middle of the summer, they would be in the cadence of people returning to office.

And I think many people have deferred the decisions until after Labor Day.

With respect to China, the progression has been really great to see, very encouraging.

We've seen a steady progression of occupancies in the market over the course of the last several months and to the point where if you look at the different regions within China and the performance there, we've seen very strong performance in East China, South China and West China, to the point where by the end of July, they were at occupancy levels equivalent to where we were in 2019, which is quite remarkable.

Rates are beginning to catch up as occupancies have continued to expand.

North China is lower, and the reason is that Beijing had an outbreak about 5 or 6 weeks ago and there was a subsequent shutdown at Beijing for several weeks while the caseload came down.

But the thing that we're seeing now is you can't -- I think we ended the month of July in Greater China with mid-50s occupancy, but that's skewed because if you got -- take Hong Kong and Macau and Taiwan out of that equation where there were a lot more travel restrictions in those markets, it was more like mid-60s occupancy for the remainder of Greater China.

And you can't get to those occupancy levels without having midweek business.

So we're seeing now the return of business transient, which represented more than 1/4 of that total demand as we have seen the progression of our occupancies rise.

The last thing I will say is that in July, we also saw the return of some group business.

We had -- We hosted product launches by some key customers of ours like BMW and Volvo and Gucci, who are launching and -- holding new product launches and gatherings in our hotels.

So we're also starting to see the return of group.

So we're encouraged by this across the board.

The only other thing I would say is that the transient activity that we've seen, especially the leisure transient activity in China, which -- these are lessons that we're applying everywhere else around the world.

Our increase in our RevPAR index, which I cited in my comments, was driven by some extraordinary actions taken by our local teams and deployment of a new go-to-market platform with WeChat, and it's made an enormous difference.

So I have to acknowledge the fact that it was a lot of ingenuity and innovation amongst our teams in China to allow us to expand share as much as we did.

Your next question comes from Jared Shojaian with Wolfe Research.

Can you talk about what you're hearing from the development community for projects that are in the pipeline but where construction has not yet begun?

Because there's a widely held view that in the next year or so, we could see a lot of hotels become available.

Can you just help us understand from an owner's perspective the benefits of new build construction given there may be some opportunities to acquire distressed real estate?

Sure.

First and foremost, you know this already, but it's very clear that the answer to your question is highly dependent on where and what type of hotel you're talking about.

So there are many markets in which there's either a new city center or new development underway where existing supply doesn't exist.

So I would say it's going to depend a lot on the type of market.

And the economics right now, I think that what we're seeing in the development pipeline evolution on the selective side especially is really a financing phenomenon.

And I think the banks are at this point waiting to have better visibility to what the profile of recovery is going to look like before they make commitments to new construction.

So I think that is a hindrance at the moment, and I think that, that will have a short-term effect on new starts.

And we're tracking this carefully across the globe.

And I would say the dynamics in the U.S. are probably the most pronounced when it comes to finance-related construction start impact.

In terms of our own outlook on our own growth, we're still quite positive.

We have an outlook which suggests that our net rooms growth could be more in the range of 4% to 4.5% this year as opposed to the original guidance that we provided of 6.5% to 7%.

That did not include a number of conversions on which we're working right now.

We have signed term sheets on a number of conversions that will impact that number, but we're not including those at this time.

And at the same time that we do that, we do expect to expand our pipeline over the course of this year.

So we're seeing continued activity.

It's at a lower level than we had previously thought.

A lot of that impact in the net rooms growth this year has to do with rooms that are moved into 2021.

So we would -- I would say it's probably in excess of 100 basis points of impact with respect to our growth rate in net rooms growth this year due to rooms moving into '21.

So that's kind of the profile that we're looking at, at the moment.

That's very helpful.

And Mark, you also talked about a slowing of demand in the middle of July but then a pickup in the latter part of the month.

And then you also said your booking window has shortened pretty significantly.

So with that caveat, can you just talk about the trends towards the latter half of July into August?

Have you seen -- based on I guess what you have on the book right now in the early days of August, have you seen continued improvement here in the early days of August?

And are you assuming August looks kind of similar to the recent month-over-month sequential improvement that you've been seeing throughout the second quarter?

So Jared, I'll respond to that, and Mark can add any commentary.

The moderating that Mark referred to was in the growth rate.

So we saw an increase in the beginning of July, and a lot of that was related to holiday in the U.S. And then the growth rate started to moderate, but now we've seen some improving week-on-week demand into the latter half of July.

And in fact -- we of course look at daily information.

And we saw that -- over the weekend, we saw a nice uptick in July -- or excuse me, in August, in the first weekend of August as well.

So it's been uneven, and we're tracking it very closely, but we do see continued progression.

That comment was related to the growth rate moderating because we did see it actually rising pretty nicely through the end of June and into the July 4 holiday.

I would just also say that the impacts with respect to growth rate was pronounced in the markets in which you had surges of COVID-19 cases.

That's pretty obvious, right?

That's something that you would otherwise have expected.

I would say other than Arizona, those rates of progression have largely returned.

And so we're tracking that carefully because I do think that we should expect, and I think it's logical to expect, that surges in caseloads will have an impact.

And given the booking windows that we discussed earlier, the impact is instantaneous.

So the bad news is it's short term.

The good news is you know right away.

It's -- there's no speculation.

Your next question comes from Smedes Rose with Citi.

I wanted to ask you just a little bit more about the operating model for owned hotels.

You talked about doing more with less on the staffing side and some clustering.

As demand continues to come back, would you anticipate being able to maintain a more efficient operating model?

And do you have a sense of maybe on a -- if you applied these cost savings to 2019, kind of what the difference would be on the owned margin?

So Smedes, we went through a couple of examples in the prepared remarks that -- of what we're seeing and how our teams at the property level are really shifting their mindset and reimagining the way in which they apply themselves to retaining -- or driving as much hotel revenue as they can and retaining the flow-through at each property.

So one of the examples was the Lost Pines example where we've got breakeven occupancies well below we had anticipated as a benchmark and had disclosed in our Q1 call.

So I would say that we are extremely encouraged by the ways in which our hotel operations teams are thinking creatively and driving greater levels of flow-through at these levels of demand.

It's very early to tell what the -- what our expectation is going into the future.

But I have every expectation that we will -- this mindset will continue and that we'll continue to be able to expand margins at lower levels of occupancy than we previously thought on a breakeven basis.

Okay.

And then can you just remind us, what sort of, I guess, percent of overall earnings is China contributing now to the company?

It's been running in and around a bit less than 10% in the aggregate if you look at Greater China.

I'm sorry.

Just -- excuse me for one second.

Just to correct, that's at a fee level, not an earnings level, so you'd have to apply a margin to that.

But at a management and franchise fee level, it's in the range of 10%, and we would estimate maybe somewhere in the range of 5% on an earnings basis.

Your next question comes from Shaun Kelley with Bank of America Merrill Lynch.

I just wanted to go back to, I guess, 2 areas that you guys have already discussed.

So first was on the kind of the franchise fee relief and deferrals.

Joan, I know it's probably a little hard to quantify some of these numbers, but could you just give us any sense, anything directionally on what type of collection rate you're seeing from franchisees or what percentage of owners are paying at this moment?

Or just what's the -- maybe what's the tenor of those discussions?

Are you surprised positively or negatively?

That would be the start.

And then the second would be maybe just a broader question of kind of how -- what is your perception at the moment of the broader franchise and ownership community and their broader financial health?

Sure, Shaun.

As with respect to what we've seen in the quarter, it is low -- it is -- has exceeded our expectations, and it's been lower than what we might have otherwise thought.

We haven't provided any relief on the fee front, management and franchise fees.

We have provided some deferrals, and those deferrals have been for a handful of hotels that have requested the relief.

And so those have been negotiated on a one-off basis.

So that's kind of what we've seen in the quarter.

And as we look going forward, we're prepared as we said for the even recovery.

And we're going to stay close to it and stay close to our owners to adapt to the changing environment.

Yes.

And I would say, I mean having recently taken a look at this together, I think my recollection is that receivables with respect to hotel services are in good shape.

We're not seeing significant expansion of those receivables that we have from ownership groups.

With respect to owners, I think in general I would say our owners are holding up.

We have a couple of examples of hotels that are under particular stress, financial stress at this point, but they were -- they really are concentrated in hotels where they may have had a capital structure that left them in a more stressed situation even pre-COVID to begin with.

Those are the exceptions.

But overall, I would say quite positive.

In some -- in many of the markets outside the U.S., we have very large and well-capitalized ownership groups without tremendous leverage in the system, so I feel quite good about that.

I do think that as time goes on and as initial rounds or initial wave of concessions from banks and forbearance agreements either lapse or start to extend and lengthen, there's a chance that we will see more financial stress in the market.

We've been -- I've personally been spending a lot of time with my friends at H&LA really helping to tell the story on Capitol Hill and at the Treasury Department to encourage them to take a hard look at how they can provide some relief for owners whose mortgages are part of CMBS structures.

I think that's a particular risk because the direct relief there is more difficult to achieve.

If you've got a bank that holds your debt -- the debt on your hotel, you could actually have someone to talk to, whereas special services don't really engage in one-off discussions very, very often.

So we've really pitched different ideas relating to the Main Street Lending Program, which has not really been productive to date, and also how PPP loans might be able to be applied to help owners, especially those with mortgages that are part of CMBS structures, to get some relief.

So we're working hard to do that because we have concerns that if you have an elongated period of time during which there is just persistent volatility in demand, some of the owners will likely have real fiscal issues along the way.

Thank you for the detail.

And then maybe just as a quick follow-up.

I was interested and encouraged by the RPI comment as it relates to China.

And I'm just curious, maybe too early to have this data, but do you have anything or any signs of how your RPI might be performing in the United States?

Whether just by category or by something, just to get a sense of -- I think the broad question we get from a lot of investors is how are brands going to hold up.

Is there still a market share beneficiary relative to independents, that sort of thing?

Any signposts there?

It's really difficult.

I'm looking at the progression of the number of hotels that we've had closed in the Americas over this period of time.

And we were in the 60s in terms of the percentage of hotels, full-service hotels closed in April and May.

That just -- that only started to come down in June.

So really, really difficult for us to say.

It's just too early to make any valid comparisons and look at comp sets that make sense in an STR world.

With respect to select service, though, select service has -- our select-service brands have been performing well on an index basis.

I don't have the data handy at the moment, but I would say that we've seen a progression of improving index over the course of time, from the time that we had 20% of our select-service hotels closed to the time in the Americas where we now have less than 5%.

So I'd say we'll have a much better handle on all of this by the end of next quarter.

Your next question comes from Thomas Allen with Morgan Stanley.

So just in terms of incentive management fees, those are obviously the hardest to predict.

So in the quarter, you reversed some of the fees you had taken earlier in the year.

But if current June through August trends continue, can you give us any sense of where those would shake out for the year?

Sure, Tom.

As you know, it's -- as a reminder, our fees in the U.S. are largely after hurdles that are -- we have to achieve after GOP flow-through.

Positive GOP flow-through is an outcome.

So when we think internationally where we -- the structure of those contracts are incentive fees are earned on GOP dollars, one thing that's encouraging is that in China, we're seeing in June that over half of our hotels have a year-to-date positive result at the GOP line.

So we're going to be in a position here now to start to earn incentive fees in China, which is where we're seeing the greatest momentum in recovery.

So as the recovery progresses, that incentive fee growth will follow particularly internationally.

And in the U.S., it will be a little bit lagged because of the structural reasons that I described.

Okay.

So it kind of -- if we take the first half of this year, it can improve from here as those international markets start to show some positive momentum.

That's right.

And I think you commented that the -- there was an adjustment made in the second quarter to -- some reversals that we had taken from the first quarter incentive fees that we had previously recorded, a small amount.

Yes.

And then, Mark, in your prepared remarks, I thought it was encouraging that you said you expect your pipeline will grow this year.

It was stable quarter-over-quarter, which I don't think anyone would be surprised to see in this environment.

But what do you think is going to drive it to reaccelerate?

Well, I -- we have -- we just have a base of projects under discussion that are continuing.

We're not getting developers who are withdrawing or suspending discussions.

And a lot of the momentum that we've seen as we enter the second half of the year is coming in our EAME and Southwest Asia region.

I think Asia Pacific will remain actually strong in the second half of the year.

I think that's making up for what I think will be a lag in select-service production in the U.S. But again, I think the other factor that we are tracking and pursuing vigorously is in conversions.

And I do think that, that will be at least as, if not more, productive for us this year as it was last year.

The exact timing of when those deals either make it into the pipeline or show up as owned hotels -- I'm sorry, open hotels, is unknowable because every one of these has got its own sort of profile.

But yes, I mean -- and we've done a -- you can imagine, we're going back to the drawing board and relooking at everything afresh constantly.

So our current perspective is based on our most recent assessments.

Your next question comes from David Katz with Jefferies.

David, if you're speaking, we cannot hear you.

(technical difficulty)

Okay.

Stephanie, maybe we'll just move to the next caller and make this our last question.

Thank you.

Your last question comes from Kevin Copeland -- I apologize, Kevin Kopelman with Cowen & Company.

Just kind of a follow-up.

Could you expound on, just given the business travel environment has dried up currently, what levers you're able to pull and things you're working on to drive more leisure travel demand to the extent that you can?

Yes.

The answer in a nutshell is go local, go as local as possible.

And our teams have demonstrated that understanding where pockets of demand exist is that that's been the key to seeing great revenue generation.

A lot -- this has been talked about widely across the industry, but it's true for us that a lot of our demand is from people who are driving to our destinations as opposed to flying.

So understanding how to source demand in different places and working that at a local level has been really the key to our performance.

That was, I think, really evident in how we went to market in China and produced tremendous results.

It's been true for us in our resorts.

And our resorts overall have really performed well.

If you look at our resorts as a category, the numbers don't look particularly robust, but that has to do with the fact that Hawaii has been largely shut down.

So I think over the course of the second quarter, for example, 45% of the inventory in Hawaii was out of the market.

So it's really been maybe the most significantly hit market from a total supply perspective.

But for other resorts that do enjoy the drive-to demand, and Joan cited a couple of them in her prepared remarks, doing really, really well.

So I would say it's really very much a local focus.

And I think having really strong teams on the ground in those hotels is critical.

Leaning on relationships that we've got with travel advisers, especially for luxury resorts and luxury properties, has also been very productive.

A lot of this is based on trust, and a lot of this is based on relationships.

So this is very much an exercise in sort of old-school hotelier practices, and it's working.

And I think that that's really what we've been relying on, and I think we'll continue to until we see a little bit bigger of a base against which we can actually see some compression in certain periods.

Okay.

Thank you to everyone for taking the time to join us today.

Take care and be safe.

We'll look forward to speaking with you again soon.

Thank you.

This concludes today's conference call.

You may now disconnect.